2012 OASDI Trustees Report

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F. ESTIMATES FOR OASDI AND HI, SEPARATE AND COMBINED
In this appendix, the Trustees present long-range actuarial estimates for the OASDI and Hospital Insurance (HI) programs both 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. This appendix does not include estimates for the Supplementary Medical Insurance (SMI) program 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 2012 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 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 eliminated altogether for the HI program in 1994; (2) a larger proportion of Federal, State, and local government employees are 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 that are authorized in the Federal Insurance Contributions Act.
 
Self employedb
OASDI
up to basec

HI
all earningsd
HI
over limite
OASDI
up to base c
HI
all earnings d
HI
over limit e
1984f
1990-2010g

a
Except as noted below, the combined employee/employer rate is divided equally between employees and employers.

b
Beginning in 1990, self-employed persons receive 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 then applies to net earnings after this deduction, but subject to the OASDI base.

c
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.

d
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.

e
Starting with Federal personal income tax returns for 2013, earned income exceeding $200,000 for individual filers and $250,000 for married couples filing jointly is subject to an additional HI tax of 0.9 percent. These income limits are not indexed after 2013.

f
In 1984 only, employees received an immediate credit of 0.3 percent of taxable wages against their OASDI payroll tax contributions. The self-employed received similar credits of 2.7 percent, 2.3 percent, and 2.0 percent against their combined OASDI and Hospital Insurance (HI) contributions on net earnings from self-employment in 1984, 1985, and 1986-89, respectively. The General Fund of the Treasury reimbursed the trust funds for these credits.

g
Public Law 111-147 exempted most employers 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, 2010. Public Law 111-312, Public Law 112-78, and Public Law 112-96 reduced the OASDI payroll tax rate for 2011 and 2012 by 2 percentage points for employees and for self-employed workers. These laws require that the General Fund of the Treasury reimburse the OASI and DI Trust Funds for these temporary reductions in 2010, 2011, and 2012 payroll tax revenue, in order to “replicate to the extent possible” revenue that would have been received if the combined employee/employer payroll tax rates had remained at 12.4 percent for OASDI (10.6 percent for OASI and 1.8 percent for DI).

Table VI.F2 shows the Trustees’ estimates of annual income rates and cost rates for the OASDI program, the HI program, and the combined OASDI and HI programs, under the low-cost, intermediate, and high-cost sets of assumptions described earlier in this report. The income rates reflect the tax rates shown in table VI.F1. For the HI program, the income rates beginning in 2013 reflect: (1) the additional 0.9 percent tax on employees for relatively high earnings; and (2) the portion of total payroll to which the 0.9 percent rate applies. Annual income and cost rates indicate the cash-flow operation of the programs. Therefore, income rates exclude interest earned on trust fund assets. Table VI.F2 also shows annual balances, which are the differences between annual income rates and cost rates. Estimates shown for the combined trust funds are theoretical because there is no current statutory authority for borrowing by or transfers among these trust funds.
The Trustees project that the combined OASDI and HI cost rate will rise generally above current levels under the intermediate and high-cost sets of assumptions, with the greatest increase occurring during the period 2018-35. Under both the intermediate and the high-cost assumptions, the Trustees project annual deficits for the combined programs in each year of the 75-year projection period. Under the intermediate assumptions, the combined cost rate increases by 37 percent from its current level by 2086, while under the high-cost assumptions, the cost rate more than doubles by 2086. Under the low-cost assumptions, the combined cost rate decreases by 7 percent by the end of the period, with positive annual balances in all years except for 2012‑15 and 2023‑50.
 
Table VI.F2.—OASDI and HI Annual Income Rates, Cost Rates,  and Balances,
Calendar Years 2012-90 
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, all State and local government employees hired after April 1, 1986, and railroad employees. Combined OASDI and HI rates are 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.
Table VI.F3 shows summarized values over the 25-year, 50-year, and 75-year valuation periods. For each of those periods, the summarized income rates include beginning fund balances, and the summarized cost rates include the cost of accumulating an ending fund balance equal to 100 percent of annual cost at the end of the period. Estimates for the combined trust funds are theoretical because there is no authority 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 2012-90
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 target trust fund equal to 100 percent of annual cost at 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.
The Trustees project that the combined OASDI and HI system will experience large actuarial deficits for the 25-year, 50-year, and 75-year valuation periods under the high-cost assumptions. Actuarial deficits under the intermediate assumptions are smaller than those for the high-cost assumptions for all three valuation periods. The combined OASDI and HI system has a positive actuarial balance under the low-cost assumptions for all three valuation periods.
 

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