Let's debate the future of Social Security and Medicare

Well, the splendid little election is now over. Next up comes the debates about how to handle the “fiscal cliff”. In the grand scheme of things, though, that’s minor. The fiscal cliff only deals with income taxes and discretionary spending; it has nothing to do with Social Security and Medicare.

On the issue of those two programs, there seems to be a sharp divide. The plan laid down by Paul Ryan assumes that there’s an upcoming crisis in Medicare and Social Security, and that major changes in the payments given out are needed. Republicans by and large seem to agree with this. The Democratic position seems to be summarized by editorials like this one, which calls the crisis “phony”, “fake”, and so forth.

For actual facts on the matter, I turn to the Trustees of the two programs. Regarding Social Security, they say:

Both Medicare and Social Security cannot sustain projected long-run program costs under currently scheduled financing, and legislative modifications are necessary to avoid disruptive consequences for beneficiaries and taxpayers. Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare. If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.

After 2020, Treasury will redeem [Social Security] trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.

The projected date of [Medicare] Trust Fund exhaustion is 2024, the same date projected in last year’s report, at which time dedicated revenues would be sufficient to pay 87 percent of HI costs. The Trustees project that the share of HI expenditures that can be financed with HI dedicated revenues will decline slowly to 67 percent in 2045

So it seems pretty blunt to me that there is a big problem. Both programs are projected to run out of money, Medicare in 12 years and Social Security 9 years after.

(James Galbraith is correct that we shouldn’t use the word “bankrupt” when talking about these programs. However, that’s a technicality. Use “insolvent”, “out of money”, or “belly up”. It still means the same thing.)

Other than that, Galbraith’s arguments look absurd. He implies that economic projections from sources such as the CBO are way off base but offers no other source of projections to contradict them. He states that medical costs can’t keep rising indefinitely, but they certainly can keep rising over the next few decades, which is what matters here. He seems to be in denial about basic facts.

The subject of this OP is impossibly broad, and lumping SS and Medicare together doesn’t really do much good. Other than them both being entitlements they have decidedly different functions, growth projections, and potential solutions.

SS is an actuarial problem. Set the level of the premiums and set the level of benefits. Problem solved.

Medicare is inextricably linked with the failure of the health-care delivery and payment system. You can’t “solve” Medicare without solving the general problem of the growth in health-care costs. Which means some combination of: consuming less health care (either by being healthier, dying easier, or rationing care), increasing efficiency (generating better health outcomes per dollar spent), or paying providers less (including physicians, nurses, pharmaceutical companies, device manufacturers, etc.)

To my way of thinking, Social Security has been collecting more than it paid out for years, it is now using some of that surplus, and will be able to fully pay out its obligations for another 20 years. Social Security is not the problem right now, and it cab be easily tweaked to not be a problem in the future. Contrast that to every other aspect of the budget. We are not collecting enough revenue to match our expenses for the military, Medicaid, and what ever else makes up the rest of the budget.

What Jas said. SS is not an unsolvable problem since seniors non-healthcare costs do not rise higher than inflation. You simply need some pretty minor combination of increased taxes and/or decreased benefits to fix it.

Medicare is another story. Like Jas said, you can’t solve Medicare without also addressing the growth in health care costs. You need a comprehensive approach to this, including liberal boogiemen like tort reform and conservative boogiemen like increased government spending on healthcare education so there will be more healthcare providers trained.

And, perhaps everybody’s bogeyman, “death panels”.

Medicare recipients should potentially be required to have end-of-life decisions made when enrolling (obviously they can change these decisions any time they want). But too much money is spent on heroic medical efforts for patients that don’t even want it (but their next of kin do and they don’t have a medical directive).

I don’t think the issue is rising healthcare costs per se, as opposed to the extent of healthcare covered.
I don’t understand how a rational person could support a system in which each person is entitled to healthcare costing vastly more than they ever contributed.
If you wish to consider that “rationing”, I’m fine with that word.
Holds true for all stages of life - newborn thru at death’s door.
Anyone is free to contract for whatever insurance over and above such levels that they can afford.

Social Security - tweak all aspects of the system, and drastically reform SSI kids and disability - IMO SS disability is currently viewed by many as a general welfare program.

I second that discussing Medicare and SS as if they were all one thing is pretty misleading.

SS isn’t really a problem, there are a wide variety of relatively minor tweaks that could keep it solvent. Which tweaks to make will no doubt be a political problem, but it isn’t really a financial one. (Plus, saying that a program that is projected to run out of money in 21 years is in “crisis” is kind of silly.)

Medicare is more difficult to solve, but that’s because the problem isn’t really Medicare. Medicare is suffering from the wider (and considerably less tractable issue) of Medical costs growth in general. If anything, Medicare is somewhat sheltered from this problem, as costs in Public programs have grown slower then Private ones.

But in solving this wider problem, I think we’ve made a good start in passing the ACA, as it has a wide-variety of cost-control measures. Some of those will work, some of them won’t, but I think its “try everything and then expand upon what sticks” approach is the right one for a problem that no one knows which approaches will work.

In theory that’s true. In reality, I see little evidence that we can solve it. The history of the past decade or so gives me little confidence that our politicians can craft sensible legislation and then pass it. I know of no interest group that’s stepping forward to advocate tax raises or benefit cuts for itself. Everybody–workers, retirees, doctors, and others–seems determined to resist even minor changes that aren’t in their favor. People like Galbraith who insist that the problem doesn’t exist and that anyone who wants to make changes is part of a big conspiracy are not helping the matter.

For a smaller program, I’d agree. But because of its sheer size, Social Security has a lot of inertia carrying it forward. Also, the problem is rooted in a simple fact, that the number or retirees will soar as the baby boomers retire, while the number of new people entering the workforce won’t rise rapidly enough to make up the difference. As I assume we all know: “Social Security is a “pay-as-you-go” program, which means that today’s workers are paying for the benefits to today’s beneficiaries through their payroll taxes. In 1940, there were 42 workers per retiree. In 1950, the ratio was 16-to-1. In 2010, there were 2.8 workers per retiree, and within 40 years, it’s projected that there will be just two workers per retiree.”

Let me give you a relevant example. My grandmother is 89 years old, has survived multiple strokes and is now in the late stages of Alzheimer’s. She lives in a decently luxurious 4-room apartment in a high-class retirement home, has two or three restaurant meals each day, has trained caretakers with her day and night, has medical staff on call in the building if needed, has expensive medical equipment such as a special bed and oxygen tanks, and so forth. Most of this is paid for by Social Security and Medicare, those some comes from her husband’s life insurance and savings. Now that takes a lot of money and will always take a lot of money. I’m skeptical that minor tweaks can allow us to continue providing such care for all retirees as the worker-retiree ratio keeps getting smaller.

One clarification (likely unnecessary) - SS is never going to “run out of money” so long as there is a single person working and paying into it.
It could, however, run out of money to pay current levels of benefits to everyone currently prospectively eligible.
I believe the current prediction is that with no changes, old age benefits could be paid at approx 75% of current rates (adjusted for inflation).

So its hopeless, then why are we talking about it? Your not going to find a solution that can take place without the gov’t changing the law. If your thesis is that the law can’t be changed, then why are we talking about it?

Plus, if that’s true, then its not really a SS problem, its a fundamental problem with the US gov’t. SS is hardly the only thing that Congress needs to occasionally adjust the laws for. If anything, focusing on SS in that case would seem to draw attention away from the real issue.

In reality, Congress will pass a law decreasing benefits and increasing taxes, and the program will remain solvent.

Not sure why that’s a problem. Its large, but its a pretty simple program. People send checks in, the SS administration dives up the money to retirees and sends it out. It has to be the simplest Federal dept. for its size there is. Changes in benefits will have to be phased in to allow retirees to adjust their finances, but changes in taxes can be implemented more or less instantaneously.

That’s why its easy to solve. Its rooted in easy to predict, slow to change demographic trends. The fact that we see the problem coming 21 years in advance is evidence of that.

It won’t keep getting smaller. The birthrate has levelled off, and the worker-to-retiree ratio is expected to do so as well, at the level of about two workers per retiree. All that remains to do is adjust benefits-to-payments to keep the program solvent with that ratio in mind.

There isn’t a “crisis”, there is a minor, easy to predict actuarial problem 21 years in the future.

Medicare had a fixed amount per month that can be used for skilled nursing facility costs. Possibly they pay a higher amount when extra security is needed, as it is with Alzheimer’s patients.

Social Security is a retirement benefit. I fully believe that a good nursing home would take all of your grandmother’s retirement income, all of her Medicare benefit, and then still need to have part of the cost made up by outside savings (of which any previous life insurance payments would now be a part).

I’ve seen what Medicare alone can buy, and it doesn’t even get you a private room in a nursing home. If you want to be well tended in your declining years, whatever you do don’t rely on only Medicare and Social Security. But that’s a different topic. My point here is that Medicare isn’t paying for what your grandmother is getting, it’s paying a lot less.

Lumping the SS and Medicare together confuses things. For SS, the only issue is life expectancy after retirement and pay-in vs pay-out. For Medicare, it’s complicated, but the level of service you describe is not on the table for anyone.

Thanks, Yllaria - I was going to point out many of the same facts. Medicare doesn’t come close to paying for a “decently luxurious” retirement home. Most of the time long-term living care is actually a Medicaid benefit, and you have to spend down all of your assets to qualify. And they’ll take your entire SS payment as well. And you still will have probably have to pay a bit more.

Like ITR, I don’t see the government acting in a prudent and statesmanlike way to fix the problem. They’re going to put it off arguing and name calling and beating their chests. And playing NIMTOO (Not In My Term Of Office).

So it won’t be fixed in anything like an optimal manner, but it will be fixed. Eventually.

As a for example of a similar fix, I don’t have SS taken from my paycheck. I have CalPERS payments taken instead. California has recently raised the age for drawing full retirement from PERS*, and done some dusting and cleaning that will result in some payouts being lower in the future. This includes a cap on total income to be used in calculating payments.

There are those who say that this won’t be enough to keep CalPERS solvent. But it’s hard to judge. In good economic times, CalPERS makes a lot on investments. In bad economic times, they boost the size of the contributions required.

  • For new employees. If you stay in the same agency, you’ll be grandfathered.

You’re right,** Jas09**. I was forgetting about Medicaid (here it would be MediCAL - California has to do everything their own way). There’s also a difference in benefit if you’re in a facility to recuperate vs if you’re there long term. And there’s a difference between hospice and non hospice.

For MediCAL benefits, you don’t have to sell your residence*, or your single vehicle, if you need it. But they’ll put a lien on your house and recover what they’ve paid from your estate, if they can. And they watch for people shifting assets to relatives in order to qualify.

  • as long as you or your spouse are still living in it.

I’m sure there will be plenty of that, but for better or worse, that’s just how things get done in the US political system. And to the extent that that’s a problem, its not really a problem that has anything specifically to do with SS. Its not a “SS crisis” its a “the US political system is annoying crisis”.

It is indeed a “crisis”, in that, no one will ever want to touch the subject (political suicide)

Funny how its a politically suicidal subject and not a “crisis” but no one wants to tackle the not so tough, easy to fix, subject eh?

I’m not convinced its particularly politically suicidal. The system will be in long term balance simply by repealing the cap on money subject to the payroll tax. That would presumably be unpopular with a certain segment of the population, but not really any more politically suicidal then any other tax-hike.

But in 15ish years, a President and Congress will be faced with a situation where benefits will be cut by 25% under their watch if they don’t fix the system. That will be political suicide, so if it hasn’t been fixed by then, it will be by whomever is left holding the bag a few years before the Trust Fund runs out.

And again, a “crisis” usually suggests an acute problem. That SS benefits will be cut by 25% two decades from now if no one does anything is pretty far from “acute”.

You might be right. I hope that it isn’t fixed in some knee jerk way that kicks the can down the road like we do now with deficit spending. It could be fixed now and really, at the least, needs to be recognized as a problem.

I would view it as acute only for the reasons I stated earlier (suicide and no real desire to tackle it) and I’d add that 25% of a person’s income is quite substantial (maybe even acute)

I also agree that if they lifted the cap, it would fix it long term and there would always be more paid in than gets doled out. Now, what to do with the extra…

The nature of SS is that its always going to need adjustment. The nice thing about SS is that because demographics are usually pretty predictable, you can see problems coming a ways off (as in this case, where the projected deficit is some twenty years in the future). Birthrates, deathrates and immigration change from year to year, but they usually don’t change quickly*.

The downside is that they are always changing. So to some extent we’ll always be kicking the can down the road. Future demographic estimates will never be exactly right, so the US will almost certainly need to revisit the finances of the program every few decades.

If you lift the cap, but also increase benefits using the current formula to the people whose taxes have been raised, you almost exactly cover the projected SS deficit with nothing left over. If you lift the cap but keep the same benefits, you end up with a (very large) surplus. So if you go the latter route, then you end up with a lot of extra that could be used to significantly reduce the federal deficit, or used to reduce the payroll tax to offset some of the increase caused by lifting the cap or whatever.

*(This is different then Medicare, where a lot of the spending is based on the general cost of medical care, and since no one really has a good handle on what drives those costs, making predictions about future finances is hard to do. Another reason why its a mistake to conflate the two problems)

Don’t be absurd. Killing SS would be suicidal, not fixing it. Reagan and the Democrats did an excellent bipartisan job fixing a worse crisis in the '80s, and no one suffered politically. The changes needed now are much less drastic, in that they are just extensions of changes made already. If Republicans of today are willing to raise the SS tax like Reagan did, and if Democrats were willing to push out the retirement age a bit, we’d be in good shape. I’m not sure raising the age is really even necessary, since you get bigger monthly payments the longer you wait. They can twiddle with that.