Status of the 

Social Security 

and Medicare 

Programs

A SUMMARY OF THE

2016 ANNUAL REPORTS

Social Security and Medicare

Boards of Trustees

2016
The Social Security and Medicare Trustees Reports, as well as

this document, are available at the following addresses:

Social Security (OASDI): www.ssa.gov/OACT/TR/2016/

Medicare (HI and SMI): www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/

Summary: www.ssa.gov/OACT/TRSUM/

Other information about Social Security benefits and services is available at

www.ssa.gov or by calling toll-free 1-800-772-1213.

Other information about Medicare benefits and services is available at

www.cms.gov or by calling toll-free 1-800-633-4227.
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 the 2016 Annual Reports. 

Both Social Security and Medicare face long-term financing shortfalls 

under currently scheduled benefits and financing. Lawmakers have a 

broad continuum of policy options that would close or reduce the longterm financing shortfall of both programs. The Trustees recommend that 

lawmakers take action sooner rather than later to address these shortfalls, so that a broader range of solutions can be considered and more 

time will be available to phase in changes while giving the public adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income 

workers and people already dependent on program benefits. 

Social Security and Medicare together accounted for 41 percent of Federal program expenditures in fiscal year 2015. The unified budget reflects 

current trust fund operations. Consequently, even when there are positive 

trust fund balances, any drawdown of those balances, as well as general 

fund transfers into Medicare’s Supplementary Medical Insurance (SMI) 

fund and interest payments to the trust funds that are used to pay benefits, 

increase pressure on the unified budget. Both Social Security and Medicare will experience cost growth substantially in excess of GDP growth 

through the mid-2030s due to rapid population aging caused by the large 

baby-boom generation entering retirement and lower-birth-rate generations entering employment. For Medicare, it is also the case that growth 

in expenditures per beneficiary exceeds growth in per capita GDP over 

this time period. In later years, projected costs expressed as a share of 

GDP rise slowly for Medicare and are relatively flat for Social Security, 

reflecting very gradual population aging caused by increasing longevity 

and slower growth in per-beneficiary health care costs. 

Social Security

The Social Security program provides workers and their families with 

retirement, disability, and survivors insurance benefits. Workers earn 

these benefits by paying into the system during their working years. Over 

the program’s 80-year history, it has collected roughly $19.0 trillion and 
paid out $16.1 trillion, leaving asset reserves of more than $2.8 trillion at 

the end of 2015 in its two trust funds. 

The Bipartisan Budget Act of 2015 was projected to postpone the depletion of Social Security Disability Insurance (DI) Trust Fund by six years, 

to 2022 from 2016, largely by temporarily reallocating a portion of the 

payroll tax rate from the Old Age and Survivors Insurance (OASI) Trust 

Fund to the DI Trust Fund. The effect of updated programmatic, demographic and economic data extends the DI Trust Fund reserve depletion 

date by an additional year, to the third quarter of 2023, in this year’s 

report. While legislation is needed to address all of Social Security’s 

financial imbalances, the need remains most pressing with respect to the 

program’s disability insurance component.

The OASI and DI trust funds are by law separate entities. However, to 

summarize overall Social Security finances, the Trustees have traditionally emphasized the financial status of the hypothetical combined trust 

funds for OASI and DI. The combined funds satisfy the Trustees’ test of 

short-range (ten-year) close actuarial balance. The Trustees project that 

the combined fund asset reserves at the beginning of each year will 

exceed that year’s projected cost through 2028. However, the funds fail 

the test of long-range close actuarial balance.

The Trustees project that the combined trust funds will be depleted in 

2034, the same year projected in last year’s report. The projected 75-year 

actuarial deficit for the combined Old-Age and Survivors Insurance and 

Disability Insurance (OASDI) Trust Funds is 2.66 percent of taxable payroll, down from 2.68 percent projected in last year’s report. This deficit 

amounts to 1.0 percent of GDP over the 75-year time period, or 

20 percent of program non-interest income or 16 percent of program cost. 

A 0.06 percentage point increase in the OASDI actuarial deficit would 

have been expected if nothing had changed other than the one-year shift 

in the valuation period from 2015 through 2089 to 2016 through 2090. 

The effects of recently enacted legislation, updated demographic and economic data, and improved methodologies decrease the actuarial deficit by 

0.08 percent of taxable payroll, causing the small net improvement in the 

actuarial balance. 

Social Security’s total income is projected to exceed its total cost through 

2019, as it has since 1982. The 2015 surplus of total income relative to 
cost was $23 billion. However, when interest income is excluded, Social 

Security’s cost is projected to exceed its non-interest income throughout 

the projection period, as it has since 2010. The Trustees project that this 

annual non-interest deficit will average about $69 billion between 2016 

and 2019. It will then rise steeply as income growth slows to its sustainable trend rate as the economic recovery is complete while the number of 

beneficiaries continues to grow at a substantially faster rate than the 

number of covered workers.

After 2019, interest income and redemption of trust fund asset reserves 

from the General Fund of the Treasury will provide the resources needed 

to offset Social Security’s annual deficits until 2034, when the reserves 

will be depleted. Thereafter, scheduled tax income is projected to be sufficient to pay about three-quarters of scheduled benefits through the end of 

the projection period in 2090. The ratio of reserves to one year’s projected cost (the combined trust fund ratio) peaked in 2008, declined 

through 2015, and is expected to decline steadily until the trust funds are 

depleted in 2034. 

Under current projections, the annual cost of Social Security benefits 

expressed as a share of workers’ taxable earnings will grow from 

14.1 percent in 2015 to roughly 16.6 percent in 2038, and will then 

decline slightly before slowly increasing after 2050. Costs display a 

slightly different pattern when expressed as a share of GDP. Program 

costs equaled 5.0 percent of GDP in 2015, and the Trustees project these 

costs will increase to 6.0 percent of GDP by 2035, decline to 5.9 percent 

of GDP by 2050, and thereafter rise slowly reaching 6.1 percent by 2090.

Medicare

The Medicare program has two separate trust funds, the Hospital Insurance Trust Fund (HI) and the Supplementary Medical Insurance Trust 

Fund (SMI). HI, otherwise known as Medicare Part A, helps pay for hospital, home health services following hospital stays, skilled nursing facility, and hospice care for the aged and disabled. SMI consists of Medicare 

Part B and Part D. Part B helps pay for physician, outpatient hospital, 

home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance 

coverage on a voluntary basis for all beneficiaries and premium and costsharing subsidies for low-income enrollees.
The Trustees project that the Medicare Hospital Insurance (HI) Trust 

Fund will be depleted in 2028, two years earlier than projected in last 

year’s report. At that time dedicated revenues will be sufficient to pay 

87 percent of HI costs. The Trustees project that the share of HI cost that 

can be financed with HI dedicated revenues will decline slowly to 

79 percent in 2043, and will then rise gradually to 86 percent in 2090. 

HI expenditure is projected to exceed non-interest income throughout the 

projection period, as it has in every year since 2008. The HI fund again 

fails the test of short-range financial adequacy, as its trust fund ratio is 

already below 100 percent of annual costs and is expected to decline in a 

continuous fashion until reserve depletion in 2028.

The HI Trust Fund’s projected 75-year actuarial deficit is 0.73 percent of 

taxable payroll, which amounts to 0.3 percent of GDP through 2090, or 

19 percent of non-interest income or 16 percent of program cost. This 

estimate is up from 0.68 percent of taxable payroll projected in last year’s 

report. A 0.01 percentage point increase in the HI actuarial deficit would 

have been expected if nothing had changed other than the one-year extension of the valuation period to 2090. The remaining 0.04 percentage 

points worsening of the actuarial balance is primarily due to higher projected utilization rates and lower projected taxable payroll, especially in 

the near term.

The HI trust fund depletion date of 2028 is two years earlier than projected last year despite the modest changes in projected long-term 

finances because the revisions to projected income and cost are concentrated in early years of the projection, and also because last year’s report 

projected only modest positive trust fund balances in 2028 and 2029. 

For Supplementary Medical Insurance (SMI), the Trustees project that 

both Part B (which pays doctors’ bills and other outpatient expenses) and 

Part D (which pays for prescription drug coverage) will remain 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. However, the aging population and 

rising health care costs cause SMI projected costs to grow steadily from 

2.1 percent of GDP in 2015 to approximately 3.5 percent of GDP in 2037, 

and then more slowly to 3.8 percent of GDP by 2090. General revenues 

will finance roughly three-quarters of these costs, and premiums paid by 
beneficiaries almost all of the remaining quarter. SMI also receives a 

small amount of financing from special payments by States and from fees 

on manufacturers and importers of brand-name prescription drugs.

The Trustees project that total Medicare costs (including both HI and SMI 

expenditures) will grow from approximately 3.6 percent of GDP in 2015 

to 5.6 percent of GDP by 2040 and will increase gradually thereafter to 

about 6.0 percent of GDP by 2090.

In recent years U.S. national health expenditure (NHE) growth has 

slowed considerably. There is uncertainty regarding the degree to which 

this slowdown reflects the impacts of the recent economic downturn and 

other non-persistent factors or structural changes in the health care sector that may continue to produce cost savings in the years ahead. The 

Trustees are hopeful that U.S. health care practices are in the process of 

becoming more efficient as new payment models become more prevalent 

and providers anticipate less rapid growth of reimbursement rates in both 

the public and private sectors than has occurred during the past several 

decades.

For a number of years, the methodology the Trustees have employed for 

projecting Medicare finances over the long term has assumed a substantial reduction in per capita health expenditure growth rates relative to 

historical experience. In addition, the Trustees have been revising down 

their projections for near-term Medicare expenditure growth in light of 

the recent favorable experience, in part due to effects of payment changes 

and delivery system reform that are changing how health care is practiced. However, the Trustees have not assumed additional, specific cost 

saving arising from structural changes in the delivery system that may 

result from new payment mechanisms in the Medicare Access and CHIP 

Reauthorization Act of 2015 and the cost-reduction incentives in the 

Affordable Care Act, or from payment reforms initiated by the private sector.

Notwithstanding the assumption of a substantial slowdown of per capita 

health expenditure growth, the projections indicate that Medicare still 

faces a substantial financial shortfall that will need to be addressed with 

further legislation. Such legislation should be enacted sooner rather than 

later to minimize the impact on beneficiaries, providers, and taxpayers.
Conclusion

Lawmakers have many policy options that would reduce or eliminate the 

long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking 

action sooner rather than later will permit consideration of a broader 

range of solutions and provide more time to phase in changes so that the 

public has adequate time to prepare. 

By the Trustees:

JACOB J. LEW, Secretary of the Treasury,

and Managing Trustee 

of the Trust Funds.

THOMAS E. PEREZ, Secretary of Labor,

and Trustee.

SYLVIA M. BURWELL, Secretary of Health 

and Human Services,

and Trustee.

CAROLYN W. COLVIN, Acting Commissioner 

of Social Security,

and Trustee.
1

A SUMMARY OF THE 2016 ANNUAL SOCIAL SECURITY

AND MEDICARE TRUST FUND REPORTS

In 2015, Social Security’s reserves increased by $23 billion to 

$2.8 trillion by the end of the year. The Bipartisan Budget Act of 2015, 

signed into law on November 2, 2015, averted a near-term shortfall in 

Social Security’s Disability Insurance (DI) Trust Fund. The temporary 

reallocation of tax rates from the Old-Age and Survivors Insurance 

(OASI) fund to the DI fund means that DI will be able to pay full benefits 

until 2023. OASI is able to pay full benefits until 2035, and the combined 

OASDI funds1 until 2034, both unchanged from last year. Over the 

75-year projection period, Social Security faces an actuarial deficit of 

2.66 percent of taxable payroll, slightly less than the 2.68 percent projected in last year’s report. The deficit equals 1.0 percent of GDP through 

2090. Reserves in Medicare’s two trust funds decreased by $3 billion to a 

total of $263 billion at the end of 2015. The Hospital Insurance (HI) Trust 

Fund is projected to be able to pay full benefits until 2028. The HI actuarial deficit is 0.73 percent of taxable payroll over the 75-year projection 

period, slightly larger than the 0.68 percent projected in last year’s report, 

and equivalent to 0.3 percent of GDP through 2090. 

Social Security’s and Medicare’s projected long-range costs exceed currently scheduled financing and will require legislative action to avoid subjecting beneficiaries and taxpayers to unanticipated program changes. The 

sooner that lawmakers take action, the wider will be the range of solutions 

to consider and the more time that will be available to phase in changes, 

giving the public adequate time to prepare. Earlier action allows more 

generations to share the economic cost of maintaining program solvency, 

and would provide more opportunity to ameliorate adverse impacts on 

vulnerable populations, including lower-income workers and people 

already significantly dependent on program benefits. 

What Are the Trust Funds? Congress established trust funds managed 

by the Secretary of the Treasury to account for Social Security and Medicare income and disbursements. The Treasury credits Social Security and 

Medicare taxes, premiums, and other income 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. 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 

1 OASDI is the designation for the two trust funds when they are considered on a hypothetical combined basis to illustrate the actuarial status of the program as whole. The OASI and DI Trust Funds 

are distinct legal entities which operate independently.
2

and outpatient services, and Part D, which covers the prescription drug 

benefit. 

The only disbursements permitted from the funds are benefit payments 

and administrative costs. Federal law requires that all excess funds 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 which earn interest equal to rates on marketable securities with 

durations defined in law. The balances in the trust funds, which represent 

the accumulated value, including interest, of all prior program annual surpluses and deficits, provide automatic authority to pay benefits.

What Were the Trust Fund Operations in 2015? In 2015, 49.2 million 

people received OASI benefits, 10.8 million received DI benefits, and 

55.3 million were covered under Medicare. A summary of Social Security 

and Medicare trust fund operations is shown below (Table 1). The OASI 

Trust Fund increased asset reserves in 2015; reserves in the SMI Trust 

Funds increased slightly; reserves in the DI and HI Trust Funds declined.

Table 2 shows payments, by category, from each trust fund in 2015.

Table 1: TRUST FUND OPERATIONS, 2015

[In billions]

OASI DI HI SMI

Reserves (end of 2014) . . . . . . . . $2,729.2 $60.2 $197.3 $69.1

Income during 2015 . . . . . . . . . . 801.6 118.6 275.4 369.1

Cost during 2015. . . . . . . . . . . . . 750.5 146.6 278.9 368.8

Net change in reserves . . . . . . 51.0 -28.0 -3.5 0.3

Reserves (end of 2015) . . . . . . . . 2,780.3 32.3 193.8 69.5

Notes: Totals do not necessarily equal the sum of rounded components.

OASI and DI cost and reserve figures for 2015 do not include benefit payments regularly scheduled for January 3, 2016, which were actually paid on December 31, 2015. SMI income and 

reserves for 2015 do reflect premium payments and general revenue matching for SMI (Part B) 

regularly scheduled for January 3, 2016, which were received in 2015. Because January 3, 2016 

was a Sunday, these income items moved to the next earliest date that was not a weekend or holiday.

Table 2: PROGRAM COST, 2015

[In billions]

Category OASI DI HI SMI

Benefit payments . . . . . . . . . . . . $742.9 $143.4 $273.4 $365.3

Railroad Retirement financial 

interchange . . . . . . . . . . . . . . . 4.3 0.4 — —

Administrative expenses . . . . . . 3.4 2.8 5.5 3.5

Total . . . . . . . . . . . . . . . . . . . . . . 750.5 146.6 278.9 368.8

Notes: Totals do not necessarily equal the sum of rounded components.

OASI and DI cost figures for 2015 do not include benefit payments regularly scheduled for 

January 3, 2016, which were actually paid on December 31, 2015. 
3

Trust fund income, by source, in 2015 is shown in Table 3. 

In 2015, Social Security’s total income exceeded total cost by $23 billion. 

When interest received on trust fund assets is excluded from program 

income, there was a deficit of non-interest income relative to cost equal to 

$70 billion. The Trustees project that annual non-interest-income deficits 

will persist throughout the long-range period (2016-90).

In 2015, the HI fund used $8 billion of interest income (Table 3) and 

$4 billion of asset reserves (Table 1) to finance expenditures beyond those 

that could have been made solely on the basis of tax and other non-interest income. For SMI, transfers from the General Fund of the Treasury, 

which are set prospectively based on projected costs, represent the largest 

source of income.

What Is the Outlook for Future Social Security and Medicare Costs 

in Relation to GDP? One instructive way to view the projected costs of 

Social Security and Medicare is to compare the costs of scheduled benefits and administrative costs for the programs with the gross domestic 

product (GDP), the most frequently used measure of the total output of 

the U.S. economy (Chart A).

Under the intermediate assumptions employed in the reports, program 

costs as a percentage of GDP 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 the labor force and GDP.

Social Security’s annual cost is projected to increase from 5.0 percent of 

GDP in 2016 to about 6.0 percent of GDP by 2035, then decline to 

5.9 percent by 2050, and then rise to 6.1 percent of GDP by 2090. Under 

the intermediate assumptions, Medicare cost rises from 3.6 percent of 

Table 3: PROGRAM INCOME, 2015

[In billions]

Source OASI DI HI SMI

Payroll taxes . . . . . . . . . . . . . . . $679.5 $115.4 $241.1 —

Taxes on OASDI benefits . . . . . 30.6 1.1 20.2 —

Interest earnings . . . . . . . . . . . . 91.2 2.1 8.2 $2.3

General Fund reimbursements . 0.3 a 1.0 1.6

General revenues. . . . . . . . . . . . — — — 270.7

Beneficiary premiums . . . . . . . . — — 3.2 82.2

Transfers from States. . . . . . . . . — — — 8.9

Other . . . . . . . . . . . . . . . . . . . . . — — 1.6 3.4

Total. . . . . . . . . . . . . . . . . . . . . . 801.6 118.6 275.4 369.1

Notes: Totals do not necessarily equal the sum of rounded components. 

SMI income for 2015 reflects premium payments and general revenue matching for SMI 

(Part B) regularly scheduled for January 3, 2016, which were received in 2015.

a Less than $50 million.
4

GDP in 2016 to 5.5 percent of GDP by 2035 due mainly to the growth in 

the number of beneficiaries, and then increases further to 6.0 percent by 

2090. The growth in health care cost per beneficiary becomes the larger 

factor later in the valuation period, particularly in Part D. 

In 2016, the combined cost of the Social Security and Medicare programs 

is estimated to equal 8.6 percent of GDP. The Trustees project an increase 

to 11.5 percent of GDP by 2035 and to 12.1 percent by 2090, with most of 

these increases attributable to Medicare. Medicare’s relative cost is 

expected to rise gradually from 73 percent of the cost of Social Security 

in 2016 to 98 percent by 2090. 

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 trust funds will have sufficient resources to 

meet these obligations. Current law precludes payment of any benefits 

beyond the amount that can be financed by the trust funds, that is, from 

annual income and trust fund reserves. In years after trust fund depletion, 

the amount of benefits that would be payable is lower than shown because 

OASDI and HI, by law, cannot borrow money or pay benefits that exceed 

the asset reserves in their trust funds. The projected costs assume realization of the full estimated savings of the Affordable Care Act and the physician payment rate updates specified in the Medicare Access and CHIP 

Reauthorization Act (MACRA) of 2015. As described in the Medicare 

Trustees Report, the projections for HI and SMI Part B depend signifi-

 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 2090

Calendar year

OASI + DI

HI + SMI (including Part D)

Historical Estimated
5

cantly on the sustained effectiveness of various current-law cost-saving 

measures, in particular, the lower increases in Medicare payment rates to 

most categories of health care providers.

What Is the Outlook for Future Social Security and Medicare HI 

Costs and Income in Relation to Taxable Earnings? Because the primary source of income for OASDI and HI is the payroll tax, it is informative to express the programs’ incomes and costs as percentages of taxable 

payroll—that is, of the base of worker earnings taxed to support each program (Chart B).

It is important to understand that the two programs have different taxable 

payrolls. HI taxable payroll is about 25 percent larger than that of OASDI 

because the HI payroll tax is imposed on all earnings while OASDI taxes 

apply only to earnings up to a maximum ($118,500 in 2016), which ordinarily is adjusted each year. Thus, the percentages in Chart B are comparable within each program, but not across programs.

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

2015 levels (14.08 and 3.44 percent). Projected Social Security cost 

grows to 16.61 percent of taxable payroll by 2038, declines to 

16.36 percent by 2050, and then rises gradually to 17.68 percent of taxable payroll in 2090. The projected Medicare HI cost rate rises to 

4.88 percent of taxable payroll in 2050, and thereafter increases to 

5.08 percent in 2090.

 Chart B–OASDI and HI Income and Cost as Percentages 

of Their Respective Taxable Payrolls

0%

5%

10%

15%

20%

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar year

Income rates

Cost rates

Historical Estimated

OASDI

HI
6

The OASDI and HI income rates in Chart B include payroll taxes and 

taxes on OASDI benefits, but not interest payments. The projected 

OASDI income rate is stable at about 13 percent throughout the longrange period. 

The HI income rate rises gradually from 3.35 percent in 2015 to 

4.37 percent in 2090 due to the Affordable Care Act’s increase in payroll 

tax rates for high earners that began in 2013. Individual tax return filers 

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

$250,000, pay an additional 0.9 percent tax on earnings above these earnings thresholds. An increasing fraction of all earnings will be subject to 

the higher tax rate over time because the thresholds are not indexed. By 

2090, an estimated 79 percent of workers would pay the higher rate.

How Will Cost Growth in the Different Parts of Medicare Change the 

Sources of Program Financing? As Medicare cost grows over time, 

general revenues and beneficiary premiums will play an increasing role in 

financing the program. Chart C shows scheduled cost and non-interest 

revenue sources under current law 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 6.0 percent of GDP by 2090.

 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 2090

Calendar year

Historical Estimated

Payroll Taxes

Premiums

General Revenue

Transfers

Tax on OASDI Benefits

Total Non-Interest Income

Total Cost

State Transfers & Drug Fees

Deficit
7

Projected revenue from payroll taxes and taxes on OASDI benefits credited to the HI Trust Fund increases from 1.5 percent of GDP in 2016 to 

1.9 percent in 2090 under current law, while projected general revenue 

transfers to the SMI Trust Fund increase from 1.7 percent of GDP in 2016 

to 2.7 percent in 2090, and beneficiary premiums increase from 0.5 to 

1.0 percent of GDP during the same period. Thus, the share of total noninterest Medicare income from taxes declines (from 39 percent to 

33 percent) while the general revenue share rises (from 46 percent to 

48 percent), as does the share of premiums (from 13 percent to 

17 percent). The distribution of financing changes in large part because 

costs for Part B and especially Part D—the Medicare components that are 

financed largely from general revenues—increase at a faster rate than Part 

A cost under the Trustees’ projections. The projected annual HI financial 

deficit beyond 2035 through 2090 averages about 0.4 percent of GDP and 

there is no provision under current law to finance that shortfall 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 

cost and dedicated revenues (the bottom four layers of Chart C) under 

current law exceeds 45 percent of total Medicare cost in any of the first 

seven fiscal years of the 75-year projection period, in which case the 

annual Trustees Report must include, as it did from 2006 through 2013, a 

determination of “excess general revenue Medicare funding.” Because the 

difference between program cost and dedicated revenues is not expected 

to exceed the 45 percent threshold during fiscal years 2016-22, there is no 

such determination in this year’s report.

What Are the Budgetary Implications of Rising Social Security and 

Medicare Costs? Discussion of the long-range financial outlook for 

Medicare and Social Security often focuses on the depletion dates for the 

HI and OASDI trust funds—the times when the projected trust fund balances under current law will be insufficient to pay the full amounts of 

scheduled benefits. Normal operations of the trust fund also have an 

impact on the unified Federal budget.

Under the OASDI and HI programs, when taxes and other sources of revenue are collected in excess of immediate program costs, funds are converted to Treasury bonds and held in reserve for future periods. 

Accumulation of assets in the trust fund improves the unified Federal 

budget position. When trust fund assets are drawn down to pay scheduled 

benefits, bonds are redeemed and interest payments are made, creating a 

current-year cost to the unified Federal budget.

Unlike HI and OASDI, SMI does not have a trust fund structure with surpluses accumulated from prior years. General revenues pay for roughly 

75 percent of all SMI costs and pose an immediate cost for the unified 

Federal budget.
8

Chart D shows the required SMI general revenue funding, plus the excess 

of scheduled costs over dedicated tax and premium income for the 

OASDI and HI trust funds expressed as percentages of GDP through 

2040. For OASDI and HI, the difference between scheduled cost and dedicated revenues is equal to interest earnings and asset redemptions prior to 

trust fund depletion, and unfunded obligations after depletion. The chart 

assumes full benefits will be paid after trust fund depletion, even though 

under current law expenditures can only be made to the extent covered by 

current income. Such budgetary assumptions are typical of unified budget 

baselines, but do not reflect current law in the Social Security Act, nor do 

they reflect policy approaches that Congress has used in the past. 

In 2016, the projected difference between Social Security’s expenditures 

and dedicated tax income is $73 billion. For HI, the projected difference 

between expenditures and non-interest income is $7 billion.1 The projected general revenue demands of SMI are $319 billion. Thus, the total 

General Fund requirements for Social Security and Medicare in 2016 are 

$401 billion, or 2.1 percent of GDP. Redemption of trust fund bonds, 

interest paid on those bonds, and transfers from the General Fund provide 

no new net income to the Treasury. When the unified budget is not in sur-

 Chart D–Projected SMI General Revenue Funding

plus OASDI and HI Tax Shortfalls

[Percentage of GDP]

1 This difference is projected on a cash rather than the incurred expenditures basis applied elsewhere 

in the long-range projections, except where explicitly noted otherwise.

0%

1%

2%

3%

4%

5%

2016 2020 2024 2028 2032 2036 2040

Calendar year

SMI (B&D)

HI

OASDI
9

plus, these payments are made through some combination of increased 

taxation, reductions in other government spending, or additional borrowing from the public.

Each of these trust funds’ operations will contribute increasing amounts 

to Federal unified budget deficits in future years as trust fund bonds are 

redeemed. Until 2028, interest earnings and asset redemptions, financed 

from general revenues, will cover the shortfall of HI tax and premium 

revenues relative to expenditures. In addition, general revenues must 

cover similar payments as a result of growing OASDI bond redemption 

and interest payments through 2034 as the trust fund is drawn down.

If full benefits are to be maintained for both Social Security and Medicare, by 2040 the combined OASDI and HI financing gap plus SMI’s projected general revenue demands will equal 4.2 percent of GDP—double 

the 2016 share.

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 asset reserves at the start of a year to projected 

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

percent or more—that is, asset reserves at least equal to projected cost for 

the year—is a good indicator of a fund’s short-range adequacy. That level 

of projected reserves for any year suggests 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. Chart E shows 

the trust fund ratios through 2040 under the intermediate assumptions.

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

and beyond the short-range period (2016-25), but the DI Trust Fund fails 

the short-range test because its trust fund ratio was 21 percent at the 

beginning of 2016 and is not projected to reach 100 percent within 5 

years. The Trustees project that the DI Trust Fund ratio will increase to 

48 percent at the start of 2019, due largely to the temporary payroll tax 

reallocation enacted in the Bipartisan Budget Act of 2015, and subsequently decline until depletion of all reserves in 2023. 

The HI Trust Fund does not meet the short-range test of financial adequacy; its trust fund ratio was 67 percent at the beginning of 2016 based 

on the year’s anticipated expenditures, and the projected ratio does not 

rise to 100 percent within five years. Projected HI Trust Fund asset 

reserves become fully depleted in 2028. 

The Trustees apply a less stringent annual “contingency reserve” test to 

SMI Part B asset reserves because (i) the financing for that account is set 

each year to meet expected costs, and (ii) the overwhelming portion of the 

financing for that account consists of general revenue contributions and 

beneficiary premiums, which were 73 percent and 25 percent of total Part 

B income in calendar year 2015. Part D premiums paid by enrollees and 
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the amounts apportioned from the General Fund of the Treasury are determined each year. Moreover, flexible appropriation authority established 

by lawmakers for Part D allows additional General Fund financing if 

costs are higher than anticipated, limiting the need for a contingency 

reserve in that account.

What Are Key Dates in OASI, DI, and HI Financing? The 2016 

reports project that the OASI, DI, and HI Trust Funds will all be depleted 

within 20 years. The following table shows key dates for the respective 

trust funds as well as for the combined OASDI trust funds.1

DI Trust Fund reserves will increase until 2019 and then fall steadily until 

they are fully depleted in 2023. Payment of full DI benefits beyond 2023, 

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

[Asset reserves as a percentage of annual cost]

Table 4: KEY DATES FOR THE TRUST FUNDS 

OASI DI OASDI HI

First year cost exceeds income 

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

a.Dates indicate the first year a condition is projected to occur and to persist annually thereafter through 2090.

2010 2019 2010 2008

First year cost exceeds total incomea . . . . 2022 2019 2020 2021

Year trust fund reserves are depleted . . . . 2035 2023 2034 2028

1 HI results in this section of the Summary are on a cash rather than the incurred expenditures basis.

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
11

when tax income would cover only 89 percent of scheduled benefits, will 

require legislation to address the financial imbalance. 

The OASI Trust Fund, when considered separately, has a projected 

reserve depletion date of 2035, the same as in last year’s report. At that 

time, income would be sufficient to pay 77 percent of scheduled OASI 

benefits.

The combined OASDI trust funds have a projected depletion date of 

2034, the same as in last year’s report. After the depletion of reserves, 

continuing tax income would be sufficient to pay 79 percent of scheduled 

benefits in 2034 and 74 percent in 2090.

The OASDI reserves are projected to grow in 2016 because total income 

($944.6 billion) will exceed total cost ($928.9 billion). This year’s report 

indicates that annual OASDI income, including payments of interest to 

the trust funds from the General Fund, will continue to exceed annual cost 

every year until 2020, increasing the nominal value of combined OASDI 

trust fund asset reserves. Social Security’s cost is projected to exceed its 

non-interest income by $73 billion in 2016, and annual non-interest 

income deficits will persist through 2090. The trust fund ratio (the ratio of 

projected reserves to annual cost) will continue to decline gradually 

(Chart E), as it has since 2008, despite this nominal balance increase. 

Beginning in 2020, net redemptions of trust fund asset reserves with General Fund payments will be required until projected depletion of these 

reserves in 2034.

The projected HI Trust Fund depletion date is 2028, two years earlier than 

in last year’s report. Under current law, scheduled HI tax and premium 

income would be sufficient to pay 87 percent of estimated HI cost after 

trust fund depletion in 2028, declining to 79 percent by 2040, and then 

gradually increasing to 86 percent by 2090.

This report projects that HI Trust Fund reserve assets will increase 

slightly in 2016 because total income ($288.4 billion) will exceed total 

cost ($287.1 billion). Projected annual HI cost exceeds non-interest HI 

income throughout the long-range projection period. After 2020, assets 

will decline continuously until depletion of all reserves in 2028. 

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 (OASI, DI, and HI) is to consider their actuarial balances for 

the 75-year valuation period. The actuarial balance measure includes the 

trust fund asset reserves at the beginning of the period, an ending fund 

balance equal to the 76th year’s costs, and projected costs and income 

during the valuation period, all expressed as a percentage of taxable payroll for the 75-year projection period. Actuarial balance is not an informative concept for the SMI program because Federal law sets premium 
12

increases and general revenue transfers at the levels necessary to bring 

SMI into annual balance.

The actuarial deficit represents the average amount of change in income 

or cost that is needed throughout the valuation period in order to achieve 

actuarial balance. The actuarial balance equals zero if cost for the period 

can be met for the period as a whole and trust fund asset reserves at the 

end of the period are equal to the following year’s cost. The OASI, DI, 

and HI Trust Funds all have long-range actuarial deficits under the intermediate assumptions, as shown in the following table. 

Note: Totals do not necessarily equal the sums of rounded components.

The Trustees project that the annual deficits for Social Security as a 

whole, expressed as the difference between the cost rate and income rate 

for a particular year, will remain about the same or lower than the 2015 

value (1.10 percent of taxable payroll) during 2016-19. The annual deficits then increase steadily to 3.38 percent in 2038. Annual deficits then 

decline gradually to 3.13 percent in 2050 before resuming an upward trajectory and reaching 4.35 percent of taxable payroll in 2090 (Chart B). 

The relatively large variation in annual deficits indicates that a single tax 

rate increase for all years starting in 2016 sufficient to achieve actuarial 

balance would result in sizable annual surpluses early in the period followed by increasing deficits in later years. Sustainable 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 (2016-90).

In 2015, the HI cost rate exceeded the income rate by 0.09 percent of taxable payroll. The Trustees project smaller annual deficits from 2016 

through 2021. Deficits subsequently grow rapidly with the aging of the 

baby boom population through about 2045, when the annual deficit 

reaches a peak of 1.04 percent of taxable payroll. Annual deficits then 

decline gradually to 0.71 percent of taxable payroll by 2090.

The financial outlooks for both OASDI and HI depend on a number of 

demographic and economic assumptions. Nevertheless, the actuarial deficit in each of these programs is large enough that averting trust fund 

depletion under current-law financing is extremely unlikely. An analysis 

that allows plausible random variations around the intermediate assumptions employed in the report indicates that OASDI trust fund depletion is 

highly probable by mid-century.

Table 5: LONG-RANGE ACTUARIAL DEFICIT OF THE 

OASI, DI, AND HI TRUST FUNDS

[Percent of taxable payroll]

OASI DI OASDI HI

Actuarial

Deficit . . . . . . . . . . . . . . . . . . 2.39 0.26 2.66 0.73
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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 2.66 percent of taxable payroll, 0.02 percentage point smaller 

than last year’s estimate. The projected depletion date for the combined 

asset reserves remains 2034. If the assumptions, methods, starting values, 

and the law had remained unchanged from last year, the actuarial deficit 

would have increased by about 0.06 percent of payroll due to advancing 

the valuation date by one year and including the year 2090. Improvements 

in the methods used to project net immigration account for most of the 

small net decline in the actuarial deficit.

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

0.73 percent of taxable payroll under the intermediate assumptions, 

0.05 percentage point larger than reported last year. This change was primarily due to lower taxable payroll and higher projected utilization of 

inpatient hospital services than previously estimated. The anticipated date 

of depletion of the HI Trust Fund is now 2028, two years earlier than 

stated in last year’s report, which projected small trust fund balances in 

2028 and 2029. The earlier depletion date is mostly due to lower assumed 

productivity adjustments through 2019 and lower projected HI tax income 

in the short range due to anticipated slower real-wage growth. 

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

the major source of financing is payroll taxes on earnings paid by employees and their employers. Self-employed workers pay the equivalent of the 

combined employer and employee tax rates. During 2015, an estimated 

168.9 million people had earnings covered by Social Security and paid 

payroll taxes; for Medicare the corresponding figure was 172.7 million. 

Current law establishes payroll tax rates for OASDI, which apply to earnings up to an annual maximum ($118,500 in 2016) that ordinarily 

increases with the growth in the nationwide average wage. When the costof-living adjustment (COLA) for December of any year is zero, as 

occurred in 2015, the maximum taxable earnings amount does not 

increase for the following year. In contrast to OASDI, covered workers 

pay HI taxes on total earnings. The scheduled payroll tax rates (in percent) for 2016 are: 

Self-employed persons pay the combined rates. The Bipartisan Budget 

Act of 2015 reallocated OASDI payroll tax rates on a temporary basis. 

For earnings in calendar years 2016-18, 0.57 percentage point of the 

Table 6: 2016 PAYROLL TAX RATES

[In percent]

OASI DI OASDI HI Total

Employees . . . . . . 5.015 1.185 6.20 1.45 7.65

Employers . . . . . . 5.015 1.185 6.20 1.45 7.65

Combined total. . . 10.030 2.370 12.40 2.90 15.30
14

12.40 percent OASDI payroll tax rate is shifted from OASI to DI. The 

Affordable Care Act applies 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.

Taxation of Social Security benefits is another source of income for the 

Social Security and Medicare trust funds. Beneficiaries with incomes 

above $25,000 for individuals (or $32,000 for married couples filing 

jointly) pay income taxes on up to 50 percent of their benefits, with the 

revenues going to the OASDI trust funds. This income from taxation of 

benefits made up about 3 percent of Social Security’s income in 2015. 

Those with incomes above $34,000 (or $44,000 for married couples filing 

jointly) pay income taxes on up to 85 percent of benefits, with the 

additional revenues going to the Medicare trust fund. This income from 

taxation of benefits made up about 7 percent of HI Trust Fund income in 

2015.

The trust funds also receive income from interest on their accumulated 

reserves, which are invested in U.S. Government securities. In 2015, 

interest income made up 10 percent of total income to the OASDI trust 

funds, 3 percent for HI, and less than 1 percent for SMI.

Payments from the General Fund currently 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 or in the case of low-income beneficiaries, paid on their behalf by Medicaid for Part B and Medicare for 

Part D. Part B and Part D premium amounts are determined by methods 

defined in law and increase as the estimated costs of those programs rise. 

In 2016, the Part B standard monthly premium is $121.80, $16.90 higher 

than the 2015 amount.1 There are also income-related premium surcharges for Part B beneficiaries whose modified adjusted gross income 

exceeds a specified threshold. In 2016 through 2019, the threshold is 

$85,000 for individual tax return filers and $170,000 for joint return filers. Income-related premiums range from $170.50 to $389.80 per month 

in 2016.

In 2016, the Part D “base monthly premium” is $34.10. Actual premium 

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

have selected and average around $33 for standard coverage. Part D 

enrollees with incomes exceeding the thresholds established for Part B 

must pay income-related monthly adjustment amounts in addition to their 

normal plan premium. For 2016, the adjustments range from $12.70 to 

$72.90 per month. Part D also receives payments from States that partially compensate for the Federal assumption of Medicaid responsibilities 

1 Because there was a zero COLA for Social Security in 2016, about 70 percent of SMI Part B enrollees experienced no premium increase. The Bipartisan Budget Act of 2015 called for replacing that 

lost premium income with a transfer from the General Fund of the Treasury to the Part B account.
15

for prescription drug costs for individuals eligible for both Medicare and 

Medicaid. In 2016, State payments cover about 9 percent of Part D costs.

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.
16

Document revised 7/12/16. The range of income-related premiums per 

month in 2016 (page 14) was corrected to be $170.50 to $389.80 (originally stated as $166.30 to $380.20).
Because the two Public Trustee positions are currently vacant, there is no 

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

2016 Annual Reports.

.
.

2016