[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


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                             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 
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                      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.

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                                                                 Additional payroll tax
                         Calendar year                              revenue only (in       Net cost reductions
                                                                       billions)          only\1\ (in billions)
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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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