Medicare Trustees Issue 2008 Annual Report and Medicare Funding Warning

On March 25, 2008, the Department of Health and Human Services issued a Press Release announcing the release of the 2008 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Report).   

In the Report, the Board of Trustees (Trustees) indicate that the financial outlook for the Medicare program continues to raise serious concerns. According to the Report, Medicare expenditures were $432 billion in 2007 and are projected to increase in future years at a faster pace than workers' earnings or the economy overall.  In fact, under intermediate assumptions, the Report projects that Medicare expenditures will increase from 3.2 percent of gross domestic product (GDP) in 2007 to 10.8 percent of GDP by 2082. Further, the Report projects that, from the beginning of 2008 to the end of 2017, the assets of the Medicare Health Insurance (HI) Trust Fund will decrease from $326 billion to $96 billion. The Report also projects that the HI Trust Fund will be exhausted in 2019.

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), the Trustees are required to include a finding in their annual report whenever they project that general revenues will make up more than 45 percent of total Medicare funding within 7 years.  If the Trustees make this determination for 2 consecutive years, a Medicare funding warning is triggered requiring that the President propose policies to reduce general revenues as a share of Medicare costs.

The Medicare funding warning was first triggered by the Trustees' 2007 annual report.  Consequently, in February 2008, the Department of Health and Human Services released a legislative proposal. The legislative proposal was followed by the introduction of S.2662 and H.R.5480, which are both entitled the Medicare Funding Warning Response Act of 2008. However, to date, Congress has not taken any action on S.2662 or H.R.5480.

A Medicare funding warning is again triggered by the Report.  According to the Press Release, the triggering of the funding warning requires that the President again propose Medicare legislation, within 15 days after the release of next year's budget, to keep general revenue spending below 45 percent of total Medicare spending.