Medicare's fastest-growing groups. During the 1990s, the number of Medicare beneficiaries has been growing at 1 to 2 percent annually (Physician Payment Review Commission, 1996).

Medicare Part A provides coverage for inpatient hospital, home health, hospice, and limited skilled nursing facility services. Medicare Part A is financed from the Hospital Insurance Trust Fund, paid for primarily through a payroll tax on employers and employees. Beneficiaries are responsible for deductibles and copayments. The Congressional Budget Office forecasts that Part A spending will increase by 10.2 percent in 1995, with annual growth rates of between 7.5 and 10 percent projected for the rest of the decade (Congressional Budget Office, 1995b). A recent report by the trustees of the Social Security and Medicare trust funds forecast that unless changes are made, the Hospital Insurance Trust Fund will run out of money by 2001 (Board of Trustees, 1996).

Medicare Part B coverage is optional and helps pay for covered beneficiaries' physician services, medical supplies, and other outpatient treatments and is financed by a combination of general tax revenue (about 75 percent of program costs) and enrollee premiums (about 25 percent of program costs). In addition to their premiums, beneficiaries are responsible for copayments and deductibles. According to the Congressional Budget Office, Medicare Part B spending is expected to increase by 10.9 percent in fiscal year 1995, and to average 12 to 13 percent annual rates of increase through the remainder of this decade (Congressional Budget Office, 1995b).

The distribution of Medicare expenditures for different services has shifted over time, partially because of greater reliance on ambulatory rather than inpatient medical care. Between 1980 and 1995 Medicare spending for inpatient hospital services declined from 66 to 44 percent, whereas spending for home health services increased from 1 to 8 percent. In the same time period spending for post-acute-care services—skilled nursing facility, home health, and hospice services—increased from 3 to 13 percent.

As it is presently structured the Medicare program provides incomplete protection; for example, it provides poor catastrophic coverage, no coverage for outpatient prescription drugs, and high deductibles and copayments for hospitalization costs. The Medi-



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