Fact sheet




Hospital Insurance (HI) Fund

The trustees estimate that the Hospital Insurance (HI) Trust Fund will remain solvent until the year 2020, a one-year gain for estimated Part A solvency from the forecast of 2019 made by the trustees last year. Over the next 10 years, HI expenditures are expected to grow somewhat faster than income. Comparison with last year’s estimates shows that actual payroll tax and other income in 2004 and projected future amounts are slightly higher than previously projected. In addition, projected HI expenditures are slightly lower than before, due to slower growth in inpatient hospital benefits.

For these same reasons, the trustees reported that long-term projections of the fiscal health of the HI fund have slightly improved. Long-term, the outlook remains very problematic because of steady increases in projected health care costs as well as the growing number of Medicare beneficiaries following the retirement of the baby boom generation. Today, there are about four workers for every Medicare beneficiary. By 2079, there will be only about two workers for every beneficiary.

Supplementary Medical Insurance Trust Fund (SMI)       

As in previous years, the trustees find that the Supplementary Medical Insurance Trust Fund (covering Part B and the new Part D of Medicare) remains adequately financed into the future—but only because its financing from general revenues and beneficiary premiums rises with spending.

Part B spending is experiencing growth—averaging almost 11 percent per year over the last five years—with costs expected to nearly double over the next 10 years as the first members of the baby boom generation enter the program

The Part B account assets declined by $4.5 billion in 2004. Beneficiary premiums and general revenue financing rates for 2004 were set with the intention of increasing the assets in the Part B account of the trust fund to a more adequate level. The subsequent increased payments to physicians and other Part B providers in the Medicare Modernization Act (MMA), combined with   expected expenditure growth, increased Part B expenditures above the level anticipated when the financing was set.

The financing rates for 2005 were set with the intention of taking a step toward restoring the assets to a more adequate level.   However, because of higher-than-anticipated 2004 costs, the Part B account assets are now expected to increase just slightly in 2005, remaining well below the desired level. 

The Part D account within the SMI trust fund was established by the MMA. For 2004 and 2005, the Transitional Assistance Account covers transitional assistance to low-income beneficiaries under the prescription drug card program. Beginning in 2006, beneficiaries can obtain the new prescription drug benefit through private prescription drug plans or Medicare Advantage health plans. Medicare will provide a substantial subsidy for the prescription drug premiums. Medicare will also pay some or all of the remaining beneficiary drug premiums and cost‑sharing liabilities for low‑income beneficiaries. Medicare will also pay special subsidies on behalf of beneficiaries retaining primary drug coverage through qualifying employer‑sponsored retiree health plans. These benefits are expected to grow more than Part A or Part B costs, consistent with historical growth patterns.   The projected spending in Part D is slightly lower than projected in 2004.

Medicare Overall

Taken together, total costs for HI Part A and SMI Parts B and D are projected to increase substantially over the next 75 years—growing from 2.6 percent of gross domestic product (GDP) today to 13.6 percent by 2079. The level of Medicare expenditures is expected to exceed that for Social Security in 2024 and, by 2079, to represent almost twice the cost of Social Security. At the same time, total trust fund revenues (excluding interest) will grow more slowly—from 2.6 percent of GDP today to just 9.7 percent in 2079. In 2079, the gap between Medicare revenue and Medicare spending would equal almost 4 percent of gross domestic product. All of this difference is attributable to the projected imbalance in the HI trust fund.

The Medicare Modernization Act contains some important steps toward addressing rising health care costs for seniors. In addition to the prescription drug coverage, it also brings up-to-date preventive benefits and programs to prevent complications for beneficiaries with chronic illnesses. These benefits will help Medicare and its beneficiaries avoid costs associated with preventable disease complications.   In addition, the law requires that the Trustees determine whether the difference between Medicare spending and dedicated financing sources exceeds 45 percent of Medicare outlays within the following seven years, triggering the development and consideration of fast-track legislation to address Medicare costs. The current report finds that this “trigger” has not yet been reached but is approaching, highlighting the importance of modernizing Medicare now and taking the cost-saving steps included in the MMA to provide a strong foundation for any further efforts to address Medicare costs.

“These projections demonstrate the need for timely and effective action to address Medicare’s financial challenges. Consideration of such reforms should occur in the relatively near future. The sooner the solutions are enacted, the more flexible and gradual they can be,” the report said.

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