The 45% Test

The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) created a Medicare funding warning “trigger” requiring specific administrative and legislative actions if the difference between total Medicare outlays and its dedicated financing sources is projected to exceed 45% of total outlays within the next 7 fiscal years (2018–2024). The Medicare Trustees are required to apply the 45% test as a measure of program financial health based on the Medicare spending’s impact on the federal budget. If the Trustees determine that the program is expected to fail the 45% test in 2 consecutive reports, the Trustees issue a Medicare funding warning.

Both the 2017 and 2018 Medicare Trustees Reports concluded that funding is expected to exceed 45% of total program outlays in the near future, triggering the Medicare funding warning.

Next Steps

Under the MMA, the issuance of a Medicare funding warning triggers certain Presidential and Congressional actions to address the program spending. Under the MMA, President Trump must submit a proposal to Congress on how to lower the program under the 45% ratio level of expenditures to funding within 15 days of submitting his proposed budget for FY2020 and would require Congress to consider legislation on his proposal in an expedited fashion.

Notably, the Trustees issued Medicare funding warnings during 2008-2013. While President Bush submitted a legislative proposal in 2008, no such proposals in response to the warning have been submitted since. Although healthcare stakeholders should be aware of the declining health of the Trust funds, the funding warning by itself is not likely to cause Congress nor the administration to take immediate action.

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