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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/2014/index.html">2014 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 2014 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>
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Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial
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status of the two programs. This message summarizes the 2014 Annual Reports.
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</p>
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<p>
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Neither Medicare nor Social Security can sustain projected long-run program costs in full under currently scheduled
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financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If
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lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that
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the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on
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vulnerable populations, including lower-income workers and people already dependent on program benefits.
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</p>
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<p>
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Social Security and Medicare together accounted for 41 percent of Federal expenditures in fiscal year 2013. The general
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revenue transfers into SMI and interest payments made to the trust funds are resulting in mounting pressure on the
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unified budget, as will the eventual decline in the level of total reserves held by the Social Security and HI Trust
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Funds. Both programs will experience cost growth substantially in excess of GDP growth through the mid-2030s due to
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rapid population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations
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entering employment and, in the case of Medicare, to growth in expenditures per beneficiary exceeding growth in per
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capita GDP. In later years, projected costs expressed as a share of GDP trend up slowly for Medicare and are relatively
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flat for Social Security, reflecting slower growth in per-beneficiary health care costs and very gradual population
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aging caused by increasing longevity.
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</p>
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<p>
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<b><u>Social Security</u></b>
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</p>
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<p>
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Social Security’s Disability Insurance (DI) program satisfies neither the Trustees’ long-range test of close actuarial
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balance nor their short-range test of financial adequacy and faces the most immediate financing shortfall of any of the
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separate trust funds. DI Trust Fund reserves expressed as a percent of annual cost (the trust fund ratio) declined to 62
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percent at the beginning of 2014, and the Trustees project trust fund depletion late in 2016, the same year projected
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in the last Trustees Report. DI costs have exceeded non-interest income since 2005 and the trust fund ratio has declined
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in every year since peaking in 2003. While legislation is needed to address all of Social Security’s financial
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imbalances, the need has become most urgent with respect to the program’s disability insurance component. Lawmakers need
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to act soon to avoid automatic reductions in payments to DI beneficiaries in late 2016.
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</p>
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<p>
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To summarize overall Social Security finances, the Trustees have traditionally emphasized the financial status of the
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theoretical combined trust funds for DI and for Old Age and Survivors Insurance (OASI). The combined trust funds, and
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expenditures that can be financed in the context of the combined trust funds, are theoretical constructs because there is
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no legal authority to finance one program’s expenditures with the other program’s taxes or reserves. Social Security’s
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total expenditures have exceeded non-interest income of its combined trust funds since 2010 and the Trustees estimate
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that Social Security cost will exceed non-interest income throughout the 75-year projection period. The Trustees project
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that this annual cash-flow deficit will average about $77 billion between 2014 and 2018 before rising steeply as income
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growth slows to its sustainable trend rate after the economic recovery is complete while the number of beneficiaries
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continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund asset
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reserves from the General Fund of the Treasury will provide the resources needed to offset Social Security’s annual
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aggregate cash-flow deficits. Since the cash-flow deficit will be less than interest earnings through 2019, reserves
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of the combined trust funds will continue to grow but not by enough to prevent the ratio of reserves to one year’s
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projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2013, and
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is expected to decline steadily in future years.) After 2019, Treasury will redeem trust fund asset reserves to the
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extent that program cost exceeds tax revenue and interest earnings until depletion of combined trust fund reserves
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in 2033, the same year projected in last year’s Trustees Report. Thereafter, tax income would be sufficient to pay
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about three-quarters of scheduled benefits through the end of the projection period in 2088.
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</p>
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<p>
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Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable earnings
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will grow rapidly from 11.3 percent in 2007, the last pre-recession year, to roughly 17.1 percent in 2037, and will then
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decline slightly before slowly increasing after 2050. Costs display a slightly different pattern when expressed as a
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share of GDP. Program costs equaled 4.1 percent of GDP in 2007, and the Trustees project these costs will increase to
|
|
6.2 percent of GDP for 2037, then decline to about 6.0 percent of GDP by 2050, and thereafter rise slowly reaching 6.1
|
|
percent by 2088.
|
|
</p>
|
|
|
|
<p>
|
|
The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI)
|
|
Trust Funds is 2.88 percent of taxable payroll, up from 2.72 percent projected in last year’s report. This deficit
|
|
amounts to 22 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 2088. The effects of recently enacted legislation, updated demographic and economic data, and
|
|
improved methodologies on net worsened the actuarial deficit by 0.10 percent of taxable payroll.
|
|
</p>
|
|
|
|
<p>
|
|
While the theoretical combined OASDI Trust Fund fails the long-range test of close actuarial balance, it does satisfy the
|
|
test for short-range (10-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at
|
|
he 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 2030, four years later than projected in last year’s
|
|
report. At that time dedicated revenues will be sufficient to pay 85 percent of HI costs. The Trustees project that
|
|
the share of HI cost that can be financed with HI dedicated revenues will decline slowly to 75 percent in 2047, and
|
|
will then stay about flat. HI non-interest income less HI expenditures is projected to be negative this year (as it
|
|
has been in every year since 2008), and then turn positive for six years (2015-2020) before turning negative again
|
|
in 2021.
|
|
</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. The estimated 75-year actuarial deficit in the HI Trust Fund is
|
|
0.87 percent of taxable payroll, down from 1.11 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 2030. The fund also continues to fail the long-range test of close
|
|
actuarial balance. The HI 75-year actuarial imbalance amounts to 23 percent of tax receipts or 19 percent of
|
|
program cost.
|
|
</p>
|
|
|
|
|
|
|
|
<p>
|
|
The improvement in the outlook for HI long-term finances is principally due to lower-than-expected spending in 2013 for
|
|
most HI service categories, which reduced the base period expenditure level about 1.5 percent and contributed to the
|
|
Trustees’ decision to reduce projected near-term spending growth trends. Taken together, these changes lowered the
|
|
actuarial deficit by about 0.29 percent of taxable payroll. Other changes resulted in an increase in the actuarial
|
|
deficit of 0.05 percent.
|
|
</p>
|
|
|
|
<p>
|
|
Unlike in past years, the Medicare Part B cost projection featured in this report and summarized below (the “projected
|
|
baseline”) assumes that reductions in Medicare payment rates for physician services called for by the Sustainable Growth
|
|
Rate (SGR) formula will be overridden in the future as they have been from January 2003 through March 2015. Specifically,
|
|
the projected baseline assumes that physician payment rates will remain at their current levels through the end of 2015,
|
|
and will then rise at the same rate currently slated for the 10-year period ending March 31, 2015 (0.6 percent annually)
|
|
through 2023. Relative to the current-law projection featured in the 2013 report, this change in the conceptual basis for
|
|
the baseline projection raises the growth rate of projected Part B costs by about 0.3 percentage points on average over
|
|
the next 75 years. While legislation overriding physician fee reductions has in recent years included provisions
|
|
offsetting the 10-year cost of the overrides, the division of those offsets between Medicare savings and savings in
|
|
other parts of the budget has varied. Because it is difficult to anticipate the extent to which policy makers will
|
|
finance future overrides with other Medicare savings, the Medicare projected baseline does not include any offsets. This
|
|
projection represents neither a legislative prediction nor a policy recommendation by the Trustees.
|
|
</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 1.9
|
|
percent of GDP in 2013 to approximately 3.3 percent of GDP in 2035, and then more slowly to 4.5 percent of GDP by 2088.
|
|
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.
|
|
</p>
|
|
|
|
<p>
|
|
The Trustees project that total Medicare costs (including both HI and SMI expenditures) will grow from approximately 3.5
|
|
percent of GDP in 2013 to 5.3 percent of GDP by 2035 and will increase gradually thereafter to about 6.9 percent of GDP
|
|
by 2088.
|
|
</p>
|
|
|
|
<p>
|
|
In recent years U.S. national health expenditure (NHE) growth has slowed relative to historical patterns. There is
|
|
uncertainty regarding the extent to which this slowdown in the rate of cost growth reflects one-time effects of the
|
|
recent economic downturn and other non-persistent factors or structural changes in the health care sector that may
|
|
produce additional cost savings in the years ahead. The Trustees are hopeful that U.S. health care practices are in the
|
|
process of becoming more efficient as providers anticipate a future in which the rapid cost growth rates of previous
|
|
decades, in both the public and private sectors, do not return. Indeed, the Trustees have revised down their projections
|
|
for near-term Medicare expenditure growth in response to the recent favorable experience. In addition, the methodology
|
|
for projecting Medicare finances had already assumed a substantial long-term reduction in per capita health expenditure
|
|
growth rates relative to historical experience, to which the Affordable Care Act’s cost-reduction provisions would add
|
|
substantial further savings. Notwithstanding recent favorable developments, both the projected baseline and current law
|
|
projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with
|
|
further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on
|
|
beneficiaries, providers, and taxpayers.
|
|
</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 />
|
|
|
|
Sylvia M. Burwell,<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" >
|
|
Thomas E. Perez,<br />
|
|
<span class="eightypercent">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 2014 ANNUAL SOCIAL SECURITY<br />
|
|
AND MEDICARE TRUST FUND REPORTS</h3>
|
|
|
|
<p>
|
|
The most immediate financing challenge facing any of the trust funds is the projected depletion of the Social Security
|
|
Disability Insurance (DI) Trust Fund in late 2016. For Social Security as a whole as well as Medicare, projected
|
|
long-range costs 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
|
|
a wider array of 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 significantly 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 DI Trust Fund pays disability benefits. (OASDI is the designation for
|
|
the two trust funds when they are considered on a theoretical 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 2013, 47.0 million people received OASI benefits, 11.0 million received DI benefits,
|
|
and 52.3 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, which represent the accumulated
|
|
value, including interest, of all prior program annual surpluses and deficits, provide automatic authority to pay
|
|
benefits.
|
|
</p>
|
|
|
|
<p>
|
|
<span class="bluebold">What Were the Trust Fund Results in 2013?</span>
|
|
A summary of trust fund operations is shown in the following table. The OASI and SMI Trust Funds showed a net increase
|
|
in asset reserves in 2013; reserves in the DI and HI Trust Funds declined.
|
|
</p>
|
|
|
|
<table cellpadding="2" cellspacing="0" class="border" bordercolor="#cccccc" width="100%"
|
|
summary="trust fund operations in 2013, in billions of dollars, for OASI, DI and Medicare">
|
|
<caption><span class="bluebold">Table 1. Trust Fund Operations </span>
|
|
<br /><small>(in billions)</small>
|
|
</caption>
|
|
<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 2012)</td>
|
|
<td>$2,609.7</td>
|
|
<td>$122.7</td>
|
|
<td>$220.4</td>
|
|
<td>$67.2</td>
|
|
</tr>
|
|
<tr align="right">
|
|
<td align="left">Income during 2013</td>
|
|
<td>743.8</td>
|
|
<td>111.2</td>
|
|
<td>251.1</td>
|
|
<td>324.6</td>
|
|
</tr>
|
|
<tr align="right">
|
|
<td align="left">Cost during 2013</td>
|
|
<td>679.5</td>
|
|
<td>143.4</td>
|
|
<td>266.2</td>
|
|
<td>316.7</td>
|
|
</tr>
|
|
<tr align="right">
|
|
<td align="left"> Net change in Reserves</td>
|
|
<td>64.3</td>
|
|
<td>-32.2</td>
|
|
<td>-15.0</td>
|
|
<td>7.9</td>
|
|
</tr>
|
|
<tr align="right">
|
|
<td align="left">Reserves (end of 2013)</td>
|
|
<td>2,674.0</td>
|
|
<td>90.4</td>
|
|
<td>205.4</td>
|
|
<td>75.1</td>
|
|
</tr>
|
|
|
|
</table>
|
|
<p>Note: Totals do not necessarily equal the sum of rounded components.</p>
|
|
<br />
|
|
|
|
<p>
|
|
The following table shows payments, by category, from each trust fund in 2013.
|
|
</p>
|
|
|
|
<table class="border" bordercolor="#cccccc" width="100%" cellspacing="0" cellpadding="2">
|
|
<caption><span class="bluebold">Table 2. Program Cost </span>
|
|
<br /><small>(in billions)</small>
|
|
<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>$672.1</td>
|
|
<td>$140.1</td>
|
|
<td>$261.9</td>
|
|
<td>$313.1</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Railroad Retirement financial interchange</td>
|
|
<td>3.9</td>
|
|
<td>0.6</td>
|
|
<td>—</td>
|
|
<td>—</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Administrative expenses</td>
|
|
<td>3.4</td>
|
|
<td>2.8</td>
|
|
<td>4.3</td>
|
|
<td>3.7</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Total</td>
|
|
<td>679.5</td>
|
|
<td>143.4</td>
|
|
<td>266.2</td>
|
|
<td>316.7</td>
|
|
</tr>
|
|
</table>
|
|
<p>Note: Totals do not necessarily equal the sum of rounded components.</p>
|
|
<br />
|
|
<p>
|
|
Trust fund income, by source, in 2013 is shown below.
|
|
</p>
|
|
|
|
<table class="border" bordercolor="#cccccc" width="100%" cellspacing="0" cellpadding="2">
|
|
<caption><span class="bluebold">Table 3. Program Income </span>
|
|
<br /><small>(in billions)</small>
|
|
<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>$620.8</td>
|
|
<td>$105.4</td>
|
|
<td>$220.8</td>
|
|
<td>—</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Taxes on OASDI benefits</td>
|
|
<td>20.7</td>
|
|
<td>0.4</td>
|
|
<td>14.3</td>
|
|
<td>—</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Beneficiary premiums</td>
|
|
<td>—</td>
|
|
<td>—</td>
|
|
<td>3.4</td>
|
|
<td>$73.3</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Transfers from States</td>
|
|
<td>—</td>
|
|
<td>—</td>
|
|
<td>—</td>
|
|
<td>8.8</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">General Fund reimbursements</td>
|
|
<td>4.2</td>
|
|
<td>0.7</td>
|
|
<td>0.9</td>
|
|
<td>4.3</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">General revenues</td>
|
|
<td>—</td>
|
|
<td>—</td>
|
|
<td>—</td>
|
|
<td>$232.5</td>
|
|
</tr>
|
|
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Interest earnings</td>
|
|
<td>98.1</td>
|
|
<td>4.7</td>
|
|
<td>9.3</td>
|
|
<td>2.4</td>
|
|
</tr>
|
|
|
|
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Other</td>
|
|
<td >—</td>
|
|
<td >—</td>
|
|
<td >2.4</td>
|
|
<td >3.7</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Total</td>
|
|
<td>743.8</td>
|
|
<td>111.2</td>
|
|
<td>251.1</td>
|
|
<td>324.6</td>
|
|
</tr>
|
|
</table>
|
|
<!-- <small><sup>a</sup> Less than $50 million.</small> -->
|
|
<p>Note: Totals do not necessarily equal the sum of rounded components.</p>
|
|
<br /> <br />
|
|
|
|
<p>
|
|
In 2013, Social Security’s cost continued to exceed the combined program’s tax income and also continued to exceed its
|
|
non-interest income, a situation that the Trustees project to continue throughout the long-range period (2014-88) and
|
|
beyond. The 2013 deficit of tax income (Table 3, first two lines) relative to cost was $76 billion.
|
|
</p>
|
|
|
|
<p>
|
|
In 2013, the HI fund used $9 billion of interest income (Table 3) and $15 billion of asset reserves (Table 1) to 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, which are set prospectively based on projected costs, represent the largest
|
|
source of income. Part B spending was lower than anticipated in 2013 resulting in an $8 billion increase in account
|
|
asset reserves (Table 1).
|
|
</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 and administrative costs for the 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 the 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 6.1 percent of GDP through 2088. Under the projected baseline,,
|
|
<sup><a name="fn1" href="#fntext1">1</a></sup> Medicare cost rises to 5.4 percent of GDP by 2035, largely due to the
|
|
rapid growth in the number of beneficiaries, and then to 6.9 percent in 2088, with growth in health care cost per
|
|
beneficiary becoming the larger factor later in the valuation period.
|
|
</p>
|
|
|
|
<p>
|
|
In 2013, the combined cost of the Social Security and Medicare programs equaled 8.4 percent of GDP. The Trustees project
|
|
an increase to 11.5 percent of GDP in 2035 and 13.0 percent of GDP by 2088. Although Medicare cost (3.5 percent of GDP)
|
|
was smaller than Social Security cost (4.9 percent of GDP) in 2013, the gap closes gradually until 2052, when Medicare
|
|
is projected to be the more costly program. During the final decade of the long-range projection period, Medicare is
|
|
about 12 percent more costly than Social Security.
|
|
</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><a href="images/LD_ChartA.html" title="click on graph for underlying data">
|
|
<img src="images/chartA.jpg" width="600" height="500" border="0" alt="click on graph for underlying data">
|
|
</a>
|
|
</td></tr></table>
|
|
</center></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 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—and assume that SGR physician payment reductions scheduled under
|
|
current law will be overridden.
|
|
</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 2013 levels (13.97 and
|
|
3.55 percent). Projected Social Security cost grows to 17.14 percent of taxable payroll by 2037, declines to 16.89
|
|
percent in 2050, and then rises gradually to 18.19 percent in 2088. The projected Medicare HI cost rate rises to 5.11
|
|
percent of taxable payroll in 2050, and thereafter increases to 5.56 percent in 2088. 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 ($117,000 in 2014).
|
|
</p>
|
|
|
|
<p>
|
|
The OASDI income rate—which includes scheduled payroll taxes at the current 12.4 percent level, taxes on benefits, and
|
|
any other transfers of revenues to the trust funds excepting interest payments—was 12.77 percent in 2013 and increases
|
|
slowly over time, reaching 13.29 percent in 2088. Annual income from the taxation of OASDI benefits will increase
|
|
radually 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><a href="images/LD_ChartB.html" title="click on graph for underlying data">
|
|
<img src="images/chartB.jpg" width="600" height="500" border="0" alt="click on graph for underlying data"></a>
|
|
</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 3.28 percent in 2013 to 4.29 percent in 2088 due to the Affordable Care Act’s increase in payroll tax
|
|
rates for high earners that began in 2013. Individual tax return filers with earnings above $200,000, and joint return
|
|
filers with earnings above $250,000, 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>
|
|
<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 the projected baseline 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 6.9 percent of GDP by 2088.
|
|
</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><a href="images/LD_ChartC.html" title="click on graph for underlying data">
|
|
<img src="images/chartC.jpg" width="600" height="500" border="0" alt="click on graph for underlying data"></a>
|
|
</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 2014 to 1.8 percent in 2088 under the projected baseline, while projected general revenue transfers to the SMI
|
|
Trust Fund increase from 1.4 percent of GDP in 2014 to 3.3 percent in 2088, and beneficiary premiums increase
|
|
from 0.5 to 1.2 percent of GDP. The share of total non-interest Medicare income from taxes falls substantially (from 41
|
|
percent to 28 percent) while general revenue transfers rises (from 43 to 52 percent), as does the share of
|
|
premiums (from 14 percent to 18 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 2088, the projected HI deficit represents 0.5 percent of GDP and there is
|
|
no provision under current law to finance that shortfall 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) under current law exceeds 45 percent of total Medicare cost in any of the first seven fiscal years of the
|
|
75-year projection period, in which case the annual Trustees Report must include a determination of “excess general
|
|
revenue Medicare funding.” The Trustees made that determination every year from 2006 through 2013, but because the
|
|
difference between program cost and dedicated revenues is not expected to exceed the 45 percent threshold during
|
|
fiscal years 2014-20, there is no such determination in this year’s report.
|
|
</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. Until 2030,
|
|
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="fn2" href="#fntext2">2</a></sup>
|
|
</p>
|
|
|
|
<p>
|
|
In 2014, the projected difference between Social Security’s expenditures and dedicated tax income is $80 billion. For HI,
|
|
the projected difference between expenditures and dedicated tax and premium income is $25 billion.
|
|
<sup><a name="fn3" href="#fntext3">3</a></sup>
|
|
The projected general revenue demands of SMI are $248 billion. Thus, the total General Fund requirements for Social
|
|
Security and Medicare in 2014 are $352 billion, or 2.0 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, under the assumption that scheduled benefits will be paid even in the absence of an increase in
|
|
dedicated tax revenues. <sup><a name="fn4" href="#fntext4">4</a></sup>
|
|
This imbalance would result in vastly increasing pressure on the unified Federal budget, with such financing requirements
|
|
equaling 4.4 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 at the
|
|
start of a year 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 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 2014-23 period, but the DI Trust Fund fails
|
|
the short-range test because its trust fund ratio was 62 percent at the beginning of 2014, with projected depletion of
|
|
all reserves in late 2016.
|
|
</p>
|
|
|
|
<p>
|
|
The HI Trust Fund also does not meet the short-range test of financial adequacy; its trust fund ratio was 76 percent at
|
|
the beginning of 2014 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 2030. 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><a href="images/LD_ChartE.html" title="click on graph for underlying data">
|
|
<img src="images/chartE.jpg" width="600" height="500" border="0" alt="click on graph for underlying data"></a>
|
|
</td></tr></table>
|
|
</center></p>
|
|
|
|
<p>
|
|
The Trustees apply a less stringent annual “contingency reserve” test to SMI Part B asset reserves because (i) the
|
|
financing for that account is set each year to meet expected costs, and (ii) the overwhelming portion of the financing
|
|
for that account consists of general revenue contributions and beneficiary premiums, which were 73 percent and 25 percent
|
|
of total Part B income in calendar year 2013. 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 typically established
|
|
by lawmakers for Part D allows additional General Fund financing if costs are higher than anticipated, limiting the need
|
|
for a contingency reserve in that account.
|
|
</p>
|
|
|
|
<p>
|
|
<span class="bluebold">What Are Key Dates in OASI, DI, and HI Financing?</span>
|
|
The 2014 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 as well as for the hypothetical combined OASDI trust
|
|
funds.<sup><a name="fn5" href="#fntext5">5</a></sup>
|
|
</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<sup>a</sup></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>b</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>c</sup></td>
|
|
<td>2010</td>
|
|
<td>2005</td>
|
|
<td>2010</td>
|
|
<td>2021</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">First year outgo exceeds income including interest<sup>c</sup></td>
|
|
<td>2022</td>
|
|
<td>2009</td>
|
|
<td>2020</td>
|
|
<td>2023</td>
|
|
</tr>
|
|
<tr valign="bottom" align="right">
|
|
<td align="left">Year trust funds are depleted</td>
|
|
<td>2034</td>
|
|
<td>2016</td>
|
|
<td>2033</td>
|
|
<td>2030</td>
|
|
</tr>
|
|
</table>
|
|
</p>
|
|
<p class="seventypercent">
|
|
<sup>a</sup> Column entries represent key dates for the hypothetical combined OASI and DI funds. <br />
|
|
<sup>b</sup> Dates pertain to the post-2000 period. <br />
|
|
<sup>c</sup> Dates indicate the first year that a condition is projected to occur and to
|
|
persist annually thereafter through 2088.
|
|
</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 81 percent of scheduled
|
|
benefits, will require legislation to address the financial imbalance. Lawmakers may consider responding to the
|
|
impending DI Trust Fund reserve depletion, as they did in 1994, solely by reallocating the payroll tax rate between
|
|
OASI and DI. Such a response might serve to delay DI reforms and much needed financial corrections for OASDI as a
|
|
whole. However, enactment of a more permanent solution could include a tax reallocation in the short run.
|
|
</p>
|
|
|
|
<p>
|
|
The OASI Trust Fund, when considered separately, has a projected reserve depletion date of 2034, one year earlier than
|
|
in last year’s report.
|
|
</p>
|
|
|
|
<p>
|
|
The theoretical combined OASDI trust funds have a projected depletion date of 2033, 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 2088.
|
|
</p>
|
|
|
|
<p>
|
|
The OASDI reserves are projected to grow in 2014 because anticipated interest earnings ($99 billion in 2014) 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 2020, 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 (Chart E), as it has since 2008, despite this nominal balance
|
|
increase. Beginning in 2020, 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 2030, four years later than reported last year. Under current law,
|
|
scheduled HI tax and premium income would be sufficient to pay 85 percent of estimated HI cost in 2030 and 77 percent
|
|
by 2088.
|
|
</p>
|
|
|
|
<p>
|
|
This report anticipates that in 2014 the HI Trust Fund’s non-interest income deficit ($22 billion) will exceed projected
|
|
interest earnings ($8 billion), requiring the use of $14 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 (OASI, DI, and HI) 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, an ending fund balance equal to the 76th year’s costs, and projected costs and income during the
|
|
valuation period, all expressed as a percentage of taxable payroll for the 75-year projection period. Actuarial balance
|
|
is not an informative concept for the SMI program because Federal law sets premium increases and general revenue
|
|
transfers at the levels necessary to bring SMI into annual balance.
|
|
</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>2.55</td>
|
|
<td>0.33</td>
|
|
<td>2.88</td>
|
|
<td>0.87</td>
|
|
</tr>
|
|
</table>
|
|
<br />
|
|
<p>
|
|
The Trustees project that the annual deficits for Social Security as a whole, expressed as the difference between the
|
|
cost rate and income rate for a particular year, will decline from 1.29 percent of taxable payroll in 2014 to 1.06
|
|
percent in 2017 before increasing steadily to 3.95 percent in 2037. Annual deficits then decline slightly through
|
|
2050 before resuming an upward trajectory and reaching 4.90 percent in 2088 (Chart B). The relatively large annual
|
|
variations in deficits indicate that a single tax rate increase for all years starting in 2014 sufficient to achieve
|
|
actuarial balance would result in sizable annual surpluses early in the period followed by increasing deficits in
|
|
later years. 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 (2014-88).
|
|
</p>
|
|
|
|
<p>
|
|
The Trustees project that the HI cost rate will exceed the income rate in 2014 by 0.11 percent of taxable payroll,
|
|
followed by a period of small tax-income surpluses in 2015 through 2021. Deficits subsequently re-emerge to grow
|
|
rapidly with the aging of the baby boom population through about 2045, when the annual deficit reaches 1.23 percent
|
|
of taxable payroll. After 2050, the annual deficits level off through 2088 at approximately 1.30 percent of taxable
|
|
payroll.
|
|
</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>
|
|
<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
|
|
2.88 percent of taxable payroll, 0.16 percentage point larger than last year’s estimate. The anticipated depletion date
|
|
for the theoretical combined asset reserves remains 2033. The actuarial deficit increased by about 0.06 percent of
|
|
payroll due to advancing the valuation date by one year and including the year 2088. The remaining increase in the
|
|
deficit is due primarily to changes in methods, assumptions, and starting values.
|
|
</p>
|
|
|
|
<p>
|
|
Medicare’s HI Trust Fund has a long-range actuarial deficit equal to 0.87 percent of taxable payroll under the
|
|
intermediate assumptions, 0.24 percentage point smaller than reported last year. This improvement is primarily due to
|
|
lower projected spending for most HI service categories—especially for inpatient hospitals—that reflects
|
|
lower-than-expected spending in the projection base year (2013) and other recent data, lower utilization assumptions for
|
|
inpatient hospitals, and lower case mix assumptions for skilled nursing facilities and home health agencies. The
|
|
projected date of depletion of the HI Trust Fund is now 2030, four years later than reported last year.
|
|
</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 2013, an
|
|
estimated 163 million people had earnings covered by Social Security and paid payroll taxes; for Medicare the
|
|
corresponding figure was 167 million. Current law establishes payroll tax rates for OASDI, which apply to earnings
|
|
up to an annual maximum ($117,000 in 2014) 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
|
|
2014 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>
|
|
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 2014, 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 2014 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 2014.
|
|
</p>
|
|
|
|
<p>
|
|
In 2014, the Part D “base monthly premium” is $32.42. Actual premium amounts charged to Part D beneficiaries depend on
|
|
the specific plan they have selected and average around $31 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 2014, the adjustments range from $12.10 to $69.30 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 2014, State payments will cover about 10
|
|
percent of Part D costs.
|
|
</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>
|
|
|
|
|
|
<hr class="fn" />
|
|
|
|
<div class="footnote">
|
|
<sup><a name="fntext1" href="#fn1">1</a></sup>
|
|
Recent Medicare Trustees Reports featured current-law projected costs which incorporated scheduled reductions in physician
|
|
payment rates under the sustainable growth rate (SGR) formula. The reports noted that those reductions were unlikely
|
|
to occur and warned readers that, therefore, projected costs for Part B were probably understated. This year’s
|
|
report (and this Summary) gives primary emphasis to the projected baseline, in which it is assumed that SGR reductions
|
|
are overridden by Congress, as has occurred in every year since 2003.
|
|
<br />
|
|
<sup><a name="fntext2" href="#fn2">2</a></sup>
|
|
As noted earlier in this summary, if trust fund depletion actually occurred as projected for HI in 2030 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.
|
|
<br />
|
|
<sup><a name="fntext3" href="#fn3">3</a></sup>
|
|
This difference is projected on a cash rather than the incurred expenditures basis applied elsewhere in the long-range
|
|
projections, except where explicitly noted otherwise.
|
|
<br />
|
|
<sup><a name="fntext4" href="#fn4">4</a></sup>
|
|
As previously noted, this scenario would require a change in law to allow for the timely payment of all scheduled
|
|
benefits upon trust fund depletion.
|
|
<br />
|
|
<sup><a name="fntext5" href="#fn5">5</a></sup>
|
|
HI results in this section of the Summary are on a cash rather than the incurred expenditures basis.
|
|
|
|
</div>
|
|
|
|
|
|
<hr />
|
|
<h3 align="center" class="newpage">A MESSAGE FROM THE PUBLIC TRUSTEES</h3>
|
|
|
|
<p>
|
|
For the past several years, the annual Trustees Reports have warned lawmakers and the public of the financing shortfalls
|
|
facing the Social Security and Medicare programs, emphasizing that continued delay in legislating corrective measures is
|
|
likely to make the challenge ever more difficult to resolve and result in undesirable consequences. Notwithstanding the
|
|
enactment of the Affordable Care Act (ACA) in 2010 and the recent slowdown in the growth of national health expenditure
|
|
(NHE) and Medicare spending, further legislative changes will be required to ensure Medicare’s financial sustainability.
|
|
While Social Security has not been the object of significant financing reforms since 1983, its need for additional
|
|
measures has been recognized for over two decades. Now, in the middle of the second decade of the 21st century, the
|
|
adverse consequences of delaying necessary corrections in both programs are beginning to be realized. The most
|
|
immediate financing threat facing either program is the impending depletion of Social Security Disability Insurance (DI)
|
|
Trust Fund reserves in late 2016. This is the closest that any of the separate trust funds has come to depletion in
|
|
over two decades. The major component of the solution to the last reserve depletion crisis, enacted in 1994, was to
|
|
reallocate payroll taxes from the Old-Age and Survivors Insurance (OASI) Trust Fund to the DI Trust Fund. This response
|
|
reflected the fact that, at that time, the DI Trust Fund faced both a more immediate and relatively larger shortfall
|
|
than did the OASI Trust Fund.</p>
|
|
|
|
<p>
|
|
The present situation is very different from that of 1994. While there are administrative issues and policy concerns
|
|
unique to DI, the DI fund’s currently projected depletion is, to a great extent, related to financing pressures that
|
|
afflict both the OASI and DI Trust Funds. Of the two funds, OASI faces the larger long-term imbalance between income
|
|
and obligations. The earlier depletion date of the DI Trust Fund’s reserves largely reflects the fact that the baby
|
|
boomers have been aging through the years of high disability incidence before reaching the ages at which they are
|
|
eligible for OASI benefits. As baby boomers receiving DI benefits reach Social Security’s full retirement age, the
|
|
costs of their benefits shift from DI to OASI, increasing costs for the latter trust fund. The DI Trust Fund’s
|
|
impending reserve depletion signals that the time has arrived for reforms that strengthen the financing outlooks
|
|
for OASI and DI alike.
|
|
</p>
|
|
|
|
<p>
|
|
The urgency of addressing the financial challenges facing both programs is underscored by the fact that the financing
|
|
shortfall in the theoretical combined Social Security trust funds has now grown to a size substantially greater, even
|
|
relative to today’s larger economy, than the shortfall corrected in the landmark bipartisan Social Security amendments
|
|
of 1983. Those reforms, which included a six-month delay in cost-of-living adjustments, exposing benefits to income
|
|
taxation for the first time, requiring new Federal employees to join the system and pay payroll taxes, raising the age
|
|
of eligibility for full retirement benefits, accelerating a previously scheduled payroll tax increase, and other
|
|
measures, were intensely controversial and difficult to enact. It is sobering to consider that financing corrections
|
|
today would require more significant measures than those. Furthermore, the longer corrective action is put off, the
|
|
more severe the measures will have to be and the fewer the cohorts who can be asked shoulder a portion of the
|
|
burden. Unless Social Security’s historical financing structure is to be altered to finance some or all of the
|
|
program from the Federal government’s General Fund on a permanent basis, and thereby weaken the historical tie
|
|
between individual contributions and benefits, legislators must act to eliminate this financing shortfall. This
|
|
task becomes progressively more difficult, and therefore less assured of success, with each passing year.
|
|
</p>
|
|
|
|
<p>
|
|
Long before the reserves of the OASI and HI Trust Funds are depleted, the finances of Social Security and Medicare will
|
|
be challenging because of the growing pressure these programs exert on the Federal budget. This is a central concern
|
|
from the standpoint of program financing because the reserves of each of the various trust funds are invested wholly
|
|
in U.S. Treasury securities. Monitoring interactions between the trust funds and the General Fund is one of our core
|
|
duties. When lawmakers created the public trustee positions in 1983 pursuant to a recommendation of the Greenspan
|
|
Commission, that commission made its recommendation to create public trustees in the “investment procedures” section
|
|
of its report, rather than in those sections pertaining to actuarial balance. While the Greenspan Commission presented
|
|
different opinions on the issue of whether Social Security should be included within the unified Federal budget, members
|
|
of the commission agreed that it was important that Social Security’s impact on the budget be laid out in a transparent
|
|
fashion. The minority advocated for Social Security’s “impact thereon to be seen more clearly” while the majority’s
|
|
arguments included making clear “the effect and presence of any payments from the General Fund of the Treasury to the
|
|
Social Security program.” Indeed, our public trustee positions exist in large part because of lawmakers’ concern that
|
|
the economic and fiscal implications of the trust funds’ buildup and drawdown be fully understood and properly
|
|
managed. One of the first actions taken by the program’s original two public trustees in 1985, the year of their
|
|
first report, was to direct a study of these implications in response to the concerns.
|
|
</p>
|
|
|
|
<p>
|
|
Resources for Social Security and Medicare trust fund interest payments, asset redemptions, and other General Fund
|
|
payments—most notably those for SMI—must be found in competition with other spending and borrowing within the unified
|
|
Federal budget, while Federal lawmakers maintain the ability to change the programs’ benefit and tax schedules as
|
|
warranted by broader fiscal considerations. Accordingly, a thorough assessment of the degree of risk associated with
|
|
scheduled benefit payments cannot be limited solely to assessing the level of reserves present in the trust funds, but
|
|
also requires cognizance of the degree of pressure such payments will place on other components of the Federal
|
|
budget. The rising cost of Medicare has long strained the Federal budget largely because the preponderance of
|
|
Medicare SMI expenditures is financed from the General Fund. Pressure arising from increasing Social Security
|
|
expenditures attained a new significance when program costs began to exceed incoming tax revenue in 2010. In 2013, these
|
|
programs’ costs together required $357 billion (2.1 percent of GDP) from the General Fund.
|
|
</p>
|
|
|
|
<p>
|
|
Whether one regards the Medicare financing challenge to be more or less serious than Social Security’s depends on the
|
|
perspective taken. Of the two programs, Social Security has the larger actuarial imbalance and the reserves of one of
|
|
its two trust funds (DI) are in more imminent danger of depletion. On the other hand, Medicare’s long-term cost growth
|
|
is still projected to exceed Social Security’s, and its operations stand to place greater strain on the Federal
|
|
budget. As with Social Security, legislative actions of a significant magnitude will be required to place Medicare on a
|
|
sound financial footing.
|
|
</p>
|
|
|
|
<p>
|
|
Upon the release of last year’s Trustees Report, and in the months afterward, questions arose as to whether a
|
|
recent slowdown in national health expenditure growth may indicate less urgency in legislating Medicare
|
|
financing corrections than suggested by our intermediate projections. Unfortunately, this is not the case. The
|
|
Trustees’ projections have long assumed that over the long term NHE growth will slow relative to historical
|
|
trends. Overlaying the ACA’s required reductions in Medicare reimbursement rates on top of this projection
|
|
methodology means that in the later decades of our long-range valuation period (2014-88) we project that per
|
|
capita spending growth in many categories of Medicare payments will slow markedly relative to per capita GDP
|
|
growth. Clearly it is to be hoped that NHE growth will continue to slow and that cost-saving mechanisms in
|
|
current law will prove effective and sustainable. However, even with the assumption of decelerating spending
|
|
growth Medicare’s financing shortfall, like Social Security’s, remains a reality warranting legislative corrections.
|
|
</p>
|
|
|
|
<p>
|
|
With this, our fourth annual reports as Public Trustees, we are once again pleased to vouch for the integrity of the
|
|
process by which the Trustees’ projections are developed. We appreciate the dedication and skill of the capable staff
|
|
that the ex officio Trustees have assigned to help develop these reports and the sophisticated analysis that lies
|
|
behind the projections. While unanticipated economic and demographic developments and legislative changes will mean
|
|
that actual results will differ from these projections, we believe the Trustees’ deliberation process is one fully
|
|
deserving of public confidence.
|
|
</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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