2011 OASDI Trustees Report

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F. 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 cost 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. For more information on Medicare estimates, please see the 2011 Medicare Trustees Report.
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 require 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 26 percent larger than the OASDI taxable payroll throughout the long-range period. Nonetheless, in this section the separately derived rates for the programs are added to produce combined OASDI and HI rates.
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. Table VI.F1 shows the OASDI and HI contribution rates for employees and their employers that are authorized in the Federal Insurance Contributions Act for these programs.
 
OASDI
up to basea

HI
all earningsb
HI
over limitc
OASDI
up to base a
HI
all earnings b
HI
over limit c

a
The payroll tax on earnings for the OASDI program applies to annual earnings up to a contribution and benefit base indexed to the average wage level. The base is $106,800 for 2011.

b
Prior to 1994, the payroll tax on earnings for the HI program applied to annual earnings up to a contribution base. The HI contribution base was eliminated beginning in 1994.

c
Starting in 2013, an additional HI tax of 0.9 percent will be applied for earned income exceeding $200,000 for individuals and $250,000 for married couples filing jointly for Federal income tax. These limits are not indexed after 2013.

d
In 1984 only, an immediate credit of 0.3 percent of taxable wages was allowed against the OASDI payroll tax contributions paid by employees. Similar credits of 2.7 percent, 2.3 percent, and 2.0 percent were allowed against the combined OASDI and Hospital Insurance (HI) contributions on net earnings from self-employment in 1984, 1985, and 1986-89, respectively. These credits were offset by reimbursements from the General Fund of the Treasury. Beginning in 1990, self-employed persons are allowed a deduction, for purposes of computing their net earnings, equal to half of the combined OASDI and HI contributions that would be payable without regard to the contribution and benefit base. The OASDI contribution rate is then applied to net earnings after this deduction, but subject to the OASDI base.

e
Under Public Law 111-147, most employers were exempt from paying the employer share of OASDI payroll tax on wages paid during the period March 19, 2010 through December 31, 2010, to certain qualified individuals hired after February 3. Under Public Law 111-312, the OASDI payroll tax rate is reduced for 2011 by 2 percentage points for employees and for self-employed workers. These temporary reductions in 2010 and 2011 tax revenue due to lower tax rates have been and will be made up by reimbursements from the General Fund of the Treasury to the OASI and DI Trust Funds.

Table VI.F2 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. All of the tax rates shown in table VI.F1 are reflected in the income rates. For the HI program, the additional 0.9 percent tax on employees for relatively high earnings is included by increasing the rate shown. That is, HI taxable payroll represents all earnings subject to the payroll tax for the HI program, and the effective tax rate included in the income rate is 2.9 percent through 2012 with an increase thereafter based on the portion of the total payroll to which the 0.9 percent applies. These annual rates are intended to indicate the cash-flow operation of the programs. Therefore, income rates exclude interest earned on trust fund assets. Table VI.F2 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.
The combined OASDI and HI cost rate is projected to rise generally above current levels under the intermediate and high-cost sets of assumptions, with the greatest increase occurring during the period 2015-30. Under both the intermediate and the high-cost assumptions for the combined programs, annual deficits are projected to occur for each year of the 75-year projection period. Under the intermediate assumptions, the combined cost rate increases by 31 percent from its current level by 2085, while under the high-cost assumptions, the cost rate is projected to more than double by the end of the projection period. Under the low-cost assumptions, the combined cost rate is projected to decrease by 12 percent by the end of the period, with positive annual balances in all years except for 2011‑13 and 2023‑42.
 
Table VI.F2.—OASDI and HI Annual Income Rates, Cost Rates,  and Balances,
Calendar Years 2011-85 
Income
rate
Cost
rate
Income
rate
Cost
rate
Income
rate 
Cost
rate

a
The taxable payroll for HI is significantly larger than the taxable payroll for OASDI because the HI taxable maximum amount was eliminated beginning in 1994, and because HI covers all Federal civilian employees, including those hired before 1984, all State and local government employees hired after April 1, 1986, and railroad employees. Combined OASDI and HI rates are computed as the sum of the separately derived rates for each program.

Notes:
1. The income rate excludes interest income.
2. Totals do not necessarily equal the sums of rounded components.
In table VI.F3, 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 cost 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.
 
Table VI.F3.—Summarized OASDI and HI Income Rates and Cost Rates for Valuation Periods,a Calendar Years 2011-85
Valuation
period
Income
rate
Cost
rate
Actuarial
balance
Income
rate
Cost
rate
Actuarial
balance
Income
rate
Cost
rate
Actuarial
balance

a
Income rates include beginning trust fund balances and cost rates include the cost of reaching an ending fund target equal to 100 percent of annual cost by the end of the period.

b
The taxable payroll for HI is significantly larger than the taxable payroll for OASDI because the HI taxable maximum amount was eliminated beginning 1994, and because HI covers all Federal civilian employees, all State and local government employees hired after April 1, 1986, and railroad employees. Combined OASDI and HI rates are computed as the sum of the separately derived rates for each program.

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. Under the intermediate assumptions, actuarial deficits smaller than those for the high-cost assumptions are projected for all three valuation periods. Under the low-cost assumptions, the combined OASDI and HI system is projected to have a positive actuarial balance for all three valuation periods.
 

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