[House Document 116-121]
[From the U.S. Government Publishing Office]

116th Congress, 2d Session - - - - - - - - - - - House Document 116-121

RECOMMENDATIONS BY BOARD OF TRUSTEES TO REMEDY INADEQUATE BALANCES IN
THE SOCIAL SECURITY TRUST FUNDS

__________

COMMUNICATION

from

THE BOARD OF TRUSTEES OF THE FEDERAL HOSPITAL INSURANCE TRUST FUND

transmitting

NOTIFICATION OF A PROJECTION THAT THE ASSET RESERVES HELD IN THE
FEDERAL HOSPITAL INSURANCE TRUST FUND WILL BECOME INADEQUATE UNDER THE
MEANING OF SECTION 709 OF THE SOCIAL SECURITY ACT, PURSUANT TO 42
U.S.C. 910(a); AUG. 14, 1935, CH. 531, TITLE VII, SEC. 709 (AS ADDED BY
PUBLIC LAW 98-21, SEC. 143); (97 STAT. 102)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

May 1, 2020.--Referred to the Committee on Ways and Means and ordered
to be printed
__________

U.S. GOVERNMENT PUBLISHING OFFICE

99-011 WASHINGTON : 2020

Board of Trustees of the Federal
Hospital Insurance Trust Fund,
Washington, DC, April 22, 2020.
Hon. Nancy Pelosi,
Speaker of the House of Representatives,
Dear Madam Speaker: In accordance with the requirements of
section 709 of the Social Security Act, ``Recommendations by
Board of Trustees to Remedy Inadequate Balances in the Social
Security Trust Funds,'' we are writing to notify you that we
project that the asset reserves held in the Federal Hospital
Insurance (HI) Trust Fund will become inadequate under the
meaning of this section within the next 10 years. As shown in
the 2020 Medicare Trustees Report, which we are issuing today
and a copy of which is attached, the projected reserves
expressed as a percentage of annual program cost (the balance
ratio) of the HI trust fund fall below 20 percent by the
beginning of calendar year 2025 based on our intermediate set
of economic, demographic, and programmatic assumptions.
Moreover, we project that the reserves of the HI trust fund
will be depleted soon afterwards, during 2026, and that only
about 90 percent of benefits scheduled in current law will be
payable at that time if no legislative action is taken.
Background--Section 709 of the Social Security Act
specifies:
If the Board of Trustees . . . determines at any time
that the balance ratio of any such Trust Fund for any
calendar year may become less than 20 percent, the
Board shall promptly submit to each House of the
Congress a report setting forth its recommendations for
statutory adjustments affecting the receipts and
disbursements of such Trust Fund necessary to maintain
the balance ratio of such Trust Fund at not less than
20 percent, with due regard to the economic conditions
which created such inadequacy in the balance ratio and
the amount of time necessary to alleviate such
inadequacy in a prudent manner. The report shall set
forth specifically the extent to which benefits would
have to be reduced, taxes . . . would have to be
increased, or a combination thereof, in order to obtain
the objectives referred to in the preceding sentence.
The Board believes that issuing a report under this
section, whenever the balance ratio of a trust fund is expected
to fall below 20 percent within the next 10 years, provides
reasonable advance notice and time for prudent action to
alleviate inadequacy in the balance ratio. The annual report
that the Board submits to the Congress under section 201(c) of
the Social Security Act (commonly referred to as the Trustees
Report) provides a more extensive evaluation of the actuarial
status of the trust funds through the next 75 years.
The Hospital Insurance Trust Fund--Estimates in the 2020
Trustees Report show that the HI trust fund is not adequately
financed through the next 10 years under the intermediate
assumptions (those representing the Trustees' best estimate of
future economic and demographic trends), based on the meaning
of section 709. Under the intermediate assumptions of the 2020
Trustees Report, the HI trust fund reserves steadily decline,
falling below 20 percent of annual cost by the beginning of
calendar year 2025 and becoming depleted in 2026.
Maintaining a Balance Ratio of at Least 20 Percent--To
maintain a balance ratio of at least 20 percent, it would be
necessary to either increase payroll tax revenue or reduce
costs. For payroll tax revenue, the increases are calculated in
order to achieve a stable HI balance ratio of 20 percent,
beginning at the point when the balance is projected to fall
below that level under current law. For reducing net costs, the
reduction in the first year with a balance ratio below 20
percent is calculated such that, in subsequent years,
variations in reductions are minimized to achieve a balance
ratio of exactly 20.0 percent in those later years. There are
many other possibilities to maintain a balance ratio of at
least 20 percent, including various combinations of payroll tax
revenue increases and net cost reductions.
The following table shows, for each year through 2029, two
alternatives--the additional payroll tax revenue amounts or the
net cost reduction amounts--that would prevent the HI balance
ratio from declining below 20 percent under the intermediate
assumptions of the 2020 Trustees Report.

----------------------------------------------------------------------------------------------------------------
Additional payroll tax
Calendar year revenue only (in Net cost reductions
billions) only\1\ (in billions)
----------------------------------------------------------------------------------------------------------------
2024.......................................................... $21.8 $18.3
2025.......................................................... 54.1 46.6
2026.......................................................... 57.6 57.4
2027.......................................................... 61.1 60.3
2028.......................................................... 66.7 67.1
2029.......................................................... 74.4 68.3
Total, 2024-2029.......................................... 335.7 318.0
----------------------------------------------------------------------------------------------------------------
\1\Amounts shown for net cost reductions through changes in benefits are net of premiums and general revenue
transfers.

The additional payroll tax revenue amounts required to meet
the 20-percent minimum HI balance ratio differ somewhat from
the required net reductions in cost. Payroll tax revenue
changes affect trust fund reserves (the numerator of the
balance ratio) but have no effect on cost (the denominator);
benefit changes needed to reduce net program cost affect both
reserves and cost directly.
Recommendation--Based on the intermediate projections in
the 2020 Trustees Report, the HI trust fund reserves will fall
below 20 percent of annual cost by the beginning of calendar
year 2025 and will become depleted in 2026 in the absence of
legislation to address this imbalance between scheduled
benefits and revenue. We note that results presented a year ago
based on the intermediate projections in the 2019 Trustees
Report also indicated that the HI trust fund reserves would be
depleted in 2026.
Lawmakers need to take prompt action to strengthen the
actuarial status of the HI trust fund. Lawmakers could choose
(i) to increase revenues to the fund, (ii) to reduce cost
through modification of the HI benefit levels or eligibility
requirements, or (iii) to use a combination of methods to
strengthen the fund's financial condition.
The Board recommends that lawmakers enact appropriate
legislation as soon as possible to make necessary adjustments
for the HI program.
A similar letter is being sent to the President of the
Senate.
Respectfully,
Steven T. Mnuchin,
Secretary of the Treasury,
and Managing Trustee of
the Trust Funds.
Eugene Scalia,
Secretary of Labor, and
Trustee.
Alex M. Azar II,
Secretary of Health and
Human Services, and
Trustee.
Andrew Saul,
Commissioner of Social
Security, and Trustee.
Vacant,
Public Trustee.
Vacant,
Public Trustee.
Seema Verma, MPH,
Administrator, Centers for
Medicare & Medicaid
Services, and Secretary,
Boards of Trustees.

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