2001 OASDI Trustees Report

C. PROGRAM SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the previous section are input to the set of models used to project future income and outgo under the OASDI program. In some cases, the economic assumptions result in the direct calculation of program parameters as described in the following subsection. These parameters affect the level of payroll taxes collected and the level of benefits paid and are calculated using formulas described explicitly in the Social Security Act. In other cases, the combination of demographic and economic assumptions are used indirectly to drive more complicated models that project the numbers of future workers covered under OASDI and the levels of their covered earnings, and the numbers of future beneficiaries and the expected levels of their benefits. The following subsections provide brief descriptions of the derivations of these program specific factors.

1. Automatically Adjusted Program Amounts

The Social Security Act specifies that certain program amounts affecting the determination of OASDI benefits are to be adjusted annually, in general, to reflect changes in the economy. The law prescribes specific formulas that, when applied to reported statistics, produce automatic revisions in these program amounts and hence in the benefitcomputation procedures. These automatic adjustments are based upon measured changes in the national average wage index and the CPI.¹ In this section, values are shown for program amounts that are subject to automatic adjustment, from the time that such adjustments became effective through 2010. Projected values for future years are based on the economic assumptions described in the preceding section of this report.

The following two tables present the historical and projected values of the CPI-based benefit increases, as well as the average wage index series and the values of many of the wage-indexed program amounts. In each table, the projections are shown under the three alternative sets of economic assumptions described in the previous section. Table V.C1 includes:

• The annual percentage increases which have been applied to OASDI benefits under automatic cost-of-living adjustment provisions in the Social Security Act, based on increases in the CPI.

• The annual levels of and percentage increases in the national average wage index. Under section 215(b)(3) of the Social Security Act, the national average wage index for each year after 1950 is used to index the taxable earnings of most workers first becoming eligible for benefits in 1979 or later. This procedure converts a worker's past earnings to approximately their equivalent values near the time of the worker's retirement or other eligibility, and these indexed values are used to calculate the worker's benefit. The average wage index is also used to adjust most of the other program amounts that are subject to the automatic-adjustment provisions.

• The OASDI contribution and benefit base-the maximum amount of earning subject to the OASDI payroll tax in the specified year.

• The retirement earnings test exempt amounts-the annual amount of earnings below which beneficiaries are not subject to benefit withholding. A lower exempt amount applies in years before a beneficiary attains normal retirement age. A higher amount applies for the year in which the beneficiary attains normal retirement age. As described earlier, under legislation enacted in 2000, the retirement test no longer applies beginning with the attainment of normal retirement age.

  Table V.C1.- Cost-of-Living Benefit Increases, Average Wage Index, Contribution and Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2010 

  Calendar year		OASDI benefit increases1 (percent)	Average wage index2		OASDI contribution and benefit base 3	Retirement earnings test exempt amount
  			Amount	Increase (percent)		Under NRA4	At NRA5
  Historical data:
  	1975	8.0	$8,630.92	7.5	$14,100	$2,520	$2,520
  	1976	6.4	9,226.48	6.9	15,300	2,760	2,760
  	1977	5.9	9,779.44	6.0	16,500	3,000	3,000
  	1978	6.5	10,556.03	7.9	17,700	3,240	4,000
  	1979	9.9	11,479.46	8.7	22,900	3,480	4,500
  	1980	14.3	12,513.46	9.0	25,900	3,720	5,000
  	1981	11.2	13,773.10	10.1	29,700	4,080	5,500
  	1982	7.4	14,531.34	5.5	32,400	4,440	6,000
  	1983	3.5	15,239.24	4.9	35,700	4,920	6,600
  	1984	3.5	16,135.07	5.9	37,800	5,160	6,960
  	1985	3.1	16,822.51	4.3	39,600	5,400	7,320
  	1986	1.3	17,321.82	3.0	42,000	5,760	7,800
  	1987	4.2	18,426.51	6.4	43,800	6,000	8,160
  	1988	4.0	19,334.04	4.9	45,000	6,120	8,400
  	1989	4.7	20,099.55	4.0	48,000	6,480	8,880
  	1990	5.4	21,027.98	4.6	51,300	6,840	9,360
  	1991	3.7	21,811.60	3.7	53,400	7,080	9,720
  	1992	3.0	22,935.42	5.2	55,500	7,440	10,200
  	1993	2.6	23,132.67	.9	57,600	7,680	10,560
  	1994	2.8	23,753.53	2.7	60,600	8,040	11,160
  	1995	2.6	24,705.66	4.0	61,200	8,160	11,280
  	1996	2.9	25,913.90	4.9	62,700	8,280	12,500
  	1997	2.1	27,426.00	5.8	65,400	8,640	13,500
  	1998	1.3	28,861.44	5.2	68,400	9,120	14,500
  	1999	6 2.5	30,469.84	5.6	72,600	9,600	15,500
  Intermediate:
  	2000	7 3.5	$32,104.67	5.4	7 $76,200	7 $10,080	$17,000
  	2001	2.8	33,680.35	4.9	7 80,400	7 10,680	25,000
  	2002	2.9	35,277.03	4.7	84,900	11,280	30,000
  	2003	3.0	36,781.09	4.3	89,100	11,760	31,440
  	2004	3.1	38,372.33	4.3	93,300	12,360	33,000
  	2005	3.2	40,044.65	4.4	97,200	12,840	34,320
  	2006	3.3	41,799.45	4.4	101,400	13,440	35,880
  	2007	3.3	43,575.71	4.2	105,900	14,040	37,440
  	2008	3.3	45,416.27	4.2	110,400	14,640	39,000
  	2009	3.3	47,350.68	4.3	115,200	15,240	40,680
  	2010	3.3	49,366.08	4.3	120,000	15,960	42,480
  Low Cost:
  	2000	7 3.5	32,193.94	5.7	7 76,200	7 10,080	17,000
  	2001	2.8	33,758.97	4.9	7 80,400	7 10,680	25,000
  	2002	2.6	35,383.30	4.8	85,200	11,280	30,000
  	2003	2.3	36,787.92	4.0	89,100	11,880	31,440
  	2004	2.3	38,246.59	4.0	93,600	12,360	33,000
  	2005	2.3	39,741.55	3.9	97,200	12,840	34,320
  	2006	2.3	41,303.97	3.9	101,100	13,440	35,640
  	2007	2.3	42,878.54	3.8	105,000	13,920	37,080
  	2008	2.3	44,472.96	3.7	109,200	14,520	38,520
  	2009	2.3	46,154.75	3.8	113,400	15,000	39,960
  	2010	2.3	47,901.25	3.8	117,600	15,600	41,400
  High Cost:
  	2000	7 3.5	32,074.32	5.3	7 76,200	7 10,080	17,000
  	2001	3.1	33,075.64	3.1	7 80,400	7 10,680	25,000
  	2002	3.5	34,268.35	3.6	84,600	11,280	30,000
  	2003	5.2	36,541.14	6.6	87,300	11,640	30,960
  	2004	6.2	38,138.27	4.4	90,600	12,000	32,040
  	2005	4.0	40,100.04	5.1	96,600	12,840	34,200
  	2006	3.9	42,440.05	5.8	100,800	13,320	35,640
  	2007	4.1	44,574.76	5.0	105,900	14,040	37,560
  	2008	4.3	46,686.87	4.7	112,200	14,880	39,720
  	2009	4.3	48,896.61	4.7	117,900	15,600	41,640
  	2010	4.3	51,265.10	4.8	123,300	16,320	43,680

  1 Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982. 2 See table VI.E7 for projected dollar amounts of the average wage index beyond 2010. 3 Amounts for 1979-81 were specified by Public Law 95-216. The bases for years after 1989 were increased slightly by changes to the indexing procedure, as required by Public Law 101-239. 4 Normal retirement age. See table V.C3 for specific values. 5 In 1955-82, the retirement earnings test did not apply at ages 72 and over; in 1983-99, the test did not apply at ages 70 and over; beginning in 2000, it does not apply beginning with the month of attainment of NRA. In the year of attainment of NRA, the higher exempt amount applies to earnings in the year prior to the month of NRA attainment. Amounts for 1978-82 specified by Public Law 95-216; for 1996-2002, Public Law 104121. 6 Originally determined as 2.4 percent, but pursuant to Public Law 106-554, is effectively now 2.5 percent. 7 Actual amount, as determined under automatic-adjustment provisions.

Other wage-indexed amounts are shown in table V.C2. The table provides historical values from 1978, when the amount of earnings required for a quarter of coverage was first indexed, through 2001, and also shows projected amounts through 2010. These other wage-indexed program amounts are:

• The bend points in the formula for computing the primary insurance amount (PIA) for workers who reach age 62, become disabled, or die in a given year. These bend points indicate three ranges in a worker's average indexed monthly earnings (AIME) over which a certain percent factor, 90, 32, or 15 percent respectively, is applied to determine the worker's PIA. Figure V.C1 presents the PIA formula for 2001.

  Figure V.C1.- Primary-Insurance-Amount Formula for the 2001 Cohort

• Bend points in the formula used to compute the maximum total amount of monthly benefits payable on the basis of the earnings of a retired or deceased worker. This formula is a function of the worker's PIA, and relies on four intervals and percentages. Figure V.C2 presents the maximum-family-benefit formula for 2001.

  Figure V.C2.- Maximum-Family-Benefit Formula for the 2001 Cohort

• The amount of earnings required in a year to be credited with a quarter of coverage (QC). The number and timing of QCs earned is used to determine an individual's insured status-the basic requirement for benefit eligibility under OASDI.

• The old-law contribution and benefit base-the OASDI contribution and benefit base that would have been in effect in each year after 1978 under the automatic-adjustment provisions as in effect before the enactment of the 1977 amendments. This old-law base is used in determining special-minimum benefits for certain workers who have many years of low earnings in covered employment. Beginning in 1986, the old-law base is also used in the calculation of OASDI benefits for certain workers who are eligible to receive pensions based on noncovered employment. In addition, it is used for certain purposes under the Railroad Retirement program and the Employee Retirement Income Security Act of 1974.

  Table V.C2.- Selected Wage-Indexed Program Amounts,
  Calendar Years 1978-2010 

  Calendar year		AIME bend points in PIA formula 1			PIA bend points in maximum- family-benefit formula 2			Earnings required for a quarter of coverage	Old law contribution and benefit base 3
  		First	Second		First	Second	Third
  Historical data:
  	1978	(4)	(4)		(4)	(4)	(4)	5 $250	(4)
  	1979	5 $180	5 $1,085		5 $230	5 $332	5 $433	260	$18,900
  	1980	194	1,171		248	358	467	290	20,400
  	1981	211	1,274		270	390	508	310	22,200
  	1982	230	1,388		294	425	554	340	24,300
  	1983	254	1,528		324	468	610	370	26,700
  	1984	267	1,612		342	493	643	390	28,200
  	1985	280	1,691		358	517	675	410	29,700
  	1986	297	1,790		379	548	714	440	31,500
  	1987	310	1,866		396	571	745	460	32,700
  	1988	319	1,922		407	588	767	470	33,600
  	1989	339	2,044		433	626	816	500	35,700
  	1990	356	2,145		455	656	856	520	38,100
  	1991	370	2,230		473	682	890	540	39,600
  	1992	387	2,333		495	714	931	570	41,400
  	1993	401	2,420		513	740	966	590	42,900
  	1994	422	2,545		539	779	1,016	620	45,000
  	1995	426	2,567		544	785	1,024	630	45,300
  	1996	437	2,635		559	806	1,052	640	46,500
  	1997	455	2,741		581	839	1,094	670	48,600
  	1998	477	2,875		609	880	1,147	700	50,700
  	1999	505	3,043		645	931	1,214	740	53,700
  	2000	531	3,202		679	980	1,278	780	56,700
  	2001	561	3,381		717	1,034	1,349	830	59,700
  Intermediate:
  	2002	$591	$3,562		$755	$1,090	$1,421	$870	$63,000
  	2003	620	3,737		792	1,143	1,491	910	66,000
  	2004	649	3,914		830	1,198	1,562	960	69,300
  	2005	677	4,081		865	1,249	1,629	1,000	72,300
  	2006	706	4,257		902	1,303	1,699	1,040	75,300
  	2007	737	4,443		942	1,359	1,773	1,090	78,600
  	2008	769	4,638		983	1,419	1,851	1,130	81,900
  	2009	802	4,835		1,025	1,479	1,929	1,180	85,500
  	2010	836	5,039		1,068	1,542	2,011	1,230	89,100
  Low Cost:
  	2002	593	3,572		757	1,093	1,425	870	63,300
  	2003	621	3,745		794	1,146	1,495	910	66,300
  	2004	651	3,926		832	1,201	1,567	960	69,300
  	2005	677	4,082		865	1,249	1,629	1,000	72,300
  	2006	704	4,243		900	1,298	1,693	1,040	75,000
  	2007	731	4,409		935	1,349	1,760	1,080	78,000
  	2008	760	4,583		971	1,402	1,829	1,120	81,000
  	2009	789	4,757		1,008	1,456	1,899	1,160	84,000
  	2010	819	4,934		1,046	1,510	1,969	1,210	87,300
  High Cost:
  	2002	590	3,559		754	1,089	1,420	870	63,000
  	2003	609	3,670		778	1,123	1,464	900	64,800
  	2004	631	3,802		806	1,163	1,517	930	67,200
  	2005	673	4,054		859	1,241	1,618	990	71,700
  	2006	702	4,231		897	1,295	1,689	1,030	74,700
  	2007	738	4,449		943	1,361	1,775	1,090	78,600
  	2008	781	4,709		998	1,441	1,879	1,150	83,400
  	2009	820	4,945		1,048	1,513	1,974	1,210	87,600
  	2010	859	5,180		1,098	1,585	2,067	1,270	91,500

  1 The formula to compute a PIA is (1) 90% of AIME below the first bend point, plus (2) 32% of AIME in excess of the first bend point but not in excess of the second, plus (3) 15% of AIME in excess of the second bend point. The bend points pertain to the first year a beneficiary becomes eligible for benefits. 2 The formula to compute a family maximum is (1) 150% of PIA below the first bend point, plus (2) 272% of PIA in excess of the first bend point but not in excess of the second, plus (3) 134% of PIA in excess of the second bend point but not in excess of the third, plus (4) 175% of PIA in excess of the third bend point. 3 Contribution and benefit base that would have been determined automatically under the law in effect prior to enactment of the Social Security Amendments of 1977. The bases for years after 1989 were increased slightly by changes to the indexing procedure to determine the base, as required by Public Law 101-239. 4 No provision in law for this amount in this year. 5 Amount specified for first year by Social Security Amendments of 1977; amounts for subsequent years subject to automatic-adjustment provisions.

In addition to the program amounts affecting the determination of OASDI benefits that reflect changes in the economy, there are certain legislated changes that have affected, and will affect, benefits. Two such changes are the scheduled increases in the normal retirement age and in the delayed retirement credits. Table V.C3 shows the scheduled changes in these two important items and their effect on benefits expressed as a percentage of PIA.

2. Covered Employment

Projections of the total labor force and unemployment rate are based on Bureau of Labor Statistics definitions from the Current Population Survey (CPS), and thus represent the average weekly number of employed and unemployed persons, aged 16 and over, in the U.S. in a calendar year. Total covered workers in a year are the number of persons who have any OASDI covered earnings at any time during the year. For those aged 16 and over, projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the CPS concept of employment. For those under age 16, projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the Social Security area population. The projection methodology accounts for changes in the business cycle, the quarterly pattern of growth in employment within each year, changes in non-OASDI covered employment, the increase in coverage of Federal civilian employment as a result of the 1983 Social Security Amendments, and changes in the number of other-than-legal aliens estimated to be residing within the Social Security coverage area.

Covered worker rates are defined as the ratio of OASDI covered workers to the Social Security area population. The projected age-adjusted coverage rate for men, aged 16 and over, changes from its 1999 level of 74.7 percent to 72.5, 71.9, and 71.5 percent for 2075 for alternatives I, II, and III, respectively. (Age-adjusted covered worker rates are adjusted to the 1999 age distribution of the Social Security area population.) For women, it remains at its 1999 level of 63.4 percent for alternative I, and changes to 62.9 and 62.3 percent for 2075 for alternatives II and III, respectively.

3. Taxable Payroll and Payroll Tax Revenue

The OASDI taxable payroll is the amount of earnings in a year which, when multiplied by the combined employee-employer tax rate, yields the total amount of taxes due from wages and self-employed income in the year. Taxable payroll is used in estimating OASDI income and in determining income and cost rates and actuarial balances. (See section IV.B.1, Annual Income Rates, Cost Rates, and Balances, for definitions of these terms.) Taxable payroll is computed from taxable earnings, defined as the sum of wages and self-employment earnings subject to the Social Security tax. Wages are adjusted to take into account the "excess wages" earned by workers with multiple jobs whose combined wages exceed the taxable earnings base. Also, beginning in 1983, taxable payroll includes deemed wage credits for military service. Prior to 1984, the self-employed tax rate was less than the combined employee-employer rate, thus taxable self-employed earnings were weighted to reflect this. Also, prior to 1988, employers were exempt from Social Security tax on part of their employees' tips; taxable payroll was reduced by half of this exempt amount to take this into account.

Taxable earnings for employees, employers, and the self-employed were estimated from total earnings in covered employment. Covered earnings are summed from component sectors, each of which is based on the projected growth of U.S. earnings and a factor that reflects any projected change in coverage (e.g., the increase in coverage in the Federal civilian sector due to mandatory coverage of newly hired employees). The level of taxable earnings, that is, covered earnings at or below the taxable earnings base, was then estimated based on adjustments to the latest available historical earnings distributions for wage and self-employed workers. The ratio of taxable to covered earnings decreased from about 90.2 percent in 1983 to 87.9 percent in 1994, or by an average annual rate of -0.2 percent. The ratio is estimated to have fallen further to 84.3 percent in 1999, or at an average annual rate of 0.8 percent, due mainly to the increased proportion of very high wage earners.

Some of this historical decline was projected to continue through 2010 in all alternatives. The taxable earnings ratio was projected to be about 84.2, 83.5, and 82.9 percent in 2010 in alternatives I, II, and III, respectively, or to change at an average annual rate of about 0.0, -0.1, and -0.2 percent. After 2010, the taxable to covered ratio was held approximately constant in each alternative.

Payroll tax revenue was computed by applying the appropriate tax rates to taxable wages and self-employment income, taking into account the lag between the time the tax liability is incurred and when the taxes are collected. In the case of wages, employers are required to deposit withholding taxes with the Treasury on a schedule determined by the amount of tax liability incurred. (Generally, the higher the amount of liability, the sooner the taxes must be paid-ranging from the middle of the following month to, for companies with very large payrolls, the next banking day after wages are paid.) Self-employed workers are required to make estimated tax payments on their earnings four times during the year, as well as making up any under-estimate on their individual income tax return. The pattern of actual receipts by the Treasury is taken into account when estimating self-employed tax collections.

4. Insured Population

There are three basic types of insured status under the OASDI program: fully insured, currently insured, and disability insured. Fully insured status is required of an aged worker for eligibility to a primary retirement benefit and for the eligibility of that worker's spouse and children to auxiliary benefits. Fully insured status is also required of a deceased worker for the eligibility of the worker's survivors to benefits (with the exception of child survivors and parents of eligible child survivors, in which cases the deceased worker is required to have had either currently insured status or fully insured status). Disability insured status, which is more restrictive than fully insured status, is required of a disabled worker for eligibility to a primary disability benefit and for the eligibility of the worker's spouse and children to auxiliary benefits.

Projections of the percentage of the population that is fully insured were made by age and sex, from estimated distributions of workers by accumulated quarters of coverage based on past and projected coverage rates and amounts of earnings required for quarters of coverage. Currently insured status was disregarded for purposes of these estimates, because the number of cases in which eligibility for benefits is based solely on currently insured status is relatively small. Projections of the percentage of fully insured persons who are also disability insured were made by age and sex based on past and projected coverage rates, the requirements for disability insured status, and their historical relationships. Finally, the fully insured and disability insured populations were developed from the projected total population by applying the appropriate percentages.

Under this procedure, the percentage of the Social Security area population aged 62 and over that is fully insured is projected to increase from its estimated level of 77.8 for December 31, 1996, to 88.5, 89.2, and 89.6 for December 31, 2075, based on alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, while that for males is projected to decrease slightly. Based on alternative II, for example, the percentage for males is projected to decrease during this period from 91.4 to 90.5, while that for females is projected to increase from 67.9 to 88.1.

The fully insured population by age and sex was further subdivided by marital status, using the variation in labor force participation rates by marital status to estimate the variation in coverage rates by marital status. These coverage rates were then used to estimate the variation in the fully insured rates by marital status.

5. Old-Age and Survivors Insurance Beneficiaries

The number of OASI beneficiaries was projected for each type of benefit separately, by the sex of the worker on whose earnings the benefits are based, and by the age of the beneficiary. For selected types of benefits, the number of beneficiaries was also projected by marital status.

For the short-range period, the number of retired-worker beneficiaries was developed by applying award rates to the aged fully insured population less those insured persons entitled to retired-worker, disabled-worker, or widow(er)'s benefits, and by applying termination rates to the number of persons already receiving retired-worker benefits.

For the long-range period, the number of retired-worker beneficiaries not previously converted from disabled-worker beneficiary status was projected as a percentage of the exposed population, i.e., the aged fully insured population less persons entitled to or converted from disability benefits and insured persons entitled to widow(er)'s benefits. The percentage for age 62 was projected by a simple linear regression which uses the projected labor force participation rate for age 62. The percentage for ages 70 and over was assumed to be nearly 100, because the retirement earnings test and delayed retirement credit do not apply after age 70, but was adjusted for the statistical difference between in-force data and in-current-payment data. The percentage for each age 63 through 69 was projected from the December 31, 2000 retired-worker beneficiaries data which reflects the elimination of the earnings test after normal retirement age, with an adjustment for changes in the portion of the primary insurance amount that is payable at each age of entitlement. As the normal retirement age increases, the number of retired-worker beneficiaries not automatically converted from disabled-worker beneficiary status as a percentage of the exposed population is gradually adjusted downward at each age 63 through 69.

For the long-range period also, the number of retired-worker beneficiaries previously converted from disabled-worker beneficiaries was calculated as an extension beyond normal retirement age of the calculation of disabled-worker beneficiaries.

The number of aged-spouse beneficiaries was estimated from the population projected by age and sex. The benefits of aged-spouse beneficiaries are based on the earnings records of their husbands or wives, who are referred to as "wage earners." In the short-range period, a regression equation was used to project the number of aged-spouse beneficiaries, as a proportion of the aged uninsured female or male population. In the long-range period, aged-spouse beneficiaries were estimated from the population projected by age, sex, and marital status. To the number of spouses aged 62 and over in the population, a series of factors were applied, representing the probabilities that the spouse and the wage earner meet all of the conditions of eligibility-i.e., the probabilities that (1) the wage earner is 62 or over, (2) the wage earner is insured, (3) the wage earner is receiving benefits, (4) the spouse is not receiving a benefit for the care of an entitled child, (5) the spouse is not insured, and (6) the spouse is not eligible to receive a significant government pension based on earnings in noncovered employment. To the resulting number of spouses was applied a projected prevalence rate to calculate the estimated number of aged-spouse beneficiaries.

In addition, the same factors were applied to the number of divorced persons aged 62 and over in the population, with three differences. First, an additional factor is required to reflect the probability that the person's former wage-earner spouse is still alive (otherwise, the person may be entitled to a divorced widow(er)'s benefit). Second, a factor is required to reflect the probability that the marriage to the wage-earner spouse was at least 10 years in duration. Third, factor (3) above was not applied because, effective for January 1985, a divorced person generally need not wait to receive benefits until the former wage-earner spouse is receiving benefits.

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as children of retired-worker beneficiaries, were based on the projected number of children in the population. In the short-range period, the number of entitled children was developed by applying award rates to the number of children in the population where both parents are alive, and by applying termination rates to the number of children already receiving benefits.

In the long-range period, the number of entitled children was projected separately by sex of the wage-earner parent. To the number of children in the population, factors were applied representing the probabilities that the parent is alive, aged 62 or over, insured, and receiving a retired-worker benefit. Another factor was applied representing the probability that the child is not entitled to a benefit based on the other parent's earnings. In addition, a factor was applied to reduce the number of beneficiaries to reflect the more restrictive requirements for entitlement of stepchildren that were enacted in Public Law 104-121. For children aged 18, a factor representing the probability that the child is attending a secondary school was also applied.

The number of disabled children aged 18 and over of retired-worker beneficiaries was projected from the adult population. In the short-range period, award rates were applied to the population, and termination rates were applied to the number of disabled children already receiving benefits. In the long-range period, disabled children were projected in a manner similar to that for children under 18, with the inclusion of a factor representing the probability of being disabled since childhood.

In the short-range period, the number of entitled young-spouse beneficiaries was developed by applying award rates to the number of awards to children of retired workers, where the children are either under age 16 or disabled, and by applying termination rates to the number of young-spouses already receiving benefits. In the long-range period, young-spouse beneficiaries were projected as a proportion of the projected number of child beneficiaries of retired workers, taking into account projected changes in average family size.

The number of aged-widow(er) beneficiaries was projected from the population by age and sex. In the short-range period, insured aged-widow(er) beneficiaries were projected concurrently with the retired-worker beneficiaries. A regression equation projected the number of uninsured aged-widow(er) beneficiaries, as a proportion of the uninsured aged female or male population not receiving any type of benefit. In the long-range period, aged-widow(er) beneficiaries were projected from the population by age, sex, and marital status. Four factors were applied to the number of widow(er)s in the population aged 60 and over. These factors represent the probabilities that (1) the deceased wage earner was fully insured at death, (2) the widow(er) is not receiving a benefit for the care of an entitled child, (3) the widow(er) is not fully insured, and (4) the widow(er)'s benefits are not withheld because of receipt of a significant government pension based on earnings in noncovered employment. In addition, some insured widow(er)s who had not applied for their retired-worker benefits are assumed to receive widow(er)'s benefits. Also, the same factors were applied to the number of divorced persons aged 60 and over in the population, with additional factors representing the probability that the person's former wage-earner spouse is deceased and that the marriage was at least 10 years in duration.

In the short-range period, the number of disabled-widow(er) beneficiaries was estimated as a proportion of the uninsured female or male population aged 50-64. In the long-range period, the number was projected for each age 50 through 64 as a percentage of the widowed and divorced populations, adjusted for the insured status of the deceased spouse and the prevalence of disability.

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as survivors of deceased workers, were based on the projected number of children in the population whose mothers or fathers are deceased. In the short-range period, the number of entitled children was developed by applying award rates to the number of orphaned children, and by applying termination rates to the number of children already receiving benefits.

In the long-range period, the number of child-survivor beneficiaries was projected in a manner analogous to that for child beneficiaries of retired workers, with the factor representing the probability that the parent is aged 62 or over replaced by a factor that represented the probability that the parent is deceased.

In the short-range period, the numbers of entitled mother-survivor and father-survivor beneficiaries were developed by applying award rates to the number of awards to child-survivor beneficiaries, where the children are either under age 16 or disabled, and by applying termination rates to the number of mother-survivors and father-survivors already receiving benefits. In the long-range period, mother-survivor and father-survivor beneficiaries were estimated from the number of child-survivor beneficiaries, taking into account projected changes in average family size.

The number of parent-survivor beneficiaries was projected based on the historical pattern of the number of such beneficiaries.

Table V.C4 shows the projected number of beneficiaries under the OASI program by type of benefit. Included among the beneficiaries who receive retired-worker benefits are some persons who also receive a residual benefit consisting of the excess of an auxiliary benefit over their retired-worker benefit. Estimates of the number of such residual payments were made separately for spouses and widow(er)s.

Note: The number of beneficiaries does not include certain uninsured persons, most of whom both attained age 72 before 1968 and have fewer than 3 quarters of coverage, in which case the costs are reimbursed by the general fund of the Treasury. The number of such uninsured persons was 89 as of December 31, 2000. Totals do not necessarily equal the sums of rounded components.

6. Disability Insurance Beneficiaries

Benefits are paid from the DI Trust Fund to individuals who satisfy the disability-insured requirements who, are unable to engage in substantial gainful activity due to medically determinable physical or mental impairment severe enough to satisfy the requirements of the program, and have not yet attained normal retirement age. Spouses and children of such disabled workers may also receive DI benefits provided they satisfy certain criteria, mostly depending upon age or the age of a child in the care of the non-disabled spouse. In projecting future benefit outlays from the DI Trust Fund, the number of DI beneficiaries is projected for each type of beneficiary separately, by the sex of the disabled worker on whose earnings the benefits are based, and the age of the beneficiary. Such projections are accomplished using standard actuarial methods reflecting future additions to the DI rolls through awards of new benefits, and subtractions from the rolls due to death, recovery, or administrative conversion upon attainment of normal retirement age from status as a disabled-worker beneficiary to status as a retired-worker beneficiary. The long-range and short-range models used to make these projections are both constructed from this basic outline, but differ in some details reflecting their respective uses.

The number of new entitlements to disabled-worker benefits during each year is projected by applying assumed age-sex specific disability incidence rates to the projected disability-exposed population.² Long-range ultimate disability incidence rates are selected based on careful analysis of historical patterns and expected future conditions, including the impact of scheduled increases in the normal retirement age.³ Incidence rates for the first half of the short-range period reflect the most recent actual experience along with consideration of other factors expected to affect the processing of disability claims in the near term. Over the latter half of the short-range period, incidence rates are assumed to trend into levels consistent with the long-range ultimate incidence rate assumptions.

These assumed incidence rates are summarized in figure V.C3 and table V.C5. As illustrated in figure V.C3, incidence rates have varied within a wide range over the past 30 years. Although not completely understood, this variation is attributed in large part to a variety of economic and demographic factors, along with the effects of changes due to legislation and program administration.⁴ The solid lines in figure V.C3 illustrate values of the summarized incidence rate, age-sex adjusted to the distribution of the disability-exposed population for 1998. Such adjustment facilitates meaningful comparisons over long periods of time. From a historically high level of about 7 awards per thousand insured in 1975, age-sex-adjusted rates declined to about 3.6 per thousand by 1982. Following a gradual trend upward, rates increased to about 5.7 per thousand by 1992 and have since declined to about 4.6 per thousand in 2000. Figure V.C3 also displays the age-sex-adjusted short-range incidence rates under the three alternative sets of assumptions. Gross (unadjusted) incidence rates are also shown in figure V.C3 in dashed lines. These unadjusted rates are heavily influenced by the changing age-sex distribution of the exposed population over time. This is most noticeable in the period 2000 to 2010 when the aging baby-boom generation will be concentrated in the ages of highest disability incidence.

Figure V.C3.- DI Disabled Worker Incidence Rates, 1970-2010

[Awards per thousand disability exposed]

Table V.C5 presents the long-range ultimate incidence rate assumptions age-sex adjusted to the disability-exposed population as of January 1, 1996. The table also indicates the year in which the ultimate values are attained, along with an indication of the relationship between those ultimate rates and the rates for the base period (1994-96) that was used to develop relative levels of disability incidence by age and sex for long-range assumptions.

The number of disabled-worker beneficiaries having their benefits terminated during each year is projected by applying assumed termination rates to the disabled-worker population. The termination rates are developed by age, sex, and reason for termination.⁵ In addition, in the long-range period, termination rates are also assumed to vary by duration of entitlement to disabled-worker benefits. To this number of terminations is added the number of disabled-worker beneficiaries who would be automatically converted to retired-worker beneficiaries upon attainment of the normal retirement age.

In the short-range period, gross death rates under the intermediate assumptions are projected to remain relatively constant at between 35 and 37 deaths per thousand disabled workers. This is about the same as projected under the intermediate set of assumptions for last year's report. The pattern of projected recovery rates under the intermediate assumptions is consistent with assumed levels of continuing disability reviews required to fulfill the legislative mandate for regular reviews of all disabled beneficiaries. Under low cost (high cost) assumptions, terminations due to death, recovery, and other reasons increase (decrease) to levels roughly 10 percent higher (lower) than those under the intermediate assumptions.

For the long-range period, projection of death rates and recovery rates begins with an analysis of such rates split by age, sex, and duration of entitlement over the base period 1991-95.⁶ Under the intermediate assumptions, recovery rates for both males and females, are assumed to remain approximately constant after 2010. Death rates over the long-range period are assumed to change gradually, at about the same trend as for death rates in the general population, reaching levels in 2075 which are lower than the base period level by 49 percent for males and 40 percent for females.

Under the low cost assumptions, recovery rates and death rates are assumed to be higher than the corresponding levels assumed for the intermediate assumptions. Ultimate recovery rates are assumed to be higher than the base period rate by 125 percent for males and by 89 percent for females, while death rates are assumed to change gradually reaching levels in 2075 which are lower than the base period level by 32 percent for males and 21 percent for females.

Under the high cost assumptions, recovery rates and death rates are assumed to be lower than the corresponding levels assumed for the intermediate assumptions. Ultimate recovery rates are assumed to be higher than the base period rate by 50 percent for males and by 26 percent for females, while death rates are assumed to change gradually reaching levels in 2075 which are lower than the base period level by 63 percent for males and 56 percent for females.

These detailed projections of disabled-worker entitlements and terminations are combined using standard multiple decrement techniques to produce projections of numbers of disabled workers in current-payment status over the 75-year projection period. These projections are presented in table V.C6. As indicated in that table, the number of disabled workers in current-payment status is projected to grow from 5.0 million at the end of 2000, to 10.4 million, 11.9 million, or 13.2 million at the end of 2075, under the low cost, intermediate, or high cost assumptions, respectively. Of course, much of this growth is a direct result of the growth and aging of the population described earlier in this chapter.

Another way to view this projected growth in disabled workers is to compare the size of the projected disabled-worker population to the size of the underlying disability-insured population reflecting the age-sex distribution of the insured population as of January 1, 1996. Such a ratio eliminates the effects of the aging population and is referred to as the disabled worker age-sex adjusted prevalence rate. Expressed in these terms, the prevalence of disability is projected to grow from 33.9 per thousand disability insured at the beginning of 2000, to 35.2 per thousand, 46.5 per thousand, and 58.9 per thousand at the beginning of 2075, under the low cost, intermediate, and high cost assumptions, respectively.

Table V.C6 also presents projections of the numbers of auxiliary beneficiaries paid from the DI Trust Fund. As indicated at the beginning of this subsection, such auxiliary beneficiaries consist of qualifying spouses and children of disabled workers. In the case of children, the child must be either (1) under age 18, (2) age 18 and still a student in high school, or (3) over age 18 and disabled prior to age 22. In the case of spouses, the spouse must either be at least age 62, or have an eligible child beneficiary who is either under age 16 or disabled in his or her care.

In general, such auxiliary beneficiaries are projected in a manner that is related to the projected number of disabled-worker beneficiaries. In the short-range period, this is accomplished for family members of disabled-worker beneficiaries by projecting incidence and termination rates for each category of auxiliary beneficiary. In the long-range period, the child beneficiaries at ages 18 and under are projected in relation to the projected number of children in the population, by applying factors representing the probability that either of their parents is insured and disabled. Spouses eligible because they have an eligible child in care are projected relative to the projected number of such children. The remaining categories of children and spouses are projected in relation to the projected number of disabled-worker beneficiaries.