Major government programs

These summaries are provided as background for this report and should not be used to determine eligibility for any government program.

Social Security

Social Security is a federal government program that provides a source of income for individuals or their legal dependents (spouse, children, or parents) if they qualify for benefits. The program collects taxes from employees and employers and deposits the receipts into the two Social Security trust funds – the Old Age and Survivors Insurance (OASI) fund and the Disability Insurance (DI) fund. While the two are legally separate, they are often referred to together as OASDI.

In 2018, Social Security payments were $988 billion or 16% of our Government’s aggregate expenditures. Partially offsetting Social Security expenditures (but shown separately as revenue in our income statement), is $873 billion of Social Security tax receipts, which comprised 16% of our Government’s aggregate revenue.

Eligibility and enrollment¹⁵

The Social Security program pays benefits to qualified individuals out of the trust funds. Qualified individuals include, among others, disabled workers, retirees and their surviving spouses, and surviving children of deceased workers. Social Security benefits are subject to federal income taxes using a two-tiered scheme if the recipient’s income exceeds certain thresholds. According to the Wisconsin Fiscal Legislative Bureau, in 2019: “A total of 30 states…exempted social security income from taxation. Fourteen states taxed social security benefits in 2019. Four states followed current federal practice and taxed up to 85% of benefits, including Minnesota, which provided a second separate state subtraction, subject to an income-based phaseout. An additional ten states provided their own taxation treatment.”⁵

Disability

The Social Security Administration uses a five-step process to decide if a person is disabled, including verifying that:

• the applicant’s earnings average less than a certain amount each month;
• the applicant’s medical condition significantly limits his or her ability to do basic work activities – such as lifting, standing, walking, sitting, and remembering – for at least 12 months;
• the applicant’s medical condition is of at least a certain severity, preventing the applicant from completing substantial gainful activity, regardless of age, education, or work experience;
• the applicant’s medical impairment(s) prevents him or her from performing any of his or her past work; and
• there is no other work the applicant can do despite his or her impairment(s) given his or her age, education, past work experience, and skills.

In general, to get disability benefits, an applicant must also meet two earnings tests, one related to how recently the applicant has worked and the other related to the duration of the applicant’s work history.

There are special rules for people who are blind.

Retirement

Those who pay Social Security taxes earn “credits” toward Social Security benefits. The number of credits needed to qualify for retirement benefits depends on one’s birthdate. People born in 1929 or later need 40 credits (10 years of work).

The more a recipient has earned during a working career, the greater the retirement benefit. Retirement age also affects the size of benefit payments. Age 62 is the earliest possible Social Security retirement age, and those who retire at this age will have reduced benefits. Age 66 is the earliest age at which one can retire with full benefits. Each extra year of work thereafter adds another year of earnings to your Social Security record, increasing your benefits until you start receiving benefits or you reach age 70.

Spouses who never worked or have low earnings can get up to half of a retired worker’s full benefit. Those who are eligible for both their own retirement benefits and spousal benefits are paid their own benefits first. Those whose spousal benefit is higher than their own retirement benefit will get a combination of benefits equaling the higher spousal benefit. Divorced people aged 62 and older whose marriage lasted 10 years or longer may be able to receive benefits on their ex-spouse’s record even if the ex-spouse has remarried.

Social Security replaces a percentage of a worker’s pre-retirement income based on their lifetime earnings. The amount of average wages that Social Security retirement benefits replaces varies depending on one’s earnings and when one chooses to start receiving benefits. According to the Social Security Administration, if benefits start at age 67, this percentage ranges from as much as 75% for very low earners, to about 40% for medium earners, and about 27% for high earners. If benefits start earlier than age 67, these percentages would be lower, and after age 67 they’d be higher.

Survivor benefits

Widows and widowers may be eligible to receive Social Security benefits at age 60, or at age 50 if suffering from a disability that started before or within seven years of the spouse’s death. Widows and widowers can take reduced benefits on one record, and then switch to full benefits on another record later. For example, a woman can take a reduced widow’s benefit at 60 or 62, and switch to her own full retirement benefit at full retirement age.

Children’s benefits

Children whose parents are disabled, retired, or deceased may be eligible for Social Security benefits. Biological children, adopted children, and dependent stepchildren of the worker are eligible. To get benefits, a child must have:

• A parent who is disabled or retired and entitled to Social Security benefits; or
• A parent who died after having worked long enough in a job where the parent paid Social Security taxes.

The child must also be any of the following:

• Unmarried;
• Younger than age 18;
• 18-19 years old and a full-time student (no higher than grade 12); or
• 18 or older and disabled. (The disability must have started before age 22.)

Enrollment

A person needs a Social Security number to get a job legally, and this nine-digit number remains one’s first and continuous link with Social Security. Information on how to apply for a new or replacement Social Security number and card can be found at https://www.ssa.gov/. Having this number and beginning work at a job that participates in the Social Security program enrolls one in the program. When an individual is ready to make a claim, he or she can apply to receive Social Security retirement benefits on the above-referenced site.

Funding and financial condition of the program¹⁶

Funding

The Social Security program is funded primarily by a 12.4% payroll tax levied on employers and workers (each pay 6.2%, self-employed individuals pay the entire 12.4%). During the periods discussed in this report, there were two temporary tax rate reductions. For calendar year 2010, most employers were exempt from paying the employer share of OASDI tax on wages paid to certain qualified individuals hired after February 3. For calendar years 2011 and 2012, the OASDI tax rate was reduced by 2 percentage points for employees and for self-employed workers, resulting in a 4.2% effective tax rate for employees and a 10.4% effective tax rate for self-employed workers. Reductions in tax revenue due to these lower tax rates were made up by transfers from the general fund of the Treasury to the OASI and DI trust funds.

The payroll tax is levied on employee earnings up to a maximum taxable amount, which varies each year. Recent maximum taxable earnings were:

When the Social Security trust funds have surpluses, our Government generally uses the excess funds to purchase Treasury securities. Therefore, the trust funds earn some interest income.

Financial condition

Social Security funds are deposited in trust funds. The table below shows that at the end of 2019, the OASDI trust funds had an aggregate balance of $2.9 trillion.

Old-Age and Survivors Insurance and Disability Insurance trust funds

The Board of Trustees of OASI and DI Trust Funds projects the OASDI trust funds may become depleted as early as 2031. You can see their projections in Exhibit 99.06.

Medicare¹⁷

Medicare is our country’s health insurance program for people age 65 or older. People younger than age 65 with certain disabilities, permanent kidney failure, or amyotrophic lateral sclerosis (Lou Gehrig’s disease) can also qualify for Medicare. The program helps with the cost of healthcare, but it does not cover all medical expenses or the cost of most long-term care. As of 2013, on average, Medicare covered about 66%¹⁸ of the healthcare charges for those enrolled. A person can buy a Medicare supplement policy from a private insurance company to cover some of the costs that Medicare does not. Medicaid may also cover a portion of costs for those who are eligible.

In 2019, Medicare provided benefits to 61 million Americans, 86% (53 million) of whom were age 65 and older and 14% (9 million) of whom were disabled.

In 2018, Medicare payments (net of premiums of $100 billion) were $692 billion or 11% of our Government’s aggregate expenditures. Partially offsetting these expenditures (but shown separately as a payroll tax revenue in our income statement) were $265 billion of Medicare tax receipts, which comprised 5% of our Government’s aggregate revenue.

Programs

Medicare is the combination of two separate programs with three parts:

• the Hospital Insurance (HI) program, also known as Medicare Part A:
  • Part A covers in-patient hospital treatment along with some other medical services, with 60 million enrollees as of 2018; and
• the Supplemental Medical Insurance (SMI) program, also known as Medicare Parts B and D:
  • Part B covers much of what Part A does not, such as physician visits, out-patient hospital treatments, and some drugs, with 55 million enrollees as of 2018; and
  • Part D is the newest addition to the Medicare program (introduced January 1, 2006) and provides subsidies for prescription drugs, with 46 million enrollees as of 2018.

Medicare Part C (aka Medicare Advantage) is a privately-run health insurance option available via Medicare, with 21 million enrollees as of 2018. Part C enrollees pay premiums for their Part B, as well as additional fees to the private insurer, while the federal government covers an amount similar to what it would pay for the person to be enrolled in traditional Medicare.

Eligibility and enrollment

Part A

People age 65 or older, who are citizens or permanent residents of the US, are eligible for Medicare Part A at no cost if they:

• or their spouse receives or is eligible to receive Social Security benefits or railroad retirement benefits;
• or their spouse worked long enough in a government job through which they paid Medicare taxes; or
• are the dependent parent of a fully insured deceased child.

If they don’t meet these requirements, they may be able to get Medicare Part A by paying a monthly premium. People who are already receiving Social Security retirement or disability benefits will be automatically enrolled in Medicare Parts A and B when they turn 65. Those who aren’t yet receiving Social Security benefits should enroll in Medicare Part A even if they don’t plan to retire at age 65. The enrollment period begins three months before the month of an applicant’s 65^th birthday and continues for three months after the month he or she turns 65. One can enroll online at https://www.ssa.gov/, by phone, or by visiting a local Social Security Administration office.

Part B

Individuals eligible for Medicare Part A at no cost can enroll in Medicare Part B by paying a monthly premium. Some people with higher incomes will pay a higher monthly Part B premium. A person who is not eligible for Part A at no cost, can purchase Part B without having to buy Part A, if the person is 65 or older and is a US citizen or a lawfully admitted noncitizen who has lived in the US for at least five years. Those who fail to enroll in Part B when they are first eligible may be subject to a penalty if they enroll later. If, however, they are active employees past the age of 65 and are eligible for health insurance that their employer subsidizes, it may not be in their interest to enroll in Parts B or D until they retire.

Part C (Medicare Advantage)

Individuals who receive Part A and Part B benefits directly from our Government have original Medicare. Individuals who receive benefits from a Medicare Advantage organization or other company approved by Medicare have Medicare Advantage plans, which are offered by Medicare-approved private companies. Many of these plans provide extra coverage and may lower out-of-pocket costs. Individuals who have Medicare Parts A and B can join a Medicare Advantage plan.

Part D

Anyone who has Medicare Part A or Part B is eligible for Part D (Medicare prescription drug coverage). Joining a Medicare prescription drug plan, which charges an extra monthly premium, is voluntary. Some beneficiaries with higher incomes will pay a higher monthly Part D premium.

Participant costs

No part of Medicare pays for all of a beneficiary’s covered medical costs, and many costs are not covered at all. The program contains premiums, deductibles, and coinsurance, which the covered individual must pay out-of-pocket. Some people may qualify to have other governmental programs (such as Medicaid) pay premiums and some or all of the costs associated with Medicare. Deductibles and coinsurance are paid directly to providers and are excluded from this report. Premiums are reported in the financial statements within this report as reductions of Medicare expenditures rather than as revenues. See the overall discussion of what revenues are netted against expenses and why at Receipts that offset expenses above.

Most Medicare enrollees do not pay a monthly Part A premium, because they (or a spouse) have had 40 or more 3-month quarters in which they paid Federal Insurance Contributions Act (FICA) taxes. The benefit is the same no matter how much or how little the beneficiary paid as long as the minimum number of quarters is reached. Medicare-eligible persons who do not have 40 or more quarters of Medicare-covered employment (or a spouse who does) may buy into Part A for a monthly premium of:

• $259 per month (as of 2021) for those with 30 – 39 quarters of Medicare-covered employment, or
• $471 per month (as of 2021) for those with fewer than 30 quarters of Medicare-covered employment and who are not otherwise eligible for premium-free Part A coverage.

Most Medicare Part B enrollees pay an insurance premium for this coverage. Part B premiums for 2021 are $148.50 to $504.90 per month, depending on the enrollee’s yearly income, with the highest premium paid by individuals earning more than $500,000 or married couples earning more than $750,000.

Premiums for Parts C and D vary by plan, and some Part C plans do not charge premiums.

Funding and financial condition of the program

Funding

Each part of Medicare relies on different funding mechanisms:

• Part A is largely funded by a 2.9% payroll tax levied on employers and workers (each pay 1.45%; self-employed individuals pay the entire 2.9%). Beginning in 2013, the rate of Part A tax on earned income exceeding $200,000 for individuals ($250,000 for married couples filing jointly) rose to 3.8% (paid 2.35% by employee and 1.45% by employer, or 3.8% by a self-employed individual), in order to pay part of the cost of the subsidies mandated by the Patient Protection and Affordable Care Act (PPACA).
• Part B is funded primarily by revenue from the federal government general fund and by premiums paid by Medicare enrollees.
• Part C is funded by the Medicare Trust Funds at a fixed amount per month, plus any additional premiums paid by Part C plan members.
• Part D is financed primarily by revenue from the federal government general fund with small amounts coming from enrollee premiums (16% of funding in 2019) and transfers from states (12% of funding in 2019). In 2006, a surtax was added to Part B premiums for higher-income seniors to partially fund Part D.

Financial condition

Each of the three primary parts of Medicare (Parts A, B, and D) has its own account managed by trustees (a trust fund account). Part C does not have a trust fund.

Medicare trust funds financials

At the end of fiscal year 2019, the HI (Part A) trust fund had a balance of $199 billion and the SMI (Parts B and D) trust fund had a balance of $104 billion, for a combined balance of $303 billion.

The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds project the Medicare HI (Part A) trust fund may become depleted as early as 2023. See their projections in Exhibit 99.07.

Medicaid and Children’s Health Insurance Program (CHIP)¹⁹