[Federal Register Volume 60, Number 199 (Monday, October 16, 1995)]
[Notices]
[Pages 53626-53631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25519]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
[OACT-050-N]
RIN 0938-AH07
Medicare Program; Monthly Actuarial Rates and Monthly
Supplementary Medical Insurance Premium Rate Beginning January 1, 1996
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Notice.
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SUMMARY: As required by section 1839 of the Social Security Act, this
notice announces the monthly actuarial rates for aged (age 65 or over)
and disabled (under age 65) enrollees in the Medicare Supplementary
Medical Insurance (SMI) program for 1996. It also announces the monthly
SMI premium rate to be paid by all enrollees during 1996. The monthly
actuarial rates for 1996 are $84.90 for aged enrollees and $105.10 for
disabled enrollees. The monthly SMI premium rate for 1996 is $42.50.
EFFECTIVE DATE: January 1, 1996.
FOR FURTHER INFORMATION CONTACT: Carter S. Warfield, (410) 786-6396.
SUPPLEMENTARY INFORMATION:
I. Background
The Medicare Supplementary Medical Insurance (SMI) program is the
voluntary Medicare Part B program that pays all or part of the costs
for physicians' services, outpatient hospital services, home health
services, services furnished by rural health clinics, ambulatory
surgical centers, comprehensive outpatient rehabilitation facilities,
and certain other medical and health services not covered by hospital
insurance (Medicare Part A). The SMI program is available to
individuals who
[[Page 53627]]
are entitled to hospital insurance and to U.S. residents who have
attained age 65 and are citizens, or aliens who were lawfully admitted
for permanent residence and have resided in the United States for 5
consecutive years. This program requires enrollment and payment of
monthly premiums, as provided in 42 CFR part 407, subpart B, and part
408, respectively. The difference between the premiums paid by all
enrollees and total incurred costs is met from the general revenues of
the Federal government.
The Secretary of Health and Human Services is required by section
1839 of the Social Security Act (the Act) to issue two annual notices
relating to the SMI program.
One notice announces two amounts that, according to actuarial
estimates, will equal respectively, one-half the expected average
monthly cost of SMI for each aged enrollee (age 65 or over) and one-
half the expected average monthly cost of SMI for each disabled
enrollee (under age 65) during the year beginning the following
January. These amounts are called ``monthly actuarial rates.''
The second notice announces the monthly SMI premium rate to be paid
by aged and disabled enrollees for the year beginning the following
January. (Although the costs to the program per disabled enrollee are
different than for the aged, the law provides that they pay the same
premium amount.) Beginning with the passage of section 203 of the
Social Security Amendments of 1972 (Public Law 92-603), enacted on
October 30, 1972, the premium rate, which was determined on a fiscal
year basis, was limited to the lesser of the actuarial rate for aged
enrollees, or the current monthly premium rate increased by the same
percentage as the most recent general increase in monthly title II
social security benefits.
However, the passage of section 124 of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) (Public Law 97-248), enacted on
September 3, 1982, suspended this premium determination process.
Section 124 of TEFRA changed the premium basis to 50 percent of the
monthly actuarial rate for aged enrollees (that is, 25 percent of
program costs for aged enrollees). Section 606 of the Social Security
Amendments of 1983 (Public Law 98-21), enacted on April 20, 1983;
section 2302 of the Deficit Reduction Act of 1984 (DRA) (Public Law 98-
369), enacted on July 18, 1984; section 9313 of the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA 1985) (Public Law 99-
272), enacted on April 7, 1986; section 4080 of the Omnibus Budget
Reconciliation Act of 1987 (OBRA 1987) (Public Law 100-203), enacted on
December 22, 1987; and section 6301 of the Omnibus Budget
Reconciliation Act of 1989 (OBRA 1989) (Public Law 101-239), enacted on
December 19, 1989, extended the provision that the premium be based on
50 percent of the monthly actuarial rate for aged enrollees. This
extension expired at the end of 1990.
The premium rate for 1991 through 1995 was legislated by section
1839(e)(1)(B) of the Act, as added by section 4301 of the Omnibus
Budget Reconciliation Act of 1990 (OBRA 1990) (Public Law 101-508),
enacted on November 5, 1990. In January 1996, the premium determination
basis would have reverted to the method established by the 1972 Social
Security Act Amendments. However, section 13571 of the Omnibus Budget
Reconciliation Act of 1993 (OBRA 1993) (Public Law 103-66), enacted on
August 10, 1993, changed the premium basis to 50 percent of the monthly
actuarial rate for aged enrollees for 1996 through 1998. In January
1999, the premium determination basis will revert to the method
established by the 1972 Social Security Act Amendments, except on a
calendar year basis.
As determined according to section 1839(a)(3) of the Act, the
premium rate for 1996 is $42.50. This premium rate is $3.60 lower than
the $46.10 premium rate for 1995. As stated above, the premium rate for
1995 was legislated by OBRA 1990. The legislated premium rate for 1995
was determined to be 50 percent of the projected monthly actuarial rate
for aged enrollees for 1995 based on the projections at the time of
enactment. In the intervening years before the announcement of the 1995
actuarial rates, on December 1, 1994, the growth of program costs had
slowed from the projections that were used to establish the legislated
rate for 1995. Consequently, the actuarial rate for aged enrollees for
1995 that was announced on December 1, 1994 was lower than the
actuarial rate projected at the time of the enactment of OBRA 1990. As
a result, the 1995 premium rate was actually 63.1 percent of the
announced 1995 actuarial rate for aged enrollees (that is, 31.5 percent
of program costs for aged enrollees). Although program costs are
projected to increase in 1996 over 1995, the premium rate will be 50
percent of the 1996 actuarial rate for aged enrollees instead of 63.1
percent as in 1995. It is the fact that the premium rate will cover a
lower percentage of program costs in 1996 that results in a lower
premium rate in spite of increasing program costs.
A further provision affecting the calculation of the SMI premium is
section 1839(f) of the Act, as amended by section 211 of the Medicare
Catastrophic Coverage Act of 1988 (Public Law 100-360), enacted on July
1, 1988. (The Medicare Catastrophic Coverage Repeal Act of 1989 (Public
Law 101-234), enacted on December 13, 1989, did not repeal the
revisions to section 1839(f) made by Public Law 100-360.) Section
1839(f) provides that if an individual is entitled to benefits under
section 202 or 223 of the Act (the Old-Age and Survivors Insurance
Benefit and the Disability Insurance Benefit, respectively) and has the
SMI premiums deducted from these benefit payments, the premium increase
will be reduced to avoid causing a decrease in the individual's net
monthly payment. This occurs if the increase in the individual's social
security benefit due to the cost-of-living adjustment under section
215(i) of the Act is less than the increase in the premium.
Specifically, the reduction in the premium amount applies if the
individual is entitled to benefits under section 202 or 223 of the Act
for November and December of a particular year and the individual's SMI
premiums for December and the following January are deducted from the
respective month's section 202 or 223 benefits. (A check for benefits
under section 202 or 223 is received in the month following the month
for which the benefits are due. The SMI premium that is deducted from a
particular check is the SMI payment for the month in which the check is
received. Therefore, a benefit check for November is not received until
December, but has the December's SMI premium deducted from it.) (This
change, in effect, perpetuates former amendments that prohibited SMI
premium increases from reducing an individual's benefits in years in
which the dollar amount of the individual's cost-of-living increase in
benefits was not at least as great as the dollar amount of the
individual's SMI premium increase.)
Generally, if a beneficiary qualifies for this protection (that is,
the beneficiary must have been in current payment status for November
and December of the previous year), the reduced premium for the
individual for that January and for each of the succeeding 11 months
for which he or she is entitled to benefits under section 202 or 223 of
the Act is the greater of the following:
(1) The monthly premium for January reduced as necessary to make
the December monthly benefits, after the deduction of the SMI premium
for January, at least equal to the preceding
[[Page 53628]]
November's monthly benefits, after the deduction of the SMI premium for
December; or
(2) The monthly premium for that individual for that December.
In determining the premium limitations under section 1839(f) of the
Act, the monthly benefits to which an individual is entitled under
section 202 or 223 do not include retroactive adjustments or payments
and deductions on account of work. Also, once the monthly premium
amount has been established under section 1839(f) of the Act, it will
not be changed during the year even if there are retroactive
adjustments or payments and deductions on account of work that apply to
the individual's monthly benefits.
Individuals who have enrolled in the SMI program late or have
reenrolled after the termination of a coverage period are subject to an
increased premium under section 1839(b) of the Act. That increase is a
percentage of the premium and is based on the new premium rate before
any reductions under section 1839(f) are made.
II. Notice of Monthly Actuarial Rates and Monthly Premium Rate
The monthly actuarial rates applicable for 1996 are $84.90 for
enrollees age 65 and over, and $105.10 for disabled enrollees under age
65. Section III of this notice gives the actuarial assumptions and
bases from which these rates are derived. The monthly premium rate will
be $42.50 during 1996.
III. Statement of Actuarial Assumptions and Bases Employed in
Determining the Monthly Actuarial Rates and the Monthly Premium Rate
for the Supplementary Medical Insurance Program Beginning January 1996
A. Actuarial Status of the Supplementary Medical Insurance Trust Fund
Under the law, the starting point for determining the monthly
premium is the amount that would be necessary to finance the SMI
program on an incurred basis; that is, the amount of income that would
be sufficient to pay for services furnished during that year (including
associated administrative costs) even though payment for some of these
services will not be made until after the close of the year. The
portion of income required to cover benefits not paid until after the
close of the year is added to the trust fund and used when needed.
The rates are established prospectively and are, therefore, subject
to projection error. Additionally, legislation enacted after the
financing has been established but, effective for the period for which
the financing has been set, may affect program costs. As a result, the
income to the program may not equal incurred costs. Therefore, trust
fund assets should be maintained at a level that is adequate to cover a
moderate degree of variation between actual and projected costs in
addition to the amount of incurred but unpaid expenses. Table 1
summarizes the estimated actuarial status of the trust fund as of the
end of the financing period for 1994 and 1995.
Table 1.--Estimated Actuarial Status of the Supplementary Medical Insurance Trust Fund as of the End of the
Financing Period
[In billions of dollars]
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Assets less
Financing period ending Assets Liabilities liabilities
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Dec. 31, 1994................................................ $19.422 $4.049 $15.373
Dec. 31, 1995................................................ 18.531 4.876 13.655
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B. Monthly Actuarial Rate for Enrollees Age 65 and Older
The monthly actuarial rate for enrollees age 65 and older is one-
half of the monthly projected cost of benefits and administrative
expenses for each enrollee age 65 and older, adjusted to allow for
interest earnings on assets in the trust fund and a contingency margin.
The contingency margin is an amount appropriate to provide for a
moderate degree of variation between actual and projected costs and to
amortize any surplus or unfunded liabilities.
The monthly actuarial rate for enrollees age 65 and older for 1996
was determined by projecting per-enrollee cost for the 12-month periods
ending June 30, 1996, and June 30, 1997, by type of service. Although
the actuarial rates are now applicable for calendar years, projections
of per-enrollee costs were determined on a July to June period,
consistent with the July annual fee screen update used for benefits
before the passage of section 2306(b) of Public Law 98-369. The values
for the 12-month period ending June 30, 1993 were established from
program data. Subsequent periods were projected using a combination of
program data and data from external sources. The projection factors
used are shown in Table 2. Those per-enrollee values are then adjusted
to apply to a calendar year period. The projected values for financing
periods from January 1, 1993, through December 31, 1996, are shown in
Table 3.
The projected monthly rate required to pay for one-half of the
total of benefits and administrative costs for enrollees age 65 and
over for 1996 is $87.05. The monthly actuarial rate of $84.90 provides
an adjustment of -$2.28 for interest earnings and $0.13 for a
contingency margin. Based on current estimates, it appears that the
assets are sufficient to cover the amount of incurred but unpaid
expenses and to provide for a moderate degree of projection error.
Thus, only a slight positive contingency margin is needed to maintain
assets at an appropriate level.
An appropriate level for assets depends on numerous factors. The
most important of these factors are: (1) The difference from prior
years between the actual performance of the program and estimates made
at the time financing was established, and (2) the expected
relationship between incurred and cash expenditures. Ongoing analysis
is made of the former as the trends in the differences vary over time.
C. Monthly Actuarial Rate for Disabled Enrollees
Disabled enrollees are those persons enrolled in SMI because of
entitlement (before age 65) to disability benefits for more than 24
months or because of entitlement to Medicare under the end-stage renal
disease program. Projected monthly costs for disabled enrollees (other
than those suffering from end-stage renal disease) are prepared in a
fashion exactly parallel to the projection for the aged, using
appropriate actuarial assumptions (see Table 2). Costs for the end-
stage renal disease program are projected differently because of the
[[Page 53629]]
different nature of services offered by the program. The combined
results for all disabled enrollees are shown in Table 4.
The projected monthly rate required to pay for one-half of the
total of benefits and administrative costs for disabled enrollees for
1996 is $106.04. The monthly actuarial rate of $105.10 provides an
adjustment of -$1.11 for interest earnings and $0.17 for a contingency
margin. Based on current estimates, it appears that assets are
sufficient to cover the amount of incurred but unpaid expenses and to
provide for a moderate degree of variation between actual and projected
costs. Thus, only a slight positive contingency margin is needed to
maintain assets at an appropriate level.
D. Sensitivity Testing
Several factors contribute to uncertainty about future trends in
medical care costs. In view of this, it is appropriate to test the
adequacy of the rates announced here using alternative assumptions. The
most unpredictable factors that contribute significantly to future
costs are outpatient hospital costs, physician residual (as defined in
Table 2), and increases in physician fees as governed by the program's
physician fee schedule that began implementation January 1, 1992. Two
alternative sets of assumptions and the results of those assumptions
are shown in Table 5. One set represents increases that are lower and
is, therefore, more optimistic than the current estimate. The other set
represents increases that are higher and is, therefore, more
pessimistic than the current version. The values for the alternative
assumptions were determined from a study on the average historical
variation between actual and projected increases in the respective
increase factors. All assumptions not shown in Table 5 are the same as
in Table 2.
Table 5 indicates that, under the assumptions used in preparing
this report, the monthly actuarial rates would result in an excess of
assets over liabilities of $13.696 billion by the end of December 1996.
This amounts to 15.9 percent of the estimated total incurred
expenditures for the following year. Assumptions that are somewhat more
pessimistic (and, therefore, test the adequacy of the assets to
accommodate projection errors) produce a surplus of $0.268 billion by
the end of December 1996, which amounts to 0.3 percent of the estimated
total incurred expenditures for the following year. Under fairly
optimistic assumptions, the monthly actuarial rates would result in a
surplus of $26.240 billion by the end of December 1996, which amounts
to 33.7 percent of the estimated total incurred expenditures for the
following year.
E. Premium Rate
As determined by section 1839(a)(3) of the Act, the monthly premium
rate for 1996, for both aged and disabled enrollees, is $42.50.
Table 2.--Projection Factors\1\--12-Month Periods Ending June 30 of 1993 Through 1997
[In percent]
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Physicians' services Group
12-month period ending June ---------------------------- Outpatient Home health practice Independent
30 hospital agency prepayment lab services
Fees \2\ Residual \3\ services services \4\ plans
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Aged:
1993.................... 0.5 0.4 12.4 63.8 16.1 2.8
1994.................... 2.7 3.0 7.4 4.2 15.5 -0.4
1995.................... 4.4 4.8 15.1 15.0 17.7 1.6
1996.................... 2.2 6.8 8.1 15.0 33.7 6.6
1997.................... -0.3 8.6 9.8 16.2 17.6 10.6
Disabled:
1993.................... 0.5 4.1 16.2 0.0 14.8 11.4
1994.................... 2.7 3.7 1.7 0.0 -14.0 9.5
1995.................... 4.4 2.9 18.9 0.0 11.6 1.3
1996.................... 2.2 4.7 15.4 0.0 43.2 4.0
1997.................... -0.3 6.7 14.6 0.0 13.5 9.4
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\1\ All values are per enrollee.
\2\ As recognized for payment under the program.
\3\ Increase in the number of services received per enrollee and greater relative use of more expensive
services.
\4\ Since July 1, 1981, home health agency services have been almost exclusively provided by the Medicare
hospital insurance (HI) program. However, for those SMI enrollees not entitled to HI, the coverage of these
services is provided by the SMI program. Since all SMI disabled enrollees are entitled to HI, their coverage
of these services is provided by the HI program.
Table 3.--Derivation of Monthly Actuarial Rate for Enrollees Age 65 and Over--Financing Periods Ending December
31, 1993 Through December 31, 1996
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Financing periods
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CY 1993 CY 1994 CY 1995 CY 1996
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Covered services (at level recognized):
Physicians' reasonable charges................................ $52.97 $57.04 $62.34 $67.74
Outpatient hospital and other institutions.................... 17.28 19.25 21.44 23.36
Home health agencies.......................................... 0.15 0.16 0.19 0.21
Group practice prepayment plans............................... 8.13 9.49 11.99 14.92
Independent lab............................................... 2.43 2.38 2.43 2.64
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Total services.............................................. 80.96 88.32 98.39 108.87
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Cost-sharing:
Deductible.................................................... -3.68 -3.70 -3.73 -3.75
[[Page 53630]]
Coinsurance................................................... -14.67 -16.13 -18.09 -20.12
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Total benefits................................................ 62.61 68.49 76.57 85.00
Administrative expenses....................................... 1.91 1.95 1.99 2.05
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Incurred expenditures......................................... 64.52 70.44 78.56 87.05
Value of interest............................................. -2.45 -2.49 -2.05 -2.28
Contingency margin for projection error and to amortize the
surplus or deficit........................................... 8.43 -6.15 -3.41 0.13
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Monthly actuarial rate........................................ 70.50 61.80 73.10 84.90
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Table 4.--Derivation of Monthly Actuarial Rate for Disabled Enrollees--Financing Periods Ending December 31,
1993 Through December 31, 1996
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Financing periods
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CY 1993 CY 1994 CY 1995 CY 1996
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Covered services (at level recognized):
Physicians' reasonable charges................................ $61.64 $65.31 $69.84 $74.34
Outpatient hospital and other institutions.................... 40.38 42.66 46.89 51.47
Home health agencies.......................................... 0.00 0.00 0.00 0.00
Group practice prepayment plans............................... 1.92 1.88 2.41 3.03
Independent lab............................................... 2.86 3.00 3.11 3.31
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Total services.............................................. 106.80 112.85 122.25 132.15
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Cost-sharing:
Deductible.................................................... -3.47 -3.50 -3.53 -3.55
Coinsurance................................................... -20.02 -21.19 -23.02 -24.95
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Total benefits................................................ 83.31 88.16 95.70 103.65
Administrative expenses....................................... 2.68 2.42 2.40 2.39
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Incurred expenditures......................................... 85.99 90.58 98.10 106.04
Value of interest............................................. -2.33 -1.62 -0.93 -2.05
Contingency margin for projection error and to amortize the
surplus or deficit........................................... -0.76 -12.86 8.63 1.11
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Monthly actuarial rate........................................ 82.90 76.10 105.80 105.10
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Table 5.--Actuarial Status of the Supplementary Medical Insurance Trust Fund--Under Three Sets of Assumptions for Financing Periods Through December 31,
1996
This projection Low cost projection High cost projection
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12-Month period ending June 12-Month period ending June 12-Month period ending June
30, 30, 30,
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1995 1996 1997 1995 1996 1997 1995 1996 1997
Projection factors (in percent):
Physician fees: \1\
Aged...................................................... 4.4 2.2 -0.3 4.2 1.0 -2.1 4.6 3.4 1.5
Disabled.................................................. 4.4 2.2 -0.3 4.2 1.0 -2.1 4.6 3.4 1.5
Utilization of physician services: \2\
Aged...................................................... 4.8 6.8 8.6 3.0 4.6 6.1 6.7 9.0 11.0
Disabled.................................................. 2.9 4.7 6.7 0.0 1.8 3.6 5.8 7.7 9.8
Outpatient hospital services per enrollee:
Aged...................................................... 15.1 8.1 9.8 10.7 3.5 4.9 19.5 12.7 14.8
Disabled.................................................. 18.9 15.4 14.6 13.6 9.9 9.0 24.3 21.0 20.3
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As of December 31, As of December 31, As of December 31,
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1994 1995 1996 1994 1995 1996 1994 1995 1996
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Actuarial status (in billions):
Assets.................................................... $19.422 $18.531 $19.327 $19.422 $22.020 $29.345 $19.422 $14.854 $8.499
[[Page 53631]]
Liabilities............................................... 4.049 4.876 5.631 1.886 2.567 3.105 6.245 7.229 8.231
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Assets less liabilities................................... 15.373 13.655 13.696 17.536 19.453 26.240 13.177 7.625 0.268
-----------------------------------------------------------------------------------------
Ratio of assets less liabilities to expenditures (in
percent) \3\............................................. 22.2 17.6 15.9 26.7 27.2 33.7 18.1 9.0 0.3
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\1\ As recognized for payment under the program.
\2\ Increase in the number of services received per enrollee and greater relative use of more expensive services.
\3\ Ratio of assets less liabilities at the end of the year to total incurred expenditures during the following year, expressed as a percent.
IV. Cost to Beneficiaries
The monthly SMI premium rate of $42.50 for all enrollees during
1996 is 7.8 percent lower than the $46.10 monthly premium amount for
the previous financing period. The estimated savings of this reduction
from the current premium to the approximately 36 million SMI enrollees
will be about $1.565 billion for 1996.
In accordance with the provisions of Executive Order 12866, this
notice was reviewed by the Office of Management and Budget.
(Section 1839 of the Social Security Act; 42 U.S.C. 1395r)
(Catalog of Federal Domestic Assistance Program No. 93.774,
Medicare--Supplementary Medical Insurance)
Dated: September 15, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: September 27, 1995.
Donna E. Shalala,
Secretary.
[FR Doc. 95-25519 Filed 10-13-95; 8:45 am]
BILLING CODE 4120-01-P
