Wednesday, November 21, 2012

Could 2012 budget negotiations adversely affect current Social Security and Medicare beneficiaries?

Can budget negotiators during this 2012 lame duck session really go after current Medicare and Social Security beneficiaries?

I have to say it’s possible.

Previously, I’ve reported a study indicating that people who started Social Security benefits in the late 1990s are likely to be collecting what they “earned” actuarially speaking from FICA taxes.  People who started earlier than that may be collecting more.  It would be possible to reduce their benefits even now according to some actuarial formula, which could be continually adjusted for increasing life expectancy.

From my own dealings with the SSA, it looks like I am collecting very close to what I “earned”.  So to reduce my benefit would amount to “expropriation”.

The basic problem comes from the fact that the first beneficiaries in the 1930s had never paid anything.  Therefore, the Social Security system became a Ponzi scheme of sorts, and it can’t be changed to an ownership mechanism without stiffing some people.  And some day, at some point in the future, there has to be a day of reckoning.

It is often written that younger people will not recover what they put into Social Security.  Perhaps so, if they get sfiffed intentionally. But one reason for later retirement start dates and lower benefits could be increased life expectancy.  Remember, some  younger workers will have contributed slightly less because of the 2011 FICA tax temporary reduction. Another area  to look at is the “early retirement” (at 2), where benefits are reduced and a queasy “Annual Earnings Limit” from wages is enforced.  The trouble is many corporate defined benefit plans had “social security offsets” predicated on starting Social Security at 62.  Maybe budget negotiators should take a hard look at that practice by employers. It even sounds conceivable that Congress could direct Social Security to reduce payments for current beneficiaries slightly and gradually as expected life spans increase, according to actuarial formulas for annuities. 
One Medicare, it seems that people may be getting more in benefits than they put in, partly because of runaway costs and still a tendency for physicians to practice defensive medicine and order excessive tests. 

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