Article #6 of 6: NRLN Grand Bargain to Save Social Security and Medicare

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The 2018 Annual Social Security Trustees Report urges elimination of the 75-year OASI deficit gap by raising the payroll tax rate by 2.84% or by finding $25.9 billion in equivalent annual savings elsewhere.

The 2018 Medicare Trustee’s Report urges elimination of the 75-year Hospital Insurance (HI) deficit gap by raising the payroll tax rate by 0.82% or by finding $2.1 billion in equivalent annual savings elsewhere.

The NRLN Grand Bargain proposes elimination of the combined annual Social Security and Medicare HI 75-year deficit gaps totaling 2.39% of 2017 taxable payroll of $1.172 trillion or $28.0 billion in 2018 (the dollar amount may change each year as taxable earnings change) and lowering the annual obligation to fund Medicare B and D, Medicaid and CHIP mandatory programs by urging a collaborative and forceful effort by the Executive Branch and Congress to take the following simple actions:

• Raise or eliminate the Social Security taxable earnings limit (gap savings potential is 1.5%) and
• Cut annual wrong and improper payments of $141 billion (gap savings potential is unlimited) and
• Stop over appropriating, cut pork barrel spending and stop paying subsidies to health care insurers.

Savings would be sequestered and be unavailable to other federal discretionary programs. Savings dollars would be allocated to: fund Social Security and Medicare 75-year deficits first; and then to fund Medicare B and D federal obligations; and then Medicaid and CHIP (demand that states participate).

Article #6 of 6: NRLN Grand Bargain Executive Summary

Seniors must become better informed about Social Security, Medicare, Medicaid and other federal and state programs like CHIP, Supplementary Security Income (SSI) and Unemployment Income and the risks that lie ahead. The goal of the NRLN’s 6-article series is to educate and advocate a nonpartisan view. This is Article #6, a summary of facts and a common sense proposal to save Social Security and Medicare.

Our country needs a long term rational path, not the current short-sighted let’s get reelected ideological path of current policy makers and political parties. It is critical to know that in 2015 there were 79 million baby boomers alive and that 48 million people or 14.9% of the population was over age 65. By 2035 all baby boomers will be over age 70 and with a total of 75 million Americans over age 65, 21.4% of our population. By 2055, 88 million will be over age 65 and by 2060, according to 2000 and 2010 US Census data, 98.2 million Americans will be over age 65. These data must become the basis for U.S. long-term social and economic policies.

Today, retirement savings is down, defined pension plans are waning, health care costs are out of control and health care insurance’s and pharmaceutical industry’s campaign contributions control policy making. If Social Security benefits are reduced by 17-21% and Medicare is privatized, what consequences will our kids and grandkids will face? There’s no need to resort to socialism or government-owned bricks and mortar solutions nor should we tear down what other nations admire and U.S. employees and employers built! Social Security and Medicare are cornerstones and to a large extent have been funded by payroll tax dollars, not good will.

In Article #1 of 6 we established that Social Security and Medicare are headed toward insolvency but that there is a Grand Bargain long term view (75 years) of how to address saving Social Security and Medicare. We established the credibility of our data, most of which are from government documents. We explained the difference between Mandatory and Discretionary spending and our view that politicians use the words Mandatory and Entitlements (with negative tone) interchangeably, as money they can’t spend elsewhere. We established that employees and their companies each own a 50% share of the 12.4% paid into the Social Security trust (subject to a 2018 $127,400 earnings limit) and 50% each of the 2.9% payroll tax (unlimited) paid into the Medicare Plan A Hospital Insurance (HI) trust. We established that Social Security benefits are determined by credits earned and HI taxes pay HI premiums. No welfare here, benefits are prepaid!

Article #2 of 6 disclosed the data regarding the growth of our senior population segments, including baby boomers and how Social Security Disability Insurance and Medicaid programs added more financial stress on payroll tax revenue and federal discretionary budgets that will be further exacerbated by the growth in the over age 65 population segment. We established how critical over age 65 population growth will be to our kids and grandkids as they face higher health care costs and prospects for lower Social Security and Medicare benefits.

Article # 3 of 6 established the financial facts regarding the Social Security Old Age & Survivors Insurance (OASI) and Disability Insurance (DI) programs and how these programs have survived.

For 35 years the Social Security Trustees warned that one in four Americans (25%) will be over age 65 by 2060. Policy makers were advised to add payroll tax dollars, cut benefits or allocate the added annual cash needed to keep the program solvent for 75 years but Congress did nothing. So, today Social Security is not actuarially funded and Congress owes the program $2.9 trillion it borrowed from it but spent elsewhere.

The 2018 Annual Trustees Report urges raising the payroll tax rate by 2.84% or finding the $25.9 billion annual equivalent elsewhere, which would close the 75 year Social Security (OASI) deficit gap.

Raising taxes is very unpopular even if needed as much as companies may need to raise prices when cost go up for all competitors in an industry segment. Most politicians think raising taxes is a career death sentence, too bad!

If no action is taken DI and OASI reserves will be depleted by 2032 and 2034 respectively, when benefits could be cut 17% for all enrollees or 21% for post 2018 enrollees only. Our kids and grandkids will be the losers.

Article #4 of 6 revealed financial data about Medicare, who pays for what and the downside risks for Medicare. Our nation is not effectively addressing common Medicare problems: health care costs rising at double inflation rates and the impact of over-age 65 population growth (to 25% of the U.S. population by 2060).

Over 95% of Medicare A, Hospital Insurance (HI) income is generated from a 2.9% tax on taxable payroll. Congress has not raised this tax rate for 35 years but payroll taxes will support the program, until the over age 65 population growth overtakes the current payroll tax rate and reserves run out in 2026.

The 2018 Medicare Trustee’s Report urges raising the payroll tax rate by 0.82% or finding the $2.1 billion annual equivalent elsewhere to plug a 75-year HI deficit.

Medicare B, C and D are funded by enrollee premiums, interest and other income but 73% of Medicare B, C, and D costs were paid for with $292 billion income tax dollars. Medicaid and CHIP plans add $375 billion and $15 billion respectively. This 2017 $682 billion combined federal outlay will rise due to health care price inflation and the rapid proportional changes occurring in our aging population, specifically those over age 65.

Article #5 of 6, Funding the 75-year deficit, was a disclosure of facts establishing where to find money to help close the Social Security and Medicare 75-year deficit gaps without significantly raising the payroll tax rate.

While this article identified elements of a Grand Bargain proposal, the important public revelation was that in 2012, the Government Accountability Office (GAO) disclosed that wrong and improper payments across all government programs, including states where federal funds were spent, mostly Medicaid, amounted to $107 billion. In 2016 the amount disclosed by (GAO) was $144 billion (plus 40%) but dipped to $141 billion in 2017.

We listed the organizations whose wrong and improper payments exceeded $750 million per year (GAO’s threshold) and were therefore labeled High-Priority programs by the GAO. For example Medicare’s $36.2 billion wrong or improper payments, 9.51% of its total outlays; Medicaid’s $36.7 billion or 10.1%; Medicare Advantage’s (Part C) $14.4 billion or 8.31%; Earned Income Tax Credit $16.2 billion or 23.87%. In 2016, the Congressional Budget Office (CBO) cited lawmakers for appropriating $310 billion (26% of all discretionary spending for fiscal year 2016) over the authorized limit which reflected 256 programs Congress had not reauthorized.

Article #6 of 6: NRLN Grand Bargain to Save Social Security and Medicare

The 2018 Annual Social Security Trustees Report urges elimination of the 75 year OASI deficit gap by raising the payroll tax rate by 2.84% or by finding $25.9 billion in equivalent annual savings elsewhere.

The 2018 Medicare Trustee’s Report urges elimination of the 75 year Hospital Insurance (HI) deficit gap by raising the payroll tax rate by 0.82% or by finding $2.1 billion in equivalent annual savings elsewhere.

In 2017 the Office of the Chief Actuary for Social Security provided Congress a menu of 155 options to reduce benefits and/or raise taxes to close the 75-year deficit gap. Congress did nothing. Congress has pursued the privatization of Medicare using federal subsidies and unproven incentives in Medicare Advantage plans that undercut traditional Medicare benefits. The House Budget Committee proposed a new Commission to investigate wrong and improper payments and to cut them in half in five years – they proposed this several years in a row.

The NRLN Grand Bargain proposes elimination of the combined annual Social Security and Medicare HI 75-year deficit gaps totaling 2.39% of 2017 taxable payroll of$1.172 trillion or $28.0 billion 2018 (the dollar amount may change each year as taxable earnings change) and lowering the annual obligation to fund Medicare B and D, Medicaid and CHIP mandatory programs by urging a collaborative and forceful effort by the Executive Branch and Congress to take the following simple actions:

• Raise or eliminate the Social Security taxable earnings limit (gap savings potential is 1.5%) and
• Cut annual wrong and improper payments of $141 billion (gap savings potential is unlimited) and
• Stop over appropriating, cut pork barrel spending and stop paying subsidies to health care insurers.

Savings would be sequestered and be unavailable to other federal discretionary programs. Savings dollars would be allocated to: fund Social Security and Medicare 75-year deficits first; and then to fund Medicare B and D federal obligations; and then Medicaid and CHIP (demand that states participate).

Bill Kadereit, President
National Retiree Legislative Network

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Research material provided by American Retirees Education Foundation (AREF)