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 2010 Annual Reports.

The outlook for Medicare has improved substantially because of program 

changes made 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). Despite lower near-term revenues 

resulting from the economic recession, the Hospital Insurance (HI) Trust 

Fund is now expected to remain solvent until 2029, 12 years longer than 

was projected last year, and the 75-year HI financial shortfall has been 

reduced to 0.66 percent of taxable payroll from 3.88 percent in last year’s 

report. Nearly all of this improvement in HI finances is due to the ACA. 

The ACA is also expected to substantially reduce costs for the Medicare 

Supplementary Medical Insurance (SMI) program; projected program 

costs as a share of GDP over the next 75 years are down 23 percent relative to the costs projected for the 2009 report.

Much of the projected improvement in Medicare finances is due to a provision of the ACA that reduces payment updates for most Medicare goods 

and services other than physicians’ services and drugs by measured total 

economy multifactor productivity growth, which is projected to increase 

at a 1.1 percent annual rate on average. This provision is premised on the 

assumption that productivity growth in the health care sector can match 

that in the economy overall, rather than lag behind as has been the case 

in the past. This report notes that achieving this objective for long periods 

of time may prove difficult, and will probably require that payment and 

health care delivery systems be made more efficient than they are currently. To facilitate this outcome, the ACA establishes a broad program of 

research on innovative new delivery and payment models to improve the 

quality and cost-effectiveness of health care for Medicare—and, by extension, for the nation as a whole. The improvement in Medicare’s finances 

projected in this report highlights the importance of making every effort 

to make sure that ACA is successfully implemented. If health care efficiency cannot be substantially improved through productivity gains or 

other measures, then over time the statutory Medicare payment rates 

would become inadequate. In that situation, the payment update reduc-
tions might be suspended, in which case actual long-range costs would be 

larger than those projected under current law.

While the financial outlook for Medicare in this year’s report is substantially improved relative to last year, further reforms will be needed. It is 

expected that the HI Trust Fund balance will fall below one year’s projected expenditure beginning in 2012, which means the test for shortrange financial adequacy is not met. And it is projected that SMI will continue to put increasing pressure on the federal budget and beneficiaries in 

the years ahead, though to a much lesser extent than was projected last 

year prior to the ACA. Over the next 75 years, SMI costs are expected to 

average 3.3 percent of GDP, which is 1.4 percentage points higher than 

the SMI cost share of GDP in 2009.

The financial outlook for Social Security is little changed from last year. 

The short term outlook is worsened by a deeper recession than was projected last year, but the overall 75-year outlook is nevertheless somewhat 

improved primarily because a provision of the ACA is expected to cause a 

higher share of labor compensation to be paid in the form of wages that 

are subject to the Social Security payroll tax than would occur in the 

absence of the legislation. The Disability Insurance (DI) Trust Fund, 

however, is now projected to become exhausted in 2018, two years earlier 

than in last year’s report. Thus, changes to improve the financial status of 

the DI program are needed soon.

Social Security expenditures are expected to exceed tax receipts this year 

for the first time since 1983. The projected deficit of $41 billion this year 

(excluding interest income) is attributable to the recession and to an 

expected $25 billion downward adjustment to 2010 income that corrects 

for excess payroll tax revenue credited to the trust funds in earlier years. 

This deficit is expected to shrink substantially for 2011 and to return to 

small surpluses for years 2012-2014 due to the improving economy. After 

2014 deficits are expected to grow rapidly as the baby boom generation’s 

retirement causes the number of beneficiaries to grow substantially more 

rapidly than the number of covered workers. The annual deficits will be 

made up by redeeming trust fund assets in amounts less than interest 

earnings through 2024, and then by redeeming trust fund assets until 

reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The 
projected exhaustion date for the combined OASI and DI Trust Funds is 

unchanged from last year’s report.

The long-run financial challenges facing Social Security and those that 

remain for Medicare should be addressed soon. If action is taken sooner 

rather than later, more options will be available, and more time will be 

available to phase in changes so that those affected have adequate time to 

prepare.

Medicare 

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

Trust Fund is 0.66 percent of taxable payroll, down substantially from 

3.88 percent projected in last year’s report. The HI fund still fails the 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 the long range test of close actuarial balance. The projected date of HI Trust Fund exhaustion is 2029, 12 years later than in 

last year’s report, at which time dedicated revenues would be sufficient to 

pay 85 percent of HI costs. The share of HI expenditures that can be 

financed with HI dedicated revenues is projected to decline slowly to 76 

percent in 2045 and then to rise slowly, reaching 89 percent in 2084. Over 

75 years, HI’s estimated actuarial imbalance is 23 percent as large as 

payroll taxes, and 16 percent as large as program outlays.

Part B of Supplementary Medical Insurance (SMI), which pays for 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 the next year’s expected costs. 

However, the aging population will result in SMI costs growing rapidly 

from 1.9 percent of GDP in 2009 to 3.5 percent of GDP in 2040; about 

three-quarters of these costs will be financed from general revenues and 

about one-quarter from premiums paid by beneficiaries. Relatively small 

amounts of SMI financing are received from special payments by States 

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

As occurred in 2010, it is expected that about one quarter of Part B 

enrollees will be subject to unusually large premium increases next year. 
This occurs because premium rates are set so that total premiums finance 

a specific share of Part B costs, and it is projected that the other threequarters of Part B enrollees will not be subject to a premium increase in 

2011 due to an expected zero Social Security benefit COLA in December 

2010. A “hold-harmless” provision of current law limits those individuals’ premium increases to the increase in their Social Security benefits.

Social Security 

The annual cost of Social Security benefits represented 4.8 percent of 

GDP in 2009 and is projected to increase gradually to 6.1 percent of 

GDP in 2035 and then decline to about 5.9 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 

(OASI and DI) Trust Funds is 1.92 percent of taxable payroll, down from 

2.00 percent projected in last year’s report.

The 0.08 percentage point reduction in the actuarial deficit reflects a 0.06 

percentage point increase due to the change in the valuation date to 2010 

and the inclusion of an additional year, 2084, in the projections, a 0.14 

percentage point reduction due the ACA’s effect on the share of labor 

compensation that is subject to OASDI taxes, and other changes that net 

to zero. Although the combined OASDI program passes the short-range 

test of financial adequacy, the DI program does not; DI costs have 

exceeded tax revenue since 2005, and trust fund exhaustion is projected 

for 2018, two years earlier than was projected last year. In addition, 

OASDI continues to fail the long-range test of close actuarial balance. 

Projected OASDI tax income will be sufficient to finance about 75 percent 

of scheduled annual benefits in 2037 through 2084 after the combined 

OASI and DI Trust Funds are projected to be exhausted. Over 75 years, 

Social Security’s actuarial imbalance is 15 percent as large as payroll 

taxes, and 12 percent as large as program outlays.

Conclusion 

The ACA makes significant progress toward making Medicare financially 

viable. But while it is projected that the Medicare HI Trust Fund is adequately financed until 2029, and the Social Security OASI and DI Trust 

Funds are adequately financed until 2040 and 2018, respectively, the significant longer term financial imbalances of the programs still need to be 
addressed. The sooner action is taken to address the long-run financial 

imbalances, the more reform options will be available, and the more time 

there will be to phase in changes so that those affected will have adequate 

time to 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
.
1

A SUMMARY OF THE 2010 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. All excess funds must be 

invested in interest-bearing 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.

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 2009? In December 2009, 

42.8 million people received OASI benefits, 9.7 million received DI benefits, and 46.3 million were covered under Medicare. Trust fund operations, in billions of dollars, are shown below (totals may not add due to 

rounding). The OASI and SMI Trust Funds showed net increases in assets 

in 2009; DI and HI Trust Fund assets declined.

OASI DI HI SMI

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

Income during 2009 . . . . . . . . . . . . . . . . 698.2 109.3 225.4 282.8

Outgo during 2009 . . . . . . . . . . . . . . . . . 564.3 121.5 242.5 266.5

Net increase in assets . . . . . . . . . . . 133.9 -12.2 -17.1 16.3

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

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 1.92 percent of taxable payroll, 0.08 percentage point smaller 

than last year’s estimate. The main reason for the smaller deficit is the 

anticipated effect on the rate of growth in the average wage level of the 

Patient Protection and Affordable Care Act, as amended by the Health 

Care and Education Reconciliation Act of 2010. This legislation, referred 

to more briefly in this summary as the Affordable Care Act (ACA), slows 

the rate of decline in the share of employee compensation paid in wages 

covered by Social Security after 2018 when an excise tax on high-cost, 

employer-sponsored, health insurance plans begins, thereby increasing 

projected growth in the average real wage. The OASI Trust Fund and the 

combined OASI and DI Trust Funds are adequately financed over the next 

10 years. Evaluated on its own, the DI Trust Fund does not meet the shortrange test for financial adequacy because its assets are projected to fall 

below 100 percent of annual expenditures by the beginning of 2013, and 

to become exhausted in 2018.

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

to 0.66 percent of taxable payroll under the intermediate assumptions, a 

large improvement from the 3.88 percent figure reported last year. That 

change is largely attributable to the ACA, which mandates a reduction in 

the growth in Medicare payment rates for most health service providers, 

reduces payments to Medicare Advantage plans, and imposes higher HI 

payroll taxes for high earners. Those factors slow the depletion of HI 

Trust Fund assets and delay the anticipated fund exhaustion date to 2029, 

12 years later than reported last year. Even so, the HI Trust Fund fails the 

short-range test of financial adequacy because its assets are projected to 

fall to 94 percent of annual expenditures by the beginning of 2012. It is 

important to note that the substantially improved results for HI (and for 

SMI Part B, below) depend in part on the long-range feasibility of the 

lower increases in Medicare payment rates. Moreover, in the context of 

today’s health care system, these adjustments would probably not be viable indefinitely into the future. As a result, the actual future costs for 

Medicare are likely to exceed those shown by the current-law projections 

in this year’s report.

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

the automatic financing established for Medicare Parts B and D. The 

ACA’s reductions in the Medicare payment rates to most service providers result in substantially lower projected costs for Part B than reported 

last year. Note, however, that Part B costs are almost certainly understated 

as a result of incorporating substantial reductions in physician fees during 

the next several years that would be required under current law, but are 

very unlikely to occur. The ACA is expected to have a much smaller net 

effect on projected Part D costs. Lower-than-anticipated drug spending in 
3

2008 and 2009, and a lower projected rate of growth in Part D costs during the next decade, are partially offset by the ACA’s phasing out of the 

benefit formula coverage gap (or “donut hole”) during 2011-20. Part D 

costs are projected to grow at an average rate of 9.4 percent annually over 

the next decade. Despite the reductions in cost growth described in this 

year’s report, the SMI Trust Fund will require large increases in enrollee 

premiums and general revenue funding over the long-range projection 

period.

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 2009, 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 2010) 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, which occurred in 

December 2009 and is projected for December 2010, the maximum taxable amount of earnings is not increased for the following year. This constraint will lower OASDI tax income in 2010 and 2011. In contrast, HI 

taxes are paid on total earnings. The payroll tax rates (in percent) for 2010 

are:

Starting in 2013, the ACA 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.

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 2010, the Part B standard monthly premium paid by about one-quarter 

of enrollees is $110.50. There is also an income-related premium surcharge for Part B beneficiaries whose modified adjusted gross income 

exceeds a specified threshold. In 2010, the initial threshold is $85,000 for 

individual tax return filers and $170,000 for joint return filers. Under the 

ACA, the thresholds are not indexed to inflation during 2011-19; thereafter, the thresholds will be inflation-adjusted each year. Income-related 

premiums range from $154.70 to $353.60 per month in 2010. Under a 

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
4

“hold-harmless” provision, about three quarters of enrollees continue to 

pay the 2009 premium rate of $96.40 due to the zero Social Security 

COLA.

In 2010, the Part D “base monthly premium” is $31.94. (Actual premium 

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

which they are enrolled and are expected to average around $30 for standard coverage.) 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 2010, State payments are estimated to cover 7 percent of 

Part D costs.

Income, by source, to each trust fund in 2009 is shown in the table below 

(totals may not add due to rounding).

* Less than $50 million.

What Were the Administrative Expenses in 2009? Administrative 

expenses charged to the trust funds, expressed 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 

Source (in billions) OASI DI HI SMI

Payroll taxes . . . . . . . . . . . $570.4 $96.9 $190.9 —

General fund revenue . . . . — — 1.9 $209.8

Interest earnings. . . . . . . . . 107.9 10.5 15.3 3.0

Beneficiary premiums . . . . — — 2.9 62.3

Taxes on benefits . . . . . . . . 19.9 2.0 12.4 —

Other . . . . . . . . . . . . . . . . . * — 2.1 7.7

Total . . . . . . . . . . . . . . . . . . 698.2 109.3 225.4 282.8

OASI DI HI SMI

Administrative expenses 2009. . . 0.6 2.3 1.3 1.3
5

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 presented in 

this Summary are based on the intermediate assumptions.

What is the Short-Range (2010-19) Outlook 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 2010-19 period, but the DI Trust Fund fails the short-range test 

because its projected trust fund ratio falls to 93 percent by the beginning 

of 2013, followed by exhaustion of assets in 2018. The HI Trust Fund also 

does not meet the short-range test of financial adequacy; its projected 

trust fund ratio falls to 94 percent by the beginning of 2012. In contrast 

 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%

1970 1980 1990 2000 2010 2020 2030 2040

Calendar year

OASI

DI

HI

Historical Estimated
6

with the 2017 fund exhaustion date reported last year, the ACA is 

expected to result in much smaller HI deficits for the next several years, 

followed by small annual surpluses through the remainder of the shortrange period, which postpones trust fund exhaustion to 2029. Chart A 

shows the trust fund ratios through 2040, the expected year of OASI Trust 

Fund exhaustion, under the intermediate assumptions.

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 estimated Part B costs are unrealistically low 

for 2011 and beyond because the projections assume that current law will 

substantially reduce physician payments per service beginning in December 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 November 2010. 

These understated physician payments affect projected costs for Part B, 

total SMI, and total Medicare.

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

Part B enrollees from increasing in 2010 and is projected to do so again in 

2011. This provision limits the premium increase to the dollar amount of a 

beneficiary’s cost-of-living adjustment (COLA). This year’s report projects a zero COLA for December 2010 and a small COLA increase (1.2 

percent) 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 maintain an adequate contingency reserve requires unusually large premium increases for Part B 

enrollees who are not subject to the hold-harmless provision (new enrollees each year and those who pay the income-related premium adjustment) 

and for State Medicaid programs that pay the full premium for dual Medicare-Medicaid beneficiaries. Monthly premiums are estimated to be 

$120.10 and $113.80 for 2011 and 2012, compared with $96.40 in 2009. 

This method of addressing a revenue shortfall caused by the hold-harmless 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 Fund are not shown because of 

the automatic annual adjustments in program income to meet the following year’s projected expenditures.
7

What is the Long-Range (2010-84) 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 B). 

Costs for both programs rise steeply between 2015 and 2030 because the 

number of people receiving benefits will increase rapidly as the large 

baby-boom generation retires. During those years, cost growth for MediESTIMATED 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

2010 $686 $105 $218 $204 $61 $586 $128 $249 $220 $62 $100 -$23 -$32

2011 742 113 241 235 71 608 134 259 215 71 134 -21 -18

2012 790 118 254 264 78 638 141 271 226 78 151 -23 -17

2013 845 124 277 287 86 680 147 283 242 86 165 -23 -6

2014 902 131 297 312 93 728 153 296 260 93 174 -23 1

2015 959 137 316 364 103 780 160 305 276 102 179 -23 11

2016 1,019 144 337 333 113 836 167 321 293 112 183 -23 15

2017 1,078 150 357 395 124 897 174 338 314 123 181 -24 19

2018 1,137 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.

378 436 136 962 182 358 338 136 175 a 20

2019 1,193 a 398 477 150 1,032 190 380 365 150 161 a 18

 Chart B–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
8

care 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. Social Security’s projected annual cost increases to 

about 6.1 percent of GDP in 2035, then declines to 5.9 percent by 2050, 

and remains between 5.9 and 6.0 percent through 2084. Under current 

law, Medicare costs increase to 5.5 percent of GDP in 2035, and to 6.4 

percent in 2084.

It is important to understand that the projected costs for OASDI and HI 

depicted in Chart B 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 are payable in years after trust fund exhaustion is 

lower than shown, as described later in this summary.

The long-range cost outlook for Medicare is much improved from last 

year’s report due mainly to the ACA legislation. The 2009 report projected Medicare costs to increase to 7.2 percent of GDP by 2035, reaching 

11.4 percent by the end of the 75-year projection period (2083). The new 

long-range projections assume that the ACA’s mandated reductions in 

health care cost growth are implemented over the full 75-year projection 

period. To illustrate the potential understatement of Medicare cost projections under current law, if such implementation were not possible and 

payment rate adjustments were gradually phased out during 2020-34, and 

if Medicare payment rates to physicians were updated using the Medicare 

Economic Index rather than declining by 30 percent under the current-law 

formula, then projected Medicare costs would represent about 11.0 percent of GDP in 2084.

In 2009, the combined cost of the Social Security and Medicare programs 

equaled 8.4 percent of GDP. Social Security’s cost amounted to 4.8 percent of GDP in 2009 and is projected to increase to 6.0 percent of GDP in 

2084. Medicare’s cost was smaller in 2009—3.5 percent of GDP— but is 

projected to surpass the cost of Social Security in 2049. In 2084, the combined cost of the programs would represent 12.4 percent of GDP, assuming that all provisions of current law remain unchanged throughout this 

period. 

Both Social Security and Medicare costs are projected to grow considerably faster than the economy over the next three decades, but tax income 

to the OASDI and HI Trust Funds will not. Tax income for Social Security will increase from 4.6 percent of GDP in 2010 to 4.8 percent in 2040, 

and then decrease to 4.6 percent by 2084. For the Medicare HI program, 

projected tax income equal to 1.3 percent of GDP in 2010 is expected to 

increase to 1.7 percent by 2040, and then to increase further to 1.8 percent 

by 2084.
9

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

Earnings? 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).

Both the OASDI and HI annual cost rates are projected to increase over 

the long run from their 2009 levels (13.00 and 3.69 percent). For OASDI, 

the income rate will increase little (from 13.07 percent in 2009 to 13.31 

percent in 2084) because payroll tax rates are not scheduled to change. 

Income from the other tax source, taxation of OASDI benefits, will 

increase only gradually relative to taxable payroll as a greater proportion 

of Social Security benefits is subject to taxation in future years. The HI 

income rate is projected to increase gradually from 3.13 in 2009 to 4.30 in 

2084 due to the ACA’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 the threshold. Because the thresholds are not indexed, an increasing fraction of earnings will be subject to 

the higher tax rate over time.

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 

 Chart C–Income and Cost Rates

[Percentage 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
10

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. Note, however, that Social 

Security’s generally increasing annual deficits projected for 2016 through 

2084 indicate that a single tax rate increase for all years sufficient to 

achieve actuarial balance would result in large annual surpluses early in 

the period, followed by increasing deficits later in the period. If the ACA’s 

mandated cost savings are realized, HI annual deficits begin to decrease 

after 2045 and the trust fund is projected to have a long-range actuarial 

deficit that is only one-sixth of the magnitude projected in last year’s 

Medicare Trustees Report. For illustration, if the lower payment updates 

for HI were gradually phased out in 2020-34, the actuarial deficit would 

be 1.91 percent of taxable payroll, substantially larger than projected 

under current law, but still only half of the level shown in the 2009 report.

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, non-interest income fell short of expenditures in 2008 and again in 2009, when the HI fund used interest income 

($15 billion) and assets ($17 billion) to meet expenditures. This year’s 

report anticipates a large deficit for 2010, due mainly to the recession’s 

negative effect on payroll tax revenues, followed by periods of declining 

deficits (2011-14) and small surpluses (2015-19) as tax revenues increase 

with the economic recovery from the recession and the ACA’s deficitreduction provisions take effect. In 2020, demographic change causes 

projected annual deficits to re-emerge and increase until 2045, after which 

the cost rate exceeds the income rate by decreasing amounts through 

2084. In 2020, under current law, interest income will again be required to 

meet projected HI expenditures and beginning in 2022, drawdown of 

assets will again be required each year until the trust fund is exhausted in 

2029, after which tax income is estimated to be sufficient to pay 85 perLONG-RANGE ACTUARIAL DEFICIT OF THE 

OASI, DI, AND HI TRUST FUNDS

[As a percentage of taxable payroll]

OASI DI OASDI HI

Actuarial

Deficit . . . . . . . . . . . . . . . . . . 1.62 0.30 1.92 0.66
11

cent of HI costs, declining to 77 percent in 2050, and then increasing to 89 

percent by 2084.

For OASDI, annual cost will exceed tax income in 2010 by an estimated 

$41 billion, although the combined trust funds will continue to grow 

because projected interest earnings of $118 billion will substantially 

exceed $41 billion. This large cash-flow shortfall is mainly the result of 

revenue adjustments in 2010 of $25 billion for prior years for which estimated payroll tax allocations were too large. Annual cost is projected to 

exceed tax income by $7 billion in 2011, followed by three years of small 

surpluses before increasing annual shortfalls of tax income return permanently in 2015. The report indicates that annual OASDI income, including 

interest on trust fund assets, will exceed annual cost and trust fund assets 

will increase every year until 2025. At that time it will be necessary to 

begin drawing down trust fund assets to cover part of expenditures until 

assets are exhausted in 2037. After trust fund exhaustion, continuing tax 

income would be sufficient to pay 78 percent of scheduled benefits in 

2037 and 75 percent in 2084. Although the projected exhaustion date for 

the DI Trust Fund is 2018, 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 6.4 percent of GDP by 2084. Revenue from taxes would increase from 1.3 percent of GDP in 2010 to 1.8 

percent in 2084 under current law, while general fund revenue contributions are projected to increase from 1.4 percent of GDP in 2010 to 3.1 

percent in 2084, and beneficiary premiums from 0.4 to 1.0 percent of 

GDP. Thus, the share of total non-interest Medicare income from payroll 

taxes and the taxation of benefits would fall substantially (from 43 percent to 30 percent) while general fund revenue would rise (from 43 to 

51 percent), as would premiums (from 13 percent to 17 percent). These 

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 

2084.

2018 2005 2015 2020

First year outgo exceeds income 

including interesta. . . . . . . . . . . . . . . . . . . . 2026 2009 2025 2022

Year trust fund assets are exhausted . . . . . . 2040 2018 2037 2029
12

current-law funding relationships could change as a result of the need to 

address the projected annual HI Trust Fund deficits. By 2084 the Medicare program is projected to require general revenue transfers equal to 3.1 

percent of GDP. Moreover, the HI deficit represents a further 0.2 percent 

of GDP in 2084, and there is no provision to finance this deficit under 

current law through general fund transfers or any other revenue source. 

Chart D summarizes a much improved financial outlook for Medicare 

from the one described in last year’s report, largely due to the ACA’s 

mandated reduction in the rate of growth in health care costs. The transformation of the U.S. health care system that will be required to achieve 

those efficiency gains adds a new element of uncertainty to the Trustees’ 

projections. Even if the envisioned cost reductions are fully realized, 

additional steps will be required to address Medicare’s escalating cost.

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 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 respond by 

submitting proposed legislation within 15 days of the next budget submis-

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

as a Percent of GDP
13

sion 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 2010, prompting a determination of “excess general revenue Medicare funding” for the fifth consecutive report. Another “Medicare funding warning” is triggered.

The 2010 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 

2010 Annual Reports.