## Status of the Social Security and Medicare Programs

- Office of the Chief Actuary
- 2021 Trustees Report
- Actuarial Publications

## A SUMMARY OF THE 2021 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 the current operations of these important social insurance programs and careful analysis of their outlook. We believe the reports fully and fairly present the current and projected financial condition of the programs.        

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 of GDP growth through the mid-2030s due to rapid population aging. Medicare also sees its share of GDP grow through the late 2070s due to projected increases in the volume and intensity of services provided.        

The data and projections presented include the Trustees' best estimates of the effects of the COVID-19 pandemic and the 2020 recession, which were not reflected in last year's reports. The finances of both programs have been significantly affected by the pandemic and the recession of 2020. Employment, earnings, interest rates, and GDP dropped substantially in the second calendar quarter of 2020 and are assumed to rise gradually thereafter toward full recovery by 2023, with the level of worker productivity and thus GDP assumed to be permanently lowered by 1 percent even as they are projected to resume their pre-pandemic trajectories. In addition, the Trustees also project elevated mortality rates related to the pandemic through 2023 (15 percent for those over age 15 in 2021, declining to 1 percent by 2023) as well as reductions in immigration and childbearing in 2021-22 from the levels projected in the 2020 reports, with compensating increases a few years later. These alterations to near-term data and assumptions all significantly impact the outlook of the programs.        

Given the unprecedented level of uncertainty, the Trustees currently assume that the pandemic will have no net effect on the individual long-range ultimate assumptions. At this time, there is no consensus on what the lasting effects of the COVID-19 pandemic on the long-term experience might be, if any. The Trustees will continue to monitor developments and modify the projections in later reports.        

Based on our best estimates, the 2021 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 2033, one year earlier than 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 2057, 8 years earlier 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 91 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 OASI and DI funds would be able to pay scheduled benefits on a timely basis until 2034, one year earlier than reported last year. At that time, the combined funds' reserves will become depleted and continuing tax income will be sufficient to pay 78 percent of scheduled benefits.      

•		The Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2026, the same year as reported last year. At that time, the fund's reserves will become depleted and continuing total program income will be sufficient to pay 91 percent of total scheduled benefits.      

•		The Supplemental Medical Insurance (SMI) Trust Fund has two accounts: Part B, which helps pay for services such as physician and outpatient hospital care, 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 and the rapid growth of its costs, SMI will place steadily increasing demands on both taxpayers and beneficiaries.       

•		The Trustees are including in the report for the fifth consecutive year a determination of projected excess general revenue Medicare funding, as is required by law whenever annual tax and premium revenues of the combined Medicare funds will be below 55 percent of projected combined annual outlays within the next seven fiscal years. Under the law, two consecutive such determinations, as is the case again this year, constitute a "Medicare funding warning." Under current law and the Trustees' projections, such determinations and warnings will recur every year through the long-range projection period.      

Key Changes Since Last Year

The long-range 75-year actuarial deficit of the combined OASI and DI trust funds increased from 3.21 to 3.54 percent of taxable payroll since the 2020 reports.1  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 significant effects.      

•		The following long-range ultimate assumptions were changed:    

•		The total fertility rate was raised from 1.95 to 2.0 births per woman. This change was combined with a change to the methodology for projecting fertility described below that offset the assumption change.    

•		The unemployment rate was reduced from 5.0 percent to 4.5 percent. This change was combined with a change to the methodology for projecting the size of the labor force described below that offset the assumption change.    

•		Changes were made to near-term economic and demographic assumptions reflecting the pandemic and the 2020 recession, resulting in lower payroll tax income and lower revenue from income taxation of benefits.    

•		Three significant methodological changes were made:	

•		Future birth rates are now projected using a cohort-based (number of births in a woman's lifetime) approach which better captures a gradual shift towards childbearing at older ages.    

•		The model for projecting the size of the civilian labor force was updated to include data from the most recent completed economic cycle, thereby putting more weight on the recent relationships among the various factors affecting labor force participation.    

•		A methodological change was made to allow for improved projection of the initial benefit levels of retired workers by age.    

•		The 75-year valuation period was changed from 2020-94 to 2021-95.    
| Item                                                         | OASI  | DI   | OASDI |
|--------------------------------------------------------------|-------|------|-------|
| Actuarial balance shown in the 2020 Report                   | -3.14 | -.07 | -3.21 |
|    Changes in actuarial balance due to changes in: |       |      |       |       Legislation / Regulation | -.01 | .00 | -.01 |
|       Valuation period                   | -.05  | -.01 | -.06  |
|       Demographic data and assumptions   | .06   | .01  | .07   |
|       Economic data and assumptions      | .00   | .00  | .00   |
|       Disability data and assumptions    | .00   | .00  | .00   |
|       Methods and programmatic data      | -.32  | -.01 | -.33  |
|    Total change in actuarial balance               | -.32  | -.01 | -.32  |