The truth about social security and Medicare.
Medicare (Political aspects)
Social security (Economic aspects)
Social security (Political aspects)
Gorin, Stephen H.
|Publication:||Name: Health and Social Work Publisher: Oxford University Press Audience: Academic; Professional Format: Magazine/Journal Subject: Health; Sociology and social work Copyright: COPYRIGHT 2012 Oxford University Press ISSN: 0360-7283|
|Issue:||Date: Feb, 2012 Source Volume: 37 Source Issue: 1|
|Product:||Product Code: 9105310 Social Security NAICS Code: 92313 Administration of Human Resource Programs (except Education, Public Health, and Veterans' Affairs Programs)|
|Geographic:||Geographic Scope: United States Geographic Code: 1USA United States|
In their book Aging Nation, Schulz and Binstock (2006) identified
"merchants of doom," by whom they meant a variety of
academics, political figures, and journalists who argued that the United
States cannot afford "the aging of our population" (p. 12).
Although these individuals are not always consistent and, at times,
disagree among themselves, their underlying message is that we face a
"fiscal cancer" that "could have catastrophic
consequences for our country" (CBS News, 2007; see also Aaron,
2009; Eisner, 1995; Schulz & Binstock, 2006). This message is
usually accompanied by recommendations that we shift the cost of social
security and Medicare to beneficiaries (Kingson & Altman, 2011). In
the wake of the Great Recession and in light of the growing budget
deficit, this perspective has become increasingly influential
Although many merchants of doom are "serious, well-respected individuals," their views are often "built on exaggerations and faulty assumptions" (Schulz & Binstock, 2006, p. 13). For example, as Gorin (2007) wrote in a previous editorial,
Underlying much of the concern about population aging are projected changes in dependency ratios (Gee, 2002). One of the best known of these is the beneficiary-to-covered-worker ratio, which shows the number of social security beneficiaries supported by each 100 workers (individuals ages 20 to 64) (Reno & Lavery, 2006). This ratio is expected to rise from 29 in 2000 to 46 in 2030. Although these figures have generated much alarm, they are somewhat misleading. Specifically, they overlook that older adults are not the only dependent age group.
A more sophisticated measure is the total age-dependency ratio, which includes not only older adults, but also individuals under the age of 20 (Reno & Lavery, 2006). This gives us a much different perspective. It shows that we have already experienced the worst of the demographic shifts. In 1960 each 100 working-age people supported 90 dependents (people age 65 and older plus those under age 20); in 2030, they will support only 79. The point, of course, is that although the aging population will increase, there will be many fewer young people than when the boomers were growing up (Schulz & Binstock, 2006).
Now, some might argue that we cannot really compare young people with older adults. After all, older adults are supported by government programs funded with tax dollars, whereas children generally receive support from their parents. This is tree, but it misses the point. The fundamental issue is our society's ability to support its dependents (Schulz & Binstock, 2006). Parents do support their children, but as taxpayers, they also finance programs that support older adults.
Moreover, children are recipients of tax dollars. Public education, which primarily benefits young people, is financed by state and local governments (Reno & Lavery). This is not a negligible expense. Proportionally, the increased spending on public schools to educate the boomers was much greater than the amount that will be needed to support them in retirement. Between 1950 and 1975, the share of gross domestic product (GDP) going to public education increased by 2.8 percent; in contrast, between 2005 and 2030, the share devoted to social security spending will increase by only 1.8 percent (Reno & Lavery). Furthermore, although "the boomers came into the world with nothing" (Leone, 2005), they will leave behind tremendous financial and other resources.
The total dependency ratio suggests that the future is not as bleak as the merchants of doom have argued (Schulz & Binstock, 2006). Yet, this ratio is also limited. Like the beneficiary-to-covered-worker ratio, the total age-dependency ratio is too abstract, that is, it considers older adults and young people as categories, not in terms of their actual lives. In reality, some older adults and young people are employed, and some working-age people are not (Reno & Lavery, 2006).
A more useful measure is the consumer-to-worker support ratio, which considers the total number of consumers, including working people, in relation to the "number of workers of all ages" (Reno & Lavery, 2006, p. 5). By this measure, ha 1960 there were 268 consumers to every 100 workers; in 2030 there will be 214 consumers to every 100 workers. Although the composition of the dependent population will change, the total support burden will be much lower when the boomers retire than it was in their youth. (pp. 165-166)
Another misconception is the claim that we face a general "entitlement crisis" that threatens to "bankrupt the nation" (Heritage Foundation, 2010). The problem here is that "there is ... no such thing as Socialsecuritymedicareandmedicaid" (Krugman, 2007). Although these programs are related, they are distinct and face very different challenges.
To begin with, because of the 1983 agreement between President Reagan and Congress to raise the payroll tax and increase the retirement age, Social Security has built up a surplus of $2.6 trillion. According to the Congressional Budget Office (CBO, 2011), the Social Security Trust Funds will be solvent through 2038; after this, the program will still be able to meet between 77 percent and 81 percent of its obligations.
It is often argued that there really "is no trust fund, just IOUs ... that future generations will pay" (Hutcheson, 2005). The reality is that these so-called IOUs are interest-bearing, special issue bonds "backed by the full faith and credit of the U. S. Government" (Social Security Administration, 2011). As such, they are "not casual IOUs" but "legal instruments" (Altman, 2011).
A related, and equally mistaken, claim is that redeeming these bonds adds to the national debt. It is true that when Social Security's expenses exceed its income, the Treasury must come up with funds to cover the bonds and the interest due on them (Armstrong & Gorin, 2011). To do this, it must borrow money elsewhere, thus increasing publicly held debt. Redeeming the bonds, however, also reduces the government's obligation to the Social Security Trust Funds. As a result, "the trust fund assets are generally assumed to be a wash: an asset for the trust funds, but an equal liability for the General Fund of the Treasury.... If the redemption of trust fund securities in the future results in issuance of additional publicly held debt, this would not alter the total federal debt" (Goss, 2010, p. 3).
Fixing Social Security is not an impossible task. To put the issue into perspective, the Social Security shortfall over the next 75 years amounts to about one-third of the cost of extending the Bush tax cuts over the same period (Greenstein, 2011). The 2012 report of the Social Security Trustees identified the long-term (75-year) deficit as being 2.67 percent of taxable payroll (Reno, Walker, & Bethell, 2012). Eliminating the payroll tax cap ($110,100 in 2011) would go a long way toward closing the shortfall (Social Security Works, n.d.).
We could also close the gap by increasing the payroll tax on workers and employers from 6.2 percent to 7.6 percent (Reno et al., 2012). Although it is unlikely that the shortfall will--or should--be met by raising the payroll tax, even if it were, future workers would still likely enjoy higher net wages (Reno & Lavery, 2006).
Medicare is a more complicated problem. According to the Medicare Trustees, in 2011 the Hospital Insurance (HI) Trust Fund, which is largely funded through payroll taxes, had assets of $271.9 billion. It will be solvent through 2024, after which it will be able to cover 87 percent of its obligations. (Parts B and D of Medicare are covered through beneficiary contributions and general revenues.) Over the next 75 years, the shortfall in the HI Trust Fund will amount to 1.35 percent of taxable payroll. This gap could be closed by increasing the payroll tax by 0.67 percent on both workers and employers. For an employee earning $40,000 per year, this would amount to an increase of 75 cents per day (Zainulbhai & Goldberg, 2012). Over the next 75 years, the general revenues would be $3 trillion, or "0.3 percent of GDP over that period" (Zainulbhai & Goldberg, 2012).
Total Medicare spending is predicted to grow from 3.56 percent of GDP in 2011 to 6.25 percent in 2080 (Zainulbhai & Goldberg, 2012). In contrast, Social Security is projected to increase from 4.8 percent of GDP in 2010 to 6 percent in 2085. As the Medicare Trustees noted in their 2011 report, however, the most recent, and relatively optimistic, Medicare cost projections hinge on the success of reductions in "physician fees" and "price increases for other health services" (Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds [Board of Trustees], 2011, p. 7). The projected reductions in physicians' fees are mandated not by the Patient Protection and Affordable Care Act (P.L. 111-148) (more commonly referred to as the Affordable Care Act [ACA]) but by the sustainable growth rate (SGR) provision of the Balanced Budget Act of 1997 (P.L. 105-33); Congress has consistently overridden the SGR reductions (Centers for Medicare & Medicaid Services, 2011). If these efforts do not succeed, "then Medicare spending [will] instead represent roughly 10.7 percent of GDP in 2085" (Board of Trustees, 2011, p. 7).
It is important to note that rising health-care costs are a general problem for our health-care system, not Medicare alone (Aaron, 2007, 2009). The evidence actually suggests that Medicare is more efficient than the private sector (Archer, 2011). Between 1969 and 2009, real Medicare spending per beneficiary grew by 400 percent, whereas during the same period, private insurers' premiums increased by over 700 percent (Krugman, 2011). From 2010 to 2011, Medicare expenditures slowed dramatically; although expenditures "by private insurers also fell ... the slowdown began later and was not nearly as dramatic" (Mahar, 2011 c).
What explains this "very sharp deceleration" in "the growth rates of Medicare costs" (S&P Indices, 2011)? Some experts believe it may be a response by providers to anticipated changes under the ACA (Mahar, 2011b). Historically, Medicare has paid providers on a fee-for-service basis, rewarding them for the number, or volume, of services they provide. The ACA shifts this to a focus on value. It "contains financial carrots and sticks that reward doctors and hospitals for ... better outcomes at a lower price--while penalizing those that 'do more' without improving patient outcomes" (Mahar, 2011b). According to Emanuel (cited in Mahar, 2011b), a leading health policy expert and former advisor to the Obama Administration, providers understand that with the ACA "kicking in" in 2014, they cannot "wait until ... 2013" to begin changing the way they practice; many are working now "to make their systems more efficient." Mahar (2011a) outlined several reasons why this slowdown is likely to continue.
The current decline in the growth of Medicare costs may, of course, prove temporary. We are in the early stages of this process, and the ACA still remains our best hope for controlling costs. The legislation "laid out a strategy for reforming Medicare" that includes financing "research ... to test methods for improving quality and controlling costs" and setting "targets for reduced growth in spending" (Starr, 2011, p. 30). The act also created an Independent Payment Advisory Board (IPAB), which would make "recommendations" to Congress "on how to prevent Medicare spending per person from rising at excessive rates" (Aaron, 2011). The purpose of the IPAB is not to ration care but to determine the most appropriate and effective means of service and delivery and assess the "relative effectiveness of different methods of treatment."
The ACA may also serve as a basis for addressing "widespread geographic variations in U.S. health care" (Skinner & Fisher, 2010). Researchers at Dartmouth and elsewhere have found "variations in medical practice, health care spending, and patient outcomes" in different areas of the country (Aaron, 2011). This work, much of which has focused on Medicare, is the basis for the assertion that almost one-third of our health-care spending may be unnecessary and, in some instances, harmful (Orszag, 2008). Although some studies have questioned this work, even after taking these objections into account, "substantial, unjustified differences in the use and cost of services" seem to remain (Starr, 2011). Addressing these variations seems necessary if we are to bring health-care costs under control and deal with the underlying cause of our fiscal crisis (Center for Economic and Policy Research, n.d.).
The 2012 elections will likely determine the future of Social Security and Medicare. Both Democrats and Republicans have advocated proposals that could make significant reductions in both programs (Park, Ruffing, & Van de Water, 2011). Similar proposals have been developed by President Obama's National Commission on Fiscal Responsibility and Reform and the bipartisan Debt Reduction Task Force (Homey, Van de Water, & Greenstein, 2010; Reno & Walker, 2011). In April 2011, the House of Representatives enacted legislation (popularly known as the "Ryan plan") that would "end Medicare as we have known it" and "undermine the value of Social Security" (Gorin, 2011, p. 166). If the Democrats lose control of the White House and Senate and the Republicans retain control of the House of Representatives, some combination of these bills will likely become law.
Ironically, these proposals will do little to address the fiscal problems facing the nation. For example, over the next decade, the House bill would reduce the budget deficit by only $155 billion (Homey, 2011). They are also unnecessary. According to both the Social Security Trustees and the CBO, the Social Security Trust Fund is solvent for almost a quarter of century and, as noted earlier, the shortfall can be addressed without serious disruption. Medicare's challenges can also be addressed without draconian solutions. The real challenge we face is political, and we should keep this in mind in the months ahead.
IN THIS ISSUE
McMahon and Armstrong address the scope and impact of intimate partner violence during pregnancy and consider implications for social work practitioners in health-care settings. Calvert, Isaac, and Johnson examined health-related quality of life and health-promoting behaviors among low-income African American men. Although three-quarters reported being in good or better health, over half reported frequent mentally unhealthy days. The authors draw implications for social work practice.
Gage reviews the literature on female patients with cystic fibrosis and assesses their knowledge deficits in sexual and reproductive health. She concludes that many female patients lack adequate information to make informed choices in these areas and considers implications for social workers and social work literature.
Using an Internet survey, Freshman examined the risk of posttraumatic stress disorder among victims of the Madoff Ponzi scheme. She found that victims suffered a range of health- and mental health-related problems and points to the public health implications of severe economic trauma. In a letter, Descatha, Duval, Sabbath, and Vuotto discuss implications for medical social workers and other health professionals of the current debate in France over changes in the retirement age. She urges social workers to become actively involved in the effort to allow working conditions to be included as a factor in determining the age of retirement. We welcome this report and encourage individuals from other countries to consider submitting material of interest to Health & Social Work.
Finally, Rine reviews the proceedings of a symposium on health disparities in youth and families. She highlights important findings and considers implications for social work practitioners.
Advance Access Publication July 4, 2012
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Stephen H. Gorin, PhD, MSW, is professor, Social Work Department, Plymouth State University, Plymouth, NH 03264 and executive director, NASW New Hampshire Chapter; email: firstname.lastname@example.org. Russell Armstrong, PhD, is chair of the New Hampshire State Committee on Aging.
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