Sunday, July 31, 2011

Obama announces wobbly deal on debt; What happens to seniors in the future given "demographic winter"?

Sure, we need the spending cuts, and Congress needs to pass the “deal” for the US just to pay all its bills as already obligated.  (Note: they were just talking about the “30 hour threshold” in the Senate as I typed this. Don’t know if it matters.)

But what happens down the road as people live even longer and the predicted Alzheimer’s epidemic explodes?
 
Of course, Medicare doesn’t generally cover custodial care. Families (and filial responsibility) do. But it seems as though the “demographic winter” argument has been overlooked completely so far in all the discussions.

Let’s hope August isn’t as nerve-racking a month for seniors as July has been.

Saturday, July 30, 2011

CNN Money: Social security stoppage could force filial responsibility on other family members

A CNN Money story by Tami Luhby Saturday starts out “Don’t you dare withhold our Social Security payments”, link here

The internals of the story get juicy.

We’ve written here that it’s likely that government has separate authority to borrow for Social Security, and both sides in the debate have accused the other of taking seniors hostage, inviting almost a Jonathan Swift like reply, which wouldn’t be funny.

A New York State resident told CNN that her bank told her, “If the government defaults on me, I still have an obligation not to default on them.” On the other hand, there are reports that the administration is talking to banks about forbearance.

But a man in Ohio told CNN that if social security checks stop coming, he would have to move in with his daughter. That brings up the next fire that social conservatives can set – reinstituting filial responsibility laws (or at least a strong cultural, even Confucian, expectation of filial piety. That seems to be what some “conservatives” want – throw everything one off public doles and make other family members (childless or not) legally responsible for them.  That’s how it was generations ago, before social programs made us soft, they will say.

It’s easy to say, this won’t happen, because government seems to have other ways to keep Social Security rolling even without the debt ceiling extension  (so the Tea Party says).  But consider the fiscal chaos if the government, even with an extension, simply can’t find lenders of the money. It has to roll over $500 billion in principal every month. Hardly anyone talks about this.

Poppy Harlow of CNN talks about “why you care about a debt downgrade”:


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. 

Thursday, July 28, 2011

NYT: Treasury has enough money through Aug. 9 w/o ceiling lift, but big Soc. Sec. payment on Aug 10 could be in trouble; should benefits be recalculated after missed payments?; Also Trust Fund IOU's count under ceiling

The New York Times and MSNBC are reporting that the federal treasury will be able to pay all bills as demanded through Aug. 9, including Social Security payments due Aug. 3.

But there would then be a problem Aug. 10 (the day of mine).

The government can reborrow money as it pays it back, but this can become more difficult each day.
What happens if it is missed for a few weeks, and we come around into September (13) and are still unable to pay?  Or what if there is a partial payment (50%)?

One idea to make it easier to make huge cuts quickly would be, after a deal finally is struck, is, for anyone under age 70-1/2, to recalculate the benefits as if retirement had occurred later, but not repay.   When the benefits resume, they are larger for life. But the person has to live long enough to come out ahead, and the government is on the hook for a larger liability, eventually.

But then another idea would be to encourage seniors capable to doing so to return their benefits and not restart until age 70-1/2, with a larger amount. Again, only seniors with sufficient longevity benefit. Social Security ended that opportunity earlier this year, but renewing it certainly should be considered as part of the solution to the current mess.

The link for Binyamin Applebaum’s story is here.

Also, CNN has a story tonight explaining that the Social Security Trust Fund IOU's are already counted against the debt limit, so this is why it may be possible to borrow for them, but the technical legality is tricky. The link is here.  Most likely, the courts would permit it, or Congress could pass a quick emergency bill to allow it. 

Wednesday, July 27, 2011

An accidental meeting on Capitol Hill with a Medicare advocacy group

After visiting the Tea Party “rally” on Capitol Hill, I had lunch in the Capitol Visitor’s Center, and was joined by three women from a Medicare advocacy organization (and I cannot remember the exact name, it may be the Alliance for Retired Americans (link).  They were in town to lobby, but not specifically because of the debt crisis.

There was general recognition that major changes in Medicare and Social Security are needed over time. There was even an understanding that wealthier seniors could be expected to pay more for their own medical bills now, even if it meant they passed less on to their children, because inheritance itself has inherent moral ambiguities (but seems to escape the attention that taxes on the rich gets).  There was discussion that the problems could spill over into the area of filial responsibility. 
Update:

I found the business card from the meeting. Indeed, it was Alliance for Retired Americans.
It's noteworthy that the Cato Institute has suggested upping the Medicare deductible to $2000 a year, those saving billions and reducing frivolous use of medical care, but not means testing as such. 

Tuesday, July 26, 2011

Should retirees panic about the value of their assets if the government defaults?; Toomey introduces bill to prioritize payments if default

Should retirees cash in their 401(k)’s now just in case of default?  ABC World News Tonight mentioned one Wall Street Analyst today who said, he would listen to older clients who wanted to get out of everything.

Jim Cramer’s Mad Money, however, takes a rather benign road, here.

Another speaker on CNN said that the administration, in case of default, might pay “by the clock”, randomly, bills as they come in. That could mean that Aug. 3 Social Security checks go out (because they come up quickly) but Aug. 10 do not (my date).  I think this would provoke litigation from the AARP and others (including me), and a federal court might well force the government to meet the Trust Fund obligations and sovereign bond debt first.   There are also law professors who say that without an extension the Treasury can still borrow to reimburse the Trust Fund.


Senator Toomey, of PA, introduced a bill today to prioritize payments by law in case of default, to protect bond holders, Social Security, military, and veterans. It is called the Fiscal Integrity Act, descriptive story here.

Ron Paul of Texas, 6 days ago, talked about destruction of our currency, and hints at repudiation.

Friday, July 22, 2011

Social Security Trust Fund IOU's can be "borrowed for" without debt ceiling extension, but there is a catch (Texas A&M professor in WSJ)

On p. A13, Opinion, of Friday’s Wall Street Journal, Thomas R. Saving (ironic name), director of the Private Enterprise Research Center at Texas A&M (hint, conservative, Bush-like  -- link), gave us an analysis “Obama’s Debt Ceiling Scare Tactics”.

What he says is interesting. In effect, because of the Social Security Trust Fund, even without a debt ceiling increase, the administration can borrow specifically to meet Trust Fund obligations and pay full Social Security benefits without eating on the remaining available funds from federal “cash flow”.  But there is a double-helix twist.  In 1937, in Helvering v. Davis  (Cornell law text), a Supreme Court ruled that FICA tax contributions were not earmarked and could be regarded as a tax collection, however regressive (and potentially politically unpalatable as such).  So the Obama administration could conceivably borrow the money, and then spend it on things other than Social Security, legally.  Practically speaking, nobody thinks the government would do this, as this would amount to confiscation or virtual repudiation of a promise of benefits.  Of course, there will be lawyers who will challenge his analysis, maybe in court if necessary.

Even given Saving's analysis, that leaves about a $60 billion shortfall starting Aug. 2 for the month. He says this could be made up by backing spending down to 2001 levels (but that's before 9/11 and before TARP). Furthermore, the government would still have to pay money already owed because of the earlier "generous" budget.

Jack Cafferty points out that on a day-to-day basis there could be issues with the Social Security checks, most of which go out early in the month (starting Aug. 3; mine comes Aug. 10), here. But generally it sounds as if there are legal workarounds, if you are to believe "conservative" law professors around the country (particularly from Texas). 

The link is here (requires WSJ  paywall subscription).

Wednesday, July 20, 2011

Rhode Island town tells municipal retirees and employees: give up half your pension, or else!

The town of Central Falls, RI (north of Providence) has told city retirees as well as active police and fire, with the “Big Ask”, to give up half their pensions or risk losing it all. Furthermore, the town had opted out of Social Security for its municipal workers.


Lindsay Davis. She said “broken promises” could be coming to a town “near you.”  

I don't think PBGC has anything for municipal employees, right?

Update Aug. 2

According to a New York Times story by Mary Williams Walsh and Katie Zezima, Central Falls, RI has declared bankrupcy, link.  Murky accounting had hid the problems for years. This is an early victim of the "pension tsunami". 

Tuesday, July 19, 2011

As one ages, one has to decide on a strategy if a major illness is ever diagosed

What’s my own game plan for my own medical issues as I get older?  It’s relevant, because I turned 68 a week ago Sunday, and celebrated Monday by riding up Mount Washington, NH.

My GP warned me about the PSA some months back, and gave me referrals to urologists.  My father died just before his 83rd birthday of metastasized prostate cancer, that spread to his lungs, liver and brain. But he was ill only the last four weeks of his life.  He was active until almost the end. At 74, he had undergone an aorta resection for an aneurysm (at age 74). My mother died in December at 97, after a very long decline. She had coronary bypass surgery in 1999 at age 85, and got about eight good years.

I can tell my own body is slowing down, and I can tell I have signs of coronary artery narrowing.  (I saw a note of concern on my doctor's chart for me a few years ago.) An uncle had a cardiac arrest at 68 and died of myopathy at 70.  The men on my mother’s side did not do nearly as well as the women.   You know what happened to David Letterman. He went to the doctor, did not come home, did not pass “Go”, was wheeled into the operating room at age 53 or so for emergency coronary bypass surgery, and joined the zipper club.

My point is, fifty years ago, older people did “what they wanted” and nobody bugged them. Some lived a long time, and some didn’t. Some even smoked (I don’t and never have).  But disability at the end of life, and the need to be cared for personally, was not perceived as an issue then. It’s true, usually there was an unmarried woman who was expected to stay close to home and take care of grandparents in their last year, but terminal illnesses usually weren’t drawn out very long. End-of-life did not become humiliating.

I think that staying active is the best plan. Go ahead and do the “Do Ask Do Tell” film.  With many conditions, the cure is worse than the disease.  I have a feeling that some people will live as long without the chemotherapy, mutilative surgery (for prostate cancer that sometimes includes castration) and humiliation as with. But of course, some of the ideas about “humiliation” come from a life of “standing alone.”  As you get older, the idea that parents are supposed to pass on the idea of social interdependency onto their kids starts to make sense (and doing so can strengthen parents’ marriages, too, although it didn’t jump-start them).
With Medicare, we face the prospect that, because of the debt situation, there will be political pressure to means test Medicare treatment, to treat it the way Medicaid is treated now. To get bypass surgery or anti-cancer treatment, some patients might have to choose poverty to stay alive, or even demand poverty of their adult children.  The numbers, however, show that these fears could be overblown.



Monday, July 18, 2011

Would a debt default mainly punish seniors? No, it would "punish the country". Just do the math, look at the numbers

OK, here we go again, on whether seniors are really at risk if the debt ceiling is not extended by Aug. 2.

It sounds disloyal to even look at the question to some people, but let’s look at the numbers.  Also, look at the link I gave to a Washington Post default cheat sheet on my Thursday July 14 on my Major Issues Blog.

You can pay the following items: Interest on bonds (29.0). Social Security checks (49.2, the largest item), Medicare (28.6), federal salaries (14.2), unemployment benefits (12.8), IRS refunds (3.9), Military salaries (2.9), Veterans (2.9), Medicaid (21.4), and TANF (9.3).   That totals to 174.2 billion, with income of 172 billion. But Congress could simply restore the full FICA collection and raise a little more.  The most critical item you can’t pay is Defense Vendors (31.7).  That’s pretty serious. That’s like having a mechanic’s lean on the US.   That could jeopardize national security, homeland security, and maybe the power grid and Internet.  But you could pay vendors if you ditch Medicaid and TANF.

The biggest non-specific item in the Post cheat-sheet is “Other Spending”, over $52 billion. A lot of that may be contractor overruns or various questionable foreign aid. So the Tea Party Patriots could have a point. You can whack a lot out of the budget right now by ending contractor abuse and foreign problems.    You can raise tolls, user fees, and transit,  rail and air fares even more to pay for some transportation services (that’s not the same as raising taxes, but it might have an effect). But you can’t whack enough.

Still, seniors will be mostly concerned with Social Security (big), Medicare, and the value of their retirement nest eggs, particularly stocks and bond funds.  But it does look like the federal government could make all the interest payments and SSA-related payments.  It could up FICA tax and whack benefits slightly to the extent that they aren’t covered by a bene’s own FICA history.  The value of Social Security benefits is probably somewhat sheltered by the Trust Fund, even if the money was spent, because it was collected for beneficiaries’ use; seniors could probably take the government to court (through the AARP) and get a judge to back them up if they don’t get their Social Security checks.

But the problem is, you’re putting the rest of the country in danger.  There’s a shortfall in August of about $134 billion, and from looking at the Post, it looks like about half of this is really essential. True, a lot of it isn’t.  It doesn’t help seniors or retired or disabled people to gut national security and invite terror attacks, or gut public transportation.  (Or you have to have an economy that can support a sustainable transportation infrastructure just with private profits and fares.)

And it doesn’t help seniors to have the country’s credit rating gutted (it will be), and have investors panic, which would happen even if seniors and bond holders get every penny at first.

Ultimately, in a world of deep budget cuts, we’re headed for means testing and a lot of actuarial recalculations – but maybe not as quickly as the Democrats predict (or as I have warned in previous posts).   Is (as ultra-conservatives say) the president using seniors as a “shield” to defend himself from the Tea Party?  Well, a little, but really all Americans – including those who can lose their jobs and draw unemployment – are part of Pickett’s Charge, too.

Remember something else about the T.P. cuts:  the August deficit would refer to obligations that the government has already incurred. Cutting future spending is not the same thing as not paying your current debts.  If I cut out my own luxuries in the future, I still have to pay for what I have already bought on credit. 

I love Barney Frank’s phrase from TARP days: “why punish the country?” 

Friday, July 15, 2011

Florida congressman offers bill to guarantee social security payments without debt extension

Some media sources report that Daniel Webster (R-FL) has a bill to prioritize spending in case debt extension does not pass and there is a default. He says military salaries, social security and Medicare benefits would continue to be paid in full.  The link is here

Although I personally appreciate this proposal, my own math doesn’t bear this out.   

Actually, August Social Security payments are based on July eligibility, so conceivably there is an extra month.

How is he going to pay for defense, the war on terror, etc. with 60% of revenues?

Thursday, July 14, 2011

Could social security benefits really stop Aug. 3 in case of default?


Tonight, NBC Nightly News examined what would happen during a default, and hinted that payments of Social Security benefits might be sheltered somewhat by the mechanics of the Trust Fund. But, still, cash flow into the Trust Fund must occur.



One obvious “opportunity” would be to restore the full FICA tax rates (see original roll back story here ).  It does not make sense not to collect the full taxes during a debt crisis. 

But no one has suggested that immediate "means testing" to determine "need" among Social Security recipients right at the beginning of August is feasible. 

Tuesday, July 12, 2011

Social Security retirement benefits calculations already have some partial "means testing" with percentage tiers

Back on Feb, 15, 2011 Kevin Drum had authored an important factual article in Mother Jones, “Means Testing Social Security” in which he productively argues that means testing the rich would not save the federal budget very much money, but, more importantly, the benefit calculation is already somewhat means tested. He says that your benefit calculation comes from 90% of your first $749 in monthly earnings, 32% of the next $4517, and 15% above that – until you reach the annual cap on the FICA taxable amount.  In other words, as we have said, the FICA tax cap does tend to make social security benefits behave somewhat like an annuity, but within the capped amount there are layers of progressivity which do not occur in private annuities with insurance companies, and which would probably go away if Social Security were “privatized” in “George W Bush” (or Cato) fashion.

Means testing could presumably be accomplished fairly quickly by eliminating the third and maybe even the second benefit levels for those with large incomes or assets.  The Mother Jones article is here.   

Readers may wish to check out a “Jonathan Swift” style satire in “Real Clear Markets” titled “Social Security Shutdown? Bring It On!”, link here.  Yes, I can imagine the angry “arguments” against the undeserving.

Thursday, July 07, 2011

Obama ready to deal on Social Security: could it affect current retirees?

As I noted on my TV blog late last night in reporting on AC360, President Obama said late Wednesday that he could consider massive spending cuts in Social Security and Medicare as part of the “debt extension deal” with the GOP.

This was reported in the Washington Post late Wednesday, and CNN has a slightly more detailed story here.  Democrats have been unwilling to state specifically who the cuts could affect, although one area mentioned by CNN is COLA (cost of living) increases.

The obvious question, raised by Rand Paul yesterday, is that should “better-off” seniors be means tested even now, if already retired, to continue receiving benefits.  This does get into the question of “who sacrifices” but some seniors could work – or maybe not.  Read Michelle Singletary’s Washington Post “Color of Money” column, “Delaying retirement might not improve your financial prospects” on that today here .

Here’s the rub. SSA ought to calculate and present the percentage of anyone’s benefit actually accounted for by their own FICA (or a spouse’s FICA) “annuity premiums”.   (SSA might have to spend money on the contracting services of a couple of accounting firms to do this.)   It could be possible to reduce benefits to those seniors who are better off to that amount now – but it gets complicated when you consider the effect of early retirement (promoted by employers who downsize older employees into packages predicated on the social security offset) – because early retirement already has a slight “longevity” penalty built in.  Further, it could be complicated by the ‘trust fund” issue, as touted by Rand Paul and others in the GOP.   I don’t think this can be done by Aug. 2.  

In Medicare, there are so many saving to be made by ditching "fee for service" that one does not know where to begin. 

Wednesday, July 06, 2011

Debt ceiling extension will "kick can down road"; we must start considering gradual privatization of entitlements now

As the debt ceiling “blackmail negotiations” go on, we ought to bear in mind a few points.

First, even if the debt ceiling is extended (as I think it must be), we would effective “kick the can down the road” and face another crisis by New Year’s if we didn’t address entitlement spending.

Several fundamental questions have to be sorted out.

How much of their “entitlements” did seniors (or their legal spouses) “earn” by paying FICA and Medicare taxes over their working years, when these “taxes” are viewed as “annuity” or “insurance” “premiums”?  How much of their care do supplemental premiums cover today?

How will we face the question that medicine can keep people living longer, but likely with much longer periods of disability, requiring family and institutional services? 

A half century ago, aging and end-of-life were normal experiences.  Families dealt with them. We did not go to great lengths with preventive care and screenings to add 10-20 years to life spans.  Families generally took care of their own elderly (often unmarried members were expected to), but usually the periods of end-of-life dependency were not long, because medicine could not prolong life that much.

Today, we have overextended public resources to care for an aging population, and fewer people working to pay for their care and fewer adult children to care for them. But all of this discussion is bound to lead to a new look at filial responsibility (which is already on the books in 28 states), and a new way of looking at what generates “family responsibility”.  It is partly a collective experience, not totally governed by one’s own “personal choices” (to have one’s own children).

If people live longer and have reasonable health, they will have to work longer.  Employers will have to rethink their attitudes toward an aging workforce.  We also have subtle problems in the nature of work we want seniors to do. Sometimes employers want seniors to become their new hucksters, in a world that has become less social and less receptive to personalize selling and marketing.  This could become sensitive for some seniors “in the economic middle” if we start means testing social security as if it really were welfare and not an annuity.

Will we have norms for how long life saving treatment by Medicare is appropriate? Will we treat people “better” if they did raise children themselves?  I can imagine the moral questions that the “natural family” crowd will raise.

That’s why I like the idea of a gradual shift to privatized, but carefully managed (as far as safety of principal is concerned) retirement security savings, to gradually replace social security.  The Cato crowd is right on this one. We want people to wind up with annuities that can't be confiscated. 


Later Wednesday:


On CNN, Senator Rand Paul (R-KY) suggested that the way to make the "rich" pay their fair share of debt reduction is to means test their Social Security and Medicare, even right now (presumably) with current retirees, rather than raise taxes on those who are working. In a way, this makes sense. One can't complain about taking away benefits even right now that aren't actuarially justified by past FICA or Medicare tax "premium contributions".  One of my points is that nobody has told us what those numbers are, and could Congress (or a consulting firm like Lewin) come up with the numbers by Aug. 2?  I doubt it.  That's generates another argument for the Bush gradual privatization proposal a few years ago. You know what you really earned!

But focusing on older people also plays the "generational wars" car and asks the question, should those who have already lived admit that it is another generation's turn?  This also plays into another argument: the intrinsic "value" of the lives of older people is tied to intact extended families and "role modeling" -- a concept of the "natural family" crowd.


Here's a perspective on Rand Paul's ideas from "The Daily Paul", link. "AT LEAST give that person all the money they paid into it and THEN stop the benefits."  Makes sense. Here's another perspective from the "Barefoot and Progressive" (or "Barefoot Contessa") blog, link



Update: Late Wednesday, the Washington Post reported that Obama will offer Social Security cuts to get a debt ceiling deal. It is not clear if or how this latest idea could affect current recipients.