137 NOTES TO THE FINANCIAL STATEMENTS

Note 22. Social Insurance

SOSI presents the projected actuarial present value of the estimated future revenue and estimated future expenditures of 

the Social Security, Medicare, Railroad Retirement, and Black Lung social insurance programs which are administered by the 

SSA, HHS, RRB, and DOL, respectively. These estimates are based on the intermediate economic and demographic 

assumptions presented later in this note as set forth in the relevant Social Security and Medicare Trustees’ Reports and in the

AFRs of SSA, HHS, and DOL, as well as in the relevant entity PAR for RRB. Due to a change in the presentation of the 

consolidated SOSI and this note from billions of dollars to trillions of dollars beginning in fiscal year 2016, some amounts in

the narrative will not be traceable to the corresponding AFRs. The SOSI projections, with one exception related to Medicare 

Part A and OASDI, are based on current law. The one exception is that they assume that scheduled social insurance benefit 

payments would continue after related trust funds are projected to be depleted, contrary to current law. By law, once trust 

fund asset reserves are depleted, expenditures cannot be made except to the extent covered by ongoing tax receipts and other 

trust fund income, but the BLDTF has the ability to borrow and use the borrowed funds to pay benefits and other 

expenditures. The estimates in the consolidated SOSI of the open group measures are for persons who are participants or 

eventually will participate in the programs as contributors (workers) or beneficiaries (retired workers, survivors, dependents,

and disabled) during the 75-year projection period. To enhance comparability of the BLDTF social insurance information and 

continue to illustrate the fund’s long-term condition and sustainability, in fiscal year 2017 DOL revised its projection period

from a fixed terminus of September 30, 2040 to a rolling 25-year projection period that begins on the September 30 valuation 

date each year. Contributions consist of: payroll, income, and excise taxes, premiums from, and state transfers on behalf of, 

participants in Medicare, and miscellaneous reimbursements from the General Fund. The SOSI also includes projected 

general revenues that, under current law, would be used to finance the remainder of the expenditures in excess of revenues 

for Medicare Parts B and D that is reported in the SOSI. Expenditures include benefit payments scheduled under current law 

and administrative expenses. Current Social Security and Medicare law provides for full benefit payments only to the extent 

that there are sufficient balances in the trust funds. Expenditures reflect full benefit payments even after the point at which

trust fund asset reserves are projected to be depleted. For more information regarding the estimates to prepare the SOSI, see 

Note 27—Subsequent Events. 

Actuarial present values of estimated future income (excluding interest) and estimated future expenditures for the Social 

Security and Medicare social insurance programs are presented for three different groups of participants: (1) current 

participants who have not yet attained eligibility age; (2) current participants who have attained eligibility age; and (3) new

entrants, who are expected to become participants in the future. Current participants in the Social Security and Medicare 

programs are the “closed group” of taxpayers and/or beneficiaries who are at least age 15 years at the start of the projection 

period. Since the projection period for the Social Security, Medicare, and Railroad Retirement social insurance programs 

consists of 75 years, the period covers virtually all of the current participants’ working and retirement years, a period that 

could be greater than 75 years in a relatively small number of instances. Future participants for Social Security and Medicare 

include births during the projection period and individuals below age 15 as of January 1 of the valuation year. Railroad 

Retirement’s future participants are the projected new entrants as of October 1 of the valuation year. For fiscal year 2015 and

years prior, future participants for Railroad Retirement were the projected new entrants as of January 1 of the valuation year.6

The present values of estimated future expenditures in excess of estimated future revenue are calculated by subtracting 

the actuarial present values of future scheduled contributions as well as dedicated tax income by and on behalf of current and 

future participants from the actuarial present value of the future scheduled benefit payments to them or on their behalf. To 

determine a program’s funding shortfall over any given period of time, the starting trust fund balance is subtracted from the 

present value of expenditures in excess of revenues over the period. 

The trust fund balances as of the valuation date for the respective programs, including interest earned, are shown in the 

table below.7

 Substantially all of the OASDI, HI, and SMI Trust Fund balances consist of investments in special 

nonmarketable Treasury securities that are backed by the full faith and credit of the U.S. government. For more information, 

see Note 20—Funds from Dedicated Collections. 

6 Beginning with the fiscal year 2016 reporting period, the valuation date for the RRP was changed from calendar year to fiscal year. 7

 Trust fund balances for the Railroad Retirement and Black Lung programs are not included, as these balances are less than $50 billion.
NOTES TO THE FINANCIAL STATEMENTS 138

Social Insurance Programs Trust Fund Balances 1

(In trillions of dollars) 2019 2018 2017 2016 2015

Social Security .................................... 2.9 2.9 2.8 2.8 2.8

Medicare ............................................ 0.3 0.3 0.3 0.3 0.3

1 As of the valuation date of the respective programs. 

Social Security 

The OASI Trust Fund, established on January 1, 1940, and the DI Trust Fund, established on August 1, 1956, 

collectively referred to as OASDI or “Social Security,” provides cash benefits for eligible U.S. citizens and residents. 

Eligibility and benefit amounts are determined under the laws applicable for the period. Current law provides that the amount 

of the monthly benefit payments for workers and their eligible dependents or survivors is based on the workers’ lifetime 

earnings histories. 

The primary financing of the OASDI Trust Funds are taxes paid by workers, their employers, and individuals with selfemployment income, based on work covered by the OASDI Program. Refer to the unaudited RSI—Social Insurance section 

for additional information on Social Security program financing. 

The portion of each trust fund not required to pay benefits and administrative costs is invested, on a daily basis, in interestbearing obligations of the U.S. government. The Social Security Act authorizes the issuance by the Treasury of special 

nonmarketable, intragovernmental debt obligations for purchase exclusively by the trust funds. Although the special issues 

cannot be bought or sold in the open market, they are redeemable at any time at face value and thus bear no risk of fluctuation in 

principal value due to changes in market yield rates. Interest on the bonds is credited to the trust funds and becomes an asset to 

the funds and a liability to the General Fund. These Treasury securities and related interest are eliminated in consolidation at the 

governmentwide level. 

Medicare 

The Medicare Program, created in 1965, has two separate trust funds: the HI (Medicare Part A) and SMI (Medicare 

Parts B and D) Trust Funds. HI helps pay for inpatient hospital stays, home health care following a hospital stay, and skilled 

nursing facility and hospice care. SMI helps pay for hospital outpatient services, physician services, and assorted other 

services and products through Part B and for prescription drugs through Part D. Though the events that trigger benefit 

payments are similar, HI and SMI have different dedicated financing structures. Similar to OASDI, HI is financed primarily 

by payroll contributions. Other income to the HI Trust Fund includes a small amount of premium income from voluntary 

enrollees, receipts from fraud and abuse control activities, a portion of the federal income taxes that beneficiaries pay on 

Social Security benefits and interest credited on Treasury securities held in the HI Trust Fund. These Treasury securities and 

related interest are eliminated in the consolidation at the governmentwide level. 

For SMI, transfers from the General Fund represent the largest source of income for both Parts B and D. Generally, 

beneficiaries finance the remainder of Parts B and D costs via monthly premiums to these programs. With the introduction of 

Part D drug coverage, Medicaid is no longer the primary payer of drug costs for full-benefit dually eligible beneficiaries of 

Medicare and Medicaid. For those beneficiaries, states are subject to a contribution requirement and must pay a portion of 

their estimated foregone drug costs into the Part D account (referred to as state transfers). The estimated foregone drug costs

is the estimated difference between the drug costs that used to be fully covered by Medicaid for full-benefit dually eligible 

beneficiaries (i.e., for Medicare and Medicaid) prior to the introduction of Part D, and the drug cost that is now covered for 

such dually eligible beneficiaries by Medicare Part D. Fees related to brand-name prescription drugs, required by the 

PPACA, are included as income for Part B of SMI. As with HI, interest received on Treasury securities held in the SMI Trust 

Fund is credited to the fund and these Treasury securities as well as related interest are eliminated in consolidation at the 

governmentwide level. By accounting convention, the transfers of general revenues are eliminated in the consolidation of the 

SOSI at the governmentwide level and as such, the General Fund transfers that are used to finance Medicare Parts B and D 

are also shown as eliminations in these calculations. For the fiscal years 2019 and 2018 SOSI, the amounts eliminated totaled 
 139 NOTES TO THE FINANCIAL STATEMENTS

$36.8 trillion and $33.0 trillion, respectively. Refer to unaudited RSI—Social Insurance section for additional information on 

Medicare program financing. 

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from 

specific provisions of the PPACA and the MACRA that lowered increases in Medicare payment rates to most categories of 

health care providers. 

The PPACA became law in fiscal year 2010 and provided funding for the establishment by CMS of a Center for 

Medicare and Medicaid Innovation to test innovative payment and service delivery models to reduce program expenditures 

while preserving or enhancing the quality of care furnished to individuals. It also allowed for the establishment of a CCIIO. 

One of the main programs under CCIIO is Exchanges. A brief description of these programs is presented below. There are 

two additional programs – Transitional Reinsurance and Risk Corridors – that are no longer in operation. 

Health Insurance Exchanges. Grants have been provided to the states to establish Health Insurance Exchanges. The 

initial grants were made by HHS to the states “not later than one year after the date of enactment.” Thus, HHS made the 

initial grants by March 23, 2011. Subsequent grants were issued by CMS through December 31, 2014, after which time no 

further grants could be made. All Exchanges were launched on October 1, 2013. 

Risk Adjustment Program. The Risk Adjustment Program is a permanent program. It applies to non-grandfathered 

individuals and small group plans inside and outside the Exchanges. It provides payments to health insurance issuers that 

disproportionately attract higher-risk populations (such as individuals with chronic conditions) and transfers funds from plans

with relatively lower risk enrollees to plans with relatively higher risk enrollees to protect against adverse selection. States 

that operate a state-based exchange are eligible to establish a risk adjustment program. States operating a risk adjustment 

program may have an entity other than the Exchanges perform this function. CMS operates a risk adjustment program for 

each state that does not operate its own. 

It is important to note that the Medicare projections depend in part on the long-range feasibility of the various costsaving measures in the PPACA. Physician payment update amounts are specified for all years in the future, and these 

amounts do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of 

physician cost increases. These rate updates could be an issue in years when levels of inflation are high and would be 

problematic when the cumulative gap between the price updates and physician costs becomes large. Payment rate updates for 

most non-physician categories of Medicare providers are reduced by the growth in economy-wide private nonfarm business 

multifactor productivity although these health providers have historically achieved lower levels of productivity growth. If the

health sector cannot transition to more efficient models of care delivery and if the provider reimbursement rates paid by 

commercial insurers continue to be based on the same negotiated process used to date, then the availability, particularly with 

respect to physician services, and quality of health care received by Medicare beneficiaries would, under current law, fall 

over time compared to that received by those with private health insurance. 

A transformation of health care in the U.S., affecting both the means of delivery and the method of paying for care, is 

also a possibility. Private health insurance and Medicare are taking important steps in this direction by initiating programs of 

research into innovative payment and service delivery models, such as accountable care organizations, patient-centered 

medical homes, improvement in care coordination for individuals with multiple chronic health conditions, better coordination 

of post-acute care, payment bundling, pay for performance, and assistance for individuals in making informed health choices. 

Such changes have the potential to reduce health care costs as well as cost growth rates and could, as a result, help lower 

health care spending to levels compatible with the lower price updates payable under current law. 

The ability of new delivery and payment methods to lower cost growth rates is uncertain at this time. Preliminary 

indications are that some of these delivery reforms have had modest levels of success in lowering costs, but at this time it is

too early to tell if these reductions in spending will continue, or if they will grow to the magnitude needed to align with the

statutory Medicare price updates. For those providers affected by the productivity adjustments and the specified updates to 

physician payments, sustaining the price reductions will be challenging, as the best available evidence indicates that most 

providers cannot improve their productivity to this degree for a prolonged period given the labor-intensive nature of these 

services and that physician costs will grow at a faster rate than the specified updates. As a result, actual Medicare 

expenditures are highly uncertain for reasons apart from the inherent difficulty in projecting health care cost growth over 

time. 

The specified rate updates could be an issue in years when levels of inflation are high and would be problematic when 

the cumulative gap between the price updates and physician costs becomes large. The gap will continue to widen throughout 

the projection, and it is estimated that physician payment rates under current law will be lower than they would have been 

under the SGR formula by 2048. Absent a change in the delivery system or level of update by subsequent legislation, access 

to Medicare-participating physicians may become a significant issue in the long term under current law. Overriding the price 

updates in current law, as lawmakers repeatedly did in the case of physician payment rates, would lead to substantially higher 

costs for Medicare in the long range than those projected in this report. 
NOTES TO THE FINANCIAL STATEMENTS 140

To help illustrate and quantify the potential magnitude of the cost understatement, the Trustees asked the Office of 

the Actuary at CMS to prepare an illustrative Medicare Trust Fund projection under a hypothetical alternative. This 

scenario illustrates the impact that would occur if the payment updates that are affected by the productivity adjustments 

transition from current law to the payment updates assumed for private health plans over the period 2028 to 2042. It also 

reflects physician payment updates that transition from current law to the increase in the Medicare Economic Index over 

the same period. Finally, the scenario assumes the continuation of the 5 percent bonuses for physicians in advanced APMs 

and of the $500-million payments for physicians in the merit-based incentive payment system, which are set to expire in 

2025. This alternative was developed for illustrative purposes only; the calculations have not been audited; no 

endorsement of the policies underlying the illustrative alternative by the Trustees, CMS, or the Office of the Actuary 

should be inferred; and the examples do not attempt to portray likely or recommended future outcomes. Thus, the 

illustrations are useful only as general indicators of the substantial impacts that could result from future legislation 

affecting the productivity adjustments and physician updates under Medicare and of the broad range of uncertainty 

associated with such impacts. The table on the following page contains a comparison of the Medicare 75-year present 

values of estimated future income and estimated future expenditures under current law with those under the illustrative 

alternative scenario. 
 141 NOTES TO THE FINANCIAL STATEMENTS

Medicare Present Values (in trillions) (Unaudited) 

2019 Consolidated Illustrative 

SOSI Alternative 

Current Law Scenario 1, 2

Income: 

 Part A .................................................. 24.4 24.4

 Part B 3 ................................................ 10.9 12.7

 Part D 4 ................................................ 3.2 3.2

 Total income ..................................... 38.5 40.3

Expenditures: 

 Part A ................................................. 29.8 34.9

 Part B ................................................. 39.7 46.3

 Part D ................................................. 11.2 11.2

 Total expenditures ............................. 80.7 92.4

Income less expenditures: 

 Part A ................................................. (5.4) (10.5)

 Part B .................................................. (28.8) (33.6)

 Part D ................................................. (8.0) (8.0)

 Excess of expenditures over income (42.2) (52.1)

1These amounts are not presented in the 2019 Trustees' Report. 

2At the request of the Trustees, the Office of the Actuary at CMS has prepared an illustrative set of Medicare Trust Fund projections 

that differ from current law. No endorsement of the illustrative alternative to current law by the Trustees, CMS, or the Office of the 

Actuary should be inferred. 

3Excludes $28.8 trillion and $33.6 trillion of General Revenue Contributions from the 2019 Consolidated SOSI Current Law projection 

and the Illustrative Alternative Scenario's projection, respectively; i.e., to reflect Part B income on a consolidated governmentwide 

basis. 

4Excludes $8.0 trillion of General Revenue Contributions from both the 2019 Consolidated SOSI Current Law projection and the 

Illustrative Alternative projection; i.e., to reflect Part D income on a consolidated governmentwide basis. 
NOTES TO THE FINANCIAL STATEMENTS 142

The difference between the current-law and illustrative alternative projections is substantial for Parts A and B. All Part 

A fee-for-service providers and roughly half of Part B fee-for-service providers are affected by the productivity adjustments, 

so the current-law projections reflect an estimated 1 percent reduction in annual cost growth each year for these providers. If

the payment updates that are affected by the productivity adjustments were to gradually transition from current law to the 

payment updates assumed for private health plans, the physician updates transitioned to the Medicare Economic Index, and 

the 5 percent bonuses paid to physicians in advanced APMs did not expire, as illustrated under the alternative scenario, the 

estimated present values of Part A and Part B expenditures would each be higher than the current-law projections by roughly 

17 percent. As indicated above, the present value of Part A income is basically unaffected under the alternative scenario. 

The Part D values are the same under each projection because the services are not affected by the productivity 

adjustments or the physician updates. The extent to which actual future Part A and Part B costs exceed the projected amounts 

due to changes to the productivity adjustments and physician updates depends on what specific changes might be legislated 

and whether Congress would pass further provisions to help offset such costs. As noted, these examples reflect only 

hypothetical changes to provider payment rates. 

Social Security and Medicare–Demographic and Economic Assumptions 

The Boards of Trustees8 of the OASDI and Medicare Trust Funds provide in their annual reports to Congress shortrange (10-year) and long-range (75-year) actuarial estimates of each trust fund. Significant uncertainty surrounds the 

estimates, especially for a period as long as 75 years. To illustrate the range of uncertainty, the Trustees use three alternative 

scenarios (low-cost, intermediate, and high-cost) that use specific assumptions. These assumptions include fertility rates, 

rates of change in mortality, LPR and other-than-LPR immigration levels, emigration levels, changes in real GDP, changes in 

the CPI, changes in average real wages, unemployment rates, trust fund real yield rates, and disability incidence and recovery 

rates. The assumptions used for the most recent set of projections shown in the Social Security and Medicare demographic 

and economic assumption tables are generally referred to as the “intermediate assumptions,” and reflect the Trustees’ 

reasonable estimate of expected future experience. For further information on Social Security and Medicare demographic and 

economic assumptions, refer to SSA’s and HHS’s AFRs. 

8 The boards are composed of six members. Four members serve by virtue of their positions in the federal government: the Secretary of the Treasury, who is 

the Managing Trustee; the Secretary of Labor; the Secretary of HHS; and the Commissioner of Social Security. The President appoints and the Senate 

confirms the other two members to serve as public representatives. These two positions are currently vacant. 
 143 NOTES TO THE FINANCIAL STATEMENTS

Social Security – Demographic and Economic Assumptions 

Demographic Assumptions 

 Age-Sex2

Adjusted Net Annual3 Period Life4

Total 1 Death Immigration Expectancy 

Fertility Rate (persons per at Birth

Year Rate (per 100,000) year) Male Female 

2019 1.75 785.9 1,409,000 76.6 81.3 

2020 1.76 779.9 1,413,000 76.7 81.4 

2030 2.00 716.5 1,329,000 77.9 82.4 

2040 2.00 657.7 1,280,000 79.0 83.3 

2050 2.00 606.0 1,251,000 80.1 84.2 

2060 2.00 560.6 1,236,000 81.1 85.0 

2070 2.00 520.6 1,227,000 82.0 85.7 

2080 2.00 485.1 1,221,000 82.8 86.4 

2090 2.00 453.5 1,218,000 83.6 87.1 

Economic Assumptions 

Real5 Average6

Wage Annual Wage Total 9 Average10

Differ- in Covered Real 8 Employ- Annual

ential Employment CPI7 GDP ment Interest 

(percent (percent (percent (percent (percent Rate

Year change) change) change) change) change) (percent)

2019 2.19 4.02 1.83 2.8 1.0 3.3 

2020 2.08 4.71 2.63 2.4 0.6 3.5 

2030 1.29 3.89 2.60 2.0 0.4 5.1 

2040 1.20 3.80 2.60 2.0 0.4 5.1 

2050 1.25 3.85 2.60 2.1 0.5 5.1 

2060 1.25 3.85 2.60 2.0 0.4 5.1 

2070 1.19 3.79 2.60 2.0 0.4 5.1 

2080 1.16 3.76 2.60 2.1 0.5 5.1 

2090 1.16 3.76 2.60 2.0 0.4 5.1 

1

The total fertility rate for any year is the average number of children that would be born to a woman in her lifetime if she were to experience, at each age of 

her life, the birth rate observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period. 

2

The age-sex-adjusted death rate is based on the enumerated total population as of April 1, 2010, if that population were to experience the death rates by age 

and sex observed in, or assumed for, the selected year. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from 

which it is derived. 

3

Net annual immigration is the number of persons who enter during the year (both as LPRs and otherwise) minus the number of persons who leave during the 

year. It is a summary measure and not a basic assumption; it summarizes the effects of the basic assumptions from which it is derived. 

4

The period life expectancy at birth for a given year is the average number of years expected prior to death for a person born on January 1 in that year, using 

the mortality rates for that year over the course of his or her remaining life. It is a summary measure and not a basic assumption; it summarizes the effects of 

the basic assumptions from which it is derived. 

5

The real-wage differential is the annual percentage change in the average annual wage in covered employment less the annual percentage change in the 

CPI for CPI-W. Values are rounded after all computations. 

6

The average annual wage in covered employment is the total amount of wages and salaries for all employment covered by the OASDI program in a year, 

divided by the number of employees with any such earnings during the year. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived. 

7

The CPI is the CPI-W. 

8

The real GDP is the value of total output of goods and services in 2012 dollars. It is a summary measure and not a basic assumption; it summarizes the 

effects of the basic assumptions from which it is derived. 

9

Total employment is total U.S. military and civilian employment. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived. 

10The average annual interest rate is the average of the nominal interest rates, compounded semiannually, for special public-debt obligations issuable to 

the OASI and DI Trust Funds in each of the 12 months of the year. It is a summary measure and not a basic assumption; it summarizes the basic 

assumptions from which it is derived. 
NOTES TO THE FINANCIAL STATEMENTS 144

 

Medicare – Demographic and Economic Assumptions 

Demographic Assumptions 

Age-Sex 

Adjusted2 Net Annual3

Total 1 Death Immigration 

Fertility Rate (persons per

Year Rate (per 100,000) year) 

2019 1.75 785.9 1,409,000 

2020 1.76 779.9 1,413,000 

2030 2.00 716.5 1,329,000 

2040 2.00 657.7 1,280,000 

2050 2.00 606.0 1,251,000 

2060 2.00 560.6 1,236,000 

2070 2.00 520.6 1,227,000 

2080 2.00 485.1 1,221,000 

2090 2.00 453.5 1,218,000 

Economic Assumptions 

Real4 Average5 Per Beneficiary Cost8

Wage Annual Wage (percent change)

Differ- In Covered Real7 Real9

ential Employment CPI6 GDP SMI Interest 

(percent (percent) (percent (percent Rate

Year change) change) change) change) HI Part B Part D (percent)

2019 2.19 4.02 1.83 2.8 3.5 5.5 (1.5) 1.0 

2020 2.08 4.71 2.63 2.4 3.8 5.0 3.5 0.7 

2030 1.29 3.89 2.60 2.0 4.2 5.6 4.9 2.5 

2040 1.20 3.80 2.60 2.0 4.5 4.4 4.7 2.5 

2050 1.25 3.85 2.60 2.1 4.0 4.0 4.7 2.5 

2060 1.25 3.85 2.60 2.0 3.7 3.8 4.5 2.5 

2070 1.19 3.79 2.60 2.0 3.8 3.7 4.4 2.5 

2080 1.16 3.76 2.60 2.1 3.9 3.8 4.5 2.5 

2090 1.16 3.76 2.60 2.0 3.5 3.6 4.3 2.5 

1

Average number of children per woman. 

2

The age-sex-adjusted death rate per 100,000 that would occur in the enumerated population as of April 1, 2010, if that population were to experience the 

death rates by age and sex observed in, or assumed for, the selected year. 

3

Includes legal immigration, net of emigration, as well as other, non-legal, immigration. 

4

Difference between percentage increases in wages and the CPI. 

5

Average annual wage in covered employment. 

6

CPI represents a measure of the average change in prices over time in a fixed group of goods and services. 

7

Total dollar value of all goods and services produced in the U.S., adjusted to remove the impact of assumed inflation growth. 

8

These increases reflect the overall impact of more detailed assumptions that are made for each of the different types of service provided by the Medicare 

program (for example, hospital care, physician services, and pharmaceutical costs). These assumptions include changes in the payment rates, utilization, and 

intensity of each type of service. 

9

Average rate of interest earned on new trust fund securities, above and beyond rate of inflation. 
 145 NOTES TO THE FINANCIAL STATEMENTS

Railroad Retirement 

The Railroad Retirement and Survivor Benefit program pays full retirement annuities at age 60 to railroad workers with 

30 years of service. The program pays disability annuities based on total or occupational disability. It also pays annuities to

spouses and divorced spouses of retired workers and to widow(er)s, surviving divorced spouses, remarried widow(er)s, 

children, and parents of deceased railroad workers. Medicare covers qualified railroad retirement beneficiaries in the same 

way as it does Social Security beneficiaries. 

The RRB and the SSA share jurisdiction over the payment of retirement and survivor benefits. The RRB has 

jurisdiction over the payment of retirement benefits if the employee has at least 10 years of railroad service, or five years if 

performed after 1995. For survivor benefits, RRB requires that the employee’s last regular employment before retirement or 

death be in the railroad industry. If a railroad employee or his or her survivors do not qualify for railroad retirement benefits, 

the RRB transfers the employee’s railroad retirement credits to SSA, where they are treated as social security credits. 

Payroll taxes paid by railroad employers and their employees are a primary source of funding for the Railroad 

Retirement and Survivor Benefit Program. By law, railroad retirement taxes are coordinated with Social Security taxes. 

Employees and employers pay Tier I taxes at the same rate as Social Security taxes and Tier II taxes to finance railroad 

retirement benefit payments that are higher than Social Security levels. 

Revenues in excess of benefit payments are invested to provide additional trust fund income. Legislation enacted in 

2001 allowed for Railroad Retirement Account funds transferred to the NRRIT to be invested in non-governmental assets, as 

well as in governmental securities. Funds transferred from the SSEB Account to the NRRIT are allowed to be invested only 

in governmental securities. Under the financial interchange provisions, the RRP’s SSEB Account and the trust funds 

interchange amounts on an annual basis so that each trust fund is in the same position it would have been had railroad 

retirement always been covered under Social Security. 

Since its inception, NRRIT has received $21.3 billion from RRB (including $19.2 billion in fiscal year 2003, pursuant 

to the Railroad Retirement and Survivors’ Improvement Act of 2001) and returned $24.7 billion. During fiscal year 2019, the 

NRRIT made net transfers of $1.8 billion to the RRB to pay retirement benefits. Administrative expenses of the trust are paid 

out of trust assets. The balance as of September 30, 2019, and 2018, of non-federal securities and investments of the NRRIT 

are disclosed in Note 7—Debt and Equity Securities. 

Another major source of income to the Railroad Retirement and Survivor Benefit program consists of financial 

transactions with the Social Security and Medicare Trust Funds. The RRB, SSA, and CMS are parties to a financing 

arrangement, the “financial interchange”, which is intended to put the OASDI and Medicare HI Trust Funds in the same 

positions they would have been had railroad employment been covered under the Social Security and FICAs. 

Other sources of program income include revenue resulting from federal income taxes on railroad retirement benefits, and 

appropriations provided after 1974 as part of a phase out of certain vested dual benefits. From a governmentwide perspective, 

these future financial interchanges and transactions are intragovernmental transfers and are eliminated in consolidation. 

The estimated future revenues and expenditures reflected in the SOSI are based on various economic, employment, and 

other actuarial assumptions, and assume that the RRP will continue as presently constructed. The calculations assume that all 

future transfers required by current law under the financial interchange will be made. For further details on actuarial 

assumptions related to the RRP and how these assumptions affect amounts presented on the SOSI and SCSIA, consult the 

Technical Supplement to the 27th Actuarial Valuation of the Assets and Liabilities Under the Railroad Retirement Acts as of 

December 31, 2016 and RRB’s financial statements. 

Black Lung–Disability Benefit Program 

The BLDBP provides for compensation, medical, and survivor benefits for eligible coal miners who are totally disabled 

due to pneumoconiosis (black lung disease) arising out of their coal mine employment, and the BLDTF provides benefit 

payments when no RMO can be assigned the liability or when the liability is adjudicated to the BLDTF, which may occur as 

a result of, among other things, bankruptcy of the RMO. DOL operates the BLDBP. 

Black lung disability benefit payments are funded by excise taxes from coal mine operators based on the domestic sale 

of coal, as are the fund’s administrative costs. These taxes are collected by the IRS and transferred to the BLDTF, which was 

established under the authority of the Black Lung Benefits Revenue Act and administered by the Treasury. 

P.L. 110-343, Division B-Energy Improvement and Extension Act of 2008, enacted on October 3, 2008, among other 

things, restructured the BLDTF debt by refinancing the outstanding high interest rate repayable advances with low interest 

rate discounted debt instruments similar in form to zero-coupon bonds, plus a one-time appropriation. This Act also allowed 

that any subsequent debt issued by the BLDTF may be used to make benefit payments, other authorized expenditures, or to 

repay debt and interest from the initial refinancing. 

The significant assumptions used in the projections for the SOSI are the coal excise tax revenue estimates, the tax rate 

structure, number of beneficiaries, life expectancy, federal civilian pay raises, medical cost inflation, and interest rates used to 
NOTES TO THE FINANCIAL STATEMENTS 146

discount future cash flows. These assumptions affect the amounts reported on the SOSI and the SCSIA. The program’s 

valuation date is September 30 for each year of information presented in the SOSI and the SCSIA. Refer to DOL’s financial 

statements for further details on significant assumptions related to the BLDBP, and how these assumptions affect amounts 

presented on the SOSI and SCSIA. 

Statement of Changes in Social Insurance Amounts 

The SCSIA reconciles the change (between the current valuation and the prior valuation) in the present value of 

estimated future revenue less estimated future expenditures for current and future participants (the open group measure) over 

the next 75 years (except Black Lung which has a rolling 25-year projection period through September 30, 2044). The 

reconciliation identifies several components of the changes that are significant and provides reasons for the changes. The 

following disclosures relate to the SCSIA including the reasons for the components of the changes in the open group measure 

during the reporting period from the end of the previous reporting period for the government’s social insurance programs. For 

more information regarding the estimates used to prepare the SCSIA, see Note 27—Subsequent Events. 

Social Security 

The SCSIA shows two reconciliations for Social Security: (1) changes from the period beginning on January 1, 2018, to 

the period beginning on January 1, 2019, and (2) changes from the period beginning on January 1, 2017, to the period 

beginning on January 1, 2018. All estimates relating to the Social Security Program in the SCSIA represent values that are 

incremental to the prior change. As an example, the present values shown for economic data, assumptions, and methods 

represent the additional effect of these new data, assumptions, and methods after considering the effects from demography 

and the change in the valuation period. In general, an increase in the present value of net cash flows represents a positive 

change (improving financing), while a decrease in the present value of net cash flows represents a negative change 

(worsening financing). 

Assumptions Used for the Components of the Changes for the Social Security Program 

The present values included in the SCSIA are for the current and prior years and are based on various economic as well 

as demographic assumptions used for the intermediate assumptions in the Social Security Trustees’ Reports for these years. 

The Social Security – Demographic and Economic Assumptions table summarizes these assumptions for the current year. 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

Present values as of January 1, 2018 are calculated using interest rates from the intermediate assumptions of the 2018 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2019. 

Estimates of the present value of changes in social insurance amounts due to changing the valuation period and changing 

demographic data, assumptions, and methods are presented using the interest rates under the intermediate assumptions of the 

2018 Trustees’ Report. Because interest rates are an economic estimate and all estimates in the table are incremental to the 

prior change, all other present values in this part of the SCSIA are calculated using the interest rates under the intermediate

assumptions of the 2019 Trustees’ Report. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

Present values as of January 1, 2017 are calculated using interest rates from the intermediate assumptions of the 2017 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2018. 

Estimates of the present value of changes in social insurance amounts due to changing the valuation period and changing 

demographic data, assumptions, and methods are presented using the interest rates under the intermediate assumptions of the 

2017 Trustees’ Report. Because interest rates are an economic estimate and all estimates in the table are incremental to the 

prior change, all other present values in this part of the SCSIA are calculated using the interest rates under the intermediate

assumptions of the 2018 Trustees’ Report. 

Changes in Valuation Period 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2018–2092) 

to the current valuation period (2019–2093) is measured by using the assumptions for the prior valuation and extending them 

to cover the current valuation. Changing the valuation period removes a small negative net cash flow for 2018, replaces it 

with a much larger negative net cash flow for 2093, and measures the present values as of January 1, 2019, one year later. 
 147 NOTES TO THE FINANCIAL STATEMENTS

Thus, the present value of estimated future net cash flows (excluding the combined OASI and DI Trust Fund asset reserves at 

the start of the period) decreased (became more negative) when the 75-year valuation period changed from 2018–2092 to 

2019–2093. In addition, the effect on the level of asset reserves in the combined OASI and DI Trust Funds of changing the 

valuation period is measured by assuming all values projected in the prior valuation for the year 2018 are realized. The 

change in valuation period decreased the starting level of asset reserves in the combined OASI and DI Trust Funds. As a 

result, the present value of the estimated future net cash flows decreased by $0.5 trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2017-2091) to 

the current valuation period (2018-2092) is measured by using the assumptions for the prior valuation and extending them to 

cover the current valuation. Changing the valuation period removes a small negative net cash flow for 2017, replaces it with a 

much larger negative net cash flow for 2092, and measures the present values as of January 1, 2018, one year later. Thus, the 

present value of estimated future net cash flows (excluding the combined OASI and DI Trust Fund asset reserves at the start 

of the period) decreased (became more negative) when the 75-year valuation period changed from 2017-2091 to 2018-2092. 

In addition, the effect on the level of asset reserves in the combined OASI and DI Trust Funds of changing the valuation 

period is measured by assuming all values projected in the prior valuation for the year 2017 are realized. The change in 

valuation period increased the starting level of asset reserves in the combined OASI and DI Trust Funds. As a result, the 

present value of the estimated future net cash flows decreased by $0.6 trillion. 

Changes in Demographic Data, Assumptions, and Methods 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2019) are the same as those for 

the prior valuation. However, the starting demographic values and the way these values transition to the ultimate assumptions 

were changed. 

 The numbers of new LPRs for calendar years 2018 and 2019 were assumed to be slightly lower than projected in the 

prior valuation period, due to recent lower annual refugee ceilings set by the Administration. 

 The current valuation incorporated a gradual rise in 2017 and 2018 of other-than-LPR immigrants, reaching the 

ultimate assumed level in 2019. In contrast, the prior valuation incorporated a surge in the number of other-thanLPR immigrants for years 2016 through 2021. 

 Final birth rate data for 2017 indicated slightly lower birth rates than were assumed in the prior valuation. 

 Incorporating 2016 mortality data obtained from the NCHS for ages under 65 and 2016 and preliminary 2017 

mortality data from Medicare experience for ages 65 and older resulted in higher death rates for all future years than 

were projected in the prior valuation. 

Inclusion of the lower numbers of LPRs in the short-term, eliminating the surge in other-than-LPRs, and lower birth 

rates decreased the present value of estimated future net cash flows, while the inclusion of the recent mortality data increased 

the present value of estimated future net cash flows. 

There were two notable changes in demographic methodology: 

 Improved the method for projecting fertility rates by better incorporating detailed provisional birth rate data 

available from NCHS. 

 Incorporated more comprehensive Medicare mortality data from CMS. 

Inclusion of the fertility change decreased the present value of estimated future cash flows, while the mortality change 

increased the present value of estimated future net cash flows. Overall, changes to these assumptions caused the present value 

of the estimated future net cash flows to increase by $0.4 trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2018), with the exception of a 

small decrease of 10,000 LPR immigrants per annum in the future, are the same as those for the prior valuation. However, the 

starting demographic values and the way these values transition to the ultimate assumptions were changed. 

 Final birth rate data for 2016 indicated slightly lower birth rates than were assumed in the prior valuation. 

 Recent fertility data suggests that the short-term increase in the total fertility rate used in the prior valuation to 

account for an assumed deferral in childbearing (resulting from the recent economic downturn) was no longer 

warranted. The observed persistent drop in the total fertility rate in recent years is now assumed to be a loss of 

potential births rather than just a deferral for this period. 
NOTES TO THE FINANCIAL STATEMENTS 148

 Incorporating 2015 mortality data obtained from NCHS for ages under 65 and preliminary 2015 mortality data from 

Medicare experience for ages 65 and older resulted in higher death rates for all future years than were projected in 

the prior valuation. 

 More recent LPR and other-than-LPR immigration data and historical population data were included. 

Inclusion of the recent birth rate data, eliminating the short-term increase in fertility, and immigration data decreased the 

present value of estimated future net cash flows, while the inclusion of the recent mortality data and historical population data 

increased the present value of estimated future net cash flows. 

There was one notable change in demographic methodology: 

 Improved the method for projecting mortality rates by marital status by utilizing recent data from NCHS and the 

American Community Survey. 

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to increase by $0.1 trillion. 

Changes in Economic Data, Assumptions, and Methods 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

For the current valuation (beginning on January 1, 2019), there were four changes to the ultimate economic 

assumptions. 

 The ultimate annual rate of change in total-economy labor productivity was lowered from 1.68 percent in the prior 

valuation to 1.63 percent in the current valuation, reflecting an expected slower rate of productivity growth in the 

long term. 

 The difference between the ultimate growth rates for the CPI-W and the GDP implicit price deflator (the "price 

differential"), was decreased from 0.40 percentage point in the prior valuation to 0.35 percentage points in the 

current valuation. 

 The ultimate average real-wage differential was increased from 1.20 percentage points in the prior valuation to 1.21 

percentage points in the current valuation. 

 The ultimate real interest rate was lowered by 0.20 percentage point, from 2.70 percent in the prior valuation to 2.50 

percent in the current valuation. 

The lower ultimate annual rate of change in total-economy labor productivity and the lower ultimate real interest rate 

decreased the present value of estimated future net cash flows, while the smaller price differential and the higher ultimate 

average real-wage differential increased the present value of estimated future net cash flows. 

In addition to these changes in ultimate assumptions, the starting economic values and the way these values transition to 

the ultimate assumptions were changed. The most notable change was to include the July 2018 revisions in historical GDP 

estimated by the BEA of the DOC. This and other smaller changes in starting values and near-term growth assumptions 

combined to increase the present value of estimated future net cash flows. 

There was one notable change in economic methodology: 

 Incorporated more recent projections of disability prevalence in the labor force participation model. 

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $1.0 trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The ultimate economic assumptions for the current valuation (beginning on January 1, 2018), are the same as those for 

the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions 

were changed. 

 The estimated level of potential GDP was reduced by about 1 percent in 2017 and throughout the projection period, 

primarily due to the slow growth in labor productivity for 2010 through 2017 and low unemployment rates in 2017. 

This lower estimated level of potential GDP means that cumulative growth in actual GDP is 1 percent less over the 

remainder of the projected recovery than was assumed in the prior valuation. 

 Near-term interest rates were decreased, reflecting a more gradual path for the rise to the ultimate real interest rate 

than was assumed in the prior valuation. 

 New data from the BEA indicated lower-than-expected ratios of labor compensation to GDP for 2016 and 2017, 

while new data from the IRS indicated lower-than-expected ratios of taxable payroll to GDP for 2016 and 2017. 

This new data led to assumed extended recoveries in these ratios to the unchanged ultimate ratios. 

The changes in near-term interest rates and GDP decreased the present value of estimated future net cash flows. The 

new data from BEA and IRS and the resulting extended recovery in the ratios of labor compensation to GDP and taxable 

payroll to GDP increased the present value of estimated future net cash flows. 
 149 NOTES TO THE FINANCIAL STATEMENTS

There was one notable change in economic methodology: 

 Improved the method for projecting educational attainment among women in age groups 45-49 and 50-54 in the 

labor force participation model. 

Inclusion of this new method increased the present value of estimated future net cash flows. Overall, changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $0.5 trillion. 

Changes in Law or Policy 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

The monetary effect of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program was not significant at the consolidated level. Please refer to SSA’s financial statements for further 

information related to the impact of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The monetary effect of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program was not significant at the consolidated level. Please refer to SSA’s financial statements for further 

information related to the impact of the changes in law or policy on the present value of estimated future net cash flows of the 

OASDI program. 

Changes in Methodology and Programmatic Data 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

Several methodological improvements and updates of program-specific data are included in the current valuation 

(beginning on January 1, 2019). The most significant are identified below. 

 The ultimate disability incidence rate was lowered from 5.4 per thousand exposed in the prior valuation to 5.2 in the 

current valuation. In addition, recent levels of disability applications and awards are lower than expected in the prior 

valuation, and estimated disability incidence rates in the current valuation are assumed to increase more gradually 

toward the assumed ultimate level than in the prior valuation. 

 As in the prior valuation, the current valuation uses a 10-percent sample of newly-entitled worker beneficiaries in 

2015 to project average benefit levels of retired-worker and disabled-worker beneficiaries. For the current valuation, 

the model’s projection of earnings for workers becoming newly entitled in future years was improved to better 

reflect the “dispersion” in taxable earnings levels observed from 1970 to 2010. Over this historical period, increases 

in taxable earnings were higher for workers with taxable earnings above the median than for workers with taxable 

earnings below the median. 

 The current valuation includes an improvement in the method for calculating future benefit levels for those who are 

awarded benefits more than two years after their date of initial benefit entitlement. This improvement mainly affects 

DI benefit levels. 

 The current valuation updated two sets of benefit adjustment factors based on new programmatic data: the postentitlement adjustment factors and the WEP factors. 

Lowering the ultimate disability incidence rate and inclusion of recent disability data, reflecting earnings dispersion, and 

the change to benefit levels for those awarded more than two years after entitlement increased the present value of estimated 

future net cash flows. Updating the post-entitlement and WEP data decreased the present value of estimated cash flows. 

Overall, changes to these assumptions caused the present value of the estimated future net cash flows to increase by $0.5 

trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

Several methodological improvements and updates of program-specific data are included in the current valuation 

(beginning on January 1, 2018). The most significant are identified below. 

 The prior valuation assumed 99 percent of fully insured women (excluding those who are receiving a disability or 

widow benefit) were in receipt of a retired-worker benefit at age 70. The current valuation increases this percentage 

to 99.5 which is equivalent to the assumption for men. 

 For the current valuation, a 10 percent sample of newly-entitled worker beneficiaries in 2015 was used to project 

average benefit levels of retired-worker and disabled-worker beneficiaries. This sample was updated from the 2013 

sample used for the prior valuation. In addition, the method used to estimate earnings histories for retired-worker 

beneficiaries becoming newly entitled in each year after 2017 has been expanded to better match targeted average 

taxable earnings levels for each of nine birth cohorts (those becoming entitled at ages 62 through 70 in a year). 
NOTES TO THE FINANCIAL STATEMENTS 150

 Recent data and estimates provided by the OTA at the Treasury were incorporated, which indicate higher ultimate 

levels of revenue from taxation of OASDI benefits than assumed in the prior valuation. These higher levels are 

primarily due to changes OTA made in their modeling, resulting in a larger share of benefits being subject to income 

tax. 

 The current valuation incorporates both a better data source for determining the total number of months of 

retroactive benefits for newly awarded disabled-worker beneficiaries and a new adjustment factor which better 

aligns projected months of disabled-worker retroactive benefit entitlement with observed historical experience. 

Increasing the percentage of fully insured women who are in receipt of a retired-worker benefit at age 70 decreased the 

present value of estimated cash flows. Updating the sample year for average benefit level calculations, increasing the ultimate

taxation of benefits ratios, and the changes to estimates of retroactive benefit payments increased the present value of 

estimated future net cash flows. Overall, changes to these assumptions caused the present value of the estimated future net 

cash flows to increase by $0.2 trillion. 

Medicare 

The SCSIA shows two reconciliations for Medicare: (1) changes from the period beginning on January 1, 2018, to the 

period beginning on January 1, 2019, and (2) changes from the period beginning on January 1, 2017, to the period beginning 

on January 1, 2018. All estimates relating to the Medicare program in the SCSIA represent values that are incremental to the 

prior change. As an example, the present values shown for demographic data, assumptions, and methods represent the 

additional effect that these assumptions have, once the effects from the change in the valuation period and projection base 

have been considered. In general, an increase in the present value of net cash flows represents a positive change, while a 

decrease in the present value of net cash flows represents a negative change. 

Assumptions Used for the Components of the Changes for the Medicare Program 

The present values included in the SCSIA are for the current and prior years and are based on various economic and 

demographic assumptions used for the intermediate assumptions in the Medicare Trustees’ Reports for these years. The 

Medicare – Demographic and Economic Assumptions table summarizes these assumptions for the current year. 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

Present values as of January 1, 2018 are calculated using interest rates from the intermediate assumptions of the 2018 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2019. 

Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, 

demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2018 

Trustees’ Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the prior 

change, the estimates of the present values of changes in economic and health care assumptions are calculated using the 

interest rates under the intermediate assumptions of the 2019 Trustees’ Report. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

Present values as of January 1, 2017 are calculated using interest rates from the intermediate assumptions of the 2017 

Trustees’ Report. All other present values in this part of the SCSIA are calculated as a present value as of January 1, 2018. 

Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, 

demographic assumptions, and law are presented using the interest rates under the intermediate assumptions of the 2017 

Medicare Trustees’ Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the 

prior change, the estimates of the present values of changes in economic and health care assumptions are calculated using the 

interest rates under the intermediate assumptions of the 2018 Trustees’ Report. 

Changes in Valuation Period 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2018-2092) to 

the current valuation period (2019-2093) is measured by using the assumptions for the prior valuation period and extending 

them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a 

small negative net cash flow for 2018, replaces it with a much larger negative net cash flow for 2093, and measures the 

present values as of January 1, 2019, one year later. Thus, the present value of estimated future net cash flow (including or 

excluding the combined Medicare Trust Fund assets at the start of the period) decreased (made more negative) when the 75-

year valuation period changed from the prior valuation period (2018-2092) to the current valuation period (2019-2093). In 

addition, the effect on the level of assets in the combined Medicare Trust Funds of changing the valuation period is measured 

by assuming all values projected in the prior valuation for the year 2018 are realized. The change in valuation period resulted
 151 NOTES TO THE FINANCIAL STATEMENTS

in a slight increase in the starting level of assets in the combined Medicare Trust Funds. As a result, the present value of the 

estimated future net cash flows decreased by $1.4 trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2017-2091) to 

the current valuation period (2018-2092) is measured by using the assumptions for the prior valuation period and extending 

them, in the absence of any other changes, to cover the current valuation period. Changing the valuation period removes a 

small negative net cash flow for 2017, replaces it with a much larger negative net cash flow for 2092, and measures the 

present values as of January 1, 2018, one year later. Thus, the present value of estimated future net cash flow (including or 

excluding the combined Medicare Trust Fund assets at the start of the period) decreased (became more negative) when the 

75-year valuation period changed from 2017-2091 to 2018-2092. In addition, the effect on the level of assets in the combined 

Medicare Trust Funds of changing the valuation period is measured by assuming all values projected in the prior valuation 

for the year 2017 are realized. The change in valuation period resulted in a very slight increase in the starting level of assets 

in the combined Medicare Trust Funds. As a result, the present value of the estimated future net cash flows decreased by $1.4 

trillion. 

Changes in the Demographic Data, Assumptions, and Methods 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019

The demographic assumptions used in the Medicare projections are the same as those used for the OASDI and are 

prepared by the Office of the Chief Actuary at the SSA. 

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2019) are the same as those 

for the prior valuation. However, the starting demographic values and the way these values transition to the ultimate 

assumptions were changed. The numbers of new LPRs for calendar years 2018 and 2019 were assumed to be slightly lower 

than projected in the prior valuation period, due to recent lower annual refugee ceilings set by the Administration. 

 The current valuation incorporated a gradual rise in 2017 and 2018 of other-than-LPR immigrants, reaching the 

ultimate assumed level in 2019. In contrast, the prior valuation incorporated a surge in the number of other-thanLPR immigrants for years 2016 through 2021. 

 Final birth rate data for 2017 indicated slightly lower birth rates than were assumed in the prior valuation. 

 Incorporating 2016 mortality data obtained from the NCHS for ages under 65 and 2016 and preliminary 2017 

mortality data from Medicare experience for ages 65 and older resulted in higher death rates for all future years than 

were projected in the prior valuation. 

There were two notable changes in demographic methodology: 

 Improved the method for projecting fertility rates by better incorporating detailed provisional birth rate data 

available from NCHS. 

 Incorporated more comprehensive Medicare mortality data from CMS. 

These changes lowered overall Medicare enrollment for the current valuation period and resulted in a slight increase in 

the estimated future net cash flow. The present value of estimated income and expenditures are lower for Parts A, Part B, and 

Part D. Overall, changes to these assumptions caused the present value of the estimated future net cash flows to increase by 

$0.4 trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The demographic assumptions used in the Medicare projections are the same as those used for OASDI and are prepared 

by the Office of the Chief Actuary at SSA. 

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2018), with the exception of a 

small decrease of 10,000 LPR immigrants per annum in the future, are the same as those for the prior valuation. However, the 

starting demographic values and the way these values transition to the ultimate assumptions were changed. 

 Final birth rate data for 2016 indicated slightly lower birth rates than were assumed in the prior valuation. 

 Recent fertility data suggests that the short-term increase in the total fertility rate used in the prior valuation to 

account for an assumed deferral in childbearing (resulting from the recent economic downturn) was no longer 

warranted. The observed persistent drop in the total fertility rate in recent years is now assumed to be a loss of 

potential births rather than just a deferral for this period. 

 Incorporating 2015 mortality data obtained from the NCHS at ages under 65 and preliminary 2015 mortality data 

from Medicare experience at ages 65 and older resulted in higher death rates for all future years than were projected 

in the prior valuation. 

 More recent LPR and other-than-LPR immigration data and historical population data were included. 

There was one notable change in demographic methodology: 
NOTES TO THE FINANCIAL STATEMENTS 152

 Improved the method for projecting mortality rates by marital status by utilizing recent data from NCHS and the 

American Community Survey. 

These changes lowered overall Medicare enrollment for the current valuation period and resulted in an increase in the 

estimated future net cash flow. The present value of estimated income and expenditures are both lower for Part A and Part B 

but higher for Part D. Overall, changes to these assumptions caused the present value of the estimated future net cash flows to

increase by $0.6 trillion. 

Changes in Economic and Other Health Care Assumptions

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

The economic assumptions used in the Medicare projections are the same as those used for OASDI and are prepared by 

the Office of the Chief Actuary at SSA. 

For the current valuation (beginning on January 1, 2019), there were four changes to the ultimate economic 

assumptions. 

 The ultimate annual rate of change in total-economy labor productivity was lowered from 1.70 percent in the prior 

valuation to 1.60 percent in the current valuation, reflecting an expected slower rate of productivity growth in the 

long term. 

 The difference between the ultimate growth rates for the CPI-W and the GDP implicit price deflator (the "price 

differential"), was decreased from 0.40 percentage point in the prior valuation to 0.35 percentage point in the current 

valuation. 

 The ultimate average real-wage differential was increased from 1.20 percentage points in the prior valuation to 1.21 

percentage points in the current valuation. 

 The ultimate real interest rate was lowered by 0.20 percentage point, from 2.70 percent in the prior valuation to 2.50 

percent in the current valuation. 

In addition to these changes in ultimate assumptions, the starting economic values and the way these values transition to 

the ultimate assumptions were changed. The most notable change was to include the July 2018 revisions in historical GDP 

estimated by BEA of DOC. This and other smaller changes in starting values and near-term growth assumptions combined to 

increase the present value of estimated future net cash flows. 

There was one notable change in economic methodology: 

 Incorporated more recent projections of disability prevalence in the labor force participation model. 

The health care assumptions are specific to the Medicare projections. The following health care assumptions were 

changed in the current valuation: 

 Lower assumed growth in economy-wide productivity, which results in higher payment updates for certain 

providers. 

 Faster projected spending growth for physician-administered drugs under Part B. 

 Higher projected drug manufacturer rebates and slower overall drug price increases assumed in the short-range 

period. 

The net impact of these changes resulted in a decrease in the estimated future net cash flow for total Medicare. For Part 

A and Part B, these changes increased the present value of estimated future income and expenditures. For Part D, these 

changes resulted in a decrease in the present value of estimated expenditures (and also income). Overall, the net impact of 

these changes caused the present value of estimated future net cash flows to decrease by $3.0 trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

The economic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared 

by the Office of the Chief Actuary at SSA. 

The ultimate economic assumptions for the current valuation (beginning on January 1, 2018) are the same as those for 

the prior valuation. However, the starting economic values and the way these values transition to the ultimate assumptions 

were changed. 

 The estimated level of potential GDP was reduced by about 1 percent in 2017 and throughout the projection period, 

primarily due to the slow growth in labor productivity for 2010 through 2017 and low unemployment rates in 2017. 

This lower estimated level of potential GDP means that cumulative growth in actual GDP is 1 percent less over the 

remainder of the projected recovery than was assumed in the prior valuation. 

 Near-term interest rates were decreased, reflecting a more gradual path for the rise to the ultimate real interest rate 

than was assumed in the prior valuation. 

 New data from the BEA indicated lower-than-expected ratios of labor compensation to GDP for 2016 and 2017, 

while new data from the IRS indicated lower-than-expected ratios of taxable payroll to GDP for 2016 and 2017. 

 This new data led to assumed extended recoveries in these ratios to the unchanged ultimate ratios. 
 153 NOTES TO THE FINANCIAL STATEMENTS

There was one notable change in economic methodology: 

 Improved the method for projecting educational attainment among women in age groups 45-49 and 50-54 in the 

labor force participation model. 

The health care assumptions are specific to the Medicare projections. The following health care assumptions were 

changed in the current valuation. 

 Utilization rate assumptions for inpatient hospital services were decreased. 

 Utilization rate and case mix for skilled nursing facilities services were decreased. Payment rates to private health 

plans are higher than projected in last year’s report primarily due to higher risk scores and increased coding by 

plans. 

 Higher projected drug manufacturer rebates. 

The net impact of these changes resulted in a decrease in the estimated future net cash flow for total Medicare. For Part 

A, these changes resulted in an overall decrease in the estimated future net cash flow. For Part B, these changes increased the

present value of estimated future expenditures (and also income). For Part D, these changes decreased the present value of 

estimated expenditures (and also income). Overall, the net impact of these changes caused the present value of estimated 

future net cash flows to decrease by $1.5 trillion. 

Changes in Law 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

The provisions enacted as part of Medicare legislation since the prior valuation date had no measurable impact on 

program expenditures. For more information on the legislation please see section V.A of the 2019 Medicare Trustees’ Report. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

Most of the provisions enacted as part of Medicare legislation since the prior valuation date had little or no impact on 

the program. The following provisions did have a financial impact on the present value of the 75-year estimated future 

income, expenditures, and net cash flow. 

 The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (P.L. 115-63, enacted on September 29, 

2017) included one provision that affects the HI and SMI Part B programs. 

 An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for 

Fiscal Year 2018 (P.L. 115-97, enacted on December 22, 2017, and also referred to as the TCJA of 2017) included 

three provisions that affect the HI program. 

 An Act Making Further Continuing Appropriations for the Fiscal Year Ending September 30, 2018, and for Other 

Purposes (P.L. 115-120, enacted on January 22, 2018) included one provision that affects the HI and SMI programs. 

 The BBA of 2018 (P.L. 115-123, enacted on February 9, 2018) included provisions that affect the HI and SMI 

programs. 

Overall, these provisions resulted in a decrease in the estimated future net cash flow for total Medicare. For Part A, 

these changes resulted in an increase to the present value of estimated future expenditures and a slight decrease to the present 

value of estimated future income, with an overall net decrease in the estimated future net cash flow. For Part B and Part D, 

these changes increased the present value of estimated future expenditures (and also income). Overall, these changes to these 

assumptions caused the present value of the estimated future net cash flows to decrease by $1.0 trillion.

Change in Projection Base 

From the period beginning on January 1, 2018 to the period beginning on January 1, 2019 

Actual income and expenditures in 2018 were different than what was anticipated when the 2018 Trustees’ Report 

projections were prepared. Part A income in 2018 was lower and expenditures were higher than anticipated based on actual 

experience. For both Part B and Part D, total income and expenditures were higher than estimated based on actual experience. 

The net impact of the Part A, B, and D projection base changes is a decrease in the estimated future net cash flow. Actual 

experience of the Medicare Trust Funds between January 1, 2018 and January 1, 2019 is incorporated in the current valuation 

and is more than projected in the prior valuation. Overall, the net impact of the Part A, B, and D projection base changes is a

decrease in the estimated future net cash flows by $0.5 trillion. 

From the period beginning on January 1, 2017 to the period beginning on January 1, 2018 

Actual income and expenditures in 2017 were different than what was anticipated when the 2017 Medicare Trustees’ 

Report projections were prepared. Part A payroll tax income in 2017 was lower attributable to lowered wages and 

expenditures were higher than anticipated based on actual experience. Part B total income and expenditures were higher than 

estimated based on actual experience. For Part D, actual income and expenditures were both lower than prior estimates. The 
NOTES TO THE FINANCIAL STATEMENTS 154

net impact of the Part A, B, and D projection base changes is a decrease in the estimated future net cash flow. Actual 

experience of the Medicare Trust Funds between January 1, 2017 and January 1, 2018 is incorporated in the current valuation 

and is less than projected in the prior valuation. Overall, the net impact of the Part A, B, and D projection base changes is a

decrease in the estimated future net cash flows by $0.9 trillion.

Other 

The present values included in the SCSIA for the RRP are for the current and prior valuation and are based on various 

employment, demographic, and economic assumptions that reflect the RRB’s reasonable estimate of expected future financial 

and actuarial status of the trust funds. For a more detailed description of the primary reasons for the changes in the 2019 and

2018 SCSIA, refer to RRB’s financial statements. 

The significant assumptions used in the projections of the Black Lung social insurance program, referenced earlier in 

this note, affect the amounts reported on the SCSIA, which presents the net change in the open group measure of the BLDTF 

for the years ended September 30, 2019 and 2018, and provide information about the change. For a more detailed description 

of the primary reasons for the changes in the 2019 and 2018 SCSIA, refer to DOL’s financial statements.