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FY 2018 HHS Agency Financial Report
Topics In This Section: Message from the Acting Chief Financial Officer | Report of the Independent Auditors | Department’s Response to the Report of the Independent Auditor | Principal Financial Statements | Notes to the Principal Financial Statements | Required Supplementary Stewardship Information | Required Supplementary Information
Notes to the Principal Financial Statements
Note 1. Summary of Significant Accounting Policies
A. Reporting Entity
The accompanying financial statements include activities and operations of the United States (U.S.) Department of Health and Human Services (HHS or the Department). In accordance with Statement of Federal Financial Accounting Standards (SFFAS) 47, Reporting Entity, HHS has included all consolidation entities for which it is accountable in this general purpose federal financial report. The Office of the Secretary (OS) and 11 Operating Divisions (OpDivs) listed below and all of their federal funding are consolidated into the HHS financial statements. HHS works with two Federally Funded Research and Development Centers (FFRDC). The FFRDCs are funded as contracts; all related HHS costs are consolidated in the financial statements.
HHS is a Cabinet-level agency within the executive branch of the federal government. Its predecessor, the Department of Health, Education and Welfare (HEW), was officially established on April 11, 1953. In 1979, the Department of Education Organization Act was signed into law. The law established a new federal entity, Department of Education. The HEW officially became HHS on May 4, 1980. HHS is responsible for protecting the health of all Americans and providing essential human services, especially for those who are least able to help themselves.
Organization and Structure of HHS
Each HHS OpDiv is responsible for carrying out a mission, conducting a major line of activity, or producing one or a group of related products and/or services. Although organizationally located within OS, the Program Support Center (PSC) is a responsibility segment and reports separately due to the business activities conducted on behalf of other federal agencies and HHS OpDivs. The Agency for Toxic Substances and Disease Registry (ATSDR) is combined with the Centers for Disease Control and Prevention (CDC) for financial reporting purposes. Therefore, references to the CDC responsibility segment include ATSDR. Managers of the responsibility segments report directly to the Department’s top management and the resources and results of operations can be clearly distinguished from those of other responsibility segments. The 12 responsibility segments are:
- Administration for Children and Families (ACF)
- Administration for Community Living (ACL)
- Agency for Healthcare Research and Quality (AHRQ)
- Centers for Disease Control and Prevention (CDC)
- Centers for Medicare & Medicaid Services (CMS)
- Food and Drug Administration (FDA)
- Health Resources and Services Administration (HRSA)
- Indian Health Service (IHS)
- National Institutes of Health (NIH)
- Office of the Secretary (OS) – excluding the Program Support Center
- Program Support Center (PSC)
- Substance Abuse and Mental Health Services Administration (SAMHSA)
CMS, the largest HHS OpDiv, administers Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and other health related programs. CMS is also a separate reporting entity. The CMS annual financial report can be found at CMS.gov.
B. Basis of Accounting and Presentation
HHS financial statements have been prepared to report the financial position and results of operations of the Department, pursuant to the requirements of 31 U.S. Code (U.S.C.) §3515(b), the Chief Financial Officer Act of 1990 (CFO Act), as amended by the Government Management Reform Act of 1994, and presented in accordance with the requirements in the Office of Management and Budget (OMB) Circular A-136, Financial Reporting Requirements (OMB Circular A-136). These financial statements have been prepared from HHS’s financial records in conformity with accounting principles generally accepted in the U.S. The generally accepted accounting principles (GAAP) for federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board (FASAB) and recognized by the American Institute of Certified Public Accountants as federal GAAP. Therefore, these statements are different from financial reports prepared pursuant to other OMB directives that are primarily used to monitor and control the use of budgetary resources.
Transactions are recorded on an accrual and budgetary basis of accounting. Under the accrual method of accounting, revenues are recognized when earned and expenses are recognized when resources are consumed, without regard to the payment of cash. Budgetary accounting principles are designed to recognize the obligation of funds according to legal requirements, which, in many cases, is prior to the occurrence of an accrual-based transaction. The recognition of budgetary accounting transactions is essential for compliance with legal constraints and controls over the use of federal funds.
The financial statements consolidate the balances of approximately 219 appropriation fund accounts. The fund accounts include accounts used for suspense, collection of receipts, and general government functions. Transactions and balances within HHS have been eliminated in the presentation of the Consolidated Balance Sheets, Statements of Net Cost, and Statement of Changes in Net Position. The Statement of Budgetary Resources is represented on a combined basis. Therefore, transactions and balances within HHS have not been eliminated from that statement. Supplemental information is accumulated from the OpDivs, regulatory reports and other sources within HHS. These statements should be read with the realization that they are for a component of the U.S. government, a sovereign entity. One implication of this is that liabilities cannot be liquidated without legislation providing resources and budget authority for HHS.
C. Use of Estimates in Preparing Financial Statements
Financial statements prepared in accordance with GAAP are based on a selection of accounting policies and the application of significant accounting estimates. Some estimates require management to make significant assumptions. Further, the estimates are based on current conditions that may change in the future. Actual results could differ materially from the estimated amounts. The financial statements include information to assist the reader in understanding the effect of changes in assumptions on the related information.
D. Patient Protection and Affordable Care Act
In FY 2010, President Barack Obama signed the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act collectively referred to as the PPACA. Further information is available at Healthcare.gov.
The PPACA contains the most significant changes to health care coverage since the Social Security Act. The PPACA provided funding for the establishment by CMS of a Center for Medicare and Medicaid Innovation to test innovative payment and service delivery models to reduce program expenditures while preserving or enhancing the quality of care furnished to individuals. It also allowed for the establishment of the Center for Consumer Information and Insurance Oversight (CCIIO). One of the main programs under CCIIO is the Health Insurance Exchanges (the “Exchanges”). A brief description of the remaining programs is presented below. There were two additional programs - Transitional Reinsurance and Risk Corridors – that are no longer in operation.
Health Insurance Exchanges
Grants have been provided to the States to establish Health Insurance Exchanges. The initial grants were made by HHS to the States “not later than one (1) year after the date of enactment.” Thus, HHS made the initial grants by March 23, 2011. Subsequent grants were issued by CMS through December 31, 2014, after which time no further grants could be made. All Exchanges were launched on October 1, 2013.
Risk Adjustment Program
The risk adjustment program is a permanent program. It applies to non-grandfathered individuals and small group plans inside and outside the Exchanges. It provides payments to health insurance issuers that disproportionately attract higher-risk populations (such as individuals with chronic conditions) and transfers funds from plans with relatively lower risk enrollees to plans with relatively higher risk enrollees to protect against adverse selection. States that operate a State-based Exchange are eligible to establish a risk adjustment program. States operating a risk adjustment program may have an entity other than the Exchange perform this function. CMS operates a risk adjustment program for each state that does not operate its own risk adjustment program.
E. Parent/Child Reporting
Allocation transfers are legal delegations by one agency of its authority to obligate budget authority and outlay funds to another agency. HHS has allocation transfers with other federal entities as both a transferring (parent) entity and a receiving (child) entity. All financial activity related to these allocation transfers is reported in the financial statements of the parent entity, from which the underlying legislative authority, appropriations, and budget apportionments are derived.
HHS received an exception to the parent/child reporting requirements of OMB Circular A‑136, as it pertains to the allocation transfer from Department of Homeland Security to HHS for the Biodefense Countermeasures Fund for Fiscal Year (FY) 2008 and beyond. Under this exception, HHS, as the child, assumed the financial statement reporting responsibilities of this fund.
Under the PPACA, HHS has established a child relationship with the Internal Revenue Service (IRS) of the Department of the Treasury (Treasury) for the payment of the advance premium tax credits to insurance providers. No financial activity is included in HHS’s financial statements.
HHS also receives allocation transfers, as the child, from the Departments of Agriculture, Justice, and State. HHS allocates funds, as the parent, to the Bureau of Indian Affairs of the Department of the Interior (DOI), Treasury, and Social Security Administration (SSA.
F. Changes, Reclassifications and Adjustments
HHS revised the format of the Consolidated Statement of Changes in Net Position and Combined Statement of Budgetary Resources and reclassified certain FY 2017 balances to conform to FY 2018 financial statement presentations in accordance with the OMB Circular A-136. The effects are immaterial. The memorandum line within the new formats of the Statement of Budgetary Resources has been determined by OMB to be an illustrative disclosure and it is not required. Since this is not required, HHS’s Statement of Budgetary Resources presentation does not include the memorandum line, which is the net adjustment to unobligated balance brought forward. Account balances for this line have been reflected in Budgetary Resource amounts.
HHS implemented SFFAS 53, Budget and Accrual Reconciliation this year. This standard is effective for reporting periods beginning after September 30, 2018, and allows early adoption. Comparison with the prior year is not required in the initial year of implementation. SFFAS 53 amends the requirement for a reconciliation between budgetary and financial accounting information. Last year’s note, Reconciliation of Net Cost of Operations (Proprietary) to Budget (also known as the Statement of Financing) is replaced by the new Budget and Accrual Reconciliation. The Budget and Accrual Reconciliation explains the relationship between the entity’s net outlays on a budgetary basis and the net cost of operations during the reporting period.
G. Funds from Dedicated Collections
Generally, funds from dedicated collections are financed by specifically identified revenues, provided to the government by non-federal sources, often supplemented by other financing sources, which remain available over time. Dedicated collections must meet the following criteria:
- A statute committing the federal government to use specifically identified revenues and/or other financing sources that are originally provided to the federal government from a non-federal source only for designated activities, benefits, or purposes;
- Explicit authority for the fund to retain revenues and/or other financing sources not used in the current period for future use to finance the designated activities, benefits, or purposes; and
- A requirement to account for and report on the receipt, use, and retention of the revenues and/or other financing sources that distinguishes the dedicated collections from the federal government’s general revenues.
HHS’s major funds from dedicated collections are described in the sections below.
Medicare Hospital Insurance (HI) Trust Fund – Part A
Section 1817 of the Social Security Act established the Medicare HI Trust Fund. Benefit payments made by the Medicare contractors for Medicare Part A services as well as administrative costs are charged to the HI Trust Fund. A portion of HHS payments to Medicare Advantage Plans is also charged to this fund. The financial statements include the HI Trust Fund activities administered by Treasury. The HI Trust Fund has permanent indefinite authority.
Employment tax revenue is the primary source of financing for the Medicare HI program. Medicare’s portion of payroll and self-employment taxes is collected under the Federal Insurance Contributions Act (FICA) (26 U.S.C. Ch. 21) and Self Employment Contributions Act of 1954 (SECA [Ch. 2 of Subtitle A of the Internal Revenue Code, 26 U.S.C. §1401 through §1403]). Employees and employers are both required to contribute 1.45 percent of earnings, with no limitation, to the HI Trust Fund. Self-employed individuals contribute the full 2.9 percent of their net income. The Social Security Act requires the transfer of these contributions from the General Fund of the U.S. Government (General Fund) to the HI Trust Fund based on the amount of wages certified by the Commissioner of Social Security from the SSA records of wages established and maintained by SSA in accordance with wage information reports.
Medicare Supplementary Medical Insurance (SMI) Trust Fund – Part B
Section 1841 of the Social Security Act established the Medicare SMI Trust Fund. Benefit payments made by the Medicare contractors for Medicare Part B services, as well as administrative costs, are charged to the SMI Trust Fund. A portion of HHS payments to Medicare Advantage Plans is also charged to this fund. The financial statements include SMI Trust Fund activities administered by the Treasury. The SMI Trust Fund has permanent indefinite authority.
SMI benefits and administrative expenses are generally financed by monthly premiums paid by Medicare beneficiaries and are matched by the federal government through the General Fund appropriation, Payments to the Health Care Trust Funds. Section 1844 of the Social Security Act authorizes appropriated funds to match SMI premiums collected and prescribes the ratio for the match as well as the method to fully compensate the Trust Fund if insufficient funds are available in the appropriation to match all premiums received in the fiscal year.
Medicare SMI Trust Fund – Part D
The Medicare Modernization Act of 2003 established the Medicare Prescription Drug Benefit – Part D. HHS reports the Prescription Drug Benefit within the financial statements as part of the SMI Trust Fund, in the Medicare column. Medicare also helps employers and unions continue to provide retiree drug coverage that meets Medicare’s standards through the Retiree Drug Subsidy. The Low Income Subsidy helps those with limited income and resources.
Medicare and Medicaid Integrity Programs
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established the Medicare Integrity Program at section 1893 of the Social Security Act. HIPAA section 201 also established the Health Care Fraud and Abuse Control Account, which provides a dedicated appropriation for carrying out the Medicare Integrity Program. The Medicare Integrity Program is funded by the HI trust fund.
Separately, the Medicaid Integrity Program was established by the Deficit Reduction Act of 2005 (DRA), and codified at section 1936 of the Social Security Act. The Medicaid Integrity Program represents the Federal government’s first national strategy to detect and prevent Medicaid fraud and abuse.
H. Revenue and Financing Sources
HHS receives the majority of funding needed to support its discretionary programs through Congressional appropriations and user fees. The U.S. Constitution prescribes that no money may be expended by an agency unless the funds have been made available by Congressional appropriation. Appropriations are recognized as financing sources when related expenses are incurred or assets are purchased. Revenues from reimbursable agreements are recognized when the goods or services are provided by HHS. Other financing sources, such as donations and transfers of assets without reimbursements, are also recognized on the Consolidated Statement of Changes in Net Position.
Appropriations
HHS receives annual, multi-year, and no-year appropriations that may be used within statutory limits. For example, funds for general operations are normally made available for one fiscal year. Funds for long-term projects such as major construction will be available for the expected life of the project, and funds used to establish revolving fund operations are generally available indefinitely (i.e., no-year funds).
Permanent Indefinite Appropriations
HHS permanent indefinite appropriations are open-ended; the dollar amount is unknown at the time the authority is granted. These appropriations are available for specific purposes without current year action by Congress.
Exchange Revenue
Exchange revenue results when HHS provides goods or services to another entity for a price and is recognized when earned (i.e., when goods have been delivered or services have been rendered). These revenues reduce the cost of operations.
HHS pricing policy for reimbursable agreements is to recover full cost and should result in no profit or loss for HHS. In addition to revenues related to reimbursable agreements, HHS collects various user fees to offset the cost of its services. Certain fees charged by HHS are based on an amount set by law or regulation and may not represent full cost.
With minor exceptions, all revenue receipts by federal agencies are processed through the Treasury Central Accounting Reporting System. Regardless of whether they are derived from exchange or non-exchange transactions, all receipts not earmarked by Congressional appropriation for immediate HHS use are deposited in the General Fund or HHS designated Special Funds. Amounts not retained for use by HHS are reported as Transfers-in/out Without Reimbursement to other government agencies on the HHS Consolidated Statement of Changes in Net Position.
Non-Exchange Revenue
Non-exchange revenue results from donations to the government and from the government’s sovereign right to demand payment, including taxes. Non-exchange revenues are recognized when a specifically identifiable, legally-enforceable claim to resources arises, but only to the extent that collection is probable and the amount is reasonably estimable.
Non-exchange revenue is not considered to reduce the cost of the Department’s operations and is separately reported on the Consolidated Statement of Changes in Net Position. Employment tax revenue collected under FICA and SECA is considered non-exchange revenue.
Imputed Financing Sources
In certain instances, HHS’s operating costs are paid out of funds appropriated to other federal entities. For example, by law, certain costs of retirement programs are paid by the Office of Personnel Management (OPM) and certain legal judgments against HHS are paid from the Judgment Fund maintained by Bureau of Fiscal Service (Fiscal Service), Treasury. When costs are identifiable to HHS, directly attributable to HHS’s operations, and paid by other agencies, HHS recognizes these amounts as imputed costs within the Consolidated Statements of Net Cost and as an imputed financing source on the Consolidated Statement of Changes in Net Position.
I. Intragovernmental Transactions and Relationships
Intragovernmental transactions are business activities conducted between two different federal entities. Transactions with the public are transactions in which either the buyer or seller of the goods or services is a non-federal entity.
If a federal entity purchases goods or services from another federal entity and sells them to the public, the exchange revenue is classified as with the public, but the related costs would be classified as intragovernmental. The purpose of the classifications is to enable the federal government to provide consolidated financial statements and not to match public and intragovernmental revenue with costs incurred to produce public and intragovernmental revenue.
In the course of operations, HHS has relationships and financial transactions with numerous federal agencies including SSA and Treasury. SSA determines eligibility for Medicare programs and also deducts Medicare Part B premiums from Social Security benefit payments for Social Security beneficiaries who elect to enroll in the Medicare Part B program and elect to deduct their premiums from their benefit checks. SSA then transfers those funds to the Medicare Part B Trust Fund. Treasury receives the cumulative excess of Medicare receipts and other financing over outlays and issues interest-bearing securities in exchange for the use of those monies. Medicare Part D is primarily financed by the General Fund as well as beneficiary premiums and payments from states.
J. Entity and Non-Entity Assets
Entity assets are assets the reporting entity has authority to use in its operations (i.e., management has the authority to decide how the funds are used), or management is legally obligated to use the funds to meet entity obligations.
Non-entity assets are assets held by the reporting entity, but not available for use. HHS non-entity assets are related to delinquent child support payments withheld from federal tax refunds for the Child Support Enforcement program, interest accrued on over-payments, and cost settlements reported by the Medicare contractors.
K. Fund Balance with Treasury (FBwT)
The FBwT is the aggregate amount of funds in the Department’s accounts with Treasury. FBwT is available to pay current liabilities and finance authorized purchases. Treasury processes cash receipts and disbursements for the Department’s operations. HHS reconciles FBwT accounts with Treasury on a regular basis.
L. Custodial Activity
HHS reports custodial activities on its Consolidated Balance Sheets in accordance with OMB Circular A-136. However, HHS does not prepare a separate Statement of Custodial Activity since custodial activities are incidental to its operations and the amounts collected are immaterial.
ACF receives funding from the IRS for outlay to the states for child support. This funding represents delinquent child support payments withheld from federal tax refunds. FDA custodial activity involves collections of Civil Monetary Penalties that are assessed by the Department of Justice on behalf of the FDA. FDA is charged with assessing penalties for violations in areas such as illegally manufactured, marketed, and distributed animal food and drug products. CDC's custodial activity consists of the collection of interest on outstanding receivables and funds received from debts in collection status.
M. Investments, Net
HHS invests entity Medicare Trust Fund balances in excess of current needs in U.S. securities. The Treasury acts as the fiscal agent for the U.S. government’s investments in securities. Sections 1817 and 1841 of the Social Security Act require that funds in the HI and SMI Trust Funds not needed to meet current expenditures be invested in interest-bearing obligations or in obligations guaranteed as to both principal and interest by the U.S. government. The cash receipts, collected from the public as dedicated collections, are deposited with the Treasury, which uses the cash for general governmental purposes. Treasury securities are issued by the Fiscal Service to the HI and SMI Trust Funds as evidence of their receipt and are reported as an asset of the Trust Funds and a corresponding liability of the Treasury. The federal government does not set aside assets to pay future benefits or other expenditures associated with the HI or SMI Trust Funds.
The Treasury securities provide the HI and SMI Trust Funds with authority to draw upon the Fiscal Service to make future benefit payments or other expenditures. When the Trust Funds require redemption of these securities to make expenditures, the government finances the expenditures by raising taxes, raising other receipts, borrowing from the public or repaying less debt, or curtailing other expenditures. This is the same way that the government finances all expenditures.
The Treasury securities issued and redeemed to the HI and SMI Trust Funds are Non-marketable (Par Value) securities. These investments are carried at face value as determined by the Fiscal Service. Interest income is compounded semi-annually (i.e., June and December) by the Fiscal Service; and at fiscal year-end, interest income is adjusted to include an accrual for interest earned from July 1 to September 30 (See Note 4).
The Vaccine Injury Compensation Trust Fund, a dedicated collections fund similar to the HI and SMI Trust Funds, invests in Non-Marketable, Market-Based securities issued by the Fiscal Service in the form of One Day Certificates and Market-Based Bills, Notes, and Bonds.
The NIH Gift Funds are invested in Non-Marketable, Market-Based Securities issued by the Fiscal Service. Funds are invested for either a 90 or 180-day period based on the need for funds. No provision is made for unrealized gains or losses on these securities, since it is HHS’s intent to hold investments to maturity.
The Children’s Health Insurance Program Reauthorization Act of 2009 established a Child Enrollment Contingency Fund to cover shortfalls in funding for the States. This fund is invested in interest-bearing Treasury securities.
N. Accounts Receivable, Net
Accounts Receivable, Net consists of the amounts owed to HHS by other federal agencies and the public for the provision of goods and services, less an allowance for uncollectible accounts on public receivables. Intragovernmental accounts receivable consist of the amounts owed to HHS by other federal agencies for reimbursable work. No allowance for uncollectible amounts is established for intragovernmental accounts receivable because they are considered fully collectible. Accounts Receivable, Net from the public are primarily composed of provider and beneficiary over-payments: Medicare Prescription Drug over-payments, Medicare premiums, civil monetary penalties, criminal restitution, state phased-down contributions, Medicaid/CHIP overpayments, audit disallowances, and Medicare Secondary Payer accounts receivable.
Accounts Receivable, Net from the public is net of an allowance for uncollectible accounts. The allowance is based on past collection experience and an analysis of outstanding balances. For Medicare accounts receivable, HHS calculates the allowance for uncollectible accounts based on the collection activity and the age of the debt for the most current fiscal year, while taking into consideration the average uncollectible percentage for the preceding 5 years. The Medicaid accounts receivable have been recorded at a net realizable amount based on historical analyses of actual recoveries and the rate of disallowances found in favor of the states. Other accounts receivable have been recorded to account for amounts due from exchange activities.
O. Advances and Accrued Grant Liability
HHS awards grants and provides advance payments to meet grantees’ cash needs in carrying out HHS programs. Advance payments are liquidated upon grantees reporting expenditures on the quarterly Federal Financial Report. In some instances, grantees incur expenditures before drawing down funds that, when claimed, would reduce the Advances account to a negative balance. An Accrued Grant Liability is shown on the Consolidated Balance Sheets when the accrued grant expenses exceed the outstanding advances to grantees.
For most grants, grantees draw funds based on their estimated cash needs. As grantees report their actual disbursements quarterly, the amounts are recorded as expenses and their advance balances are reduced. At year-end, the OpDivs report both actual payments made through the fourth quarter and an amount accrued for unreported grant expenditures estimated for the fourth quarter based on the grantees’ historical spending patterns.
Formula grants and block grants are funded differently. Grantees provide services or payments to individuals and local agencies from a fixed amount of money. These grants are funded based on allocations determined by budgets and agreements approved by the sponsoring OpDiv. The expenses are recorded as the grantees draw funds; no year-end accrual is required.
P. Inventory and Related Property, Net
Inventory and Related Property, Net primarily consists of Inventory Held for Sale and Use including operating materials and supplies, and stockpile materials.
Inventory Held for Sale consists of small equipment and supplies held by the Service and Supply Funds (SSF) for sale to HHS components and other federal entities. Inventories Held for Sale are valued at historical cost using the weighted average valuation method for the PSC’s SSF inventories and using the moving average valuation method for the NIH’s SSF inventories.
Operating materials and supplies include pharmaceuticals, biological products, and other medical supplies used to provide medical services and conduct medical research. They are recorded as assets when purchased and are expensed when consumed. Operating materials and supplies are valued at historical cost using the first-in/first-out (FIFO) cost flow assumption.
Stockpile materials are held in reserve to respond to local and national emergencies. HHS maintains several stockpiles for emergency response purposes, which include the Strategic National Stockpile (SNS), Vaccines for Children (VFC) and Avian Influenza (H5N1). The H5N1 vaccine stockpile is held in reserve to respond to an avian flu pandemic declaration. The stockpile contains several million doses of vaccine in bulk which are stored and maintained for possible use.
Project BioShield has increased the preparedness of the nation by procuring medical countermeasures that include anthrax vaccine, anthrax antitoxins, botulin antitoxins, and blocking and decorporation agents for a radiological event. All stockpiles are valued at historical cost, using various cost flow assumptions, including the FIFO for SNS and specific identification for VFC and H5N1.
Q. General Property, Plant and Equipment, Net
General Property, Plant, and Equipment, Net consists of buildings, structures, and facilities used for general operations, land acquired for general operating purposes, equipment, assets under capital lease, leasehold improvements, construction-in-progress, and internal use software. The basis for recording purchased Property, Plant and Equipment is full cost, including all costs incurred to bring the Property, Plant, and Equipment to a form and location suitable for its intended use and is presented net of accumulated depreciation.
The cost of General Property, Plant, and Equipment acquired under a capital lease is the amount recognized as a liability for the capital lease at its inception. When property is acquired through a donation, the cost recognized is the estimated fair market value on the date of acquisition. The cost of General Property, Plant and Equipment transferred from other federal entities is the transferring entity’s net book value. Except for internal use software, HHS capitalizes all General Property, Plant, and Equipment with an initial acquisition cost of $25,000 or more and an estimated useful life of 2 years or more.
HHS has commitments under various operating leases with private entities as well as the General Services Administration (GSA) for offices, laboratory space, and land. Leases with private entities have initial or remaining non-cancelable lease terms from 1 to 50 years; however, some GSA leases are cancelable with 120 days’ notice. Under an operating lease, the cost of the lease is expensed as incurred.
General Property, Plant and Equipment is depreciated using the straight-line method over the estimated useful life of the asset. Land and land rights, including permanent improvements, are not depreciated. Normal maintenance and repair costs are expensed as incurred.
In accordance with SFFAS 10, Accounting for Internal Use Software, capitalization of internally developed, contractor-developed/commercial off-the-shelf software begins in the software development phase. HHS’s capitalization threshold for internal use software costs for appropriated fund accounts is $1.0 million and the threshold for revolving fund accounts is $500,000. Costs below the threshold levels are expensed. Software is amortized using the straight line method over a period of 5 to 10 years consistent with the estimated life used for planning and acquisition purposes. Capitalized costs include all direct and indirect costs.
R. Stewardship Land
HHS stewardship land (i.e., land not acquired for or in connection with general property, plant, and equipment) is Indian Trust land used to support the IHS day-to-day operations of providing health care to American Indians and Alaska Natives in remote areas of the country where no other facilities exist. In accordance with SFFAS 29, Heritage Assets and Stewardship Land, HHS does not report a related amount on the Consolidated Balance Sheets.
HHS asset accountability reports differentiate Indian Trust land parcels from General Property, Plant and Equipment situated thereon.
S. Liabilities
Liabilities are recognized for amounts of probable and measurable future outflows or other sacrifices of resources as a result of past transactions or events. Since HHS is a component of the U.S. government, a sovereign entity, its liabilities cannot be liquidated without legislation that provides resources to do so. Payments of all liabilities other than contracts can be abrogated by the sovereign entity. In accordance with public law and existing federal accounting standards, no liability is recognized for future payments to be made on behalf of current workers contributing to the Medicare HI Trust Fund, since liabilities are only those items that are present obligations of the government. HHS’s liabilities are classified as covered by budgetary resources, not covered by budgetary resources, or not requiring budgetary resources.
Liabilities Covered by Budgetary Resources
Available budgetary resources include new budget authority, spending authority from offsetting collections, recoveries of expired budget authority, unobligated balances of budgetary resources at the beginning of the year, permanent indefinite appropriation, and borrowing authority.
Liabilities Not Covered by Budgetary Resources
Sometimes funding has not yet been made available through Congressional appropriation or current earnings. The major liabilities in this category include contingencies, employee annual leave earned, but not taken, and amounts billed by the Department of Labor (DOL) for disability payments. The actuarial Federal Employee Compensation Act (FECA) liability determined by the DOL but not yet billed is also included in this category.
T. Accounts Payable
Accounts Payable primarily consist of amounts due for goods and services received, progress in contract performance, interest due on accounts payable, and other miscellaneous payables.
U. Accrued Payroll and Benefits
Accrued Payroll and Benefits consist of salaries, wages, leave, and benefits earned by employees but not disbursed at the end of the reporting period. A liability for annual and other vested compensatory leave is accrued as earned and reduced when taken. At the end of each fiscal year, the balance in the accrued annual leave liability account is adjusted to reflect current pay rates. Annual leave earned but not taken is considered an unfunded liability, since it will be funded from future appropriations when it is actually taken by employees. Sick leave and other types of leave are not accrued and are expensed when taken. Intragovernmental Accrued Payroll and Benefits consist primarily of HHS’s current FECA liability to DOL.
V. Entitlement Benefits Due and Payable
Entitlement Benefits Due and Payable represents a liability for Medicare, Medicaid and CHIP owed to the public for medical services/claims Incurred But Not Reported (IBNR) as of the end of the reporting period.
Medicare
The Medicare liability is developed by the CMS Office of the Actuary and includes:
- An estimate of claims incurred that may or may not have been submitted to the Medicare contractors, but not yet approved for payment;
- Actual claims approved for payment by the Medicare contractors for which checks have not yet been issued;
- Checks issued by the Medicare contractors in payment of claims that have not yet been cashed by payees;
- Periodic interim payments for services rendered in the current fiscal year but paid in the subsequent fiscal year;
- An estimate of retroactive settlements of cost reports submitted to the Medicare contractors by health care providers;
- Amounts which may be due/owed to providers for previous years’ disputed cost report adjustments for disproportionate share hospitals and teaching hospitals as well as amounts which may be due/owed to hospitals for adjusted prospective payments;
- Amounts owed to Medicare Advantage and Prescription Drug plans after completion of the Prescription Drug payment reconciliation and estimates relating to risk and other payment related adjustments including the estimate for the first 9 months of calendar year 2018; and
- An estimate of payments due to plan sponsors of retiree prescription drug coverage incurred but not yet paid as of September 30, 2018.
HHS develops estimates for medical costs IBNR using an actuarial process that is consistently applied, centrally controlled, and automated. The actuarial models consider factors such as time from date of service to claim receipt, claim backlogs, medical care professional contract rate changes, medical care consumption, and other medical cost trends. HHS estimates liabilities for physician, hospital and other medical cost disputes based upon an analysis of potential outcomes, assuming a combination of litigation and settlement strategies.
Each period, HHS re-examines previously established medical cost payable estimates based on actual claim submissions and other changes in facts and circumstances. As the liability estimates recorded in prior periods become more exact, HHS adjusts the amount of the estimates and includes the changes in estimates in medical costs in the period in which the change is identified. In every reporting period, HHS operating results include the effects of more completely developed Medicare benefits payable estimates associated with previously reported periods.
Medicaid and CHIP
The Medicaid and the CHIP estimates represent the net federal share of expenses incurred by the states but not yet reported to HHS.
W. Federal Employee and Veterans’ Benefits
HHS administers the Public Health Service (PHS) Commissioned Corps Retirement System (authorized by the Public Health Service Act), a defined non-contributory benefit plan, for its active duty officers, retiree annuitants and survivors. The plan does not have accumulated assets and funding is provided entirely on a pay-as-you-go basis by Congressional appropriation. HHS records the present value of the Commissioned Corps pension and post-retirement health benefits on the Consolidated Balance Sheets. Gains or losses from changes in assumptions in the PHS Commissioned Corps retirement benefits are recognized at year-end on the Statements of Net Cost.
The liability for federal employee and veterans’ benefits also includes an actuarial liability for estimated future payments for workers’ compensation pursuant to the FECA. FECA provides income and medical cost protection to federal employees who are injured on the job or who sustained a work-related occupational disease. It also covers beneficiaries of employees whose deaths are attributable to job-related injury or occupational disease. The FECA program is administered by DOL, which pays valid claims and subsequently bills the employing federal agency. The FECA liability consists of two components: (1) actual claims billed by the DOL to agencies but not yet paid; and (2) an estimated liability for future benefit payments as a result of past events such as death, disability, and medical costs. The claims that have been billed by DOL are included in Accrued Payroll and Benefits.
Most HHS employees participate in the Civil Service Retirement System (CSRS), a defined benefit plan, or the Federal Employees Retirement System (FERS), a defined benefit and contribution plan. For employees covered under CSRS, the Department contributes a fixed percentage of pay. Most employees hired after December 31, 1983, are automatically covered by the FERS. The FERS plan has 3 parts: a defined benefit payment, Social Security benefits, and the Thrift Savings Plan. For employees covered under FERS, HHS contributes a fixed percentage of pay for the defined benefit portion and the employer’s matching share for Social Security and Medicare Insurance. HHS automatically contributes 1 percent of each employee’s pay to the Thrift Savings Plan and matches the first 3 percent of employee contributions dollar for dollar. Each additional dollar of the employee’s next 2 percent of basic pay is matched at 50 cents on the dollar.
OPM is the administering agency for both of these benefit plans and, thus, reports CSRS and FERS assets, accumulated plan benefits, and unfunded liabilities applicable to federal employees. Therefore, HHS does not recognize any liability on its Consolidated Balance Sheets for pensions, other retirement benefits, or other post-employment benefits of its federal employees with the exception of the PHS Commissioned Corps. However, HHS does recognize an expense in the Consolidated Statements of Net Cost and an imputed financing source for the annualized unfunded portion of pension and post-retirement benefits in the Consolidated Statement of Changes in Net Position. Gains or losses from changes in assumptions in the PHS Commissioned Corps retirement benefits are recognized at year-end.
X. Contingencies
A loss contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible loss to HHS. The uncertainty ultimately should be resolved when one or more future events occur or fail to occur. The likelihood that the future event or events will confirm the loss or the incurrence of a liability can range from probable to remote. SFFAS 5, Accounting for Liabilities of the Federal Government, as amended by SFFAS 12, Recognition of Contingent Liabilities from Litigation, contains the criteria for recognition and disclosure of contingent liabilities.
HHS and its components could be parties to various administrative proceedings, legal actions, and claims brought by or against it. With the exception of pending, threatened or potential litigation, a contingent liability is recognized when a past transaction or event has occurred, a future outflow or other sacrifice of resources is more likely than not to occur, and the related future outflow or sacrifice of resources is measurable. For pending, threatened, or potential litigation, a contingent liability is recognized when a past transaction or event has occurred, a future outflow or other sacrifice of resources is likely to occur and the related future outflow or sacrifice of resources is measurable.
HHS has no material obligations related to cancelled appropriations for which there is a contractual commitment for payment or for contractual arrangements which may require future financial obligations.
Y. Statement of Social Insurance (unaudited)
The Statement of Social Insurance presents the projected 75-year actuarial present values of the income and expenditures of the HI and SMI Trust Funds. Future expenditures are expected to arise from the health care payment provisions specified in current law for current and future program participants and from associated administrative expenses. Actuarial present values are computed on the basis of the intermediate set of assumptions specified in the Annual Report of the Medicare Board of Trustees. These assumptions represent the Trustees’ reasonable estimate of likely future economic, demographic, and health care-specific conditions. The projected potential future income and expenditures under current law are not included in the accompanying Consolidated Balance Sheets, Statements of Net Cost, Statement of Changes in Net Position, or Combined Statement of Budgetary Resources.
In order to make projections regarding the future financial status of the HI and SMI Trust Funds, various assumptions have to be made. The projections in this report (with one exception related to depletion of the HI Trust Fund), are based on current law; that is, they assume that laws on the books will be implemented and adhered to with respect to scheduled taxes, premium revenues, and payments to providers and health plans. The estimates depend on many economic, demographic, and health care-specific assumptions. These include changes in per beneficiary health care cost, wages, the gross domestic product (GDP), the consumer price index (CPI), fertility rates, mortality rates, immigration rates, and interest rates. In most cases, these assumptions vary from year to year during the first 5 to 30 years before reaching their ultimate values for the remainder of the 75-year projection period. The assumed growth rates for per beneficiary health care costs vary throughout the projection period.
The assumptions underlying the Statement of Social Insurance actuarial projections are drawn from the 2018 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Fund and Social Security (Medicare Trustees Report) and the 2018 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (OASDI Trustees Report). Specific assumptions are made for each of the different types of service provided by the Medicare program (for example, hospital care and physician services). These assumptions include changes in the payment rates, utilization, and intensity of each type of service.
Note 2. Entity and Non-Entity Assets (in Millions)
| 2018 | 2017 | |
|---|---|---|
| Non-Entity Intragovernmental Assets | $- | $2 |
| Non-Entity With the Public Assets | 45 | 47 |
| Total Non-Entity Assets | 45 | 49 |
| Total Entity Assets | 604,482 | 566,774 |
| Total Assets | $604,527 | $566,823 |
Note 3. Fund Balance with Treasury (in Millions)
| 2018 | 2017 | |
|---|---|---|
| Status of Fund Balance with Treasury |
|
|
| Unobligated Balance | ||
| Available | $43,696 | $3,273 |
| Unavailable | 34,031 | 32,117 |
| Obligated Balance not yet Disbursed | 237,535 | 234,869 |
| Non-Budgetary Fund Balance with Treasury | (65,099) | (60,506) |
| Total Fund Balance with Treasury | $250,163 | $209,753 |
The Unobligated Balance includes funds that are restricted for future use and not apportioned for current use of $14.7 billion as of September 30, 2018 ($11.2 billion in FY 2017). The restricted amount is primarily for the PPACA programs, CHIP, CMS Program Management, and State Grants and Demonstrations.
Note 4. Investments, Net (in Millions)
| 2018 | Cost | Amortized (Premium) | Interest Receivable | Investments, Net | Market Value Disclosure |
|---|---|---|---|---|---|
| Intragovernmental Securities | |||||
| Non-Marketable: Par Value | $301,003 | $- | $2,249 | $303,252 | $303,252 |
| Non-Marketable: Market-Based | 3,827 | 20 | 16 | 3,863 | 3,863 |
| Total, Intragovernmental | $304,830 | $20 | $2,265 | $307,115 | $307,115 |
| 2017 | Cost | Amortized (Premium) | Interest Receivable | Investments, Net | Market Value Disclosure |
|---|---|---|---|---|---|
| Intragovernmental Securities | |||||
| Non-Marketable: Par Value | $268,423 | $- | $2,278 | $270,701 | $270,701 |
| Non-Marketable: Market-Based | 5,000 | (210) | 33 | 4,823 | 4,823 |
| Total, Intragovernmental | $273,423 | $(210) | $2,311 | $275,524 | $275,524 |
HHS investments consist primarily of Medicare Trust Fund investments. Medicare Non-Marketable: Par Value Bonds are carried at face value and have maturity dates ranging from June 30, 2019, through June 30, 2033, with interest rates ranging from 1.88 percent to 5.13 percent. Medicare Non-Marketable: Par Value Certificates of Indebtedness mature on June 30, 2019, with interest rates ranging from 2.88 percent to 3.0 percent.
Securities held by the Vaccine Injury Compensation Trust Fund will mature in FY 2019 through FY 2023. The Market-Based Notes paid from 1.0 percent to 2.0 percent during October 1, 2017, to September 30, 2018, and 1.0 percent to 3.875 percent during October 1, 2016, to September 30, 2017. The Market-Based Bonds pay 6.875 percent through FY 2025.
The Market-Based Securities held in the NIH gift funds during 12 months of FY 2018, yielded from 1.0578 percent to 2.1379 percent depending on date purchased and length of time to maturity.
Note 5. Accounts Receivable, Net (in Millions)
| 2018 | Accounts Receivable, Principal | Interest Receivable | Accounts Receivable, Gross | Allowance | HHS Receivables, Net |
|---|---|---|---|---|---|
| Intragovernmental | |||||
| Entity | $1,129 | $- | $1,129 | $- | $1,129 |
| Total, Intragovernmental | $1,129 | $- | $1,129 | $- | $1,129 |
| With the Public | |||||
| Entity | |||||
| Medicare | $21,039 | $- | $21,039 | $(3,286) | $17,753 |
| Medicaid | 5,101 | - | 5,101 | (957) | 4,144 |
| Other | 5,379 | 305 | 5,684 | (824) | 4,860 |
| Non-Entity | 12 | 65 | 77 | (32) | 45 |
| Total with the Public | $31,531 | 370 | 31,901 | (5,099) | 26,802 |
| 2017 | Accounts Receivable, Principal | Interest Receivable | Accounts Receivable, Gross | Allowance | HHS Receivables, Net |
|---|---|---|---|---|---|
| Intragovernmental | |||||
| Entity | $962 | $- | $962 | $- | $962 |
| Total, Intragovernmental | $962 | $- | $962 | $- | $962 |
| With the Public | |||||
| Entity | |||||
| Medicare | $23,192 | $- | $23,192 | $(2,520) | $20,672 |
| Medicaid | 7,029 | - | 7,029 | (993) | 6,036 |
| Other | 6,806 | 288 | 7,094 | (762) | 6,332 |
| Non-Entity | 12 | 67 | 79 | (32) | 47 |
| Total with the Public | $37,039 | $355 | $37,394 | $(4,307) | $33,087 |
As of September 30, 2018, the other accounts receivable with the public is primarily related to collections for Exchange activities and restitution. For FY 2018, restitution gross balances are approximately $2 billion with a net balance of $65 million.
Note 6. Inventory and Related Property, Net (in Millions)
| 2018 | 2017 | |
|---|---|---|
| Inventory Held for Sale or Use | $48 | $74 |
| Stockpile Materials Held for Emergency or Contingency | 9,767 | 9,624 |
| Inventory and Related Property, Net | $9,815 | $9,698 |
Note 7. General Property, Plant and Equipment, Net (in Millions)
| 2018 | Depreciation Method | Estimated Useful Lives | Acquisition Cost | Accumulated Depreciation | Net Book Value |
|---|---|---|---|---|---|
| Land & Land Rights | - | - | $54 | $- | $54 |
| Construction in Progress | - | - | 771 | - | 771 |
| Buildings, Facilities & Other Structures | Straight Line | 5-50 Yrs | 6,191 | (3,247) | 2,944 |
| Equipment | Straight Line | 3-20 Yrs | 2,146 | (1,258) | 888 |
| Internal Use Software | Straight Line | 5-10 Yrs | 3,439 | (1,805) | 1,634 |
| Assets Under Capital Lease | Straight Line | 1-30 Yrs | 119 | (71) | 48 |
| Leasehold Improvements | Straight Line | *Life of Lease | 56 | (45) | 11 |
| Totals | $12,776 | $(6,426) | $6,350 |
| 2017 | |||||
|---|---|---|---|---|---|
| Depreciation Method | Estimated Useful Lives | Acquisition Cost | Accumulated Depreciation | Net Book Value | |
| Land & Land Rights | - | - | $54 | $- | $54 |
| Construction in Progress | - | - | 682 | - | 682 |
| Buildings, Facilities & Other Structures | Straight Line | 5-50 Yrs | 6,149 | (3,072) | 3,077 |
| Equipment | Straight Line | 3-20 Yrs | 2,064 | (1,235) | 829 |
| Internal Use Software | Straight Line | 5-10 Yrs | 2,918 | (1,383) | 1,535 |
| Assets Under Capital Lease | Straight Line | 1-30 Yrs | 124 | (67) | 57 |
| Leasehold Improvements | Straight Line | *Life of Lease | 55 | (41) | 14 |
| Totals | $12,046 | $(5,798) | $6,248 | ||
*7 to 15 years or the life of the lease, whichever is shorter.
Note 8. Advances (in Millions)
| 2018 | 2017 | |
|---|---|---|
| Intragovernmental | ||
| Advances to Other Federal Entities | $255 | $233 |
| Total Intragovernmental | $255 | $233 |
| With the Public | ||
| Prescription Drug and Medicare Advantage | - | 29,233 |
| Grant Advances | 2,644 | 1,591 |
| Other | 50 | 35 |
| Total with the Public | $2,694 | $30,859 |
In FY 2017, advances with the public primarily represent payment of the Prescription Drug and Medicare Advantage benefit payments that occurred on September 29, 2017, instead of October 1, 2017. There were no prepayments made in 2018 for FY 2019 that would result in a similar advance in the Consolidated Balance Sheets as of September 30, 2018.
Note 9. Liabilities Not Covered by Budgetary Resources (in Millions)
| 2018 | 2017 | |
|---|---|---|
| Intragovernmental | ||
| Accrued Payroll and Benefits | $55 | $58 |
| Other | 1,533 | 1,510 |
| Total Intragovernmental | $1,588 | $1,568 |
| Federal Employee and Veterans’ Benefits (Note 11) | 14,386 | 13,532 |
| Accrued Payroll and Benefits | 681 | 663 |
| Contingencies and Commitments (Note 14) | 13,475 | 14,797 |
| Accrued Liabilities | 6,933 | 5,984 |
| Other | 231 | 221 |
| Total Liabilities Not Covered by Budgetary Resources | $37,294 | $36,765 |
| Total Liabilities Covered by Budgetary Resources | 117,991 | 125,282 |
| Total Liabilities Not Requiring Budgetary Resources | 2,047 | 1,858 |
| Total Liabilities | $157,332 | $163,905 |
Note 10. Entitlement Benefits Due and Payable (in Millions)
| 2018 | 2017 | |
|---|---|---|
| Medicare Fee-For-Service | $51,031 | $48,029 |
| Medicare Advantage/Prescription Drug Program | 11,165 | 12,596 |
| Medicaid | 35,570 | 34,070 |
| CHIP | 1,377 | 1,345 |
| Other | 5 | 12,307 |
| Totals | $99,148 | $108,347 |
Entitlement Benefits Due and Payable represents a liability for Medicare fee-for-service, Medicare Advantage and Prescription Drug Program, Medicaid, and CHIP owed to the public for medical services/claims IBNR as of the end of the reporting period.
The Medicare fee-for-service liability is primarily an actuarial liability which represents (a) an estimate of claims incurred that may or may not have been submitted to the Medicare contractors but were not yet approved for payment; (b) actual claims that have been approved for payment by the Medicare contractors for which checks have not yet been issued; (c) checks that have been issued by the Medicare contractors in payment of a claim and that have not yet been cashed by payees; (d) periodic interim payments for services rendered in the current fiscal year but paid in the subsequent fiscal year; and (e) an estimate of retroactive settlements of cost reports. The September 30, 2018 and 2017 estimate also includes amounts which may be due/owed to providers for previous years’ disputed cost report adjustments for disproportionate share hospitals and teaching hospitals as well as amounts which may be due/owed to hospitals for adjusted prospective payments.
The Medicare Advantage and Prescription Drug program liability represents amounts owed to plans after the completion of the Prescription Drug payment reconciliation and estimates relating to risk and other payment related adjustments including the estimate for the first nine months of calendar year 2018. In addition, it includes an estimate of payments to plan sponsors of retiree prescription drug coverage incurred but not yet paid as of September 30, 2018.
The Medicaid and CHIP estimates represent the net federal share of expenses that have been incurred by the states but not yet reported to CMS.
The Other line item includes estimates of payments due to those participating in Exchange activities. The PPACA provided for a temporary Risk Corridors program that was administered by CMS. The Risk Corridors program is no longer in operation. As of September 30, 2018, due to changes in assumptions, no accruals have been recorded related to Risk Corridor activities.
Note 11. Federal Employee and Veterans’ Benefits (in Millions)
| 2018 | 2017 | |
|---|---|---|
| With the Public | ||
| Liabilities Not Covered by Budgetary Resources | ||
| PHS Commissioned Corp Pension Liability | $13,338 | $12,603 |
| PHS Commissioned Corp Post-Retirement Health Benefits | 772 | 650 |
| Workers’ Compensation Benefits (Actuarial FECA Liability) | 276 | 279 |
| Total, Federal Employee and Veterans’ Benefits | $14,386 | $13,532 |
Public Health Service (PHS) Commissioned Corps
HHS administers the PHS Commissioned Corps Retirement System for 6,408 active duty officers and 7,065 retiree annuitants and survivors. As of September 30, 2018, the actuarial accrued liability for the retirement benefit plan was $13.3 billion and $0.8 billion for non-Medicare coverage of the Post-Retirement Medical Plan.
The Commissioned Corps Retirement System and the Post-Retirement Medical Plan are not funded. Therefore, in accordance with SFFAS 33, Pensions, Other Retirement Benefits and Other Postemployment Benefits: Reporting the Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates, the discount rate should be based on long-term assumptions, for marketable securities (i.e., Treasury marketable securities) of similar maturity to the period over which the payments are to be made. The discount rates should be matched with the expected timing of the associated expected cash flow. A single discount rate may be used for all the projected cash flow, as long as the resulting present value is not materially different than the resulting present value using multiple rates.
The significant assumptions used in the calculation of the pension and medical program liability, as of September 30, 2018, and September 30, 2017, were:
| 2018 | 2017 | |
|---|---|---|
| Discount rate | 3.92 percent | 4.05 percent |
| Annual basic pay scale increase | 2.62 percent | 2.56 percent |
| Annual inflation | 2.12 percent | 2.06 percent |
| 2018 | 2017 | |
|---|---|---|
| Beginning Liability Balance | $13,253 | $12,620 |
| Expense | ||
| Normal Cost | 380 | 339 |
| Interest on the liability balance | 526 | 527 |
| Actuarial (Gain)/Loss | ||
| From experience | 57 | (188) |
| From assumption changes | ||
| Change in discount rate assumption | 236 | 381 |
| Change in inflation/salary increase assumption | 109 | 85 |
| Change in mortality rate/others | 71 | (17) |
| Total From assumption changes | $416 | $449 |
| Net Actuarial (Gain)/Loss | 473 | 261 |
| Total expense | $1,379 | $1,127 |
| Less amounts paid | (522) | (494) |
| Ending Liability Balance | $14,110 | $13,253 |
The above shows key valuation results as of September 30, 2018, and 2017, in conformance with the actuarial reporting standards set forth in the SFFAS 5, Accounting for Liabilities of the Federal Government and SFFAS 33. The valuation is based upon the current plan provisions, membership data collected as of June 30, 2018, and actuarial assumptions. The September 30, 2018 valuation includes an increase in liabilities of $857 million resulting from a changes in the assumed annual inflation rate, the assumed salary scale, and in the assumed discount rate. These changes in combination with the actual plan experience over the past year (based upon new census data), resulted in an overall net increase in the actuarial accrued liability as compared to the prior valuation. The annual expense for the Retirement Benefit Plan for FY 2018 has also increased relative to the prior year expense.
Workers’ Compensation Benefits
The actuarial liability for future workers’ compensation benefits includes the expected liability for death, disability, medical and miscellaneous costs for approved compensation cases, plus a component for incurred but not reported claims. The liability utilizes historical benefit payment patterns to predict the ultimate payment related to that period. For FYs 2018 and 2017, discount rates were based on averaging the Treasury's Yield Curve for Treasury Nominal Coupon Issues (the TNC Yield Curve) for the current and prior 4 years. Interest rate assumptions utilized for discounting as of September 30, 2018, and September 30, 2017, as follows.
| 2018 | 2017 | |
|---|---|---|
| Wage Benefits | 2.716% in Year 1 and years thereafter |
2.683% in Year 1 and years thereafter |
| Medical Benefits | 2.379% in Year 1 and years thereafter |
2.218% in Year 1 and years thereafter |
To provide specifically for the effects of inflation on the liability for future workers’ compensation benefits, wage inflation factors (i.e., cost of living adjustments [COLA]) and medical inflation factors (i.e., consumer price index-medical [CPIM]) are applied to the calculations of projected future benefits. The actual rates for these factors are also used to adjust the methodology’s historical payments to current year constant dollars. The compensation COLAs and CPIMs used in the projections are:
| FY | COLA | CPIM |
|---|---|---|
| 2018 | N/a | N/a |
| 2019 | 1.31% | 3.21% |
| 2020 | 1.51% | 3.48% |
| 2021 | 1.89% | 3.68% |
| 2022 | 2.16% | 3.71% |
| 2023 | 2.21% | 4.09% |
Note 12. Accrued Liabilities (in Millions)
| 2018 | 2017 | |
|---|---|---|
| Grant Liability | $7,588 | $5,888 |
| Other Accrued Liabilities | 6,933 | 5,984 |
| Accrued Liabilities | $14,521 | $11,872 |
Note 13. Other Liabilities (in Millions)
| 2018 | 2017 | |||
|---|---|---|---|---|
| Intra- governmental | With the Public | Intra- governmental | With the Public | |
| Accrued Payroll & Benefits | $141 | $1,108 | $139 | $988 |
| Advances from Others | 899 | 888 | 750 | 356 |
| Deferred Revenue | - | 1,066 | - | 1,421 |
| Custodial Liabilities | 342 | 8 | 362 | 7 |
| Legal Liabilities | 1,155 | - | 1,088 | - |
| Other | 5,543 | 2,666 | 7,322 | 1,586 |
| Total Other Liabilities | $8,080 | $5,736 | $9,661 | $4,358 |
The Bipartisan Budget Act of 2015 (Section 601) authorized a transfer from the General Fund to SMI, to temporarily replace the reduction in Medicare Part B premiums. Section 601 created an “additional premium” charged alongside the normal Medicare Part B monthly premiums, for calendar years 2016 and 2017, which will be used to pay back the General Fund transfer without interest. These repayments are transferred quarterly. As of September 30, 2018, $5.0 billion ($6.4 billion in FY 2017) is still owed and is reported as Other. Legal Liabilities of $1.2 billion as of September 30, 2018 ($1.1 billion as of September 30, 2017) consist of reimbursable claims due to the Judgment Fund, which is administered by the Fiscal Service.
Note 14. Contingencies and Commitments (in Millions)
HHS is a party in various administrative proceedings, legal actions, and tort claims which may ultimately result in settlements or decisions adverse to the federal government. HHS has accrued contingent liabilities where a loss is determined to be probable and the amount can be estimated. The liabilities are primarily related to the Medicaid audit and program disallowances. Other contingencies exist where losses are reasonably possible and an estimate can be determined or an estimate of the range of possible liability has been determined. Selected contingencies and commitments are described below.
Medicaid Audit and Program Disallowances
The Medicaid amount of $6.3 billion ($12.2 billion in FY 2017) consists of Medicaid audit and program disallowances and reimbursement of State Plan amendments. Contingent liabilities have been established as a result of Medicaid audit and program disallowances that are currently being appealed by the states. The funds could have been returned or HHS can decrease the state’s authority. HHS will be required to pay these amounts if the appeals are decided in favor of the states. In addition, certain amounts for payment have been deferred under the Medicaid program when there is a reasonable doubt as to the legitimacy of expenditures claimed by a state. There are also outstanding reviews of the state expenditures in which a final determination has not been made.
Appeals at the Provider Reimbursement Review Board
Other liabilities do not include all provider cost reports under appeal at the Provider Reimbursement Review Board (PRRB). The monetary effect of those appeals is generally not known until a decision is rendered. However, historical cases that have been appealed and settled by the PRRB are considered in the development of the actuarial Medicare IBNR liability. As of September 30, 2018, 9,370 cases (10,067 in FY 2017) remain on appeal. A total of 1,852 new cases (2,251 in FY 2017) were filed and 7 cases were reopened (11 in FY 2017). The PRRB rendered decisions on 96 cases (128 in FY 2017) and an additional 2,460 cases (2,072 in FY 2017) were dismissed, withdrawn, or settled prior to an appeal hearing. The PRRB receives no information on the value of the cases that are settled prior to a hearing, so nothing is recorded.
Other Accrued Contingent Liabilities
The U.S. Supreme Court decision in Salazar v Ramah Navajo Chapter, dated June 18, 2012, and subsequent cases related to contract support costs have resulted in increased claims against IHS. As a result of this decision, many tribes have filed claims. Some claims have been paid and others have been asserted but not yet settled. It is expected that some tribes will file additional claims for prior years.
Other contingent liabilities against HRSA have been accrued in the financial statements for the Vaccine Injury Compensation program and other Health Center claims.
Note 15. Legal Arrangements Affecting Use of Unobligated Balances
The unobligated balances on the Combined Statement of Budgetary Resources consist of trust funds, appropriated funds, revolving funds, management funds, gift funds, cooperative research and development agreement funds, and royalty funds. Annual appropriations are available for new obligations in the year of appropriation and for adjustments to valid obligations for 5 subsequent years. Other appropriations are available for obligation for multiple years or until expended based on Congressional authority.
All trust fund receipts collected in the fiscal year are reported as new budget authority in the Combined Statement of Budgetary Resources. The portion of trust fund receipts collected in the fiscal year that exceeds the amount needed to pay benefits and other valid obligations in that fiscal year is precluded by law from being available for obligation. This excess of receipts over obligations is Temporarily Not Available Pursuant to Public Law and is included in the calculation for appropriations on the Combined Statement of Budgetary Resources; therefore, it is not classified as budgetary resources in the fiscal year collected. However, all such excess receipts are assets of the trust funds and become available for obligation, as needed. The entire trust fund balances in the amount of $230.9 billion, as of September 30, 2018, ($207.4 billion as of September 30, 2017), are included in Investments on the Consolidated Balance Sheets.
Exempt from Apportionment
This amount includes the FY 2018 recording of obligations required by law, where such obligations are in excess of available funding. These obligations were incurred by operation of law; thus, they are reflected as exempt from apportionment. The Antideficiency Act has not been violated, as “[t]he prohibitions contained in the Antideficiency Act are directed at discretionary obligations entered into by administrative officers.” B-219161 (Oct. 2, 1985).
Note 16. Explanation of Differences between the Combined Statement of Budgetary Resources and the Budget of the United States Government (in Millions)
| 2017 | Budgetary Resources | New Obligations and Upward Adjustments | Distributed Offsetting Receipts | Outlays, net (total) (discretionary and mandatory) |
|---|---|---|---|---|
| Combined Statement of Budgetary Resources | $1,682,552 | $1,647,162 | $446,103 | $1,562,696 |
| Expired Accounts | (26,356) | - | - | - |
| Other | (1,566) | (544) | (230) | (17) |
| Budget of the U.S. Government | $1,654,630 | $1,646,618 | $445,873 | $1,562,679 |
The Budget of the United States Government (also known as the President’s Budget), with the actual amounts for FY 2018, has not been published, therefore, no comparisons can be made between FY 2018 amounts presented in the Combined Statement of Budgetary Resources with amounts reported in the Actual column of the President’s Budget. The FY 2020 President’s Budget is expected to be released in February 2019 and may be obtained from OMB or from GPO.
HHS reconciled the amounts of the FY 2017 column on the Combined Statement of Budgetary Resources to the actual amounts for FY 2017 from the Appendix in the FY 2019 President’s Budget for budgetary resources, new obligations and upward adjustments, distributed offsetting receipts, and net outlays (i.e., gross outlays less offsetting collections), as presented above.
For the budgetary resources reconciliation, the amount used from the President’s Budget was the total budgetary resources available for obligation. Therefore, a reconciling item that is contained in the Combined Statement of Budgetary Resources and not in the President’s Budget is the budgetary resources that were not available. The Expired Accounts line in the above schedule includes expired authority, recoveries, and other amounts included in the Combined Statement of Budgetary Resources that are not included in the President’s Budget.
The Other differences in the budgetary resources and new obligations and upward adjustments are due to Governmentwide Treasury Account Symbol Adjusted Trial Balance System revision window adjustments that are not included in the HHS Combined Statement of Budgetary Resources but are included in the President's Budget. In addition, there are differences related to adjustments made to recoveries of prior year obligations.
Note 17. Apportionment Categories of New Obligations and Upward Adjustments: Direct vs. Reimbursable Obligations and Undelivered Orders (in Millions)
| 2018 | Direct | Reimbursable | Total |
|---|---|---|---|
| Category A (Distributed by Quarter) | $112,612 | $9,253 | $121,865 |
| Category B (Restricted and Distributed by Activity) | 817,052 | 5,022 | 822,074 |
| Exempt from Apportionment | 736,096 | 18 | 736,114 |
| Total New Obligations and Upward Adjustments | $1,665,760 | $14,293 | $1,680,053 |
| 2017 | Direct | Reimbursable | Total |
|---|---|---|---|
| Category A (Distributed by Quarter) | $106,332 | $8,587 | $114,919 |
| Category B (Restricted and Distributed by Activity) | 795,136 | 4,750 | 799,886 |
| Exempt from Apportionment | 732,341 | 16 | 732,357 |
| Total New Obligations and Upward Adjustments | $1,633,809 | $13,353 | $1,647,162 |
New Obligations and Upward Adjustments consist of expended authority and the change in undelivered orders. OMB has exempted CMS from the Circular A-11, Preparation, Submission and Execution of the Budget, requirement to report Medicare’s refunds of prior year obligations separately from refunds of current year obligations on the SF-133, Report on Budget Execution and Budgetary Resources.
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Federal | Non-Federal | Total | Federal | Non-Federal | Total | |
| Undelivered Orders, Paid | $6,474 | $122,662 | $129,136 | $6,097 | $114,199 | $120,296 |
| Undelivered Orders, Unpaid | 249 | 2,873 | 3,122 | 233 | 31,034 | 31,267 |
| Total Undelivered Orders | $6,723 | $125,535 | $132,258 | $6,330 | $145,233 | $151,563 |
Undelivered Orders include obligations that have been issued but are not yet drawn down, as well as goods and services ordered that have not been received. HHS reported $132.3 billion of budgetary resources obligated for undelivered orders as of September 30, 2018 ($151.6 billion as of September 30, 2017). The change in unpaid is due to the timing of the Prescription Drug and Medicare Advantage benefit payments.
Note 18. Funds from Dedicated Collections (in Millions)
Medicare is the largest dedicated collections program managed by HHS and is presented in a separate column in the table below. The Medicare program includes the HI Trust Fund; the SMI Trust Fund which includes both Part B medical insurance, and the Medicare Prescription Drug Benefit – Part D; and the Medicare and Medicaid Integrity Programs. Portions of the Program Management appropriation have been allocated to the HI and SMI Trust Funds. See Note 1 for a description of each fund’s purpose and how HHS accounts for and reports the funds.
| 2018 | ||||
|---|---|---|---|---|
| Balance Sheet as of September 30 | Medicare | Other | Eliminations | Total |
| Fund Balance with Treasury | $27,389 | $11,152 | $- | $38,541 |
| Investments | 303,253 | 3,862 | - | 307,115 |
| Other Assets | 90,933 | 6,908 | (74,037) | 23,804 |
| Total Assets | $421,575 | $21,922 | $(74,037) | $369,460 |
| Entitlement Benefits Due and Payable | $62,196 | $3 | $- | $62,199 |
| Other Liabilities | 84,031 | 11,361 | (74,037) | 21,355 |
| Total Liabilities | $146,227 | $11,364 | $(74,037) | $83,554 |
| Unexpended Appropriations | 22,855 | 79 | - | 22,934 |
| Cumulative Results of Operations | 252,493 | 10,479 | - | 262,972 |
| Total Liabilities and Net Position | $421,575 | $21,922 | $(74,037) | $369,460 |
| Statement of Net Cost for the Period Ended September 30 | ||||
| Gross Program Costs | $717,153 | $(2,586) | $(142) | $714,425 |
| Less: Exchange Revenues | 100,322 | 8,683 | (131) | 108,874 |
| Net Cost of Operations | $616,831 | $(11,269) | $(11) | $605,551 |
| Statement of Changes in Net Position for the Period Ended September 30 | ||||
| Net Position Beginning of Period | $276,993 | $(2,033) | $- | $274,960 |
| Nonexchange Revenue | 278,884 | 374 | - | 279,258 |
| Other Financing Sources | 336,302 | 948 | (11) | 337,239 |
| Net Cost of Operations | (616,831) | 11,269 | 11 | (605,551) |
| Change in Net Position | $(1,645) | $12,591 | $- | $10,946 |
| Net Position End of Period | $275,348 | $10,558 | $- | $285,906 |
| 2017 | ||||
|---|---|---|---|---|
| Balance Sheet as of September 30 | Medicare | Other | Eliminations | Total |
| Fund Balance with Treasury | $28,284 | 7,881 | - | 36,165 |
| Investments | 270,702 | 3,680 | - | 274,382 |
| Other Assets | 122,260 | 7,704 | (72,739) | 57,225 |
| Total Assets | $421,246 | 19,265 | (72,739) | 367,772 |
| Entitlement Benefits Due and Payable | $60,625 | 12,303 | - | 72,928 |
| Other Liabilities | 83,628 | 8,995 | (72,739) | 19,884 |
| Total Liabilities | $144,253 | 21,298 | (72,739) | 92,812 |
| Unexpended Appropriations | 17,287 | (3) | - | 17,284 |
| Cumulative Results of Operations | 259,706 | (2,030) | - | 257,676 |
| Total Liabilities and Net Position | $421,246 | 19,265 | (72,739) | 367,772 |
| Statement of Net Cost for the Period Ended September 30 | ||||
| Gross Program Costs | $656,922 | 13,903 | (418) | 670,407 |
| Less: Exchange Revenues | 89,793 | 10,168 | (381) | 99,580 |
| Net Cost of Operations | $567,129 | 3,735 | (37) | 570,827 |
| Statement of Changes in Net Position for the Period Ended September 30 | ||||
| Net Position Beginning of Period | $268,602 | 780 | - | 269,382 |
| Nonexchange Revenue | 274,135 | 327 | - | 274,462 |
| Other Financing Sources | 301,385 | 595 | (37) | 301,943 |
| Net Cost of Operations | (567,129) | (3,735) | 37 | (570,827) |
| Change in Net Position | $8,391 | (2,813) | - | 5,578 |
| Net Position End of Period | $276,993 | (2,033) | - | 274,960 |
Note 19. Stewardship Land
IHS provides federal health services to American Indians and Alaska Natives to help raise their health status to the highest possible level. IHS provides health care to approximately 2.3 million American Indians and Alaska Natives who belong to 573 federally recognized tribes in 37 states. Health services are provided on tribal/reservation trust land that was transferred to IHS by the DOI for this purpose. Although the structures on this land are operational in nature, the land on which these structures reside is managed in a stewardship manner. All trust land, when no longer needed by IHS, must be returned to the DOI’s Bureau of Indian Affairs for continuing trust responsibilities and oversight.
The table below presents stewardship land held by HHS:
Indian Trust Land by Locations and Number of Sites
| IHS Area | 2018 | 2017 |
|---|---|---|
| Albuquerque | 4 | 4 |
| Bemidji | 2 | 2 |
| Billings | 7 | 7 |
| Great Plains | 9 | 9 |
| Navajo | 36 | 36 |
| Oklahoma City | 1 | 1 |
| Phoenix | 10 | 10 |
| Portland | 3 | 3 |
| Tucson | 5 | 5 |
| Total | 77 | 77 |
Note 20. Budget and Accrual Reconciliation (in Millions)
| 2018 | Intragovernmental | With the Public | Total |
|---|---|---|---|
| Net Cost of Operations | $3,897 | $1,139,374 | $1,143,271 |
| Components of Net Cost Not Part of the Budget Outlays | |||
| Property, Plant, and Equipment Depreciation | - | (751) | (751) |
| Property, Plant, and Equipment Disposal & Reevaluation | - | (2) | (2) |
| Other | - | (16) | (16) |
| - | (769) | (769) | |
| Increase/(Decrease) in Assets: | |||
| Accounts Receivables | 141 | (6,282) | (6,141) |
| Investment | 44 | - | 44 |
| Other Asset – Regulatory Assets | 24 | (28,420) | (28,396) |
| 209 | (34,702) | (34,493) | |
| (Increase)/Decrease in Liabilities: | |||
| Accounts Payable | (194) | 8,805 | 8,611 |
| Salaries and Benefits | (4) | (103) | (107) |
| Environmental and Disposal Liabilities | - | (11) | (11) |
| Other Liabilities (Unfunded leave, Unfunded FECA, Actuarial FECA) | (766) | (2,942) | (3,708) |
| (964) | 5,749 | 4,785 | |
| Other Financing Sources: | |||
| Federal Employee Retirement Benefit Costs Paid by OPM and Imputed to the Agency | (742) | - | (742) |
| Transfers out (in) Without Reimbursement | 3,289 | - | 3,289 |
| 2,547 | - | 2,547 | |
| Components of Budget Outlays Not Part of Net Cost: | |||
| Acquisition of Capital Assets | 10 | 246 | 256 |
| Acquisition of Inventory | 1 | 740 | 741 |
| Other | 189 | 4,351 | 4,540 |
| 200 | 5,337 | 5,537 | |
| Net Outlays | $5,889 | $1,114,989 | $1,120,878 |
| Federal Share of Child Support Collections and Other[1] | (615) | ||
| Net Outlays, Net | 1,120,263 | ||
| Related Amounts on Combined Statement of Budgetary Resources | |||
| Outlays, Net | 1,589,140 | ||
| Distributed Offsetting Receipts | (468,877) | ||
| Agency Outlays, Net | $1,120,263 |
Note 21. Combined Schedule of Spending (in Millions)
The Combined Schedule of Spending presents an overview of how departments or agencies spend (i.e., obligating) money. The data used to populate this schedule are the same underlying data used to populate the Combined Statement of Budgetary Resources. Simplified terms are used to improve the public’s understanding of the budgetary accounting terminology used in the Combined Statement of Budgetary Resources.
Additional efforts to improve the transparency of spending activity in the federal government have recently come to fruition in the implementation of the Digital Accountability and Transparency Act of 2014 (DATA Act). This legislation makes available to the public, at no cost, a searchable website that provides award and financial information on contracts and financial assistance awards (including grants). While the underlying obligation data used to generate both the Combined Schedule of Spending and the DATA Act submission are the same, there is a fundamentally different purpose behind each, which should be taken into account when comparing the two. The Combined Schedule of Spending presents total budgetary resources, total new obligations, and upward adjustments for the reporting entity. The website displaying the DATA Act submission, USAspending.gov[2], collects the same data as well as recoveries. Additional differences include the definition of key attributes in each. Programs for the Combined Schedule of Spending are defined by the Treasury Account Symbol, whereas the DATA Act uses the Program and Financing lines from the President’s budget. Object Classes are the criteria by which both group spending activity by type. However, the DATA Act requires granular-level object class assignments while the Combined Schedule of Spending groups object classes at a higher level for presentation purposes. Additionally, the DATA Act submission at the award-level data does not include certain obligations, such as personnel compensation, travel, utilities, leases, intra-departmental and interagency spending, and various other categories of financial awards. The Combined Schedule of Spending has no such exclusions and is similar to the program activity reporting file for DATA Act. Lastly, the DATA Act reporting responsibility for award-level activity in allocation accounts is always assigned to the child entity. This is not entirely consistent with allocation account reporting for the financial statements for which either the parent or child will report.
What Money is Available to Spend? This section presents resources that were available to spend, as reported in the Combined Statement of Budgetary Resources. Total Resources refers to Total Budgetary Resources as described in the Combined Statement of Budgetary Resources and represents amounts approved for spending by law. Amount Available but Not Agreed to be Spent represents amounts that HHS was allowed to spend but did not take action to spend by the end of the FY. Amount Not Available to be Spent represents amounts that HHS was not approved to spend during the current FY. Total Amounts Agreed to be Spent represents spending actions taken by HHS – including contracts, purchase orders, grants, or other legally binding agreements of the federal government – to pay for goods or services. This line total agrees to the New Obligations and Upward Adjustments line in the Combined Statement of Budgetary Resources.
Who did the Money Go To? This section identifies the recipient of the money by federal and non-federal entities. Amounts in this section reflect amount agreed to be spent and agree to the New Obligations and Upward Adjustments line on the Statement of Budgetary Resources.
How was the Money Spent/Issued? This section presents services or items that were purchased, categorized by Treasury Symbol and Object Class. Those Treasury Account Symbols with spending greater than $1.0 billion are presented separately. Object Classes that have a material impact on HHS reporting are present separately. These are Grants, Subsidies, & Contributions, Insurance Claims and Indemnities, Other Contractual Services and Personnel Compensation & Benefits. HHS Medicare payments are reported under Insurance Claims and Indemnities based on the OMB A-11 object class definition.
Combined Schedule of Spending
For the Years Ended September 30, 2018 and 2017
(in Millions)
| What Money is Available to Spend | 2018 | 2017 |
|---|---|---|
| Total Resources | $1,757,780 | $1,682,552 |
| Less Amount Available but Not Agreed to be Spent | 43,696 | 3,273 |
| Less Amount Not Available to be Spent | 34,031 | 32,117 |
| Total Amounts Agreed to be Spent | $1,680,053 | $1,647,162 |
| Who Did the Money Go To | 2018 | 2017 |
|---|---|---|
| Federal | $9,133 | $10,498 |
| Non-Federal | 1,670,920 | 1,636,664 |
| Total Amounts Agreed to be Spent | $1,680,053 | $1,647,162 |
Combined Schedule of Spending By Object Class
For the Year Ended September 30, 2018
(in Millions)
| 2018 | Grants, Subsidies, & Contributions | Insurance Claims & Indemnities | Other Contractual Services |
Personnel Compensation & Benefits | Other | Total |
|---|---|---|---|---|---|---|
| Medicaid | $ 437,108 | $- | $101 | $19 | $4,164 | $441,392 |
| Federal Supplementary Medical Insurance Trust Fund | - | 322,244 | 88 | 1 | 5,146 | 327,479 |
| Payments to Trust Funds | 251,278 | - | - | - | 70,309 | 321,587 |
| Federal Hospital Insurance Trust Fund | - | 298,861 | 10 | - | 4,056 | 302,927 |
| Medicare Prescription Drug Account | - | 81,100 | - | 1 | 426 | 81,527 |
| Taxation on OASDI Benefits, HI | 24,192 | - | - | - | - | 24,192 |
| State Children’s Health Insurance Fund | 17,484 | - | 5 | - | - | 17,489 |
| Temporary Assistance for Needy Families | 16,612 | - | 90 | 11 | 3 | 16,716 |
| Children and Families Services Programs | 11,244 | - | 384 | 149 | 13 | 11,790 |
| Payments for Foster Care and Permanency | 8,185 | - | 33 | - | 2 | 8,220 |
| National Cancer Institute | 3,678 | - | 1,683 | 555 | 132 | 6,048 |
| Indian Health Services | 2,571 | 10 | 888 | 1,455 | 821 | 5,745 |
| Primary Health Care | 5,118 | - | 240 | 74 | 12 | 5,444 |
| National Institute of Allergy and Infectious Diseases | 3,297 | - | 1,582 | 344 | 116 | 5,339 |
| Payment to States for the Child Care and Development Block Grant | 5,128 | - | 102 | 2 | - | 5,232 |
| Payments to States for Child Support Enforcement and Family Support Programs | 3,805 | - | 624 | - | - | 4,429 |
| Risk Adjustment Program Payments | - | 3,865 | - | - | 11 | 3,876 |
| Substance Abuse Treatment | 3,640 | - | 112 | 9 | - | 3,761 |
| Low Income Home Energy Assistance | 3,638 | - | 3 | - | - | 3,641 |
| National Heart, Lung, and Blood Institute | 2,715 | - | 508 | 160 | 33 | 3,416 |
| Child Care Entitlement to States | 2,955 | - | 18 | - | 2 | 2,975 |
| National Institute of General Medical Sciences | 2,653 | - | 113 | 30 | 1 | 2,797 |
| National Institute on Aging | 2,281 | - | 220 | 76 | 22 | 2,599 |
| Refugee and Entrant Assistance | 2,070 | - | 360 | 15 | 6 | 2,451 |
| Ryan White HIV/AIDS Program | 2,240 | - | 96 | 26 | 4 | 2,366 |
| Public Health and Social Services Emergency Fund | 338 | - | 1,291 | 157 | 453 | 2,239 |
| Aging and Disability Services Programs | 2,124 | - | 48 | 30 | 6 | 2,208 |
| National Institute of Diabetes and Digestive and Kidney Diseases | 1,673 | - | 239 | 121 | 28 | 2,061 |
| Health Care Fraud and Abuse Control Account | 1 | - | 1,371 | 59 | 588 | 2,019 |
| National Institute of Neurological Disorders and Stroke | 1,603 | - | 254 | 96 | 26 | 1,979 |
| NIH Service and Supply Fund | - | - | 1,310 | 287 | 350 | 1,947 |
| PSC Service and Supply Fund | - | - | 1,655 | 157 | 84 | 1,896 |
| National Institute of Mental Health | 1,421 | - | 232 | 105 | 18 | 1,776 |
| Social Services Block Grant | 1,661 | - | 10 | 1 | - | 1,672 |
| Mental Health | 1,445 | - | 89 | 5 | 1 | 1,540 |
| National Institute of Child Health and Human Development | 1,042 | - | 329 | 104 | 20 | 1,495 |
| National Institute on Drug Abuse | 955 | - | 238 | 66 | 12 | 1,271 |
| Public Health Preparedness and Response | 630 | - | 258 | 122 | 162 | 1,172 |
| Chronic Disease Prevention and Health Promotion | 758 | - | 275 | 129 | 8 | 1,170 |
| HIV/AIDS, Viral Hepatitis, Sexually Transmitted Diseases and Tuberculosis Prevention | 742 | - | 187 | 176 | 19 | 1,124 |
| Other Agency Budgetary Accounts | 14,418 | 1,185 | 14,368 | 7,573 | 3,502 | 41,046 |
| Total Amounts Agreed to be Spent | $840,703 | $707,265 | $29,414 | $12,115 | $90,556 | $1,680,053 |
Combined Schedule of Spending By Object Class
For the Year Ended September 30, 2017
(in Millions)
| 2017 | Grants, Subsidies, & Contributions | Insurance Claims & Indemnities | Other Contractual Services |
Personnel Compensation & Benefits | Other | Total |
|---|---|---|---|---|---|---|
| Medicaid | $ 417,710 | $- | $103 | $19 | $4,213 | $422,045 |
| Federal Supplementary Medical Insurance Trust Fund | 4 | 308,851 | 141 | 1 | 5,546 | 314,543 |
| Payments to Trust Funds | 231,663 | - | - | - | 83,621 | 315,284 |
| Federal Hospital Insurance Trust Fund | - | 296,222 | 359 | - | 4,322 | 300,903 |
| Medicare Prescription Drug Account | - | 88,260 | - | 1 | 828 | 89,089 |
| Taxation on OASDI Benefits, HI | 24,206 | - | - | - | - | 24,206 |
| State Children’s Health Insurance Fund | 15,964 | - | 2 | - | - | 15,966 |
| Temporary Assistance for Needy Families | 16,618 | - | 91 | 10 | 2 | 16,721 |
| Children and Families Services Programs | 10,871 | 1 | 317 | 157 | 16 | 11,362 |
| Payments for Foster Care and Permanency | 8,392 | - | 33 | - | 1 | 8,426 |
| National Cancer Institute | 3,337 | - | 1,702 | 542 | 108 | 5,689 |
| Indian Health Services | 2,441 | 1 | 841 | 1,413 | 744 | 5,440 |
| Primary Health Care | 4,751 | - | 222 | 75 | 9 | 5,057 |
| National Institute of Allergy and Infectious Diseases | 3,091 | - | 1,685 | 335 | 96 | 5,207 |
| Payment to States for the Child Care and Development Block Grant | 2,816 | - | 39 | - | - | 2,855 |
| Payments to States for Child Support Enforcement and Family Support Programs | 3,807 | - | 647 | - | 1 | 4,455 |
| Risk Adjustment Program Payments | - | 3,768 | - | - | - | 3,768 |
| Substance Abuse Treatment | 2,545 | - | 156 | 10 | 3 | 2,714 |
| Low Income Home Energy Assistance | 3,391 | - | 3 | - | - | 3,394 |
| National Heart, Lung, and Blood Institute | 2,554 | - | 502 | 164 | 32 | 3,252 |
| Child Care Entitlement to States | 2,925 | - | 19 | - | - | 2,944 |
| National Institute of General Medical Sciences | 2,517 | - | 112 | 32 | 1 | 2,662 |
| National Institute on Aging | 1,792 | - | 179 | 76 | 31 | 2,078 |
| Refugee and Entrant Assistance | 1,711 | - | 389 | 14 | 9 | 2,123 |
| Ryan White HIV/AIDS Program | 2,226 | - | 87 | 27 | 5 | 2,345 |
| Public Health and Social Services Emergency Fund | 471 | 1 | 1,298 | 140 | 487 | 2,397 |
| Aging and Disability Services Programs | 1,955 | - | 47 | 31 | 4 | 2,037 |
| National Institute of Diabetes and Digestive and Kidney Diseases | 1,733 | - | 219 | 120 | 25 | 2,097 |
| Health Care Fraud and Abuse Control Account | 1 | - | 1,429 | 74 | 471 | 1,975 |
| National Institute of Neurological Disorders and Stroke | 1,463 | - | 228 | 88 | 26 | 1,805 |
| NIH Service and Supply Fund | - | - | 1,252 | 285 | 360 | 1,897 |
| PSC Service and Supply Fund | - | - | 1,388 | 149 | 79 | 1,616 |
| National Institute of Mental Health | 1,278 | - | 215 | 101 | 20 | 1,614 |
| Social Services Block Grant | 1,647 | - | 12 | 1 | - | 1,660 |
| Mental Health | 1,066 | - | 124 | 5 | 2 | 1,197 |
| National Institute of Child Health and Human Development | 972 | - | 317 | 103 | 22 | 1,414 |
| National Institute on Drug Abuse | 876 | - | 248 | 68 | 11 | 1,203 |
| Public Health Preparedness and Response | 623 | - | 250 | 117 | 408 | 1,398 |
| Chronic Disease Prevention and Health Promotion | 726 | - | 256 | 127 | 8 | 1,117 |
| HIV/AIDS, Viral Hepatitis, Sexually Transmitted Diseases and Tuberculosis Prevention | 743 | - | 191 | 173 | 14 | 1,121 |
| Other Agency Budgetary Accounts | 13,954 | 10,865 | 14,391 | 7,405 | 3,471 | 50,086 |
| Total Amounts Agreed to be Spent | $792,840 | $707,969 | $29,494 | $ 11,863 | $104,996 | $1,647,162 |
Note 22. Statement of Social Insurance (Unaudited)
The Statement of Social Insurance (SOSI) presents, for the 75-year projection period, the present values of the income and expenditures of the Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) trust funds for both the open group and closed group of participants. The open group consists of all current and future participants (including those born during the projection period) who are now participating or are expected to eventually participate in the Medicare program. The closed group comprises only current participants—those who attain age 15 or older in the first year of the projection period.
Actuarial present values are computed under the intermediate set of assumptions specified in the 2018 Annual Report of the Medicare Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. These assumptions represent the Trustees’ reasonable estimate of likely future economic, demographic, and healthcare-specific conditions. As with all of the assumptions underlying the Trustees’ financial projections, the Medicare-specific assumptions are reviewed annually and updated based on the latest available data and analysis of trends. In addition, the assumptions and projection methodology are subject to periodic review by independent panels of expert actuaries and economists. The most recent completed review occurred with the 2016-2017 Technical Review Panel.
Actuarial present values are computed as of the year shown and over the 75-year projection period, beginning January 1 of that year. The Trustees’ projections are based on the current Medicare laws, regulations, and policies in effect on June 5, 2018, with one exception, and do not reflect any actual or anticipated changes subsequent to that date. The one exception is that the projections disregard payment reductions that would result from the projected depletion of the Medicare HI trust fund. The present values are calculated by discounting the future annual amounts of non-interest income and expenditures (including benefit payments and administrative expenses) at the projected average rates of interest credited to the HI trust fund. HI income includes the portion of FICA and SECA payroll taxes allocated to the HI trust fund, the portion of Federal income taxes paid on Social Security benefits that is allocated to the HI trust fund, premiums paid by, or on behalf of, aged uninsured beneficiaries, and receipts from fraud and abuse control activities. SMI income includes premiums paid by, or on behalf of, beneficiaries and transfers from the general fund of the Treasury. Fees related to brand-name prescription drugs, required by the Affordable Care Act, are included as income for Part B of SMI, and transfers from State governments are included as income for Part D of SMI. Since all major sources of income to the trust funds are reflected, the actuarial projections can be used to assess the financial condition of each trust fund.
Actuarial present values of estimated future income (excluding interest) and estimated future expenditures are presented for three different groups of participants: (1) current participants who have not yet attained eligibility age; (2) current participants who have attained eligibility age; and (3) new entrants, those who are expected to become participants in the future. Current participants are the closed group of individuals who are at least age 15 at the start of the projection period and are expected to participate in the program as either taxpayers, beneficiaries, or both.
The SOSI sets forth, for each of these three groups, the projected actuarial present values of all future expenditures and of all future non-interest income for the next 75 years. The SOSI also presents the net present values of future net cash flows, which are calculated by subtracting the actuarial present value of estimated future expenditures from the actuarial present value of estimated future income. The HI trust fund is expected to have an actuarial deficit indicating that, under these assumptions as to economic, demographic, and health care cost trends for the future, HI income is expected to fall short of expenditures over the next 75 years. Neither Part B nor Part D of SMI has similar deficits because each account is automatically in financial balance every year due to its statutory financing mechanism.
In addition to the actuarial present value of the estimated future excess of income (excluding interest) over expenditures for the open group of participants, the SOSI also sets forth the same calculation for the closed group of participants. The closed group consists of those who, in the starting year of the projection period, have attained retirement eligibility age or have attained ages 15 through 64. In order to calculate the actuarial net present value of the excess of estimated future income over estimated future expenditures for the closed group, the actuarial present value of estimated future expenditures for or on behalf of current participants is subtracted from the actuarial present value of estimated future income (excluding interest) for current participants.
Since its enactment in 1965, the Medicare program has experienced substantial variability in expenditure growth rates. These different rates of growth have reflected new developments in medical care, demographic factors affecting the relative number and average age of beneficiaries and covered workers, and numerous economic factors. The future cost of Medicare will also be affected by further changes in these inherently uncertain factors and by the application of future payment updates. Consequently, Medicare’s actual cost over time, especially for periods as long as 75 years, cannot be predicted with certainty and could differ materially from the projections shown in the SOSI. Moreover, these differences could affect the long-term sustainability of this social insurance program.
To develop projections regarding the future financial status of the HI and SMI trust funds, various assumptions have to be made. As stated previously, the estimates presented here are based on the assumption that the trust funds will continue to operate under the law in effect on June 5, 2018, except that the projections disregard payment reductions that would result from the projected depletion of the Medicare Hospital Insurance trust fund. In addition, the estimates depend on many economic, demographic, and healthcare-specific assumptions, including changes in per beneficiary health care costs, wages, and the consumer price index (CPI); fertility rates; mortality rates; immigration rates; and interest rates. In most cases, these assumptions vary from year to year during the first 5 to 30 years before reaching their ultimate values for the remainder of the 75‑year projection period. The assumed growth rates for per beneficiary health care costs vary throughout the projection period.
The following table includes the most significant underlying assumptions used in the projections of Medicare spending displayed in this section. The assumptions underlying the 2018 SOSI actuarial projections are drawn from the Social Security and Medicare Trustees Reports for 2018. Specific assumptions are made for each of the different types of service provided by the Medicare program (for example, hospital care and physician services). These assumptions include changes in the payment rates, utilization, and intensity of each type of service. The projected beneficiary cost increases summarized below reflect the overall impact of these more detailed assumptions. Similar detailed information for the prior years is publicly available on the CMS website at http://www.cms.hhs.gov/CFOReport/.[3]
Table 1: Significant Assumptions and Summary Measures Used
for the Statement of Social Insurance 2018
| Fertility rate1 | Net immigration2 | Mortality rate3 | Real-wage differential4 | Annual percentage change in: | Real-interest rate9 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Wages5 | CPI6 | Real GDP7 | Per beneficiary cost8 | ||||||||
| HI | SMI | ||||||||||
| B | D | ||||||||||
| 2018 | 1.81 | 1,678,000 | 776.4 | 1.59 | 3.82 | 2.23 | 2.7 | 1.4 | 5.3 | 0.5 | 0.1 |
| 2020 | 1.84 | 1,498,000 | 762.4 | 1.95 | 4.55 | 2.60 | 2.6 | 3.3 | 4.7 | 6.0 | 0.8 |
| 2030 | 2.00 | 1,321,000 | 697.7 | 1.28 | 3.88 | 2.60 | 2.1 | 4.4 | 5.3 | 5.3 | 2.7 |
| 2040 | 2.00 | 1,272,000 | 641.1 | 1.22 | 3.82 | 2.60 | 2.1 | 4.6 | 4.2 | 4.7 | 2.7 |
| 2050 | 2.00 | 1,247,000 | 591.5 | 1.23 | 3.83 | 2.60 | 2.1 | 3.8 | 3.8 | 4.7 | 2.7 |
| 2060 | 2.00 | 1,233,000 | 547.9 | 1.22 | 3.82 | 2.60 | 2.1 | 3.6 | 3.7 | 4.5 | 2.7 |
| 2070 | 2.00 | 1,225,000 | 509.4 | 1.15 | 3.75 | 2.60 | 2.1 | 3.8 | 3.6 | 4.4 | 2.7 |
| 2080 | 2.00 | 1,221,000 | 475.2 | 1.13 | 3.73 | 2.60 | 2.1 | 3.9 | 3.7 | 4.4 | 2.7 |
| 2090 | 2.00 | 1,218,000 | 444.7 | 1.15 | 3.75 | 2.60 | 2.1 | 3.4 | 3.5 | 4.3 | 2.7 |
| 1 Average number of children per woman. 2 Includes legal immigration, net of emigration, as well as other, non-legal, immigration. 3The age-sex-adjusted death rate per 100,000 that would occur in the enumerated population as of April 1, 2010, if that population were to experience the death rates by age and sex observed in, or assumed for, the selected year. 4Difference between percentage increases in wages and the CPI. 5Average annual wage in covered employment. 6Consumer price index represents a measure of the average change in prices over time in a fixed group of goods and services. 7The total dollar value of all goods and services produced in the United States, adjusted to remove the impact of assumed inflation growth. 8These increases reflect the overall impact of more detailed assumptions that are made for each of the different types of service provided by the Medicare program (for example, hospital care, physician services, and pharmaceuticals costs). These assumptions include changes in the payment rates, utilization, and intensity of each type of service. 9Average rate of interest earned on new trust fund securities, above and beyond rate of inflation. |
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The projections presented in the Statement of Social Insurance are based on various economic and demographic assumptions. The values for each of these assumptions move from recently experienced levels or trends toward long-range ultimate values. Table 2 below summarizes these ultimate values assumed for the current year and the prior 4 years, based on the intermediate assumptions of the respective Medicare Trustees Reports.
Table 2: Significant Ultimate Assumptions Used for the Statement of Social Insurance
FY 2018-2014
| Fertility rate1 | Net immigration2 | Mortality rate3 | Real-wage differential4 | Annual percentage change in: | Real-interest rate9 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Wages5 | CPI6 | Real GDP7 | Per beneficiary cost8 | ||||||||
| HI | SMI | ||||||||||
| B | D | ||||||||||
| 2018 | 2.0 | 1,218,000 | 444.7 | 1.15 | 3.75 | 2.60 | 2.1 | 3.4 | 3.5 | 4.3 | 2.7 |
| 2017 | 2.0 | 1,227,000 | 438.7 | 1.15 | 3.75 | 2.60 | 2.0 | 3.4 | 3.4 | 4.3 | 2.7 |
| 2016 | 2.0 | 1,228,000 | 435.1 | 1.15 | 3.75 | 2.60 | 2.0 | 3.4 | 3.4 | 4.3 | 2.7 |
| 2015 | 2.0 | 1,060,000 | 458.4 | 1.13 | 3.83 | 2.70 | 2.1 | 3.8 | 4.1 | 4.4 | 2.9 |
| 2014 | 2.0 | 1,055,000 | 419.8 | 1.13 | 3.93 | 2.80 | 2.1 | 3.8 | 3.8 | 4.5 | 2.9 |
| 1Average number of children per woman. The ultimate fertility rate is assumed to be reached in the 12th year of the projection period. 2Includes legal immigration, net of emigration, as well as other, non-legal, immigration. (Beginning with FY 2018 legal immigration is referred to as lawful permanent resident (LPR) immigration, and other, non-legal, immigration is referred to as other-than-LPR immigration.). The ultimate level of net legal immigration is 788,000 persons per year, and the assumption for annual net other immigration varies throughout the projection period. Therefore, the assumption presented is the value assumed in the year 2080 for FY 2014 and FY 2015 and is the value assumed in the year 2090 for FYs 2016 - 2018. 3The age-sex-adjusted death rate per 100,000 that would occur in the enumerated population as of April 1, 2010, if that population were to experience the death rates by age and sex observed in, or assumed for, the selected year. Since the annual rate declines gradually during the entire period, no ultimate rate is achieved. The assumption presented is the value assumed in the year 2080 for FY 2014 and FY 2015 and is the value assumed in the year 2090 for FYs 2016 - 2018. 4Difference between percentage increases in wages and the CPI. The value presented is the average of annual real-wage differentials for the last 65 years of the 75-year projection period, is consistent with the annual differentials shown in table 1, and is displayed to two decimal places. The assumption varies slightly throughout the projection period. Therefore, the assumption presented is the value assumed in the year 2080 for FY 2014 and FY 2015 and is the value assumed in the year 2090 for FYs 2016 - 2018. 5Average annual wage in covered employment. The value presented is the average annual percentage change from the 10th year of the 75-year projection period to the 75th year and is displayed to two decimal places. The assumption varies slightly throughout the projection period. Therefore, the assumption presented is the value assumed in the year 2080 for FY 2014 and FY 2015 and is the value assumed in the year 2090 for FYs 2016 - 2018. 6Consumer price index represents a measure of the average change in prices over time in a fixed group of goods and services. The ultimate assumption is reached within the first 10 years of the projection period. 7The total dollar value of all goods and services produced in the United States, adjusted to remove the impact of assumed inflation growth. Since the annual rate declines gradually during the entire period, no ultimate rate is achieved. The assumption presented is the value assumed in the year 2080 for FY 2014 and FY 2015 and is the value assumed in the year 2090 for FYs 2016 - 2018. 8These increases reflect the overall impact of more detailed assumptions that are made for each of the different types of service provided by the Medicare program (for example, hospital care, physician services, and pharmaceuticals). These assumptions include changes in the payment rates, utilization, and intensity of each type of service. Since the annual rate of growth declines gradually during the entire period, no ultimate rate is achieved. The assumption presented is the value assumed in the year 2080 for FY 2014 and FY 2015 and is the value assumed in the year 2090 for FYs 2016 - 2018. 9Average rate of interest earned on new trust fund securities, above and beyond rate of inflation. The ultimate assumption is reached soon after the 10th year of each projection period. |
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Note 23. Alternative Statement of Social Insurance Projections (Unaudited)
The Medicare Board of Trustees, in its annual report to Congress, references an alternative scenario to illustrate, when possible, the potential understatement of Medicare costs and projection results.
The Trustees assume that the various cost-reduction measures—the most important of which are the reductions in the annual payment rate updates for most categories of Medicare providers by the growth in economy-wide private nonfarm business multifactor productivity and the specified physician updates put in place by MACRA—will occur as current law requires. In order for this outcome to be achievable, health care providers would have to realize productivity improvements at a faster rate than experienced historically. For those providers affected by the productivity adjustments and the specified updates to physician payments, sustaining the price reductions will be challenging, as the best available evidence indicates that most providers cannot improve their productivity to this degree for a prolonged period given the labor-intensive nature of these services and that physician costs will grow at a faster rate than the specified updates. As a result, actual Medicare expenditures are highly uncertain for reasons apart from the inherent difficulty in projecting health care cost growth over time.
The specified rate updates could be an issue in years when levels of inflation are high and would be problematic when the cumulative gap between the price updates and physician costs becomes large. The gap will continue to widen throughout the projection, and the Trustees estimated that physician payment rates under current law will be lower than they would have been under the sustainable growth rate (SGR) formula by 2048. Absent a change in the delivery system or level of update by subsequent legislation, access to Medicare-participating physicians may become a significant issue in the long term under current law. Overriding the price updates in current law, as lawmakers repeatedly did in the case of physician payment rates, would lead to substantially higher costs for Medicare in the long range than those projected in this report.
To help illustrate and quantify the potential magnitude of the cost understatement, the Trustees asked the Office of the Actuary at CMS to prepare an illustrative Medicare trust fund projection under a hypothetical alternative. This scenario illustrates the impact that would occur if the payment updates that are affected by the productivity adjustments transition from current law to the payment updates assumed for private health plans over the period 2028 to 2042. It also reflects physician payment updates that transition from current law to the increase in the Medicare Economic Index over the same period. Finally, the scenario assumes the continuation of the 5‑percent bonuses for physicians in advanced alternative models (advanced APMs) and of the $500-million payments for physicians in the merit-based incentive payment system (MIPS), which are set to expire in 2025.[4] This alternative was developed for illustrative purposes only; the calculations have not been audited; no endorsement of the policies underlying the illustrative alternative by the Trustees, CMS, or the Office of the Actuary should be inferred; and the examples do not attempt to portray likely or recommended future outcomes. Thus, the illustrations are useful only as general indicators of the substantial impacts that could result from future legislation affecting the productivity adjustments and physician updates under Medicare and of the broad range of uncertainty associated with such impacts.
The table on the next page contains a comparison of the Medicare 75-year present values of estimated future income and estimated future expenditures under current law with those under the illustrative alternative scenario.
Medicare Present Value
(in Billions)
| Current law (Unaudited) |
Alternative scenario1, 2 (Unaudited) |
|
|---|---|---|
| Income | ||
| Part a | $22,807 | $22,871 |
| Part b | 34,453 | 40,857 |
| Part d | 11,124 | 11,124 |
| Expenditures | ||
| Part a | 27,515 | 32,581 |
| Part b | 34,453 | 40,857 |
| Part d | 11,124 | 11,124 |
| Income less expenditures | ||
| Part a | (4,708) | (9,710) |
| Part b | - | - |
| Part d | - | - |
| 1These amounts are not presented in the 2018 Trustees Report. 2At the request of the Trustees, the Office of the Actuary at CMS has prepared an illustrative set of Medicare trust fund projections that differs from current law. No endorsement of the illustrative alternative by the Trustees, CMS, or the Office of the Actuary should be inferred. |
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The difference between the current-law and illustrative alternative projections is substantial for Parts A and B. All Part A fee-for-service providers and roughly half of Part B fee-for-service providers are affected by the productivity adjustments, so the current-law projections reflect an estimated 1.1-percent reduction in annual cost growth each year for these providers. If the payment updates that are affected by the productivity adjustments were to gradually transition from current law to the payment updates assumed for private health plans, the physician updates transitioned to the Medicare Economic Index, and the 5-percent bonuses paid to physicians in advanced APMs did not expire, as illustrated under the alternative scenario, the estimated present values of Part A and Part B expenditures would each be higher than the current-law projections by roughly 18 and 19 percent, respectively. As indicated above, the present value of Part A income is basically unaffected under the alternative scenario, and the present value of Part B income is 19 percent higher under the illustrative alternative scenario, since income is set each year to mirror expenditures.
The Part D values are the same under each projection because the services are not affected by the productivity adjustments or the physician updates.
The extent to which actual future Part A and Part B costs exceed the projected amounts due to changes to the productivity adjustments and physician updates depends on what specific changes might be legislated and whether Congress would pass further provisions to help offset such costs. As noted, these examples reflect only hypothetical changes to provider payment rates.
Note 24. Statement of Changes in Social Insurance Amounts (Unaudited)
The Statement of Changes in Social Insurance Amounts reconciles the change (between the current valuation and the prior valuation) in the (1) present value of estimated future income (excluding interest) for current and future participants; (2) present value of estimated future expenditures for current and future participants; (3) present value of estimated future noninterest income less estimated future expenditures for current and future participants (the open-group measure) over the next 75 years; (4) assets of the combined Medicare Trust Funds; and (5) present value of estimated future non-interest income less estimated future expenditures for current and future participants over the next 75 years plus the assets of the combined Medicare Trust Funds. The SCSIA shows the reconciliation from the period beginning on January 1, 2017 to the period beginning on January 1, 2018, and the reconciliation from the period beginning on January 1, 2016 to the period beginning on January 1, 2017. The reconciliation identifies several components of the change that are significant and provides reasons for the changes.
Because of the financing mechanism for Parts B and D of Medicare, any change to the estimated future expenditures has the same effect on estimated total future income, and vice versa. Therefore, any change has no impact on the estimated future net cash flow. In order to enhance the presentation, the changes in the present values of estimated future income and estimated future expenditures are presented separately.
The five changes considered in the Statement of Changes in Social Insurance Amounts are, in order:
- change in the valuation period,
- change in projection base,
- changes in the demographic assumptions,
- changes in economic and health care assumptions, and
- changes in law.
All estimates in the Statement of Changes in Social Insurance Amounts represent values that are incremental to the prior change. As an example, the present values shown for demographic assumptions, represent the additional effect that these assumptions have, once the effects from the change in the valuation period and projection base have been considered. In general, an increase in the present value of net cash flows represents a positive change (improving financing), while a decrease in the present value of net cash flows represents a negative change (worsening financing).
Assumptions Used for the Statement of Changes in Social Insurance Amounts
The present values included in the Statement of Changes in Social Insurance Amounts are for the current and prior year and are based on various economic and demographic assumptions used for the intermediate assumptions in the Trustees Reports for those years. Table 1 of Note 23 summarizes these assumptions for the current year.
Period beginning on January 1, 2017 and ending January 1, 2018
Present values as of January 1, 2017 are calculated using interest rates from the intermediate assumptions of the 2017 Trustees Report. All other present values in this part of the Statement are calculated as a present value as of January 1, 2018. Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2017 Trustees Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the prior change, the estimates of the present values of changes in economic and health care assumptions are calculated using the interest rates under the intermediate assumptions of the 2018 Trustees Report.
Period beginning on January 1, 2016 and ending January 1, 2017
Present values as of January 1, 2016 are calculated using interest rates from the intermediate assumptions of the 2016 Trustees Report. All other present values in this part of the Statement are calculated as a present value as of January 1, 2017. Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2016 Trustees Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the prior change, the estimates of the present values of changes in economic and health care assumptions are calculated using the interest rates under the intermediate assumptions of the 2017 Trustees Report.
Change in the Valuation Period
From the period beginning on January 1, 2017 to the period beginning on January 1, 2018
The effect on the 75-year present values of changing the valuation period from the prior valuation period (2017-91) to the current valuation period (2018-92) is measured by using the assumptions for the prior valuation period and extending them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a small negative net cash flow for 2017, replaces it with a much larger negative net cash flow for 2092, and measures the present values as of January 1, 2018, one year later. Thus, the present value of estimated future net cash flow (including or excluding the combined Medicare Trust Fund assets at the start of the period) decreased (made more negative) when the 75-year valuation period changed from 2017-91 to 2018-92. In addition, the effect on the level of assets in the combined Medicare Trust Funds of changing the valuation period is measured by assuming all values projected in the prior valuation for the year 2017 are realized. The change in valuation period resulted in a very slight increase in the starting level of assets in the combined Medicare Trust Funds.
From the period beginning on January 1, 2016 to the period beginning on January 1, 2017
The effect on the 75-year present values of changing the valuation period from the prior valuation period (2016-90) to the current valuation period (2017-91) is measured by using the assumptions for the prior valuation period and extending them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a small negative net cash flow for 2016, replaces it with a much larger negative net cash flow for 2091, and measures the present values as of January 1, 2017, one year later. Thus, the present value of estimated future net cash flow (including or excluding the combined Medicare Trust Fund assets at the start of the period) decreased (made more negative) when the 75-year valuation period changed from 2016-90 to 2017-91. In addition, the effect on the level of assets in the combined Medicare Trust Funds of changing the valuation period is measured by assuming all values projected in the prior valuation for the year 2016 are realized. The change in valuation period increased the starting level of assets in the combined Medicare Trust Funds.
Change in Projection Base
From the period beginning on January 1, 2017 to the period beginning on January 1, 2018
Actual income and expenditures in 2017 were different than what was anticipated when the 2017 Trustees Report projections were prepared. Part A payroll tax income in 2017 was lower attributable to lowered wages and expenditures were higher than anticipated based on actual experience. Part B total income and expenditures were higher than estimated based on actual experience. For Part D, actual income and expenditures were both lower than prior estimates. The net impact of the Part A, B, and D projection base changes is a decrease in the estimated future net cash flow. Actual experience of the Medicare Trust Funds between January 1, 2017 and January 1, 2018 is incorporated in the current valuation and is less than projected in the prior valuation.
From the period beginning on January 1, 2016 to the period beginning on January 1, 2017
Actual income and expenditures in 2016 were different than what was anticipated when the 2016 Trustees Report projections were prepared. Part A payroll tax income in 2017 was lower attributable to lowered wages, and expenditures were higher than anticipated based on actual experience. Part B total income and expenditures were higher than estimated based on actual experience. For Part D, actual income and expenditures were both lower than prior estimates. The net impact of the Part A, B, and D projection base changes is an increase in the estimated future net cash flow. Actual experience of the Medicare Trust Funds between January 1, 2016 and January 1, 2017 is incorporated in the current valuation and is slightly more than projected in the prior valuation.
Changes in the Demographic Assumptions
From the period beginning on January 1, 2017 to the period beginning on January 1, 2018
The demographic assumptions used in the Medicare projections are the same as those used for the Old-Age, Survivors and Disability Insurance (OASDI) and are prepared by the Office of the Chief Actuary at the Social Security Administration (SSA).
The ultimate demographic assumptions for the current valuation (beginning on January 1, 2018), with the exception of a small decrease of 10,000 lawful-permanent-resident (LPR) immigrants per annum in the future, are the same as those for the prior valuation. However, the starting demographic values and the way these values transition to the ultimate assumptions were changed.
- Final birth rate data for 2016 indicated slightly lower birth rates than were assumed in the prior valuation.
- Recent fertility data suggests that the short-term increase in the total fertility rate used in the prior valuation to account for an assumed deferral in childbearing (resulting from the recent economic downturn) was no longer warranted. The observed persistent drop in the total fertility rate in recent years is now assumed to be a loss of potential births rather than just a deferral for this period.
- Incorporating 2015 mortality data obtained from the National Center for Health Statistics for ages under 65 and preliminary 2015 mortality data from Medicare experience for ages 65 and older resulted in higher death rates for all future years than were projected in the prior valuation.
- More recent LPR and other-than-LPR immigration data and historical population data were included.
There was one notable change in demographic methodology:
- Improved the method for projecting mortality rates by marital status by utilizing recent data from NCHS and the American Community Survey.
These changes lowered overall Medicare enrollment for the current valuation period and resulted in an increase in the estimated future net cash flow. The present value of estimated income and expenditures are both lower for Part A and Part B but higher for Part D.
From the period beginning on January 1, 2016 to the period beginning on January 1, 2017
The demographic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared by the Office of the Chief Actuary at the SSA.
The ultimate demographic assumptions for the current valuation (beginning on January 1, 2017) are the same as those for the prior valuation. However, the starting demographic values and the way these values transition to the ultimate assumptions were changed.
- Final birth rate data for 2015 indicated slightly lower birth rates than were assumed in the prior valuation.
- Incorporating 2014 mortality data obtained from the National Center for Health Statistics at ages under 65 and preliminary 2014 mortality data from Medicare experience at ages 65 and older resulted in higher death rates for all future years than were projected in the prior valuation.
- More recent legal and other-than-legal immigration data and historical population data were included.
There were no consequential changes in demographic methodology.
These changes slightly lowered overall Medicare enrollment for the current valuation period and resulted in a decrease in the estimated future net cash flow. The present value of estimated expenditures is lower for Part A but slightly higher for Parts B and D; and the present value of estimated income is also higher for Parts B and D but lower for Part A.
Changes in Economic and Health Care Assumptions
For the period beginning on January 1, 2017 to the period beginning on January 1, 2018
The economic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared by the Office of the Chief Actuary at the SSA.
The ultimate economic assumptions for the current valuation (beginning on January 1, 2018) are the same as those for the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions were changed.
- The estimated level of potential GDP was reduced by about 1 percent in 2017 and throughout the projection period, primarily due to the slow growth in labor productivity for 2010 through 2017 and low unemployment rates in 2017. This lower estimated level of potential GDP means that cumulative growth in actual GDP is 1 percent less over the remainder of the projected recovery than was assumed in the prior valuation.
- Near-term interest rates were decreased, reflecting a more gradual path for the rise to the ultimate real interest rate than was assumed in the prior valuation.
- New data from the Bureau of Economic Analysis (BEA) indicated lower-than-expected ratios of labor compensation to GDP for 2016 and 2017, while new data from the Internal Revenue Service (IRS) indicated lower-than-expected ratios of taxable payroll to GDP for 2016 and 2017. This new data led to assumed extended recoveries in these ratios to the unchanged ultimate ratios.
There was one notable change in economic methodology:
- Improved the method for projecting educational attainment among women in age groups 45-49 and 50-54 in the labor force participation model.
- The health care assumptions are specific to the Medicare projections. The following health care assumptions were changed in the current valuation.
- Utilization rate assumptions for inpatient hospital were decreased.
- Utilization rate and case mix for skilled nursing facilities services were decreased.
- Payment rates to private health plans are higher than projected in last year’s report primarily due to higher risk scores and increased coding by plans.
- Higher projected drug manufacturer rebates.
The net impact of these changes resulted in a small increase in the estimated future net cash flow for total Medicare. For Part A, these changes resulted in an overall increase in the estimated future net cash flow. For Part B, these changes increased the present value of estimated future expenditures (and also income). For Part D, these changes decreased the present value of estimated expenditures (and also income).
For the period beginning on January 1, 2016 to the period beginning on January 1, 2017
The economic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared by the Office of the Chief Actuary at the SSA.
For the current valuation (beginning on January 1, 2017), there was one change to the ultimate economic assumptions.
- The ultimate average real-wage differential is assumed to be 1.20 percent in the current valuation, which is close to a 0.01 percent decrease relative to the previous valuation (even though both ultimate average real-wage differentials are 1.20 when rounded to two decimal places).
In addition to this change in assumption, the assumed real-wage differential for the first ten years of the projection period averaged 0.05 percent lower than in the previous valuation. The lower long-term and near-term real-wage differential assumptions are based on new projections of faster growth in employer sponsored group health insurance premiums. Because these premiums are not subject to the payroll tax, faster growth in these premiums means that a smaller share of employee compensation will be in the form of wages that are subject to the payroll tax.
Otherwise, the ultimate economic assumptions for the current valuation are the same as those for the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions were changed. Most significantly, an assumed weaker recovery from the recent recession than previously expected led to a reduction in the ultimate level of actual and potential GDP of about 1.0 percent for all years after the short-range period.
The health care assumptions are specific to the Medicare projections. The following health care assumptions were changed in the current valuation.
- Utilization rate assumptions for inpatient hospital and skilled nursing facilities services were decreased.
- The number of beneficiaries enrolled in Medicare Advantage plans and their relative costs are slightly different from last year’s assumptions.
- Lower productivity increases through 2025, resulting in higher provider payment updates.
- Higher projected drug rebates.
- Change in projection methodology of drug spending for Part B patients with end-stage renal disease.
The net impact of these changes resulted in an increase in the estimated future net cash flow for total Medicare. For Part A, these changes resulted in an increase to the present value of estimated future expenditures and income, with an overall increase in the estimated future net cash flow. For Part B, these changes increased the present value of estimated future expenditures (and also income). For Part D, these changes decreased the present value of estimated expenditures (and also income).
Changes in Law
For the period beginning on January 1, 2017 to the period beginning on January 1, 2018
Most of the provisions enacted as part of Medicare legislation since the prior valuation date had little or no impact on the program. The following provisions did have a financial impact on the present value of the 75-year estimated future income, expenditures, and net cash flow.
- The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Public Law 115-63, enacted on September 29, 2017) included one provision that affects the HI and SMI Part B programs.
- The funding amount of $270 million previously provided to the Medicare Improvement Fund, for services provided during and after FY 2021, is decreased to $220 million. (This fund was intended to be available for improvements to the original fee-for-service program under Parts A and B.)
- An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for FY 2018 (Public Law 115-97, enacted on December 22, 2017, and also referred to as the Tax Cuts and Jobs Act of 2017) included three provisions that affect the HI program.
- Federal income tax rates for individuals are reduced, effective for taxable years beginning after December 31, 2017 and ceasing to apply after December 31, 2025. In addition, the inflation index applied to the tax bracket thresholds and standard deductions is changed, effective for taxable years beginning after December 31, 2017, such that these amounts will permanently grow more slowly than under prior law.
- The requirement that most individuals be covered by a health insurance plan or pay a financial penalty, commonly referred to as the individual mandate, is repealed, effective January 1, 2019. Accordingly, the percentage of people without health insurance is expected to increase. Because the change in this percentage is a factor used in determining payments to Medicare disproportionate share hospitals for uncompensated care, these payments are expected to increase as well. In addition, in light of this repeal, it is expected that some individuals will drop their employer-sponsored health insurance, thereby slightly increasing HI covered wages and taxable payroll.
- Temporary tax changes for certain small businesses are made that will affect reported self-employment income and, in turn, HI covered wages and taxable payroll.
- An Act Making Further Continuing Appropriations for the FY Ending September 30, 2018, and for Other Purposes (Public Law 115-120, enacted on January 22, 2018) included one provision that affects the HI and SMI programs.
- A moratorium for calendar year 2019 is placed on the annual fee to be paid by health insurance providers. This fee is imposed on certain large health insurance providers, including those furnishing coverage under Medicare Advantage (Part C) and Medicare Part D.
- The Bipartisan Budget Act of 2018 (BBA 2018; Public Law 115-123, enacted on February 9, 2018) included provisions that affect the HI and SMI programs.
- The sequestration process that is in place should Congress fail to address the budget deficit by certain deadlines, as described in previous annual reports, is extended by 2 years, through FYs 2026 and 2027.
- The Independent Payment Advisory Board (IPAB) and all related provisions are repealed, effective upon enactment. (The IPAB was established by the Affordable Care Act to develop and submit proposals aimed at extending the solvency of Medicare, slowing Medicare cost growth, and improving the quality of care delivered to Medicare beneficiaries.)
- For Medicare Advantage plans and stand-alone Part D plans that undergo a contract consolidation approved on or after January 1, 2019, the star rating (and any quality bonus payment) for the surviving contract is to reflect an enrollment-weighted average of the ratings for the continuing and closed contracts.
- The authority for Medicare Advantage Special Needs Plans (SNPs), which was due to expire on December 31, 2018, is permanently extended. A number of reforms to dual-eligible SNPs and chronic-condition SNPs are also mandated.
- For Medicare Advantage plans, certain provisions are enacted, effective January 1, 2020, which permit plans to offer to chronically ill enrollees (i) a broader range of supplemental benefits (which may include services that are not primarily health care services), as long as the benefit offers a reasonable expectation of improving or maintaining health or overall function, and (ii) expanded telehealth services as supplemental benefits, subject to certain specified requirements. In addition, the Value-Based Insurance Design (VBID) Model, which is a pilot program allowing certain plans to offer supplemental benefits or reduced cost sharing to enrollees with certain chronic conditions, is expanded, effective no later than January 1, 2020, to allow plans in all States the opportunity to participate in it. The VBID program is also made exempt, through December 31, 2021, from certain spending and quality-of-care testing to which it would otherwise be subjected.
- For Medicare Accountable Care Organizations (ACOs), certain provisions are enacted to (i) provide more opportunities for beneficiaries to be assigned to, or voluntarily align with, ACOs; (ii) allow for the use of beneficiary incentive programs; and (iii) allow for expanded use of telehealth services. The specific types of ACOs to which each of these changes apply, as well as the effective dates, vary.
- Funding for the National Quality Forum is provided from the HI and SMI trust funds for the remainder of FY 2017 and for FYs 2018 and 2019.
- Funding for certain low-income outreach and assistance programs is extended 2 years, through September 30, 2019.
- Certain existing civil and criminal penalties are substantially increased for providers and suppliers who violate health care fraud and abuse laws, effective upon enactment.
- For home health agencies serving beneficiaries in rural areas, the 3‑percent add-on payment is extended 1 year, through December 31, 2018. Then, for services furnished in rural areas from 2019 through 2022, three separate tiers of add-on adjustments are established, based on Medicare home health utilization and low-population density; these adjustments diminish over varying periods of time (and become 0 percent no later than 2020). Also, for services furnished on or after January 1, 2019, home health agencies are required to report the county in which the services are furnished.
- For the Medicare home health prospective payment system (PPS), the annual update for calendar year 2020 is set at 1.5 percent.
- Under the home health PPS, the unit of payment for home health services is changed from a 60‑day to a 30-day episode of care, beginning in 2020. This change must be made in a budget-neutral manner, but adjustments to offset anticipated behavior changes that could result from the modified methodology are allowed. Also beginning in 2020, therapy thresholds are removed from the home health case mix adjustment.
- To demonstrate home-bound and medical-necessity status when determining if a patient is eligible for home health services, documentation in the medical records of home health agencies can be used as supporting material, in addition to documentation in the medical records of the certifying physician, effective January 1, 2019.
- For telehealth services furnished for purposes of diagnosis, evaluation, or treatment of symptoms of an acute stroke, the geographic restriction that limits originating sites to rural areas is eliminated, provided that all other Medicare telehealth coverage requirements are satisfied. In addition, no originating site facility fee is to be paid to sites that do not meet the current geographic and site type requirements. This provision is effective beginning on January 1, 2019.
- For the Medicare electronic health records incentive program, the provision requiring more stringent measures of meaningful use, over time, is eliminated, effective upon enactment.
- The funding amount of $220 million previously provided for the Medicare Improvement Fund (as noted above) is eliminated.
- The Medicare-Dependent Hospital (MDH) program is extended for 5 fiscal years, through September 30, 2022. In addition, the program is extended to certain rural hospitals that are located in all-urban States and that otherwise meet the MDH criteria.
- Medicare inpatient hospital add-on payments for low-volume hospitals are extended for 5 fiscal years, through September 30, 2022. In addition, for FYs 2019 through 2022, changes are made to the qualifying criteria (which are to be based on total discharges or Medicare discharges, depending on the year, and on the distance from another inpatient hospital) and to the add-on adjustments (which are to be based on a sliding scale ranging from 25 percent to 0 percent).
- Two changes are made to the long-term care hospital (LTCH) site-neutral provision. First, the originally mandated 2-year transition period is extended for 2 additional years, covering FYs 2018 and 2019. Second, the inpatient hospital PPS comparable amount used in the site-neutral payment rate calculations for FYs 2018 through 2026 is to be reduced by 4.6 percent.
- For the inpatient hospital diagnosis-related groups (DRGs) subject to the post-acute care transfer policy, hospice is added as a setting of care, effective October 1, 2023.
- For the Medicare skilled nursing facility PPS, the annual update for FY 2019 is set at 2.4 percent.
- Physician assistants are added to the types of providers who may serve as attending physicians for the purposes of hospice care, effective January 1, 2019. (Previously, only physicians and nurse practitioners could serve.) Like nurse practitioners, physician assistants are not permitted to provide the written certification of terminal illness required for hospice services.
- A new income-related premium threshold is established. Specifically, beginning in calendar year 2019, individuals with incomes at or above $500,000 (and couples with incomes at or above $750,000) will pay premiums covering 85 percent (rather than 80 percent) of the average program cost for aged beneficiaries. These new threshold levels will not be inflation-adjusted until 2028 and later.
- The 1.00 floor on the geographic index for physician work is extended for 2 additional years, through December 31, 2019.
- The physician fee schedule update for 2019, which had been set at 0.5 percent, is decreased to 0.25 percent.
- A number of changes are made to the merit-based incentive payment system (MIPS) for physicians, including that it be applied only to covered professional services instead of to items and services (thereby excluding, most prominently, physician-administered Part B drugs) and that its transition period be extended by 3 years (such that the post-transition period now begins in 2022, not 2019). Certain additional changes to the system are mandated for the extended transition period, and others are mandated for the period thereafter. Effective dates vary.
- The annual payment limits on therapy services are permanently repealed, beginning on January 1, 2018. The threshold for the targeted manual medical review process is lowered, from $3,700 to $3,000, effective as of the same date and until 2028, after which the threshold is to be increased by a specified formula.
- Outpatient physical and occupational therapy services furnished by a therapy assistant are paid at 85 percent of the amount that otherwise would have been paid under the fee schedule, effective January 1, 2022.
- The freeze on coding and valuation of certain radiation therapy services reimbursed under the fee schedule, in place for 2017 and 2018, is extended through 2019.
- For qualified home infusion therapy suppliers, a temporary transitional payment for administering home infusion therapy is established, beginning on January 1, 2019. Payment rates in three categories will apply during the transition period, which will end on December 31, 2020, after which a new payment methodology will begin.
- Certain ground ambulance add-on payments are extended 5 additional years, through December 31, 2022. (These add-on payments include a 3‑percent bonus for services originating in rural areas, a 2‑percent bonus for services originating in other locations, and a 22.6-percent super rural bonus for rural areas with the lowest population densities.) The development of a system to collect certain data from providers and suppliers of ground ambulance services is also mandated.
- For non-emergency ground ambulance transports of beneficiaries with end-stage renal disease (ESRD) to and from renal dialysis services, the reduction in payments is increased from 10 percent to 23 percent for transports furnished on or after October 1, 2018.
- For beneficiaries with ESRD who receive home dialysis, all monthly physician visits can be provided via telehealth, beginning on January 1, 2019, as long as the beneficiary receives one in-person visit monthly for the initial 3 months and at least one every 3 months thereafter. (Previously, at least one in-person visit per month was required.) Also, the originating site requirements are modified in several ways, and no site facility fee is to be paid if the beneficiary’s home is the originating site.
- Conditions are added to those that allow a beneficiary who qualifies for cardiac rehabilitation services to qualify for the more intensive set of services, effective upon enactment. Also, the supervision requirements for cardiac rehabilitation, intensive cardiac rehabilitation, and pulmonary rehabilitation are changed to allow physician assistants, nurse practitioners, and clinical nurse specialists (in addition to physicians) to supervise these programs, effective January 1, 2024.
- A provision of the Steve Gleason Act of 2015, requiring that Medicare payment for rental or lump-sum purchase of speech-generating devices and accessories be made without a cap on the amount, is made permanent.
- Enforcement is delayed an additional year, through December 31, 2017, for the instruction that, for outpatient therapeutic services provided in critical access and small rural hospitals, a physician or non-physician practitioner must provide direct supervision throughout the performance of a procedure. (In the 2018 outpatient hospital PPS rule, CMS extended these non-enforcement instructions for 2018 and 2019 and noted that, for 2017, while there was not a non-enforcement instruction in place, Medicare administrative contractors were directed not to prioritize enforcement of this requirement for these hospitals. This legislation provides the non-enforcement instruction that had been lacking for 2017.)
- Under the Part D standard benefit structure, the coverage gap closes 1 year earlier than previously scheduled for brand-name drugs only; that is, for brand-name drugs, beneficiaries in the coverage gap (excluding low-income enrollees eligible for cost-sharing subsidies) will pay 25 percent of drug costs beginning on January 1, 2019 (instead of 30 percent in 2019 and 25 percent thereafter). Also beginning on that date, these beneficiaries will receive a 70‑percent manufacturer discount (instead of 50 percent) and a 5‑percent benefit (instead of 20 percent in 2019 and 25 percent thereafter) from their Part D plans for applicable prescription drugs. (For purposes of drug discounts while beneficiaries are in the Part D coverage gap, applicable drugs are generally covered brand-name Part D drugs, while non-applicable drugs are generally covered generic Part D drugs.) For generic drugs, the law remains the same, with beneficiaries paying 37 percent of drug costs in 2019 and 25 percent thereafter.
- For purposes of drug discounts while beneficiaries are in the Part D coverage gap, the definition of applicable drugs is expanded to include biosimilars, effective January 1, 2019. (Applicable drugs previously included biologics but not biosimilars.)
Overall, these provisions resulted in a decrease in the estimated future net cash flow for total Medicare. For Part A, these changes resulted in an increase to the present value of estimated future expenditures and a slight decrease to the present value of estimated future income, with an overall net decrease in the estimated future net cash flow. For Part B and Part D, these changes increased the present value of estimated future expenditures (and also income).
For the period beginning on January 1, 2016 to the period beginning on January 1, 2017
Most of the provisions enacted as part of Medicare legislation since the prior valuation date had little or no impact on the program. The following provisions did have a financial impact on the present value of the 75-year estimated future income, expenditures, and net cash flow.
- The 21st Century Cures Act included provisions that affect the HI and SMI Part B programs.
- For inpatient hospital services, the adjustment to the payment rate increase of 0.5 percentage point for FY 2018, as established by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), is reduced to an adjustment of 0.4588 percentage point. (The adjustments to the rate increases of 0.5 percentage point for each of FYs 2019 through 2023, as also established by MACRA, are unchanged.)
- For long-term care hospital (LTCH) discharges occurring during FY 2017, the LTCH 25-percent rule is suspended.
- A change is made to the moratorium that prohibits the classification of new LTCHs and new LTCH satellite facilities and an increase in beds for existing LTCHs and existing LTCH satellite facilities. No exceptions to the moratorium had been provided to allow existing LTCHs and existing LTCH satellite facilities to increase their number of certified beds; however, under the Cures Act, these existing facilities are permitted to do so. This provision is effective as if the exception for these bed increases had always applied during the moratorium. A reduction to high-cost outlier payments to LTCH standard rate cases, through an increase to the qualifying threshold, is also provided for and is intended to offset costs of the moratorium exceptions provision.
- Several changes are made that involve the LTCH site-neutral provision.
- The first modification is to the calculation of the average length of stay for certain LTCHs. Under prior law, discharges paid at the site-neutral payment rate or by an MA plan were excluded from calculations determining the hospital’s average length of stay, effective for cost-reporting periods starting on or after October 1, 2015. Under the Cures Act, this carve-out of site-neutral and MA discharges (which is generally advantageous to LTCHs) applies to the average length of stay calculation for newer LTCHs as well. Thus, the average length of stay calculation methodology is now the same for all LTCHs. This provision is effective retroactively, for cost-reporting periods starting on or after October 1, 2015.
- Next, a temporary exception to the site-neutral criteria is provided for certain LTCHs that primarily treat patients with brain and spinal cord injuries, are non-profit, and have a significant number of admissions from out of state, for all discharges in cost-reporting periods beginning during FYs 2018 and 2019.
- Finally, a temporary exception to the site-neutral criteria is created for certain discharges from certain LTCHs for beneficiaries receiving treatment for specified types of severe wounds. To qualify for the exception, the stay for one of the specified types of severe wounds must be classified under one of four specified Medicare severity LTCH diagnosis-related groups (MS-LTC-DRGs). Further, the facility must be a grandfathered LTCH. This provision is effective for these specified discharges occurring in cost-reporting periods that begin during FY 2018.
- The Secretary of HHS is authorized to deny payment for services provided in temporary moratorium areas (which are geographic areas that have been established by CMS for specified types of providers, for the development and improvement of investigating and prosecuting fraud). Previously, denial was based on the location of the provider rather than on the location of the patient; this provision eliminates the ability of a provider to locate a business office outside of a moratorium area but be paid for services furnished within it.
- Medicare beneficiaries with end-stage renal disease are allowed to enroll in MA plans, effective for plan years beginning in 2021 and later. Standard acquisition costs for kidneys are to be removed from the capitation rates and paid for by traditional Medicare.
- Additional requirements are established for assigning Medicare FFS beneficiaries to accountable care organizations (ACOs) under the Medicare shared savings program. Specifically, the basis for assignment is required to reflect beneficiaries’ utilization of not only primary care services provided by ACO physicians but also services furnished in federally qualified health centers or rural health clinics, effective for performance years beginning on or after January 1, 2019.
- Under the competitive bidding program for certain durable medical equipment (DME) items, the transition period is extended, such that the implementation of payments based entirely on the competitively bid rates (rather than on a blend of these rates and rates under the prior fee schedule payment methodology) is delayed retroactively, from July 1, 2016 to January 1, 2017.
- Also, for DME providers in non-competitively bid, new considerations are stipulated for determining adjustments to the competitively bid prices. Specifically, the Secretary of HHS is required to take into account stakeholder input and the highest winning bid in the competitively bid areas and to compare, with respect to non-competitively and competitively bid areas, the average travel distance and cost associated with furnishing the items and services, the average volume of the items and services furnished by suppliers, and the number of suppliers. This provision is effective for services furnished on or after January 1, 2019.
- For infusion drugs furnished by suppliers of DME, the reimbursement methodology is changed from 95 percent of the average wholesale price to the average sales price plus 6 percent (that is, to the methodology used for most physician-administered drugs), effective January 1, 2017. Also, these drugs are removed from the DME competitive acquisition areas, beginning on the date of enactment.
- Qualified home infusion therapy suppliers are to be reimbursed for administering home infusion therapy, effective January 1, 2021. Certain requirements and standards for suppliers, as well as payment methodology, are established.
- As described in last year’s report, the Bipartisan Budget Act of 2015 (BBA) directed that outpatient hospital services provided by new off-campus hospital-based outpatient entities (that is, those established on or after the BBA date of enactment of November 2, 2015 and located more than 250 yards from the hospital campus) are excluded from the outpatient hospital PPS, effective for services provided on or after January 1, 2017 (with certain exceptions, particularly for specific dedicated emergency departments). These services are instead to be reimbursed under the Medicare physician fee schedule or the ambulatory surgical center PPS (both of which provide lower reimbursement rates than the outpatient hospital PPS).
- The Cures Act provides an exception for off-campus hospital provider-based outpatient entities that were “mid-build” on November 2, 2015. A mid-build entity is one that had a binding written agreement, before November 2, 2015, with an outside unrelated party for actual construction of the new off-campus department. To be eligible under this exception, the host hospital must (i) file a certification that the department meets the mid-build status requirement; (ii) file an attestation that the department is provider-based; and (iii) add the department to the host hospital’s Medicare enrollment form. Entities that qualify will be eligible to bill under the outpatient PPS for services provided on or after January 1, 2018.
- Under the Cures Act, an off-campus outpatient department can also be eligible for payment under the outpatient hospital PPS for services furnished in 2017 if the host hospital submitted a voluntary attestation, prior to December 2, 2015, stating that the department is provider-based. (Under separate guidance from CMS that governs submission of provider-based attestations, for a hospital to have taken this step, the construction of the new off-campus outpatient department would have been completed and the hospital accepting, or poised to accept, patients. Thus, this exception benefits only a small number of departments that fell just outside of the deadline contained in the BBA.)
- To clarify, while the relief for 2017 applies only to off-campus outpatient departments with provider-based attestations filed before December 2, 2015, the relief for 2018 and beyond applies more broadly to off-campus outpatient departments with construction agreements in place as of November 2, 2015 (including hospitals eligible for the 2017 exception). Hence, most hospitals that qualify for the exception under this provision are not eligible for payment under the outpatient PPS during 2017 and are, instead, subject to lower payments for services furnished during that year, with return to the outpatient hospital PPS effective for services furnished on or after January 1, 2018.
- Off-campus outpatient departments of certain cancer hospitals are also granted exception from the BBA provision described above, thereby confirming that the BBA legislation intended these facilities to remain under their existing separate payment system. To qualify, these locations must file attestations stating that they are provider-based, within 60 days of the date of enactment or within 60 days of meeting the provider-based requirement. The attestations are subject to audit. A reduction to the additional payments that cancer hospitals receive (relative to payments under the inpatient hospital PPS) is also provided for and is intended to offset costs of the BBA exception for off-campus outpatient cancer hospital departments.
- Enforcement is delayed an additional year, through December 31, 2016, for the regulation requiring that, for outpatient therapeutic services provided in critical access and small rural hospitals, a physician or non-physician practitioner must provide direct supervision throughout the performance of a procedure.
- For wheelchair accessories and seat and back cushions furnished in connection with complex rehabilitative power wheelchairs, fee schedule adjustments do not apply until July 1, 2017 (which is a delay of 6 months relative to the previously stipulated date of January 1, 2017).
Overall these provisions resulted in a very small increase in the estimated future net cash flow for total Medicare. For Part A, these changes resulted in a decrease to the present value of estimated future expenditures and had no impact on the present value of estimated future income. For Part B, these changes increased the present value of estimated future expenditures (and also income). These changes had no impact on Part D.
Also see these sections of the Agency Financial Report:
- Section I: Management, Discussion and Analysis
- Section II: Financial Section - Subsection 1
- Section II: Financial Section - Subsection 3
- Section III: Other Information
- Appendices
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