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Medicare: Complex Social Insurance Program With Insufficient Funding e Social Insurance Program — Created in 1965 to provide health insurance to the elderly (65+). e Four Parts — A) Hospital Insurance (to cover inpatient expenses, introduced in 1965); B) Medical Insurance (optional outpatient expenses, 1965); C) Medicare Advantage Plans (private alternative to A&B, 1997) and D) Prescription Drug Coverage (enacted 2003). e Funding Mechanism Varies — Part A has dedicated funding via payroll taxes (2.9% of total payroll), though has been running at an annual deficit since 2008 as related payments exceed taxes; Trust Fund is expected to be depleted by 2017E, per Social Security Administration. — Part B &D has no dedicated funding (75% of funding came from government allocation / 25% came from enrollees’ premium payments). — Part C funding came Part A & Part B. e Ever-Growing Expenses — $452 billion expenses in F2010, up 2x from 10 years ago — Rising Healthcare Costs — Owing to aging population + unhealthy life styles + technology advances. — Moral Hazard — As a “free good,” Medicare reduced demand for private long-term insurance’ while loopholes in the regulations + need-based benefit policies created incentives to abuse the system. Note: 1) for more information, please see Jeffrey Brown and Amy Finkelstein, “The Interaction of Public and Private Insurance: Medicaid and the Long-Term Ke Care Insurance Market,” 2006. Source: National Center for Health Statistics, Kaiser Family Foundation, World Bank, Social Security Administration. CB www.kpcb.com USA Inc. | Income Statement Drilldown 101 Medicare: Underfunded by $1.9 Trillion Over 45 Years USA Inc. Real Annual Medicare Revenue & Expenses, 1966 — 2009 mi Medicare Part B / D Expenditure -$300 - - mam Medicare PartAExpenditure = ~~~. --------- Medicare Revenue / Expenses ($B) 2 oOo oS ‘am Medicare Part A Tax Receipts — Total Medicare Net Income 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 Note: Medicare Part A (hospital insurance) has dedicated trust fund while Part B (medical insurance) and Part D (prescription KP drug benefits) do not have dedicated funding. Data are inflation adjusted. Source: Dept. of Health & Human Services.. (@ EB) www.kpcb.com USA Inc. | Income Statement Drilldown 102 HOUSE_OVERSIGHT_020892