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 2011 Annual Reports. 

The financial conditions of the Social Security and Medicare programs 

remain challenging. Projected long-run program costs for both Medicare 

and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences 

for beneficiaries and taxpayers are to be avoided. 

The long-run financial challenges facing Social Security and Medicare 

should be addressed soon. If action is taken sooner rather than later, more 

options and more time will be available to phase in changes so that those 

affected have adequate time to prepare. Earlier action will also afford 

elected officials with a greater opportunity to minimize adverse impacts 

on vulnerable populations, including lower-income workers and those 

who are already substantially dependent on program benefits. 

Both Social Security and Medicare, the two largest federal programs, 

face substantial cost growth in the upcoming decades due to factors that 

include population aging as well as the growth in expenditures per beneficiary. Through the mid-2030s, due to the large baby-boom generation 

entering retirement and lower-birth-rate generations entering employment, population aging is the largest single factor contributing to cost 

growth in the two programs. Thereafter, the continued rapid growth in 

health care cost per beneficiary becomes the larger factor. 

Social Security

Social Security expenditures exceeded the program’s non-interest income 

in 2010 for the first time since 1983. The $49 billion deficit last year 

(excluding interest income) and $46 billion projected deficit in 2011 are 

in large part due to the weakened economy and to downward income 

adjustments that correct for excess payroll tax revenue credited to the 

trust funds in earlier years. This deficit is expected to shrink to about $20 

billion for years 2012-2014 as the economy strengthens. After 2014, cash 

deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered 
workers. Through 2022, the annual cash deficits will be made up by 

redeeming trust fund assets from the General Fund of the Treasury. 

Because these redemptions will be less than interest earnings, trust fund 

balances will continue to grow. After 2022, trust fund assets will be 

redeemed in amounts that exceed interest earnings until trust fund 

reserves are exhausted in 2036, one year earlier than was projected last 

year. Thereafter, tax income would be sufficient to pay only about threequarters of scheduled benefits through 2085. 

Under current projections, the annual cost of Social Security benefits 

expressed as a share of workers’ taxable wages will grow rapidly from 

11.3 percent in 2007, the last pre-recession year, to roughly 17 percent in 

2035, and will then dip slightly before commencing a slow upward march 

after 2050. Costs display a slightly different pattern when expressed as a 

share of GDP. Program costs equaled roughly 4.2 percent of GDP in 

2007, and are projected to increase gradually to 6.2 percent of GDP in 

2035 and then decline to about 6.0 percent of GDP by 2050 and remain at 

about that level. 

The projected 75-year actuarial deficit for the combined Old-Age and 

Survivors Insurance and Disability Insurance (OASDI) Trust Funds is 

2.22 percent of taxable payroll, up from 1.92 percent projected in last 

year’s report. This deficit amounts to 17 percent of tax receipts, and 14 

percent of program outlays. 

The 0.30 percentage point increase in the OASDI actuarial deficit and the 

one-year advance in the exhaustion date for the combined trust funds primarily reflects lower estimates for death rates at advanced ages, a slower 

economic recovery than was assumed last year, and the one-year advance 

of the valuation period from 2010-2084 to 2011-2085.

While the combined OASDI program continues to fail the long-range test 

of close actuarial balance, it does satisfy the conditions for short-range 

financial adequacy. Combined trust fund assets are projected to exceed 

one year’s projected benefit payments for more than ten years, through to 

2035. However, the Disability Insurance (DI) program satisfies neither 

the long-range nor short-range tests for financial adequacy. DI costs 

have exceeded non-interest income since 2005 and trust fund exhaustion 

is projected for 2018; thus changes to improve the financial status of the 

DI program are needed soon.
Medicare 

Relative to the combined Social Security Trust Funds, the Medicare HI 

Trust Fund faces a more immediate funding shortfall, though its longer 

term financial outlook is better under the assumptions employed in this 

report. 

Medicare costs (including both HI and SMI expenditures) are projected to 

grow substantially from approximately 3.6 percent of GDP in 2010 to 5.5 

percent of GDP by 2035, and to increase gradually thereafter to about 6.2 

percent of GDP by 2085. 

The projected 75-year actuarial deficit in the HI Trust Fund is 0.79 percent of taxable payroll, up from 0.66 percent projected in last year’s 

report. The HI fund fails the test of short-range financial adequacy, as 

projected assets drop below one year’s projected expenditures early in 

2011. The fund also continues to fail the long-range test of close actuarial 

balance. Medicare’s HI Trust Fund is expected to pay out more in hospital 

benefits and other expenditures than it receives in income in all future 

years. The projected date of HI Trust Fund exhaustion is 2024, five years 

earlier than estimated in last year’s report, at which time dedicated revenues would be sufficient to pay 90 percent of HI costs. The share of HI 

expenditures that can be financed with HI dedicated revenues is projected 

to decline slowly to 75 percent in 2045, and then to rise slowly, reaching 

88 percent in 2085. Over 75 years, HI’s actuarial imbalance is estimated 

to be equivalent to 21 percent of tax receipts or 17 percent of program 

outlays. 

The worsening of HI's projected finances is primarily due to lower HI real 

(inflation-adjusted) non-interest income caused by a slower assumed economic recovery, and by higher HI real costs caused by higher assumed 

near-term growth in real economy-wide average labor compensation. The 

resulting increases in HI real deficits are concentrated in the near term, 

which is why trust fund exhaustion occurs five years earlier than was projected last year despite a relatively modest increase in the 75-year actuarial deficit. 

Part B of Supplementary Medical Insurance (SMI), which pays doctors’ 

bills and other outpatient expenses, and Part D, which provides 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 the next year’s expected costs. However, 

the aging population and rising health care costs will cause SMI costs to 

grow rapidly from 1.9 percent of GDP in 2010 to approximately 3.4 percent of GDP in 2035 and approximately 4.1 percent of GDP by 2085. 

Roughly three-quarters of these costs will be financed from general revenues and about one-quarter from premiums paid by beneficiaries. Small 

amounts of SMI financing are received from special payments by States 

and from fees on manufacturers and importers of brand-name prescription drugs.

Projected Medicare costs over 75 years are about 25 percent lower 

because of provisions in the Patient Protection and Affordable Care Act, 

as amended by the Health Care and Education Reconciliation Act of 2010 

(the “Affordable Care Act” or ACA). Most of the ACA-related cost saving is attributable to a reduction in the annual payment updates for most 

Medicare services (other than physicians’ services and drugs) by total 

economy multifactor productivity growth, which is projected to average 

1.1 percent per year. The report notes that the long-term viability of this 

provision is debatable. In addition, an almost 30-percent reduction in 

Medicare payment rates for physician services is assumed to be implemented in 2012, notwithstanding experience to the contrary. 

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 sixth consecutive year, a “Medicare funding warning” is being triggered, signaling 

that projected non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare’s outlays. 

That threshold was in fact breached for the first time in fiscal 2010. A 

Presidential proposal is required by law in response to the latest warning.

Conclusion 

Projected long-run program costs for both Medicare and Social Security 

are not sustainable under currently scheduled financing, and will require 

legislative corrections if disruptive consequences for beneficiaries and 

taxpayers are to be avoided. 
The financial challenges facing Social Security and Medicare should be 

addressed soon. If action is taken sooner rather than later, more options 

and more time will be available to phase in changes so that those affected 

can adequately prepare. 

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

Charles P. Blahous III,

Trustee

Robert D. Reischauer,

Trustee
1

A SUMMARY OF THE 2011 ANNUAL SOCIAL SECURITY

AND MEDICARE TRUST FUND REPORTS

Projected long-range costs for both Medicare and Social Security are not 

sustainable under currently scheduled financing and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers 

are to be avoided. If action is taken sooner rather than later, more options 

and time will be available to phase in changes, giving those affected adequate time to prepare. Earlier action will also afford policymakers greater 

opportunity to minimize adverse impacts on vulnerable populations, 

including lower-income workers and those who are substantially dependent on program benefits.

What Are the Trust Funds? Congress established trust funds in the U.S. 

Treasury to account for Social Security and Medicare income and disbursements. Social Security and Medicare taxes, premiums, and other 

income are credited to the funds. There are four separate trust funds. For 

Social Security, the Old-Age and Survivors Insurance (OASI) Trust Fund 

pays retirement and survivors benefits and the 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.

Disbursements from the funds can be made only to pay program benefits 

and administrative costs. All excess funds must be invested in interestbearing securities backed by the full faith and credit of the United States.

The Department of the Treasury currently invests all program revenues in 

special non-marketable securities of the U.S. Government 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.

What Were the Trust Fund Results in 2010? In December 2010, 

43.8 million people received OASI benefits, 10.2 million received DI 

benefits, and 47.5 million were covered under Medicare. Trust fund operations, in billions of dollars, are shown below (totals may not add due to 

rounding). The OASI Trust Fund showed a net increase in assets in 2010; 

DI, HI, and SMI Trust Fund assets declined.

OASI DI HI SMI

Assets (end of 2009) . . . . . . . . . . . . . . . $2,336.8 $203.5 $304.2 $76.6

Income during 2010 . . . . . . . . . . . . . . . . 677.1 104.0 215.6 270.4

Outgo during 2010 . . . . . . . . . . . . . . . . . 584.9 127.7 247.9 274.9

Net increase in assets . . . . . . . . . . . 92.2 -23.6 -32.3 -4.5

Assets (end of 2010) . . . . . . . . . . . . . . . 2,429.0 179.9 271.9 72.1
2

What Were the Sources of Income to the Trust Funds in 2010? 

The following table shows income, by source, to each trust fund in 2010 

(totals may not add due to rounding).

What is the Long-Range (2011-85) 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 (Chart A).

Source (in billions) OASI DI HI SMI

Payroll taxes . . . . . . . . . . . . . . $544.8 $92.5 $182.0 —

General revenues . . . . . . . . . . — — 0.1 $204.6

General Fund reimbursements 2.0 0.4 — —

Interest earnings . . . . . . . . . . . 108.2 9.3 13.8 3.1

Beneficiary premiums . . . . . . — — 3.3 58.4

Taxes on benefits . . . . . . . . . . 22.1 1.9 13.8 —

Transfers from States . . . . . . . — — — 4.0

Other. . . . . . . . . . . . . . . . . . . . a

a.Less than $50 million.

— 2.7 .2

Total . . . . . . . . . . . . . . . . . . . . 677.1 104.0 215.6 270.4

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

0%

2%

4%

6%

8%

10%

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

Calendar year

OASI + DI

HI + SMI (including Part D)

Historical Estimated
3

Costs for both programs increase substantially through 2035 because 

(1) the number of beneficiaries rises rapidly as the baby-boom generation 

retires and (2) the lower birth rates that have persisted since the baby 

boom cause slower growth of both the labor force and GDP. Social Security’s projected annual cost increases to about 6.2 percent of GDP in 2035, 

declines to 6.0 percent by 2050, and remains at about that level through 

2085. Under current law, projected Medicare cost increases to 5.6 percent 

of GDP by 2035, reaching 6.2 percent in 2085, driven in the latter period 

largely by the rising cost of health care services per beneficiary. These 

projected costs may well be exceeded because they are based on the 

assumptions that the deep reductions in physician fees required by the 

sustainable growth rate system are not waived by legislation and the 

Affordable Care Act’s reduced provider payment updates are sustainable 

over the long run.

In 2010, the combined cost of the Social Security and Medicare programs 

equaled 8.4 percent of GDP, and is projected to increase to 11.8 percent of 

GDP by 2035, reaching 12.2 percent of GDP by 2085. Although Medicare cost (3.6 percent of GDP) was smaller than Social Security cost (4.9 

percent of GDP) in 2010, the gap is expected to close gradually, with the 

costs being very similar after 2050.

The projected costs for OASDI and HI depicted in Chart A and elsewhere 

in this document reflect the full cost of scheduled current-law benefits 

without regard to whether the benefits would be fully payable. Current 

law precludes payment of any benefits beyond the amount that can be 

financed by the trust funds, therefore the amount of benefits that could be 

payable in years after trust fund exhaustion is lower than shown, as 

described later in this summary.

How Will Social Security and Medicare HI Costs Grow in Future 

Years in Relation to Taxable Earnings? Because the primary source of 

income for OASDI and HI is the payroll tax, it is customary to compare 

the programs’ non-interest income and costs expressed as percentages of 

taxable payroll, the “income rate” and “cost rate” shown in Chart B. Both 

the OASDI and HI annual cost rates increase over the long run from their 

2010 levels (13.40 and 3.76 percent). Projected Social Security costs 

grow to 17.01 percent of taxable payroll by 2035, decline to 16.69 percent 

in 2050, and then rise gradually thereafter, reaching 17.56 percent in 

2085. Medicare HI costs rise to 5.11 percent of taxable payroll in 2049 

and level off thereafter under the intermediate assumptions employed in 

this report, with an ultimate cost rate of 4.90 in 2085.

The OASDI income rate, estimated at 12.52 percent in 2011, increases little over time, reaching 13.31 in 2085. Payroll tax rates are scheduled to 

remain unchanged from their 1990 levels (with the exception of temporary reductions in the tax rates for 2010 and 2011 that are offset by reimbursements from the General Fund of the Treasury). Annual income from 
4

the other tax source, the taxation of OASDI benefits, will increase gradually relative to taxable payroll as a greater proportion of Social Security 

benefits is subject to taxation in future years, but will continue to be a relatively small component of program income.

The projected HI income rate rises gradually from 3.14 in 2011 to 4.32 in 

2085 due to the Affordable Care Act’s increase in payroll tax rates for 

high earners starting in 2013. Individual tax return filers with earnings 

above $200,000, and joint return filers with earnings above $250,000, will 

pay an additional 0.9 percent tax on earnings above these earnings thresholds. An increasing fraction of earnings will be subject to the higher tax 

rate over time because the thresholds are not indexed.

How Do the Sources of Medicare Financing Change as Costs Grow?

As Medicare costs grow over time, general revenue and beneficiary premiums will play an increasing role in financing the program. Chart C 

shows current-law 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 A and shows Medicare cost rising to 

6.2 percent of GDP by 2085.

Projected revenue from payroll taxes and taxes on OASDI benefits credited to the HI Trust Fund increases from 1.4 percent of GDP in 2011 to 1.8 

percent in 2085 under current law, while projected general revenue transfers to the SMI Trust Fund increase from 1.5 percent of GDP in 2011 to 

 Chart B–Income and Cost Rates

[Percent of taxable payroll]

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
5

3.1 percent in 2085, and beneficiary premiums increase from 0.5 to 1.0 

percent of GDP. The share of total non-interest Medicare income from 

taxes would fall substantially (from 41 percent to 30 percent) while general revenue transfers would rise (from 44 to 51 percent), as would premiums (from 13 percent to 17 percent). The distribution of financing 

changes because Part B and D costs increase at a faster rate than Part A 

cost, while Part B and D financing keeps pace with cost growth and Part 

A financing does not. By 2085, the Medicare SMI program will require 

general revenue transfers equal to 3.1 percent of GDP. Moreover, the HI 

deficit represents a further 0.2 percent of GDP in 2085 and there is no current-law provision to finance this deficit through general revenue 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 C) 

exceeds 45 percent of total Medicare outlays in any of the first seven fiscal years of the 75-year projection period. In effect, the law sets a threshold condition that signals that a trust fund’s 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 directs the President to submit proposed legislation within 15 days of the next budget submission to 

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

as a Percentage of GDP

0%

1%

2%

3%

4%

5%

6%

7%

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

Calendar year

Historical Estimated

Payroll Taxes

Premiums

General Revenue

Tax on Benefits

Total Non-Interest Income

Total Cost

State Transfers & drug fees

HI Deficit
6

respond to the warning and requires 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 of total Medicare outlays during 

fiscal year 2011, prompting a determination of “excess general revenue 

Medicare funding” for the sixth consecutive report, triggering another 

“Medicare funding warning.”

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

For HI, non-interest income fell short of expenditures in 2010, as it has 

since 2008, and the HI fund used interest income ($14 billion) and assets 

($32 billion) to help finance expenditures. This report anticipates a $34 

billion deficit for 2011 due to lower estimated HI tax revenues and continued HI expenditure growth, followed by a period of declining deficits 

(2012-18) as the growth in taxable earnings accelerates. Because the 

annual HI deficits in this year’s report are higher than estimated in 2010, 

the projected drawdown of HI Trust Fund assets is accelerated until the 

trust fund is exhausted in 2024 (five years earlier compared to last year’s 

report), after which tax income would be sufficient to pay 90 percent of 

HI costs, declining to 76 percent in 2050, and then increasing to 88 percent by 2085.

In 2011, OASDI annual cost will exceed the sum of tax income plus General Fund reimbursements (for payroll tax revenue forgone under Public 

Laws 111-147 and 111-312) by an estimated $46 billion, the second consecutive year in which non-interest income has fallen short of cost. Nevertheless, the combined trust funds will continue to grow because 

projected interest earnings of $115 billion substantially exceed the noninterest income deficit. The report indicates that annual OASDI income, 

including payments of interest to the trust funds from the General Fund, 

will exceed annual cost every year until 2023, increasing the nominal 

value of combined OASDI trust fund assets. Beginning in 2023, net 

redemptions of trust fund assets with General Fund payments will be 

required until assets are exhausted in 2036. After trust fund exhaustion, 

continuing tax income would be sufficient to pay 77 percent of scheduled 

benefits in 2036 and 74 percent in 2085. When the programs are considered separately, the projected exhaustion date for the OASI Trust Fund is 

2038, while that for the DI Trust Fund is 2018. Payment of full DI benefits beyond 2018 will require legislation to address the financial imbalance, such as a reallocation of the OASDI payroll tax rate between OASI 

and DI.

The key dates regarding cash flows are shown in the following table.
7

What Is the Outlook for Short-Term Trust Fund Adequacy? The 

reports measure the short-range adequacy of the OASI, DI, and HI Trust 

Funds by comparing fund assets to projected costs for the ensuing 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 a good indicator of a 

fund’s short-range adequacy. That level of projected assets for any year 

means that even if cost exceeds income, the trust fund reserves, combined 

with annual tax revenues, would be sufficient to pay full benefits for several years.

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

the 2011-20 period, but the DI Trust Fund fails the short-range test 

because its projected trust fund ratio falls to 90 percent by the beginning 

of 2013, followed by exhaustion of assets in 2018. Furthermore, despite 

the increasing nominal value of the OASI and combined OASDI trust 

funds throughout the short-range period, both the OASI and DI trust fund 

ratios—indicators of the duration of continuing benefit payments that the 

trust funds could finance out of current assets—will continue to decline 

from 2011 forward.

The HI Trust Fund also does not meet the short-range test of financial 

adequacy; its projected trust fund ratio falls to 86 percent by the beginning of 2012. Projected HI Trust Fund assets are fully depleted in 2024. 

Chart D shows the trust fund ratios through 2040 under the intermediate 

assumptions.

A less stringent annual “contingency reserve” test is applied to SMI 

Part B assets since the overwhelming portion of the financing for that 

account consists of beneficiary premiums and general revenue contributions that are set 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 estimated Part B costs are improbably low for 2012 and 

beyond because the projections assume that current law, which substantially reduces physician payments per service under the sustainable 

growth rate system, will not be changed. The estimated physician fee 

KEY DATES FOR THE TRUST FUNDS 

OASI DI OASDI HI

First year outgo exceeds income 

excluding interesta . . . . . . . . . . . . . . . . . . .

a.Dates indicate the first year that a condition is projected to occur and to persist annually thereafter through 

2085.

2017 2005 2010 2008

First year outgo exceeds income 

including interesta. . . . . . . . . . . . . . . . . . . . 2025 2009 2023 2008

Year trust fund assets are exhausted . . . . . . 2038 2018 2036 2024
8

reduction for 2012 is 29 percent. A reduction in fees of this magnitude is 

highly unlikely; Congress has acted to prevent smaller reductions in every 

year since 2003. Underestimated payments to physicians would affect 

projected costs for Part B, total SMI, and total Medicare.

A“hold-harmless” provision in the law, applicable to most Part B enrollees, limits the premium increase to the dollar amount of the beneficiary’s 

Social Security COLA increase. Thus, zero COLAs for December 2009 

and December 2010 prevented premiums for most Part B enrollees from 

increasing in 2010 and 2011 beyond the 2009 premium amount of $96.40, 

while a higher standard premium was paid by or paid on behalf of some 

beneficiaries for whom the “hold harmless” did not apply. This year’s 

report projects a small COLA for December 2011, which will again result 

in some enrollees paying less than the standard premium in 2012. 

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 Fund are not shown since 

program income is set each year to meet the following year’s projected 

cost.

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

[Assets as a percentage of annual cost]

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1970 1980 1990 2000 2010 2020 2030 2040

Calendar year

OASI

DI

HI

Historical Estimated
9

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

Trust Funds? Another way to view the outlook for 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 essentially 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 long-range 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. 

An actuarial balance of zero is achieved if trust fund assets at the end of 

the period are equal to the following year’s cost. Note that Social Security’s annual deficits, expressed as the difference between the cost rate 

and income rate, are projected to increase gradually from 2015 to 2038, 

decline slightly during 2039-52, and then resume increasing through 2085 

(Chart B). Increasing annual deficits during the final three decades of the 

projection indicate that a single tax rate increase for all years starting in 

ESTIMATED OPERATIONS OF TRUST FUNDS

[In billions—totals may not add due to rounding]

Year

Income Cost Change in fund

OASI DI HI

SMI

OASI DI HI

SMI

BD BD OASI DI HI

2011 $701 $107 $229 $234 $67 $606 $133 $263 $228 $67 $95 -$26 -$34

2012 753 114 244 242 76 633 139 275 221 76 120 -25 -32

2013 796 119 262 272 85 670 144 288 234 85 126 -25 -25

2014 846 124 281 295 91 712 149 301 252 91 134 -25 -20

2015 894 130 297 338 100 757 154 308 268 100 136 -24 -11

2016 943 136 314 319 110 806 159 322 284 110 138 -24 -8

2017 994 141 331 370 120 858 165 337 303 120 136 -24 -6

2018 1,049 a 350 403 131 915 172 355 324 131 133 a -6

2019 1,102 a

a. The DI Trust Fund is projected to be exhausted in 2018 under the intermediate assumptions. Certain trust

fund operation values from 2018 forward are not meaningful under current law and are not shown in this

table.

367 440 142 981 179 375 347 142 121 a -8

2020 1,155 a 385 486 157 1,053 188 399 376 157 102 a -14

LONG-RANGE ACTUARIAL DEFICIT OF THE 

OASI, DI, AND HI TRUST FUNDS

[Percent of taxable payroll]

OASI DI OASDI HI

Actuarial

Deficit . . . . . . . . . . . . . . . . . . 1.92 0.30 2.22 0.79
10

2011 sufficient to achieve actuarial balance would result in large annual 

surpluses early in the period followed by increasing deficits in later years. 

The relatively large deficits at the end of the 75-year projection period—

equal to 4.24 percent of taxable payroll in 2085 (see Chart B discussion)—indicate that sustained solvency would require payroll tax rate 

increases or benefit reductions (or a combination thereof) by the end of 

the period that are substantially larger than those needed on average for 

this report’s long-range period (2011-85).

In contrast with the combined OASDI Trust Fund, projected HI Trust 

Fund annual deficits decline during the final 40 years of the 75-year valuation period, assuming that the Affordable Care Act’s mandated cost savings are realized. As discussed more fully in the report, this outcome is 

uncertain because health care providers may be unable to adapt successfully to the lower rate of payment increases called for by the Affordable 

Care Act.

The projected actuarial deficit in each of these programs is large enough 

that continued solvency under current-law financing is extremely 

unlikely. A supplementary analysis that allows plausible random variations from the intermediate assumptions employed in the report indicates 

that OASDI trust fund exhaustion is highly probable by mid-century.

How Has the Financial Outlook for Social Security and Medicare 

Changed Since Last Year? Under the intermediate assumptions, the 

combined OASDI Trust Funds have a projected 75-year actuarial deficit 

equal to 2.22 percent of taxable payroll, 0.30 percentage point larger than 

last year’s estimate. The anticipated asset exhaustion date moves closer 

by one year to 2036. The increased OASDI shortfall has multiple causes, 

the largest of which is lower recent and projected mortality rates for the 

population age 65 and older. Lower levels of short-range net immigration, 

lower real earnings due to a slower-than-anticipated recovery from the 

recent recession, and the inclusion of 2085 (a year with a large negative 

balance) in the 75-year projection period also contribute to the higher 

long-range deficit.

Medicare’s HI Trust Fund has a long-range actuarial deficit equal to 0.79 

percent of taxable payroll under the intermediate assumptions, larger than 

the 0.66 percent figure reported last year. HI Trust Fund balances are 

lower due to higher projected expenditures and lower levels of taxable 

payroll in 2010 and throughout the projection period. The HI Trust Fund 

exhaustion date moves closer by five years from 2029 to 2024. Actual HI 

taxable earnings in 2010 were considerably lower than previously estimated, and the projected level of real (inflation-adjusted) HI taxes 

remains lower than in last year’s report, although the difference narrows 

throughout the current decade as the economy recovers from the recent 

recession.
11

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 and confirmed by 

the Senate: Charles P. Blahous III, Research Fellow at the Hoover Institution, and Robert D. Reischauer, President of the Urban Institute.

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. Self-employed workers are charged the 

equivalent of the combined employer and employee tax rates. During 

2010, an estimated 156 million people had earnings covered by Social 

Security and paid payroll taxes; for Medicare the corresponding figure 

was 160 million. The payroll tax rates are set by law and for OASDI 

apply to earnings up to an annual maximum ($106,800 in 2011) that ordinarily increases with the growth in the nationwide average wage. When 

the cost-of-living adjustment (COLA) for December of any year is zero, 

as occurred in both 2009 and 2010, the maximum taxable amount of earnings does not increase for the following year, thereby reducing OASDI 

taxes paid by higher earners. COLA increases are expected to return in 

December 2011 and beyond. In contrast to OASDI, covered workers pay 

HI taxes on total earnings. The scheduled payroll tax rates (in percent) 

are:

Note two caveats concerning these rates. Public Law 111-312 reduces the 

OASDI tax rate for 2011 by 2 percentage points for employees and for 

self-employed workers. The loss of payroll tax revenue due to this oneyear reduction will be made up by transfers from the General Fund of the 

Treasury to the OASI and DI Trust Funds and will thus have no financial 

impact on either program. Furthermore, starting in 2013, the Affordable 

Care Act imposes an additional HI tax equal to 0.9 percent of earnings 

over $200,000 for individual tax return filers, and on earnings over 

$250,000 for joint return filers.

Payments from the General Fund finance about 75 percent of SMI Part B 

and Part D costs, with most of the remaining costs covered by monthly 

premiums charged to enrollees. 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 2011, the Part B standard monthly premium paid by about one-quarter 

of enrollees is $115.40. Under a “hold-harmless” provision, about three 

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
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quarters of Part B enrollees in 2010 and 2011 paid or are paying the 2009 

premium rate of $96.40 due to the zero Social Security COLA for those 

years. There is also an income-related premium surcharge for Part B beneficiaries whose modified adjusted gross income exceeds a specified 

threshold. In 2011, the initial threshold is $85,000 for individual tax 

return filers and $170,000 for joint return filers. Income-related premiums 

range from $161.50 to $369.10 per month in 2011.

In 2011, the Part D “base monthly premium” is $32.34. Actual premium 

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

which they are enrolled and are expected to average around $31 for standard coverage. Beginning in 2011, Part D enrollees with incomes exceeding the thresholds listed above must pay an income-related monthly 

adjustment amount in addition to their normal plan premium. For 2011, 

the adjustments range from $12.00 to $69.10 per month. Part D also 

receives payments from States that partially compensate for the Federal 

assumption of Medicaid responsibilities for prescription drug costs for 

individuals eligible for both Medicare and Medicaid. In 2011, State payments should cover about 10 percent of Part D costs.
A MESSAGE FROM THE PUBLIC TRUSTEES

We were sworn in as Public Trustees in the fall of 2010. Thus, preparation of the 2011 Trustees Reports represents our first opportunity to participate in the Trustees’ annual projection and reporting process. 

Because we joined the process in midstream, we agreed with the other 

Trustees that it would be best if the 2011 reports were consistent, both 

methodologically and stylistically, with prior reports. With input from 

two Technical Review Panels currently assessing the assumptions underlying the Social Security and Medicare projections, we and the other 

Trustees will be reviewing these issues more fully after the release of the 

2011 reports and incorporating any agreed-upon changes into the reports 

for 2012.

The Trustees’ projections change each year, by small, moderate, or significant amounts, as the underlying economic and demographic assumptions 

are modified, new legislation is enacted, administrative practices are 

revised, and projection methodologies are refined. Notwithstanding the 

updates that will take place in the future, certain fundamental conclusions 

are inescapable and will almost certainly remain so as long as current 

policies continue unchanged. The most important of these conclusions is 

that both the Social Security and Medicare programs face substantial 

financial shortfalls that will require significant legislative action to 

address. A corollary of this finding is that the longer such legislative corrections are delayed, the more adverse the consequences will be for those 

who will bear the costs of closing these imbalances. The remainder of 

this message addresses the causes, severity, and certainty of these shortfalls—and the costly consequences of further delay.

Under current law, demographic trends will be the primary driver of cost 

growth for both Social Security and Medicare over the next couple of 

decades. The leading edge of the large baby boom generation began 

signing up for retirement benefits in 2008 and Medicare coverage in 2011. 

This generation will dramatically increase the number of program beneficiaries through the mid-2030s, while also living longer than previous generations and having produced fewer children than did their own parents. 

Accordingly, combined Social Security and Medicare costs, which 

amounted to 7.4 percent of GDP in 2007 (the last year in which the ratio 

of program costs to GDP was not strongly influenced by the recent recession), are projected to rise to 11.8 percent of GDP by 2035. More than 90 

percent of combined cost growth in Social Security and Medicare from 

2007 through 2085 relative to GDP will have occurred by 2035 under 
current projections. This rapid cost growth for Social Security and Medicare represents the greatest financial challenge facing these programs as 

well as the most important reason that delaying legislative corrections 

would be increasingly disruptive.

The financial shortfalls confronting both Social Security and Medicare 

are substantial and—absent legislation to correct them—quite certain. 

From a trust fund financing perspective, Social Security faces the larger 

actuarial shortfall of the two programs—2.22 percent of taxable payroll 

over 75 years—and its financial shortfall remains qualitatively more certain even as critical underlying assumptions are changed. A statistical 

analysis contained in this year’s report shows that, even allowing for considerable variation in economic and demographic assumptions, there was 

no scenario within a 95-percent confidence interval in which Social Security would avoid trust fund exhaustion past mid-century.

Cost projections for Medicare are much less certain than for Social Security over both the short and long term. In the short run, there is the question of whether the steep reductions in physician payments called for by 

current law, and assumed in the report’s projections, will occur or will be 

waived by legislation, as has been the case for the past several years. 

Over the longer run, assumptions regarding the growth of health care 

costs are central to projections of Medicare’s long-term financial outlook. 

These assumptions are inevitably highly uncertain. New technologies and 

interventions will continue to expand the capabilities of medicine and to 

affect the cost of health care in ways that are difficult to predict. Private 

stakeholders are redoubling their efforts to curb cost growth, but the 

extent of their success and the effects of these endeavors on Medicare’s 

costs are yet to be determined. Also unknown is how effective the significant federal health legislation enacted in 2010 will be at moderating cost 

growth for Medicare. If the legislation’s cost-reducing innovations in the 

delivery of and payment for health services were not successful, or if 

health care providers could not accommodate the slower growth in Medicare payment rates mandated by the new law, Medicare costs would be 

significantly higher than shown in the Trustees Report. 

Our current projections indicate, however, that even if the recent legislation’s cost-saving measures are sustainably implemented, Medicare will 

still experience a financing shortfall that will require further legislation to 

address. Under these projections, the HI Trust Fund will become 

exhausted in 2024, and the 75-year actuarial shortfall for HI is 0.79 percent of taxable payroll. Medicare’s SMI Trust Fund is automatically 
replenished annually with sufficient general revenues and beneficiary 

premiums to avoid insolvency. Consequently, rising SMI costs increase 

fiscal pressure on the unified federal budget and burdens on beneficiaries. 

Over time, general revenue contributions are projected to more than double, from 1.5 percent of GDP today to 3.1 percent by 2085, and the fraction of beneficiaries’ incomes devoted to SMI premiums will grow.

Interactions between the Social Security and Medicare programs on the 

one hand and the larger federal budget on the other are inevitably and 

appropriately subjects of public discussion and debate. Whether viewed 

from the narrower trust fund perspective or from the wider unified budget 

perspective, the financial challenges confronting both programs must be 

addressed. From the trust fund perspective, both programs face projected 

shortfalls that necessitate correction sooner rather than later if balance is 

to be restored without large, abrupt benefit reductions or tax increases. 

From the wider budget perspective each program poses challenges as 

well. These are manifested in the growing general revenue requirements 

of Medicare SMI and in the annual shortfalls of dedicated revenues for 

both programs, which will entail increased borrowing from the public, 

reduced spending on other federal programs, higher taxes, or some combination of these steps. 

Reluctance to resolve the Social Security and Medicare shortfalls is 

understandable, as doing so involves slowing the growth of program benefits, increasing the age at which individuals become eligible for benefits, 

or increasing the taxes and premiums that support these programs. Failure to enact such measures, however, will not shield participants collectively from adverse effects. One way or the other the imbalance between 

scheduled benefits and future revenues must be resolved. Further delay in 

enacting corrective legislation to do so as equitably as possible would 

simply mean that continued uncertainty will surround how the imbalances 

will be resolved and that the unavoidable adjustments will be compressed 

into a shorter time period, be concentrated upon fewer affected individuals, and be more disruptive as a result.

For many years, the Trustees Reports have contained illustrations of the 

magnitudes of changes to benefits or taxes required to place Social Security and Medicare on financially sustainable paths. This year’s Message 

to the Public, for example, explains that correcting these imbalances 

would require changes equal in the aggregate to 17 percent of Social 

Security tax receipts or 14 percent of the program’s scheduled benefits; 

for Medicare Hospital Insurance, the comparable figures are 21 percent 

of tax receipts or 17 percent of scheduled benefits. Useful though these 
illustrations are, they understate the likely effects of legislative actions 

over time. First, such illustrations assume that the full effect of legislation takes place immediately, with no phase-in or lead time. Perhaps even 

more importantly, the benefit examples assume that legislators would be 

equally willing to reduce support for current beneficiaries as to restrict 

the growth of benefits to future participants. In the past, policy makers 

have been reluctant to significantly reduce the benefits of those who have 

already begun to collect them. In a practical sense, therefore, changes 

adversely affecting younger generations are likely to be much more severe 

than indicated in these simple illustrations. The costs that will be borne 

by younger generations will grow significantly each year that a new 

cohort of baby boomers joins the benefit rolls.

We look forward to working with the other Trustees and the actuaries over 

the next few months to further refine the utility, readability, and estimation 

methodology of these reports. In this effort, we will benefit from the input 

of two expert Technical Review Panels, one for Social Security and the 

other for Medicare, whose members are evaluating the reports’ assumptions and methodologies. Probably the greatest challenge we will 

encounter will be to assure that the Trustees’ assumptions for the growth 

of Medicare and overall health care costs, notwithstanding their inherent 

uncertainty, are as sound as possible.

Even in advance of these deliberations, we believe that the essential message conveyed by these reports is clear and will not change, absent legislation: that the vital Social Security and Medicare programs face real 

and substantial challenges, and that elected officials will best serve the 

interests of the public if financial corrections are enacted at the earliest 

practicable time. 

Charles P. Blahous III,

Trustee

Robert D. Reischauer,

Trustee