## Status of the Social Security and Medicare Programs

- Office of the Chief Actuary
- 2020 Trustees Report
- Actuarial Publications

## A SUMMARY OF THE 2020 ANNUAL REPORTS

Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. The reports include extensive information about these important social insurance programs and careful analysis of their outlook. We believe they fully and fairly present the current and projected financial condition of their respective programs, subject to the following caveat.        

The projections and analysis in these reports do not reflect the potential effects of the COVID-19 pandemic on the Social Security and Medicare programs. Given the uncertainty associated with these impacts, the Trustees believe that it is not possible to adjust their estimates accurately at this time.        

Social Security and Medicare both face long-term financing shortfalls under currently scheduled benefits and financing. Both programs will experience cost growth substantially in excess GDP growth during through the mid-2030s due to rapid population aging. Medicare also sees its share of GDP grow through the late 2070s due to increases in the volume and intensity of services provided. Based on our best estimates, the reports show:        

•		The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, the same as reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits.       

•		The Disability Insurance (DI) Trust Fund, which pays disability benefits, will be able to pay scheduled benefits until 2065, 13 years later than in last year’s report. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 92 percent of scheduled benefits.       

•		The OASI and DI funds are separate entities under law. The report also presents information that combines the reserves of these two funds in order to illustrate the actuarial status of the Social Security program as a whole. The hypothetical combined OASDI funds would be able to pay scheduled benefits on a timely basis until 2035, the same as reported last year. At that time, the combined funds’ reserves will become depleted and continuing tax income will be sufficient to pay 79 percent of scheduled benefits.      

•		The Hospital Insurance (HI) Trust Fund, which pays Medicare Part A inpatient hospital expenses, will be able to pay scheduled benefits until 2026, the same as reported last year. At that time, the fund’s reserves will become depleted and continuing total pro-gram income will be sufficient to pay 90 percent of total scheduled benefits.      

•		The Supplemental Medical Insurance (SMI) Trust Fund has two accounts: Part B, which pays for physician and outpatient services, and Part D, which covers prescription drug benefits. SMI is adequately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs. Due to these funding provisions, the rapid growth of SMI costs will place steadily increasing demands on both taxpayers and beneficiaries.       

•		The Trustees are issuing a determination of projected excess general revenue Medicare funding for the fourth consecutive year. This determination is given when the difference between Medicare’s total outlays and its dedicated funding sources is projected to exceed 45 percent of outlays within 7 years. This year’s determination triggers an issuance of a Medicare funding warning for the third consecutive year.       

One can view the financial operations of Medicare and Social Security in the context of the programs’ trust funds or in the context of the overall Federal government’s unified budget. In the latter context, Social Security and Medicare together accounted for 41 percent of total federal expenditures in fiscal year 2019. The unified budget includes current trust fund operations. Consequently, any drawdown of trust fund balances, as well as general fund transfers into Medicare’s SMI fund, increases financial pressure on the unified budget.        

Key Changes Since Last Year

The 75-year (2020-2094) actuarial deficit of the combined OASI and DI trust funds increased from 2.78 to 3.21 percent of taxable payroll since the 2019 reports.  As shown in Table 1, this result was due to the combined effects of changes in methodology, legislation, regulation, economic, demographic, and programmatic assumptions, and recent observed experience. The following changes had the largest effects.      

•		The excise tax on high-cost, employer-sponsored group health plans (commonly referred to as the Cadillac tax) was repealed.     

•		The following long-range ultimate assumptions were changed:    

•		The total fertility rate was reduced from 2.0 to 1.95 births per woman.    

•		Consumer price inflation was reduced from 2.6 to 2.4 percent.    

•		The real interest rate was reduced from 2.5 to 2.3 percent.    

•		The disability incidence rate was reduced from 5.2 to 5.0 per 1000 covered workers.    

•		The 75-year valuation period was changed from 2019-2093 to 2020-2094.    
| Item                                                         | OASI  | DI   | OASDI |
|--------------------------------------------------------------|-------|------|-------|
| Actuarial balance shown in the 2019 Report                   | -2.67 | -.12 | -2.78 |
|    Changes in actuarial balance due to changes in: |       |      |       |       Legislation / Regulation | -.12 | .00 | -.12 |
|       Valuation period                   | -.05  | -.01 | -.05  |
|       Demographic data and assumptions   | -.12  | .00  | -.13  |
|       Economic data and assumptions      | -.16  | -.02 | -.18  |
|       Disability data and assumptions    | -.01  | .06  | .05   |
|       Methods and programmatic data      | -.02  | .02  | .00   |
|    Total change in actuarial balance               | -.47  | .05  | -.43  |