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THE TRUTH BEHIND THE SOCIAL SECURITY AND MEDICARE ALARM BELLS.
What are we to make of yesterday's report from the trustees of the Social Security and Medicare trust funds that Social Security will run out of assets in 2037 -- four years sooner than previously forecast -- and that Medicare’s hospital fund will be exhausted by 2017 -- two years earlier than predicted a year ago?
Reports of these two funds' demise are not new. Fifteen years ago, when I was a trustee of the Social Security and the Medicare trust funds (which meant, essentially, that I and a few others met periodically with the official actuary of the funds, received his report, asked a few questions, and signed some papers) both funds were supposedly in trouble. But as I learned, the timing and magnitude of the trouble depended a great deal on what assumptions the actuary used in his models. As I recall, he then assumed that the economy would grow by about 2.6 percent a year over the next 75 years. But go back into American history all the way to the Civil War -- including the Great Depression and the severe depressions of the late 19th century -- and the economy's average annual growth is closer to 3 percent. Use a 3 percent assumption and Social Security is flush for the next 75 years.
Yes, I know, the postwar baby boom is moving through the population like a pig through a python. The number of retirees eligible for benefits will almost double from 40.5 million this year to 79.5 million in 2045. But we knew that the boomers were coming then, too. What we didn't know then was the surge in immigration. Yet immigrants are mostly young. Rather than being a drain on Social Security when the boomers need it, most immigrants will be contributing to the system during these years, which should take more of the pressure off.
Even if you assume Social Security is a problem, it's not a big problem. Raise the ceiling slightly on yearly wages subject to Social Security payroll taxes (now a bit over $100,000), and the problem vanishes under harsher assumptions than I'd use about the future. President Obama suggested this in the campaign and stirred up a hornet's nest because this solution apparently dips too deeply into the middle class. This made him backtrack and begin talking about raising additional Social Security payroll taxes on people earning over $250,000. Social Security would also be in safe shape if it were slightly more means tested, or if the retirement age were raised just a bit. The main point is that Social Security is a tiny problem, as these things go.
More about Medicare after the jump.
--Robert Reich
Medicare is entirely different. It's a monster. But fixing it has everything to do with slowing the rate of growth of medical costs -- including, let's not forget, having a public option when it comes to choosing insurance plans under the emerging universal health insurance bill. With a public option, the government can use its bargaining power with drug companies and suppliers of medical services to reduce prices. And, as I've noted, keep pressure on private insurers to trim costs yet provide effective medical outcomes.
Don't be confused by these alarms from the Social Security and Medicare trustees. Social Security is a tiny problem. Medicare is a terrible one. But the problem is not really Medicare: It's quickly rising health-care costs. Look more closely and the real problem isn't even health-care costs: It's a system that pushes up costs by rewarding inefficiency, causing unbelievable waste, pushing over-medication, providing inadequate prevention, over-using emergency rooms because many uninsured people can't afford regular doctor checkups, and spending billions on advertising and marketing seeking to enroll healthy people and avoid sick ones.
COMMENTS (4)
Sec Reich:
I know you are a lot smarter than I and that you actually saw the reports and talked to the people but....
Why can I see something that virtually no one else notices?
Bill Gross of PIMCO pointed out that society, as a whole, can not save for retirement.
People who work support the people who don't work.
Today, the people who are retired and the people who are not working are being supported by the people who are working.
In 40 years when we are both retired, we will be supported by the people working.
You might be rich and I might be poor but we will both depend on the workers of tomorrow to build our cars and to grow our food. We hope they will take our pieces of green paper but, no matter what we do, if we are not working then we will be dependent on the people who are.
Am I nuts?
Posted by: neil wilson | May 13, 2009 6:05 PM
SS is potentially a tiny problem in 10 or 20 or 75 years from now. The SS trustees keep 3 sets of projections, relying upon the middle (intermediate) set. The SS trust fund keeps growing in spite of the Bush recession. I'm always suspicious of commentators (including Rober Reich) who say there is a problem without referring to specifics.
Posted by: MurryMom | May 14, 2009 11:35 AM
In response to neil wilson...
Maybe you could think of it not as just supporting people who are retired, but as taking care of those who built everything that we now take for granted.
Posted by: sara | May 14, 2009 11:54 AM
Re: Social Security - Neil, you have to look at it from a broader societal perspective. A farmer has a much more physically demanding job than those idiots who sit in air-conditioned offices and sell derivatives (and take our economy down the tubes), yet the average farmer makes considerably less money. The "exec" can afford to put away huge sums for retirement, while the farmer may only be able to save a small amount. Who is more important to society? That exec - and all the rest of us - would starve without the farmer. Do we then reward the farmers for all their hard work by forcing them to live under a bridge and die of starvation? I think not. Many essential jobs in this world pay very little, but someone has to do them. We can't all sit in the air-conditioned offices. If we, as a society, refuse to take care of those who feed us, clothe us, educate us, protect us, clean up after us, etc., when they are old, then we deserve what will happen to us when no one will be willing to do those jobs for the small wages that they pay.
Posted by: J. M. Biesche | May 14, 2009 1:38 PM