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Test of Long-Range Close Actuarial Balance

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Test of Long-Range Close Actuarial Balance is an actuarial evaluation used to determine whether Medicare trust fund income and expenditures remain sufficiently balanced over long-term projection periods.

🧠 Full Definition

The term Test of Long-Range Close Actuarial Balance refers to a long-term Medicare solvency test that compares summarized income rates and summarized cost rates across multiple valuation periods within a 75-year projection horizon.

The test evaluates whether projected actuarial balances remain close enough to zero across increasingly longer periods beginning with 10 years and extending through 75 years. Limited negative balances are allowed for longer periods because of greater uncertainty in long-range forecasting assumptions. The test is performed using Medicare intermediate actuarial assumptions.

📌 Key Characteristics

  • Uses 75-year long-range actuarial projections
  • Evaluates summarized income and cost rates
  • Measures trust fund actuarial adequacy over time
  • Allows limited negative balances for longer projection periods
  • Based on intermediate actuarial assumptions

💡 Why It Matters

This actuarial balance test matters because Medicare trust fund solvency depends on whether projected revenues remain reasonably aligned with projected expenditures over long periods.

These evaluations can affect:

  • long-term Medicare solvency analysis
  • trust fund reserve planning
  • government healthcare financing projections
  • evaluation of actuarial adequacy
  • future Medicare policy discussions

🌐 MedicarePlans.com Perspective

Most beneficiaries never directly encounter actuarial balance testing, but these long-range evaluations help Medicare actuaries determine whether projected payroll tax revenues and trust fund reserves are expected to remain adequate over decades. The test reflects the reality that forecasting uncertainty grows significantly over longer time horizons.

🗣️ Example Use

“The Trustees Report applied the Test of Long-Range Close Actuarial Balance to evaluate the long-term adequacy of Medicare trust fund financing.”

🔗 Related Terms

📚 Source Definition

Original definition sourced from the Centers for Medicare & Medicaid Services (CMS).

TEST OF LONG-RANGE CLOSE ACTUARIAL BALANCE: Summarized income rates and cost rates are calculated for each of 66 valuation periods within the full 75-year long-range projection period under the intermediate assumptions. The first of these periods consists of the next 10 years. Each succeeding period becomes longer by 1 year, culminating with the period consisting of the next 75 years. The long-range test is met if, for each of the 66 time periods, the actuarial balance is not less than zero or is negative by, at most, a specified percentage of the summarized cost rate for the same time period. The percentage allowed for a negative actuarial balance is 5 percent for the full 75-year period and is reduced uniformly for shorter periods, approaching zero as the duration of the time periods approaches the first 10 years. The criterion for meeting the test is less stringent for the longer periods in recognition of the greater uncertainty associated with estimates for more distant years. This test is applied to trust fund projections made under the intermediate assumptions.