Medicare's Financial Condition: Beyond Actuarial Balance

Each year, the Boards of Trustees of the federal Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) trust funds report to Congress on the trust funds’ financial condition. Together, these programs make up the Medicare program for the elderly and for certain disabled Americans. The trustees’ report is the primary source of information on the financial status of the Medicare program, and the American Academy of Actuaries proudly recognizes the contribution that members of the actuarial profession have made in preparing the report and educating the public about this important issue. According to the projections in the 2004 Medicare Trustees’ Report, Medicare’s financial status has deteriorated considerably since last year. The HI trust fund, which pays for hospital services, will be depleted earlier than previously expected and HI expenditures are projected to exceed HI non-interest income this year. In addition, Medicare expenditures will continue to consume an increasing share of federal outlays and GDP. The trustees conclude that “the projections shown in [the] report continue to demonstrate the need for timely and effective action to address Medicare’s financial challenges—both the long-range financial imbalance facing the HI trust fund and the heightened problem of rapid growth in expenditures.” This issue brief examines more closely the findings of the trustees report. The American Academy of Actuaries’ Medicare Steering Committee concludes that the Medicare program faces serious short-term and long-term financing problems. As highlighted in the 2004 Medicare Trustees’ Report: