[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.

-----------------------------------------------------------------------

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]                                            
----------------------------------------------------------------------------------------------------------------
                                                                                                     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
----------------------------------------------------------------------------------------------------------------

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]                                                  
----------------------------------------------------------------------------------------------------------------
                                 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                 
----------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
\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          
                                 ---------------------------------------
                                   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
                                 ---------------------------------------
        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
                                 ---------------------------------------
        Total benefits..........     59.20     62.75     68.71     75.89
Administrative expenses.........      1.98      1.99      1.99      2.06
                                 ---------------------------------------
        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
                                 ---------------------------------------
        Monthly actuarial rate..    $60.80    $70.50    $61.80    $73.10
------------------------------------------------------------------------


  Table 4.--Derivation of Monthly Actuarial Rate for Disabled Enrollees 
  Financing Periods Ending December 31, 1992 Through December 31, 1995  
------------------------------------------------------------------------
                                             Financing Periods          
                                 ---------------------------------------
                                   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
                                 ---------------------------------------
        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
                                 ---------------------------------------
        Total Benefits..........     78.64     82.79     87.11     93.45
Administrative expenses.........      2.64      2.63      2.53      2.53
                                 ---------------------------------------
        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
                                 ---------------------------------------
        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    
                       -----------------------------------------------------------------------------------------
                         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


----------------------------------------------------------------------------------------------------------------
                             As of December 31,            As of December 31,            As of December 31,     
                       -----------------------------------------------------------------------------------------
                          1993      1994      1995      1993      1994      1995      1993      1994      1995  
----------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
\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