2002 OASDI Trustees Report

E. ESTIMATES FOR OASDI AND HI, SEPARATE AND COMBINED

In this appendix, long-range actuarial estimates for the OASDI and Hospital Insurance (HI) programs are presented separately and on a combined basis. These estimates facilitate analysis of the adequacy of the income and assets of these programs relative to their expenditures under current law. Estimates for the Supplementary Medical Insurance (SMI) program are not included in this appendix because adequate financing is guaranteed in the law, and because the SMI program is not financed through a payroll tax.

The emphasis in this appendix on combined operations, while significant, should not obscure the analysis of the financial status of the individual trust funds, which are legally separate and cannot be commingled. In addition, the factors which determine the costs of the OASI, DI, and HI programs differ substantially.

1. Estimates as a Percentage of Taxable Payroll

Comparing and combining cost and income rates for the OASDI and HI programs as percentages of taxable payroll requires a note of caution. The taxable payrolls for the HI program are larger than those estimated for the OASDI program because (1) a larger maximum taxable amount was established for the HI program in 1991, with the maximum being eliminated altogether for the HI program in 1994, (2) a larger proportion of Federal, State, and local government employees have their wages covered under the HI program, and (3) the earnings of railroad workers are included directly in the HI taxable payroll but not in the OASDI taxable payroll (railroad contributions for the equivalent of OASDI benefits are accounted for in a net interchange that occurs annually between the OASDI and Railroad Retirement programs). As a result, the HI taxable payroll is about 25 percent larger than the OASDI taxable payroll throughout the long-range period. Nonetheless, combined OASDI and HI rates shown in this section are computed by adding the separately derived rates for the programs. The resulting combined rates may be interpreted as those applicable to the taxable payroll in the amount of the OASDI payroll, with the separate HI rates being additionally applicable to the excess of the HI payroll over the OASDI payroll.

As with the OASI and DI Trust Funds, income to the HI Trust Fund comes primarily from contributions paid by employees, employers, and self-employed persons. The combined OASDI and HI contribution rate for employees and their employers is often referred to as the FICA tax, because it is authorized by the Federal Insurance Contributions Act. Contribution rates for the OASDI and HI programs are shown in table VI.E1.

Table VI.E2 shows estimated annual income rates and cost rates for the OASDI program, the HI program, and the combined OASDI and HI programs, based on the low cost, intermediate, and high cost sets of assumptions (alternatives I, II, and III) described earlier in this report. These annual rates are intended to indicate the cash-flow operation of the programs. Therefore, income rates exclude interest earned on trust fund assets and cost rates exclude the cost of accumulating ending target trust fund balances. Table VI.E2 also shows the differences between income rates and cost rates, called balances. Estimates shown for the combined trust funds are theoretical because no authority currently exists for borrowing by or transfers among these trust funds.

Under all three sets of assumptions, the combined OASDI and HI cost rate is projected to rise above current levels, with the sharpest increase occurring during the period 2010-30. Under the high cost set of assumptions, annual deficits are projected to occur beginning in 2012, and to continue for the remainder of the 75-year projection period. The cost rate is projected to rise to about four times its current level by the end of the projection period. Under the intermediate assumptions, annual deficits begin by 2017, with the cost rate more than doubling by the end of the projection period. Under the low cost assumptions, the cost rate is projected to increase by nearly 50 percent, by the end of the period, with annual deficits beginning by 2024.

Notes:
1. The income rate excludes interest income and certain transfers from the General Fund of the Treasury.

2. Totals do not necessarily equal the sums of rounded components.

Tables VI.E3 and VI.E4 show the estimates of summarized OASDI and HI income rates, cost rates and balances for various time periods, based on all three sets of assumptions. In table VI.E3 values are summarized over the three 25-year subperiods (excluding the beginning fund balances and the cost of accumulating ending fund targets). In table VI.E4 values are summarized over the 25-year, 50-year, and 75-year valuation periods (for which beginning fund balances are included in the summarized income rates, and the cost of accumulating an ending fund balance equal to 100 percent of annual expenditures by the end of the period is included in the summarized cost rates). Estimates shown for the combined trust funds are theoretical because no authority currently exists for borrowing by or transfers among these trust funds.

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

Deficits are projected for each 25-year subperiod of the 75-year projection period under the high cost assumptions for the combined OASDI and HI system (table VI.E3, excluding beginning trust fund balances and the cost of ending fund targets). Under the intermediate assumptions, deficits of smaller magnitude than those for the high cost set of assumptions are projected for the second and third 25-year subperiods and a positive balance is projected for the first 25-year subperiod. Under the low cost assumptions, the combined OASDI and HI system is projected to show a positive balance for the first 25-year subperiod and relatively small deficits for the second and third 25-year subperiods.

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

Under the high cost assumptions, the combined OASDI and HI system is projected to experience large actuarial deficits for the 25-year, 50-year, and 75-year valuation periods (table VI.E4, including beginning trust fund balances and the cost of ending fund targets). Under the intermediate assumptions, actuarial deficits smaller than those for the high cost assumptions are projected for the 50-year and the 75-year valuation periods, and a positive actuarial balance is projected for the 25-year valuation period. Under the low cost assumptions, the combined OASDI and HI system is projected to have positive actuarial balances for each of the three valuation periods.

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