Wednesday, May 13, 2009

More analysis on rate of deterioration of Social Security and Medicare raises alarms

Amy Goldstein’s front page article in The Washington Post on Wednesday, May 13, 2009, “Alarm Sounded On Social Security: Report Also Warns Of Medicare Collapse” (link here), is already one of the most viewed articles, according to the paper.

The story contains a graph that shows that the projected insolvency year for social security has pulled back before, and in the 1990s was in the 2030’s decade. It’s probably more relevant to look at the bar graph that shows how many years remain from the current year – redrawing it as a line is a good homework exercise for a middle school Algebra I class, I think.

Right now, that number is 28 years for social security, the least since the 1990s. And Medicare has only 8 years until insolvency.

The report came from Treasury, and the rapid deterioration of social security seems to be a direct consequence of the recession and banking and credit collapse.

There is a “derivative” (in the sense of calculus) effect here; unless the economy improves, that 28 year number could go down next year to something like 25. I can already imagine that the Educational Testing Service could be imagining “free response” questions on analyzing this issue for its math tests for AP kids.

Social security will take in less money than it spends by 2016 (one year sooner), now in seven years, according to the report. And the portion that funds disabled Americans becomes insolvent in 2020 (instead of 2037), in just eleven years.

Mathematics says that Congress could fix this problem today by raising total social security taxes from 12.4% to 14.4% (making workers sacrifice), or by reducing benefits by 13% (making retirees sacrifice), or by a combination of both. It’s obvious that Congress could raise the wage base maximum.

This gets to the nasty topic of means testing, which even libertarian commentators like John Stossel have hinted maybe would be done some day. Privatize most of the retirement system, and use the public social security and Medicare only for those without assets. But then that gets into a nasty political and social question over what people “deserve.” Right now, social security applies an Annual Earnings Test until full retirement age, which effectively means that until full retirement age Social Security is viewed partially as a kind of “welfare” rather than an earned annuity. One could push up full retirement age much sooner. One could include pensions or assets in the form of IRA’s or property in the means test, but that would be a bureaucratic mess (like the IRS). I hope this won’t happen, but we hear that this is the can that has been kicked down the road. However Timothy Geithner warned, “The president explicitly rejects the notion that Social Security is untouchable politically.” However he said that the administration wants to tie Social Security and Medicare reform to universal health insurance. So far, some of the proposals – like a soda tax – sound rather silly, like stuff in history texts. Still, it's possible to imagine a European-style partially private plan that offers universal health insurance blended in with existing Medicare, and save Medicare money that way.

With Medicare, it sounds like we have to reign in on unnecessary tests – and that means malpractice tort reform for starters. But – and European health plans face this too – we also face the long term prospect of age-related rationing. And we may have to build much more of “filial responsibility” back into the law – which could turn our debate on “family values” on its butt. It's ironic that we call Social Security and Medicare "earned entitlements" and treat them sometimes as if they were like "welfare" and sometimes as if they really were individually earned like annuities. Social conservatives will want to bring "family responsibility" back into the debate.

The Wall Street Journal’s report, by T. W. Farnam, is briefer, and is here.

The New York Times has a story “Recession Drains Social Security and Medicare” by Robert Pear, with link here.

The Washington Times (conservative!) has a surprisingly modest report by David M. Dickson here.

Yes, Chicken Little, the sky really is falling this time! Your reputation stands!

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