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<h2>Status of the Social Security and Medicare Programs</h2><!-- #EndEditable -->
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<p> <a href="../../index.html">Office of the Chief Actuary </a> </p>
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<p> <a href="../../TR/2013/index.html">2013 Trustees Report </a> </p>
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<p> <a href="../../pubs.html">Actuarial Publications</a> </p>
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<h2 style="font-family:Verdana" >A SUMMARY OF THE 2013 ANNUAL REPORTS</h2>
|
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Social Security and Medicare Boards of Trustees
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<br />
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<h3 class="center">A MESSAGE TO THE PUBLIC:</h3>
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<p>
|
||
Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected
|
||
financial status of the two programs. This message summarizes the 2013 Annual Reports.
|
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</p>
|
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|
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<p>
|
||
Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing,
|
||
and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers take
|
||
action sooner rather than later, more options and more time will be available to phase in changes so that the public has
|
||
adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable
|
||
populations, including lower-income workers and people already dependent on program benefits.
|
||
</p>
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||
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||
<p>
|
||
Social Security and Medicare together accounted for 38 percent of federal expenditures in fiscal year 2012. Both programs
|
||
will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging
|
||
caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment and,
|
||
in the case of Medicare, to growth in expenditures per beneficiary exceeding growth in per capita GDP. In later years,
|
||
projected costs expressed as a share of GDP trend up slowly for Medicare and are relatively flat for Social Security,
|
||
reflecting very gradual population aging caused by increasing longevity and slower growth in per-beneficiary health care
|
||
costs.
|
||
</p>
|
||
|
||
<p>
|
||
<b><u>Social Security</u></b>
|
||
</p>
|
||
|
||
<p>
|
||
Social Security’s Disability Insurance (DI) program satisfies neither the Trustees’ long-range test of close actuarial
|
||
balance nor their short-range test of financial adequacy and faces the most immediate financing shortfall of any of the
|
||
separate trust funds. DI Trust Fund reserves expressed as a percent of annual cost (the trust fund ratio) declined
|
||
to 85 percent at the beginning of 2013, and the Trustees project trust fund depletion in 2016, the same year projected in
|
||
the last Trustees Report. DI cost has exceeded non-interest income since 2005, and the trust fund ratio has declined
|
||
since peaking in 2003. While legislation is needed to address all of Social Security’s financial imbalances, the need has
|
||
become most urgent with respect to the program’s DI component. Lawmakers need to act soon to avoid reduced payments to DI
|
||
beneficiaries three years from now.
|
||
</p>
|
||
|
||
|
||
<p>
|
||
Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the
|
||
Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period.
|
||
The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion
|
||
in 2012. The Trustees project that this cash-flow deficit will average about $75 billion between 2013 and 2018 before
|
||
rising steeply as income growth slows to the sustainable trend rate after the economic recovery is complete and the
|
||
number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption
|
||
of trust fund asset reserves by the General Fund of the Treasury will provide the resources needed to offset Social
|
||
Security’s annual aggregate cash-flow deficits. Since the cash-flow deficit will be less than interest earnings
|
||
through 2020, reserves of the combined trust funds measured in current dollars will continue to grow, but not by enough
|
||
to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This
|
||
ratio peaked in 2008, declined through 2012, and is expected to decline steadily in future years.) After 2020, Treasury
|
||
will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until
|
||
depletion of total trust fund reserves in 2033, the same year projected in last year’s Trustees Report. Thereafter, tax
|
||
income would be sufficient to pay about three-quarters of scheduled benefits through 2087.
|
||
</p>
|
||
|
||
<p>
|
||
A temporary reduction in the Social Security payroll tax rate in 2011 and 2012 reduced payroll tax revenues by an
|
||
estimated $222 billion in total. The legislation establishing the payroll tax reduction also provided for transfers
|
||
from the General Fund to the trust funds in order to “replicate to the extent possible” payments that would have
|
||
occurred if the payroll tax reduction had not been enacted. Those General Fund reimbursements amounted to about 15
|
||
percent of the program’s non-interest income in 2011 and 2012. The temporary payroll tax reduction expired at the
|
||
end of 2012.
|
||
</p>
|
||
|
||
<p>
|
||
Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable earnings
|
||
will grow rapidly from 11.3 percent in 2007, the last pre-recession year, to roughly 17.0 percent in 2037, and will then
|
||
decline slightly before slowly increasing after 2050. Cost displays a slightly different pattern when expressed as a
|
||
share of GDP. Program cost equaled 4.2 percent of GDP in 2007, the last pre-recession year, and the Trustees project
|
||
that cost will increase to 6.2 percent of GDP for 2036, then decline to about 6.0 percent of GDP by 2050, and thereafter
|
||
rise slowly reaching 6.2 percent by 2087.
|
||
</p>
|
||
|
||
<p>
|
||
The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI)
|
||
Trust Funds is 2.72 percent of taxable payroll, up from 2.67 percent projected in last year’s report. This deficit amounts
|
||
to 21 percent of program non-interest income or 17 percent of program cost. A 0.06 percentage point increase in the
|
||
OASDI actuarial deficit would have been expected if nothing had changed other than the one-year extension of the
|
||
valuation period to 2087. The effects of recently enacted legislation, updated demographic data, updated economic
|
||
data and assumptions further worsened the actuarial deficit, but these effects were completely offset by the favorable
|
||
effects of updated programmatic data and improved methodologies.
|
||
</p>
|
||
|
||
<p>
|
||
While the combined OASDI program fails the long-range test of close actuarial balance, it does satisfy the test for
|
||
short-range (ten-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at the
|
||
beginning of each year will exceed that year’s projected cost through 2027.
|
||
</p>
|
||
|
||
|
||
<p><b><u>Medicare</u></b></p>
|
||
|
||
<p>
|
||
The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be the next to face depletion after the DI
|
||
Trust Fund. The projected date of HI Trust Fund depletion is 2026, two years later than projected in last year’s
|
||
report, at which time dedicated revenues would be sufficient to pay 87 percent of HI cost. The Trustees project that the
|
||
share of HI cost that can be financed with HI dedicated revenues will decline slowly to 71 percent in 2047, and then
|
||
rise slowly until it reaches 73 percent in 2087. As it has since 2008, the HI Trust Fund will pay out more in hospital
|
||
benefits and other expenditures than it receives in income in all years until reserve depletion.
|
||
</p>
|
||
|
||
<p>
|
||
The projected HI Trust Fund’s long-term actuarial imbalance is smaller than that of the combined Social Security trust funds
|
||
under the assumptions employed in this report.
|
||
</p>
|
||
|
||
<p>
|
||
The estimated 75-year actuarial deficit in the HI Trust Fund is 1.11 percent of taxable payroll, down from 1.35 percent
|
||
projected in last year’s report. The HI fund again fails the test of short-range financial adequacy, as its trust fund
|
||
ratio is already below 100 percent and is expected to decline continuously until reserve depletion in 2026. The fund
|
||
also continues to fail the long-range test of close actuarial balance. The HI 75-year actuarial imbalance amounts to 29
|
||
percent of tax receipts or 23 percent of program cost.
|
||
</p>
|
||
|
||
<p>
|
||
The modest improvement in the outlook for HI long-term finances is principally due to: (i) lower projected spending for
|
||
most HI service categories<65>especially for skilled nursing facilities<65>to reflect lower-than-expected spending in 2012 and
|
||
other recent data; (ii) lower projected Medicare Advantage program costs that reflect recent data suggesting that certain
|
||
provisions of the Affordable Care Act will reduce growth in these costs by more than was previously projected; and (iii)
|
||
a refinement in projection methods that reduces assumed per beneficiary cost growth during the transition period between
|
||
the short-range projections and the long-range projections. Partially offsetting these favorable changes to the
|
||
projections are somewhat lower projected levels of tax income that reflect lower-than-expected tax income in 2012.
|
||
</p>
|
||
|
||
<p>
|
||
The Trustees project that Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient
|
||
expenses, and Part D of SMI, which provides access to prescription drug coverage, will remain adequately financed into
|
||
the indefinite future because current law automatically provides financing each year to meet the next year’s expected
|
||
costs. However, the aging population and rising health care costs cause SMI projected costs to grow steadily from 2.0
|
||
percent of GDP in 2012 to approximately 3.3 percent of GDP in 2035, and then more slowly to 4.0 percent of GDP by
|
||
2087. General revenues will finance roughly three quarters of these costs, and premiums paid by beneficiaries almost
|
||
all of the remaining quarter. SMI also receives a small amount of financing from special payments by States and from
|
||
fees on manufacturers and importers of brand-name prescription drugs. Projected costs for Part B assume an almost
|
||
25-percent reduction in Medicare payment rates for physician services will be implemented in 2014 as required by
|
||
current law, which is highly unlikely.
|
||
</p>
|
||
|
||
<p>
|
||
The Trustees project that total Medicare cost (including both HI and SMI expenditures) will grow from approximately 3.6
|
||
percent of GDP in 2012 to 5.6 percent of GDP by 2035, and will increase gradually thereafter to about 6.5 percent of
|
||
GDP by 2087.
|
||
</p>
|
||
|
||
<p>
|
||
The drawdown of Social Security and HI Trust Fund reserves and the general revenue transfers into SMI will result in
|
||
mounting pressure on the Federal budget. In fact, pressure is already evident. For the seventh consecutive year, the
|
||
Social Security Act requires that the Trustees issue a “Medicare funding warning” because projected non-dedicated
|
||
sources of revenues<65>primarily general revenues<65>are expected to continue to account for more than 45 percent of
|
||
Medicare’s outlays in 2013, a threshold breached for the first time in fiscal year 2010.
|
||
</p>
|
||
|
||
<p>
|
||
<b><u>Conclusion</u></b>
|
||
</p>
|
||
<p>
|
||
Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action
|
||
sooner rather than later will leave more options and more time available to phase in changes so that the public
|
||
has adequate time to prepare.
|
||
</p>
|
||
|
||
By the Trustees:
|
||
<br /> <br />
|
||
|
||
<div class="row-12">
|
||
<div class="column-6" >
|
||
Jacob J. Lew,<br />
|
||
<span class="eightypercent">Secretary of the Treasury,<br />
|
||
and Managing Trustee <br />
|
||
of the Trust Funds. <br /> <br /> </span>
|
||
<br />
|
||
|
||
Kathleen Sebelius,<br />
|
||
<span class="eightypercent">Secretary of Health<br />
|
||
and Human Services,<br />
|
||
and Trustee. <br /><br /></span>
|
||
<br />
|
||
|
||
Charles P. Blahous III,<br />
|
||
<span class="eightypercent">Trustee.<br /><br /> </span>
|
||
|
||
</div><!-- end .column-6 -->
|
||
|
||
<div class="column-6" >
|
||
Seth D. Harris,<br />
|
||
<span class="eightypercent">Acting Secretary of Labor,<br />
|
||
and Trustee.<br /><br /></span>
|
||
|
||
<br /><br />
|
||
Carolyn W. Colvin,<br />
|
||
<span class="eightypercent">Acting Commissioner of<br />
|
||
Social Security,<br />
|
||
and Trustee.<br /><br /></span>
|
||
|
||
<br />
|
||
|
||
Robert D. Reischauer,<br />
|
||
<span class="eightypercent">Trustee.<br /><br /> </span>
|
||
<br /> <br />
|
||
|
||
</div><!-- end .column-6 -->
|
||
</div><!-- end .row-12 -->
|
||
|
||
<hr />
|
||
|
||
<h3 align="center" class="newpage">A SUMMARY OF THE 2013 ANNUAL SOCIAL SECURITY<br />
|
||
AND MEDICARE TRUST FUND REPORTS</h3>
|
||
|
||
<p>
|
||
Projected long-range costs for both Medicare and Social Security are not sustainable with currently scheduled financing
|
||
and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers act
|
||
sooner rather than later, they can consider more options and more time will be available to phase in the changes, giving
|
||
the public adequate time to prepare. Earlier action would also provide more opportunity to ameliorate any adverse impacts
|
||
on vulnerable populations, including lower-income workers and people already dependent on program benefits.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">What Are the Trust Funds? </span>
|
||
Congress established trust funds managed by the Secretary of the Treasury to account for Social Security and Medicare
|
||
income and disbursements. The Treasury credits Social Security and Medicare taxes, premiums, and other income to the
|
||
funds. There are four separate trust funds. For Social Security, the Old-Age and Survivors Insurance (OASI) Trust Fund
|
||
pays retirement and survivors benefits and the Disability Insurance (DI) Trust Fund pays disability benefits. (OASDI is
|
||
the designation for the two trust funds when they are considered on a combined basis.) For Medicare, the Hospital
|
||
Insurance (HI) Trust Fund pays for inpatient hospital and related care. The Supplementary Medical Insurance (SMI) Trust
|
||
Fund comprises two separate accounts: Part B, which pays for physician and outpatient services, and Part D, which
|
||
covers the prescription drug benefit. In 2012, 45.9 million people received OASI benefits, 10.9 million received DI
|
||
benefits, and 50.7 million were covered under Medicare.
|
||
|
||
<p>
|
||
The only disbursements permitted from the funds are benefit payments and administrative costs. Federal law requires that
|
||
all excess funds be invested in interest-bearing securities backed by the full faith and credit of the United States. The
|
||
Department of the Treasury currently invests all program revenues in special non-marketable securities of the U.S.
|
||
Government which earn a market rate of interest. The balances in the trust funds represent the accumulated value,
|
||
including interest, of all prior program annual surpluses and deficits, and provide automatic authority to pay benefits.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">What Were the Trust Fund Results in 2012?</span>
|
||
Trust fund operations, in billions of dollars, are shown in the following table. (Totals may not add due to rounding.)
|
||
The OASI Trust Fund showed a net increase in asset reserves in 2012; reserves in the DI, HI, and SMI Trust Funds declined.
|
||
</p>
|
||
|
||
<table cellpadding="2" cellspacing="0" class="border" bordercolor="#cccccc" width="100%"
|
||
summary="trust fund operations in 2012, in billions of dollars, for OASI, DI and Medicare">
|
||
<tr class="align-right">
|
||
<td> </td> <th class="right" scope="col">OASI</th> <th class=" right" scope="col">DI</th>
|
||
<th class="right" scope="col">HI</th> <th class=" right" scope="col">SMI</th>
|
||
</tr>
|
||
<tr align="right">
|
||
<td align="left">reserves (end of 2011)</td>
|
||
<td>$2,524.1</td>
|
||
<td>$153.9</td>
|
||
<td>$244.2</td>
|
||
<td>$80.7</td>
|
||
</tr>
|
||
<tr align="right">
|
||
<td align="left">Income during 2012</td>
|
||
<td>731.1</td>
|
||
<td>109.1</td>
|
||
<td>243.0</td>
|
||
<td>293.9</td>
|
||
</tr>
|
||
<tr align="right">
|
||
<td align="left">Cost during 2012</td>
|
||
<td>645.5</td>
|
||
<td>140.3</td>
|
||
<td>266.8</td>
|
||
<td>307.4</td>
|
||
</tr>
|
||
<tr align="right">
|
||
<td align="left"> Net change in Reserves</td>
|
||
<td>85.6</td>
|
||
<td>-31.2</td>
|
||
<td>-23.8</td>
|
||
<td>-13.5</td>
|
||
</tr>
|
||
<tr align="right">
|
||
<td align="left">Reserves (end of 2012)</td>
|
||
<td>2,609.7</td>
|
||
<td>122.7</td>
|
||
<td>220.4</td>
|
||
<td>67.2</td>
|
||
</tr>
|
||
</table>
|
||
<br />
|
||
|
||
<p>
|
||
The following table shows payments, by category, from each trust fund in 2012. (Totals may not add due to rounding.)
|
||
</p>
|
||
|
||
<table class="border" bordercolor="#cccccc" width="100%" cellspacing="0" cellpadding="2">
|
||
<tr class="align-right" valign="bottom">
|
||
<td align="left" scope="col"><b>Category</b> (<i>in billions</i>)</td>
|
||
<th class=" right" scope="col">OASI</th>
|
||
<th class=" right" scope="col">DI</th>
|
||
<th class=" right" scope="col">HI</th>
|
||
<th class=" right" scope="col">SMI</th>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Benefit payments</td>
|
||
<td>$637.9</td>
|
||
<td>$136.9</td>
|
||
<td>$262.9</td>
|
||
<td>$303.0</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Railroad Retirement financial interchange</td>
|
||
<td>4.1</td>
|
||
<td>0.5</td>
|
||
<td>—</td>
|
||
<td>—</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Administrative expenses</td>
|
||
<td>3.4</td>
|
||
<td>2.9</td>
|
||
<td>3.9</td>
|
||
<td>4.4</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Total</td>
|
||
<td>645.4</td>
|
||
<td>140.3</td>
|
||
<td>266.8</td>
|
||
<td>307.4</td>
|
||
</tr>
|
||
|
||
</table>
|
||
|
||
<br />
|
||
<p>
|
||
Trust fund income, by source, in 2012 is shown below. (Totals may not add due to rounding.)
|
||
</p>
|
||
|
||
<table class="border" bordercolor="#cccccc" width="100%" cellspacing="0" cellpadding="2">
|
||
<tr class="align-right valign="bottom">
|
||
<td class="align-left scope="col"><b>Source</b> <i>(in billions)</i></td>
|
||
<th class=" right" scope="col">OASI</th>
|
||
<th class=" right" scope="col">DI</th>
|
||
<th class=" right" scope="col">HI</th>
|
||
<th class=" right" scope="col">SMI</th>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Payroll taxes</td>
|
||
<td>$503.9</td>
|
||
<td>$85.6</td>
|
||
<td>$205.7</td>
|
||
<td>—</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Taxes on OASDI benefits</td>
|
||
<td>26.7</td>
|
||
<td>0.6</td>
|
||
<td>18.6</td>
|
||
<td>—</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Beneficiary premiums</td>
|
||
<td>—</td>
|
||
<td>—</td>
|
||
<td>3.7</td>
|
||
<td>$66.6</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Transfers from States</td>
|
||
<td>—</td>
|
||
<td>—</td>
|
||
<td>—</td>
|
||
<td>8.4</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">General Fund reimbursements</td>
|
||
<td>97.7</td>
|
||
<td>16.5</td>
|
||
<td>0.5</td>
|
||
<td>—</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">General revenues</td>
|
||
<td>—</td>
|
||
<td>—</td>
|
||
<td>—</td>
|
||
<td>$214.8</td>
|
||
</tr>
|
||
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Interest earnings</td>
|
||
<td>102.8</td>
|
||
<td>6.4</td>
|
||
<td>10.6</td>
|
||
<td>2.8</td>
|
||
</tr>
|
||
|
||
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Other</td>
|
||
<td ><sup>a</sup></td>
|
||
<td >—</td>
|
||
<td >3.9</td>
|
||
<td >2.2</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Total</td>
|
||
<td>731.1</td>
|
||
<td>109.1</td>
|
||
<td>243.0</td>
|
||
<td>293.9</td>
|
||
</tr>
|
||
</table>
|
||
<small><sup>a</sup> Less than $50 million.</small>
|
||
|
||
<br /> <br />
|
||
|
||
<p>
|
||
In 2012, Social Security’s cost continued to exceed the program’s tax income and also continued to exceed its non-interest
|
||
income, a trend that the Trustees project to continue throughout the short-range period (2013-22) and beyond. The 2012
|
||
deficit of tax income relative to cost was $169 billion. The temporary 2-percentage point reduction in the 2012 OASDI
|
||
employee payroll tax rate, for which the trust funds were fully reimbursed by the General Fund, accounts for $114
|
||
billion of the 2012 deficit.
|
||
</p>
|
||
|
||
<p>
|
||
In 2012, the HI fund used interest income ($11 billion) and asset reserves ($24 billion) to help finance expenditures
|
||
beyond those that could have been made solely on the basis of tax and premium income. For SMI, transfers from the General
|
||
Fund of the Treasury represent the largest source of income. Because Part B account asset reserves were above the level
|
||
considered to be adequate at the end of 2011, Part B financing for 2012 was set intentionally to draw down some of the
|
||
excess reserves, resulting in a decrease of about $13 billion.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">What is the Outlook for Future Social Security and Medicare Costs in Relation to GDP?</span>
|
||
One instructive way to view the projected costs of Social Security and Medicare is to compare the costs of scheduled
|
||
benefits for the two programs with the gross domestic product (GDP), the most frequently used measure of the total
|
||
output of the U.S. economy (Chart A). Under the intermediate assumptions employed in the reports and throughout this
|
||
Summary, costs for both programs increase substantially through 2035 when measured this way because: (1) the number of
|
||
beneficiaries rises rapidly as the baby-boom generation retires; and (2) the lower birth rates that have persisted
|
||
since the baby boom cause slower growth of the labor force and GDP. Social Security’s projected annual cost increases
|
||
to about 6.2 percent of GDP by 2035, declines to 6.0 percent by 2050, and remains between 6.0 and 6.2 percent of GDP
|
||
through 2087. Under current law, projected Medicare cost rises to 5.6 percent of GDP by 2035, largely due to the rapid
|
||
growth in the number of beneficiaries, and then to 6.5 percent in 2087, with growth in health care cost per beneficiary
|
||
becoming the larger factor later in the valuation period.
|
||
</p>
|
||
|
||
<p><center><a name="A"></a>
|
||
<table>
|
||
<caption><span class="bluebold">
|
||
Chart A—Social Security and Medicare Cost as a Percentage of GDP</span>
|
||
</caption>
|
||
<tr>
|
||
<td><
|
||
<img src="images/chartA.jpg" width="600" height="500" border="0" >
|
||
</td></tr></table>
|
||
</center></p>
|
||
|
||
<p>
|
||
In 2012, the combined cost of the Social Security and Medicare programs equaled 8.7 percent of GDP. The Trustees project
|
||
an increase to 11.8 percent of GDP in 2035 and 12.7 percent of GDP in 2087. Although Medicare cost (3.6 percent of GDP)
|
||
is smaller than Social Security cost (5.0 percent of GDP) in 2012, the gap closes gradually until 2056, when Medicare is
|
||
projected to be the more costly program. During the final decade of the long-range projection period, Medicare cost is
|
||
modestly larger than Social Security cost.
|
||
</p>
|
||
|
||
<p>
|
||
The projected costs for OASDI and HI depicted in Chart A and elsewhere in this document reflect the full cost of scheduled
|
||
current-law benefits without regard to whether the trust funds will have sufficient resources to meet these obligations.
|
||
Current law precludes payment of any benefits beyond the amount that can be financed by the trust funds, that is, from
|
||
annual income and trust fund reserves. In years after trust fund depletion, the amount of benefits that would be payable
|
||
is lower than shown, as described later in this summary, because benefit cost exceeds annual income. In addition, the
|
||
projected costs assume realization of the full estimated savings of the Affordable Care Act as well as adherence to
|
||
Medicare’s sustainable growth rate limits. Lawmakers are likely to prevent an almost 25-percent reduction in payment
|
||
rates for physician services that would take effect in 2014 under current law. Also, as described in the Medicare
|
||
Trustees Report, the projections for HI and SMI Part B depend significantly on the sustained effectiveness of various
|
||
current-law cost-saving measures—in particular, the lower increases in Medicare payment rates to most categories of
|
||
health care providers.
|
||
</p>
|
||
|
||
|
||
<p>
|
||
<span class="bluebold">What is the Outlook for Future Social Security and Medicare HI Costs and Income in Relation to Taxable Earnings?</span>
|
||
Since the primary source of income for OASDI and HI is the payroll tax, it is informative to express the programs’ incomes
|
||
and costs as percentages of taxable payroll—that is, of the base of worker earnings taxed to support each program
|
||
(Chart B). Both the OASDI and HI annual cost rates rise over the long run from their 2012 levels (13.79 and 3.67 percent).
|
||
Projected Social Security cost grows to 16.98 percent of taxable payroll by 2035, declines to 16.78 percent in 2050, and
|
||
then rises gradually to 18.01 percent in 2087. The projected Medicare HI cost rate rises to 5.44 percent of taxable
|
||
payroll in 2050, and thereafter gradually increases to 5.87 percent in 2087. HI taxable payroll is almost 25 percent
|
||
larger than that of OASDI because the HI payroll tax is imposed on all earnings while OASDI taxes apply only to earnings
|
||
up to an annual maximum ($113,700 in 2013).
|
||
</p>
|
||
|
||
<p>
|
||
The OASDI income rate—which includes payroll taxes, taxes on benefits, and any other transfers of revenues to the trust
|
||
funds excepting interest payments—was 12.83 percent in 2012 and increases slowly over time, reaching 13.25 percent in
|
||
2087. The scheduled payroll tax rate remains unchanged from the current 12.4 percent level. Annual income from the other
|
||
tax source, the taxation of OASDI benefits, will increase gradually relative to taxable payroll as a greater proportion
|
||
of Social Security benefits is subject to taxation in future years, but will continue to be a relatively small component
|
||
of program income.
|
||
</p>
|
||
|
||
<p><center><a name="B"></a>
|
||
<table>
|
||
<caption><span class="bluebold">
|
||
Chart B—OASDI and HI Income and Cost as a Percentage
|
||
of Taxable Payroll</span><br /></caption>
|
||
<tr>
|
||
<td>
|
||
<img src="images/chartB.jpg" width="600" height="500" border="0" >
|
||
</td></tr></table>
|
||
</center></p>
|
||
|
||
<p>
|
||
The HI income rate—which includes payroll taxes and taxes on OASDI benefits, but excludes interest payments—rises
|
||
gradually from 3.18 percent in 2012 to 4.30 percent in 2087 due to the Affordable Care Act’s increase in payroll tax
|
||
rates for high earners beginning in 2013. Individual tax return filers with earnings above $200,000, and joint return
|
||
filers with earnings above $250,000, will pay an additional 0.9 percent tax on earnings above these earnings thresholds.
|
||
An increasing fraction of all earnings will be subject to the higher tax rate over time because the thresholds are not
|
||
indexed.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">How Will Cost Growth in the Different Parts of Medicare Change the Sources of Program Financing?</span>
|
||
As Medicare cost grows over time, general revenue and beneficiary premiums will play an increasing role in financing the
|
||
program. Chart C shows scheduled cost and non-interest revenue sources under current law for HI and SMI combined as a
|
||
percentage of GDP. The total cost line is the same as displayed in Chart A and shows Medicare cost rising to 6.5 percent
|
||
of GDP by 2087.
|
||
</p>
|
||
|
||
<p><center><a name="C"></a>
|
||
<table>
|
||
<caption><span class="bluebold">
|
||
Chart C—Medicare Cost and Non-Interest Income by Source as a Percentage of GDP
|
||
</span></caption>
|
||
<tr>
|
||
<td>
|
||
<img src="images/chartC.jpg" width="600" height="500" border="0">
|
||
</td></tr></table>
|
||
</center></p>
|
||
|
||
<p>
|
||
Projected revenue from payroll taxes and taxes on OASDI benefits credited to the HI Trust Fund increases from 1.4 percent
|
||
of GDP in 2013 to 1.8 percent in 2087 under current law, while projected general revenue transfers to the SMI Trust Fund
|
||
increase from 1.5 percent of GDP in 2013 to 2.9 percent in 2087, and beneficiary premiums increase from 0.5 to 1.0 percent
|
||
of GDP. The share of total non-interest Medicare income from taxes falls substantially (from 41 percent to 30 percent)
|
||
while general revenue transfers rises (from 43 to 50 percent), as does the share of premiums (from 14 percent to 17
|
||
percent). The distribution of financing changes in part because in Parts B and D—the Medicare components that are
|
||
financed largely from general revenues—costs increase at a faster rate than Part A cost under the Trustees’ projections.
|
||
By 2087, the Medicare SMI program will require general revenue transfers equal to 2.9 percent of GDP. Moreover, the HI
|
||
deficit represents a further 0.7 percent of GDP in 2087. There is no provision under current law to finance this deficit
|
||
through general revenue transfers or any other revenue source.
|
||
</p>
|
||
|
||
<p>
|
||
The Medicare Modernization Act (2003) requires that the Board of Trustees determine each year whether the annual
|
||
difference between program cost and dedicated revenues (the bottom four layers of Chart C) exceeds 45 percent of
|
||
total Medicare cost in any of the first seven fiscal years of the 75-year projection period. In that case, the annual
|
||
Trustees Report must include a determination of “excess general revenue Medicare funding.” Two consecutive reports
|
||
with such a determination triggers a “Medicare funding warning.” The warning directs the President to submit proposed
|
||
legislation within 15 days of the next budget submission to respond to the warning and requires Congress to consider
|
||
the proposal on an expedited basis. To date, elected officials have not enacted legislation responding to these funding
|
||
warnings which have been included in the six previous reports.
|
||
</p>
|
||
|
||
<p>
|
||
This year’s report shows the difference between cost and dedicated financing revenues to exceed 45 percent of total
|
||
Medicare cost during fiscal year 2013, prompting a determination of “excess general revenue Medicare funding,” triggering
|
||
another “Medicare funding warning” for the seventh consecutive year.
|
||
</p>
|
||
|
||
|
||
<p>
|
||
<span class="bluebold">What are the Budgetary Implications of Rising Social Security and Medicare Costs?</span>
|
||
Concern about the long-range financial outlook for Medicare and Social Security often focuses on the depletion dates for
|
||
the HI and OASDI trust funds—the times when the projected trust fund balances under current law will be insufficient to
|
||
pay the full amounts of scheduled benefits. A more immediate issue is the effect the programs have on the unified
|
||
Federal budget prior to depletion of the trust funds.
|
||
</p>
|
||
|
||
<p>
|
||
Chart D shows the excess of scheduled costs over dedicated tax and premium income for the OASDI, HI, and SMI trust funds
|
||
expressed as percentages of GDP. Each of these trust funds’ operations will contribute increasing amounts to Federal
|
||
unified budget deficits in future years. General revenues pay for roughly 75 percent of all SMI costs. From now through
|
||
2026, interest earnings and asset redemptions, financed from general revenues, will cover the shortfall of HI tax and
|
||
premium revenues relative to expenditures. In addition, general revenues must cover similar payments as a result of
|
||
growing OASDI deficits through 2033.<sup><a name="fn1" href="#fntext1">1</a></sup>
|
||
</p>
|
||
|
||
<p>
|
||
In 2013, the projected difference between Social Security’s expenditures and dedicated tax income is $79 billion. For HI,
|
||
the projected difference between expenditures and dedicated tax and premium income is $26 billion. The projected general
|
||
revenue demands of SMI are $239 billion. Thus, the total General Fund requirements for Social Security and Medicare in
|
||
2013 are $344 billion, or 2.1 percent of GDP. Redemption of trust fund bonds, interest paid on those bonds, and transfers
|
||
from the General Fund provide no new net income to the Treasury, which must finance these payments through some
|
||
combination of increased taxation, reductions in other government spending, or additional borrowing from the public.
|
||
</p>
|
||
|
||
<p><center><a name="D"></a>
|
||
<table>
|
||
<caption><span class="bluebold">
|
||
Chart D—Projected SMI General Revenue Funding <br /> plus OASDI and HI Tax Shorfalls<br /><i>[Percentage of GDP]</i>
|
||
</span></caption>
|
||
<tr>
|
||
<td><a href="images/LD_ChartD.html" title="click on graph for underlying data">
|
||
<img src="images/chartD.jpg" width="600" height="500" border="0" alt="click on graph for underlying data"></a>
|
||
</td></tr></table>
|
||
</center></p>
|
||
|
||
|
||
<p>
|
||
Chart D shows that the difference between cost and revenue (expressed as a percentage of GDP) from dedicated payroll
|
||
taxes, income taxation of benefits, and premiums will grow rapidly through the 2030s as the babyboom generation reaches
|
||
retirement age. This imbalance would result in vastly increased pressure on the Federal budget if the law were changed to
|
||
maintain scheduled benefits in the absence of an increase in dedicated tax revenues, with such financing requirements
|
||
equaling 4.5 percent of GDP by 2040.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">What Is the Outlook for Short-Term Trust Fund Adequacy?</span>
|
||
The reports measure the short-range adequacy of the OASI, DI, and HI Trust Funds by comparing fund asset reserves to
|
||
projected costs for the ensuing year (the “trust fund ratio”). A trust fund ratio of 100 percent or more—that is, asset
|
||
reserves at least equal to projected cost for the next year—is a good indicator of a fund’s short-range adequacy. That
|
||
level of projected reserves for any year suggests that even if cost exceeds income, the trust fund reserves, combined
|
||
with annual tax revenues, would be sufficient to pay full benefits for several years.
|
||
</p>
|
||
|
||
<p>
|
||
By this measure, the OASI Trust Fund is financially adequate throughout the 2013-22 period, but the DI Trust Fund fails
|
||
the short-range test because its trust fund ratio was 85 percent at the beginning of 2013, with projected depletion of
|
||
all reserves in 2016.
|
||
</p>
|
||
|
||
<p>
|
||
The HI Trust Fund also does not meet the short-range test of financial adequacy; its trust fund ratio was 81 percent
|
||
at the beginning of 2013 based on the year’s anticipated expenditures, and the projected ratio does not rise to 100
|
||
percent within five years. Projected HI Trust Fund asset reserves become fully depleted in 2026. Chart E shows the
|
||
trust fund ratios through 2040 under the intermediate assumptions.
|
||
</p>
|
||
|
||
<p><center><a name="E"></a>
|
||
<table>
|
||
<caption><span class="bluebold">
|
||
Chart E—OASI, DI, and HI Trust Fund Ratios<br /> <i>[Asset reserves as a percentage of annual cost] </i></span>
|
||
|
||
</caption>
|
||
<tr>
|
||
<td>
|
||
<img src="images/chartE.jpg" width="600" height="500" border="0" >
|
||
</td></tr></table>
|
||
</center></p>
|
||
|
||
<p>
|
||
The Trustees apply a less stringent annual “contingency reserve” test to SMI Part B asset reserves because the
|
||
overwhelming portion of the financing for that account consists of beneficiary premiums and general revenue contributions
|
||
that are set each year to meet expected costs. Part D premiums paid by enrollees and the amounts apportioned from the
|
||
General Fund of the Treasury are determined each year. Moreover, flexible appropriation authority established by
|
||
lawmakers for Part D allows additional General Fund financing if costs are higher than anticipated, thereby
|
||
eliminating the need for a contingency reserve in that account. Note, however, that estimated Part B costs are
|
||
improbably low for 2014 and beyond because the projections assume that current law, which substantially reduces
|
||
physician payments per service under the sustainable growth rate system, will not change. The estimated physician fee
|
||
reduction for 2014 is 24.7 percent. A reduction in fees of this magnitude is highly unlikely; lawmakers have acted to
|
||
prevent similar reductions in every year since 2003. Underestimated payments to physicians would affect projected costs
|
||
for Part B, total SMI, and total Medicare.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">What Are Key Dates in OASI, DI, and HI Financing?</span>
|
||
The 2013 reports project that the DI, OASI, and HI Trust Funds will all be depleted within the next 25 years. The
|
||
following table shows key dates for the respective trust funds.
|
||
</p>
|
||
|
||
<p>
|
||
<table class="border" bordercolor="#cccccc" width="100%" cellspacing="0" cellpadding="2">
|
||
<caption><span class="bluebold">KEY DATES FOR THE TRUST FUNDS</span></caption>
|
||
|
||
<tr valign="bottom" >
|
||
<td> </td>
|
||
<th class="right " width="13%" scope="col">OASI</th>
|
||
<th class="right " width="13%" scope="col">DI</th>
|
||
<th class="right " width="13%" scope="col">OASDI</th>
|
||
<th class="right " width="13%" scope="col">HI</th>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Year of peak trust fund ratio<sup>a</sup></td>
|
||
<td>2011</td>
|
||
<td>2003</td>
|
||
<td>2008</td>
|
||
<td>2003</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">First year outgo exceeds income excluding interest<sup>b</sup></td>
|
||
<td>2010</td>
|
||
<td>2005</td>
|
||
<td>2010</td>
|
||
<td>2018</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">First year outgo exceeds income including interest<sup>b</sup></td>
|
||
<td>2022</td>
|
||
<td>2009</td>
|
||
<td>2021</td>
|
||
<td>2021</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Year trust funds are depleted</td>
|
||
<td>2035</td>
|
||
<td>2016</td>
|
||
<td>2033</td>
|
||
<td>2026</td>
|
||
</tr>
|
||
</table>
|
||
</p>
|
||
<p class="seventypercent">
|
||
<sup>a</sup> Dates pertain to the post-2000 period. <br />
|
||
<sup>b</sup> Dates indicate the first year that a condition is projected to occur and to
|
||
persist annually thereafter through 2087.
|
||
</p>
|
||
|
||
|
||
<p>
|
||
DI Trust Fund asset reserves, which have been declining since 2008, are projected to be fully depleted in 2016, as
|
||
reported last year. Payment of full DI benefits beyond 2016, when tax income would cover only 80 percent of scheduled
|
||
benefits, will require legislation to address the financial imbalance, possibly including a reallocation of the OASDI
|
||
payroll tax rate between OASI and DI.
|
||
</p>
|
||
|
||
<p>
|
||
The OASI Trust Fund, when considered separately, has a projected reserves depletion date of 2035, unchanged
|
||
from last year’s report.
|
||
</p>
|
||
|
||
<p>
|
||
The combined OASDI trust funds have a projected depletion date of 2033, also unchanged from last year’s report. After the
|
||
depletion of reserves, continuing tax income would be sufficient to pay 77 percent of scheduled benefits in 2033 and 72
|
||
percent in 2087.
|
||
</p>
|
||
|
||
<p>
|
||
The OASDI reserves currently continue to grow because projected interest earnings ($103 billion in 2013) still
|
||
substantially exceed the non-interest income deficit. This year’s report indicates that annual OASDI income, including
|
||
payments of interest to the trust funds from the General Fund, will exceed annual cost every year until 2021, increasing
|
||
the nominal value of combined OASDI trust fund asset reserves. The trust fund ratio (the ratio of projected reserves to
|
||
annual cost) will continue to decline gradually, as it has since 2008, despite this nominal balance increase. Beginning
|
||
in 2021, net redemptions of trust fund asset reserves with General Fund payments will be required until projected
|
||
depletion of these reserves in 2033.
|
||
</p>
|
||
|
||
<p>
|
||
The projected HI Trust Fund depletion date is 2026, two years later than reported last year. Under current law,
|
||
scheduled HI tax and premium income would be sufficient to pay 87 percent of estimated HI cost in 2026 and 73 percent
|
||
by 2087.
|
||
</p>
|
||
|
||
<p>
|
||
This report anticipates that in 2013 the HI Trust Fund’s non-interest income deficit ($31 billion) will exceed projected
|
||
interest earnings ($9 billion), requiring the use of $22 billion in asset reserves. Non-interest income is projected
|
||
to exceed cost for 2015 through 2020 as the economic recovery continues, followed by increasing annual shortfalls of
|
||
non-interest income through the remainder of the long-range projection period.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">What is the Long-Range Actuarial Balance of the OASI, DI, and HI Trust Funds?</span>
|
||
Another way to view the outlook for payroll tax-financed trust funds is to consider their actuarial balances for the
|
||
75-year valuation period. The actuarial balance measure includes the trust fund asset reserves at the beginning of the
|
||
period and all costs and income during the valuation period, all expressed as a percentage of taxable payroll for the
|
||
75-year projection period. Premium increases and general revenue transfers necessary to bring SMI into annual balance
|
||
occur as a requirement of Federal law so actuarial balance is not an informative concept for that program.
|
||
</p>
|
||
|
||
<p>
|
||
The actuarial deficit represents the average amount of change in income or cost that is needed throughout the valuation
|
||
period in order to achieve actuarial balance. The actuarial balance equals zero if cost for the period can be met for the
|
||
period as a whole and trust fund asset reserves at the end of the period are equal to the following year’s cost. The
|
||
OASI, DI, and HI Trust Funds all have long-range actuarial deficits under the intermediate assumptions, as shown in the
|
||
following table.
|
||
</p>
|
||
|
||
<table class="border" bordercolor="#cccccc" width="100%" cellspacing="0" cellpadding="2">
|
||
<caption><span class="bluebold">LONG-RANGE ACTUARIAL DEFICIT OF THE OASI, DI, AND HI TRUST FUNDS</span>
|
||
<br /><small>(As a percentage of taxable payroll)</small>
|
||
</caption>
|
||
|
||
<tr valign="bottom" align="right">
|
||
<td> </td>
|
||
<th class="right " width="18%" scope="col">OASI</th>
|
||
<th class="right " width="18%" scope="col">DI</th>
|
||
<th class="right " width="18%" scope="col">OASDI</th>
|
||
<th class="right " width="18%" scope="col">HI</th>
|
||
</tr>
|
||
<tr valign="bottom" align="center">
|
||
<td align="left">Actuarial deficit</td>
|
||
<td>2.40</td>
|
||
<td>0.32</td>
|
||
<td>2.72</td>
|
||
<td>1.11</td>
|
||
</tr>
|
||
</table>
|
||
<br />
|
||
<p>
|
||
The Trustees project that Social Security’s annual deficits, expressed as the difference between the cost rate and income
|
||
rate for a particular year, will decline from 1.26 percent of taxable payroll in 2013 to 0.98 percent in 2018 before
|
||
increasing steadily to 3.87 percent in 2037. Annual deficits then decline slightly through 2050 before resuming an
|
||
upward trajectory and reaching 4.77 percent in 2087 (Chart B). Increasing annual deficits during the final three decades
|
||
of the projection indicate that a single tax rate increase for all years starting in 2013 sufficient to achieve actuarial
|
||
balance would result in large annual surpluses early in the period followed by increasing deficits in later years. The
|
||
relatively large deficits at the end of the 75-year projection period—equal to 4.77 percent of taxable payroll in 2087
|
||
(see Chart B discussion)—indicate that sustained solvency would require payroll tax rate increases or benefit
|
||
reductions (or a combination thereof) by the end of the period that are substantially larger than those needed on
|
||
average for this report’s long-range period (2013-87).
|
||
</p>
|
||
|
||
<p>
|
||
Projected HI tax-income deficits (0.35 percent of taxable payroll in 2013) gradually decline to become a slight surplus
|
||
in 2017 before deficits re-emerge to grow each year, reaching 1.58 percent of taxable payroll in 2048, after which the
|
||
deficits remain in the 1.50 to 1.70 percent range through 2087.
|
||
</p>
|
||
|
||
<p>
|
||
The financial outlooks for both OASDI and HI depend on a number of demographic and economic assumptions. Nevertheless,
|
||
the actuarial deficit in each of these programs is large enough that averting trust fund depletion under current-law
|
||
financing is extremely unlikely. An analysis that allows plausible random variations around the intermediate assumptions
|
||
employed in the report indicates that OASDI trust fund depletion is highly probable by mid-century.
|
||
</p>
|
||
<p>
|
||
|
||
|
||
<p>
|
||
<span class="bluebold">How Has the Financial Outlook for Social Security and Medicare Changed Since Last Year?</span>
|
||
Under the intermediate assumptions, the combined OASDI trust funds have a projected 75-year actuarial deficit equal
|
||
to 2.72 percent of taxable payroll, 0.05 percentage point larger than last year’s estimate. The anticipated asset
|
||
reserves depletion date remains 2033. The actuarial deficit increased by about 0.06 percent of payroll solely due to
|
||
advancing the valuation date by one year and including the year 2087. The effects of recently enacted legislation,
|
||
updated demographic data and assumptions, and updated economic data and assumptions worsened the actuarial deficit,
|
||
but these effects were offset by updated programmatic data and improved methodologies, causing little additional
|
||
change in the actuarial deficit.
|
||
</p>
|
||
|
||
<p>
|
||
Medicare’s HI Trust Fund has a long-range actuarial deficit equal to 1.11 percent of taxable payroll under the
|
||
intermediate assumptions, 0.24 percentage point smaller than reported last year. The lower Medicare cost projections
|
||
are primarily due to favorable changes in provider assumptions based on recent data (for example, lower skilled nursing
|
||
facility utilization and case mix increases for the next several years, and lower Medicare Advantage plan bid assumptions)
|
||
and reduced HI expenditures experienced in the projection base year (2012). The projected date of depletion of the HI
|
||
Trust Fund is now 2026, two years later than reported last year.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">Who Are the Trustees?</span>
|
||
There are six Trustees, four of whom serve by virtue of their positions in the Federal Government: the Secretary of
|
||
the Treasury, the Secretary of Labor, the Secretary of Health and Human Services, and the Commissioner of Social
|
||
Security. The other two Trustees are public representatives appointed by the President and confirmed by the Senate:
|
||
Charles P. Blahous III, Research Fellow at the Hoover Institution and Senior Research Fellow at the Mercatus Center,
|
||
and Robert D. Reischauer, President Emeritus and Distinguished Fellow of the Urban Institute.
|
||
</p>
|
||
|
||
<p>
|
||
<span class="bluebold">How Are Social Security and Medicare Financed?</span>
|
||
For OASDI and HI, the major source of financing is payroll taxes on earnings paid by employees and their employers.
|
||
Self-employed workers pay the equivalent of the combined employer and employee tax rates. During 2012, an estimated
|
||
161 million people had earnings covered by Social Security and paid payroll taxes; for Medicare the corresponding figure
|
||
was 165 million. Current law establishes payroll tax rates for OASDI, which apply to earnings up to an annual
|
||
maximum ($113,700 in 2013) that ordinarily increases with the growth in the nationwide average wage. In contrast
|
||
to OASDI, covered workers pay HI taxes on total earnings. The scheduled payroll tax rates (in percent) for 2013 are:
|
||
|
||
<table class="border" bordercolor="#cccccc" width="100%" cellspacing="0" cellpadding="2"
|
||
summary="payroll tax rates by trust fund">
|
||
<tr valign="bottom" align="right">
|
||
<td> </td>
|
||
<th class="right " width="15%" scope="col">OASI</th>
|
||
<th class="right " width="15%" scope="col">DI</th>
|
||
<th class="right " width="15%" scope="col">OASDI</th>
|
||
<th class="right " width="15%" scope="col">HI</th>
|
||
<th class="right " width="15%" scope="col">Total</th>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Employees</td>
|
||
<td>5.30</td>
|
||
<td>0.90</td>
|
||
<td>6.20</td>
|
||
<td>1.45</td>
|
||
<td>7.65</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Employers</td>
|
||
<td class=" ">5.30</td>
|
||
<td class=" ">0.90</td>
|
||
<td class=" ">6.20</td>
|
||
<td class=" ">1.45</td>
|
||
<td class=" ">7.65</td>
|
||
</tr>
|
||
<tr valign="bottom" align="right">
|
||
<td align="left">Combined total</td>
|
||
<td>10.60</td>
|
||
<td>1.80</td>
|
||
<td>12.40</td>
|
||
<td>2.90</td>
|
||
<td>15.30</td>
|
||
</tr>
|
||
</table>
|
||
<br />
|
||
<p>
|
||
Note that starting in 2013, the Affordable Care Act applies an additional HI tax equal to 0.9 percent of earnings
|
||
over $200,000 for individual tax return filers, and on earnings over $250,000 for joint return filers.
|
||
</p>
|
||
|
||
<p>
|
||
Payments from the General Fund currently finance about 75 percent of SMI Part B and Part D costs, with most of the
|
||
remaining costs covered by monthly premiums charged to enrollees or in the case of low-income beneficiaries, paid
|
||
on their behalf by Medicaid for Part B and Medicare for Part D. Part B and Part D premium amounts are determined by
|
||
methods defined in law and increase as the estimated costs of those programs rise.
|
||
</p>
|
||
|
||
<p>
|
||
In 2013, the Part B standard monthly premium is $104.90. There are also income-related premium surcharges for Part B
|
||
beneficiaries whose modified adjusted gross income exceeds a specified threshold. In 2013 through 2019, the threshold
|
||
is $85,000 for individual tax return filers and $170,000 for joint return filers. Income-related premiums range
|
||
from $146.90 to $335.70 per month in 2013.
|
||
</p>
|
||
|
||
<p>
|
||
In 2013, the Part D “base monthly premium” is $31.17. Actual premium amounts charged to Part D beneficiaries depend on
|
||
the specific plan they have selected and average around $30 for standard coverage. Part D enrollees with incomes
|
||
exceeding the thresholds established for Part B must pay income-related monthly adjustment amounts in addition to
|
||
their normal plan premium. For 2013, the adjustments range from $11.60 to $66.60 per month. Part D also receives
|
||
payments from States that partially compensate for the Federal assumption of Medicaid responsibilities for
|
||
prescription drug costs for individuals eligible for both Medicare and Medicaid. In 2013, State payments will cover
|
||
about 12 percent of Part D costs.
|
||
</p>
|
||
<hr class="fn" />
|
||
|
||
<div class="footnote">
|
||
<sup><a name="fntext" href="#fn">1</a></sup>
|
||
As noted earlier in this summary, if trust fund depletion actually occurred as projected for HI in 2026 and for OASDI
|
||
in 2033, each program could pay benefits thereafter only up to the amount of continuing dedicated revenues. Chart D, by
|
||
contrast, compares dedicated sources of tax and premium income with the full cost of paying scheduled benefits under
|
||
each program. In practice, lawmakers have never allowed the asset reserves of the Social Security or Medicare HI trust
|
||
funds to become depleted.
|
||
</div>
|
||
|
||
|
||
<hr />
|
||
<h3 align="center" class="newpage">A MESSAGE FROM THE PUBLIC TRUSTEES</h3>
|
||
|
||
<p>
|
||
These are the third annual reports in which we have participated as Public Trustees. As with our experiences preparing
|
||
the prior years’ reports, we were once again impressed by the quality and professionalism of the work performed by the
|
||
actuaries’ offices in the Social Security Administration and the Centers for Medicare and Medicaid Services, and by all
|
||
of the staff dedicated by the departments of the ex officio Trustees. We believe the public continues to be well served
|
||
by the statutory process for developing the financial projections for Social Security and Medicare. Though only the
|
||
passage of time will reveal the degree of accuracy in our projections, we are pleased to vouch for the objectivity and
|
||
integrity of the Trustees’ estimation process.</p>
|
||
|
||
<p>
|
||
Both the Social Security and Medicare programs face substantial financing shortfalls that require legislative
|
||
corrections, but the implications are different for each one. Of the two programs, Social Security faces the larger
|
||
actuarial imbalance as well as the most immediate threat of trust fund depletion, again projected in 2016 for its
|
||
Disability Insurance (DI) Trust Fund. Accordingly, more far-reaching legislative measures are required to maintain
|
||
the solvency of Social Security relative to Medicare. On the other hand, Medicare is projected to experience
|
||
relatively greater cost growth over the long-range valuation period, posing greater strains for the federal budget
|
||
as a whole due to the extent to which its financing depends on general revenues. The legislative measures required
|
||
to maintain Medicare solvency are not as pronounced as they are for Social Security, but Medicare still requires
|
||
substantial further reforms if it is not to eventually subject the general budget to severe levels of strain.
|
||
</p>
|
||
|
||
<p>
|
||
Chart A in our report summary illustrates how, relative to GDP, both Social Security and Medicare costs increased
|
||
sharply in recent years, largely as a consequence of the Great Recession. The economic recovery will cause costs for
|
||
both programs relative to GDP to level off during the middle of this decade. But as Chart A also shows, both programs
|
||
are poised to resume a rapid pace of annual cost growth by the end of this decade.
|
||
</p>
|
||
|
||
<p>
|
||
Social Security’s long-term income shortfall is now larger than it has been at any point since before the landmark
|
||
program reforms of 1983. The dates of projected depletion of each of its trust funds are unchanged from last year’s
|
||
report. It is important to grasp that the amount of time remaining to enact a financing solution that is both reasonably
|
||
balanced and politically plausible is far less than the amount of time projected before final depletion of
|
||
Social Security’s combined trust funds. Toward that end, this year’s report contains new illustrations of the
|
||
magnitudes of benefit changes required if lawmakers wish to preserve solvency without affecting current
|
||
beneficiaries. Importantly, even if a Social Security solution were enacted today and effective immediately,
|
||
it would require financing corrections that are substantially more severe than those enacted in the 1983 program
|
||
amendments. Each passing year of legislative inaction reduces the likelihood that a solution can be found that is
|
||
acceptable to lawmakers on both sides of the political aisle.
|
||
</p>
|
||
|
||
<p>
|
||
As <a href="http://www.ssa.gov/oact/TR/2013/IV_B_LRest.html#473562">Table IV.B7 </a> of the Social Security Trustees Report shows, those now entering the Social Security system as workers
|
||
will contribute more in taxes (in present value) than they receive in benefits under current schedules. The entirety of
|
||
Social Security’s financing shortfall thus consists of an excess of scheduled benefits over taxes contributed for
|
||
current and past program participants. This information highlights the importance, from an equity perspective, of
|
||
enacting a solution promptly enough so that more generations contribute to correcting the program’s financing
|
||
shortfall. Substantial further delay risks further concentrating the burdens of correcting the shortfall on the
|
||
younger workers who already stand to be treated less favorably, thereby undermining Social Security’s efficacy
|
||
in serving future generations.
|
||
</p>
|
||
|
||
<p>
|
||
As lawmakers contemplate solutions to Social Security’s shortfall, we commend the information published by the Social
|
||
Security Chief Actuary’s office at:
|
||
<a href="http://www.ssa.gov/OACT/solvency/index.html"> www.ssa.gov/OACT/solvency/index.html </a>, and
|
||
<a href="http://www.ssa.gov/OACT/solvency/provisions/index.html"> www.ssa.gov/OACT/solvency/provisions/index.html </a>.
|
||
These links provide access to the SSA Chief Actuary’s analyses of individual provisions as well as
|
||
comprehensive proposals for addressing program financing.
|
||
</p>
|
||
|
||
<p>
|
||
Because the primary focus is on the revenues and benefit costs associated with current law, this year’s Medicare
|
||
Trustees Report contains fewer references to the alternative scenarios in which certain cost-saving provisions of
|
||
the 2010 Affordable Care Act are assumed to be overridden. Readers who want additional information about the
|
||
illustrative alternative fiscal scenario can find it at:
|
||
<a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2013TRAlternativeScenario.pdf">
|
||
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2013TRAlternativeScenario.pdf </a>.
|
||
</p>
|
||
|
||
<p>
|
||
As with Social Security, we recommend that legislative measures be enacted to close the Medicare Hospital
|
||
Insurance (HI) financing shortfall, and to reduce projected cost growth in its SMI components of Parts B and D. But
|
||
to a greater extent than Social Security, the Medicare projections also depend on the course of new technology and
|
||
whether various revenue and cost-reduction measures scheduled to be phased in over the next several years are
|
||
successfully implemented. It is important for Medicare finances that these measures not be scaled back or repealed
|
||
without replacing them with others that produce an equal or greater amount of cost savings.
|
||
</p>
|
||
|
||
<p>
|
||
The durability of the Social Security and Medicare programs through the decades rests in large part on public perceptions
|
||
that their methods of financing, while not perfect, are generally fair. While considerations of equity and adequacy will
|
||
inevitably accompany any legislative effort to restore these programs to long-term financial balance, a broadly accepted
|
||
solution becomes less likely the longer that financing corrections are postponed. In the interests of those who depend on
|
||
these programs as beneficiaries, as well as those who contribute to them as taxpayers, we urge lawmakers to correct the
|
||
financial imbalances of Social Security and Medicare soon.
|
||
</p>
|
||
|
||
<br />
|
||
|
||
<div class="row-12">
|
||
|
||
<div class="column-6">
|
||
|
||
Charles P. Blahous III,<br />Trustee.
|
||
<br /><br />
|
||
</div><!-- end .column-6 -->
|
||
|
||
<div class="column_6">
|
||
Robert D. Reischauer,<br />Trustee.
|
||
<br /><br />
|
||
</div><!-- end .column-6 -->
|
||
|
||
</div><!-- end .row-12 -->
|
||
|
||
|
||
</div>
|
||
|
||
|
||
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|
||
|
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