1. Chicago Actuarial Association March 20, 2018 Workshops
Financial Status Update of Social Security and Medicare Raymond D. Berry, ASA, EA, MAAA, MSPA

2. Social Security and Medicare
Overview of Financial status
Not covering Medicaid
Not covering Supplemental Security Income (SSI)
Views/comments are ONLY mine and not my employer's nor the Chicago Actuarial Association

3. Social Security and Medicare Presentation Goals
Update you on financial status of both programs
Encourage all actuaries to get involved:
Discussion with peers and public
Discussion with Congress
Tough decisions are ahead
Should make decisions now not when in a dire situation

4. Social Security and Medicare Background
Programs are not insurance contracts
Programs can and will be changed by Congress
1983 Social Security Amendments
Increased retirement ages which lowered projected benefits
Increased taxes to develop the trust fund

5. Medicare Overview
Retiree medical plan
- Mandatory (taxes)
But not mandatory coverage (although almost everyone elects coverage)
Age 65 and over only, some disabled, at least 10 years of taxes
Generally same level of benefits for all retirees depending on coverage elected
Some higher income retirees pay higher premiums

6. Medicare Benefits
Part A – Hospital Insurance (inpatient)
Part B – Medical Insurance (doctors and outpatient)
Part C – Medicare Advantage – Private insurance for Parts A and B and often Part D (HMO)
About 30% of beneficiaries
Per beneficiary rate per Medicare
Part D – Drug Coverage

7. Medicare Benefits - Continued
Deductibles, copays, and limits
Medicare covers very roughly 80% of medical claims
No dental coverage
No LTC
Medigap Private Insurance – most beneficiaries

8. Medicare Benefits - Continued
Part B premiums range from $134 a month to $428 a month for retiree income levels over $160,000
Part D premiums are based on plan but an additional amount up to $74 per month for retiree income levels over $160,000
Part C varies by coverage

9. Medicare Revenue
HI – 1.45% of payroll – no cap
0.9% of wages over $200,000 ($250,000 for couple)
3.8% investment earnings tax for higher income workers
General revenue for SMI

10. Medicare – Financial Status
AAA summary of 2017 Trustees report: "Medicare's Financial Condition: Beyond Actuarial Balance"
2017 Trustees report:
"Considerations of …reforms should not be delayed."
"The Board recommends that Congress and the executive branch work closely together with a sense of urgency to address these challenges."

11. Medicare – Financial Status Office of the Actuary
Paul Spitalnic – Chief Actuary
33 credentialed actuaries

12. Medicare – Financial Status
HI (Part A) trust fund projected to be depleted in 2029 – then cover 88% of program costs
Deficit is 0.64% of payroll
Immediate 22% increase in payroll tax or immediate 14% decrease in expenditures, or "combo" to be in balance

13. Medicare – Financial Status
Actual figures likely greater as above based on scheduled reductions in provider payments
Deficit 1.76% of payroll
Immediate 61% increase in payroll tax or immediate 31% decrease in expenditures, or "combo" to be in balance

14. Medicare – Financial Status - Continued
SMI (Part B and D)
About a quarter of cost covered through premiums
Other three-fourths covered by general revenue
Medicare costs (and healthcare cost in general) continue to rise faster than other cost and is a growing percentage of GDP
Continued pressure on federal budget

15. Medicare – Proposals
Many and complicated
Voucher system
Raise premiums and/or lower provider expenditures
Raise eligibility age
Lower eligibility age
Revamp of our healthcare system

16. Social Security
Mandatory defined benefit plan that pools some risks like other defined benefit plans
Not welfare. Minimum periods of "contributing"
Individual equity vs. social adequacy
Includes retirement, disability, survivor, and spousal benefits
Essentially pay-as-you-go system. Trust fund contains special issue government bonds.

17. Social Security Trust Fund
Real assets of IOUs?
Special issue government bonds, pay interest
By law, Social Security cannot invest otherwise.

18. Social Security Retirement Benefits
Based on average 35 years of indexed earnings. Progressive formula – relates to adequacy
Available starting at 62, major advantages to delaying commencement to full retirement age, or even to age 70
Payable for life
COLA

19. Social Security Retirement Benefits
Average monthly retirement benefit about $1,400.
Retirees: 23% of couples/43% of singles, Social Security is at least 90% of their retirement income
Social Security is at least half of the retirement income of over 60% of retirees

20. Social Security Other Benefits
Spousal: Up to 50% of spouse's benefit
Disability: Full and permanent after minimum service
Surviving: Includes under age children and spouse

21. Social Security Revenue
FICA (taxes): 6.20% on earnings up to taxable wage $128,400 in 2018
Employer pays same amount
Minor income based on taxable Social Security benefits in receipt

22. Social Security Office of the Actuary
Stephen Goss – Chief Actuary
16 credentialed actuaries
Statement of Actuarial Opinion

23. Social Security – Financial Status Issue
In 1940 life expectancy at 65 was 14 years, now over 20 years
Now 2.8 workers per beneficiary, projected to be 2.2 by 2035

24. Social Security – Financial Status
Three annual projections (Trustee report – low-cost, high-cost, intermediate)
Trust fund – projected to be depleted in 2034
Upon depletion only able to pay 77% of scheduled benefits
Immediate increase of 2.76% (from 12.4% to 15.16%) of payroll tax or immediate 17% decrease in benefits being paid to be in balance

25. Social Security – Financial Status - Continued
Actuarial deficit of 2.83% of payroll for actuarial balance
Assumes a reserve equal to one year of benefit payments
2.76% assumes zero reserve at end of 75 years

26. Social Security – Financial Status - Continued
Low cost assumes a surplus of 0.12% of payroll
High cost assumes a deficit of 6.63% of payroll
Both are "reasonable" estimates not absolute worse or absolute best
Significant component of differences is real-wage growth compared to inflation

27. Social Security – Financial Status – Continued Other Projections
Unfunded obligation in dollars
Unfunded obligation for "infinity"
many issues with this
assumes current law remains unchanged
But continued increases in longevity
Other issues

28. Social Security – Proposals
Reduce benefit levels or increase payroll tax rate or some combo
Increase taxable wage base
Change benefit formula
Increase full retirement age
Earnings sharing – eliminate spouse benefit
Provide a minimum benefit
Additional general revenue
Individual accounts

29. Resources Keep Informed
Social Security Administration (SSA.gov)
Center for Medicare and Medicaid Services (cms.gov)
Society of Actuaries (soa.org)
American Academy of Actuaries (actuary.org)
National Academy of Social Insurance (nasi.org)

30. Resources – Continued Read these each year!
An Actuarial Perspective on the 2017 Social Security Trustees Report,
Medicare's Financial Condition: Beyond Actuarial Balance,

31. Contact Information
Raymond D. Berry Consulting Actuary Grant Thornton LLP 171 N. Clark Street Chicago, IL