[Federal Register Volume 66, Number 208 (Friday, October 26, 2001)]
[Notices]
[Pages 54255-54261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26700]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-8010-N]


Medicare Program; Monthly Actuarial Rates and Monthly 
Supplementary Medical Insurance Premium Rate Beginning January 1, 2002

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Notice.

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SUMMARY: In accordance with section 1839 of the Social Security Act 
(the Act), this notice announces the monthly actuarial rates for aged 
(age 65 and over) and disabled (under age 65) enrollees in the Medicare 
Supplementary Medical Insurance (SMI) program for 2002. It also 
announces the monthly SMI premium to be paid by all enrollees during 
2002. The monthly actuarial rates for 2002 are $109.30 for aged 
enrollees and $123.10 for disabled enrollees. The monthly SMI premium 
rate for 2002 is $54.00. (The 2001 premium rate was $50.00). This 
compares to projections of the 2002 SMI premium of $58.50 in the 2001 
Trustees Report and $54.50 in the 2000 Trustees Report. The 2002 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 2002 (five-sixths) and the amount in Part B 
that is included in the premium calculation (five-sevenths). Included 
in the monthly premium rate is $3.91 for home health services being 
transferred into Part B.

EFFECTIVE DATE: January 1, 2002.

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 the Department of Health and Human Services (the 
Secretary) 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) (Public Law 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

[[Page 54256]]

Act of 1987 (OBRA 1987) (Public Law 100-203), and section 6301 of the 
Omnibus Budget Reconciliation Act of 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. Under this 
section, expenditures for home health services not considered ``post-
institutional'' are 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 enrollees 
age 65 and over shall be computed as though the transition would occur 
for 1998 through 2003 and that \1/7\ of the cost would be 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 next year, 
2003, will be less than 50 percent of the actuarial rate for aged 
enrollees announced by the Secretary.
    New section 1933(c) 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 Medicaid beneficiaries. This allocation, while 
not being 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 2002 is $54.00. 
Included in the premium rate is $3.91 for home health services being 
transferred into Part B.
    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 (MCCA 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 MCCA 
1988.) Section 1839(f), referred to as the hold-harmless provision, 
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 decrease in payment 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 of the Act 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.
    Generally, if a beneficiary qualifies for hold-harmless 
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 each of the succeeding 
11 months for which he or she is entitled to benefits, under section 
202 or 203 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. The 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 2002 are $109.30 for 
enrollees age 65 and over, and $123.10 for disabled enrollees under age 
65. Section III of this notice gives the

[[Page 54257]]

actuarial assumptions and bases from which these rates are derived. The 
monthly premium rate will be $54.00 during 2002. Included in the 
monthly premium rate is $3.91 for home health services being 
transferred into Part B.

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 2002

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. This 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 in 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, and 
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 2000 and 2001.

   Table 1.--Estimated Actuarial Status of the Supplementary Medical Insurance Trust Fund as of the End of the
                                                Financing Period
                                            [In millions of dollars]
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                                                                                                    Assets less
                      Financing period ending                           Assets      Liabilities     liabilities
----------------------------------------------------------------------------------------------------------------
Dec. 31, 2000......................................................       44,027           5,086          38,941
Dec. 31, 2001......................................................       41,781           6,043          35,739
----------------------------------------------------------------------------------------------------------------

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 \5/6\ of the cost of 
the home health services being transferred be included in the actuarial 
rate for 2002, rather than the full cost of such benefits.
    The monthly actuarial rate for enrollees age 65 and older for 2002 
is determined by first establishing per-enrollee cost by type of 
service from program data through 2000 and then projecting these costs 
for subsequent years. The projection factors used are shown in Table 2. 
The projected values for financing periods from January 1, 1999 through 
December 31, 2002, 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 2002 is $118.74. Included in the 
total of $118.74 is $9.25 for home health services and $21.64 for 
managed care services. The amount of $9.25 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 ($9.02) as well as (2) the cost of furnishing 
all home health services to those individuals enrolled in SMI only 
($0.23). The amount of $21.64 for managed care 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 ($1.92), as well as (2) the cost of furnishing all other SMI 
services to those individuals enrolled in managed care plans ($19.72). 
Since section 4611(e)(2) of BBA 1997 requires that only \5/6\ of the 
cost for those services being transferred be included in the actuarial 
rate for 2002, the monthly actuarial rate provides for an adjustment of 
-$1.82, representing \1/6\ of the full cost of such -$3.20 for interest 
earnings and -$4.42 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 (ESRD) program. Projected monthly costs for disabled enrollees 
(other than those suffering from ESRD) are prepared in a fashion 
parallel to the projection for the aged using appropriate actuarial 
assumptions (see Table 2). Costs for the ESRD 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 2002 is $128.43. Included in the total of 
$128.43 is $6.64 for home health services and $10.98 for managed care 
services. The amount of $6.64 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 $10.98 for

[[Page 54258]]

managed care 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 ($1.00) as well as (2) the 
cost of furnishing all other SMI services to those individuals enrolled 
in managed care plans ($9.98). Since section 4611(e)(2) of BBA 1997 
requires that only \5/6\ of the cost for those services being 
transferred be included in the actuarial rate for 2002, the monthly 
actuarial rate provides for an adjustment of -$1.27, representing \1/6\ 
of the full cost of such services. The monthly actuarial rate of 
$123.10 also provides an adjustment of -$2.72 for interest earnings and 
-$1.34 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. It is appropriate to test the adequacy of the rates 
using alternative assumptions. 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 statistical analysis of the historical variation 
in the respective increase factors.
    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 $32,077 million by the end of December 2002. 
This amounts to 28.0 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 $18,336 million by 
the end of December 2002, which amounts to 14.4 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 $44,795 million by the end of December 2002, which 
amounts to 44.0 percent of the estimated total incurred expenditures 
for the following year.

E. Premium Rate

    As determined by with section 1839(a)(3) of the Act and section 
4611(e)(3) of BBA 1997, the monthly premium rate for 2002, for both 
aged and disabled enrollees, is $54.00.

                                    Table 2.--Projection Factors \1\ 12-Month Periods Ending December 31 of 1999-2002
                                                                      [In percent]
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                                     Physicians' services    Durable                 Other                    Home                   Other
           Calendar year           ------------------------  medical    Carrier     carrier    Outpatient    health    Hospital  intermediary   Managed
                                     Fees\2\   Residual\3\  equipment    lab\4\   services\5\   hospital     agency     lab\6\    services\7\     care
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aged:
    1999..........................        2.7         1.3         5.0        0.0         9.8          6.5      -21.3        8.5        -20.1         4.6
    2000..........................        5.9         3.6        10.6        7.7        15.2         -4.1        3.6        5.9         18.0         5.9
    2001..........................        6.1         0.6        12.4        1.7        10.1          6.8        4.9        3.9         11.8         5.5
    2002..........................       -3.2         3.6         7.1        1.8         7.8          2.4       23.8        3.7          6.0         3.1
Disabled:
    1999..........................        2.7         0.4         3.3        3.1         9.7          6.9      -14.5       14.4         -8.6        -0.9
    2000..........................        5.9         3.9        11.8        6.0        12.8         -3.9       -1.9        1.8        -11.3        -0.2
    2001..........................        6.1         0.5        11.1        2.7        13.6          6.5        2.7        7.5          4.2         7.9
    2002..........................       -3.2         3.6         7.1        1.8         7.6          2.4       22.5        3.7          7.2         4.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ All values for services other than managed care are per fee-for-service enrollee. Managed care values are per managed care 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\ Includes services paid under the lab fee schedule furnished in the physician's office or an independent lab.
\5\ Includes ambulatory surgical center facility costs, ambulance services, parenteral and enteral drug costs, supplies, etc.
\6\ Includes services paid under the lab fee schedule furnished in the outpatient department of a hospital.
\7\ Includes services furnished in rehabilitation and psychiatric hospitals, dialysis facilities, rural health clinics, federally qualified health
  centers, etc.


 Table 3.--Derivation of Monthly Actuarial Rate for Enrollees Age 65 and Over Financing Periods Ending December
                                       31, 1999 Through December 31, 2002
----------------------------------------------------------------------------------------------------------------
                                                                               Financing periods
                                                             ---------------------------------------------------
                                                                CY 1999      CY 2000      CY 2001      CY 2002
----------------------------------------------------------------------------------------------------------------
Covered services (at level recognized):
    Physician fee schedule..................................       $50.47       $55.51       $60.83       $61.01
    Durable medical equipment...............................         5.73         6.35         7.32         7.84
    Carrier lab \1\.........................................         2.29         2.47         2.57         2.62
    Other carrier services \2\..............................         9.13        10.54        11.89        12.83
    Outpatient hospital.....................................        19.26        18.51        20.28        20.77
    Home health.............................................     \5\ 6.69     \5\ 6.94     \5\ 7.47     \5\ 9.25
    Hospital lab \3\........................................         1.76         1.87         1.99         2.06
    Other intermediary services \4\.........................         5.37         6.35         7.28         7.72
    Managed care............................................    \6\ 21.21    \6\ 22.26    \6\ 21.05    \6\ 21.64
                                                             ---------------------------------------------------
        Total services......................................       121.89       130.80       140.68       145.75
Cost-sharing:

[[Page 54259]]

 
    Deductible..............................................        -3.78        -3.78        -3.80        -3.81
    Coinsurance.............................................       -22.72       -24.15       -25.34       -25.45
                                                             ---------------------------------------------------
        Total benefits......................................        95.39       102.87       111.54       116.49
Transfer to Medicaid........................................     \7\ 0.00     \7\ 0.00     \7\ 0.07     \7\ 0.07
Administrative expenses.....................................         1.77         1.95         2.03         2.18
                                                             ---------------------------------------------------
        Incurred expenditures...............................        97.16       104.82       113.64       118.74
Value of interest...........................................        -3.52        -4.18        -3.60        -3.20
Adjustment for home health agency services transferred from     \8\ -5.47     \8\ 4.21    \8\ -2.95    \8\ -1.82
 HI.........................................................
Contingency margin for projection error and to amortize the          4.13        -4.53        -6.09        -4.42
 surplus or deficit.........................................
                                                             ---------------------------------------------------
        Monthly actuarial rate..............................       $92.30       $91.90      $101.00       109.30
----------------------------------------------------------------------------------------------------------------
\1\ Includes services paid under the lab fee schedule furnished in the physician's office or an independent lab.
\2\ Includes ambulatory surgical center facility costs, ambulance services, parenteral and enteral drug costs,
  supplies, etc.
\3\ Includes services paid under the lab fee schedule furnished in the outpatient department of a hospital.
\4\ Includes services furnished in rehabilitation and psychiatric hospitals, dialysis facilities, rural health
  clinics, federally qualified health centers, etc.
\5\ This amount includes the full cost of the 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, as well as the cost of furnishing all home
  health services to those individuals enrolled in SMI only.
\6\ This amount includes the full cost of the managed care home health services being transferred from the HI
  program as a result of BBA 1997 as if the transition did not apply, as well as the cost of furnishing all
  other SMI services to individuals enrolled in managed care.
\7\ Section 1933(c)(2) of the Act, as added by section 4732(c) of BBA 1997, allocates an amount to be
  transferred from the SMI trust fund to the state Medicaid programs. This transfer is for the purpose of paying
  the SMI premiums for certain low-income beneficiaries. It is not a benefit expenditure but is used in
  determining the SMI actuarial rates since it is an expenditure of the trust fund.
\8\ Section 4611 of BBA 1997 specifies that 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) requires there be a transition from 1998 through 2002 for the aggregate amount of the
  expenditures transferred from the HI program to the SMI program. For 1998, the amount transferred is \1/6\ of
  the full cost for such services, for 1999, \1/3\, for 2000, \1/2\, for 2001, \2/3\, and for 2002, \5/6\.
  Therefore, the adjustment for 1999 represents \2/3\ of the full cost, for 2000, \1/2\, for 2001, \1/3\, and
  for 2002, \1/6\. This amount adjusts the actuarial rate to reflect the correct amount attributable to home
  health services.


Table 4.--Derivation of Monthly Actuarial Rate for Disabled Enrollees Financing Periods Ending December 31, 1999
                                            through December 31, 2002
----------------------------------------------------------------------------------------------------------------
                                                                               Financing periods
                                                             ---------------------------------------------------
                                                                CY 1999      CY 2000      CY 2001      CY 2002
----------------------------------------------------------------------------------------------------------------
Covered services (at level recognized):
Physician fee schedule......................................       $51.26       $55.87       $60.12       $60.21
Durable medical equipment...................................         9.04        10.04        11.27        12.05
Carrier lab \1\.............................................         2.70         2.85         2.95         3.01
Other carrier services \2\..................................        10.03        11.12        12.99        14.05
Outpatient hospital.........................................        23.77        22.43        24.08        24.66
Home health.................................................     \5\ 5.35     \5\ 5.24     \5\ 5.43     \5\ 6.64
Hospital lab \3\............................................         2.58         2.59         2.78         2.89
Other intermediary services \4\.............................        27.84        27.11        28.61        29.37
Managed care................................................    \6\ 10.28    \6\ 10.44    \6\ 10.32    \6\ 10.98
                                                             ---------------------------------------------------
    Total services..........................................       142.86       147.70       158.55       163.85
Cost-sharing:
Deductible..................................................        -3.40        -3.41        -3.42        -3.43
Coinsurance.................................................       -32.69       -33.45       -34.20       -34.40
                                                             ---------------------------------------------------
    Total benefits..........................................       106.77       110.83       120.93       126.02
Transfer to Medicaid........................................     \7\ 0.00     \7\ 0.00     \7\ 0.05     \7\ 0.05
Administrative expenses.....................................         2.00         2.10         2.20         2.36
                                                             ---------------------------------------------------
    Incurred expenditures...................................       108.78       112.93       123.18       128.43
Value of interest...........................................        -0.91        -1.56        -1.92        -2.72
Adjustment for home health agency services transferred from      \8\-4.17     \8\-3.07     \8\-2.09     \8\-1.27
 HI.........................................................
Contingency margin for projection error and to amortize the         -0.69        12.80        13.03        -1.34
 surplus or deficit.........................................
                                                             ---------------------------------------------------
    Monthly actuarial rate..................................      $103.00      $121.10      $132.20      $123.10
----------------------------------------------------------------------------------------------------------------
\1\ Includes services paid under the lab fee schedule furnished in the physician's office or an independent lab.
\2\ Includes ambulatory surgical center facility costs, ambulance services, parenteral and enteral drug costs,
  supplies, etc.
\3\ Includes services paid under the lab fee schedule furnished in the outpatient department of a hospital.
\4\ Includes services furnished in rehabilitation and psychiatric hospitals, dialysis facilities, rural health
  clinics, federally qualified health centers, etc.

[[Page 54260]]

 
\5\ This amount includes the full cost of the 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.
\6\ This amount includes the full cost of the managed care home health services being transferred from the HI
  program as a result of BBA 1997 as if the transition did not apply, as well as the cost of furnishing all
  other SMI services to individuals enrolled in managed care.
\7\ Section 1933(c)(2) of the Act, as added by section 4732(c) of BBA 1997, allocates an amount to be
  transferred from the SMI trust fund to the state Medicaid programs. This transfer is for the purpose of paying
  the SMI premiums for certain low-income beneficiaries. It is not a benefit expenditure but is used in
  determining the SMI actuarial rates since it is an expenditure of the trust fund.
\8\ Section 4611 of BBA 1997 specifies that 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) requires there be a transition from 1998 through 2002 for the aggregate amount of the
  expenditures transferred from the HI program to the SMI program. For 1998, the amount transferred is \1/6\ of
  the full cost for such services, for 1999, \1/3\, for 2000, \1/2\, for 2001, \2/3\, and for 2002, \5/6\.
  Therefore, the adjustment for 1999 represents \2/3\ of the full cost, for 2000, \1/2\, for 2001, \1/3\, and
  for 2002, \1/6\. This amount adjusts the actuarial rate to reflect the correct amount attributable to home
  health services.


  Table 5.--Actuarial Status of the SMI Trust Fund under Three Sets of
       Assumptions for Financing Periods through December 31, 2002
------------------------------------------------------------------------
        As of December 31,             2000         2001         2002
------------------------------------------------------------------------
This projection:
  Actuarial status (in millions):
Assets...........................      $44,027      $41,781      $38,514
Liabilities......................        5,086        6,043        6,438
                                  --------------------------------------
    Assets less liabilities......      $38,941      $35,739      $32,077
    Ratio (in percent) \1\.......         38.3         33.0         28.0
Low cost projection:
  Actuarial status (in millions):
Assets...........................      $44,027      $46,007      $50,877
Liabilities......................        5,086        5,573        6,082
                                  --------------------------------------
    Assets less liabilities......      $38,941      $40,434      $44,795
    Ratio (in percent) \1\.......         40.1         40.4         44.0
High cost projection:
  Actuarial status (in millions):
Assets...........................      $44,027      $37,012      $25,174
Liabilities......................        5,086        6,572        6,838
                                  --------------------------------------
    Assets less liabilities......      $38,941      $30,439      $18,336
    Ratio (in percent) \1\.......         36.4         25.9         14.4
------------------------------------------------------------------------
\1\ Ratio of assets less liabilities at the end of the year to the total
  incurred expenditures during the following year, expressed as a
  percent.

IV. Regulatory Impact Analysis

    We have examined the impacts of this notice as required by 
Executive Order 12866 and the Regulatory Flexibility Act (RFA) (Public 
Law 96-354). Executive Order 12866 directs agencies to assess all costs 
and benefits of available regulatory alternatives and, if 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 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $25 
million or less annually (65 FR 69432). For purposes of the RFA, States 
and individuals are not considered to be small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
RIA if a rule may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 603 of the RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a Metropolitan Statistical Area and has fewer 
than 100 beds. We have determined that this notice will not have a 
significant effect on a substantial number of small entities nor 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.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct compliance costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have determined that this notice does not 
significantly affect the rights, roles, and responsibilities of States.
    This notice announces that the monthly actuarial rates applicable 
for 2002 are $109.30 for enrollees age 65 and over, and $123.10 for 
disabled enrollees under age 65. It also announces that the monthly SMI 
premium rate for calendar year 2002 is $54.00. The SMI premium rate of 
$54.00 is 8% higher than the $50.00 premium rate for 2001. We estimate 
that the cost of this increase from the current premium to the 
approximately 38 million SMI enrollees will be about $1.831 billion for 
2002. 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.

V. Waiver of Proposed Notice

    The Medicare statute requires the publication of the monthly 
actuarial rates and the Part B premium amounts in September. We 
ordinarily use general notices, rather than notice and comment 
rulemaking procedures, to make such announcements. In doing so, we note 
that under the Administrative Procedure Act interpretive rules; general 
statements of policy; and rules of agency

[[Page 54261]]

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, for 
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 applying that formula. Moreover, the statute 
establishes the time period for which the premium rates will apply, and 
delaying publication of the SMI premium rate such that it would not be 
published before that time would be contrary to the public interest. 
Therefore, we find good cause to waive publication of a proposed notice 
and solicitation of public comments.

(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 17, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: September 27, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-26700 Filed 10-19-01; 8:45 am]
BILLING CODE 4120-01-P