Appendix C of the 1983 Greenspan Commission on Social Security Reform

Chapter 3


This chapter deals with the consideration which has been given to the financial status of the two portions of the Medicare program by the National Commission.


According to the 1982 HI Trustees Report, the HI Trust Fund is estimated to be depleted by the early part of the 1990s and possibly even by the end of this decade. Over the next 25 years, the program is anticipated, under the Alternative II-B assumptions of that report, to have an actuarial deficit that averages about 1 1/2% of taxable payroll.

About $12.4 billion was loaned to the OASI Trust Fund by the HI Trust Fund in December 1982, as permitted by the law then in effect. Because the HI Trust Fund will be depleted at some time within the next decade, according to current estimates, the amounts borrowed by the OASI Trust Fund in 1982 should desirably be repaid to the HI Trust Fund as soon as feasible.

These future financing problems of the HI program were not addressed specifically by the National Commission, with the exception of those aspects that relate directly to the financial status of the OASDI program. Such action was taken both because of the more immediate financing problems of the OASDI program and because the recently-named Advisory Council on Social Security will be concerned exclusively with making recommendations on the Medicare program and its future solvency.

The "consensus" package described in Chapter 2 would result in some additional financial resources for the HI program, as indicated below (see text of Chapter 2 for complete description of the proposals):

Proposal Short-Term Savings,1983-89
Long-Range Savings
(percentage of payroll)
Cover nonprofit employees+$1.7+.02%
Prohibit withdrawal of State/local employees+ .5--
Total Effect+ 2.2+.02%

Although the National Commission did not specifically address the future financing problems of the HI program, some members were concerned about the estimates of large future financing short-falls. The first major concern was the possibility that any excess of income over outgo of the OASDI Trust Funds during 1990-2010 could be endangered by the extensive financing needed by the HI Trust Fund during that period. The second major concern was that, by ignoring the cost of the HI program, the potential tax burden of the entire Social Security program might not be properly assessed when making reforms in the OASDI portion of the program. Some members believe that the problem of financing the HI program is not simply a matter of providing the funds to meet the costs projected on the basis of past experience, but rather that first the matter of slowing the rate of increase in hospital costs generally should be addressed.

According to the intermediate cost estimate, the combined OASDI-HI system will develop significant annual deficits (excesses of outgo over income) beginning shortly after 1990. These deficits will become increasingly larger time goes by. Thus, ultimately (2030-56), the combined deficits will somewhat more than 12% of taxable payroll.* About 65% of such deficits will caused by the HI program. In considering these estimates, it should be recognized that the underlying assumption is that hospital costs will continue to rise more rapidly than the general wage level for the next 25 years and at the same rate thereafter. In other words, they assume that mandatory or voluntary actions to control hospital costs undertaken in the next 25 years will be effective only to the extent that the growth in hospital costs as compared with the general level of wages will not be reduced below what is assumed in the actuarial cost estimates for the HI program.(1)


The National Commission did not believe that it was necessary to make any recommendations with regard to the SMI portion of the Medicare program. Its financing is -- as discussed in Appendix J -- entirely on a year-by-year basis, rather than on a long-range basis, as are the three payroll-tax-supported programs (OASI, DI, and HI). For calendar year 1982, the payments from the General Fund of the Treasury to the SMI Trust Fund are estimated to represent 77% of the total of the premium income and such payments. The financial status of the SMI Trust Fund is currently excellent.


(1) These assumptions are summarized in Table At of the 1982 HI Trustees Report.

* See views of Commissioners Ball, Keys, Kirkland, Moynihan, and Pepper as to the undesirability of cost estimates for the HI program going further than 25 years into the future, in Chapter 4.