The Long-Term Outlook forMedicare and Medicaid

Federal spending for the primary government-financed health care programs, Medicare and Medicaid, has been consuming a growing share of the nation’s economic output for decades, rising from 1 percent of gross domestic product in 1970 to 4 percent in 2007.¹ As explained in more detail in The Long-Term Outlook for Health Care Spending, which the Congressional Budget Office released in November of this year, the programs’ future spending growth will be driven primarily by the growth in per capita medical costs, with the aging of the population playing a secondary role. The Medicare population will expand as baby boomers become eligible for the program at age 65 and life expectancies continue to rise. Those demographic trends are also projected to increase Medicaid’s costs by boosting demand for long-term care. CBO projects, however, that Medicare and Medicaid spending will increase much more rapidly than enrollment will, because of rapidly increasing costs per beneficiary, which are growing faster than the economy. Substantially curtailing the growth rate of federal health care spending will require addressing the underlying pressures that are driving up health care costs overall.

Medicare provides federal health insurance for nearly 43 million people who are aged (about 85 percent of enrollees) or disabled or who have end-stage renal disease. Everyone who is eligible for Social Security benefits on the basis of age or disability ultimately qualifies for Medicare as well. The elderly become eligible for Medicare at age 65; the disabled become eligible 24 months after their Social Security benefits start.

Part A of Medicare, or Hospital Insurance, covers in-patient services provided by hospitals as well as skilled nursing and hospice care. Part B, or Supplementary Medical Insurance, covers services provided by physicians and other practitioners, hospitals’ outpatient departments, and suppliers of medical equipment. Part B also covers a limited number of drugs, most of which must be administered by injection in a physician’s office.² Depending on the circumstances, home health care may be covered under either Part A or Part B. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 added a voluntary prescription drug benefit to the program, which became available in 2006 under Part D.

The various parts of the program are financed through different means. Part A benefits are financed primarily by a payroll tax (2.9 percent of taxable earnings), the revenues from which are credited to the Hospital Insurance (HI) Trust Fund. Benefits, the program’s administrative costs, and other authorized expenditures are paid from that fund. For Part B, premiums paid by beneficiaries cover about one-quarter of the cost of the program; the rest comes from general revenues.³ Enrollees’ premiums under Part D are set at a level to cover about one-quarter of the cost of the basic prescription drug benefit, but receipts from premiums cover less than one-quarter of the total cost of the Part D program because some of the outlays for it (such as subsidies for low-income beneficiaries and for employers that maintain drug coverage for their retirees) are not included in the calculation of premiums.

In 2006, Medicare spending totaled $382 billion, of which $375 billion (or 98 percent) covered benefits for enrollees. About 32 percent of the spending on benefits paid for inpatient hospital care, and 23 percent paid for services provided by physicians and other professionals as well as outpatient ancillary services (see Table 2-1).⁴ About 15 percent of Medicare expenditures were for the Medicare Advantage program (discussed below), and 9 percent paid for prescription drug benefits under Part D.

Most Medicare beneficiaries receive their Part A and Part B benefits in the traditional fee-for-service program, which pays providers for each covered service (or bundle of services) they provide. Beneficiaries must pay a portion of the costs of their care through deductibles and coinsurance. Unlike many private insurance plans, Medicare does not include an annual cap on beneficiaries’ cost sharing. Nearly 90 percent of beneficiaries who receive care in the fee-for-service program, however, have supplemental insurance that covers many or all of Medicare’s cost-sharing requirements. The most common sources of supplemental coverage are plans for retirees offered by former employers (held by 37 percent of beneficiaries in the fee-for-service program), individually purchased medigap policies (34 percent), and Medicaid (16 percent).⁵ The percentage of Medicare beneficiaries who have coverage as retirees, as well as the generosity of that coverage, is expected to decline in the future as employers respond to the financial stresses of rising health care costs.⁶

As of June 2007, 18 percent of Medicare beneficiaries were enrolled in private health plans under the Medicare Advantage program (also known as Part C of Medicare). Such plans submit bids indicating the per capita payment for which they are willing to provide Medicare Part A and Part B benefits, and the government compares those bids with county-level benchmarks that are determined in advance through statutory rules. If a plan’s bid exceeds the benchmark, the plan is paid the amount of the benchmark; if a plan’s bid is less than the benchmark, it is paid the amount of the benchmark plus 75 percent of the amount by which the benchmark exceeds its bid. Plans must return that 75 percent to beneficiaries as additional benefits (such as reduced cost sharing on Medicare services) or as a rebate on their Part B or Part D premiums.

Under current law, benchmarks in a county are required to be at least as great as per capita expenditures incurred in the fee-for-service portion of Medicare in that county. In many such jurisdictions, the benchmarks are higher than those expenditures. CBO calculates that for 2007, benchmarks are 17 percent higher, on average, than projected per capita fee-for-service expenditures nationwide, and that payments to plans will be about 12 percent higher than per capita spending in the fee-for-service portion of the program.

Medicaid is a joint federal–state program that pays for health care services for a variety of low-income individuals. The program was created in 1965 by the same legislation that created Medicare, replacing an earlier program of federal grants to states to provide medical care to people who have low income. In 2006, federal spending for the program was $181 billion, of which $161 billion covered benefits for enrollees. (In addition to benefits, Medicaid’s spending includes payments to hospitals that treat a "disproportionate share" of low-income patients as well as costs for the Vaccines for Children program and administrative costs.) The federal government’s share of Medicaid’s spending for benefits varies among the states and currently averages 57 percent.

States administer their Medicaid programs under federal guidelines that specify a minimum set of services that must be provided to certain poor individuals. Mandatory benefits include inpatient and outpatient hospital services, services by physicians and laboratories, and nursing home and home health care. Groups that must be eligible (according to federal requirements) include poor children and families who would have qualified for the former Aid to Families with Dependent Children program, certain other poor children and pregnant women, and elderly and disabled individuals who qualify for the Supplemental Security Income program. In general, a Medicaid enrollee must have both a low income and only a few assets, although the minimum financial thresholds vary, depending on the basis for an enrollee’s eligibility.

Within broad statutory limits, states have the flexibility to administer the Medicaid program and determine its scope. Partly as a result, the program’s rules are complex, and it is difficult to generalize about the types of enrollees who are covered, the benefits that are offered, and the cost sharing that is required. States may choose to make additional groups of people eligible (such as individuals who have high medical expenses and who have "spent down" their assets) or to provide additional benefits (such as coverage for prescription drugs and dental services), and they have exercised those options to varying degrees. Moreover, states often seek and receive federal waivers that allow them to provide benefits and cover groups that would otherwise be excluded under Medicaid. By one estimate, total spending on optional populations and benefits accounted for about 60 percent of the program’s expenditures in 2001.⁷

On the basis of data from the Department of Health and Human Services, CBO estimates that about half of Medicaid’s 61 million enrollees in 2006 were poor children and that another one-quarter were either the parents of those children or poor pregnant women.⁸ Per capita costs for those groups are relatively low, though, whereas expenses are higher for elderly and disabled beneficiaries, many of whom require long-term care. Although the elderly and disabled constitute about one-quarter of Medicaid’s enrollees, they account for two-thirds of the program’s spending (see Table 2-2). Overall, one-third of Medicaid’s spending in 2006 was for long-term care, which includes nursing home services, home health care, and other medical and social services for people whose disabilities prevent them from living independently.

		Enrollees		Federal Benefit Payments		Percentage of
		Number (Millions)	Percent	Billions of Dollars	Percent	Benefit Payments for Long-Term Care


Aged		5.5	9.0	36.7	22.8	70.6
Disabled		9.8	16.1	72.2	44.9	36.0
Children		29.5	48.4	31.1	19.3	7.7
Adults		16.0	26.3	20.8	12.9	1.9

	Total	60.9	100.0	160.9	100.0	34.0

Note: Disabled enrollees include some people who are over age 65 or under age 18. Adult enrollees are adults who are not aged or disabled; they are primarily poor parents and pregnant women.

About 45 percent of Medicaid beneficiaries are enrolled in managed care plans that accept a capitated payment (a fixed amount per enrollee) for providing a comprehensive set of benefits. Those arrangements are more common for families and children, although some states also enroll elderly and disabled people. About 15 percent of beneficiaries are enrolled in an arrangement that provides what is termed primary care case management, in which enrollees select (or are assigned) a primary care physician or group practice that is paid an additional fee for overseeing and coordinating their care. Many states also use "carve-out" arrangements, in which the states contract with organizations that assume the responsibility and financial risk for providing a subset of Medicaid benefits, such as dental services or mental health care.

Total spending on health care in the United States, including both private and public spending, increased from 4.7 percent of GDP in 1960 to 14.9 percent in 2005, the most recent year for which such data are available. Federal costs for Medicare and Medicaid have also grown rapidly (see Figure 2-1).

Source: Congressional Budget Office based on data on spending on health services and supplies, as defined in the national health expenditure accounts, maintained by the Centers for Medicare and Medicaid Services.

Note: Amounts for Medicare are gross federal spending on the program. Amounts for Medicaid include spending by the federal government and the states.

Most analysts agree that the most important factor contributing to the growth in health care spending in recent decades has been the emergence, adoption, and widespread diffusion of new medical technologies and services. Major advances in medical science allow providers to diagnose and treat illnesses in ways that were previously impossible. Many of those innovations rely on costly new drugs, equipment, and skills. Other innovations are relatively inexpensive, but their costs add up quickly as growing numbers of patients make use of them. Although technological innovation can sometimes reduce spending, in medicine such advances and the resulting changes in clinical practice have generally increased it.

Other factors that have contributed to the growth of health care spending include increases in personal income and the growth of insurance coverage. Demand for medical care tends to rise as real (inflation-adjusted) family income increases. Moreover, the growth of insurance coverage in recent decades, as evidenced by the substantial reduction in the percentage of health care spending that is paid out of pocket, has also increased the demand for medical care, because coverage reduces the cost of care for consumers. However, according to the best available evidence, increasing income and insurance coverage cannot explain much of the growth in health care spending in recent decades.

Another source of spending growth has been the aging of the population. Among adults, average medical spending generally increases with age, so as the population becomes older, health care spending per capita rises. However, over the past three decades, the effect of aging on health care spending has been relatively modest.

Between 1975 and 2005, federal Medicare spending rose from 1.0 percent to 2.7 percent of GDP. Spending has grown in part because of increased enrollment in the program (from 25 million in 1975 to 43 million this year). However, the main factor driving Medicare’s cost growth has been that costs per beneficiary—once the effects of demographic changes are removed—grew 2.4 percentage points faster than per capita GDP between 1975 and 2005. That "excess cost growth" in Medicare has been due primarily to the same factors that have led to increases in health care spending in the nation as a whole—most notably, greater use of new medical technologies (in part because neither doctors nor patients have strong incentives to control costs). Legislative and administrative changes have also contributed to the growth in Medicare’s costs per enrollee.

Between 1975 and 2005, federal spending for Medicaid rose from 0.3 percent to 1.4 percent of GDP. Increased enrollment in the program and growth in the costs per beneficiary were the principal factors in that rise. Excess cost growth in Medicaid averaged 2.2 percentage points over the 1975–2004 period.⁹

In the absence of an unprecedented change in long-term trends, spending on health care will grow substantially over the coming decades. CBO’s long-term projections (covering 2008 to 2082) show Medicare and Medicaid spending under the two budget scenarios discussed in Chapter 1:

Under both scenarios, Medicare benefits would continue to be paid in full regardless of the financial status of the Hospital Insurance Trust Fund.¹⁰ Projected spending for Medicare under the alternative fiscal scenario is slightly higher than under the extended-baseline scenario, but the difference is small over the 75-year projection period. Projected spending for Medicaid is the same under both scenarios.

CBO’s projections provide a useful measure of the scope of the potential problem posed by rising Medicare and Medicaid costs—despite the fact that in reality, federal law will change in the future, ensuring that the basis for the projections will turn out not to be correct. The projections are also subject to the inherent uncertainty surrounding any long-term projections, especially those that apply to health care.¹¹

Under those assumptions, spending on Medicare and Medicaid is projected to grow as a share of GDP and of total spending on health care (see Figure 2-2). Net federal spending on those programs now accounts for about 4 percent of GDP, or 26 percent of total health care spending. Under CBO’s extended-baseline scenario, those figures would grow to 9 percent of GDP by 2035 (30 percent of total spending on health care), and to 9 percent of GDP by 2082 (38 percent of total spending). Projected outlays would be similar under the alternative fiscal scenario because the scenario’s assumption that Medicare’s physician fees are updated to account for inflation would have only a minor effect over the long term (see Figure 2-3).

Notes: Amounts for Medicare are net of beneficiaries’ premiums. Amounts for Medicaid are federal spending only.

The extended-baseline scenario adheres closely to current law, following CBO’s 10-year baseline budget projections from 2008 to 2017 and then extending the baseline concept in its projections for the rest of the years in the 75-year projection period, to 2082.

Note: The extended-baseline scenario adheres closely to current law, following CBO's 10-year baseline budget projections from 2008 to 2017 and then extending the baseline concept in its projections for the rest of the years in the 75-year projection period, to 2082. Currently, a mechanism in federal law would reduce Medicare’s fees for physicians’ services. The alternative fiscal scenario deviates from CBO’s baseline projections even during the next 10 years, incorporating changes in policy that are widely expected to occur and that policymakers have regularly made in the past. In particular, for its alternative scenario, CBO assumed that Medicare’s fees for physicians’ services would be updated to account for inflation in the services’ inputs.

Analysts working 75 years ago, in 1932, would have been extremely unlikely to correctly project the current share of the economy devoted to health care, and the projections in this report will undoubtedly prove to be inaccurate in one direction or another. It will be difficult to judge their accuracy even after the fact, because they assume no changes in federal law and such changes are virtually certain to occur.

Even without policy changes, though, actual spending on health care could be much lower or much higher. In the past, technological developments have generally resulted in expanded treatment and higher total spending. Future innovations could accelerate that trend. Alternatively, if future research resulted in the development of inexpensive curative therapies, growth could slow.

For comparison purposes, CBO projected costs under other assumptions about excess cost growth. A projection that assumes such growth is held constant at zero, although implausible, is useful because it isolates the effect of the aging of the population (see Figure 2-4). If excess cost growth was held at zero, projected net federal outlays for the two programs would increase from 4 percent of GDP in 2007 to 6 percent of GDP by 2040 and then rise gradually to 7 percent by 2082. Under a scenario in which excess cost growth was 2.5 percentage points—which could be roughly interpreted as what would occur with no slowing of growth rates whatsoever—net federal spending on the two programs would grow to 13 percent of GDP in 2040 and 38 percent of GDP by 2082.

Notes: Excess cost growth refers to the number of percentage points by which the growth of annual health care spending per beneficiary is assumed to exceed the growth of nominal gross domestic product per capita.

The extended-baseline scenario adheres closely to current law, following CBO's 10-year baseline budget projections from 2008 to 2017 and then extending the baseline concept in its projections for the rest of the years in the period, to 2082.

Projections of the balances in the Hospital Insurance Trust Fund offer another way to look at the sustainability of Part A of Medicare.¹⁴ A commonly used measure is the actuarial balance, which is defined as the difference between the discounted present value of projected revenues and outlays over the period; that difference is shown as a percentage of the discounted present value of taxable payroll over that same period.¹⁵ (To account for the difference between the trust fund’s current balance and the desired balance at the end of the period, the balance at the beginning of the period is added to the projected revenues, and an additional year of costs at the end of the period is added to projected outlays.)

A negative actuarial balance represents the amount by which revenues as a percentage of taxable payroll (the income rate) could be increased immediately and in every year of the projection period to cover all projected costs and provide the desired balance in the trust fund at the end of the period. (Alternatively, outlays as a percentage of taxable payroll could be reduced by an equivalent amount.) The income-rate increase required to meet that goal would be 5.4 percentage points, which is the difference between projected income equal to 3.5 percent of taxable payroll and projected costs totaling 8.9 percent of taxable payroll (see Table 2-3). For example, one way to increase revenues by that amount would be to increase the HI payroll tax rate from its current 2.9 percent to 8.3 percent. In the nearer term, required income-rate increases would be smaller: for a 25-year projection period, 0.7 percentage points; for a 50-year period, 3.5 percentage points.

			Actuarial
Projection Period	Income Rate	Cost Rate	Balance


25 Years (2008 to 2032)	4.3	4.9	-0.7
50 Years (2008 to 2057)	3.5	7.0	-3.5
75 Years (2008 to 2082)	3.5	8.9	-5.4

Note: The income and cost rates are the present values of annual revenues and costs over the relevant time period divided by the present value of taxable payroll over that period (after adjustments for the initial trust fund balance and target balance at the end of the relevant time period). The actuarial balance is the present value of income minus the present value of costs divided by the present value of taxable payroll over that period.

The actuarial measures presented here can be compared with the Medicare trustees’ intermediate projections for the HI trust fund.¹⁶ CBO and the trustees both project that the trust fund will fail to achieve the target trust fund balance (one year’s worth of outlays) by the end of the 75-year projection period. The trustees estimate that an income-rate increase of 3.6 percentage points would be necessary, a rate almost 2 percentage points lower than CBO’s projection. The difference arises largely because the trustees assume lower excess cost growth. In particular, they assume that such growth will decline gradually from the 25th through the 75th year of the projection period so as to produce a 75-year (2007 to 2081) actuarial balance that is consistent with one generated by using an excess cost growth assumption for each year of 1 percentage point.

The analysis underlying some of CBO’s long-term projections—those made under the extended-baseline scenario—by design keeps federal law unchanged. (By contrast, projections under the alternative fiscal scenario incorporate a change to Medicare law regarding payment rates for physicians’ services.) A result of that assumption of no change in current law is that Medicare and Medicaid grow more rapidly than the rest of the health care system, an unlikely outcome because federal law will change in the future. In other words, it is certain to change to prevent the unsustainable outcomes that the scenarios in this report anticipate. So what types of federal policy options would help to reduce future spending on Medicare and Medicaid?

One type of change would involve reducing payment rates in the two programs. For example, some analysts have proposed reducing payments to Medicare Advantage plans. As noted earlier, those private insurance plans, according to CBO’s estimates, are paid roughly 12 percent more than the cost of enrolling their beneficiaries in the traditional fee-for-service component of Medicare. Other proposals have involved reductions in reimbursement rates for specific types of services or providers.

A more fundamental set of federal policy changes might help reduce not only federal spending but also health care spending overall. Indeed, given the interactions between federal programs and the rest of the health system, many analysts believe that significantly constraining the growth of costs for Medicare and Medicaid over long periods, while maintaining broad access to health care providers under those programs, can occur only in conjunction with slowing the growth of costs in the health care sector as a whole.

Two potentially complementary approaches to reducing spending on Medicare, Medicaid, and health care generally—rather than simply reallocating spending among different sectors of the economy—involve generating more information about the relative effectiveness of medical treatments and changing the incentives for providers and consumers in the supply and demand of health care. The current financial incentives facing both providers and patients tend to encourage, or at least facilitate, the adoption of expensive treatments and procedures, even if the evidence about their effectiveness relative to other therapies is limited. For doctors and hospitals, those incentives stem from fee-for-service reimbursement. Such payments can encourage health care providers to deliver a given service in an efficient manner but also provide an incentive to supply additional services—as long as the payments exceed the costs. For their part, insured individuals generally face only a portion of the costs of their care and thus have only limited financial incentives to seek lower-cost treatments. Private health insurers have incentives to limit the use of ineffective care but are also constrained by a lack of information about what treatments work best for which patients.

Many analysts believe that expanded research on "comparative effectiveness" offers a promising mechanism to address some of those concerns. Analysis of comparative effectiveness involves comparison of the impact of different options that are available for treating a given medical condition for a particular set of patients. Such studies may compare similar treatments, such as competing drugs, or they may analyze very different approaches, such as surgery in comparison with drug therapy. The analysis may focus only on the relative medical benefits and risks of each option, or it may weigh both the costs and the benefits of those options. In some cases, a given treatment may be found more effective for all types of patients, but more commonly, a key issue is determining which specific types would benefit most from it.

To affect medical treatment and reduce health care spending, the results of comparative effectiveness analyses would ultimately have to change the behavior of doctors and patients—that is, persuade them to use fewer services or less intensive and less expensive services than are currently projected. For Medicare to incorporate such analysis in its policies would require changes to current law. The program has not taken costs into account in determining which services are covered and has made only limited use of data on comparative effectiveness in its payment policies. But if statutory changes permitted doing so, the program could use information about comparative effectiveness to promote higher-value care.

For example, Medicare could tie its payments to providers to the cost of the most effective or most efficient treatment. If that payment was less than the cost of providing a more expensive service, then doctors and hospitals would probably elect not to provide it—so the change in Medicare’s payment policy would have the same practical effect as a coverage decision. Alternatively, enrollees could be required to pay for the additional costs of less effective procedures (although the impact on incentives for patients and their use of care would depend on whether and to what extent they had supplemental insurance coverage that paid some or all of Medicare’s cost-sharing requirements).

More modest steps that Medicare could be authorized to take would include smaller-scale financial inducements to doctors and patients to encourage the use of cost-effective care. Doctors and hospitals could receive modest bonuses for practicing effective care or modest cuts in their payments for using less effective treatments. Likewise, enrollees could be required to pay a portion of the additional costs of less efficient procedures (rather than the full difference in costs). Or Medicare could provide information to doctors and their patients about doctors’ use of various treatments, which would create some pressure for them to use more-efficient approaches. Adopting more modest measures to incorporate the findings of comparative effectiveness research, however, would probably yield smaller savings for the program.

Even in the absence of more information about comparative effectiveness, changes in incentives could help control health care costs—but such measures would be more likely to maximize the health gains obtained for a given level of spending if they were combined with improved information. On the provider side, greater bundling of payments to cover all of the services associated with a treatment, disease, or patient could reduce or eliminate incentives to provide additional services that might be of small value. Such approaches, however, can raise concerns about the financial risk that providers face and about incentives for them to provide too little care. On the consumer side, a landmark health insurance experiment by RAND showed that higher cost sharing reduced spending—particularly when compared with a plan offering free care—with little or no adverse effects on health.¹⁷

The broad options of generating more information and of changing incentives do not represent an exhaustive list of proposals intended to reduce costs in Medicare and Medicaid. In addition, some analysts have advocated significant expansions of disease management and care coordination as mechanisms for reducing costs—proposals that reflect the increasing prevalence of many chronic conditions, the large share of health care spending attributable to those conditions, and the lack of systems to coordinate care in many public and private health insurance plans. For example, 25 percent of Medicare beneficiaries accounted for 85 percent of the program’s costs in 2001; more than three-quarters of those expensive beneficiaries had one or more of seven prominent chronic conditions (including coronary artery disease, diabetes, and congestive heart failure). However, the evidence to date—including the findings of several demonstration projects conducted under Medicare’s auspices—suggests that disease management and care coordination may raise the quality of the health care provided but do not significantly reduce costs among a broad array of patients. As more evidence on the approaches is developed, identifying specific ways to reduce costs, especially for targeted subsets of beneficiaries, may become possible; for now, the possibility and scope of any savings remain unclear.

The standard Part B premiums are established each year to cover 25 percent of projected average expenditures in the Part B program. In 2007, the standard monthly Part B premium is $93.50. Beginning in 2007, higher premiums are required of single beneficiaries whose annual income is more than $80,000 and couples whose income is over $160,000. Those income thresholds will be indexed to inflation in future years. CBO estimates that about 4 percent of beneficiaries are paying the higher premiums in 2007.

Other professionals include physician assistants, nurse practitioners, psychologists, clinical social workers, and physical, occupational, and speech therapists. Outpatient ancillary items or services include durable medical equipment, Part B drugs, laboratory services, and ambulance services.

See Kaiser Commission on Medicaid and the Uninsured, Medicaid Enrollment and Spending by "Mandatory" and "Optional" Eligibility and Benefit Categories (Washington, D.C.: Henry J. Kaiser Family Foundation, June 2005), p. 11.

CBO assumed that future Medicare spending would not be affected by the provision of current law that requires the Medicare trustees to issue a "Medicare funding warning" if projected outlays for the program exceed 45 percent of "dedicated financing sources"—because the law does not require the Congress to respond to such a warning by enacting legislation that would reduce Medicare spending.

Under CBO’s assumptions, the excess cost growth rate for non-Medicare, non-Medicaid spending would drop to 0.1 percentage point by 2082. For Medicare, excess cost growth would decline to 1.1 percentage points that year, and for Medicaid, to 0.2 percentage points. Average annual rates for excess cost growth between 2018 and 2082 would be 0.6 percentage points for non-Medicare, non-Medicaid health care spending, 1.7 percentage points for Medicare, and 0.9 percentage points for Medicaid. For a more detailed discussion of historical rates of excess cost growth, see Congressional Budget Office, The Long-Term Outlook for Health Care Spending.

A more comprehensive measure would be preferable. However, Medicare spending outside of Part A does not have dedicated taxes, and as a result, constructing a summarized measure for the program as a whole would be complicated by the difficulty of incorporating general revenues in the calculations.

Another commonly used metric is the trust fund exhaustion date. CBO projects that the HI trust fund will become exhausted in 2021. For its long-term projections, however, CBO assumed that even after the trust fund’s exhaustion, benefits would be paid as scheduled.

See Department of Health and Human Services, Centers for Medicare and Medicaid Services, Office of the Actuary, 2007 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (April 23, 2007), p. 161.17. The trustees’ analysis covered 2007 to 2081; CBO’s covered 2008 to 2082.

		Billions of Dollars	Percent


Inpatient Hospital Services		120.7	32

Physicians’ and Suppliers’
	Services	86.1	23

Medicare Advantage Plans		55.9	15

Prescription Drug Benefits		32.0	9

Hospital Outpatient Services		20.1	5

Care in Skilled Nursing
	Facilities	19.5	5

Home Health Services		13.2	4

Hospice Services		8.6	2

Other Services		18.8	5

	Total	374.9	100