Medicare Program; Monthly Actuarial Rates and Monthly Supplementary Medical Insurance Premium Rate Beginning January 1, 1998

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[OACT-055-N]

RIN 0938-AI03

Medicare Program; Monthly Actuarial Rates and Monthly

Supplementary Medical Insurance Premium Rate Beginning January 1, 1998

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice.

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SUMMARY: As required by section 1839 of the Social Security Act, this

notice announces the monthly actuarial rates for aged (age 65 or over)

and disabled (under age 65) enrollees in the Medicare Supplementary

Medical Insurance (SMI) program for 1998. It also announces the monthly

SMI premium rate to be paid by all enrollees during 1998. The monthly

actuarial rates for 1998 are $87.90 for aged enrollees and $97.10 for

disabled enrollees. The monthly SMI premium rate for 1998 is $43.80.

EFFECTIVE DATE: January 1, 1998.

FOR FURTHER INFORMATION CONTACT: Carter S. Warfield, (410) 786-6396.

SUPPLEMENTARY INFORMATION:

I. Background

The Medicare Supplementary Medical Insurance (SMI) program is the

voluntary Medicare Part B program that pays all or part of the costs

for physicians' services, outpatient hospital services, home health

services, services furnished by rural health clinics, ambulatory

surgical centers, comprehensive outpatient rehabilitation facilities,

and certain other medical and health services not covered by hospital

insurance (HI) (Medicare Part A). The SMI program is available to

individuals who are entitled to HI and to U.S. residents who have

attained age 65 and are citizens, or aliens who were lawfully admitted

for permanent residence and have resided in the United States for 5

consecutive years. This program requires enrollment and payment of

monthly premiums, as provided in 42 CFR part 407, subpart B, and part

408, respectively. The difference between the premiums paid by all

enrollees and total incurred costs is met from the general revenues of

the Federal government.

The Secretary of Health and Human Services is required by section

1839 of the Social Security Act (the Act) to issue two annual notices

relating to the SMI program.

One notice announces two amounts that, according to actuarial

estimates, will equal respectively, one-half the expected average

monthly cost of SMI for each aged enrollee (age 65 or over) and one-

half the expected average monthly cost of SMI for each disabled

enrollee (under age 65) during the year beginning the following

January. These amounts are called ``monthly actuarial rates.''

The second notice announces the monthly SMI premium rate to be paid

by aged and disabled enrollees for the year beginning the following

January. (Although the costs to the program per disabled enrollee are

different than for the aged, the law provides that they pay the same

premium amount.) Beginning with the passage of section 203 of the

Social Security Amendments of 1972 (Public Law 92-603), the premium

rate, which was determined on a fiscal year basis, was limited to the

lesser of the actuarial rate for aged enrollees, or the current monthly

premium rate increased by the same percentage as the most recent

general increase in monthly title II social security benefits.

However, the passage of section 124 of the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA) (Public Law 97-248) suspended this

premium determination process. Section 124 of TEFRA changed the premium

basis to 50 percent of the monthly actuarial rate for aged enrollees

(that is, 25 percent of program costs for aged enrollees). Section 606

of the Social Security Amendments of 1983 (Public Law 98-21), section

2302 of the Deficit Reduction Act of 1984 (DRA 1984) (Public Law 98-

369), section 9313 of the Consolidated Omnibus Budget Reconciliation

Act of 1985 (COBRA 1985) (Public Law 99-272), section 4080 of the

Omnibus Budget Reconciliation Act of 1987 (OBRA 1987) (Public Law 100-

203), and section 6301 of the Omnibus Budget Reconciliation Act of 1989

(OBRA 1989) (Public Law 101-239) extended the provision that the

premium be based on 50 percent of the monthly actuarial rate for aged

enrollees (that is, 25 percent of program costs for aged enrollees).

This extension expired at the end of 1990.

The premium rate for 1991 through 1995 was legislated by section

1839(e)(1)(B) of the Act, as added by section 4301 of the Omnibus

Budget Reconciliation Act of 1990 (OBRA 1990) (Public Law 101-508). In

January 1996, the premium determination basis would have reverted to

the method established by the 1972 Social Security Act Amendments.

However, section 13571 of the Omnibus Budget Reconciliation Act of 1993

(OBRA 1993) (Public Law 103-66) changed the premium basis to 50 percent

of the monthly actuarial rate for aged enrollees (that is, 25 percent

of program costs for aged enrollees) for 1996 through 1998.

Section 4571 of the Balanced Budget Act of 1997 (BBA 1997) (Public

Law 105-33) permanently extended the provision that the premium be

based on 50 percent of the monthly actuarial rate for aged enrollees

(that is, 25 percent of program costs for aged enrollees).

BBA 1997 included a further provision affecting the calculation of

the SMI actuarial rates and premiums for 1998 though 2003. Section 4611

of BBA 1997 modified the home health benefit payable under the HI

program for individuals enrolled in the SMI program. In doing so,

expenditures for home health services not considered ``post-

institutional'' will be payable under the SMI program rather than the

HI program beginning in 1998. However, section 4611(e)(1) of BBA 1997

requires there be a transition from 1998 through 2002 for the aggregate

amount of the expenditures transferred from the HI program to the SMI

[[Page 59716]]

program. Section 4611(e)(2) also provides a specific yearly proportion

for the transferred funds. The proportions are \1/6\ for 1998, \1/3\

for 1999, \1/2\ for 2000, \2/3\ for 2001, and \5/6\ for 2002. For

purposes of determining the correct amount of financing from general

revenues of the federal government, it is necessary to include only

these transitional amounts in the monthly actuarial rates for both aged

and disabled enrollees, rather than the total cost of the home health

services being transferred. Accordingly, the actuarial rates shown in

this announcement reflect the net transitional cost only.

Section 4611(e)(3) of BBA 1997 also specifies, for the purposes of

determining the premium, that the monthly actuarial rate for aged

enrollees shall be computed as though the transition would occur for

1998 through 2003 and that \1/7\ of the cost would transferred in 1998,

\2/7\ in 1999, \3/7\ in 2000, \4/7\ in 2001, \5/7\ in 2002, and \6/7\

in 2003. Therefore, the transition period for incorporating this home

health transfer into the premium is 7 years while the transition period

for including these services in the actuarial rate is 6 years. As a

result, the premium rate for this year and each of the next 5 years,

through 2003, will be less than 50 percent of the actuarial rate for

aged enrollees announced by the Secretary.

New section 1933(c)(2) of the Act, as added by section 4732(c) of

BBA 1997, requires the Secretary to allocate money from the SMI trust

fund to the state Medicaid programs for the purpose of paying the SMI

premiums from 1998 through 2002 for the section 1933 low-income

Medicaid beneficiaries. This allocation, while not a benefit

expenditure, will be an expenditure of the trust fund and has been

included in calculating the SMI actuarial rates for this year. The

allocation will be included in calculating the SMI actuarial rates

through 2002.

As determined according to section 1839(a)(3) of the Act and

section 4611(e)(3) of BBA 1997, the premium rate for 1998 is $43.80.

A further provision affecting the calculation of the SMI premium is

section 1839(f) of the Act, as amended by section 211 of the Medicare

Catastrophic Coverage Act of 1988 (Public Law 100-360). (The Medicare

Catastrophic Coverage Repeal Act of 1989 (Public Law 101-234) did not

repeal the revisions to section 1839(f) made by Public Law 100-360.)

Section 1839(f) provides that if an individual is entitled to benefits

under section 202 or 223 of the Act (the Old-Age and Survivors

Insurance Benefit and the Disability Insurance Benefit, respectively)

and has the SMI premiums deducted from these benefit payments, the

premium increase will be reduced to avoid causing a decrease in the

individual's net monthly payment. This occurs if the increase in the

individual's social security benefit due to the cost-of-living

adjustment under section 215(i) of the Act is less than the increase in

the premium. Specifically, the reduction in the premium amount applies

if the individual is entitled to benefits under section 202 or 223 of

the Act for November and December of a particular year and the

individual's SMI premiums for December and the following January are

deducted from the respective month's section 202 or 223 benefits. (A

check for benefits under section 202 or 223 is received in the month

following the month for which the benefits are due. The SMI premium

that is deducted from a particular check is the SMI payment for the

month in which the check is received. Therefore, a benefit check for

November is not received until December, but has the December's SMI

premium deducted from it.) (This change, in effect, perpetuates former

amendments that prohibited SMI premium increases from reducing an

individual's benefits in years in which the dollar amount of the

individual's cost-of-living increase in benefits was not at least as

great as the dollar amount of the individual's SMI premium increase.)

Generally, if a beneficiary qualifies for this protection (that is,

the beneficiary must have been in current payment status for November

and December of the previous year), the reduced premium for the

individual for that January and for each of the succeeding 11 months

for which he or she is entitled to benefits under section 202 or 223 of

the Act is the greater of the following:

(1) The monthly premium for January reduced as necessary to make

the December monthly benefits, after the deduction of the SMI premium

for January, at least equal to the preceding November's monthly

benefits, after the deduction of the SMI premium for December; or

(2) The monthly premium for that individual for that December.

In determining the premium limitations under section 1839(f) of the

Act, the monthly benefits to which an individual is entitled under

section 202 or 223 do not include retroactive adjustments or payments

and deductions on account of work. Also, once the monthly premium

amount has been established under section 1839(f) of the Act, it will

not be changed during the year even if there are retroactive

adjustments or payments and deductions on account of work that apply to

the individual's monthly benefits.

Individuals who have enrolled in the SMI program late or have

enrolled after the termination of a coverage period are subject to an

increased premium under section 1839(b) of the Act. That increase is a

percentage of the premium and is based on the new premium rate before

any reductions under section 1839(f) are made.

II. Notice of Monthly Actuarial Rates and Monthly Premium Rate

The monthly actuarial rates applicable for 1998 are $87.90 for

enrollees age 65 and over, and $97.10 for disabled enrollees under age

65. Section III of this notice gives the actuarial assumptions and

bases from which these rates are derived. The monthly premium rate will

be $43.80 during 1998.

III. Statement of Actuarial Assumptions and Bases Employed in

Determining the Monthly Actuarial Rates and the Monthly Premium Rate

for the Supplementary Medical Insurance Program Beginning January 1998

A. Actuarial Status of the Supplementary Medical Insurance Trust Fund

Under the law, the starting point for determining the monthly

premium is the amount that would be necessary to finance the SMI

program on an incurred basis; that is, the amount of income that would

be sufficient to pay for services furnished during that year (including

associated administrative costs) even though payment for some of these

services will not be made until after the close of the year. The

portion of income required to cover benefits not paid until after the

close of the year is added to the trust fund and used when needed.

The rates are established prospectively and are, therefore, subject

to projection error. Additionally, legislation enacted after the

financing has been established, but effective for the period for which

the financing has been set, may affect program costs. As a result, the

income to the program may not equal incurred costs. Therefore, trust

fund assets should be maintained at a level that is adequate to cover a

moderate degree of variation between actual and projected costs (in

addition to the amount of incurred but unpaid expenses). An appropriate

level for assets to cover a moderate degree of variation between actual

and projected costs depends on numerous factors. The most important of

these factors are: (1)

[[Page 59717]]

The difference from prior years between the actual performance of the

program and estimates made at the time financing was established, and

(2) the expected relationship between incurred and cash expenditures.

Ongoing analysis is made of both factors as the trends vary over time.

Table 1 summarizes the estimated actuarial status of the trust fund

as of the end of the financing period for 1996 and 1997.

Table 1.--Estimated Actuarial Status of the Supplementary Medical

Insurance Trust Fund as of the End of the Financing Period

[In billions of dollars]

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Assets less

Financing period ending Assets Liabilities liabilities

------------------------------------------------------------------------

Dec. 31, 1996.................... $28.332 $1.350 $26.982

Dec. 31, 1997.................... 37.502 1.397 36.105

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B. Monthly Actuarial Rate for Enrollees Age 65 and Older

The monthly actuarial rate for enrollees age 65 and older is one-

half of the monthly projected cost of benefits, the Medicaid transfer

(for 1998 through 2002), and administrative expenses for each enrollee

age 65 and older, adjusted to allow for interest earnings on assets in

the trust fund and a contingency margin. The contingency margin is an

amount appropriate to provide for a moderate degree of variation

between actual and projected costs and to amortize any surplus or

unfunded liabilities. As noted in section I. of this announcement,

section 4611(e)(2) of BBA 1997 requires that only \1/6\ of the cost of

the home health services being transferred be included in the actuarial

rate for 1998, rather than the full cost of such benefits.

The monthly actuarial rate for enrollees age 65 and older for 1998

was determined by first establishing per-enrollee cost by type of

service from program data through 1995 and then projecting these costs

for subsequent years. Although the actuarial rates are now applicable

for calendar years, projections of per-enrollee costs were determined

on a July to June period, consistent with the July annual fee screen

update used for benefits before the passage of section 2306(b) of DRA

1984. Accordingly, the values for the 12-month period ending June 30,

1995 were established from program data, and subsequent periods were

projected using a combination of program data and data from external

sources. The projection factors used are shown in Table 2. Those per-

enrollee values are then adjusted to apply to a calendar year period.

The projected values for financing periods from January 1, 1995,

through December 31, 1998, are shown in Table 3.

The projected monthly rate required to pay for one-half of the

total of benefits, the transfer to Medicaid, and administrative costs

for enrollees age 65 and over for 1998 is $106.46. Included in the

total of $106.46 is $15.44 for home health services. The amount of

$15.44 includes (i) the full cost of the home health services being

transferred from the HI program as a result of BBA 1997 as if the

transition did not apply ($14.99) as well as (ii) the cost of

furnishing all home health services to those individuals enrolled in

SMI only ($0.45). Since section 4611(e)(2) of BBA 1997 requires that

only \1/6\ of the cost for those services being transferred be included

in the actuarial rate for 1998, the monthly actuarial rate provides for

an adjustment of -$12.49, representing \5/6\ of the full cost of such

services. The monthly actuarial rate of $87.90 also provides an

adjustment of -$4.13 for interest earnings and -$1.94 for a contingency

margin. Based on current estimates, it appears that the assets are more

than sufficient to cover the amount of incurred but unpaid expenses and

to provide for a moderate degree of variation between actual and

projected costs. Thus, a negative contingency margin is needed to

reduce assets to a more appropriate level.

C. Monthly Actuarial Rate for Disabled Enrollees

Disabled enrollees are those persons enrolled in SMI because of

entitlement (before age 65) to disability benefits for more than 24

months or because of entitlement to Medicare under the end-stage renal

disease program. Projected monthly costs for disabled enrollees (other

than those suffering from end-stage renal disease) are prepared in a

fashion exactly parallel to the projection for the aged, using

appropriate actuarial assumptions (see Table 2). Costs for the end-

stage renal disease program are projected differently because of the

different nature of services offered by the program. The combined

results for all disabled enrollees are shown in Table 4.

The projected monthly rate required to pay for one-half of the

total of benefits, the transfer to Medicaid, and administrative costs

for disabled enrollees for 1998 is $116.64. Included in the total of

$116.64 is $16.98 for home health services. The amount of $16.98 is the

full cost of the home health services being transferred from the HI

program as a result of BBA 1997 as if the transition did not apply.

Since section 4611(e)(2) of BBA 1997 requires that only \1/6\ of the

cost for those services being transferred be included in the actuarial

rate for 1998, the monthly actuarial rate provides for an adjustment of

-$14.17, representing \5/6\ of the full cost of such services. The

monthly actuarial rate of $97.10 also provides an adjustment of -$2.27

for interest earnings and -$3.10 for a contingency margin. Based on

current estimates, it appears that the assets are more than sufficient

to cover the amount of incurred but unpaid expenses and to provide for

a moderate degree of variation between actual and projected costs.

Thus, a negative contingency margin is needed to reduce assets to a

more appropriate level.

D. Sensitivity Testing

Several factors contribute to uncertainty about future trends in

medical care costs. In view of this, it is appropriate to test the

adequacy of the rates announced here using alternative assumptions. The

most unpredictable factors that contribute significantly to future

costs are outpatient hospital costs, physician residual (as defined in

Table 2), and increases in physician fees as governed by the program's

physician fee schedule. Two alternative sets of assumptions and the

results of those assumptions are shown in Table 5. One set represents

increases that are lower and is, therefore, more optimistic than the

current estimate. The other set represents increases that are higher

and is, therefore, more pessimistic than the current version. The

values for the alternative assumptions were determined by studying the

average historical variation between actual and projected increases in

the respective

[[Page 59718]]

increase factors. All assumptions not shown in Table 5 are the same as

in Table 2.

Table 5 indicates that, under the assumptions used in preparing

this report, the monthly actuarial rates would result in an excess of

assets over liabilities of $32.371 billion by the end of December 1998.

This amounts to 31.3 percent of the estimated total incurred

expenditures for the following year. Assumptions that are somewhat more

pessimistic (and, therefore, test the adequacy of the assets to

accommodate projection errors) produce a surplus of $22.836 billion by

the end of December 1998, which amounts to 20.6 percent of the

estimated total incurred expenditures for the following year. Under

fairly optimistic assumptions, the monthly actuarial rates would result

in a surplus of $41.762 billion by the end of December 1998, which

amounts to 43.2 percent of the estimated total incurred expenditures

for the following year.

E. Premium Rate

As determined by section 1839(a)(3) of the Act and section

4611(e)(3) of BBA 1997, the monthly premium rate for 1998, for both

aged and disabled enrollees, is $43.80.

Table 2.--Projection Factors \1\ 12-Month Periods Ending June 30 of 1995-1999

[In Percent]

----------------------------------------------------------------------------------------------------------------

Physicians' services Group

-------------------------- Outpatient Home health practice Independent

12-month period ending June 30 hospital agency prepayment lab

Fees \2\ Residual services services plans services

-----------------------------------------------------\3\-----------------------\4\------------------------------

Aged:

1995.......................... 5.7 2.0 17.7 91.0 17.4 1.2

1996.......................... 2.2 -1.6 3.3 30.6 24.2 -3.6

1997.......................... 0.5 2.2 3.2 15.3 22.1 -0.9

1998.......................... 1.7 2.4 4.7 (\5\) 33.9 7.1

1999.......................... 0.4 1.9 8.2 \5\ 88.2 36.8 5.7

Disabled:

1995.......................... 5.7 6.6 2.7 0.0 15.0 10.7

1996.......................... 2.2 -3.2 0.0 0.0 14.4 2.7

1997.......................... 0.5 1.1 4.3 0.0 15.9 1.9

1998.......................... 1.7 0.6 1.2 (\5\) 34.8 8.7

1999.......................... 0.4 -1.0 8.3 \5\ 97.1 37.5 6.2

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\1\ All values are per enrollee.

\2\ As recognized for payment under the program.

\3\ Increase in the number of services received per enrollee and greater relative use of more expensive

services.

\4\ From July 1, 1981 to December 31, 1997, home health agency services have been provided by the SMI program

only for those SMI enrollees not entitled to HI. Otherwise these services were provided by the HI program.

Since all SMI disabled enrollees are entitled to HI, their coverage of these services has been provided by the

HI program during this period.

\5\ Effective January 1, 1998, the coverage of home health agency services not considered ``post-institutional''

for those individuals entitled to HI and enrolled in SMI will be transferred from the HI program to the SMI

program. As a result, as of January 1, 1998, there will be a large increase in SMI expenditures for these

services for the aged enrollees, and SMI coverage for these services will resume for disabled enrollees.

Table 3.--Derivation of Monthly Actuarial Rate for Enrollees Age 65 and Over Financing Periods Ending December

31, 1995 Through December 31, 1998

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Financing periods

---------------------------------------------------

CY 1995 CY 1996 CY 1997 CY 1998

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Covered services (at level recognized):

Physicians' reasonable charges.......................... $58.88 $59.82 $61.82 $63.55

Outpatient hospital and other institutions.............. 21.26 21.95 22.85 24.06

Home health agencies.................................... 0.33 0.40 0.43 15.44 \1\

Group practice prepayment plans......................... 11.55 14.21 18.29 23.76

Independent lab......................................... 2.44 2.38 2.46 2.51

---------------------------------------------------

Total services...................................... 94.46 98.76 105.85 129.32

Cost-sharing:

Deductible.............................................. -3.71 -3.73 -3.74 -3.75

Coinsurance............................................. -17.36 -18.24 -19.62 -21.61

---------------------------------------------------

Total benefits...................................... 73.39 76.79 82.49 103.96

Transfer to Medicaid........................................ 0.00 0.00 0.00 0.30 \2\

Administrative expenses..................................... 1.86 2.05 2.11 2.20

---------------------------------------------------

Incurred expenditures................................... 75.25 78.84 84.60 106.46

Value of interest........................................... -2.04 -2.40 -3.94 -4.13

Adjustment for home health agency services transferred from

HI......................................................... 0.00 0.00 0.00 -12.49 \3\

Contingency margin for projection error and to amortize the

surplus or deficit......................................... -0.11 8.46 6.94 -1.94

---------------------------------------------------

Monthly actuarial rate.................................. 73.10 84.90 87.60 87.90

----------------------------------------------------------------------------------------------------------------

\1\ This amount includes the full cost of the home health services being transferred from the HI program as a

result of BBA 1997 as if the transition did not apply, as well as the cost of furnishing all home health

services to those individuals enrolled in SMI only.

[[Page 59719]]

\2\ Section 1933(c)(2) of the Act, as added by section 4732(c) of BBA 1997, allocates an amount to be

transferred from the SMI trust fund to the state Medicaid programs. This transfer is for the purpose of paying

the SMI premiums for certain low-income beneficiaries. It is not a benefit expenditure but is used in

determining the SMI actuarial rates since it is an expenditure of the trust fund.

\3\ Section 4611 of BBA 1997 specifies that expenditures for home health services not considered ``post-

institutional'' will be payable under the SMI program rather than the HI program beginning in 1998. However,

section 4611(e)(1) requires there be a transition from 1998 through 2002 for the aggregate amount of the

expenditures transferred from the HI program to the SMI program. For 1998 the amount transferred is \1/6\ of

the full cost for such services. Therefore, the adjustment for 1998 represents \5/6\ of the full cost. This

amount adjusts the actuarial rate to reflect the correct amount attributable to home health services.

Table 4.--Derivation of Monthly Actuarial Rate For Disabled Enrollees Financing Periods Ending December 31, 1995

Through December 31, 1998

----------------------------------------------------------------------------------------------------------------

Financing periods

---------------------------------------------------

CY 1995 CY 1996 CY 1997 CY 1998

----------------------------------------------------------------------------------------------------------------

Covered services (at level recognized):

Physicians' reasonable charges.......................... $64.43 $65.21 $67.08 \1\ $67.96

Outpatient hospital and other institutions.............. 42.61 43.89 45.45 47.26

Home health agencies.................................... 0.00 0.00 0.00 16.98

Group practice prepayment plans......................... 2.70 3.10 3.92 5.31

Independent lab......................................... 3.00 3.09 3.27 3.44

---------------------------------------------------

Total services...................................... 112.74 115.29 119.72 140.95

Cost-sharing:

Deductible.............................................. -3.55 -3.57 -3.58 -3.60

Coinsurance............................................. -21.17 -21.69 -22.50 -23.40

Total benefits...................................... 88.02 90.03 93.64 113.95

Transfer to Medicaid........................................ 0.00 0.00 0.00 \2\ 0.29

Administrative expenses..................................... 2.23 2.40 2.41 2.40

Incurred expenditures................................... 90.25 92.43 96.05 116.64

Value of interest........................................... -0.31 -0.29 -1.84 -2.27

Adjustment for home health agency services transferred from

HI......................................................... 0.00 0.00 0.00 \3\-14.17

Contingency margin for projection error and to amortize the

surplus or deficit......................................... 15.86 12.96 16.19 -3.10

---------------------------------------------------

Monthly actuarial rate.................................. 105.80 105.10 110.40 97.10

----------------------------------------------------------------------------------------------------------------

\1\ This amount includes the full cost of the home health services being transferred from the HI program as a

result of BBA 1997 as if the transition did not apply.

\2\ Section 1933(c)(2) of the Act, as added by section 4732(c) of BBA 1997, allocates an amount to be

transferred from the SMI trust fund to the state Medicaid programs. This transfer is for the purpose of paying

the SMI premiums for certain low'income beneficiaries. It is not a benefit expenditure but is used in

determining the SMI actuarial rates since it is an expenditure of the trust fund.

\3\ Section 4611 of BBA 1997 specifies that expenditures for home health services not considered ``post-

institutional'' will be payable under the SMI program rather than the HI program beginning in 1998. However,

section 4611(e)(1) requires there be a transition from 1998 through 2002 for the aggregate amount of the

expenditures transferred from the HI program to the SMI program. For 1998 the amount transferred is \1/6\ of

the full cost for such services. Therefore, the adjustment for 1998 represents \5/6\ of the full cost. This

amount adjusts the actuarial rate to reflect the correct amount attributable to home health services.

Table 5.--Actuarial Status of the SMI Trust Fund Under Three Sets of Assumptions for Financing Periods Through December 31, 1998

--------------------------------------------------------------------------------------------------------------------------------------------------------

This projection Low cost projection High cost

--------------------------------------------------------------------------------------------------

Projection 12-month period ending June 30 12-month period ending June 30 12-month period ending June 30

--------------------------------------------------------------------------------------------------

1997 1998 1999 1997 1998 1999 1997 1998 1999

--------------------------------------------------------------------------------------------------------------------------------------------------------

Projection factors (in percent):

Physician fees \1\

Aged......................................... 0.5 1.7 0.4 0.2 0.5 -1.4 0.8 2.9 2.2

Disabled..................................... 0.5 1.7 0.4 0.2 0.5 -1.4 0.8 2.9 2.2

Utilization of physician services \2\

Aged......................................... 2.2 2.4 1.9 0.4 0.2 -0.5 4.0 4.6 4.4

Disabled..................................... 1.1 0.6 -1.0 -1.8 -2.4 -4.0 4.0 3.6 2.1

Outpatient hospital services per enrollee

Aged......................................... 3.2 4.7 8.2 -1.2 0.1 3.3 7.6 9.3 13.2

Disabled..................................... 4.3 1.2 8.3 -1.0 -4.4 2.7 9.6 6.7 14.0

--------------------------------------------------------------------------------------------------------------------------------------------------------

As of December 31 As of December 31 As of December 31

--------------------------------------------------------------------------------------------------

1996 1997 1998 1996 1997 1998 1996 1997 1998

Actuarial status (in billions):

Assets........................................... $28.332 $37.502 $34.274 $28.332 $40.265 $42.540 $28.332 $34.753 $25.756

Liabilities...................................... 1.350 1.397 1.903 .441 .399 .778 2.134 2.275 2.920

--------------------------------------------------------------------------------------------------

Assets less liabilities...................... $26.982 $36.105 $32.371 $27.891 $39.866 $41.762 $26.198 $32.478 $22.836

[[Page 59720]]

Ratio of assets less liabilities to expenditures (in

percent) \3\........................................ 35.8 38.0 31.3 38.4 44.5 43.2 33.5 32.3 20.6

--------------------------------------------------------------------------------------------------------------------------------------------------------

\1\ As recognized for payment under the program.

\2\ Increase in the number of services received per enrollee and greater relative use of more expensive services.

\3\ Ratio of assets less liabilities at the end of the year to total incurred expenditures during the following year, expressed as a percent.

IV. Waiver of Notice of Proposed Rulemaking

The Medicare statute, as discussed previously, requires publication

of the monthly actuarial rates and the Part B premium amount in

September. The amounts are determined according to the statute. As has

been our custom, we use general notices, rather than formal notice and

comment rulemaking procedures, to make such announcements. In doing so,

we acknowledge that, under the Administrative Procedure Act,

interpretive rules, general statements of policy, and rules of agency

organization, procedure, or practice are excepted from the requirements

of notice and comment rulemaking.

We considered publishing a proposed notice to provide a period for

public comment. However, we may waive that procedure if we find good

cause that prior notice and comment are impracticable, unnecessary, or

contrary to the public interest. We find that the procedure for notice

and comment is unnecessary because the formula used to calculate the

SMI premium is statutorily directed, and we can exercise no discretion

in following that formula. Moreover, the statute establishes the time

period for which the premium rates will apply, and delaying publication

of the SMI premium rate would be contrary to the public interest.

Therefore, we find good cause to waive publication of a proposed notice

and solicitation of public comments.

In accordance with the provisions of Executive Order 12866, this

notice was reviewed by the Office of Management and Budget.

(Section 1839 of the Social Security Act; 42 U.S.C. 1395r)

(Catalog of Federal Domestic Assistance Program No. 93.774,

Medicare--Supplementary Medical Insurance)

Dated: October 13, 1997.

Nancy-Ann Min DeParle,

Deputy Administrator, Health Care Financing Administration.

Dated: October 21, 1997.

Donna E. Shalala,

Secretary.

[FR Doc. 97-29031 Filed 11-3-97; 8:45 am]

BILLING CODE 4120-01-P