ENTITLEMENTS: A Plan for Reform

Philip Moeller is the author of Get What’s Yours for Medicare: Maximize Your Coverage; Minimize Your Costs and co-author of Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security

'Getting Congress to act will be the true test of a new president’s mettle'

Our support of older and disabled Americans is one of America’s great success stories. Social Security, enacted in 1935, is now the dominant source of income for most retirees, and the only source of income for many. Prior to Medicare’s creation in 1965, the nation’s senior citizens were the poorest age group in the nation. Today, it is the best off, although many seniors remain in or near poverty.

Both programs, however, face serious and worsening deficits that should be a top priority for the next president. The government’s health spending already tops $1 trillion a year, and Uncle Sam must sign a check for about a third of this amount every year to cover program deficits. Social Security spending was about $900 billion in 2015. It’s all covered by payroll taxes, but in 16 years the program will run short of funds to pay benefits.
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How would these programs and the folks they serve fare in a Hillary Clinton or Donald Trump White House? Clinton has a detailed agenda to expand senior benefits and require wealthier Americans to help foot the bill. Trump provides few details but says he will not touch safety-net programs. However, given his promises to lower taxes, analysts see his hands-off pledge as impossible to keep.

What Clinton or Trump say each would do as president, however, is only an important starting point. Congress must approve any significant changes to senior health care or Social Security. Congress has failed for decades to address needed, and relatively modest, Social Security reforms. It has approved some Medicare changes, but much more needs to be done.

Getting Congress to act will be the true test of a new president’s mettle. We need leadership even more than well-conceived ideas. That’s the filter that will determine my vote.

The real object of concern for seniors and their advocates must extend beyond “the Donald” or “lying Hillary.” It should come to rest on the Congressional Budget Office. The CBO is the non-partisan research arm of Congress. In this role, it is the scorekeeper of what the government spends and, to the point here, projections about future trends.

And, while federal spending and budget deficits have ceased to be headline news, they have hardly gone away. Looking at recent CBO projections for Social Security and health-care spending should, as the old movie line says, make you afraid, very afraid.

There is no need to waffle on this point: we cannot continue honoring our promises to seniors and the disabled without significant changes to the funding and benefit provisions of these programs.

We have known these details for decades and done nothing about them. Each year, we walk closer to the edge and continue to do nothing. Every year we delay, the costs of stabilizing the system get steeper and the time frame for correcting things gets smaller. Further, the costs of a “fix” necessarily get loaded more and more on younger workers who, the last time I looked, were not exactly giddy about their long-term retirement prospects. This is an unacceptable failure of national leadership.

Federal health spending in the current fiscal year just ended is projected at a shade more than $1 trillion. It includes Medicare ($592 billion), Medicaid ($365 billion, excluding what state governments pay), Affordable Care Act (ACA) subsidies ($43 billion), and spending on CHIP, the Children’s Health Insurance Program ($14 billion). The ACA has helped slowed the pace of federal health-care cost inflation but pressure for higher health expenses has reappeared and shows no signs of going away.

The CBO looks at these trends in terms of their percentage shares of the federal spending and of the total economy. The percentages may look small. But to anyone who works with such numbers, the trend rates of these seemingly small percentages will be toxic to the federal budget and broader economy.

Social Security spending would rise from 4.9% of the economy (as measured by the GDP, or gross domestic product) this year to 6.2% in over the next 30 years. Health spending is projected to grow from 5.5% to 10.1% of GDP over the same span. Keep in mind that these are not percentages of a fixed number but of an economy that will double or triple over the coming 30 years.

These projections assume that current laws and benefits would remain in place, and also reflect expected health-care cost inflation. Rising health expenses plus the demographic impact rising numbers of older beneficiaries would account for virtually all the CBO’s projected percentage increases in the fiscal burdens of both programs. We might be able to restrain health-care prices a bit, but the demographic realities we face are largely immutable.

The general thrust of these projections has been known for many years. Washington’s record here is not so abysmal as with Social Security. Medicare regulators, aided by recently enacted laws, are moving as quickly as large bureaucracies can move toward replacing Medicare’s current “fee for service” payment system with a network of “fee for performance” programs that have the potential to reduce spending while producing healthier outcomes. This would be the holy grail of health-care reform.

Wealthier Americans have been paying ever-growing shares of their Medicare expenses. It seems likely they are headed toward paying for all of their health care, perhaps with some insurance protection against catastrophic medical bills. But the broader trend lines on federal health spending remain unacceptable and unaffordable.

Left unchecked, by 2046 we would be spending half of all federal dollars on programs to support older Americans.

Moeller is the author of Get What’s Yours for Medicare: Maximize Your Coverage; Minimize Your Costs and co-author of Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security

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