This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

A Look at Our Future: When Baby Boomers Retire: 

Policy Committee: 

2005 White House Conference on Aging: 

The Honorable David M. Walker: 
Comptroller General of the United States: 
September 20, 2005: 

GAO's Strategic Plan: 

[See PDF for image] - graphic text: 

Serving the Congress and the Nation: 

GAO's Strategic Plan Framework: 

Mission: 

GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people. 

Themes: 

* Long-term Fiscal Imbalance; 

* National Security; 

* Global interdependence; 

* Changing Economy; 

* Demographics; 

* Science and Technology; 

* Quality of Life; 

* Governance; 

Goals and Objectives: 

Provide Timely, Quality Service to the Congress and the Federal 
Government to Address Current and Emerging Challenges to the Well-Being 
and Financial Security of the American People related to: 

* Health care needs and financing; 

* Education and protection of children; 

* Work opportunities and worker protection; 

* Retirement income security; 

* Effective system of justice; 

* Viable communities; 

* Natural resources use and environmental protection; 

* Physical infrastructure; 

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving: 

* Emerging threats; 

* Military capabilities and readiness; 

* Advancement of U.S. interests; 

* Global market forces; 

Help Transform the Federal Government's Role and How It Does Business 
to Meet 21st Century Challenges by assessing: 

* Roles in achieving federal objectives; 

* Government transformation; 

* Key management challenges and program risks; 

* Fiscal position and financing of the government; 

Maximize the Value of GAO by Being a Model Federal Agency and a World- 
Class Professional Services Organization in the areas of: 

* Client and customer service; 

* Strategic leadership; 

* Institutional knowledge and experience; 

* Process improvement; 

* Employer of choice; 

Core Values: 

* Accountability; 

* Integrity; 

* Reliability; 

Source: GAO. 

GAO Strategic Plan 2004-2009. 

[End of strategic plan framework] 

Composition of Federal Spending: 

[See PDF for image] - graphic text 

3 pie charts with 5 items each. 

1964: 
Defense: 46.0%; 
Social Security: 14.0%; 
Medicare & Medicaid: 0%; 
Net interest: 7.0%; 
All other spending: 33.0%. 

1984: 
Defense: 27.0%; 
Social Security: 21.0%; 
Medicare & Medicaid: 9.0%; 
Net interest: 13.0%; 
All other spending: 30.0%. 

2004: 
Defense: 20.0%; 
Social Security: 22.0%; 
Medicare & Medicaid: 19.0%; 
Net interest: 7.0%; 
All other spending: 32.0%. 

Source: Office of Management and Budget. 

[End of figure] 

Federal Spending for Mandatory and Discretionary Programs: 

[See PDF for image] - graphic text 

3 pie charts with 3 items each. 

1964: 
Discretionary: 67%; 
Mandatory: 26%; 
Net Interest: 7%. 

1984: 
Discretionary: 45%; 
Mandatory: 42%; 
Net Interest: 13%. 

2004: 
Discretionary: 39%; 
Mandatory: 54%; 
Net Interest: 7%. 

Source: Office of Management and Budget. 

[End of figure] 

Fiscal Year 2004 Deficit Numbers: 

On-Budget Deficit; 
-$567 Billion; 
-4.9% of GDP. 

Off-Budget Surplus; 
$155 Billion; 
1.3% of GDP. 

Unified Deficit; 
-$412 Billion; 
-3.6% of GDP. 

* Includes the $151 billion Social Security surplus and a $4 billion 
surplus for the Postal Service. 

March 2005. 

[End of table] 

Surplus or Deficit as a Share of GDP: Fiscal Years 1962-2004: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars. 

Fiscal year: 1962; 
On-budget: -1%; 
Off-budget: -0.2%; 
Unified: -1.3%. 

Fiscal year: 1963; 
On-budget: -0.7%; 
Off-budget: -0.1%; 
Unified: -0.8%. 

Fiscal year: 1964; 
On-budget: -1%; 
Off-budget: 0.1%; 
Unified: -0.9%. 

Fiscal year: 1965; 
On-budget: -0.2%; 
Off-budget: No data; 
Unified: -0.2%. 

Fiscal year: 1966; 
On-budget: -0.4%; 
Off-budget: -0.1%; 
Unified: -0.5%. 

Fiscal year: 1967; 
On-budget: -1.6%; 
Off-budget: 0.5%; 
Unified: -1.1%. 

Fiscal year: 1968; 
On-budget: -3.2%; 
Off-budget: 0.3%; 
Unified: -2.9%. 

Fiscal year: 1969; 
On-budget: -0.1%; 
Off-budget: 0.4%; 
Unified: 0.3%. 

Fiscal year: 1970; 
On-budget: -0.9%; 
Off-budget: 0.6%; 
Unified: -0.3%. 

Fiscal year: 1971; 
On-budget: -2.4%; 
Off-budget: 0.3%; 
Unified: -2.1%. 

Fiscal year: 1972; 
On-budget: -2.2%; 
Off-budget: 0.3%; 
Unified: -2%. 

Fiscal year: 1973; 
On-budget: -1.2%; 
Off-budget: No data; 
Unified: -1.1%. 

Fiscal year: 1974; 
On-budget: -0.6%; 
Off-budget: 0.1%; 
Unified: -0.4%. 

Fiscal year: 1975; 
On-budget: -3.5%; 
Off-budget: 0.1%; 
Unified: -3.4%. 

Fiscal year: 1976; 
On-budget: -4.1%; 
Off-budget: -0.2%; 
Unified: -4.2%. 

Fiscal year: 1977; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1978; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1979; 
On-budget: -1.5%; 
Off-budget: -0.1%; 
Unified: -1.6%. 

Fiscal year: 1980; 
On-budget: -2.7%; 
Off-budget: No data; 
Unified: -2.7%. 

Fiscal year: 1981; 
On-budget: -2.4%; 
Off-budget: -0.2%; 
Unified: -2.6%. 

Fiscal year: 1982; 
On-budget: -3.7%; 
Off-budget: -0.2%; 
Unified: -4%. 

Fiscal year: 1983; 
On-budget: -6%; 
Off-budget: No data; 
Unified: -6%. 

Fiscal year: 1984; 
On-budget: -4.8%; 
Off-budget: No data; 
Unified: -4.8%. 

Fiscal year: 1985; 
On-budget: -5.3%; 
Off-budget: 0.2%; 
Unified: -5.1%. 

Fiscal year: 1986; 
On-budget: -5.4%; 
Off-budget: 0.4%; 
Unified: -5%. 

Fiscal year: 1987; 
On-budget: -3.6%; 
Off-budget: 0.4%; 
Unified: -3.2%. 

Fiscal year: 1988; 
On-budget: -3.9%; 
Off-budget: 0.8%; 
Unified: -3.1%. 

Fiscal year: 1989; 
On-budget: -3.8%; 
Off-budget: 1%; 
Unified: -2.8%. 

Fiscal year: 1990; 
On-budget: -4.8%; 
Off-budget: 1%; 
Unified: -3.9%. 

Fiscal year: 1991; 
On-budget: -5.4%; 
Off-budget: 0.9%; 
Unified: -4.5%. 

Fiscal year: 1992; 
On-budget: -5.5%; 
Off-budget: 0.8%; 
Unified: -4.7%. 

Fiscal year: 1993; 
On-budget: -4.6%; 
Off-budget: 0.7%; 
Unified: -3.9%. 

Fiscal year: 1994; 
On-budget: -3.7%; 
Off-budget: 0.8%; 
Unified: -2.9%. 

Fiscal year: 1995; 
On-budget: -3.1%; 
Off-budget: 0.9%; 
Unified: -2.2%. 

Fiscal year: 1996; 
On-budget: -2.3%; 
Off-budget: 0.9%; 
Unified: -1.4%. 

Fiscal year: 1997; 
On-budget: -1.3%; 
Off-budget: 1%; 
Unified: -0.3%. 

Fiscal year: 1998; 
On-budget: -0.3%; 
Off-budget: 1.1%; 
Unified: 0.8%. 

Fiscal year: 1999; 
On-budget: No data; 
Off-budget: 1.4%; 
Unified: 1.4%. 

Fiscal year: 2000; 
On-budget: 0.9%; 
Off-budget: 1.5%; 
Unified: 2.4%. 

Fiscal year: 2001; 
On-budget: -0.3%; 
Off-budget: 1.6%; 
Unified: 1.3%. 

Fiscal year: 2002; 
On-budget: -3.1%; 
Off-budget: 1.5%; 
Unified: -1.5%. 

Fiscal year: 2003; 
On-budget: -4.9%; 
Off-budget: 1.5%; 
Unified: -3.5%. 

Fiscal year: 2004; 
On-budget: -4.9%; 
Off-budget: 1.3%; 
Unified: -3.6%. 

Source: Office of Management and Budget and Congressional Budget 
Office. 

[End of figure] 

Estimated Fiscal Exposures (in $ trillions): 

Explicit liabilities (Publicly held debt, military & civilian pensions 
& retiree health, other); 
2000: $6.9; 
2002: $7.8; 
2004: $9.1. 

Commitments & Contingencies: e.g., PBGC, undelivered orders; 
2000: $0.5; 
2002: $0.8; 
2004: $0.9. 

Implicit exposures; 
2000: $13.0; 
2002: $17.8; 
2004: $33.3. 

Implicit exposures: Future Social Security benefits; 
2000: $3.8; 
2002: $4.6; 
2004: $5.2. 

Implicit exposures: Future Medicare Part A benefits; 
2000: $2.7; 
2002: $5.1; 
2004: $8.5. 

Implicit exposures: Medicare Part B benefits; 
2000: $6.5; 
2002: $8.1; 
2004: $11.4. 

Implicit exposures: Medicare Part D benefits; 
2004: $8.1. 

Total; 
2000: $20.4; 
2002: $26.4; 
2004: $43.3. 

Sources: Consolidated Financial Statements. 

Note: Estimates for Social Security and Medicare are PV as of January 1 
of each year as reported in the Consolidated Financial Statements and 
all other data are as of September 30. The 2005 Trustees Reports issued 
in March of this year show that the Social Security and Medicare 
exposures have increased as follows: Social Security increased to $5.7 
trillion, Medicare Part A increased to $8.8 trillion, Medicare Part B 
increased to $12.4 trillion and Part D increased to $8.7 trillion. 
Totals may not add due to rounding. 

[End of table] 

Growing Fiscal Burden: 

Another way to think about these fiscal exposures is: 

Fiscal exposures [from previous page]; 
2000: $20.40; 
2002: $26.40; 
2004: $43.30. 

Per person; 
2000: $72,000; 
2002: $92,000; 
2004: $147,000. 

Per full-time worker; 
2000: $165,000; 
2002: $214,000; 
2004: $350,000. 

[End of table] 

Fiscal Exposures: The Importance of Looking Beyond the 1st Year: 

Terrorism Risk Insurance expansion to aircraft and aircraft engine 
manufacturers enacted in 2003: 

* Estimate for FY 2004: $3 million income; 
* Estimate for 10 years (2004-2013): $47 million cost. 

Health Care Benefit extension to older uniformed services retirees 
enacted in 2000: 

* Estimate for FY 2001: $223 million cost; 
* Estimate for 10 years (2001-2010): $40.4 billion cost; 
* Financial statement liability: $293 billion. 

Medicare Drug Benefit enacted 2003: 

* Estimate for CY 2006: $64.4 billion; 
* Estimate for 2006-14: $851 billion; 
* Estimate from program inception through 2079: $8.7 trillion in 
present value terms. 

Sources: Medicare estimates for net federal spending are drawn from the 
2005 Medicare Trustees' intermediate estimates. All others are CBO cost 
estimates in year of enactment and 2001 Consolidated Financial 
Statement. 

Health Care Is the Nation’s Top Tax Expenditure in Fiscal Year 2004 
(estimated): 

[See PDF for image] – graphic text: 

Bar graph with five items. 

Estimated dollars in billions. 

Exclusion of employer contributions for insurance premiums and medical 
care: $102.3*; 
Deductibility of mortgage interest on owner-occupied dwellings: $61.5; 
Exclusion of pension contributions and earnings: employer-sponsored 
401(K) plans: $47.7; 
Exclusion of pension contributions and earnings: employer-sponsored 
defined benefit plans: $47; 
Deductibility of nonbusiness state and local taxes (other than on owner-
occupied dwellings): $45.3. 

Note: “Tax expenditures” refers to the special tax provisions that are 
contained in the federal income taxes on individuals and corporations. 
OMB does not include forgone revenue from other federal taxes such as 
Social Security and Medicare payroll taxes. 

* If the payroll tax exclusion were also counted here, the total tax 
expenditure for employer contributions for health insurance premiums 
would be about 50 percent higher or $153.5 billion. 

Source: Office of Management and Budget (OMB), Analytical Perspectives, 
Budget of the United States Government, Fiscal Year 2006. 

[End of figure] 

Composition of Spending as a Share of GDP Under Baseline Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.4%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 1.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.3%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2030; 
Net interest: 2.8%; 
Social Security: 6.4%; 
Medicare & Medicaid: 8%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2040; 
Net interest: 5.7%; 
Social Security: 6.9%; 
Medicare & Medicaid: 9.7%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2015 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2015, revenue as a share of GDP 
is held constant. 

Source: GAO’s August 2005 analysis. 

[End of figure] 

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP after 2005 and All Expiring Tax Provisions are 
Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.4%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 2.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.3%; 
All other spending: 9.9%; 
Revenue: 17.4. 

2030; 
Net interest: 8%; 
Social Security: 6.7%; 
Medicare & Medicaid: 8%; 
All other spending: 9.9%; 
Revenue: 17.4%. 

2040; 
Net interest: 15.8%; 
Social Security: 7.7%; 
Medicare & Medicaid: 9.7%; 
All other spending: 9.9%; 
Revenue: 17.4%. 

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2015 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2015, revenue as a share 
of GDP is held constant. 

Source: GAO's August 2005 analysis. 

[End of figure] 

Current Fiscal Policy Is Unsustainable: 

The “Status Quo” is Not an Option: 

* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs. 

* GAO’s simulations show that balancing the budget in 2040 could 
require actions as large as: 

- Cutting total federal spending by about 60 percent or
- Raising taxes to about 2.5 times today's level. 

Faster Economic Growth Can Help, but It Cannot Solve the Problem: 

* Closing the current long-term fiscal gap based on responsible 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years. 

* During the 1990s, the economy grew at an average 3.2 percent per 
year. 

* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required. 

The Way Forward: 

Implement new accounting and reporting approaches and new budget 
control mechanisms for considering the impact of spending and tax 
policies and decisions over the long term. 

Develop new metrics for measuring the impact of policies and decisions 
over the long term (e.g., key national indicators to measure our 
Nation’s position and progress over time and in relation to other 
countries). 

Reexamine the base—question existing programs, policies and activities. 

21st Century Challenges Report: 

Provides background, framework, and questions to assist in reexamining 
the base. 

Covers entitlements & other mandatory spending, discretionary spending, 
and tax policies and programs. 

Based on GAO's work for the Congress. 

Issued February 16, 2005. 

Generic Reevaluation Criteria and Sample Questions: 

Relevance of purpose and the federal role: 

Why did the federal government initiate this program and what was the 
government trying to accomplish? 

Have there been significant changes in the country or the world that 
relate to the reason for initiating it? 

Measuring success: 

Are there outcome-based measures? If not, why? 

If there are outcome-based measures, how successful is it based on 
these measures? 

Targeting benefits: 

Is it well targeted to those with the greatest needs and the least 
capacity to meet those needs? 

Affordability and cost effectiveness: 

Is it using the most cost-effective or net beneficial approaches when 
compared to other tools and program designs? 

Best practices: 

Is the responsible entity employing prevailing best practices to 
discharge its responsibilities and achieve its mission? 

Illustrative 21st Century Questions: 

How should the historical allocation of resources across services and 
programs be changed to reflect the results of a forward-looking 
comprehensive threat/risk assessment as part of DOD's capabilities- 
based approach to determining defense needs? 

How can the United States better develop a world-class technical and 
scientific domestic workforce that is not as dependent on large inflows 
of international students and researchers? For example, are different 
educational tools or targeted funding strategies needed to enhance U.S. 
student achievement in math and science? 

To what extent are federal energy policies and incentive structures 
adequately preparing the nation to satisfy its energy needs over the 
long term? 

How can industry standards for acceptable care be established and 
payment reforms be designed to bring about reductions in unwarranted 
medical practice variation? 

Which tax incentives need to be reconsidered because they fail to 
achieve the objectives intended by the Congress, their costs outweigh 
their benefits, they duplicate other programs, or other more cost-
effective means exist for achieving their objectives? 

Key Elements for Economic Security in Retirement: 

Adequate retirement income: 

* Social Security; 
* Pensions; 
* Savings; 
* Earnings from continued employment (e.g., part-time). 

Affordable health care: 

* Medicare; 
* Retiree health care. 

Long-term care (a hybrid). 

Major Players: 

* Employers; 
* Government; 
* Individuals; 
* Family; 
* Community. 

Social Security and Medicare’s Hospital Insurance Trust Funds Face Cash 
Deficits: 

[See PDF for image] – graphic text: 

Stacked Bar chart with 41 items. 

Billions of 2005 dollars. 

Year: 2000; 
Medicare HI cash flow: $27.20; 
Social Security cash flow: $99.10. 

Year: 2001; 
Medicare HI cash flow: $18.70; 
Social Security cash flow: $98.02. 

Year: 2002; 
Medicare HI cash flow: $11.80; 
Social Security cash flow: $90.98. 

Year: 2003; 
Medicare HI cash flow: $5.70; 
Social Security cash flow: $71.20. 

Year: 2004; 
Medicare HI cash flow: -$2.80; 
Social Security cash flow: $68.58. 

Medicare HI cash deficit: 2004. 

Year: 2005; 
Medicare HI cash flow: -$1.00; 
Social Security cash flow: $69.50. 

Year: 2006; 
Medicare HI cash flow: -$1.00; 
Social Security cash flow: $84.80. 

Year: 2007; 
Medicare HI cash flow: -$1.90; 
Social Security cash flow: $88.70. 

Year: 2008; 
Medicare HI cash flow: -$2.80; 
Social Security cash flow: $90.20. 

Year: 2009; 
Medicare HI cash flow: -$6.30; 
Social Security cash flow: $84.00. 

Year: 2010; 
Medicare HI cash flow: -$7.90; 
Social Security cash flow: $80.20. 

Year: 2011; 
Medicare HI cash flow: -$10.20; 
Social Security cash flow: $75.60. 

Year: 2012; 
Medicare HI cash flow: -$14.10; 
Social Security cash flow: $65.30. 

Year: 2013; 
Medicare HI cash flow: -$18.60; 
Social Security cash flow: $52.90. 

Year: 2014; 
Medicare HI cash flow: -$23.60; 
Social Security cash flow: $38.50. 

Year: 2015; 
Medicare HI cash flow: -$29.80; 
Social Security cash flow: $24.30. 

Year: 2016; 
Medicare HI cash flow: -$36.40; 
Social Security cash flow: $8.20. 

Year: 2017; 
Medicare HI cash flow: -$43.40; 
Social Security cash flow: -$8.80. 

Social Security cash deficit: 2017. 

Year: 2018; 
Medicare HI cash flow: -$51.40; 
Social Security cash flow: -$26.40. 

Year: 2019; 
Medicare HI cash flow: -$60.30; 
Social Security cash flow: -$44.70. 

Year: 2020; 
Medicare HI cash flow: -$69.30; 
Social Security cash flow: -$64.20. 

Year: 2021; 
Medicare HI cash flow: -$79.70; 
Social Security cash flow: -$83.90. 

Year: 2022; 
Medicare HI cash flow: -$91.40; 
Social Security cash flow: -$103.80. 

Year: 2023; 
Medicare HI cash flow: -$103.00; 
Social Security cash flow: -$123.70. 

Year: 2024; 
Medicare HI cash flow: -$115.70; 
Social Security cash flow: -$143.90. 

Year: 2025; 
Medicare HI cash flow: -$129.40; 
Social Security cash flow: -$164.30. 

Year: 2026; 
Medicare HI cash flow: -$143.30; 
Social Security cash flow: -$184.90. 

Year: 2027; 
Medicare HI cash flow: -$157.00; 
Social Security cash flow: -$204.40. 

Year: 2028; 
Medicare HI cash flow: -$171.40; 
Social Security cash flow: -$222.70. 

Year: 2029; 
Medicare HI cash flow: -$186.50; 
Social Security cash flow: -$239.70. 

Year: 2030; 
Medicare HI cash flow: -$203.10; 
Social Security cash flow: -$255.90. 

Year: 2031; 
Medicare HI cash flow: -$219.70; 
Social Security cash flow: -$271.60. 

Year: 2032; 
Medicare HI cash flow: -$236.20; 
Social Security cash flow: -$286.00. 

Year: 2033; 
Medicare HI cash flow: -$253.00; 
Social Security cash flow: -$298.60. 

Year: 2034; 
Medicare HI cash flow: -$271.00; 
Social Security cash flow: -$309.30. 

Year: 2035; 
Medicare HI cash flow: -$289.60; 
Social Security cash flow: -$319.00. 

Year: 2036; 
Medicare HI cash flow: -$307.80; 
Social Security cash flow: -$327.80. 

Year: 2037; 
Medicare HI cash flow: -$325.30; 
Social Security cash flow: -$335.40. 

Year: 2038; 
Medicare HI cash flow: -$342.80; 
Social Security cash flow: -$341.80. 

Year: 2039; 
Medicare HI cash flow: -$360.60; 
Social Security cash flow: -$347.30. 

Year: 2040; 
Medicare HI cash flow: -$379.20; 
Social Security cash flow: -$352.50. 

Note: Projections based on the intermediate assumptions of the 2005 
Trustees’ Reports. 

Source: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration and Office of the Actuary, 
Centers for Medicare and Medicaid Services. 

[End of figure] 

Social Security, Medicare, and Medicaid Spending as a Percent of GDP: 

[See PDF for image] - graphic text: 

Area graph with 81 Groups and 3 items per Group. 

Percent of GDP: 

Year: 2000; 
Social Security: 4.23%; 
Medicaid: 1.23%; 
Medicare: 2.29%. 

Year: 2001; 
Social Security: 4.33%; 
Medicaid: 1.32%; 
Medicare: 2.44%. 

Year: 2002; 
Social Security: 4.4%; 
Medicaid: 1.44%; 
Medicare: 2.53%. 

Year: 2003; 
Social Security: 4.35%; 
Medicaid: 1.5%; 
Medicare: 2.57%. 

Year: 2004; 
Social Security: 4.27%; 
Medicaid: 1.52%; 
Medicare: 2.63%. 

Year: 2005; 
Social Security: 4.26%; 
Medicaid: 1.51%; 
Medicare: 2.69%. 

Year: 2006; 
Social Security: 4.21%; 
Medicaid: 1.5%; 
Medicare: 3.33%. 

Year: 2007; 
Social Security: 4.19%; 
Medicaid: 1.52%; 
Medicare: 3.36%. 

Year: 2008; 
Social Security: 4.2%; 
Medicaid: 1.57%; 
Medicare: 3.41%. 

Year: 2009; 
Social Security: 4.24%; 
Medicaid: 1.62%; 
Medicare: 3.45%. 

Year: 2010; 
Social Security: 4.28%; 
Medicaid: 1.68%; 
Medicare: 3.5%. 

Year: 2011; 
Social Security: 4.34%; 
Medicaid: 1.74%; 
Medicare: 3.56%. 

Year: 2012; 
Social Security: 4.42%; 
Medicaid: 1.8%; 
Medicare: 3.67%. 

Year: 2013; 
Social Security: 4.51%; 
Medicaid: 1.87%; 
Medicare: 3.81%. 

Year: 2014; 
Social Security: 4.61%; 
Medicaid: 1.93%; 
Medicare: 3.96%. 

Year: 2015; 
Social Security: 4.71%; 
Medicaid: 1.95%; 
Medicare: 4.12%. 

Year: 2016; 
Social Security: 4.81%; 
Medicaid: 1.95%; 
Medicare: 4.29%. 

Year: 2017; 
Social Security: 4.92%; 
Medicaid: 1.95%; 
Medicare: 4.44%. 

Year: 2018; 
Social Security: 5.02%; 
Medicaid: 1.95%; 
Medicare: 4.61%. 

Year: 2019; 
Social Security: 5.13%; 
Medicaid: 1.95%; 
Medicare: 4.78%. 

Year: 2020; 
Social Security: 5.24%; 
Medicaid: 1.95%; 
Medicare: 4.96%. 

Year: 2021; 
Social Security: 5.35%; 
Medicaid: 1.99%; 
Medicare: 5.14%. 

Year: 2022; 
Social Security: 5.45%; 
Medicaid: 2.02%; 
Medicare: 5.33%. 

Year: 2023; 
Social Security: 5.55%; 
Medicaid: 2.06%; 
Medicare: 5.51%. 

Year: 2024; 
Social Security: 5.65%; 
Medicaid: 2.09%; 
Medicare: 5.71%. 

Year: 2025; 
Social Security: 5.75%; 
Medicaid: 2.13%; 
Medicare: 5.9%. 

Year: 2026; 
Social Security: 5.85%; 
Medicaid: 2.17%; 
Medicare: 6.08%. 

Year: 2027; 
Social Security: 5.93%; 
Medicaid: 2.2%; 
Medicare: 6.26%. 

Year: 2028; 
Social Security: 6.01%; 
Medicaid: 2.23%; 
Medicare: 6.43%. 

Year: 2029; 
Social Security: 6.08%; 
Medicaid: 2.27%; 
Medicare: 6.6%. 

Year: 2030; 
Social Security: 6.14%; 
Medicaid: 2.31%; 
Medicare: 6.77%. 

Year: 2031; 
Social Security: 6.19%; 
Medicaid: 2.35%; 
Medicare: 6.93%. 

Year: 2032; 
Social Security: 6.24%; 
Medicaid: 2.4%; 
Medicare: 7.08%. 

Year: 2033; 
Social Security: 6.27%; 
Medicaid: 2.45%; 
Medicare: 7.22%. 

Year: 2034; 
Social Security: 6.29%; 
Medicaid: 2.5%; 
Medicare: 7.37%. 

Year: 2035; 
Social Security: 6.31%; 
Medicaid: 2.55%; 
Medicare: 7.52%. 

Year: 2036; 
Social Security: 6.32%; 
Medicaid: 2.6%; 
Medicare: 7.67%. 

Year: 2037; 
Social Security: 6.33%; 
Medicaid: 2.65%; 
Medicare: 7.8%. 

Year: 2038; 
Social Security: 6.32%; 
Medicaid: 2.7%; 
Medicare: 7.92%. 

Year: 2039; 
Social Security: 6.32%; 
Medicaid: 2.75%; 
Medicare: 8.03%. 

Year: 2040; 
Social Security: 6.31%; 
Medicaid: 2.8%; 
Medicare: 8.14%. 

Year: 2041; 
Social Security: 6.3%; 
Medicaid: 2.85%; 
Medicare: 8.25%. 

Year: 2042; 
Social Security: 6.29%; 
Medicaid: 2.9%; 
Medicare: 8.36%. 

Year: 2043; 
Social Security: 6.28%; 
Medicaid: 2.95%; 
Medicare: 8.46%. 

Year: 2044; 
Social Security: 6.27%; 
Medicaid: 3%; 
Medicare: 8.58%. 

Year: 2045; 
Social Security: 6.26%; 
Medicaid: 3.05%; 
Medicare: 8.7%. 

Year: 2046; 
Social Security: 6.26%; 
Medicaid: 3.1%; 
Medicare: 8.82%. 

Year: 2047; 
Social Security: 6.25%; 
Medicaid: 3.14%; 
Medicare: 8.93%. 

Year: 2048; 
Social Security: 6.25%; 
Medicaid: 3.19%; 
Medicare: 9.03%. 

Year: 2049; 
Social Security: 6.24%; 
Medicaid: 3.23%; 
Medicare: 9.14%. 

Year: 2050; 
Social Security: 6.24%; 
Medicaid: 3.27%; 
Medicare: 9.25%. 

Year: 2051; 
Social Security: 6.24%; 
Medicaid: 3.31%; 
Medicare: 9.36%. 

Year: 2052; 
Social Security: 6.24%; 
Medicaid: 3.35%; 
Medicare: 9.47%. 

Year: 2053; 
Social Security: 6.24%; 
Medicaid: 3.39%; 
Medicare: 9.59%. 

Year: 2054; 
Social Security: 6.25%; 
Medicaid: 3.44%; 
Medicare: 9.71%. 

Year: 2055; 
Social Security: 6.25%; 
Medicaid: 3.48%; 
Medicare: 9.84%. 

Year: 2056; 
Social Security: 6.26%; 
Medicaid: 3.52%; 
Medicare: 9.98%. 

Year: 2057; 
Social Security: 6.27%; 
Medicaid: 3.57%; 
Medicare: 10.12%. 

Year: 2058; 
Social Security: 6.27%; 
Medicaid: 3.61%; 
Medicare: 10.26%. 

Year: 2059; 
Social Security: 6.28%; 
Medicaid: 3.66%; 
Medicare: 10.4%. 

Year: 2060; 
Social Security: 6.29%; 
Medicaid: 3.7%; 
Medicare: 10.55%. 

Year: 2061; 
Social Security: 6.29%; 
Medicaid: 3.75%; 
Medicare: 10.7%. 

Year: 2062; 
Social Security: 6.3%; 
Medicaid: 3.8%; 
Medicare: 10.84%. 

Year: 2063; 
Social Security: 6.31%; 
Medicaid: 3.84%; 
Medicare: 10.99%. 

Year: 2064; 
Social Security: 6.32%; 
Medicaid: 3.89%; 
Medicare: 11.14%. 

Year: 2065; 
Social Security: 6.33%; 
Medicaid: 3.94%; 
Medicare: 11.3%. 

Year: 2066; 
Social Security: 6.34%; 
Medicaid: 3.99%; 
Medicare: 11.47%. 

Year: 2067; 
Social Security: 6.35%; 
Medicaid: 4.04%; 
Medicare: 11.64%. 

Year: 2068; 
Social Security: 6.35%; 
Medicaid: 4.09%; 
Medicare: 11.81%. 

Year: 2069; 
Social Security: 6.36%; 
Medicaid: 4.14%; 
Medicare: 11.96%. 

Year: 2070; 
Social Security: 6.36%; 
Medicaid: 4.19%; 
Medicare: 12.12%. 

Year: 2071; 
Social Security: 6.37%; 
Medicaid: 4.25%; 
Medicare: 12.28%. 

Year: 2072; 
Social Security: 6.37%; 
Medicaid: 4.3%; 
Medicare: 12.44%. 

Year: 2073; 
Social Security: 6.37%; 
Medicaid: 4.35%; 
Medicare: 12.6%. 

Year: 2074; 
Social Security: 6.38%; 
Medicaid: 4.41%; 
Medicare: 12.75%. 

Year: 2075; 
Social Security: 6.38%; 
Medicaid: 4.46%; 
Medicare: 12.92%. 

Year: 2076; 
Social Security: 6.38%; 
Medicaid: 4.52%; 
Medicare: 13.08%. 

Year: 2077; 
Social Security: 6.39%; 
Medicaid: 4.57%; 
Medicare: 13.25%. 

Year: 2078; 
Social Security: 6.39%; 
Medicaid: 4.63%; 
Medicare: 13.41%. 

Year: 2079; 
Social Security: 6.39%; 
Medicaid: 4.69%; 
Medicare: 13.58%. 

Year: 2080; 
Social Security: 6.39%; 
Medicaid: 4.75%; 
Medicare: 13.75%. 

Note: Social Security and Medicare projections based on the 
intermediate assumptions of the 2005 Trustees’ Reports. Medicaid 
projections based on CBO’s January 2005 short-term Medicaid estimates 
and CBO’s December 2003 long-term Medicaid projections under mid-range 
assumptions. 

Source: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration, Office of the Actuary, Centers 
for Medicare and Medicaid Services, and the Congressional Budget 
Office. 

[End of figure] 

U.S. Elderly Dependency Ratio Expected to Continue to Increase: 

[See PDF for image] – graphic text: 

Line chart with one line and 5 items. 

Year: 1950; 
Elderly Dependency Ratio (in percent): 13%. 

Year: 1980; 
Elderly Dependency Ratio (in percent): 17%. 

Year: 2000; 
Elderly Dependency Ratio (in percent): 19%. 

Year: 2030; 
Elderly Dependency Ratio (in percent): 33%. 

Year: 2050; 
Elderly Dependency Ratio (in percent): 35%. 

Source: Population Division of the Department of Economic and Social 
Affairs of the United Nations Secretariat, World Population Prospects: 
2000 Revision and World Urbanization Prospects: 2001 Revision. 

[End of figure] 

U.S. Labor Force Growth Will Continue to Decline: 

[See PDF for image] –graphic text: 

Line chart with one line and 111 items. 

Year: 1970; 
Percentage change (5-year moving average): 2.38%. 

Year: 1971; 
Percentage change (5-year moving average): 2.56%. 

Year: 1972; 
Percentage change (5-year moving average): 2.64%. 

Year: 1973; 
Percentage change (5-year moving average): 2.52%. 

Year: 1974; 
Percentage change (5-year moving average): 2.64%. 

Year: 1975; 
Percentage change (5-year moving average): 2.6%. 

Year: 1976; 
Percentage change (5-year moving average): 2.72%. 

Year: 1977; 
Percentage change (5-year moving average): 2.68%. 

Year: 1978; 
Percentage change (5-year moving average): 2.66%. 

Year: 1979; 
Percentage change (5-year moving average): 2.48%. 

Year: 1980; 
Percentage change (5-year moving average): 2.18%. 

Year: 1981; 
Percentage change (5-year moving average): 1.76%. 

Year: 1982; 
Percentage change (5-year moving average): 1.58%. 

Year: 1983; 
Percentage change (5-year moving average): 1.54%. 

Year: 1984; 
Percentage change (5-year moving average): 1.64%. 

Year: 1985; 
Percentage change (5-year moving average): 1.7%. 

Year: 1986; 
Percentage change (5-year moving average): 1.76%. 

Year: 1987; 
Percentage change (5-year moving average): 1.76%. 

Year: 1988; 
Percentage change (5-year moving average): 1.74%. 

Year: 1989; 
Percentage change (5-year moving average): 1.4%. 

Year: 1990; 
Percentage change (5-year moving average): 1.34%. 

Year: 1991; 
Percentage change (5-year moving average): 1.2%. 

Year: 1992; 
Percentage change (5-year moving average): 1.12%. 

Year: 1993; 
Percentage change (5-year moving average): 1%. 

Year: 1994; 
Percentage change (5-year moving average): 1.16%. 

Year: 1995; 
Percentage change (5-year moving average): 1.24%. 

Year: 1996; 
Percentage change (5-year moving average): 1.28%. 

Year: 1997; 
Percentage change (5-year moving average): 1.24%. 

Year: 1998; 
Percentage change (5-year moving average): 1.5%. 

Year: 1999; 
Percentage change (5-year moving average): 1.42%. 

Year: 2000; 
Percentage change (5-year moving average): 1.22%. 

Year: 2001; 
Percentage change (5-year moving average): 1.26%. 

Year: 2002; 
Percentage change (5-year moving average): 1.28%. 

Year: 2003; 
Percentage change (5-year moving average): 1.14%. 

Year: 2004; 
Percentage change (5-year moving average): 1.24%. 

Year: 2005; 
Percentage change (5-year moving average): 1.3%. 

Year: 2006; 
Percentage change (5-year moving average): 1.26%. 

Year: 2007; 
Percentage change (5-year moving average): 1.18%. 

Year: 2008; 
Percentage change (5-year moving average): 1.02%. 

Year: 2009; 
Percentage change (5-year moving average): 0.92%. 

Year: 2010; 
Percentage change (5-year moving average): 0.82%. 

Year: 2011; 
Percentage change (5-year moving average): 0.74%. 

Year: 2012; 
Percentage change (5-year moving average): 0.66%. 

Year: 2013; 
Percentage change (5-year moving average): 0.6%. 

Year: 2014; 
Percentage change (5-year moving average): 0.52%. 

Year: 2015; 
Percentage change (5-year moving average): 0.48%. 

Year: 2016; 
Percentage change (5-year moving average): 0.44%. 

Year: 2017; 
Percentage change (5-year moving average): 0.42%. 

Year: 2018; 
Percentage change (5-year moving average): 0.38%. 

Year: 2019; 
Percentage change (5-year moving average): 0.36%. 

Year: 2020; 
Percentage change (5-year moving average): 0.34%. 

Year: 2021; 
Percentage change (5-year moving average): 0.3%. 

Year: 2022; 
Percentage change (5-year moving average): 0.26%. 

Year: 2023; 
Percentage change (5-year moving average): 0.24%. 

Year: 2024; 
Percentage change (5-year moving average): 0.22%. 

Year: 2025; 
Percentage change (5-year moving average): 0.2%. 

Year: 2026; 
Percentage change (5-year moving average): 0.2%. 

Year: 2027; 
Percentage change (5-year moving average): 0.2%. 

Year: 2028; 
Percentage change (5-year moving average): 0.2%. 

Year: 2029; 
Percentage change (5-year moving average): 0.22%. 

Year: 2030; 
Percentage change (5-year moving average): 0.24%. 

Year: 2031; 
Percentage change (5-year moving average): 0.26%. 

Year: 2032; 
Percentage change (5-year moving average): 0.28%. 

Year: 2033; 
Percentage change (5-year moving average): 0.3%. 

Year: 2034; 
Percentage change (5-year moving average): 0.3%. 

Year: 2035; 
Percentage change (5-year moving average): 0.3%. 

Year: 2036; 
Percentage change (5-year moving average): 0.3%. 

Year: 2037; 
Percentage change (5-year moving average): 0.3%. 

Year: 2038; 
Percentage change (5-year moving average): 0.3%. 

Year: 2039; 
Percentage change (5-year moving average): 0.3%. 

Year: 2040; 
Percentage change (5-year moving average): 0.3%. 

Year: 2041; 
Percentage change (5-year moving average): 0.3%. 

Year: 2042; 
Percentage change (5-year moving average): 0.3%. 

Year: 2043; 
Percentage change (5-year moving average): 0.3%. 

Year: 2044; 
Percentage change (5-year moving average): 0.3%. 

Year: 2045; 
Percentage change (5-year moving average): 0.3%. 

Year: 2046; 
Percentage change (5-year moving average): 0.28%. 

Year: 2047; 
Percentage change (5-year moving average): 0.26%. 

Year: 2048; 
Percentage change (5-year moving average): 0.24%. 

Year: 2049; 
Percentage change (5-year moving average): 0.22%. 

Year: 2050; 
Percentage change (5-year moving average): 0.2%. 

Year: 2051; 
Percentage change (5-year moving average): 0.2%. 

Year: 2052; 
Percentage change (5-year moving average): 0.2%. 

Year: 2053; 
Percentage change (5-year moving average): 0.2%. 

Year: 2054; 
Percentage change (5-year moving average): 0.2%. 

Year: 2055; 
Percentage change (5-year moving average): 0.2%. 

Year: 2056; 
Percentage change (5-year moving average): 0.2%. 

Year: 2057; 
Percentage change (5-year moving average): 0.2%. 

Year: 2058; 
Percentage change (5-year moving average): 0.2%. 

Year: 2059; 
Percentage change (5-year moving average): 0.2%. 

Year: 2060; 
Percentage change (5-year moving average): 0.2%. 

Year: 2061; 
Percentage change (5-year moving average): 0.2%. 

Year: 2062; 
Percentage change (5-year moving average): 0.2%. 

Year: 2063; 
Percentage change (5-year moving average): 0.2%. 

Year: 2064; 
Percentage change (5-year moving average): 0.2%. 

Year: 2065; 
Percentage change (5-year moving average): 0.2%. 

Year: 2066; 
Percentage change (5-year moving average): 0.2%. 

Year: 2067; 
Percentage change (5-year moving average): 0.2%. 

Year: 2068; 
Percentage change (5-year moving average): 0.2%. 

Year: 2069; 
Percentage change (5-year moving average): 0.2%. 

Year: 2070; 
Percentage change (5-year moving average): 0.2%. 

Year: 2071; 
Percentage change (5-year moving average): 0.2%. 

Year: 2072; 
Percentage change (5-year moving average): 0.2%. 

Year: 2073; 
Percentage change (5-year moving average): 0.2%. 

Year: 2074; 
Percentage change (5-year moving average): 0.2%. 

Year: 2075; 
Percentage change (5-year moving average): 0.2%. 

Year: 2076; 
Percentage change (5-year moving average): 0.2%. 

Year: 2077; 
Percentage change (5-year moving average): 0.2%. 

Year: 2078; 
Percentage change (5-year moving average): 0.2%. 

Year: 2079; 
Percentage change (5-year moving average): 0.2%. 

Year: 2080; 
Percentage change (5-year moving average): 0.2%. 

Note: Percentage change is calculated as a centered 5-yr moving average 
of projections based on the intermediate assumptions of the 2005 
Trustees Reports. 

Source: GAO analysis of data from the Office of the Chief Actuary, 
Social Security Administration. 

[End of figure] 

Key Dates Highlight Long Term Challenges of the Social Security System: 

Date: 2009; 
Event: Social Security cash surplus begins to decline. 

Date: 2017; 
Event: Annual benefit costs exceed cash revenue from taxes. 

Date: 2027; 
Event: Trust fund ceases to grow because even taxes plus interest fall 
short of benefits. 

Dates: 2041 (SSA), 2052 (CBO); 
Event: Trust fund exhausted, annual revenues sufficient to pay about 
74% - 78% of promised benefits. 

Sources: Social Security Administration, The 2005 Annual Report of the 
Board of Trustees of the Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds. Washington, DC, March 2005. 
Congressional Budget Office, The Outlook for Social Security. Potential 
Range of Social Security Outlays and Revenues Under Current Law. 
Washington, DC, June 2004 (updated April 2005). 

[End of table] 

Note: Projections based on the intermediate assumptions of the 2005 
Trustees' Reports. 

Source: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration and Office of the Actuary, 
Centers for Medicare and Medicaid Services. 

Different Measures, Same Challenge: 

75-year projection of funding shortfall: 

* $4.0 trillion in present value; 
* 0.6% of GDP; 
* 1.8% of taxable payroll. 

Infinite horizon projection of funding shortfall: 

* $11.1 trillion in present value; 
* 1.2% of GDP; 
* 3.5% of taxable payroll. 

Source: Social Security Administration, The 2005 Annual Report of the 
Board of Trustees of the Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds (Washington D.C.: March 2005). 

GAO Criteria for Evaluating Social Security Reform Proposals: 

Reform proposals should be evaluated as packages that strike a balance 
among individual reform elements and important interactive effects. 

Comprehensive proposals can be evaluated against three basic criteria: 

* Financing sustainable solvency; 
* Balancing adequacy and equity in the benefits structure; 
* Implementing and administering reforms. 

Social Security: The Bottom Line: Illustrative Questions and Answers 
Based on the Latest Trustees’ Reports: 

Does Social Security have a serious and growing financing problem? 
[Yes] 

Will the Social Security program ever go bust? [No] 

Will the Social Security trust fund balance ever be exhausted? [Yes] 

Should the trust fund solvency date be the primary action-forcing event 
for Social Security reform? [No] 

What other factors should be considered? 

* Cash flow; 
* Total unfunded commitments; 
* Percent of the budget and GDP; 
* Percent of taxable payroll. 

Should we act sooner rather than later to reform Social Security? [Yes] 

* Time is working against us; 
* The sooner we act, the smaller the changes we'll need to make and the 
longer people will have to adjust; 
* We have an opportunity to exceed the expectations of every generation 
of Americans; 
* We have bigger problems that we ultimately will have to address; 
* A successful reform effort would help to improve the credibility of 
government and enhance confidence in government. 

Will individual accounts solve the problem by themselves? [No] 

Should they be considered as part of a more comprehensive reform 
proposal? [Yes] 

What other types of reforms need to be considered? 

* Strengthening progressivity (e.g., replacement rates); 
* Indexing formulas; 
* Retirement ages; 
* Tax base and rates. 

What is an example of a government retirement system that includes 
private accounts? [The Federal Thrift Savings Plan] 

Would individual accounts, on a "carve-out" basis, involve significant 
transition costs? [Yes] 

What other possible implications would individual accounts have? 

* Personal savings rate; 
* Rates of return on Social Security payroll taxes; 
* Pre-and post-retirement survivors' benefits; 
* Savings and investment education; 
* Supplemental retirement savings vehicle. 

Should we consider both promised and funded benefits in analyzing 
Social Security Reform proposals? [Yes] 

Should we consider both cash and present value related costs and 
implications of Social Security reform proposals? [Yes] 

Can Social Security reform exceed the expectations of all generations 
of Americans? [Yes] 

Does the Social Security reform process matter? [Yes] Does the case for 
timely reform need to be made before discussions about individual 
reform options? [Yes] 

Should Social Security reform consider trends and challenges relating 
to private pension and personal savings arrangements? [Yes] 

Should Social Security be about the public good versus political gain? 
[Yes] 

Challenges Facing the Defined Benefit (DB) Pension System: 

* Large accumulated deficits for many active plans, the PBGC, and the 
U.S. Government; 

* Structural weaknesses in certain industries with large, underfunded 
DB plans; 

* PBGC has limited control over its risks; 

* Decline in the number of DB plans; 

* Changing demographics and workforce trends; 

* Legal and regulatory uncertainties; 

* Social Security reform initiatives. 

Broad Goals for Reform of the DB System: 

* Provide incentives and safeguards for plan sponsors to improve plan 
funding; 

* Hold plan sponsors accountable for adequately funding their plans; 

* Improve transparency and timeliness of plan financial information. 

Several Reforms Might Improve Plan Funding and Reduce the Risks to 
PBGC’s Long-term Viability: 

* Strengthen funding rules applicable to poorly funded plans; 

* Consider additional tax deductible funding flexibility; 

* Limit lump sums in underfunded plans; 

* Modify program guarantees (e.g., phase-in rules); 

* Raise and modify pension premiums (e.g., nature of risk related 
premiums); 

* Eliminate floor/offset arrangements with significant investment 
concentrations in employer securities; 

* Increase transparency of current plan funding information; 

* Modify bankruptcy laws; 

* Address issues surrounding certain hybrid plans (e.g., cash balance 
plans). 

Key Dates Highlight Long Term Challenges of the Medicare Program: 

Date: 2004; 
Event: HI outlays exceed cash income. 

Date: 2007; 
Event: Estimated trigger date for "Medicare funding warning." 

Date: 2012; 
Event: Projected date that annual "general revenue funding" will exceed 
45 percent of total Medicare outlays. 

Date: 2020; 
Event: HI (Part A) trust fund exhausted, annual income sufficient to 
pay about 79% of HI promised benefits. 

Source: 2005 Annual Report of The Boards of Trustees of The Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust 
Funds Washington, DC, March 2005. 

[End of table] 

SMI Premium as Share of Average Social Security (OASI) Benefit: 

[See PDF for image] - graphic text: 

Line graph with 17 items. 

Year: 1990; 
Percent of average OASI benefit: 5.43%. 

Year: 1991; 
Percent of average OASI benefit: 5.34%. 

Year: 1992; 
Percent of average OASI benefit: 5.44%. 

Year: 1993; 
Percent of average OASI benefit: 6.03%. 

Year: 1994; 
Percent of average OASI benefit: 6.55%. 

Year: 1995; 
Percent of average OASI benefit: 7.09%. 

Year: 1996; 
Percent of average OASI benefit: 6.32%. 

Year: 1997; 
Percent of average OASI benefit: 6.27%. 

Year: 1998; 
Percent of average OASI benefit: 6.08%. 

Year: 1999; 
Percent of average OASI benefit: 6.19%. 

Year: 2000; 
Percent of average OASI benefit: 5.97%. 

Year: 2001; 
Percent of average OASI benefit: 6.27%. 

Year: 2002; 
Percent of average OASI benefit: 6.53%. 

Year: 2003; 
Percent of average OASI benefit: 6.93%. 

Year: 2004; 
Percent of average OASI benefit: 7.61%. 

Year: 2005; 
Percent of average OASI benefit: 8.63%. 

Year: 2006; 
Percent of average OASI benefit: 9.51%. 

Note: Data for 2006 are based on the announced SMI monthly premium of 
$88.50 and do not include the Medicare Prescription Drug premium. In 
August, the Centers for Medicare & Medicaid Services estimated that the 
national average monthly premium for prescription drug coverage 
equivalent to the Medicare standard coverage would be $32.20. 

Source: CMS, Office of the Actuary. 

[End of figure] 

Quality and Availability of Affordable Health Care Has Broad 
Implications for Retirees: 

Cost, access, and quality challenges-together with obstacles to 
achieving efficiency-argue for fundamental system reform. 

A comprehensive review and reassessment of the overall health care 
system raises the following questions: 

* What are societal needs versus individual wants in our health care 
system? 

* Who among individuals, employers, and governments-should be 
responsible for paying for health care? 

* Where would we get the largest return for our efforts to control 
spending? 

* How much of health care costs can government, employers, and 
individuals afford and sustain over time? 

* When are we going to get started, as the challenge gets bigger 
everyday and any delay compounds the problems. 

Issues to Consider in Examining Cost, Access, and Quality Challenges: 

In reforming our health care system, the public needs to be educated 
about the differences between wants, needs, affordability, and 
sustainability at both the individual and aggregate level. 

Ideally, health care reform proposals will: 

* align incentives for providers and consumers to make prudent choices 
about health insurance coverage and prudent decisions about the use of 
medical services, 

* foster transparency with respect to the value and costs of care, and: 

* ensure accountability from health plans and providers to meet 
standards for appropriate use and quality. 

Selected Potential Health Care Reform Approaches: 

Employ case management approaches to health care spending on people 
with chronic conditions and selected other circumstances to control 
costs, reduce patient risks, and avoid inappropriate "heroic measures." 

Leverage the government's purchasing power in connection wig selected 
health care products and services. 

Leverage technology to increase consistency, transparency and 
accountability in health care. 

Revise certain federal tax preferences for health care (e.g., employee 
exclusion). 

Develop a set of national practice standards to help control cost, 
improve outcomes and reduce litigation. 

Limit cost growth in government-sponsored health care programs (e.g., 
percentage of the budget and/or the economy). 

Pursue multilateral approaches to investing in health care R&D. 

Rationalize excess capacity and integrate capabilities both within and 
outside of government. 

Develop a core set of basic and essential services with supplemental 
coverage being available as an option but at a cost. 

Create insurance pools for alternative levels of coverage, as 
necessary. 

Three Key Ingredients Needed for These Challenging and Changing Times: 

* Courage; 
* Integrity; 
* Innovation. 

[End of slide presentation]