[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56201-56212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28163]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration
[HCFA-8003-N]
RIN 0938-AI98


Medicare Program; Monthly Actuarial Rates and Monthly 
Supplementary Medical Insurance Premium Rate Beginning January 1, 1999

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 1999. It also announces the monthly 
SMI premium rate to be paid by all enrollees during 1999. The monthly 
actuarial rates for 1999 are $92.30 for aged enrollees and $103.00 for 
disabled enrollees. The monthly SMI premium rate for 1999 is $45.50. 
(The 1998 premium rate was $43.80). The 1999 Part B premium is not 
equal to 50 percent of the monthly actuarial rate because of the 
differential between the amount of home health that is transferred into 
Part B in 1999 (two-sixths) and the amount in Part B that is included 
in the premium calculation (two-sevenths).

EFFECTIVE DATE: January 1, 1999.

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 (HI) (Medicare Part A). The SMI program is available to 
individuals who are entitled to HI 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), 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) (Pub. L. 97-248) 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), section 
2302 of the Deficit Reduction Act of 1984 (DRA 1984) (Public Law 98-
369), section 9313 of the Consolidated Omnibus Budget Reconciliation 
Act of 1985 (COBRA 1985) (Public Law 99-272), section 4080 of the 
Omnibus Budget Reconciliation Act of 1987 (OBRA 1987) (Public Law 100-
203), and section 6301 of the Omnibus Budget Reconciliation Act of

[[Page 56202]]

1989 (OBRA 1989) (Public Law 101-239) extended the provision that the 
premium be based on 50 percent of the monthly actuarial rate for aged 
enrollees (that is, 25 percent of program costs 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). 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) 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) for 1996 through 1998.
    Section 4571 of the Balanced Budget Act of 1997 (BBA 1997) (Public 
Law 105-33) permanently extended the provision that the premium be 
based on 50 percent of the monthly actuarial rate for aged enrollees 
(that is, 25 percent of program costs for aged enrollees).
    BBA 1997 included a further provision affecting the calculation of 
the SMI actuarial rates and premiums for 1998 though 2003. Section 4611 
of BBA 1997 modified the home health benefit payable under the HI 
program for individuals enrolled in the SMI program. In doing so, 
expenditures for home health services not considered ``post-
institutional'' will be payable under the SMI program rather than the 
HI program beginning in 1998. However, section 4611(e)(1) of BBA 1997 
requires that there be a transition from 1998 through 2002 for the 
aggregate amount of the expenditures transferred from the HI program to 
the SMI program. Section 4611(e)(2) also provides a specific yearly 
proportion for the transferred funds. The proportions are \1/6\ for 
1998, \1/3\ for 1999, \1/2\ for 2000, \2/3\ for 2001, and \5/6\ for 
2002. For purposes of determining the correct amount of financing from 
general revenues of the Federal government, it is necessary to include 
only these transitional amounts in the monthly actuarial rates for both 
aged and disabled enrollees, rather than the total cost of the home 
health services being transferred. Accordingly, the actuarial rates 
shown in this announcement reflect the net transitional cost only.
    Section 4611(e)(3) of BBA 1997 also specifies, for the purposes of 
determining the premium, that the monthly actuarial rate for aged 
enrollees shall be computed as though the transition would occur for 
1998 through 2003 and that \1/7\ of the cost would transferred in 1998, 
\2/7\ in 1999, \3/7\ in 2000, \4/7\ in 2001, \5/7\ in 2002, and \6/7\ 
in 2003. Therefore, the transition period for incorporating this home 
health transfer into the premium is 7 years while the transition period 
for including these services in the actuarial rate is 6 years. As a 
result, the premium rate for this year and each of the next 4 years, 
through 2003, will be less than 50 percent of the actuarial rate for 
aged enrollees announced by the Secretary.
    New section 1933(c)(2) of the Act, as added by section 4732(c) of 
BBA 1997, requires the Secretary to allocate money from the SMI trust 
fund to the State Medicaid programs for the purpose of providing 
Medicare Part B premium assistance from 1998 through 2002 for the 
section 1933 qualifying low-income Medicare beneficiaries. This 
allocation, while not a benefit expenditure, will be an expenditure of 
the trust fund and has been included in calculating the SMI actuarial 
rates for this year. The allocation will be included in calculating the 
SMI actuarial rates through 2002.
    As determined according to section 1839(a)(3) of the Act and 
section 4611(e)(3) of BBA 1997, the premium rate for 1999 is $45.50.
    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). (The Medicare 
Catastrophic Coverage Repeal Act of 1989 (Public Law 101-234) 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 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 1999 are $92.30 for 
enrollees age 65 and over, and $103.00 for disabled enrollees under age 
65.

[[Page 56203]]

Section III of this notice gives the actuarial assumptions and bases 
from which these rates are derived. The monthly premium rate will be 
$45.50 during 1999. This is an increase from the 1998 premium rate of 
$43.80.

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 1999

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). An appropriate 
level for assets to cover a moderate degree of variation between actual 
and projected costs 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 both 
factors as the trends vary over time.
    Table 1 summarizes the estimated actuarial status of the trust fund 
as of the end of the financing period for 1997 and 1998.

   Table 1.--Estimated Actuarial Status of the Supplementary Medical Insurance Trust Fund as of the End of the
                                                Financing Period
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Assets less
                         Financing period ending                              Assets    Liabilities  liabilities
----------------------------------------------------------------------------------------------------------------
December 31, 1997........................................................      $36.131       $6.681      $29.450
December 31, 1998........................................................       36.754        4.422       32.332
----------------------------------------------------------------------------------------------------------------

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, the Medicaid transfer 
(for 1998 through 2002), 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. As noted in section I. of this announcement, 
section 4611(e)(2) of BBA 1997 requires that only \1/3\ of the cost of 
the home health services being transferred be included in the actuarial 
rate for 1999, rather than the full cost of such benefits.
    The monthly actuarial rate for enrollees age 65 and older for 1999 
was determined by first establishing per-enrollee cost by type of 
service from program data through 1996 and then projecting these costs 
for subsequent years. 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 DRA 
1984. Accordingly, the values for the 12-month period ending June 30, 
1996 were established from program data, and 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, 1996, 
through December 31, 1999, are shown in Table 3.
    The projected monthly rate required to pay for one-half of the 
total of benefits, the transfer to Medicaid, and administrative costs 
for enrollees age 65 and over for 1999 is $110.97. Included in the 
total of $110.97 is $12.91 for home health services and $33.44 for 
group practice prepayment plan services. The amount of $12.91 for home 
health services includes (1) the full cost of fee-for-service home 
health services being transferred from the HI program as a result of 
BBA 1997 as if the transition did not apply ($12.51) as well as (2) the 
cost of furnishing all home health services to those individuals 
enrolled in SMI only ($0.40). The amount of $33.44 for group practice 
prepayment plan services includes (1) the full cost of managed care 
home health services being transferred from the HI program as a result 
of BBA 1997 as if the transition did not apply ($3.11) as well as (2) 
the cost of furnishing all other SMI services to those individuals 
enrolled in group practice prepayment plans ($30.33). Since section 
4611(e)(2) of BBA 1997 requires that only \1/3\ of the cost for those 
services being transferred be included in the actuarial rate for 1999, 
the monthly actuarial rate provides for an adjustment of -$10.41, 
representing \2/3\ of the full cost of such services. The monthly 
actuarial rate of $92.30 also provides an adjustment of -$3.65 for 
interest earnings and -$4.61 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 variation between actual and projected costs. Thus, 
a negative contingency margin is needed to reduce assets to a more 
appropriate level.

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

[[Page 56204]]

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, the transfer to Medicaid, and administrative costs 
for disabled enrollees for 1999 is $119.77. Included in the total of 
$119.77 is $16.70 for home health services and $8.23 for group practice 
prepayment plan services. The amount of $16.70 is the full cost of the 
home health services being transferred from the HI program as a result 
of BBA 1997 as if the transition did not apply. The amount of $8.23 for 
group practice prepayment plan services includes (1) the full cost of 
managed care home health services being transferred from the HI program 
as a result of BBA 1997 as if the transition did not apply ($1.07) as 
well as (2) the cost of furnishing all other SMI services to those 
individuals enrolled in group practice prepayment plans ($7.16). Since 
section 4611(e)(2) of BBA 1997 requires that only \1/3\ of the cost for 
those services being transferred be included in the actuarial rate for 
1999, the monthly actuarial rate provides for an adjustment of -$11.84, 
representing \2/3\ of the full cost of such services. The monthly 
actuarial rate of $103.00 also provides an adjustment of -$0.27 for 
interest earnings and -$4.66 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 variation between actual and projected costs. Thus, 
a negative contingency margin is needed to reduce assets to a more 
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. 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 by studying 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 $29.222 billion by the end of December 1999. 
This amounts to 30.7 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 $14.857 billion by 
the end of December 1999, which amounts to 14.3 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 $42.551 billion by the end of December 1999, which 
amounts to 48.6 percent of the estimated total incurred expenditures 
for the following year.

E. Premium Rate

    As determined by section 1839(a)(3) of the Act and section 
4611(e)(3) of BBA 1997, the monthly premium rate for 1999, for both 
aged and disabled enrollees, is $45.50.

BILLING CODE 4120-01-P

[[Page 56205]]

[GRAPHIC] [TIFF OMITTED] TN21OC98.007



[[Page 56206]]

[GRAPHIC] [TIFF OMITTED] TN21OC98.008



[[Page 56207]]

[GRAPHIC] [TIFF OMITTED] TN21OC98.009



[[Page 56208]]

[GRAPHIC] [TIFF OMITTED] TN21OC98.010



[[Page 56209]]

[GRAPHIC] [TIFF OMITTED] TN21OC98.011



[[Page 56210]]

[GRAPHIC] [TIFF OMITTED] TN21OC98.012



[[Page 56211]]

[GRAPHIC] [TIFF OMITTED] TN21OC98.013



BILLING CODE 4120-01-C

[[Page 56212]]

IV. Waiver of Notice of Proposed Rulemaking

    The Medicare statute, as discussed previously, requires publication 
of the monthly actuarial rates and the Part B premium amount in 
September. The amounts are determined according to the statute. As has 
been our custom, we use general notices, rather than formal notice and 
comment rulemaking procedures, to make such announcements. In doing so, 
we acknowledge that, under the Administrative Procedure Act, 
interpretive rules, general statements of policy, and rules of agency 
organization, procedure, or practice are excepted from the requirements 
of notice and comment rulemaking.
    We considered publishing a proposed notice to provide a period for 
public comment. However, we may waive that procedure if we find good 
cause that prior notice and comment are impracticable, unnecessary, or 
contrary to the public interest. We find that the procedure for notice 
and comment is unnecessary because the formula used to calculate the 
SMI premium is statutorily directed, and we can exercise no discretion 
in following that formula. Moreover, the statute establishes the time 
period for which the premium rates will apply, and delaying publication 
of the SMI premium rate would be contrary to the public interest. 
Therefore, we find good cause to waive publication of a proposed notice 
and solicitation of public comments.

VI. Regulatory Impact Statement

    We have examined the impacts of this notice as required by 
Executive Order 12866 and the Regulatory Flexibility Act (RFA) (Pub. L. 
96-354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects; distributive impacts; and equity). The RFA requires agencies 
to analyze options for regulatory relief for small businesses. For 
purposes of the RFA, States and individuals are not considered small 
entities.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis for any notice that may have a significant 
impact on the operations of a substantial number of small rural 
hospitals. Such an analysis must conform to the provisions of section 
604 of the RFA. For purposes of section 1102(b) of the Act, we consider 
a small rural hospital as a hospital that is located outside of a 
Metropolitan Statistical Area and has fewer than 50 beds. We have 
determined that this notice will not have a significant effect on the 
operations of a substantial number of small rural hospitals. Therefore, 
we are not preparing an analysis for section 1102(b) of the Act.
    This notice announces that the monthly actuarial rates applicable 
for 1999 are $92.30 for enrollees age 65 and over, and $103.00 for 
disabled enrollees under age 65. It also announces that the monthly SMI 
premium rate for calendar year 1999 is $45.50. The SMI premium rate of 
$45.50 is 3.9 percent higher than the $43.80 premium rate for 1998. We 
estimate that the cost of this increase from the current premium to the 
approximately 37 million SMI enrollees will be about $0.754 billion for 
1999. Therefore, this notice is a major rule as defined in Title 5, 
United States Code, section 804(2) and is an economically significant 
rule under Executive Order 12866.
    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 28, 1998.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.

    Dated: October 8, 1998.
Donna E. Shalala,
Secretary.
[FR Doc. 98-28163 Filed 10-16-98; 8:45 am]
BILLING CODE 4120-01-P