more than $1.50 or one percentage point of tax liability. The premium may not decrease under the formula.

Adjustments in the maximum supplemental premium cap after 1993 are based on the relative per capita growth of Part B outlays to Part B premiums in preceding years. The cap will be rounded to the nearest $50.

The formula for adjustments in the monthly premium, after 1993, is similar to the formula used for the supplemental premium. The Congress intended that the monthly premium continue to provide 37 percent of the revenues for the catastrophic program and the supplemental premium is to provide 63 percent of such revenues, however, the proportion could vary as a result of limits on allowable change in the supplemental premium. If the change in the supplemental premium rate as calculated by formula is limited by the restrictions on annual increases or decreases, then the change in the monthly premium is designed, with certain adjustments, to account for any excess or shortfall.

II. BUDGET EFFECTS OF MEDICARE CATASTROPHIC COVERAGE ACT OF 1988

A. CATASTROPHIC RESERVE FUNDS BALANCES

Congress intended, in the Medicare Catastrophic Coverage Act of 1988, to maintain a surplus of funds to pay for benefits covered under the Act. As described above, the record keeping of these reserve funds is accomplished through the Medicare Catastrophic Coverage Account and the Catastrophic Drug Insurance Trust Fund.

Table 1 presents estimates of the calendar year-end balances in the Catastrophic Coverage Account and the CDI Trust Fund that were made upon enactment of the Act, and estimates based on the current Congressional Budget office (CBO) baseline. The estimates made upon enactment indicate a calendar year 1993 year-end balance in the Catastrophic Coverage Account of $1.6 billion and of $1.7 billion in the CDI Trust Fund. As a percentage of calendar year 1993 outlays, these balances are 20.5 percent in the Catastrophic Coverage Account and 57.6 percent in the CDI Trust Fund.

The current CBO estimates of the balances in the Catastrophic Coverage Account and the CDI Trust Fund at calendar 1993 year-end are $5.7 billion and $2.3 billion, respectively. As a percentage of calendar year 1993 outlays, the balance in the Catastrophic Coverage Account is projected to be 71.9 percent and the balance in the CDI Trust Fund is projected to be 76.9 percent. The February 1989 CBO estimate of the calendar 1993 year-end combined balance is $8.0 billion, which is $4.7 billion more than the combined balance of $3.3 billion estimated upon enactment.

B. RECEIPT AND OUTLAY EFFECTS

In order to generate contingency reserves in the Catastrophic Coverage Account and CDI Trust Fund, it is generally necessary for cumulative receipts to exceed outlays. The cumulative excess of receipts over outlays will not match the combined balance of the Catastrophic Coverage Account and the CDI Trust Fund reserve amounts due to credits and debits of interest and the difference in the timing of receipts and outlays between fiscal and calendar years.5

Table 2 presents estimates prepared by CBO for the February 1989 budget baseline of 1989 through 1993 fiscal year receipts and outlays of the Medicare catastrophic program. For comparison, Table 2 also presents corresponding estimates of the program prepared by CBO and the Joint Committee on Taxation at the time of enactment of the Act and Administration estimates from the Fiscal Year 1990 Budget.

The cumulative excess of receipts over outlays for fiscal years 1989 through 1993 is $8.0 billion according to the current CBO estimate. This recent estimate exceeds by $3.8 billion the estimate of the cumulative excess of $4.2 billion made upon enactment.

4 The current CBO estimates reported in Tables 1 and 2 differ from the amounts used in the February 1989 budget baseline. The estimates in the tables include expected outlay amounts for the administration of the drug benefit that have not yet been appropriated and, thus, are excluded from the baseline used for budget purposes. Estimates that include the expected outlays necessary for the administration of the drug benefit may reflect more accurately the total budget effect of the Act and are also consistent with the estimates made upon enactment.

5 Both the Catastrophic Coverage Account and the CDI Trust Fund are credited with interest in periods for which they are in surplus, and debited for interest when in deficit.

The Administration estimates that the cumulative excess of receipts over outlays for fiscal year 1989 through 1993 is $6.2 billion. This total is $1.8 billion less than the current CBO estimate, but $2.0 billion more than the CBO estimate upon enactment. The Administration estimates, however, that the CDI Trust Fund will have insufficient funds to make all benefit payments in 1992 and, thus, will not make payments for eligible drug benefits for calendar year 1993.

The Administration estimates of receipts from the monthly and supplemental premiums and outlays for the hospital and supplemental medical insurance and the catastrophic drug benefit are all different from the current CBO estimate. The Administration estimates that the level of cumulative receipts from the supplemental premium over fiscal years 1989 through 1993 are greater than that of the current CBO estimate. Much larger outlay estimates by the Administration, particularly for the drug benefit program, however, more than offset the Administration's higher receipts estimates over the period.

TABLE 1.—CURRENT CONGRESSIONAL BUDGET OFFICE ESTIMATE OF MEDICARE CATASTROPHIC ACCOUNT AND DRUG TRUST FUND EFFECTS, END OF CALENDAR YEARS 1989-1993

The Medicare Catastrophic Coverage Account covers the hospital insurance and supplemental medical insurance portions of the Medicare catastrophic program.

2 Administrative expenses for the Federal Catastrophic Drug Insurance Trust Fund have not been appropriated, so they are not included in the CBO baseline. Estimates of the Drug Trust Fund administrative expenses are included in this table for purposes of comparison.

TABLE 2. ESTIMATES OF MEDICARE CATASTROPHIC BUDGET EFFECTS, FISCAL YEARS 1989-1993 1

These estimates are for the hospital insurance, supplemental medical insurance, and drug benefit programs of the Medicare Catastrophic Act of 1988. Provisions relating to Medicaid and other miscellaneous provisions of the Medicare Catastrophic Act are not included here. Estimates include unappropriated funds for the administration of the CDI Trust Fund. Totals may not add exactly due to rounding.

2 Administration estimates are from the Fiscal Year 1990 budget. The Administration estimates that there will be insufficient funds in the Drug Trust Fund to pay all benefits in 1992 and assumes no payments for calendar year 1993 drug benefits.

III. DISTRIBUTIONAL EFFECT OF THE SUPPLEMENTAL PREMIUM

Based on current estimates of supplemental premium receipts, Tables 3 and 4 present distributions of the supplemental premium paid by Medicare enrollees. Tables 5 and 6 present distributions, by income, of the amount of supplemental premium at the average tax liability paid by Medicare enrollees.

Table 3 presents a distribution of the amount of supplemental premium paid per enrollee. It is estimated, for calendar year 1989, that 58.8 percent of Medicare enrollees will pay no supplemental premium and that 5.6 percent of enrollees will pay the maximum premium of $800. These figures compare to the estimates made upon enactment of 64.4 percent and 5.1 percent, respectively.

Table 4 presents the corresponding distribution for calendar year 1993. It is estimated that 52.4 percent of Medicare enrollees will pay no supplemental premium and that 10.3 percent of enrollees will pay the maximum premium of $1050 in 1993. These figures compare to the estimates made upon enactment of 57.5 percent and 9.8 percent, respectively.

The distribution of the amount of supplemental premium paid at the average tax liability across income groups, by filing status, in 1989 is displayed in Table 5.6 For joint returns, no supplemental premium is due, on average, below the $20,000 to $25,000 income class, and below the $15,000 to $20,000 income class for non-joint returns. The maximum premium is not reached, on average, until the $80,000 to $85,000 income class for joint returns, and the $40,000 to $45,000 class for non-joint returns.

The corresponding figures for 1993 are presented in Table 6. As is true in 1989, no supplemental premium is due, on average, below the $20,000 to $25,000 income class, and below the $15,000 to $20,000 income class for non-joint returns. The maximum premium is rot reached, on average, until the $65,000 to $70,000 income class for joint returns, and, again, the $40,000 to $45,000 class for non-joint returns.

TABLE 3.-MEDICARE CATASTROPHIC COVERAGE ACT OF 1988 DISTRIBUTION OF MEDICARE ENROLLEES BY LEVEL OF SUPPLEMENTAL PREMIUM

6 The income measure used, solely for presenting distributional analysis, is defined more broadly than adjusted gross income, and does not affect, in any way, the amount of tax liability and supplemental premium paid by a particular taxpayer.

TABLE 4. MEDICARE CATASTROPHIC COVERAGE ACT OF 1988 DISTRIBUTION OF MEDICARE
ENROLLEES BY LEVEL OF SUPPLEMENTAL PREMIUM

TABLE 5.-MEDICARE CATASTROPHIC COVERAGE ACT OF 1988-Continued

1 Income is defined, solely for purposes of presenting distributional information, as adjusted gross income (AGI) plus untaxed income from: (1) untaxed social security benefits; (2) tax-exempt interest; (3) employer contributions for health plans and life insurance; (4) inside build-up on life insurance; (5) workers' compensation; (6) contributions to IRA and Keogh accounts; (7) minimum tax preferences; and (8) portion of passive losses in excess of minimum tax preferences to the extent the losses are allowed in the computations of AGI. Computed at average tax liability per return in income class.