2012   Financial Report of the United States Government

Notes to the Financial Statements

Note 26. Social Insurance

The Statement of Social Insurance presents the projected actuarial present value of the estimated future revenue and estimated future expenditures of the Social Security, Medicare, Railroad Retirement, and Black Lung social insurance programs which are administered by the SSA, HHS, RRB, and DOL, respectively. These estimates are based on the economic and demographic assumptions presented later in this note as set forth in the relevant Social Security and Medicare trustees' reports and in the agency financial report of HHS and in the relevant agency performance and accountability reports for SSA and RRB and the annual financial report for DOL. The projections are based on the continuation of program provisions contained in current law. The estimates in the consolidated SOSI of the open group measures are for persons who are participants or eventually will participate in the programs as contributors (workers) or beneficiaries (retired workers, survivors, and disabled) during the 75-year projection period (Black Lung is projected only through September 30, 2040, because the projection period will terminate on September 30, 2040).

Contributions and earmarked taxes consist of: payroll taxes from employers, employees, and self-employed persons; revenue from Federal income taxation of Old-Age Survivors and Disability Insurance (OASDI) and railroad retirement benefits; excise tax on coal (Black Lung); and premiums from, and State transfers on behalf of, participants in Medicare; and reimbursements from the General Fund of the Treasury to the OASDI trust funds to make up for reductions in payroll tax revenue due to temporary payroll tax rate reductions. Income for all programs is presented from a consolidated perspective. Future interest payments and other future intragovernmental transfers have been excluded upon consolidation. Expenditures include scheduled benefit payments and administrative expenses. Scheduled benefits are projected based on the benefit formulas under current law. However, current Social Security and Medicare law provides for full benefit payments only to the extent that there are sufficient balances in the trust funds.

Actuarial present values of estimated future revenue (excluding interest) and estimated future expenditures for the Social Security, Medicare, and Railroad Retirement social insurance programs are presented for three different groups of participants: (1) current participants who have attained eligibility age, (2) current participants who have not attained eligibility age, and (3) future participants who are new entrants expected to become participants in the future. Current participants in the Social Security and Medicare programs form the "closed group" of taxpayers and/or beneficiaries who are at least 15 years of age at the start of the projection period. Since the projection period for the Social Security, Medicare, and Railroad Retirement social insurance programs consists of 75 years, the period covers virtually all of the current participants' working and retirement years, a period that could be greater than 75 years in a relatively small number of instances. Future participants for Social Security and Medicare include births during the projection period and individuals below age 15 as of January 1 of the valuation year. Railroad Retirement's future participants are the projected new entrants as of January 1 of the valuation year.

The present values of future expenditures in excess of future revenue are calculated by subtracting the actuarial present values of future scheduled contributions and dedicated tax income by and on behalf of current and future participants from the actuarial present value of the future scheduled benefit payments to them or on their behalf. To determine a program's funding shortfall over any given period of time, the starting trust fund balance is subtracted from the present value of expenditures in excess of revenues over the period.

The trust fund balances as of the valuation date for the respective programs, including interest earned, are in the table shown below. Substantially all of the Social Security (OASDI) and Medicare Hospital Insurance (HI), and Supplementary Medical Insurance (SMI) trust fund balances consist of investments in special non-marketable U.S. Treasury securities that are backed by the full faith and credit of the U.S. Government.

Social Insurance Programs Trust Fund Balances 1
(In billions of dollars)
2012
2011
2010
2009
2008
Social Security 2,678 2,609 2,540 2,419 2,238
Medicare:
HI 244 272 304 321 312
SMI Part B 80 71 76 59 53
SMI Part D 1 1 1 1 3
Railroad Retirement 24 26 25 22 33
Black Lung (6) (6) (6) (6) (10)
1 As of the valuation date of the respective programs.

Social Security

The Old-Age and Survivors Insurance (OASI) program, created in 1935, and the Disability Insurance program, created in 1956, collectively referred to as OASDI or "Social Security," provides cash benefits for eligible U.S. citizens and residents. Eligibility and benefit amounts are determined under the laws applicable for the period. Current law provides that the amount of the monthly benefit payments for workers, or their eligible dependents or survivors, is based on the workers' lifetime earnings histories.

The primary financing of the OASDI Trust Funds are taxes paid by workers, their employers, and individuals with self-employment income, based on work covered by the OASDI Program. Refer to Unaudited Required Supplementary Information—Social Insurance section for additional information on Social Security program financing.

That portion of each trust fund not required to pay benefits and administrative costs is invested, on a daily basis,in interest-bearing obligations of the U.S. Government. The Social Security Act authorizes the issuance by the Treasury of special nonmarketable, intragovernmental debt obligations for purchase exclusively by the trust funds. Although the special issues cannot be bought or sold in the open market, they are redeemable at any time at face value and thus bear no risk of fluctuation in principal value due to changes in market yield rates. Interest on the bonds is credited to the trust funds and becomes an asset to the funds and a liability to the General Fund of the Treasury. These Treasury securities and related interest are eliminated in consolidation at the Governmentwide level.

Medicare

The Medicare Program, created in 1965, has two separate trust funds: the HI (Medicare Part A) and SMI (Medicare Parts B and D) Trust Funds. HI pays for inpatient acute hospital services and major alternatives to hospitals (skilled nursing services, for example) and SMI pays for hospital outpatient services, physician services, and assorted other services and products through the Part B account and pays for prescription drugs through the Part D account. Though the events that trigger benefit payments are similar, HI and SMI have different earmarked financing structures. Similar to OASDI, HI is financed primarily by payroll contributions. Other income to the HI Trust Fund includes a small amount of premium income from voluntary enrollees, a portion of the Federal income taxes that beneficiaries pay on Social Security benefits and interest credited on Treasury securities held in the HI Trust Fund. These Treasury securities and related interest are eliminated in the consolidation at the Governmentwide level.

For SMI, transfers from the General Fund of the Treasury represent the largest source of income for both Parts B and D. Generally, beneficiaries finance the remainder of Parts B and D costs via monthly premiums to these programs. With the introduction of Part D drug coverage, Medicaid is no longer the primary payer for beneficiaries dually eligible for Medicare and Medicaid. For those beneficiaries, States must pay a portion of their estimated foregone drug costs into the Part D account (referred to as State transfers). As with HI, interest received on Treasury securities held in the SMI Trust Fund is credited to the fund and these Treasury securities and related interest are eliminated in consolidation at the Governmentwide level. Refer to Unaudited Required Supplementary Information—Social Insurance section for additional information on Medicare program financing.

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA), enacted on December 8, 2003, created the Part D account in the SMI Trust Fund to account for the prescription drug benefit that began in 2006. The MMA established within SMI two Part D accounts related to prescription drug benefits: the Medicare Prescription Drug Account and the Transitional Assistance Account. The Medicare Prescription Drug Account was used in conjunction with the broad, voluntary prescription drug benefits that commenced in 2006. The Transitional Assistance Account was used to provide transitional assistance benefits, beginning in 2004 and extending through 2005, for certain low-income beneficiaries prior to the start of the new prescription drug benefit.

Affordable Care Act (ACA)

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from provisions of the Affordable Care Act. However, it is important to note that the improved results for HI and SMI Part B since 2010 depend in part on the long-range feasibility of the various cost-saving measures in the Affordable Care Act–in particular, the lower increases in Medicare payment rates to most categories of health care providers. Without fundamental change in the current delivery system, these adjustments would probably not be viable indefinitely. It is possible that health care providers could improve their productivity, reduce wasteful expenditures, and take other steps to keep their cost growth within the bounds imposed by the Medicare price limitations. For such efforts to be successful in the long range, providers would have to generate and sustain unprecedented levels of productivity gains–a very challenging and uncertain prospect.

A transformation of health care in the United States, affecting both the means of delivery and the method of paying for care, is also a possibility. The Affordable Care Act takes important steps in this direction by initiating programs of research into innovative payment and service delivery models, such as accountable care organizations, patient-centered "medical homes," improvement in care coordination for individuals with multiple chronic health conditions, improvement in coordination of post-acute care, payment bundling, "pay for performance," and assistance for individuals in making informed health choices. If researchers and policy makers can demonstrate that the new approaches developed through these initiatives will improve the quality of health care and/or reduce costs, then the Secretary of Health and Human Services can adopt them for Medicare without further legislation. Such changes have the potential to reduce health care costs and cost growth rates and could, as a result, help lower Medicare cost growth rates to levels compatible with the lower price updates payable under current law.

The ability of new delivery and payment methods to significantly lower cost growth rates is uncertain at this time, since specific changes have not yet been designed, tested, or evaluated. Hopes for success are high, but at this time there is insufficient evidence to support an assumption that improvements in efficiency can occur of the magnitude needed to align with the statutory Medicare price updates.

The reduction in provider payment updates, if implemented for all future years as required under current law, could have secondary impacts on provider participation, beneficiary access to care; quality to services; and other factors. These possible impacts are very speculative and at present there is no consensus among experts as to their potential scope. Further research and analysis will help to better inform this issue and may enable the development of specific projections of secondary effects under current law in the future.

In addition, the Medicare Part B projections reflect a reduction of almost 31 percent in payment rates for physician services in 2013, as estimated in the 2012 Trustee Report, which is assumed to be implemented as required under current law. If lawmakers act to prevent this decrease, as they have for 2003 through 2012, and do not offset this action with reductions in other provisions of the program, then actual Part B and total SMI costs will significantly exceed the projections shown in this report.

Because knowledge of the potential long-range effects of the productivity adjustments, delivery and payment innovations, and certain other aspects of the Affordable Care Act is so limited, in August 2010, the Secretary of the Department of Health and Human Services, working on behalf of the Board of Trustees, established an independent group of expert actuaries and economists to review the assumptions and methods used by the Trustees to make projections of the financial status of the trust funds. The members of the Panel began their deliberations in November 2010 and were asked to focus their immediate attention on the long-range Medicare cost growth assumptions.

In December 2011, the panel members unanimously recommended a new approach that builds on the longstanding "Gross Domestic Product (GDP) plus 1 percent" assumption while incorporating several key refinements. Both the Office of the Actuary at Center for Medicare & Medicaid Services (CMS) and the Board of Trustees support these recommendations, and they form the basis for the long-range cost growth assumptions used in this FR. The new methodology is explained in more detail in section IV.D of the 2012 Medicare Trustees Report.

The Panel also recommended the continued use of a supplemental analysis, similar to the illustrative alternative projection in the 2010 and 2011 Trustees Reports, for the purpose of illustrating the higher Medicare costs that would result if the reduction in physician payment rates and the productivity adjustments to most other provider payment updates are not fully implemented as required under current law.1

The SOSI projections are based on current law. Therefore, the productivity adjustments are assumed to occur in all future years, as required by the Affordable Care Act. In addition, an approximate 31 percent reduction in Medicare payment rates for physician services in January 2013, as estimated in the 2012 Trustee Report, is assumed to be implemented as required under current law, despite the virtual certainty that Congress will continue to override this reduction. Therefore, it is important to note that the actual future costs for Medicare are likely to exceed those shown by these current-law projections.

The extent to which actual future Part A and Part B costs exceed the projected current-law amounts due to changes to the productivity adjustments and physician payments depends on both the specific changes that might be legislated and on whether Congress would pass further provisions to help offset such costs. As noted, these examples only reflect hypothetical changes to provider payment rates.

It is likely that in the coming years, Congress will consider, and pass, numerous other legislative proposals affecting Medicare. Many of these will likely be designed to reduce costs in an effort to make the program more affordable. In practice, it is not possible to anticipate what actions Congress might take, either in the near term or over longer periods. Please see Note 28—Subsequent Events for additional information.

The Medicare Board of Trustees, in their annual report to Congress, references an alternative scenario to illustrate when possible, the potential understatement of Medicare costs and projection results. This alternative scenario assumes that the productivity adjustments are gradually phased down during 2020 to 2034 and that the physician fee reductions are overridden. These examples were developed for illustrative purposes only; the calculations have not been audited; no endorsement of the illustrative alternative to current law by the Trustees, CMS, or the CMS Office of the Actuary, should be inferred; and the examples do not attempt to portray likely or recommended future outcomes. Thus the illustrations are useful only as general indicators of the substantial impacts that could result from future legislation affecting the productivity adjustments and physician payments under Medicare and of the broad range of uncertainty associated with such impacts. The table below contains a comparison of the Medicare 75-year present values of income and expenditures under current law with those under the alternative scenario illustration.

Medicare Present Values (in billions) (Unaudited)
 
2012 Consolidated
SOSI
Illustrative Alternative
Scenario 1, 2
Income
Part A $15,598 $15,600
Part B 3 5,344 7,435
Part D 4 2,349 2,351
  Total Income $23,291 $25,386
Expenditures
Part A $21,179 $25,494
Part B 20,159 28,007
Part D 9,128 9,129
  Total Expenditures $50,466 $62,630
Part A $5,581 $9,895
Part B 14,815 20,572
Part D 6,778 6,778
  Excess of Expenditures over Income $27,174 $37,245
1These amounts are not presented in the 2012 Trustees’ Report.
2 At the request of the Trustees, the Office of the Actuary at CMS has prepared an illustrative set of Medicare Trust Fund projections that differ from current law. No endorsement of the illustrative alternative to current law by the Trustees, CMS, or the Office of the Actuary should be inferred.
3 Excludes $14,815 billion and $20,572 billion of General Revenue Contributions from the 2012 Consolidated SOSI projection and the Illustrative Alternative Scenario's projection, respectively; i.e., to reflect Part B income on a consolidated Governmentwide basis.
4 Excludes $6,778 billion of General Revenue Contributions from both the 2012 Consolidated SOSI projection and the Illustrative Alternative Scenario's projection, respectively; i.e., to reflect Part D income on a consolidated Governmentwide basis.

Note: Amounts may not add due to rounding.

As expected, the differences between the current-law projections and the illustrative alternative are substantial for Part A and Part B, although both represent a sizeable improvement in the financial outlook for Medicare compared to the laws in effect prior to the ACA. This difference in outlook serves as a compelling reminder of the importance of developing and implementing further means of reducing health care cost growth in the coming years. All Part A fee-for-service providers are affected by the productivity adjustments, so the current law projections reflect an estimated 1.1 percent reduction in annual Part A cost growth each year. If the productivity adjustments were gradually phased out, as illustrated under the alternative scenario, the present value of Part A expenditures is estimated to be roughly 20 percent higher than the current-law projection. As indicated above, the present value of Part A income is basically unaffected under the alternative scenario.

The Part B expenditure projections are significantly higher under the alternative scenario than under current law, both because of the assumed gradual phase-out of the productivity adjustments and the assumption that the scheduled physician fee reductions would be overridden and based on 1 percent annual increases through 2021, based on a recommendation by the 2010-2011 Medicare Technical Review Panel. The productivity adjustments are assumed to affect more than half of Part B expenditures at the time their phase-out is assumed to begin. Similarly, physician fee schedule services are assumed to be roughly 30 percent higher under the alternative scenario than under current law at that time. The combined effect of these two factors results in a present value of Part B expenditures under the alternative scenario that is approximately 39 percent higher than the current-law projection.

The Part D projections are basically unaffected under the alternative projection because the services are not impacted by the productivity adjustments or the physician fee schedule reductions. The very minor impact is the result of a slight change in the discount rates that are used to calculate present values.

Social Security and Medicare–Demographic and Economic Assumptions

The Boards of Trustees2 of the OASDI and Medicare Trust Funds provide in their annual reports to Congress short-range (10-year) and long-range (75-year) actuarial estimates of each trust fund. Because of the inherent uncertainty in estimates for 75 years into the future, the Boards use three alternative sets of economic and demographic assumptions to show a range of possibilities. Assumptions are made about many economic and demographic factors, including GDP, earnings, the CPI, the unemployment rate, the fertility rate, immigration, mortality, disability incidence and terminations and, for the Medicare projections, health care cost growth. The assumptions used for the most recent set of projections shown in Tables 1A (Social Security) and Table 1B (Medicare) are generally referred to as the "intermediate assumptions," and reflect the trustees' reasonable estimate3 of expected future experience. For further information on Social Security and Medicare demographic and economic assumptions, refer to SSA's Performance and Accountability Report and HHS' Agency Financial Report.

Table 1A
Social Security - Demographic and Economic Assumptions

Demographic Assumptions
Year Total
Fertility
Rate 1
Age-Sex
Adjusted
Death Rate 2
(per 100,000)
Net
Immigration 3
(persons)
Period Life
Expectancy
at Birth 4
Male Female
2012 2.04 759.3 960,000 76.1 80.6
2020 2.04 708.6 1,205,000 77.1 81,3
2030 2.02 650.4 1,125,000 78.3 82.3
2040 2.00 598.8 1,075,000 79.4 83.2
2050 2.00 553.3 1,050,000 80.4 84.0
2060 2.00 513.2 1,040,000 81.3 84.8
2070 2.00 477.7 1,035,000 82.2 85.5
2080 2.00 446.0 1,030,000 83,0 86.2
2090 2.00 417.7 1,025,000 83.8 86.8
1 The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period. The assumed total fertility rate does not change after 2036.
2 The age-sex-adjusted death rate is the crude rate that would occur in the enumerated total population as of April 1, 2000, if that population were to experience the death rates by age and sex observed in, or assumed for, the selected year.
3 Net immigration is the number of persons who enter during the year (both legally and otherwise) minus the number of persons who leave during the year. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from which it is derived.
4 The period life expectancy at a given age for a given year is the average number of years of life remaining if a group of persons at that exact age, born on January 1, were to experience the mortality rate for that year over the course of their remaining lives.

Economic Assumptions
Year Real
Wage
Differential 5
(percent)
Average
Annual Wage
in Covered
Employment 6
(percent
change)
CPI 7
(percent
change)
Real
GDP 8
(percent change)
Total Employment 9
(percent change)
Average
Annual
Interest
Rate 10
(percent)
2012 1.7 3.8 2.0 2.6 1.3 2.4
2020 1.3 4.1 2.8 2.2 0.6 5.6
2030 1.1 3.9 2.8 2.0 0.4 5.7
2040 1.2 4.0 2.8 2.2 0.6 5.7
2050 1.1 3.9 2.8 2.1 0.5 5.7
2060 1.1 3.9 2.8 2.1 0.4 5.7
2070 1.1 3.9 2.8 2.1 0.4 5.7
2080 1.1 3.9 2.8 2.0 0.4 5.7
2090 1.2 4.0 2.8 2.0 0.4 5.7
5 The real-wage differential is the difference between the percentage increases, before rounding, in the average annual wage in covered employment, and the average annual CPI.
6 The average annual wage in covered employment is the total amount of wages and salaries for all employment covered by the OASDI program in a year divided by the number of employees with any such earnings during the year. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from which it is derived.
7 The CPI is the annual average value for the calendar year of the CPI for urban wage earners and clerical workers (CPI-W).
8 The real GDP is the value of total output of goods and services produced in the U.S., expressed in 2005 dollars. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from which it is derived.
9 Total employment is the sum of the U.S. civilian and military employment. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from which it is derived.
10 The average annual interest rate is the average of the nominal interest rates, which, are compounded semiannually, for special public-debt obligations issuable to the trust funds in each of the 12 months of the year. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from which it is derived.

Table 1B
Medicare - Demographic and Economic Assumptions

Medicare - Demographic Assumptions
Year
Total
Fertility
Rate 1
Age-Sex
Adjusted
Death Rate 2
(per 100,000)
Net
Immigration 3
(persons)
2012 2.04 759.3 960,000
2020 2.04 708.6 1,205,000
2030 2.02 650.4 1,125,000
2040 2.00 598.8 1,075,000
2050 2.00 553.3 1,050,000
2060 2.00 513.2 1,040,000
2070 2.00 477.7 1,035,000
2080 2.00 446.0 1,030,000
1 The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period. The assumed total fertility rate does not change after 2036.
2 The age-sex-adjusted death rate is the crude rate that would occur in the enumerated total population as of April 1, 2000, if that population were to experience the death rates by age and sex observed in, or assumed for, the selected year.
3 Net immigration is the number of persons who enter during the year (both legally and otherwise) minus the number of persons who leave during the year. It is a summary measure and not a basic assumption; it summarizes the basic assumptions from which it is derived.

Medicare - Economic Assumptions
Year
Real
Wage
Differential 4
(percent)
Average
Annual Wage
in Covered
Employment
(percent change)
CPI 5
(percent
change)
Real
GDP 6
(percent
change)
Per Beneficiary Cost
(percent change) 7
Real
Interest
Rate 8
(percent)
HI
SMI
Part B
Part D
2012 1.7 3.8 2.0 2.6 (0.1) 3.9 2.1 0.4
2020 1.3 4.1 2.8 2.2 3.8 5.3 6.2 2.7
2030 1.1 3.9 2.8 2.0 4.9 4.8 5.5 2.9
2040 1.2 4.0 2.8 2.2 5.4 4.5 5.3 2.9
2050 1.1 3.9 2.8 2.1 4.1 4.1 5.0 2.9
2060 1.1 3.9 2.8 2.1 4.0 4.1 4.8 2.9
2070 1.1 3.9 2.8 2.1 4.1 3.9 4.6 2.9
2080 1.1 3.9 2.8 2.0 3.7 3.8 4.5 2.9
4 The real-wage differential is the difference between the percentage increases, before rounding, in the average annual wage in covered employment, and the average annual CPI.
5 The CPI is the annual average value for the calendar year of the CPI for urban wage earners and clerical workers.
6 The real GDP is the value of total output of goods and services produced in the U.S., expressed in 2005 dollars. It is a summary measure and not a basic assumption; it summarizes the effects of the basic assumptions from which it is derived.
7 These increases reflect the overall impact of more detailed assumptions that are made for each of the different types of service provided by the Medicare program (for example, hospital care, physician services, and pharmaceutical costs). These assumptions include changes in the payment rates, utilization, and intensity of each type of service.
8 The average annual interest rate earned on new trust fund securities, above and beyond the rate of inflation.

Railroad Retirement

The Railroad Retirement and Survivor Benefit program pays full retirement annuities at age 60 to railroad workers with 30 years of service. The program pays disability annuities based on total or occupational disability. It also pays annuities to spouses, divorced spouses, widow(er)s, remarried widow(er)s, surviving divorced spouses, children, and parents of deceased railroad workers. Medicare covers qualified railroad retirement beneficiaries in the same way as it does Social Security beneficiaries. The Railroad Retirement and Survivors' Improvement Act of 2001 (RRSIA) liberalized benefits for 30-year service employees and their spouses, eliminated a cap on monthly benefits for retirement and disability benefits, lowered minimum service requirements from 10 to 5 years, and provided for increased benefits for widow(er)s.

The RRB and the SSA share jurisdiction over the payment of retirement and survivor benefits. RRB has jurisdiction if the employee has at least 5 years (if performed after 1995) of railroad service. For survivor benefits, RRB requires that the employee's last regular employment before retirement or death be in the railroad industry. If a railroad employee or his or her survivors do not qualify for railroad retirement benefits, the RRB transfers the employee's railroad retirement credits to SSA.

Payroll taxes paid by railroad employers and their employees are a primary source of income for the Railroad Retirement and Survivor Benefit Program. By law, railroad retirement taxes are coordinated with Social Security taxes. Employees and employers pay tier I taxes at the same rate as Social Security taxes. Tier II taxes finance railroad retirement benefit payments that are higher than Social Security levels.

Other sources of program income include: financial transactions with the Social Security and Medicare Trust Funds, earnings on investments, Federal income taxes on railroad retirement benefits, and appropriations (provided after 1974 as part of a phase out of certain vested dual benefits). The financial interchange between RRB's Social Security Equivalent Benefit (SSEB) Account, the Federal Old-Age and Survivors Insurance Trust Fund, the Disability Insurance Trust Fund, and the Federal Hospital Insurance Trust Fund is intended to put the latter three trust funds in the same position they would have been had railroad employment been covered under the Social Security Act. From a Governmentwide perspective, these future financial interchanges and transactions are intragovernmental transfers and are eliminated in consolidation.

Railroad Retirement–Employment, Demographic and Economic Assumptions

The most recent set of projections are prepared using employment, demographic and economic assumptions and reflect the Board Members' reasonable estimate of expected future experience.

Three employment assumptions were used in preparing the projections and reflect optimistic, moderate and pessimistic future passenger rail and freight employment. The average railroad employment is assumed to be 226,000 in 2012 under the moderate employment assumption. This employment assumption, based on a model developed by the Association of American Railroads, assumes that (1) passenger service employment will remain at the level of 45,000 and (2) the employment base, excluding passenger service employment, will decline at a constant 2.0 percent annual rate for 25 years, at a falling rate over the next 25 years, and remain level thereafter. All the projections are based on an open-group (i.e., future entrants) population.

The moderate (middle) economic assumptions include a long-term cost of living increase of 2.8 percent, an interest rate of 7.0 percent, and a wage increase of 3.8 percent. The cost of living assumption reflects the expected level of price inflation. The interest rate assumption reflects the expected return on NRRIT investments. The wage increase reflects the expected increase in railroad employee earnings.

Sources of the demographic assumptions including mortality rates and total termination rates, remarriage rates for widows, retirement rates and withdrawal rates, are listed in Table 2. For further details on the employment, demographic, economic and all other assumptions, refer to the U.S. Railroad Retirement Board Annual Report, and the 25th Actuarial Valuation of the Assets and Liabilities under the Railroad Retirement Acts (Valuation Report) as of December 31, 2010, with Technical Supplement.

Table 2
Railroad Retirement Demographic Actuarial Assumptions (Sources)
Mortality Rates 1 Mortality after age retirement 2010 RRB Annuitants Mortality Table
Mortality after disability retirement 2010 RRB Disabled Mortality Table for Annuitants with Disability Freeze
2010 RRB Disabled Mortality Table for Annuitants without Disability Freeze
Mortality during active service 2006 RRB Active Service Mortality Table
Mortality of widow annuitants 1995 RRB Mortality Table for Widows
Total Termination Rates 2 Termination for spouses 2010 RRB Spouse Total Termination Table
Termination for disabled children 2004 RRB Total Termination Table for Disabled Children
Widow Remarriage
Rate 3
1997 RRB Remarriage Table
Retirement Rates 4 Age retirement See the Valuation Report
Disability retirement See the Valuation Report
Withdrawal Rates 5 See the Valuation Report
1 These mortality tables are used to project the termination of eligible employee benefit payments within the population.
2 Total termination rates are used to project the termination of dependent benefits to spouses and disabled children.
3 This rate is used to project the termination of spousal survivor benefits.
4 The retirement rates are used to determine the expected annuity to be paid based on age and years of service for both age and disability retirees.
5 The withdrawal rates are used to project all withdrawals from the railroad industry and resultant effect on the population and accumulated benefits to be paid.

Black Lung–Disability Benefit Program

The Black Lung Disability Benefit Program provides for compensation and medical benefits for eligible coal miners who are totally disabled due to pneumoconiosis (black lung disease) as a result of their coal mine employment. The same program also provides for survivor benefits for eligible survivors of coal miners who died due to pneumoconiosis. DOL operates the Black Lung Disability Benefit Program. BLDTF provides benefit payments to eligible coal miners totally disabled by pneumoconiosis and to eligible survivors when no responsible mine operator can be assigned the liability.

Black lung disability benefit payments are funded by excise taxes from coal mine operators based on the sale of coal, as are the fund's administrative costs. These taxes are collected by the Internal Revenue Service (IRS) and transferred to the BLDTF, which was established under the authority of the Black Lung Benefits Revenue Act, and administered by the Treasury. Prior to October 3, 2008, the Black Lung Benefits Revenue Act provided for repayable advances to the BLDTF from the general fund of Treasury, in the event that BLDTF resources were not adequate to meet program obligations.

Black Lung–Demographic and Economic Assumptions

The demographic assumptions used for the most recent set of projections are the number of beneficiaries and their life expectancy. The beneficiary population data is updated from information supplied by the program. The beneficiary population is a nearly closed universe in which attrition by death exceeds new entrants by a ratio of more
than ten to one. SSA Life Tables are used to project the life expectancies of the beneficiary population.

The economic assumptions used for the most recent set of projections are coal excise tax revenue estimates, Federal civilian pay raises, medical cost inflation, and the interest rate on new debt issued by the BLDTF. Projections are sensitive to changes in the tax rate and changes in interest rates on debt issued by the BLDTF.

Estimates of future receipts of the black lung excise tax are based on projections of future coal production and sale prices prepared by the Energy Information Agency of DOE. Treasury's Office of Tax Analysis provides the first 11 years of tax receipt estimates. The remaining years are estimated using a growth rate based on both historical tax receipts and Treasury's estimated tax receipts. The coal excise tax rate structure is $1.10 per ton of underground- mined coal and $0.55 per ton of surface-mined coal sold, with a cap of 4.4 percent of sales price. Based on Treasury's interpretation of the Act, the higher excise tax rates will continue until the earlier of December 31, 2018, or the first December 31, in which there exist no (1) balance of repayable debt described in section 9501 of the Internal Revenue Code and (2) unpaid interest on the debt. Starting in 2019, the tax rates revert to $0.50 per ton of underground-mined coal and $0.25 per ton of surface-mine coal sold, and a limit of 2.0 percent of sales price.

OMB supplies assumptions for future monthly benefit rate increases based on increases in the Federal pay scale and future medical cost inflation based on increases in the CPIM, which are used to calculate future benefit costs. During the current projection period, future benefit rate increases 2.9 percent in 2013, 3.8 percent in 2014 through 2020, 3.9 percent in each year thereafter, and medical cost increases 3.6 percent in 2013, and ranges from
3.7 percent to 3.8 percent in 2014 through 2017, and 3.9 percent in each year thereafter. Estimates for administrative costs for the first 11 years of the projection are supplied by DOL's Budget Office, based on current year enacted amounts, while later years are based on the number of projected beneficiaries.

Public Law 110-343, Division B—Energy Improvement and Extension Act of 2008, enacted on October 3, 2008, in section 113, (1) allowed for the temporary increase in coal excise tax rates to continue an additional 5 years beyond the current statutory limit, and (2) restructured the BLDTF debt by refinancing the outstanding repayable advances (which had higher interest rates) with the proceeds from issuing discounted debt instruments similar in form to zero-coupon bonds (which had lower interest rates), plus a one-time appropriation. Public Law 110-343 also allowed that any debt issued by the BLDTF subsequent to the refinancing may be used to make benefit payments, other authorized expenditures, or to repay debt and interest from the initial refinancing. All debt issued by the BLDTF was effected as borrowing from the Treasury's Bureau of the Public Debt.

Statement of Changes in Social Insurance Amounts

The Statement of Changes in Social Insurance Amounts reconciles the change (between the current valuation and the prior valuation) in the present value of future revenue less future expenditures for current and future participants (the open group measure) over the next 75 years (except Black Lung is projected only through September 30, 2040, because the projection period will terminate on September 30, 2040). The reconciliation identifies several components of the changes that are significant and provides reasons for the changes. The following disclosures relate to the Statement of Changes in Social Insurance Amounts including the reasons for the components of the changes in the open group measure during the reporting period from the end of the previous reporting period for the Government's social insurance programs. The Statement of Changes in Social Insurance Amounts shows two reconciliations: (1) changing from the period beginning on January 1, 2011, to the period beginning on January 1, 2012, and (2) changing from the period beginning on January 1, 2010, to the period beginning on January 1, 2011.

Social Security

All estimates relating to the Social Security Program in the Statement of Changes in Social Insurance Amounts represent values that are incremental to the prior change. As an example, the present values shown for economic data, assumptions, and methods, represent the additional effect of these new data, assumptions, and methods after considering the effects from demography and the change in the valuation period.

Assumptions Used for the Components of the Changes for the Social Security Program

The present values included in the Statement of Changes in Social Insurance Amounts are for the current and prior years and are based on various economic and demographic assumptions used for the intermediate assumptions in the Social Security Trustees Reports for these years. Table 1A summarizes these assumptions for the current year.

Period Beginning on January 1, 2011, and Ending January 1, 2012

Present values as of January 1, 2011, are calculated using interest rates from the intermediate assumptions of the 2011 Social Security Trustees Report. All other present values in this part of the Statement of Changes in Social Insurance Amounts are calculated as a present value as of January 1, 2012. Estimates of the present value of changes in social insurance amounts due to changing the valuation period and changing demographic data, assumptions, and methods are presented using the interest rates under the intermediate assumptions of the 2011 Social Security Trustees Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the prior change, all other present values in this part of the Statement of Changes in Social Insurance Amounts are calculated using the interest rates under the intermediate assumptions of the 2012 Social Security Trustees Report.

Period Beginning on January 1, 2010, and Ending January 1, 2011

Present values as of January 1, 2010 are calculated using interest rates from the intermediate assumptions of the 2010 Social Security Trustees Report. All other present values in this part of the Statement of Changes in Social Insurance Amounts are calculated as a present value as of January 1, 2011. Estimates of the present value of changes in social insurance amounts due to changing the valuation period and changing demographic data, assumptions, and methods are presented using the interest rates under the intermediate assumptions of the 2010 Social Security Trustees Report. Since interest rates are an economic estimate and all estimates in the table are incremental to the prior change, all other present values in this part of the Statement of Changes in Social Insurance Amounts are calculated using the interest rates under the intermediate assumptions of the 2011 Social Security Trustees Report.

Changes in Valuation Period

Period Beginning on January 1, 2011, and Ending January 1, 2012

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2011-85) to the current valuation period (2012-86) is measured by using the assumptions for the prior valuation and extending them in the absence of any changes to the current valuation period. Changing the valuation period removes a small negative net cashflow for 2011, replaces it with a much larger negative net cashflow for 2086, and measures the present values as of January 1, 2012, one year later. Thus, the present value of future net cashflows (excluding the combined OASI and DI Trust Fund assets at the start of the period) decreased (became more negative) when the 75-year valuation period changed from 2011-85 to 2012-86.

Period Beginning on January 1, 2010, and Ending January 1, 2011

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2010-84) in the absence of any changes to the current valuation period (2011-85) is measured by using the assumptions for the prior valuation and extending them to cover the current valuation period. Changing the valuation period removes a small negative net cashflow for 2010 and replaces it with a much larger negative net cashflow for 2085, and measures the present values as of January 1, 2011, one year later. Thus, the present value of future net cashflows (excluding the combined OASDI and DI Trust Fund assets at the start of the period) decreased (became more negative) when the 75-year valuation period changed from 2010-84 to 2011-85.

Changes in Demographic Data, Assumptions, and Methods

Period Beginning January 1, 2011, and Ending January 1, 2012

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2012) are the same as those for the prior valuation. However, the starting demographic values, and the way these values transition to the ultimate assumptions, were changed.

Inclusion of each of these demographic data sets decreases the present value of future net cashflows.

Period Beginning January 1, 2010, and Ending January 1, 2011

The ultimate demographic assumptions for the current valuation (beginning on January 1, 2011) are the same as those for the prior valuation. However, the starting demographic values were changed.

Except for updating starting values of population levels, inclusion of each of these demographic data sets decreases the present value of future net cashflows.

The following demographic methods were changed in the current valuation (beginning on January 1, 2011).

Both of these changes in demographic methods decrease the present value of future net cashflows.

Changes in Economic Data, Assumptions, and Methods

Period Beginning on January 1, 2011, and Ending January 1, 2012

The ultimate economic assumptions for the current valuation (beginning January 1, 2012) are the same as those for the prior valuation except for the assumed annual rate of change in average hours worked. The current valuation assumes a decline in average hours worked of 0.05 percent per year rather than no change, as was assumed in the prior valuation. This change lowers the ultimate annual real-wage differential by 0.05 percentage point from the prior valuation, and decreases the present value of future cashflows. In addition, the starting economic values and near-term economic growth rate assumptions were updated to reflect recent developments.

Period Beginning January 1, 2010, and Ending January 1, 2011

The ultimate economic assumptions for the current valuation (beginning on January 1, 2011) are the same as those for the prior valuation. However, the starting economic values and near-term economic growth rate assumptions were changed. The economic recovery has been slower than was assumed for the prior valuation.

A change to the methodology for projecting labor force participation was implemented for the current valuation (beginning on January 1, 2011). The assumed effect of gains in life expectancy on labor force participation for persons over 40 was doubled, significantly increasing projected participation rates at higher ages. Disability prevalence was added as an input variable to the labor force model for persons over normal retirement age, partially offsetting increases in the labor force due to changes in life expectancy. Inclusion of these changes to labor force participation projections increase the present value of future net cashflows.

Changes in Methodology and Programmatic Data

Period Beginning on January 1, 2011, and Ending January 1, 2012

Several methodological improvements and updates of program-specific data are included in the current valuation (beginning on January 1, 2012). The most significant are identified below.

Inclusion of each of these methodological improvements and updates of program-specific data revisions decreases the present value of future net cashflows.

Period Beginning January 1, 2010, and Ending January 1, 2011

Several methodological improvements and updates of program-specific data are included in the current valuation (beginning on January 1, 2011). The most significant are identified below.

Changes in Law or Policy

Period Beginning on January 1, 2011, and Ending January 1, 2012

There were no legislative changes, included in the current valuation (beginning on January 1, 2012) and not in the prior valuation, that are projected to have a significant effect on the present value of the 75-year net cashflows.

Period Beginning January 1, 2010 and Ending January 1, 2011

There were no legislative changes, included in the current valuation (beginning on January 1, 2011) and not in the prior valuation, that are projected to have a significant effect on the present value of the 75-year net cashflows.

Medicare

All estimates relating to the Medicare program in the Statement of Changes in Social Insurance Amounts represent values that are incremental to the prior change. As an example, the present values shown for demographic assumptions, represent the additional effect that these assumptions have, once the effects from the change in the valuation period and projection base have been considered.

Assumptions Used for the Components of the Changes for the Medicare Program

The present values included in the Statement of Changes in Social Insurance Amounts are for the current and prior years and are based on various economic and demographic assumptions used for the intermediate assumptions in the Medicare Trustees Reports for these years. Table 1B summarizes these assumptions for the current year.

Period Beginning on January 1, 2011, and Ending January 1, 2012

Present values as of January 1, 2011, are calculated using interest rates from the intermediate assumptions of the 2011 Medicare Trustees Report. All other present values in this part of the Statement of Changes in Social Insurance Amounts are calculated as a present value as of January 1, 2012. Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, demographic assumptions, and law are determined using the interest rates under the intermediate assumptions of the 2011 Medicare Trustees Report. Since interest rates are economic assumptions, the estimates of the present values of changes in economic assumptions are presented using the interest rates under the intermediate assumptions of the 2012 Medicare Trustees Report.

Period Beginning on January 1, 2010, and Ending January 1, 2011

Present values as of January 1, 2010, are calculated using interest rates from the intermediate assumptions of the 2010 Medicare Trustees Report. All other present values in this part of the Statement of Changes in Social Insurance Amounts are calculated as a present value as of January 1, 2011. Estimates of the present value of changes in social insurance amounts due to changing the valuation period, projection base, demographic assumptions, and law are determined using the interest rates under the intermediate assumptions of the 2010 Medicare Trustees Report. Since interest rates are economic assumptions, the estimates of the present values of changes in economic assumptions are presented using the interest rates under the intermediate assumptions of the 2011 Medicare Trustees Report.

Changes in Valuation Period

Period Beginning on January 1, 2011, and Ending January 1, 2012

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2011-85) to the current valuation period (2012-86) is measured by using the assumptions for the prior valuation period and applying them, in the absence of any other changes, to the current valuation period. Changing the valuation period removes a small negative net cashflow for 2011 and replaces it with a much larger negative net cashflow for 2086. The present value of future net cashflow (including or excluding the combined Medicare Trust Fund assets at the start of the period) was therefore decreased (made more negative) when the 75-year valuation period changed from 2011-85 to 2012-86.

Period Beginning on January 1, 2010, and Ending January 1, 2011

The effect on the 75-year present values of changing the valuation period from the prior valuation period (2010-84) to the current valuation period (2011-85) is measured by using the assumptions for the prior valuation period and applying them, in the absence of any other changes, to the current valuation period. Changing the valuation period removes a small negative net cashflow for 2010 and replaces it with a much larger negative net cashflow for 2085. The present value of future net cashflow (including or excluding the combined Medicare Trust Fund assets at the start of the period) was therefore decreased (made more negative) when the 75-year valuation period changed from 2010-84 to 2011-85.

Change in Projection Base

Period Beginning January 1, 2011, and Ending January 1, 2012

Actual revenue and expenditures in 2011 were different than what was anticipated when the 2011 Medicare Trustee Report projections were prepared. Part A revenue was slightly higher than estimated and Part A expenditures were lower than anticipated, based on actual experience. Part B total revenue and expenditures were higher than estimated based on actual experience. For Part D, actual revenue and expenditures were both slightly lower than prior estimates. The net impact of the Part A, B, and D projection-base changes is an increase in the future net cashflow. Actual experience of the Medicare Trust Funds between January 1, 2011 and January 1, 2012 is incorporated in the current valuation and is slightly more than projected in the prior valuation.

Period Beginning on January 1, 2010, and Ending January 1, 2011

Actual revenue and expenditures in 2010 were different than what was anticipated when the 2010 Medicare Trustees Report projections were prepared. Part A revenue was lower than estimated and Part A expenditures were higher than anticipated, due to the impacts of the economic recession. Part B total revenue and expenditures were lower than estimated based on actual experience. For Part D, actual revenue and expenditures were both slightly lower than prior estimates. The net impact of the Part A, B, and D projection-base changes is a slight decrease in the future net cashflow. Actual experience of the Medicare Trust Funds between January 1, 2010, and January 2011 is incorporated in the current valuation and is slightly more than projected in the prior valuation.

Changes in Demographic Data, Assumptions, and Methods

Period Beginning January 1, 2011, and Ending January 1, 2012

The demographic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared by the Office of the Chief Actuary at the SSA.

The ultimate demographic assumptions for the current valuation period are the same as those for the prior valuation period. However, the starting demographic values were changed.

These changes have little impact on the Part A present values of future expenditures and revenue. However, since overall population projections are lower compared to the prior valuation, these changes lower the Part B and Part D present values of expenditures.

Period Beginning January 1, 2010, and Ending January 1, 2011

The demographic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared by the Office of the Chief Actuary at the SSA.

The ultimate demographic assumptions for the current valuation period are the same as those for the prior valuation period. However, the starting demographic values were changed.

These changes have little impact on the present values of future expenditures and revenue.

Changes in Economic and Other Health Care Assumptions

Period Beginning January 1, 2011, and Ending January 1, 2012

The economic assumptions used in the Medicare projections are the same as those used for the OASDI and are prepared by the Office of the Chief Actuary at the SSA.

The ultimate economic assumptions for the current valuation period are the same as those for the prior valuation period. However, the starting economic values and near-term economic growth rate assumptions were changed. The economic recovery has been slower than was assumed for the prior valuation period.

The health care assumptions are specific to the Medicare projections. The following health care assumptions were changed in the current valuation.

The net impact of these changes resulted in a decrease in the future net cashflow for total Medicare. For Part A, these changes resulted in an increase to the present value of expenditures and a very slight decrease to the present value of revenue, with an overall decrease on the future net cashflow. For Part B, these changes increased the
present value of expenditures. On the other hand, the above-mentioned changes lowered the present value of expenditures for Part D.

Period Beginning January 1, 2010, and Ending January 1, 2011

The economic assumptions used in the Medicare projections are the same as those used for OASDI and are prepared by the Office of the Chief Actuary at the SSA.

The ultimate economic assumptions for the current valuation period are the same as those for the prior valuation period. However, the starting economic values and near-term economic growth rate assumptions were changed. The economic recovery has been slower than was assumed for the prior valuation period.

The interest rates assumed in the short-range period are lower for the current valuation period.

Inclusion of each of these economic revisions decreases the present value of future net cashflow.

The health care assumptions are specific to the Medicare projections. The following health care assumptions were changed in the current valuation.

These changes had a net negative impact on the future net cashflow for total Medicare. For Part A, these changes resulted in a net increase to the present value of both revenue and expenditures, with an overall increase on the future net cashflow. For Part B, these changes resulted in a net increase to the present value of both revenue and expenditures with an overall decrease on the future net cashflow.

Changes in Law or Policy

Period Beginning January 1, 2011, and Ending January 1, 2012

Although Medicare legislation was enacted since the prior valuation date, many of the provisions have a negligible impact on the present value of the 75-year revenue, expenditures, and net cashflow. However, there were three specific provisions enacted that had a fairly substantial impact on the Medicare program. These include the sequestration of up to two percent of Medicare provider expenditures per fiscal year from fiscal year 2013 through fiscal year 2021, as required by the Budget Control Act of 2011, which reduces the present value of expenditures for Medicare; the extension of the 0 percent physician payment update through calendar year 2012 required by the Temporary Payroll Tax Cut Continuation Act of 2011 and the Middle Class Tax Relief and Job Creation Act of 2012, which slightly increases the present value of Part B expenditures; and the reduction in bad debt payments required by the Middle Class Tax Relief and Job Creation Act of 2012, which reduces the present value of Part A and Part B expenditures.

Period Beginning January 1, 2010, and Ending January 1, 2011

Although Medicare legislation was enacted since the prior valuation date, most of the provisions have a negligible impact on the present value of the 75-year income, expenditures, and net cashflow. However, the enacted changes to the physician payment update very slightly increased the present value of expenditures, and decreased the 75-year present value of future net cashflow.

Railroad Retirement

The largest change in the open group measure of the Railroad Retirement social insurance program is due to changes in economic data and assumptions. Selected economic assumptions were updated in 2012 along with the following other components of changes in the open group measure.

Changes in Valuation Period

Period Beginning January 1, 2011, and Ending January 1, 2012

There were no changes in this valuation period.

Period Beginning January 1, 2010, and Ending January 1, 2011

The change in the valuation period (from 2010-2084 to 2011-2085) had a minimal effect on the social insurance open group measure.

Changes in Demographic Data and Assumptions

Period Beginning January 1, 2011, and Ending January 1, 2012

Some demographic assumptions, such as the Annuitants Mortality Table, the Disabled Mortality Table for Annuitants with Disability Freeze, The Disabled Mortality Table for Annuitants without Disability Freeze, the Active Service Mortality Table, the Spouse Total Termination Table, the probability of a spouse, the rates of immediate age retirement, the rates of immediate disability retirement, the rates of eligibility for disability freeze, the rates of final withdrawal, service months, salary scales, and family characteristics, were changed between the Statement of Social Insurance as of January 1, 2011 and the Statement of Social Insurance as of January 1, 2012.

These changes and the changes in demographic data had a relatively small effect (about 0.3 billion) on the open group measure between January 1, 2011 and January 1, 2012.

Period Beginning January 1, 2010, and Ending January 1, 2011

Demographic assumptions were not changed between 2010 and 2011. Changes in demographic data had a minimal effect (less than 0.1 billion) on the open group measure between January 1, 2010 and January 1, 2011.

Changes in Economic Data and Assumptions

Period Beginning January 1, 2011, and Ending January 1, 2012

Both select and ultimate economic assumptions were changed between January 1, 2011, and January 1, 2012. The actual COLA of 3.6 percent was used for 2012 in place of the 3.0 percent COLA assumed for 2012 in the prior year's report. Assumed COLAs of 2.0 percent in 2013, 2.4 percent in 2014, and 2.8 percent in 2015 and thereafter were used rather than the 3.0 percent COLA assumed in the prior year's report. A wage increase rate of 3.5 percent was used for 2011 rather than the assumed 4 percent wage increase rate used for 2011 in the prior year's report. A wage increase rate of 3.8 percent was used for 2012 and thereafter rather than the 4 percent wage increase rate used in the prior year's report. Also, the actual 2011 investment return of (1.6 percent) was lower than the assumed 7.5 percent investment rate used for 2011 in the prior year's report. An assumed investment return of 7 percent was used for 2012 and all subsequent years rather than the 7.5 percent rate used in the prior year's report. Economic data and assumptions had the greatest effect on the open group measure, resulting in a change of about $2.2 billion from January 1, 2011 to January 1, 2012.

Period Beginning January 1, 2010, and Ending January 1, 2011

Ultimate economic assumptions were not changed between the Statement of Social Insurances as of January 1, 2010, and the Statement of Social Insurance as of January 1, 2011, but the select economic assumptions were. The actual COLA of 0.0 percent was used for 2011 in place of the 0.5 percent COLA assumed for 2011 in the prior year's report. A wage increase rate of 2.4 percent was used for 2010 rather than the assumed 4 percent wage increase rate used for 2010 in the prior year's report. Also, the actual 2010 investment return of 14.4 percent was higher than the assumed 7.5 percent investment rate used for 2010 in the prior year's report. Economic data and assumptions for Cost of Living Adjustments, wage increase rate, and investment return were updated in 2012 and had the greatest effect on the open group measure.

Changes in Methodology and Programmatic Data

Period Beginning January 1, 2011, and Ending January 1, 2012

There were no changes in methodology and programmatic data.

Period Beginning January 1, 2010, and Ending January 1, 2011

There were no changes in methodology and programmatic data.

Changes in Law or Policy

Period Beginning January 1, 2011, and Ending January 1, 2012

There were no changes in law or policy.

Period Beginning January 1, 2010, and Ending January 1, 2011

There were no changes in law or policy.

Black Lung

The significant assumptions used in the projections of the Black Lung social insurance program presented in the Statement of Social Insurance are the number of beneficiaries, life expectancy, coal excise tax revenue estimates, the tax rate structure, Federal civilian pay raises and medical cost inflation. These assumptions also affect the amounts reported on the Statement of Changes in Social Insurance Amounts.

During fiscal year 2012, the decrease in the open group measure was primarily due to changes in the assumptions about coal excise tax revenues and changes in the assumptions about beneficiaries, including cost (not associated with medical inflation or Federal civilian pay raises), number, type, age, and life expectancy, which were offset in part due to the change in the assumption about the interest rate that was used to discount the cash flows from 3.375 percent to 2.75 percent. For fiscal year 2012, the coal excise tax revenue projections were revised to reflect current year experience and a decrease in future collections. The assumptions about the beneficiaries were revised to reflect current year experience and an increase in future costs. The interest rate was revised to reflect the Treasury rate at the start of the projection period.

During fiscal year 2011, the decrease in the open and closed group measure was primarily due to changes in the assumptions about coal excise tax revenues, offset in part due to the changes in the assumptions about beneficiaries, including costs (not associated with medical inflation or Federal civilian pay raises), number, type, age, and life expectancy and the change in the assumption about the interest rate that was used to discount the cash flows from 3.75 percent to 3.375 percent. The coal excise tax revenue projections were revised to reflect the fiscal year 2011 experience and a decrease in future collections. The assumptions about the beneficiaries were revised to reflect the fiscal year 2011 experience and a decrease in future costs. The interest rate was revised to reflect the Treasury rate at the start of the projection period.

Footnotes

1The Interim Report of the Technical Panel of the Medicare Trustees Report is available at http://aspe.hhs.gov/health/medpanel/2010/interim1103.shtml. Once completed, the final report will be available at http://aspe.hhs.gov/health/medpanel/2010/. (Back to Content)

2There are six trustees: the Secretaries of the Treasury (managing trustee), Health and Human Services, and Labor; the Commissioner of the Social Security Administration; and two public trustees who are generally appointed by the President and confirmed by the Senate for a 4-year term. By law, the public trustees are members of two different political parties. (Back to Content)

3Statement of Federal Financial Accounting Standard (SFFAS) No. 33: Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains and Losses From Changes in Assumptions and Selecting Discount Rates and Valuation Dates, effective for fiscal years beginning after September 30, 2009, revised SFFAS No. 17: Accounting for Social Insurance, paragraphs 25, 27 (2), and 27 (4), by replacing the term "best estimate" with "reasonable estimate." (Back to Content)


Last Updated:  February 27, 2013