The estimate of $5,053,000,000 is composed of: 1. 1977 requirements.. 2. Adjustment for underfinancing of 1975 requirements (including interest)....... 3. Adjustment for underfinancing of 1976 requirements (including interest)....... 4. Adjustment for underfinancing of transition quarter costs (including interest)....... 5. Interest adjustment for timing and amounts of past Federal matching payments..... Total, 1977 request.... 1977 Requirements $4,726,000,000 35,000,000 10,000,000 283,000,000 -1,000,000 $5,053,000,000 The estimate of $4,726,000,000 for 1977 requirements is composed of: The difference between the monthly cost per enrollee and the monthly premium rate paid by each enrollee represents the amount which must be matched per enrollee from Federal funds. For example, during the period July 1, 1976 June 30, 1977, it is projected that the cost per aged enrollee will be $21.40 per month. Since the enrollee will be paying a monthly premium of $7.20 during that period, the difference, or $14.20 per month, must be paid from Federal funds to finance the program. This latter amount is the Federal matching rate for that period for aged enrollees. To estimate the total amount of Federal payments required during a period one can multiply the average number of enrollees times the Federal matching rate times the number of months in that period. This calcualtion must be done separately for aged and for disabled enrollees. In addition, because the Federal matching rates must be promulgated by the Secretary for 12-month periods from July to June, while the new fiscal year covers October to September, the calculation involves two different premium and Federal matching rates during each fiscal year for aged and for disabled enrollees. The following summarizes the key elements of this calculation for FY 1977: We would like to emphasize that the preceeding explanation is conceptual and is a simplified version of the actuarial analyses required by law. Adjustment for Underfinancing of 1975 Requirements The adjustment for underfinancing of 1975 Federal matching payments is $35,000,000. The components of the adjustment are: The primary reason for this underfinancing is a higher than previously estimated 1975 enrollee population (23,308,000 vs. 23,236,000). Adjustment for Under financing of 1976 Requirements The adjustment for under financing of 1976 Federal matching payments is $10,000,000. The components of the adjustment are: The primary reason for this underfinancing is a higher than previously estimated 1976 enrollee population (23,890,000 vs. 23,794,000). Adjustment for Underfinancing of Transition Quarter Requirements The adjustment for under financing of transition quarter costs is $283,000,000. The components of the adjustment are: The current estimate of $1,149,000,000 for the transition quarter is $271,000,000 higher than the amount provided for in the 1976 appropriation. The 1976 appropriation request for the transition quarter was based on an estimate of what the Federal matching rates during July 1976 September 1976 would be. The actual matching rates for July 1976 - September 1976 have now been determined. These reates, $14.20 for the aged and $30.80 for the disabled, are respectively $4.50 higher and $4.70 lower than the rates used for the 1976 appropriation estimates. The primary reason for the increase in the rate for the aged is higher than estimated utilization of physicians services and outpatient hospital services. The decrease in the rate for the disabled is attributable to lower than estimated cost per enrollee. Interest Adjustment for Timing and Amounts of Past Federal Matching Payments Federal matching payments are deposited in the SMI trust fund daily based on estimates of the amounts due. To the extent that the Federal deposits precede or lag behind the actual deposits of premium payments, the trust fund can gain or lose interest on its invested balances. This past year, an historical analysis of the timing and amounts of SMI Federal matching payments and premium collections was made. The analysis indicates that on balance, the trust fund has gained a small amount of interest which it would not have earned if the timing and amounts of all Federal deposits had been exactly correct. This calls for an interest adjustment of -$1,000,000. The Social Security Act provides a hospital insurance plan to pay, for most individuals age 65 and over, the costs of hospital and related post-hospital services, subject to certain deductibles and coinsurance requirements. Coverage extends to all persons age 65 and over entitled to social security or railroad retirement benefits, and to practically all other aged persons even though not entitled to benefits under those systems. At the beginning of Medicare, Congress provided hospital insurance coverage to people who were already age 65 or over and who were not insured under the social security or railroad retirement programs, on the theory that most of these people had an insufficient opportunity to obtain program coverage. The hospital insurance benefits and administrative costs for persons on the social security or railroad retirement rolls are financed from a separate payroll tax on employees, employers, and self-employed persons. Costs of providing benefits to certain aged individuals not entitled to cash benefits under the social security or railroad retirement programs are financed with Federal funds. For uninsured persons attaining age 65 before 1968, no wage credit under social security is required for this federally funded coverage. For men attaining age 65 after 1967 and before 1975 (before 1974 for women), wage credits on a sliding scale are required for federally funded entitlement. For men attaining age 65 after 1974 (after 1973 for women) the requirements for entitlement to hospital insurance benefits are identical to the requirements for social security or railroad retirement benefits. Thus, a gradually decreasing number of uninsured persons are eligible for hospital insurance benefits financed from general revenues. Uninsured aged individuals who cannot meet these wage credit requirements still can obtain hospital insurance protection, but must pay monthly premiums covering the approximate cost of their coverage ($45 in 1977). Program costs will increase because of an expected increase in the cost and utilization of covered services. The cost of covered services is estimated to rise at an annualized rate of 14.5 percent in 1977. The utilization of covered services for the uninsured group increases at a faster rate than utilization by all hospital insurance beneficiaries because the average age of this group is increasing, and its members can be expected to require more services per capita. Partially offsetting this increase is the expected decrease in the number of uninsured individuals on the hospital insurance benefit rolls to an average of 906,000 during 1977 from an average of 1,047,000 in fiscal year 1976. The net effect of these factors is a benefit level estimated at $595,000,000, an increase of $32,000,000 from the currently estimated 1976 benefit level. Administrative Costs Detail supporting the estimate of administrative costs for the hospital insurance program for both the insured and uninsured groups is contained in SSA's Salaries and Expenses appropriation request. Allocation of administrative costs to the uninsured group is based mainly on the ratio of benefit payments for the uninsured group to total hospital insurance benefit payments for the aged. Estimated administrative costs in 1977 are $11,000,000. Adjustments for Underfinancing of 1975 and 1976 Costs Costs estimated for 1975 and 1976 for the uninsured have been adjusted upward to reflect the overall increases in hospital insurance benefit payments actually experienced through 1975. These increases were caused mainly by sharp rises in cost per patient day and utilization of hospital services by Medicare enrollees. The principal elements making up the adjustment of +$47,000,000 follow: |