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1993.04.06 :  Social Security and Medicare Boards of Trustees' Report

Contact:  HCFA Press Office (202) 690-6145 
SSA Press Office (410) 965-8904 (202) 690-8359
April 6, 1993

       Social Security's combined trust funds are solvent well
into the 21st century, but the primary Medicare trust fund is
likely to be exhausted in 1999 unless changes are made, the
trustees of the programs reported today.
       Exhaustion of Medicare's Hospital Insurance Trust Fund
could occur as early as 1998, under pessimistic economic
assumptions.  Using optimistic assumptions, the hospital trust
fund would remain solvent only until the year 2000.
       "These new estimates show a significant worsening in the
economic health of the Medicare program," said HHS Secretary
Donna E. Shalala.  "They reflect many of the problems that we see
across the board in our health care system today, and they are
another demonstration of the need for system-wide change."
       Last year, the trustees found exhaustion of the Medicare
hospital fund to be most likely in the year 2002;  and occurring
as early as 2000 under pessimistic assumptions;  or as late as
2009 under optimistic assumptions.
       The estimates are contained in the annual reports of the
Social Security and Medicare Boards of Trustees.  The reports
contain actuarial estimates of the financial status of the four
Social Security and Medicare trust funds:  Social Security's Old
Age and Survivors trust fund and its Disability Insurance trust
fund; and Medicare's Hospital Insurance trust fund and its
Supplementary Medical Insurance trust fund.

                          Medicare Funds

       The trustees concluded that Medicare's hospital insurance
(HI) trust fund "is severely out of financial balance."  Under
optimistic assumptions, the HI fund would remain solvent until
2000.  Under pessimistic assumptions, the fund could be exhausted
as early as the year 1998, the report stated.

       The report noted that expenditures from the hospital trust
fund represented 1.4 percent of the United States' Gross Domestic
Product in 1992, but is estimated to grow to 5.1 percent of GDP
in the year 2065.  At the same time, the report said, the ratio
of covered workers to HI enrollees will begin to decline rapidly
early in the next century.  While there are currently about four
covered workers supporting each HI enrollee, there will be only
about two covered workers supporting each enrollee by the middle
of the next century.

       "Not only are the anticipated reserves and financing of
the HI program inadequate to offset this demographic change, but
under all the assumptions, the HI trust fund is projected to
become exhausted even before the major demographic shift begins
to occur," the report says.  "With the magnitude of the projected
actuarial deficit in the HI program and the high probability that
the HI trust fund will be exhausted by the turn of the century,
the trustees urge the Congress to take additional actions
designed to control HI program costs through specific program
legislation and as a part of enacting comprehensive health care
reform."  The trustees believe that prompt, effective and
decisive action is necessary. 

       In the Supplementary Medical Insurance report, the
trustees noted that this trust fund is actuarially sound. 
However, they expressed concern with the rapid growth of the
program.  In the past five years, the program has grown 22
percent faster than the economy, despite efforts to control
costs.

          Social Security Old-Age and Survivors Insurance
               and Disability Insurance Trust Funds

       Under the intermediate, or best estimates, income to the
Old Age and Survivors Insurance (OASI) and Disability Insurance
(DI) Trust Funds in calendar year 1993 will total about $356
billion and outgo will total about $309 billion.  Estimates over
the next 75 years show that the combined OASI and DI funds will
continue to grow through the year 2024 and decline thereafter
until exhaustion of the funds in 2036.  During 1993,
approximately 135 million workers will be covered by the Social
Security program and about 42 million people will receive
benefits each month.

       In examining the long-term solvency of the OASDI program
over the next 75 years, the trustees reported that the program is
not in "close actuarial balance" because of projected declines in
the combined trust funds in later years.  However, the trustees
project that the combined trust funds will have enough income to
pay benefits without any changes in current law (i.e. tax rates
or benefit structure) for about the next 43 years.  As a result,
the trustees are recommending at this time that ways of
addressing the long-term deficit continue to be studied and
appropriate options be developed for future action.

       At the same time, the trustees reported that the DI fund
is facing both short- and long-term deficits which will require
immediate action.  Based on the intermediate, or best estimates,
the trustees report that the DI Trust Fund by itself would be
exhausted in 1995 under the current allocation of the OASDI tax
rate of 6.2 percent for employees and employers, each (5.6
percent OASI and 0.6 percent DI).

       During the history of the Social Security program,
inadequate assets in either fund have frequently been remedied by
reallocating part of the tax rates from the more adequately
financed fund to the less adequately financed fund.  This has
provided additional income for the inadequate fund without
requiring an increase in the overall Social Security tax rate. 
Therefore, the trustees are recommending that a payroll tax
reallocation should be legislated immediately to remedy the
projected short-range financial shortfall in the DI fund.  Taking
such action would not jeopardize the financial solvency of the
OASI fund in the short term (next 10 years) nor for many years
thereafter, according to the trustees.

       The Board of Trustees is required by law to report
annually to Congress on the current and estimated future of the
financial condition of the trust funds.  The reports use updated
economic and demographic assumptions.

       The board has five members, three of whom serve as Cabinet
Secretaries:  Lloyd M. Bentsen, secretary of the treasury; Robert
B. Reich, secretary of labor; and Donna E. Shalala, secretary of
health and human services.  The other two members, Stanford G.
Ross and David M. Walker, serve four-year terms as public
trustees.

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