TABLE 3.-PARTICIPATING INSTITUTIONS AND ORGANIZATIONS (JULY 1, 1981)

Facilities providing services to renal disease beneficiaries (December 1980)

Hospitals certified as both renal transplant and renal dialysis centers.

Hospitals certified as renal transplant centers.

Hospitals certified as renal dialysis centers.

Non-hospital Renal dialysis facilities.

HOSPITAL AND SKILLED NURSING FACILITY BEDS (JULY 1981)

Hospitals

Short stay

Long stay.

Skilled nursing facilities.

Source: Health Care Financing Administration.

6,716 6,060

656

5,238

3,098

3,471

495

229

427

1,047

145

6

491

405

1,145,086

992,233

152,853

453,979

PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS (PSRO's)

The Social Security Amendments of 1972 provided for the establishment of Professional Standards Review Organizations (PSRO's) throughout the country which are charged with the comprehensive and on-going review of services provided under medicare, medicaid, and the maternal and child health programs. PSRO's determine, for purposes of reimbursement under these programs, whether services are: (1) medically necessary, (2) provided in accordance with professional standards, and (3) in the case of institutional services, rendered in the appropriate setting.

PSRO's are formed by organizations representing substantial numbers of practicing physicians in geographic areas nationwide. In 1980, there were 47 fully designated and 140 conditionally designated PSRO's in operation.

The major focus of the PSRO program has been on the review of inpatient hospital services. While PSRO's are also charged with review responsibilities in other health care settings, budget limitations have limited review outside the hospital setting.

The Omnibus Budget Reconciliation Act of 1981 (Public Law 9735) required the Secretary of Health and Human Services to assess the relative performance of PSRO's and authorized the Secretary to terminate up to one-third of all PSRO's prior to October 1, 1982, based on such assessment. Further, under the law, PSRO's are no longer reimbursed directly for review of medicaid services. A State, at its option, may contract with a PSRO for medicaid review with the Federal matching funds of 75 percent. For a more detailed dis

cussion of the changes made by the Omnibus Budget Reconciliation Act of 1981, see Appendix C.

FINANCING

The hospital insurance part of the program is financed primarily through social security payroll tax contributions paid by employees, employers and the self-employed. The payroll tax rate for calendar year 1982 is 1.3 percent on wages up to $32,400 per employee. The contribution rate for the employer is the same. For the uninsured who elect to enroll in part A, the full cost of the coverage is reflected in their monthly premiums ($89 as of July 1, 1981 rising to $113 on July 1, 1982).

Part B, which is voluntary, is financed from premiums paid by the aged, disabled, and chronic renal disease enrollees and from Federal funds. The permium rate is reviewed annually and is changed each July 1. Increases are to reflect the expected increases in the operating costs of the program. However, the premium rate cannot be increased by a rate greater than social security benefits were last increased as a result of a general cash benefit increase. The standard monthly premium for the 12 months beginning July 1981 is $11.00. Beginning July 1, 1982, the premium will be $12.20. Today, premiums paid by the enrollees are sufficient to finance approximately one-quarter of the cost of the part B program. The remaining cost is financed from Federal general revenues.

The status of the HI and SMI trust funds are shown in Tables 4 and 5.

See section 5 for a more complete description of the tax rates under part A and the short and long run financial status of the social security trust funds.

TABLE 4.-PROJECTIONS FOR THE HOSPITAL INSURANCE TRUST FUND OUTLAYS, INCOME, AND BALANCE FOR FISCAL YEARS 1981-87 UNDER PRELIMINARY CBO AND REAGAN ECONOMIC ASSUMPTIONS, PRESENT LAW

TABLE 5. PROJECTIONS FOR THE SUPPLEMENTAL MEDICAL INSURANCE TRUST FUND, BUDGET AUTHORITY AND OUTLAYS, FISCAL YEARS 1981 TO 1987, UNDER PRELIMINARY CBO AND REAGAN ECONOMIC ASSUMPTIONS, PRESENT LAW

1 Income includes premium payments, general revenue financing, and interest.

Section 5. OASDHI Financing

OVERVIEW

This section presents a discussion of social security financing, divided into 4 main parts: current law; a brief history of the financing structure, including a discussion of the impact of indexing and of the 1977 and later amendments; the status of the OASDHI (old age, survivors, disability, and hospital insurance) trust funds under three alternative economic scenarios over the next 5 years; and a brief discussion of the long-term financial status of OASDHI and the factors involved in estimating trust fund experience 75 years into the future.

The historical discussion, in particular, attempts to outline the major factors underlying the financing shortfall facing the OASI trust fund, which will be able to pay benefits under current law only through June or July 1983 under all economic scenarios. Furthermore, under CBO's baseline economic projections, the reserves of all three funds combined-old age and survivors', disability and hospital insurance-will fall below the level necessary to pay benefits in 1984. While there have been projections of major financing problems for the funds before-notably in 1977-the current situation is unprecedented because the entire OASDHI system considered together has such a low level of reserves.

In the past, there has usually been a reserve cushion sufficient to carry the funds through periods of unanticipated economic hardship. At this point, that cushion has been virtually exhausted in the OASI fund, and if that fund must draw on the reserves of the other two funds to meet obligations, without changes in the law or policy to reduce projected outlays or increase projected revenues, the three funds combined will likely be insufficient to pay benefits sometime in 1984. Under these circumstances, the assumptions used to project short-term trust fund operations are of critical importance; this discussion therefore presents projections based on three sets of assumptions, to give a range of possible experience, and to give readers a sense of the timing necessary for any remedial action.

CURRENT LAW

The social security progams (OASDHI) are financed through the payroll tax on a pay-as-you-go basis; that is, current income to the system goes out directly to meet current benefit obligations. Any funds collected in excess of the amount needed to make benefit payments are held in the trust funds as reserves, and are invested in Government securities. These reserves serve as a cushion against temporary shortfalls in revenues or large increases in out