Medicare Trigger

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

A determination of excess general funding, as required by §801 of P.L. 108-173, the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (MMA), is issued if general
revenue Medicare funding is expected to exceed 45% of Medicare outlays for the current fiscal
year or any of the next six fiscal years. If the determination is issued for two consecutive years, a
warning is issued requiring certain presidential and congressional action (§802-§804 of MMA).
The warning alerts policy makers of one measure of the financial health of Medicare. It attempts
to focus on the impact of Medicare revenues and outlays on the federal budget, by looking at
Medicare’s burden on the Treasury. Because such a determination was issued in both the 2006
and 2007 Medicare Trustee’s reports, in 2008, the President was required to submit a legislative
proposal to Congress to lower the ratio to the 45% level. Similarly, the 2008 Annual Report of the
Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds included an estimate that general revenue funding would exceed 45% in
2014, creating a new warning, based on the estimates of excess general revenues for 2007 and
2008. As a result of this new warning, in 2009, the President will be required to submit a
legislative proposal to Congress to lower the ratio to the 45% level. Some options for reducing
general revenue spending below the 45% level would have a greater impact than others.

Definition of the Excess General Funding Warning..................................................................1
Required Presidential Action.....................................................................................................2
Expedited Congressional Consideration...................................................................................2
Procedures (and Activity) for the House.............................................................................3
Procedures for the Senate....................................................................................................4
Impact of Legislation to Lower the General Revenue Share....................................................4
Table 1. Illustrative Effect of Options to Lower General Revenues as Percentage of Total
Medicare Outlays under the Trigger Calculation.........................................................................5
Author Contact Information............................................................................................................6

s required by the Social Security Act, a Medicare Board of Trustees oversees the financial
operations of the Medicare Hospital Insurance (HI) trust fund and the Supplementary
Medical Insurance (SMI) trust fund. The HI trust fund covers Medicare Part A services, A

including hospital, home health, skilled nursing facility care, and hospice care, and the SMI trust
fund covers Medicare Parts B and D, including physician, outpatient hospital, home health, and
access to prescription drug coverage. The two trust funds are statutorily completely separate. The
Act requires that the Board report annually to Congress on the financial and actuarial status of the
funds. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (P.L. 108-
173, MMA) amended the Social Security Act, adding an additional responsibility that requires the
trustees to examine and make a determination if general revenue Medicare funding is expected to
exceed 45% of Medicare outlays for the current fiscal year or any of the next six fiscal years. An
affirmative determination in two consecutive annual reports is considered to be a Medicare
funding warning in the year in which the second report is made. This requirement is found in
§1817(b)(2) and §1841(b)(2) of the Social Security Act, as amended by the MMA.
Thus, the Medicare warning is a mechanism for alerting policy makers of the impact of Medicare
revenues and outlays on the federal budget, in effect looking at the burden of the Medicare
program on the Treasury. The trigger and the subsequent required legislative proposal by the
President and congressional action serve as an warning that Medicare spending has reached a
statutorily defined critical level. There is no inherent significance to establishing 45% as the
trigger, rather it serves as a level at which Congress has determined it agrees to examine
Medicare’s effect on the Treasury. The formula used to calculate excess general revenue spending
inherently favors some options over others.
While the President must propose, and Congress must consider, legislation to reduce spending
below the trigger, there is no requirement that legislation must be enacted and no automatic
mechanism in place to sequester money. It is also important to note that either chamber may alter
these procedures should a numerical majority choose to do so. Most recently, on January 6, 2008,
the House approved a rules package (H.Res. 5) that nullifies the trigger provision in the House for ^th
two years (the duration of the 111 Congress).
Section 801 of the MMA defines the key terms for a Medicare funding warning:
• Excess general revenue Medicare funding occurs when general revenue Medicare
funding divided by total Medicare outlays exceeds 45%.
• General revenue Medicare funding is defined as total Medicare outlays minus ¹
dedicated financing sources.
• Dedicated financing sources include the following: (1) HI payroll taxes; (2)
amounts transferred from the Railroad Retirement Act; (3) income from taxation
of certain Social Security benefits which are credited to the HI trust fund; (4)
state transfers for the state share of amounts paid to the federal government for
certain beneficiaries; (5) Medicare premiums paid under Parts A (HI), B (SMI)
and D (prescription drugs) of Medicare—including any amounts paid as a result

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of late enrollment penalties (without taking into account reductions in premiums
as a result of rebates received by beneficiaries enrolled in Medicare managed
care plans); (6) and any gifts received by the trust funds. (Interest earned on the
trust fund is excluded from dedicated sources.)
• Total Medicare outlays include the following: (1) total outlays from the HI and
SMI trust funds, (2) payments made to plans under Part C (Medicare Advantage)
for rebates, (3) administrative expenditures for carrying out Medicare, (4) offsets
to outlays by the amount of fraud and abuse collections that are applied or
deposited into a Medicare trust fund.
Because the Medicare trustees issued a warning in 2007,² President Bush was required to submit
legislation to Congress responding to the warning, within the 15-day period, beginning on the ³
date of the budget submission to Congress this year. The President submitted the legislation on
February 15, 2008. This requirement could have been waived if after the warning is issued, but
before the deadline for the Presidential response (1) Congress enacted legislation to eliminate
excess general revenue Medicare funding for the seven-fiscal year reporting period, and (2) if
within 30 days after enactment, the Board of Trustees of the Medicare Trust Funds certified that
the legislation eliminates the funding warning.
In any year in which the MMA requires the President to submit draft Medicare funding
legislation, the act directs that in each chamber, within three days of session after the proposal is
received, the two floor leaders (or their designees) introduce a bill reflecting it, with the title “A
bill to respond to a Medicare funding warning.” The President’s bill was submitted on February

14, 2008, and introduced in the House and the Senate on February 25, 2008. This measure, or,

under certain circumstances, an alternative Medicare funding measure, is potentially subject to
consideration under “fast track” rules established by the statute, rather than under the regular ⁴
rules and procedures that govern consideration of legislation in the two chambers.
These expedited procedures place limits on committee consideration, as well as potentially on
Members’ ability to debate and amend legislation on the floor and to offer certain motions that
would otherwise be in order. These procedures are designed to guarantee that each house will
have an opportunity to consider legislation to eliminate the funding warning. They do not
guarantee, however, that (1) the President’s specific proposal will be the one considered or (2)
Congress will pass legislation to lower general revenue spending below the trigger amount. As
noted above, either chamber may alter these procedures should a numerical majority choose to do

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so. Such action was taken by the House on January 6, 2008, when it approved a rules package ^th
(H.Res. 5) that nullifies the trigger provision for the 111 Congress. The following description of
the procedures and activities for the House thus serves as reference of how the procedures would
otherwise work in the House.
In any year in which the MMA requires the President to submit draft Medicare funding
legislation, the committee(s) of referral must report Medicare funding legislation by June 30. For
this purpose, any other bill with the same title as required for the President’s proposal also
qualifies as Medicare funding legislation, and the requirement to report applies whether or not the
President has submitted a proposal. As a result, the committee may choose to report some other
Medicare funding measure rather than that of the President. The Chairman of the House
Committee on the Budget is responsible for certifying whether or not any Medicare funding
legislation (or any subsequent amendments to it) eliminates the excess general revenue Medicare
funding.
Whether or not the reported measure is affirmatively certified as responding to the funding
warning, the House may consider that measure under its regular procedures. In any year in which
the President is required to submit Medicare funding legislation, however, if the House has not
voted on final passage of an affirmatively certified measure by July 30, then after 30 more
calendar days, including five days of session, any Member may offer a highly privileged motion
to discharge a committee from further consideration of any Medicare funding legislation of which
he or she is in favor, but only if it has been in committee for 30 days, and is affirmatively ⁵
certified. The MMA describes these procedures as a “fallback,” in that they apply only if the
House has not already voted on legislation affirmatively certified to respond to the funding
warning (regardless of whether that legislation passed or not). In addition, once the House agrees
to one such motion to discharge, the motion is no longer in order during that session of Congress.
A motion to discharge made under this “fallback” provision must be made by a supporter,
seconded by one-fifth of the House’s membership (a quorum being present), and is debatable for
one hour. If the House adopts the motion to discharge, the Speaker must, within three days of
session thereafter, resolve the House into Committee of the Whole for consideration of the
legislation. Debate on the measure is not to exceed five hours, and only amendments that have the
affirmative certification of the Committee on the Budget are admitted. Debate on any amendment
is not to exceed 1 hour, and the total time for consideration of all amendments is capped at 10
hours. At the conclusion of consideration, the Committee rises and reports the legislation back to
the House for a final dispositive vote. A motion to recommit the measure with or without
instructions is not precluded.
On July 24, 2008, the House of Representatives adopted H.Res. 1368, a resolution which
provided that the expedited parliamentary procedures contained in Section 803 of the MMA ^th
would not apply in the House during the remainder of the 110 Congress.

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^f^unding^w^a^rⁿ^ing^.

The statutory procedures provided in the Senate for Medicare funding legislation apply to a bill
reflecting a Presidential proposal pursuant to the MMA or to any other bill with the same title that
either (1) was passed by the House or (2) contains matter within the jurisdiction of the Finance
Committee. A measure reflecting the President’s proposal is to be referred to the Senate
Committee on Finance. In a year in which the MMA requires the President to submit Medicare
funding legislation, and whether or not he does so, if the Committee on Finance has not reported
the bill reflecting the President’s proposal or some other Medicare funding legislation by June 30,
then any Senator may move to discharge that committee from any single Medicare funding ⁶
measure. Only one such motion to discharge is in order during a session of Congress. Debate on
the motion to discharge is limited to two hours, a restriction which ensures that a vote on the
motion cannot be prevented by a filibuster.
In combination, these provisions afford the Senate only one assured opportunity to consider
Medicare funding legislation, which will be either the measure the Committee on Finance reports
or the one specified in the discharge motion. In either case, the legislation the Senate will have
the opportunity to consider may or may not be the one that embodies the President’s proposal.
After the date on which the Committee on Finance has reported or been discharged from further
consideration of Medicare funding legislation, it is in order for any Senator to move to proceed to
consideration of the bill. The MMA does not explicitly make this motion non-debatable, although
Senate precedent exists for treating as non-debatable a motion to proceed to consider a measure
under procedures specified by statute. In the absence of such a limitation, it might be possible for
opponents to use a filibuster to prevent this motion from coming to a vote. In any case, because
the MMA establishes no further requirements regarding consideration, if the motion to proceed is
agreed to, the Senate would consider the measure under its general rules. The statute, then, does
not preclude a filibuster of the measure. Nor, if the House and Senate both pass a bill, does the act
make any provision to expedite the resolution by conference committee or otherwise of
differences between the two versions of Medicare funding legislation.
In order to understand the impact of legislation designed to lower the general revenue share, it is
important to understand how the Medicare program is funded. The primary source of financing
for the HI trust fund is the payroll tax on covered earnings, making up about 95% of the money in
the fund. Employers and employees each pay 1.45% of wages and unlike the Social Security tax,
there is no annual maximum limit on taxable earnings. The other sources of revenue for the HI
trust fund include interest paid on the U.S. Treasury securities held in the HI trust fund, a portion
of the federal income taxes that individuals pay on their Social Security benefits, premiums paid
for individuals who would otherwise not qualify for Medicare Part A, and a small amount of
general revenue transfers. HI funding is established through statutory tax rates that cannot be
adjusted to match expenditures. All expenditures for HI benefits are paid for from the HI fund.
The SMI trust fund has different revenue sources. There are no payroll taxes collected for this
fund, and individuals enrolled in Medicare Parts B and D must pay a premium, of about 25% of

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program costs.⁷ Enrollment in Parts B and D is voluntary. Most of the revenues, about 75%, for
the SMI trust fund come from general revenue transfers, with the remainder coming from
premiums, interest paid on the U.S. Treasury securities held in the fund, and other sources, such
as Part D state transfers for certain Medicaid beneficiaries. All SMI benefit expenditures are paid
from the SMI trust fund.
When considering proposals to reduce the general revenue share, some changes have a larger
impact than others for lowering the 45% level. For example, an increase in dedicated revenues, by
either increasing payroll taxes or premiums would have the greatest impact on reducing the
excess general revenues. A equal dollar amount decrease in Part A spending would have the
second greatest impact, and an equal dollar amount decrease in Part B or D spending would have
the least impact. The table below illustrates the effect of changes designed to reduce excess
general revenues. In this hypothetical example, assume that under current law, the general
revenue share would reach 55% in the given year. A $68 billion increase in dedicated revenues
would lower the percent of general revenues to 45%, while a $68 billion decrease in Part A
spending (thus lowering total Medicare outlays) would only reduce the level to 49.4 %. Reducing
total outlays by reducing Part B or D spending has the least impact, because for every dollar
saved, about $0.25 would be offset by reduced beneficiary premiums. Thus, a $68 billion
decrease in Part B spending would only reduce the level to 51.9%. Also as shown in the table, in
order to bring the level down to 45% through reductions in spending, it would require a $124
billion dollar reduction in Part A spending or a $227 billion reduction in Part B or D spending.
Thus dollar for dollar, options to reduce the trigger level are not equal.
Table 1. Illustrative Effect of Options to Lower General Revenues as Percentage of
Total Medicare Outlays under the Trigger Calculation
^(doll^a^{rs in bill}^ions)
^Increase^Decrease^Decrease^Decrease^Decrease
^Dedicated^{Part A}^{Part B}^{Part A}^{Part B}
^Current^{Revenues by}^{Spending by}^{Spending by}^{Spending by}^{Spending by}
^Law^$68^$68^$68^$124^$227
^{Total Medicare}^$76^{0 $76}⁰^$69²^$69²^$63⁶^$53³
^Outlays
^Dedicated^$35^{0 $41}⁸^$35⁰^$33³^$35⁰^$29^3.25
^Revenues
^General^$41^{0 $34}²^$34²^$35⁹^$28⁶^$23^9.75
^{Revenues (Total}
^Outlays-
^Dedicated
^Revenues)
^General^{53.9% 45.0%}^49.4%^51.9%^45.0%^45.0%
^{Revenues as}^{a %}
^{of Total}
^Medicare
^Outlays
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^pre^m^iu^m^s^f^o^{r c}^e^r^ta^{in low}^-^inc^o^m^e^indⁱ^vⁱ^dua^ls.

Even though the trigger combines the HI and SMI trust funds, it is only a formula that does not
directly relate to how the Medicare trust funds operate. Legally, any funds raised for one fund
cannot be used to pay expenses out of the other. As a result of the statutory independence of the
trust funds, the revenues and outlays of each trust fund do not bear upon the other fund.
Therefore, reducing Part A spending would not reduce federal contribution requirements for Part
B and D spending as required under statute. In other words, Parts B and D of Medicare are
financed by a combination of premiums and federal contributions funded through general
revenues transfers. While lowering Part A spending would lower overall Medicare spending and
therefore reduce any “excess general revenue spending,” it would have no impact whatsoever on
the amount of general revenues required to be transferred from the Treasury to the SMI trust fund
in order to finance Part B outlays. Further, increasing dedicated revenues through increased
payroll taxes has no impact on Medicare spending, so that Medicare expenditures could continue
to grow, unchecked, while still technically lowering excess general revenue spending below the

45% level.

Finally, another measure of financial health of the trust fund that is often cited is the date on
which the HI trust fund is expected to be insolvent. This measure is not specifically addressed in
the trigger, as lowering the percentage of general revenue spending through changes in Medicare
Parts B and D would have no impact on the solvency of the HI trust fund.
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