Additionally, legislation enacted after the financing has been established but effective for the period for which financing has been set may affect program costs. The actuarial status or financial adequacy of the SMI program is traditionally evaluated over the period for which the enrollee premium rates and level of general revenue financing have been established. If these adequacy tests are not met, the program can still continue to operate if the trust fund remains at a level adequate to permit the payment of claims as presented. However, to protect against the possibility that costs under the program will be higher than assumed, assets should be sufficient to include contingency levels to cover a reasonable degree of variation between actual and projected costs. An appropriate target level for this excess depends on numerous factors.
Ongoing analysis is made of the former as trends in the differences vary over time.
In addition, beginning this year, the traditional tests of asset adequacy have been augmented by a supplementary assessment of uncertainty using statistical methods, as shown in section III.C of this report. The tests of financial adequacy for the SMI program noted above rely on the incurred experience of the program. Cash disbursements for benefits and administrative expenses by themselves are misleading, due to the relatively large liabilities outstanding at any time for benefits and processing costs. Outstanding liabilities result from the lag between the time that services are performed and the time that payments for them are made. The experience of the program is substantially more difficult to determine on an incurred basis than on a cash basis.