Don’t Panic! We Can Expand Social Security and Medicare
Actuarial science is the art of prediction. And speaking of predictions, here’s one that hasn’t been wrong yet: No matter what new data emerges about Social Security and Medicare, the well-funded opponents of those two worthy programs will always insist that we’re on the brink of catastrophe – unless something is done right now to slash their benefits.
Consider the Trustees’ Report for the Social Security trust fund, which was released Monday. The report indicated that Social Security’s retirement program is fully funded for the next 20 years, until 2034, after which it will be able to pay three-quarters of benefits.
Social Security’s disability insurance fund is projected to run out of savings in 2016, but its growth rate is the lowest it’s been in 25 years. The 2016 shortfall is easily fixed with a transfer of money from the retirement fund – a fix that Congress has performed 11 times in the past, but which this Congress has so far refused to do for ideological or political reasons. Even if that transfer were never repaid, the overall fund would still be in the black until 2033.
Social Security experts have known of these reported shortfalls for many years. They’re relatively modest, amounting to 2.88 percent of taxable payroll over the next 75 years, and easily remedied.
The trustees also reported that Medicare’s finances have improved considerably. A few years ago they were predicting that the hospital fund would be depleted in 2017. Just last year they were forecasting that it would run out in 2026. Now they tell us that hospital fund is now fully solvent until 2030.
In other words: There’s no bad news on Social Security, and Medicare’s outlook has improved. So how did the well-funded naysayers react to these positive developments?
“Social Security Trustees Show Program Headed Toward Insolvency,” shrieked the all-caps header from the anti-government Committee for a Responsible Federal Budget. “Trustees’ Reports Underscore Need For Prompt Reforms to Make Medicare, Social Security Programs Sustainable,” insisted the right-wing Concord Coalition.
Billionaire hedge funder and former Nixon cabinet officer Peter G. Peterson funds both organizations, along with Fix the Debt and other groups that echo Peterson’s conservative anti-government agenda. It should be no surprise, therefore, that they’ve chosen fear over facts once again.
The Committee for a Responsible Federal Budget, for example, plays up a slight shift in Social Security’s finances while completely ignoring the substantial improvement in Medicare’s. The Concord Coalition falsely states that “Social Security and Medicare will increasingly squeeze other parts of the federal budget.” (Social Security is forbidden by law from drawing funds from “other parts of the federal budget.”)
Neither group notes that Medicare provides health care coverage at lower cost than private insurers, or that Medicare’s rates of cost inflation have historically been well below that of private carriers.
There are several lessons to be learned from this. The first is: Don’t panic! The second is: Check your assumptions. Medicare’s health care expenses rose more slowly than expected because the assumptions behind past predictions were off. Cost increases were slower than expected, partially as the result of the Affordable Care Act and partially due to other factors which are not yet fully understood.
Nor do we have to cross our fingers and hope that the assumptions behind these numbers change. We can change them ourselves, through smart policy choices. For example: If we reduced wealth inequality, which has grown dramatically over the last 20 years, the situation would improve considerably. Despite the talk about “aging populations” – we’ve known about aging Baby Boomers since 1964, after all, and have factored them into past calculations! – unequal wage growth was a major factor leading to the current (and relatively) minor shortfalls, as Monique Morrissey has documented.
Even without addressing wealth inequality, lifting the payroll tax cap would cover much of the shortfall. We could also modestly raise payroll taxes and increase benefits, a move polls show that most Americans would support. We could supplement revenue with other measures, like a financial transactions tax.
But scenarios like wage equity, lifting the cap and a financial transactions tax aren’t attractive to billionaires. That helps explain the existence of well-financed groups which generate fear and push for benefit cuts, while pretending that revenue-raising options simply don’t exist.
We do have real problems, of course. We need to end our dependence on private insurers and rein in for-profit providers in order to get our health costs in line with other developed countries.Wealth inequality and the erosion of employer pensions will lead to a retirement crisis unless we increase our nation’s meager Social Security benefits.
We can certainly meet these challenges. All that’s required is a rational conversation about revenue-generating alternatives. But groups like the Committee and the Concord Coalition exist to foster fear, not wisdom. Here’s another prediction we’re not afraid to make: No matter what next year’s Trustees Report says, they’ll tell us it spells catastrophe.
(Additional data sources for this article include the Social Security Administration and Christian Weller and Rebecca Vallas, Center for American Progress. They are not, however, responsible for our interpretation of the data.)