[Federal Register Volume 59, Number 230 (Thursday, December 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29558]
[[Page Unknown]]
[Federal Register: December 1, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
[OACT-047-N]
RIN 0938-AG50
Medicare Program; Monthly Actuarial Rates and Monthly
Supplementary Medical Insurance Premium Rates Beginning January 1, 1995
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 calendar year 1995. It also
announces the monthly SMI premium rate to be paid by all enrollees
during calendar year 1995. The monthly actuarial rates for 1995 are
$73.10 for aged enrollees and $105.80 for disabled enrollees. The
monthly SMI premium rate for 1995 is $46.10.
EFFECTIVE DATE: January 1, 1995.
FOR FURTHER INFORMATION CONTACT: Carter S. Warfield, (410) 966-6396.
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, and 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 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 calendar 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 calendar 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 (Pub. L. 92-603), enacted on
October 30, 1972, the premium rate 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) (Pub. L. 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 (Pub. L. 98-21), enacted on April 20, 1983; section
2302 of the Deficit Reduction Act of 1984 (DRA) (Pub. L. 98-369),
enacted on July 18, 1984; section 9313 of the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA '85) (Pub. L. 99-272), enacted
on April 7, 1986; section 4080 of the Omnibus Budget Reconciliation Act
of 1987 (OBRA '87) (Pub. L. 100-203), enacted on December 22, 1987; and
section 6301 of the Omnibus Budget Reconciliation Act of 1989 (OBRA
'89) (Pub. L. 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 calendar years 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 '90) (Pub.
L. 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 '93) (Pub. L. 103-66),
enacted on August 10, 1993, changed the premium basis to 50 percent of
the monthly actuarial rate for aged enrollees for calendar years 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.
Section 1839(e)(1)(B)(v) specifies that the premium rate for
calendar year 1995 is $46.10.
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 (Pub. L. 100-360), enacted on July 1,
1988. (The Medicare Catastrophic Coverage Repeal Act of 1989 (Pub. L.
101-234), enacted on December 13, 1989, did not repeal the revisions to
section 1839(f) made by Pub. L. 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 (in order
to qualify, a 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 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 calendar 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 calendar year 1995 are
$73.10 for enrollees age 65 and over, and $105.80 for disabled
enrollees under age 65. The accompanying statement (section III.) gives
the actuarial assumptions and bases from which these rates are derived.
The monthly premium rate will be $46.10 during calendar year 1995.
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 1995
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 calendar 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 1993 through 1994.
Table 1.--Estimated Actuarial Status of the SMI Trust Fund as of the End of the Financing Period
[In billions of dollars]
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Assets
Financing period ending Assets Liabilities lessliabilities
----------------------------------------------------------------------------------------------------------------
Dec. 31, 1993.......................................... $24.131 $3.494 $20.637
Dec. 31, 1994.......................................... 19.100 4.557 14.543
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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 unfunded liabilities.
The monthly actuarial rate for enrollees age 65 and older for
calendar year 1995 was determined by projecting per-enrollee cost for
the 12-month periods ending June 30, 1995, and June 30, 1996, 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, 1992 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, 1992, through December 31,
1995, 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 calendar year 1995 is $77.95. The monthly actuarial rate of
$73.10 provides an adjustment of -$1.58 for interest earnings and
-$3.27 for a contingency margin. Based on current estimates, it appears
that the assets are more than sufficient to cover the amount of
incurred but unpaid expenses and to provide for a moderate degree of
projection error. Thus, a negative contingency margin is needed to
reduce assets toward a more appropriate level.
An appropriate level for assets depends on numerous factors. The
most important of these factors are: (1) The difference from prior
years in 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 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 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
calendar year 1995 is $95.98. The monthly actuarial rate of $105.80
provides an adjustment of -$1.58 for interest earnings and $11.40 for a
contingency margin. Based on current estimates, it appears that assets
alone are not 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, a positive contingency margin is
needed to build assets to more appropriate levels.
D. Sensitivity Testing
Several factors contribute to uncertainty about future trends in
medical care costs. In view of this, it seems 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 constrained 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 will result in an excess of
assets over liabilities of $13.088 billion by the end of December 1995.
This amounts to 17 percent of the estimated total incurred expenditures
for the following year. Assumptions which are somewhat more pessimistic
(and, therefore, test the adequacy of the assets to accommodate
projection errors) produce a deficit of $1.198 billion by the end of
December 1995, which amounts to 1.4 percent of the estimated total
incurred expenditures for the following year. Under fairly optimistic
assumptions, the monthly actuarial rates will result in a surplus of
$26.283 billion by the end of December 1995, which amounts to 38.4
percent of the estimated total incurred expenditures for the following
year.
E. Premium Rate
Section 4301 of OBRA '90 added section 1839(e)(1)(B)(v) to the Act,
which provides that the monthly premium rate for 1995, for both aged
and disabled enrollees, is $46.10.
Table 2.--Projection Factors\1\ 12-Month Periods Ending June 30 of 1992-1996
[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:
1992........................ -1.6 2.8 8.2 -14.2 14.5 7.8
1993........................ 0.5 -1.5 12.6 63.2 15.7 7.3
1994........................ 2.6 3.4 10.9 15.2 18.0 -5.7
1995........................ 4.4 3.5 11.8 16.1 21.4 8.4
1996........................ 3.0 4.4 11.8 15.3 18.4 8.5
Disabled:
1992........................ -1.6 0.3 15.5 0.0 9.5 11.4
1993........................ 0.5 4.1 17.2 0.0 13.3 5.3
1994........................ 2.6 1.4 6.2 0.0 -3.5 -1.1
1995........................ 4.4 1.4 12.7 0.0 19.6 7.6
1996........................ 3.0 2.6 16.8 0.0 26.0 4.9
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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, 1992 Through December 31,
1995
------------------------------------------------------------------------
Financing periods
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CY 1992 CY 1993 CY 1994 CY 1995
------------------------------------------------------------------------
Covered services (at level
recognized):
Physicians' reasonable
charges.................... $51.40 $52.71 $56.45 $60.84
Outpatient hospital and
other institutions......... 15.72 17.56 19.55 21.86
Home health agencies........ 0.12 0.15 0.18 .021
Group practice prepayment
plans...................... 7.02 8.21 9.84 11.79
Independent lab............. 2.39 2.40 2.43 2.64
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Total services.......... 76.65 81.03 88.45 97.34
Cost-sharing:
Deductible.................. -3.60 -3.60 -3.62 -3.63
Coinsurance................. -13.85 -14.68 -16.12 -17.82
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Total benefits.......... 59.20 62.75 68.71 75.89
Administrative expenses......... 1.98 1.99 1.99 2.06
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Incurred expenditures... 61.18 64.74 70.70 77.95
Value of interest............... -2.20 -2.45 -2.28 -1.58
Contingency margin for
projection error and to
amortize the surplus or deficit 1.82 8.21 -6.62 -3.27
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Monthly actuarial rate.. $60.80 $70.50 $61.80 $73.10
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Table 4.--Derivation of Monthly Actuarial Rate for Disabled Enrollees
Financing Periods Ending December 31, 1992 Through December 31, 1995
------------------------------------------------------------------------
Financing Periods
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CY 1992 CY 1993 CY 1994 CY 1995
------------------------------------------------------------------------
Covered services (at level
recognized):
Physicians' reasonable
charges.................... $58.79 $61.48 $64.39 $68.04
Outpatient hospital and
other institutions......... 37.77 40.06 42.26 45.84
Home health agencies........ 0.00 0.00 0.00 0.00
Group practice prepayment
plans...................... 1.90 1.98 2.14 2.63
Independent lab............. 2.52 2.60 2.69 2.85
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Total services.......... 100.98 106.12 111.48 119.36
Cost-sharing:
Deductible.................. -3.42 -3.42 -3.43 -3.44
Coinsurance................. -18.92 -19.91 -20.94 -22.47
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Total Benefits.......... 78.64 82.79 87.11 93.45
Administrative expenses......... 2.64 2.63 2.53 2.53
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Incurred expenditures... 81.28 85.42 89.64 95.98
Value of interest............... -2.41 -2.34 -1.80 -1.58
Contingency margin for
projection error and to
amortize the surplus or deficit 1.93 -0.18 -11.74 11.40
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Monthly actuarial rate.. $80.80 $82.90 $76.10 $105.80
------------------------------------------------------------------------
Table 5.--Actuarial Status of the SMI Trust Fund Under Three Sets of Assumptions for Financing Periods Through
December 31, 1995
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,
-----------------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
Projection factors (in
percent):
Physician fees\1\
Aged.............. 2.6 4.4 3.0 2.0 2.4 0.9 3.2 6.4 5.1
Disabled.......... 2.6 4.4 3.0 2.0 2.4 0.9 3.2 6.4 5.1
Utilization of
physician services\2\
Aged.............. 3.4 3.5 4.4 1.8 1.1 1.9 5.0 5.9 7.0
Disabled.......... 1.4 1.4 2.6 -1.5 -1.7 -.1 4.2 4.5 5.3
Outpatient hospital
services per enrollee
Aged.............. 10.9 11.8 11.8 5.9 6.3 6.7 15.8 17.3 16.9
Disabled.......... 6.2 12.7 16.8 1.0 7.4 11.2 11.4 18.0 22.5
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As of December 31, As of December 31, As of December 31,
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1993 1994 1995 1993 1994 1995 1993 1994 1995
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Actuarial status (in
billions):
Assets............ $24.131 $19.100 $18.994 $24.131 $22.739 $29.397 $24.131 $15.238 $7.601
Liabilities....... 3.494 4.557 5.906 1.211 2.070 3.114 5.819 7.102 8.799
-----------------------------------------------------------------------------------------
Assets less
liabilities.. 20.637 14.543 13.088 22.920 20.669 26.283 18.312 8.136 -1.198
-----------------------------------------------------------------------------------------
Ratio of assets less
liabilities to
expenditures (in
percent)\3\.......... 33.6 21.1 17.0 39.7 33.2 38.4 28.0 10.7 -1.4
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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 $46.10 for all enrollees during
calendar year 1995 is 12.2 percent higher than the $41.10 monthly
premium amount for the previous financing period. The estimated cost of
this increase over the current premium to the approximately 36 million
SMI enrollees will be about $2.15 billion for calendar year 1995.
V. Regulatory Impact Statement
This notice merely announces amounts required by section 1839 of
the Social Security Act. This notice is not a proposed rule or a final
rule issued after a proposal, and does not alter any regulations.
Therefore, we have determined, and the Secretary certifies, that no
analyses are required under the Regulatory Flexibility Act (5 U.S.C.
601 through 612) or section 1102(b) of the Act.
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: October 12, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: November 9, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-29558 Filed 11-30-94; 8:45 am]
BILLING CODE 4120-01-P
