Friday, July 29, 2011

According to Constitution, govt must pay existing obligations; does that mean Obama could borrow for Social Security anyway? I think it does.

It’s hard to say what will happen this weekend, with the GOP having put the balanced budget amendment back onto the cafeteria tray, but we have to keep looking at what happens to various benefits that seniors depend on.  I’ve also discussed all this recently on my “Issues” blog, including an analysis, day-by-day (not door-to-door!) of what would happen in case of “default” by the Bipartisan Policy Center.

Remember an underlying idea. The President and Treasury are required by the Constitution to pay the debts for services and products the government has already purchased, and to honor contracts already made. But Congress is not giving the president the authority it needs to make the payments even though it had authorized the expenditures. To me, that sounds like a constitutional question worthy of the courts’ attention.

The argument that the government  (eg, Obama and Geithner) can borrow without legislative permission to meet Social Security obligations is persuasive to me, because of the Trust Fund/IOU mechanism (previous post, last portion), in so far as it would pay back monies to beneficiaries actuarially based on FICA collections (even if the benefit formula is complicated and “layered”, as I discussed July 12). I see it this way despite a 1937 Supreme Court opinion that said that FICA is not “earmarked”.  I don’t think that’s a big problem, because Social Security retirement has always been managed as if it were largely a life annuity.  Remember, there is still a constitutional presumption that government must pay promises already made.

The ability to handle Medicare obligations is much less reassuring, because Medicare taxes collected are much less relative to needs. But providers would be entitled to payments (slightly late) for services already rendered at contract prices (usually about 35% of an uninsured price). Beneficiaries would be entitled to Part B (and D) benefits justified by the premiums they have paid (those with supplementary insurance are obviously better off).

There could be very serious problems about benefits for any treatments rendered after Aug. 2, or after borrowing authority has expired, however. The government could decide not to cover any future treatments, and Congress could turn to aggressive means testing as part of any settlement to resume borrowing authority (although such legislation would be complicated to write, technically, politically and morally). 

That’s because these funds are not yet committed or owed.  In my own situation, I would put off any medical tests that could deliver “bad news” until this situation is resolved. I know, it’s dangerous, maybe life threatening to some seniors.  You don’t want to suddenly become poor and dependent. 

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