*This is an archive page. The links are no longer being updated. 1994.04.11 : Social Security and Medicare Trustees Issue Annual Report FOR IMMEDIATE RELEASE Contact: SSA Press Office Monday, April 11, 1994 (410) 965-8904 (202) 690-8359 HCFA Press Office (202) 690-6145 SOCIAL SECURITY AND MEDICARE TRUSTEES ISSUE ANNUAL REPORT Changes are needed to protect the solvency of Medicare's Hospital Insurance Trust Fund as well as Social Security's Disability Insurance Trust Fund, according to findings of the annual Social Security trustees reports issued today. By contrast, the Old Age and Survivors Trust Fund, the primary Social Security program, remains solvent well into the 21st century, the trustees reported. For the combined Old Age and Survivors and Disability funds, the long-term deficit was projected to be higher than last year's estimate. The trustees recommended that the quadrennial Advisory Council on Social Security review ways to improve the long-term financial status of the two Social Security funds. HHS Secretary Donna E. Shalala said enactment of health care reform could significantly improve the long-term fiscal health of the Medicare program by reducing the rate of growth in spending. "Medicare's financial condition would improve significantly as a result of general cost containment under the president's health care reform proposal," Secretary Shalala said. In addition, the trustees repeated their recommendation of last year that a near-term reallocation of income from the Social Security payroll tax is needed to address the immediate shortfall in the disability trust fund. The annual reports of the Social Security and Medicare Boards of Trustees contain actuarial estimates of the financial status of the four Social Security and Medicare trust funds. The reports are made to Congress, using updated economic and demographic assumptions. The boards have five members, three of whom are Cabinet secretaries: Treasury Secretary Lloyd M. Bensten, Labor Secretary Robert B. Reich and HHS Secretary Shalala. The other two members, Stanford G. Ross and David M. Walker, serve four-year terms as trustees representing the public. Findings of the trustees included the following: Medicare Funds Medicare's Hospital Insurance (HI) trust fund remains "severely out of balance." Using most likely economic and demographic assumptions, the fund is likely to be exhausted in 2001 unless changes are made. Exhaustion of the fund could occur as early as 2000 under high cost economic assumptions, or as late as 2004 under low cost assumptions, this year's report said. Last year, the trustees found exhaustion of the hospital fund likely to occur in 1999, based on most likely assumptions. Congress adopted certain Administration recommendations to increase revenue and reduce program expenditures, which resulted in this year's improvement in the projected exhaustion date. In the Supplementary Medical Insurance (SMI) report, the trustees found this trust fund to be actuarially sound. However, they repeated their concern over the rapid growth of spending. In the past five years, the program has grown 23 percent faster than the economy, despite efforts to control costs. Social Security Old Age and Survivors Insurance and Disability Insurance Trust Funds Under most likely assumptions, income to the Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds in 1994 will total about $377 billion, and outgo will total about $325 billion. Estimates show that the combined OASI and DI funds would continue to grow for the next 25 years and to decline thereafter until the funds were exhausted in 2029. In examining the long-term solvency of the OASDI program over the next 75 years, the trustees reported that the program is not considered in "close actuarial balance" because of the projected declines in the OASI and DI trust funds in the later years. However, the intermediate estimates show that the overall OASDI program will have enough income to pay benefits without any changes in current law for about the next 35 years. The estimated long-term deficit of the combined OASI and DI funds increased from 1.46 percent of taxable earnings last year to 2.13 percent in this year's report. The trustees said there is ample time to address long-term deficit issues, and they said the Advisory Council on Social Security should conduct a review of Social Security financing issues and develop recommendations for improving the long-range financial status of the combined OASDI program. A Social Security advisory council is convened every four years to examine a variety of Social Security-related issues. Members of a new council are to be named later this year. At the same time, the trustees reported for the second consecutive year that the DI fund is facing both a long-term deficit and a critical short-term deficit requiring immediate action. Based on the most likely estimate, the trustees again reported that the DI trust fund would be exhausted in 1995 under the current allocation of the OASDI tax of 6.2 percent each for employees and employers (5.6 percent OASI and 0.6 percent DI). As recommended in last year's report, the trustees urge Congress to legislate a payroll tax reallocation to remedy the financial shortfall in the DI fund. Such actions have been taken in the past to address shortfalls without requiring increases in the overall tax rate. Taking such an action now would not jeopardize the financial solvency of the OASI fund for many years thereafter, the trustees reported. ###