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.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.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 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.F1.

Table VI.F1.—Contribution Rates for the OASDI and HI Programs

[In percent]

See footnote a under table VI.A1 in the appendix titled “History of OASI and DI Trust Fund Operations” for a description of tax credits allowed against the combined OASDI and HI taxes on net earnings from self-employment in 1984-89.

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. 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.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 2013-30. For the combined OASDI and HI programs, under the high-cost set of assumptions, annual deficits are projected to occur for each year of the 75-year projection period. The cost rate is projected to rise to over three times its current level by the end of the projection period. Under the intermediate assumptions, annual deficits occur in 2010, and in years 2013 through the end of the projection period, with the cost rate nearly doubling by 2083. Under the low-cost assumptions, the cost rate is projected to increase by about 16 percent by the end of the period, with annual deficits beginning in 2019.

Table VI.F2.—OASDI and HI Annual Income Rates, Cost Rates, and Balances,

Calendar Years 2009-85 [As a percentage of taxable payroll^{a}] Income

rate Cost

rate Income

rate Cost

rate Income

rate Cost

rate

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 and certain transfers from the General Fund of the Treasury.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 2009-83

[As a percentage of taxable payroll^{b}] Valuation

period Income

rate Cost

rate Actuarial

balance Income

rate Cost

rate Actuarial

balance Income

rate Cost

rate Actuarial

balance

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.

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, 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.

Between -0.005 and 0.005 percent of taxable payroll.

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 the 25‑year valuation period, a negligible balance (between -0.005 and 0.005 percent of taxable payroll) for the 50‑year valuation period, and a negative actuarial balance for the 75‑year valuation period.

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