Thank you for the opportunity to address the Committee on the
performance of the Medicare Hospital Insurance Trust Fund in 1995.
Since coming into office, the Clinton Administration has worked
continually to address the problems affecting the Trust Fund, and
we are hopeful that we can find common ground with this Committee
and with the Congress this year on reforms to the Medicare program
that will strengthen the Fund.
It should be remembered that it was the Clinton Administration
and Congressional Democrats who successfully enacted the
President's 1993 five-year deficit reduction package. OBRA 1993
extended the life of the Trust Fund by an additional three years by
achieving realistic Medicare savings and by stimulating economic
growth in the general economy.
The Administration has continued our commitment to controlling
Medicare costs in the future. As part of his comprehensive plan to
balance the federal budget, the President has proposed $124 billion
in specific policy changes designed to strengthen Medicare. The
President's proposal extends the life of the HI Trust Fund for more
than a decade from now.
To achieve these savings, the Administration plan modifies
Medicare payments in a number of ways. Our plan achieves
substantial savings through provider payment changes that promote
greater efficiency and make Medicare a more prudent purchaser and
through increased efforts to combat waste, fraud and abuse.
Importantly, it does so while maintaining and strengthening key
protections for the beneficiaries Medicare serves.
The Administration plan represents a balanced approach -- one
that protects traditional Medicare while expanding choice and
preventive benefits. First, our proposal does not impose
additional costs on beneficiaries, the plan maintains Part B
premiums at 25% of program costs. Second, the plan maintains
important protections for low-income Medicare beneficiaries.
Third, the package expands the range of private plans available
under Medicare without harming the traditional fee for service
program, inviting dangerous risk selection, or shifting costs to
beneficiaries. Finally. the Administration maintains critical
prohibitions against "balance billing", which protect the program's
37 million beneficiaries from excessive charges from providers. I
am hopeful that in the weeks ahead we can all focus our efforts on
positive steps to enact such proposals.
I am concerned about recent allegations of a "breach of trust"
by the Administration in its oversight of the HI Trust Fund. Far
from a "breach of trust", the. Administration has spent the past
year focusing on the need to improve the Medicare program and
uphold our commitment to current beneficiaries and future
generations.
v I would like to take this opportunity to clarify the process
through which the Administration and the Trustees report to
Congress on the Trust Fund, as I did in my letter to the Committee
dated February 12, 1996, which is attached to this statement. (See
Appendix A.) The Administration has consistently made information
about historical and projected performance of the HI Trust Fund
available to Congress and the public. Section 1817 (b) of the
Social Security, Act requires the Medicare Trustees to submit their
annual report on the status of the HI Trust Fund to Congress in the
spring. The law specifically requires the Trustees to report on
the performance of the Trust Fund in the prior fiscal year. In
their report, the Trustees also make projections about future
performance and solvency. The report is widely distributed.
Copies are provided to each Congressional office and to many
others.
In addition to the statutory requirement to issue an annual
report, other specific statutory requirements ensure that Congress
will be notified if the outlook for the HI Trust Fund is
particularly critical. For example, under section 709 of the
Social Security Act, the Trustees are required to notify Congress
if the Trust Fund assets are expected to fall below 20 percent of
one year's expenditures in the short term, which the Trustees have
used to mean 10 years. The Trustees have sent this special
notification, known as a "section 709" letter, along with their
annual reports during each of the last three years. The section
709 letter sent to Congressional leaders in April 1995 indicated
that the Trustees projected the HI Trust Fund would be depleted in
2002.
In addition to the annual report, the Administration prepares
estimates of the financial operations of the HI program
semi-annually as part of the President's budget process. Each
year, the Administration releases Medicare baseline projections as
part of the President's budget proposal for the upcoming fiscal
year. These estimates for fiscal year 1997 will be released next
month by the Office of Management and Budget as part of the
President's fiscal year 1997 budget submission to the Congress.
The Treasury Department, which serves as the official
"bookkeeper" of government outlays and revenues, reports
retrospectively on outlays and revenues to the HI Trust Fund.
These reports show actual cash flows to and from the HI Trust Fund,
in contrast to the projections in the Medicare Trustees Report and
the projections in the President's budget. In October 1995, the
Treasury Department reported on the HI Trust Fund income and
outlays together with the Fund's assets at the end of fiscal year
1995. The Treasury reports are widely distributed to the
Congressional Budget Office, this Committee, the House and Senate
Budget Committees, the Senate Finance Committee, each member of
Congress, and others upon request.
The data provided in the Treasury reports are analyzed by a
variety of public and private agencies and organizations. For
example, in November of last year, the Congressional Budget Office
reported on the Treasury data for fiscal year 1995 in a report
entitled, "Analysis of the September Treasury Statement." In
addition, CBO used the data to update their Medicare baseline in
December 1995 which reflects the higher growth in Part A and lower
growth in Part B. Furthermore, the American Academy of Actuaries
noted in its December 1995 report, "Comments and Recommendations on
Medicare Reform" that 'expenditures exceeded income for the
Hospital Insurance Trust Fund in 1995. On February 12, 1996, in a
bulletin released by the Senate Budget Committee, Chairman Domenici
acknowledged having received the Treasury data in October, and
noted that, "the recent changes in projections do not significantly
affect the long-run Medicare situation." (See Appendix B.)
I would now like to talk specifically about how one should
interpret the information that is provided in the Trustees Report.
The primary purpose of the Trustees Report is to provide
estimates of the future financial status of the Trust Fund for use
by Congress in making decisions about the Medicare program.
Because of the uncertainty inherent in projections, the future
status of the Trust Fund is examined under three alternative sets
of assumptions: "intermediate," "low cost" and "high cost." The
intermediate set of assumptions represents the Trustees' best
estimate of the expected future economic and demographic trends
that will affect the financial status of the Trust Fund.
Health care expenditures tend to exhibit much more volatile
rates of change than expenditures for many other private and social
insurance programs. As the Trustees Report notes, projections are
intended to illustrate how the HI program would operate under
specified, reasonable assumptions concerning trends in employment,
wage increases, health care prices, utilization, and other factors.
Actual future Trust Fund operations will almost always differ
somewhat from specific projections.
Each year the Trustees Report projections are updated using the
most recent available information on several factors, including
inflation, wages, and utilization. One of the factors is actual
experience in the past year. For example, the Treasury report
released in October provided actual cash revenues and outlays from
the HI Trust Fund for fiscal year 1995; this information on actual
experience will be incorporated into future projections.
In summary, projections in the Trustees Report are routinely
updated to reflect actual experience and new economic data, but the
projections themselves remain estimates of the future of the
Medicare HI Trust Fund. Any given projection of Trust Fund status,
by its very nature, cannot be expected to exactly mirror actual
experience. The Trustees construct our projections with the best
and most recent information available, and continually benchmark
projections against actual results to obtain feedback for improving
our methodology. Consequently the Trustees' projections provide
the most useful guides available to decision makers in addressing
the issues of an uncertain future.
The 1995 Trustees Report projected that the HI Trust Fund would
be depleted in 2002 under the intermediate assumptions. This
depiction date was one year later than was projected in the 1994
Report. The estimates under the "low cost" and "high cost"
alternative ranged from 2001 to 2006. The Trustees estimated that
HI Trust Fund income would exceed expenditures by $4.7 billion in
fiscal year 1995, income would approximately equal expenditures in
fiscal year 1996, and income would fall short of expenditures by
approximately $5 billion in fiscal year 1997. However, as you
know, actual expenditures exceeded revenues for fiscal year 1995 by
$36 million.
The 1995 Trustees projections were within a reasonable range of
variation, as they have been over the past several years. In each
of the past ten years, actual HI income has been within
approximately 1.5 percent of projections in either direction.
Actual HI expenditures exceeded projections in six of the last ten
years by amounts ranging from 0.4 percent in 1993 to 5.6 percent in
1992. Projections were higher than actual experience in four of
the last ten years, by amounts ranging up to 2 percent. This past
year, in fiscal year 1995, total HI income was 1.2 percent less
than projected and expenditures were 3.1 percent greater than
projected. Thus, the 1995 variation was within a normal range of
variation.
Considering the complexity of the projections at stake, the
Office of the Actuary has a pretty good track record with its
estimates. By way of comparison, the Congressional Budget Office's
March 1995 baseline projections for HI were very comparable to the
Trustees Report projections, and estimated a surplus in fiscal year
1995. Moreover, a comparison of Trustee Report and Congressional
Budget Office projections of total Medicare spending, when the
projections were made during the actual year in question, shows
similar ranges of differences between projections and actual
spending. Over the period 1987 to 1994, the Trustee Report
overestimated same year spending four times, underestimated same
year spending two times, and came within a billion dollars twice;
CBO overestimated spending three times, underestimated spending
three times and came within a billion dollars on two occasions.
I know that you are very interested in having the most
up-to-date projections of HI Trust Fund depletion, and the Trustees
will provide them as soon as they become available. As I described
earlier, the performance of the Trust Fund in fiscal year 1995 is
just one of the factors upon which the HCFA actuaries base their
projection of the Fund's performance over the longer term. The HCFA
actuaries are in the process of completing the analyses they need
to make these projections. Their projections will be included in
the 1996 Trustees Report.
Without the detailed analysis that these projections involve,
it is too soon to draw firm conclusions about the extent to which
the performance of the Trust Fund in fiscal year 1995, or how the
many other factors that affect the Fund. will affect the Trust
Fund's estimated depletion date. Despite the fact that these
projections are not yet available, the HCFA actuaries have provided
an interim calculation, using the (no longer current) assumptions
from the 1995 intermediate Trustees Report estimate. but reflecting
actual Fund operations in fiscal year 1995. Based on this
incomplete information, the projected depletion date would move
back from 2002. as projected in 1995. to 2001, as projected in our
1994 Trustees Report. However, this projection is preliminary and
incomplete since it does not take into account any other changes in
the data or assumptions that are currently being reviewed.
Finally, this projection is subject to change -- at a substantially
lengthened time frame -- if the Congress acts soon to adopt the
constructive Medicare reforms that this Administration has
recommended.
In closing, I appreciate the opportunity to appear before you
today to set the record straight regarding the status of the HI
Trust Fund. Although the status of the HI Trust Fund may be
slightly worse than projected last year, the long term outlook for
Medicare has not changed and requires action. Without
intervention. the Trust Fund will be exhausted within the next five
years or so. To meet this challenge, the President has submitted a
balanced budget proposal that ensures the Trust Fund will remain
solvent for more than a decade from now, and provides us with an
opportunity to tackle the longer term issues in a measured fashion.
We must move forward in a responsible, bipartisan manner to enact
the President's balanced budget proposal as the Medicare program
requires and as the citizens we serve expect.
Appendix A
Feb 12 1996
The Honorable Bill Archer
Chairman
Committee on Ways and Means
House of Representatives
Washington, D.C. 20515-6348
Dear Mr. Chairman:
Thank you for your letter of Febriary 5, 1996, regarding the status
of the Hospital Insurance (HI) Trust Fund. As you know. the
Clinton Administration has always been and remains committed to
the fiscal integrity of the Medicare trust funds and to the health
security of all our elderly. For this reason, I welcome the
opportunity to set the record straight
Your letter states that the HI Trust Fund "went broke" in 1995.
This is simply not true. Far from being "broke. the Trust Fund's
balance at the end of fiscal year 1995 was over $129,000,000,000 -
sufficient under current law to carry the Fund past the end of the
decade. During fiscal year 1995, expenditures from the Fund
($114.883 billion) slightly exceeded total income($114.847
billion). The resulting $36 mil1ion deficit reduced the Fund's net
assets from $129.555 billion at the beginning of fiscal year 1995
to $129.520 Mon at the end of the year.
Almost a year ago in the 1995 HI Trustees Report, I and the
other HI Trust Fund trustees pointed out that, without further
action, the HI Fund would be depleted early in the next decade.
Based upon the intermediate projections prepared by the HCFA
actuary at that time, depletion was estimated to occur in the year
2002 (a slight change from the previous year's estimate of 2001).
The Administration responded last summer by proposing a series of
measures to extend the Fund. We have proposed additional steps in
the President's budget for fiscal year 1997.- Taken together, these
proposals should extend the HI Fund for more than a decade from
now.
As you know, each year the HCFA actuary and the Trustees develop
projections of the future status of the Trust Fund. These
projections cover a period of 75 years into the future. To
reflect the uncertainty inherent in projection, the future of the
Trust Fund is examined under three alternative sets of assumptions:
"intermediate," "low cost," and "high cost". The intermediate set
of assumptions represents the Trustees' best estimate of the
future economic and demographic trends that will affect the
financial status of the program Estimates of future health care
expenditures are inherently less certain than estimates for many
other Federal programs because so many factors affect expenditures:
changes in the number of beneficiaries, changes in the age and
health status of beneficiaries. trends in health care inflation,
increasing use of new technologies. and changes in the use of
health services, among other factors.
Based on the intermediate set of assumptions, the 1995 Trustees
Report published last April estimated a fund exhaustion date of
2002. The individual estimates for the next several years were as
follows: (1) HI Trust Fund income would exceed expenditures by $4.7
billion in fiscal year 1995; (2) income would approximately equal
expenditures in fiscal year 1996; and (3) income would fall short
of expenditures by approximately $5 billion in fiscal year 1997.
The Congressional Budget Office also estimates the future
operations of the
Trust Fund. The Congressional Budget Office estimates were very
similar to the intermediate Trustees Report estimates, and also
projected a fiscal year 1995 surplus. For comparison purposes, the
Congressional Budget Office estimates for fiscal year 1995 are
shown below together with the intermediate estimates from the 1995
Trustees Report (amounts in billions).
| |
1995 TrusteesReport |
CBO March 1995 |
Actual baseline |
|
Income | $116.2 | $116.6 | $114.8 |
| Expenditures | 111.5 | 113.6 | 114.9 |
| Net change in assets | 4.7 | 3.0 | -0.036 |
| Assets at end of year | 134.3 | 131.7 | 129.5 |
Actual expenditures in the Trust Fund were 3.1 percent higher and
income was 1.2 percent lower than estimated by the HCFA actuaries. Such
differences are within the range of normal variation.
In your letter, you asked when the Administration became aware of the
performance of the Trust Fund in fiscal year 1995, and why the
Administration did not make this information public until February 5th.
The Administration became aware of the Fund�s performance, and reported
these results, more than three months ago.
Each month, the Treasury Department issues public reports that track
cash income and outlays and the balance of the Trust Fund. Information
on the HI Trust Fund income and outlays together with the Fund�s
invested assets at the end of fiscal year 1995 was reported in the
"Final Monthly Treasury Statement of Receipts and Outlays of the United
States Government". This information was released publicly by the
Treasury Department on October 27, 1995.
The Treasury Department and the Office of Management and Budget
distributed nearly four thousand copies of the October report to the
public, including individual copies for every Member of Congress, with
extra copies to the House and Senate Budget. Appropriations and Banking
Committees, the Senate Finance Committee, the Congressional Budget
Office, and to your Committee.
Furthermore, we know that interested parties read these reports.
The American Academy of Actuaries noted the HI Fund�s 1995 results in
its "Comments and Recommendations on Medicare Reform� on December 21,
1995. Medicare outlays were also reported on by the Congressional
Budget Office ("Analysis of the September Treasury Statetement,�
November 7, 1995.)
In late November, the HCFA actuaries received more detailed
information on the components of the income, outlays and Fund balance
from the Treasury Department based on this report. The actuaries
informed HCFA administrator Bruce Vladeck of the Trust Fund�s status on
December 2, 1995. The Administrator subsequently briefed me on these
findings in a meeting on December 9, 1995. The Administrator, as
Secretary to the Board of Trustees, provided an interim report on the
Trust Fund�s performance for fiscal year 1995 at the Trustees� regular
meeting on December 13, 1995.
Your letter also asked for the latest projections for the Trust
Fund. The projections you described in your letter are made annually by
the HCFA actuaries and included in the annual Trustees Report. It is
importent to note that the performance of the Trust Fund in fiscal year
1995 is just one of many factors upon which the HCFA actuaries; base
their projection of the Fund�s performance over the longer term, and its
projected depletion date. In making these projections, the HCFA
actuaries not only analyze data concerning the actual experience in
1995, but also the additional experience. in the current fiscal year,
new analyses of the factors affecting HI benefit growth during fiscal
years 1990-1995, updated projections of HI payroll tax income and
revenue from the taxation of OASDI benefits and current interest rate
expectations.
They are currently engaged in this very activity, and their
projections will be included in the 1996 Trustees Report, as they are
each year. Although the report is typically issued in April, the HCFA
actuaries have informed me that this year's report may be delayed by
about six weeks because of the government furlough and snow storms. We
will of course make it available to your Committee, all Members of
Congress, and the public as soon as it is completed.
Without the detailed analysis that these projections involve, it is
too soon to draw firm conclusions about the extent to which the
performance of the Trust Fund in fiscal year 1995, or the many other
factors that affect the Fund, will affect the Trust Fund�s estimated
depletion date. Despite the fact that these projections are not yet
available, the HCFA actuaries provided the following calculation: using
the (no longer current) assumptions from the 1995 intermediate Trustees
Report estimate, and reflecting only the actual Fund operations in
fiscal year 1995, they calculate that under those outdated assumptions
the projected depletion date would move back from 2002, as estimated in
1995, to 2001, as estimated in 1994. This estimate does not take into
account changes in any of the many other data and assumptions that are
being reviewed, including such obviously important factors as economic
performance, current interest rate expectations, health care costs, HI
payroll tax income and revenue from the taxation of OASDI benefits.
In closing, let me emphasize that the most important issue is for the
Congess, working with the Administration, to take the steps necessary to
strengthen the Medicare trust fimds. One year�s results will not change
the need to strengthen the HI Trust Fund. As you know, the President�s
1993 Economic Plan added three years to the life of the Fund. The
President, in his seven-year balanced budget plan, has proposed
additional measures. The Congress, too, has made proposals in this
area. I am hopeful that, working together, we can agree upon necessary
changes to the Medicare program, which is so essential to the security
of all Americans.
A similar letter is being sent to the co-signers of your letter.
Sincerely,
Donna E. Shalala
cc: The Honorable Sam M. Gibbons
Appendix B
[Not included: Budget Bulletin of February 12, 1996 cited previously in
this testimony]
