A MESSAGE TO THE PUBLIC:

Each year the Trustees of the Social Security and Medicare trust funds 

report on the current and projected financial status of the two programs. 

This message summarizes our 2009 Annual Reports. 

The financial condition of the Social Security and Medicare programs 

remains challenging. Projected long run program costs are not sustainable under current program parameters. Social Security’s annual surpluses of tax income over expenditures are expected to fall sharply this 

year and to stay about constant in 2010 because of the economic recession, and to rise only briefly before declining and turning to cash flow 

deficits beginning in 2016 that grow as the baby-boom generation retires. 

The deficits will be made up by redeeming trust fund assets until reserves 

are exhausted in 2037, at which point tax income would be sufficient to 

pay about three fourths of scheduled benefits through 2083. Medicare’s 

financial status is much worse. As was true in 2008, Medicare’s Hospital 

Insurance (HI) Trust Fund is expected to pay out more in hospital benefits 

and other expenditures this year than it receives in taxes and other dedicated revenues. The difference will be made up by redeeming trust fund 

assets. Growing annual deficits are projected to exhaust HI reserves in 

2017, after which the percentage of scheduled benefits payable from tax 

income would decline from 81 percent in 2017 to about 50 percent in 

2035 and 30 percent in 2080. In addition, the Medicare Supplementary 

Medical Insurance (SMI) Trust Fund that pays for physician services and 

the prescription drug benefit will continue to require general revenue 

financing and charges on beneficiaries that grow substantially faster than 

the economy and beneficiary incomes over time. 

The drawdown of Social Security and HI Trust Fund reserves and the 

general revenue transfers into SMI will result in mounting pressure on the 

Federal budget. In fact, pressure is already evident. For the third consecutive year, a “Medicare funding warning” is being triggered, signaling 

that non-dedicated sources of revenues—primarily general revenues—

will soon account for more than 45 percent of Medicare’s outlays. A Presidential proposal will be needed in response to the latest warning.

The financial challenges facing Social Security and especially Medicare 

need to be addressed soon. If action is taken sooner rather than later, 

more options will be available, with more time to phase in changes and 

for those affected to plan for changes.
Medicare

As we reported last year, Medicare’s financial difficulties come sooner— 

and are much more severe—than those confronting Social Security. While 

both programs face demographic challenges, rapidly growing health care 

costs also affect Medicare. Underlying health care costs per enrollee are 

projected to rise faster than the earnings per worker on which payroll 

taxes and Social Security benefits are based. As a result, while Medicare’s 

annual costs were 3.2 percent of Gross Domestic Product (GDP) in 2008, 

or about three quarters of Social Security’s, they are projected to surpass 

Social Security expenditures in 2028 and reach 11.4 percent of GDP in 

2083. 

The projected 75-year actuarial deficit in the Hospital Insurance (HI) 

Trust Fund is now 3.88 percent of taxable payroll, up from 3.54 percent 

projected in last year’s report. The fund again fails our test of short-range 

financial adequacy, as projected annual assets drop below projected 

annual expenditures within 10 years—by 2012. The fund also continues to 

fail our long range test of close actuarial balance by a wide margin. The 

projected date of HI Trust Fund exhaustion is 2017, two years earlier 

than in last year’s report, when dedicated revenues would be sufficient to 

pay 81 percent of HI costs. Projected HI dedicated revenues fall short of 

outlays by rapidly increasing margins in all future years. The Medicare 

Report shows that the HI Trust Fund could be brought into actuarial balance over the next 75 years by changes equivalent to an immediate 134 

percent increase in the payroll tax (from a rate of 2.9 percent to 6.78 percent), or an immediate 53 percent reduction in program outlays, or some 

combination of the two. Larger changes would be required to make the 

program solvent beyond the 75-year horizon.

The projected exhaustion of the HI Trust Fund within the next eight years 

is an urgent concern. Congressional action will be necessary to ensure 

uninterrupted provision of HI services to beneficiaries. Correcting the 

financial imbalance for the HI Trust Fund—even in the short range 

alone—will require substantial changes to program income and/or expenditures.

Part B of the Supplementary Medical Insurance (SMI) Trust Fund, which 

pays doctors’ bills and other outpatient expenses, and Part D, which pays 

for access to prescription drug coverage, are both projected to remain 

adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs. 
It is expected that about one quarter of Part B enrollees will be subject to 

unusually large premium increases in the next two years. This occurs 

because it is projected that the other three-quarters of Part B enrollees 

will not be subject to premium increases in those years due to low projected Social Security benefit COLAs and a “hold-harmless” provision of 

current law that limits premium increases to the increase in Social Security benefits. 

Social Security

The annual cost of Social Security benefits represented 4.4 percent of 

GDP in 2008 and is projected to increase to 6.2 percent of GDP in 2034, 

and then decline to about 5.8 percent of GDP by 2050 and remain at 

about that level. The projected 75-year actuarial deficit in the combined 

Old-Age and Survivors and Disability Insurance (OASDI) Trust Fund is 

2.00 percent of taxable payroll, up from 1.70 percent projected in last 

year’s report. This increase is due primarily to the recession, slightly 

lower estimates for real GDP after the economy recovers in 2015, and 

faster reductions in mortality rates. Although the combined OASDI program passes our short-range test of financial adequacy, the Disability 

Insurance Trust Fund does not; DI program costs have exceeded tax revenue since 2005, and trust fund exhaustion is projected for 2020. In addition, OASDI continues to fail our long-range test of close actuarial 

balance by a wide margin. Projected OASDI tax income will begin to fall 

short of outlays in 2016, and will be sufficient to finance 76 percent of 

scheduled annual benefits in 2037, after the combined OASDI Trust Fund 

is projected to be exhausted.

Social Security could be brought into actuarial balance over the next 75 

years with changes equivalent to an immediate 16 percent increase in the 

payroll tax (from a rate of 12.4 percent to 14.4 percent) or an immediate 

reduction in benefits of 13 percent or some combination of the two. Ensuring that the system remains solvent on a sustainable basis beyond the next 

75 years would require larger changes because increasing longevity will 

result in people receiving benefits for ever longer periods of retirement. 

Conclusion

The financial difficulties facing Social Security and Medicare pose serious challenges. For Social Security, the reform options are relatively well 

understood but the choices are difficult. Medicare is a bigger challenge. 

Its cost growth can be contained without sacrificing quality of care only if 

health care cost growth more generally is contained. But despite the diffi-
culties—indeed, because of the difficulties—it is essential that action be 

taken soon, particularly to control health care costs. 

By the Trustees:

Timothy F. Geithner,

Secretary of the Treasury,

and Managing Trustee

Hilda L. Solis

Secretary of Labor,

and Trustee

Kathleen Sebelius,

Secretary of Health

and Human Services,

and Trustee

Michael J. Astrue,

Commissioner of 

Social Security,

and Trustee
1

A SUMMARY OF THE 2009 ANNUAL SOCIAL SECURITY

AND MEDICARE TRUST FUND REPORTS

Who Are the Trustees? 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, subject to confirmation by the Senate. The two Public Trustee positions are currently vacant.

What Are the Trust Funds? Congress established the trust funds in the 

U.S. Treasury to account for all program income and disbursements. 

Social Security and Medicare taxes, premiums, and other income are 

credited to the funds. Disbursements from the funds can be made only to 

pay benefits and program administrative costs.

The Department of the Treasury invests program revenues in special nonmarketable securities of the U.S. Government on which a market rate of 

interest is credited. The trust funds represent the accumulated value, 

including interest, of all prior program annual surpluses and deficits, and 

provide automatic authority to pay benefits.

There are four separate trust funds. For Social Security, the Old-Age and 

Survivors Insurance (OASI) Trust Fund pays retirement and survivors 

benefits, and the Disability Insurance (DI) Trust Fund pays disability benefits. (The two trust funds are often considered on a combined basis designated OASDI.) 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.

What Were the Trust Fund Results in 2008? In December 2008, 

41.6 million people received OASI benefits, 9.3 million received DI benefits, and 45.2 million were covered under Medicare. Trust fund operations, in billions of dollars, are shown below (totals may not add due to 

rounding). Three trust funds showed net increases in assets in 2008; HI 

Trust Fund assets declined.

How Has the Financial Outlook for Social Security and Medicare 

Changed Since Last Year? Under the intermediate assumptions, the 

combined OASDI Trust Funds show a 75-year actuarial deficit equal to 

2.00 percent of taxable payroll, 0.30 percentage point larger than last 

OASI DI HI SMI

Assets (end of 2007) . . . . . . . . . . . . . . . $2,023.6 $214.9 $326.0 $42.9

Income during 2008 . . . . . . . . . . . . . . . . 695.5 109.8 230.8 250.0

Outgo during 2008 . . . . . . . . . . . . . . . . . 516.2 109.0 235.6 232.6

Net increase in assets . . . . . . . . . . . 179.3 0.9 -4.7 17.4

Assets (end of 2008) . . . . . . . . . . . . . . . 2,202.9 215.8 321.3 60.3
2

year’s estimate. The increased deficit is due mainly to changes in starting 

values and near-term economic assumptions associated with the recession 

that began in late 2007, and faster reductions in mortality assumed for the 

longer term. Over the infinite horizon, the actuarial deficit is 3.4 percent 

of projected payroll, 0.2 percentage point larger than last year. The OASI 

Trust Fund and the combined OASI and DI Trust Funds are adequately 

financed over the next 10 years. The DI Trust Fund is expected to remain 

solvent during that period, but does not meet the short-range test for 

financial adequacy because its assets are projected to fall short of 100 percent of annual expenditures, reaching 98 percent by the beginning of 

2014, and declining further to 40 percent by the beginning of 2018.

Medicare’s HI Trust Fund has a projected 75-year actuarial deficit equal 

to 3.88 percent of taxable payroll under the intermediate assumptions, 

0.34 percentage point larger than reported last year. The increase is 

largely attributable to the current economic recession, other revisions in 

economic assumptions, moving the valuation period forward by one year 

(which adds a year (2083) with a large projected deficit to the calculation 

of the actuarial balance), and assumed faster reductions in mortality. The 

HI Trust Fund is inadequately financed over the next 10 years. Its assets 

are projected to fall below 100 percent of annual expenditures during 

2011 and to be exhausted in 2017.

The SMI Trust Fund is adequately financed under current law because of 

the automatic financing established for Medicare Parts B and D. Nonetheless, projected SMI cost growth over the long term will require increases 

in enrollee premiums and general revenue funding that will average about 

6.4 percent annually, placing a growing burden on beneficiaries and Federal revenues. Note that Part B cost projections are understated (by 18-21 

percent in 2015, and by up to 10 percent in 2030 and beyond) as a result 

of incorporating substantial reductions in physician fees that would be 

required under current law, but are very unlikely to occur.

This year’s Medicare Trustees Report is the fourth consecutive report in 

which the annual general revenue funding contribution to total Medicare 

expenditures is projected to exceed 45 percent within the first seven years 

of the 75-year projection period. The current projection is that the threshold will be reached in 2014, the same as reported last year. This result 

triggers another “Medicare funding warning.”

How Are Social Security and Medicare Financed? For OASDI and HI, 

the major source of financing is payroll taxes on earnings that are paid by 

employees and their employers. The self-employed are charged the equivalent of the combined employer and employee tax rates. During 2008, an 

estimated 162 million people had earnings covered by Social Security and 

paid payroll taxes; for Medicare the corresponding figure was 166 million. The payroll tax rates are set by law and for OASDI apply to earnings 

up to an annual maximum ($106,800 in 2009) that ordinarily increases 
3

with the growth in the nationwide average wage. When the cost-of-living 

adjustment (COLA) for December of any year is zero, as is projected for 

December 2009 and December 2010, the maximum taxable amount of 

earnings is not increased for the following year. This constraint is projected to lower OASDI tax income for 2010 and 2011. In contrast, HI 

taxes are paid on total earnings. The payroll tax rates (in percent) for 2009 

and later are:

About 75 percent of SMI Part B and Part D expenditures are paid from 

Federal general fund revenues, with most of the remaining costs covered 

by monthly premiums charged to enrollees. Part B and Part D premium 

amounts are based on methods defined in law and increase as the estimated costs of those programs rise. 

In 2009, the Part B standard monthly premium paid by most enrollees is 

$96.40. There is also an income-related premium surcharge for Part B 

beneficiaries whose modified adjusted gross income exceeds inflationindexed thresholds (in 2009, $85,000 for individual tax filers, $170,000 

for joint tax filers). Income-related premiums range from $134.90 to 

$308.30 per month. 

In 2009, the Part D “base monthly premium” is $30.36. (Actual premium 

amounts charged to Part D beneficiaries depend on the specific plan in 

which they are enrolled and are expected to average around $28 for standard coverage.) Part D also receives payments from States for the Federal 

assumption of Medicaid responsibilities for prescription drug costs for 

individuals eligible for both Medicare and Medicaid. In 2009, State payments are estimated to cover 13 percent of Part D costs.

Income to each trust fund, by source, in 2008 is shown in the table below 

(totals may not add due to rounding).

* Less than $50 million.

OASI DI OASDI HI Total

Employees . . . . . . 5.30 0.90 6.20 1.45 7.65

Employers . . . . . . 5.30 0.90 6.20 1.45 7.65

Combined total. . . 10.60 1.80 12.40 2.90 15.30

Source (in billions) OASI DI HI SMI

Payroll taxes . . . . . . . . . . . $574.6 $97.6 $198.7 —

General fund revenue . . . . — — 0.7 $184.1

Interest earnings. . . . . . . . . 105.3 11.0 15.6 3.5

Beneficiary premiums . . . . — — 2.9 55.2

Taxes on benefits . . . . . . . . 15.6 1.3 11.7 —

Other . . . . . . . . . . . . . . . . . * — 1.2 7.2

Total . . . . . . . . . . . . . . . . . . 695.5 109.8 230.8 250.0
4

What Were the Administrative Expenses in 2008? Administrative 

expenses, as a percentage of total expenditures, were:

How Are Estimates of the Trust Funds’ Future Status Made?

Short-range (10-year) and long-range (75-year) projections are reported 

for all funds. Estimates are based on current law and assumptions about 

factors that affect the income and outgo of each trust fund. Assumptions 

include economic growth, wage growth, inflation, unemployment, fertility, immigration, mortality, disability incidence and termination, as well 

as factors that affect the cost of hospital, medical, and prescription drug 

services.

Because the future is inherently uncertain, three alternative sets of economic, demographic, and programmatic assumptions are used to show a 

range of possibilities. The intermediate assumptions (alternative II) reflect 

the Trustees’ best estimate of future experience. The low-cost alternative I 

is more optimistic for trust fund financing, and the high-cost alternative 

III is more pessimistic; they show trust fund projections for more and less 

favorable conditions for trust fund financing than the best estimate. The 

assumptions are reexamined each year in light of recent experience and 

new information about future trends, and are revised as warranted. In general, greater confidence can be placed in the assumptions and estimates 

for earlier projection years than for later years. The statistics and analysis 

presented in this Summary are based on the intermediate assumptions.

What is the Short-Range Outlook (2009-18) for the Trust Funds? For 

the short range, the adequacy of the OASI, DI, and HI Trust Funds is measured by comparing their assets at the beginning of a year to projected 

costs for that year (the “trust fund ratio”). A trust fund ratio of 100 percent 

or more—that is, assets at least equal to projected costs for a year—is 

considered a good indicator of a fund’s short-term adequacy. That level of 

projected assets for any year means that even if expenditures exceed 

income, the trust fund reserves, combined with annual tax revenues, 

would be sufficient to pay full benefits for several years, allowing time for 

legislative action to restore financial adequacy.

By this measure, the OASI Trust Fund is financially adequate throughout 

the 2009-18 period, but the DI Trust Fund fails the short-range test 

because its trust fund ratio falls below 100 percent by the beginning of 

2014. The HI Trust Fund also does not meet the short-range test of financial adequacy. Its trust fund ratio is expected to fall below 100 percent in 

2011 and assets are expected to be exhausted in 2017, two years earlier 

than reported last year. Chart A shows the trust fund ratios through 2025 

under the intermediate assumptions.

OASI DI HI SMI

Administrative expenses 2008. . . 0.6 2.3 1.4 1.4
5

For SMI Part B, a less stringent annual “contingency reserve” asset test 

applies because the major portion of the financing for that account is provided by beneficiary premiums and Federal general fund revenue payments automatically adjusted each year to meet expected costs. Part D is 

similarly financed on an annual basis. Moreover, the operation of Part D 

through private insurance plans, together with a flexible appropriation for 

Federal costs, eliminates the need for a contingency reserve in that 

account. Note, however, that Part B costs are expected to be higher than 

projected for 2010 and beyond (understated by about 18 to 21 percent in 

2015, and by up to 10 percent for 2030 and later) because the projections 

assume that current law will substantially reduce physician payments per 

service beginning in 2010. Multiple years of substantial physician fee 

reductions are very unlikely to occur before legislative intervention, as 

evidenced by Congress overriding scheduled reductions for 2003 through 

2009. These understated physician payments affect projected costs for 

Part B, total SMI, and total Medicare.

In addition, a “hold-harmless” provision will prevent premiums for most 

Part B enrollees from increasing in 2010 and possibly additional years. 

This provision limits the premium increase to the dollar amount of a beneficiary’s cost-of-living adjustment (COLA). A substantial decrease in the 

Consumer Price Index from the level of the third quarter of 2008 is projected to result in zero COLAs for December 2009 and December 2010, 

and a small COLA increase for December 2011. The hold-harmless provision would limit the premium increases that could be charged to about 

three-quarters of Part B enrollees. To prevent asset exhaustion and main-

 Chart A–OASI, DI, and HI Trust Fund Ratios

[Assets as a percentage of annual expenditures]

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Calendar year

OASI

DI

HI

Historical Estimated
6

tain an adequate contingency reserve would require unusually large premium increases for Part B enrollees who are not subject to the holdharmless provision (new enrollees each year and those who pay the 

income-related premium adjustment), as well as for State Medicaid programs that pay the full premium for dual Medicare-Medicaid beneficiaries. This method of addressing a revenue shortfall caused by the holdharmless provision is the only one available under current law.

The following table shows the projected income and outgo, and the 

change in the balance of each trust fund (except for SMI) over the next 10 

years. SMI income and expenditures are shown in separate columns for 

Parts B and D. Changes in the SMI Trust Funds are not shown because of 

the automatic annual adjustments in program income to meet the following year’s projected expenditures.

What is the Long-Range (2009-83) Outlook for Social Security and 

Medicare Costs? An instructive way to view the projected cost of Social 

Security and Medicare is to compare the cost of all scheduled benefits for 

the two programs with the gross domestic product (GDP), the most frequently used measure of the total output of the U.S. economy. Costs for 

both programs rise steeply between 2010 and 2030 because the number of 

people receiving benefits will increase rapidly as the large baby-boom 

generation retires (Chart B). During those years, cost growth for Medicare 

is higher than for Social Security because of the rising cost of health services, increasing utilization rates, and anticipated increases in the complexity of services. Beyond 2030, Social Security costs increase slowly, 

reaching a peak of 6.2 percent of GDP in 2034, then gradually declining 

to about 5.8 percent, the approximate value during the last 35 years of the 

projection period. In contrast, Medicare costs continue to grow rapidly 

after 2030 due to expected increases in the cost of health care, reaching 

11.4 percent of GDP in 2083.

ESTIMATED OPERATIONS OF TRUST FUNDS

(In billions—totals may not add due to rounding)

Year

Income Expenditures Change in fund

OASI DI HI

SMI

OASI DI HI

SMI

BD BD OASI DI HI

2009 $708 $111 $225 $224 $63 $562 $121 $246 $203 $63 $147 -$10 -$20

2010 734 114 237 196 66 581 128 254 201 66 153 -14 -17

2011 772 118 249 229 73 602 133 269 207 73 170 -15 -19

2012 822 124 262 259 80 634 139 289 223 80 189 -14 -27

2013 874 130 275 268 87 679 144 313 239 87 195 -14 -38

2014 925 135 287 276 95 730 151 342 261 95 195 -16 -54

2015 975 140 300 307 105 783 158 353 269 105 192 -17 -53

2016 1,024 146 312 274 115 840 166 376 293 115 184 -20 -65

2017 1,075 151 325 326 127 901 174 403 321 127 174 -23 -79

2018 1,126 156 336 358 141 965 182 433 352 141 161 -26 -97
7

The projected cost outlook for Social Security and Medicare is somewhat 

worse than described in last year’s report. In 2008, the combined cost of 

the Social Security and Medicare programs represented about 7.6 percent 

of GDP. Social Security outgo amounted to 4.4 percent of GDP in 2008 

and is projected to increase to 5.9 percent of GDP in 2083. Medicare’s 

cost was smaller in 2008—3.2 percent of GDP— but is projected to surpass the cost of Social Security in 2028, growing to 11.4 percent of GDP 

in 2083, when it would be 94 percent larger than Social Security’s cost. In 

2083, the combined cost of the programs would represent 17.2 percent of 

GDP. As a point of comparison, in 2008 total Federal receipts amounted 

to 17.3 percent of GDP.

What is the Outlook for OASDI and HI Costs Relative to Tax 

Income? Both Social Security and Medicare costs are projected to grow 

substantially faster than the economy over the next several decades, but 

tax income to the OASDI and HI Trust Funds will not. Because the primary source of income for OASDI and HI is the payroll tax, it is customary to compare the programs’ income and costs expressed as percentages 

of taxable payroll (Chart C). Although both the OASDI and HI annual 

cost rates show marked increases from their 2008 levels (11.38 and 3.31 

percent), income rates increase little over the long run. The reason is that 

payroll tax rates are not scheduled to change and income from the other 

tax source, taxation of OASDI benefits, will increase only gradually as a 

greater proportion of beneficiaries is subject to taxation in future years. 

 Chart B–Social Security and Medicare Cost as a Percentage of GDP

0%

2%

4%

6%

8%

10%

12%

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Historical Estimated

OASI + DI

HI + SMI 

(including Part D)
8

What is the Long-Range Actuarial Balance of the OASI, DI, and HI 

Trust Funds? Another way to view the outlook of the payroll tax 

financed trust funds is in terms of their actuarial balances for the 75-year 

valuation period. The actuarial balance of a fund is the difference between 

annual income and costs, expressed as a percentage of taxable payroll, 

summarized over the 75-year projection period. Because SMI is brought 

into balance annually through premium increases and general revenue 

transfers, actuarial balance is not an informative concept for that program.

The OASI, DI, and HI Trust Funds all have actuarial deficits under the 

intermediate assumptions, as shown in the following table. 

The actuarial deficit can be interpreted as the percentage points that could 

be either added to the current law income rate or subtracted from the cost 

rate for each of the next 75 years to bring the funds into actuarial balance. 

Actuarial balance is achieved if trust fund assets at the end of the period 

are equal to the following year’s expenditures. Because large and growing 

annual deficits are projected at the end of the long-range period, adequate 

financing beyond 2083 would require even larger changes than are 

needed for solvency in 2009-83. Projections show that over the infinite 

 Chart C–Income and Cost Rates

[Percentage of taxable payroll]

LONG-RANGE ACTUARIAL DEFICIT OF THE 

OASI, DI, AND HI TRUST FUNDS

(As a percentage of taxable payroll)

OASI DI OASDI HI

Actuarial

Deficit . . . . . . . . . . . . . . . . . . 1.68 0.32 2.00 3.88

0%

5%

10%

15%

20%

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Income rates

Cost rates

Historical Estimated

OASDI

HI
9

horizon the actuarial deficit for OASDI is 3.4 percent, 1.4 percentage 

points higher than the 75-year deficit. For HI, the actuarial deficit over the 

very long run is 6.5 percent of taxable payroll, 2.6 percentage points 

higher than the 75-year imbalance.

What Are Key Dates in Long-Range OASI, DI, and HI Financing?

When cost exceeds income excluding interest (Chart C), use of trust fund 

assets occurs in stages. For HI, the process began in 2008 when the fund 

began using interest income ($16 billion) and net asset redemptions ($5 

billion) to cover the excess of expenditures over tax income. Projected HI 

expenditures will continue to require assets to be redeemed each year 

until the trust fund is exhausted in 2017. In 2017, tax income is estimated 

to be sufficient to pay 81 percent of HI costs—and by 2083 only 29 percent.

For OASDI, interest income will first be needed to pay a portion of benefits in 2016, although the trust funds will continue to accumulate assets. In 

2024, trust fund assets will begin to be depleted and are projected to be 

exhausted in 2037, after which continuing tax income would be sufficient 

to cover 76 percent of scheduled benefits. Tax income would cover 

74 percent of scheduled benefits in the final year (2083) of the 75-year 

projection period. Although the projected exhaustion date for the DI Trust 

Fund is 2020, the value of the OASI Trust Fund would be sufficient at that 

point to make assets available to pay full DI benefits, but only with authorizing legislation. 

The key dates regarding cash flows are shown in the following table.

How Do the Sources of Medicare Financing Change? As Medicare 

costs grow over time, general revenues and beneficiary premiums will 

play a larger role in financing the program. Chart D shows scheduled cost 

and current law non-interest revenue sources for HI and SMI combined as 

a percentage of GDP. The total cost line is the same as displayed in Chart 

B and shows Medicare cost rising to 11.4 percent of GDP by 2083. Revenue from taxes would remain at roughly 1.5 percent of GDP under current 

law, while general fund revenue contributions are projected to increase 

from 1.5 percent of GDP in 2009 to 4.7 percent in 2083, and beneficiary 

premiums from 0.5 to 1.6 percent of GDP. Thus the share of total noninterest Medicare income from payroll taxes and the taxation of benefits 

would fall substantially (from 42 percent to 18 percent) while general 

KEY DATES FOR THE TRUST FUNDS 

OASI DI OASDI HI

First year outgo exceeds income 

excluding interest . . . . . . . . . . . . . . . . . . . . 2017 2005 2016 2008

First year outgo exceeds income 

including interest . . . . . . . . . . . . . . . . . . . . 2025 2009 2024 2008

Year trust fund assets are exhausted . . . . . . 2039 2020 2037 2017
10

fund revenue would rise (from 43 to 59 percent), as would premiums 

(from 13 percent to 20 percent). These current-law funding relationships 

could change as a result of the need to address the projected annual HI 

Trust Fund deficits. By 2083 the Medicare program is projected to require 

general revenue transfers equal to 4.7 percent of GDP. Moreover, the HI 

deficit represents a further 3.6 percent of GDP in 2083, and there is no 

provision to finance this deficit under current law through general fund 

transfers or any other revenue source. 

The Medicare Modernization Act (2003) requires that the Board of Trustees determine each year whether the annual difference between program 

outlays and dedicated revenues (the bottom four layers of Chart D) 

exceeds 45 percent of total Medicare outlays within the first seven years 

of the 75-year projection period. In effect, the law sets a threshold condition that signals that a trust fund’s dedicated financing is inadequate and/

or that general revenue financing of Medicare is becoming excessive. In 

that case, the annual Trustees Report includes a determination of “excess 

general revenue Medicare funding.” When that determination is made in 

two consecutive reports, a “Medicare funding warning” is triggered. The 

warning requires the President to respond by submitting proposed legislation within 15 days of the next budget submission to address the problem, 

and for Congress to consider the proposal on an expedited basis.

This year’s report projects the difference between outlays and dedicated 

financing revenues to exceed 45 percent in 2014, prompting a determination of “excess general revenue Medicare funding” for the fourth consecutive report. Another “Medicare funding warning” is triggered.

 Chart D–Medicare Cost and Non-Interest Income by Source

as a Percent of GDP

0%

2%

4%

6%

8%

10%

12%

1973 1983 1993 2003 2013 2023 2033 2043 2053 2063 2073 2083

Calendar year

Payroll Taxes

Premiums

General Revenue

Tax on Benefits

Total Cost

State Transfers

HI

Deficit
11

Why is Reform to Improve the Social Security and Medicare Financial Imbalances Needed? Concern about the long-range financial outlook for Medicare and Social Security often focuses on the exhaustion 

dates for the HI and OASDI Trust Funds—the time when projected 

finances under current law would be insufficient to pay the full amount of 

scheduled benefits. A more immediate issue is the growing burden that 

the programs will place on the Federal budget well before the trust funds 

are exhausted.

The difference between the cost of scheduled benefits and tax income for 

the HI and OASDI Trust Funds is shown in Chart E, together with the 

Federal general fund revenues provided under current law for SMI. During 2009-17 for HI, general revenues (the red bars in the chart) must be 

used to cover the interest earnings and asset redemptions required to offset the shortfall of HI tax revenues. Similarly, general revenues cover 

these offsets for the OASDI deficits during 2016-37 (blue bars). In addition, general revenues pay for roughly 75 percent of all SMI costs under 

current law (green bars).

In 2017 and later for HI, and in 2037 and later for OASDI, there is no provision in current law that would enable full payment of benefits when the 

trust funds are exhausted. If asset exhaustion actually occurred, benefits 

could be paid only up to the amount of continuing dedicated revenues. 

Further general fund transfers could not be made to finance the deficits.

I

The initial negative amounts shown for OASDI indicate that tax income 

exceeds cost (which occurs during 2009-15) and represent net cash flow 

 Chart E– Projected OASDI and HI Tax Income Shortfall

plus the 75-Percent General Fund Revenue Contribution to SMI

(Percentage of GDP)

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2009 2010 2020 2030 2040 2050 2060 2070 2083

Calendar year

SMI (B&D)

HI

OASDI
12

to the Treasury that results in the issuance of special Treasury bonds to the 

trust funds. Those OASDI net revenues are more than offset by the Medicare general revenue requirements under current law. For instance, in 

2009 the Social Security tax income surplus ($19 billion) is estimated to 

be significantly smaller than the statutory Medicare Part B and Part D 

general revenue transfers, resulting in an overall cash requirement of 

$223 billion (1.6 percent of GDP) from the general fund of the Treasury.

The combined difference grows each year, so that by 2016, net revenue 

flows from the general fund would total $369 billion (1.8 percent of 

GDP). The positive amounts that begin in 2016 for OASDI, and started in 

2008 for HI, initially represent payments the Treasury must make to the 

trust funds when assets are depleted to help pay benefits in years prior to 

exhaustion of the funds. Neither the redemption of trust fund bonds, nor 

interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through 

some combination of increased taxation, reductions in other government 

spending, or additional borrowing from the public.

Chart E shows that the difference between outgo and dedicated payroll 

tax and premium income will grow rapidly in the 2010-30 period as the 

baby-boom generation reaches retirement age. Beyond 2030, the difference continues to increase nearly as rapidly due primarily to health care 

costs that grow faster than GDP. After the trust fund exhaustion dates 

(2037 for OASDI, 2017 for HI), the increasing positive amounts for 

OASDI and HI depict the excess of scheduled benefits over projected program income. When the statutory SMI general fund revenue requirements 

are added in, the projected combined Social Security and Medicare deficits and statutory general fund revenues in 2083 equal 9.7 percent of GDP. 

A similar burden in 2008 would have required all Federal income tax revenues, which also equaled 9.7 percent of GDP.

This year’s Trustees Reports describe large long-term financial imbalances for Social Security and Medicare, and demonstrate the need for 

timely and effective action. The sooner that solutions are adopted, the 

more varied and gradual they can be.
Because the two Public Trustee positions are currently vacant, there is no 

Message from the Public Trustees for inclusion in the Summary of the 

2009 Annual Reports.