Social Security, Medicare dodge bullet, but cuts loom

August 2, 2011

Social Security and Medicare dodged a bullet in the debt ceiling battle, but beneficiaries still have plenty to fear from the next phase of the deficit reduction war.

The agreement to raise the debt ceiling means seniors will receive their August Social Security benefits – something many worried about after President Obama said last month that he “couldn’t guarantee” the payments if default occurred. Likewise, Social Security and Medicare benefits both were exempted from the $917 billion in first-phase cuts that paved the way for the debt ceiling deal.

But major benefit cuts seem likely to emerge from the second phase of this process. A 12-member Congressional committee must identify another $1.5 trillion in spending cuts, bringing the total deal to $2.4 trillion in cuts over 10 years. That group will have a November 23rd deadline to finish its work, which will then go to an up-or-down vote – no modifications allowed – by Dec. 23rd.

What’s more, if the committee cannot agree on at least $1.2 trillion in savings, or Congress rejects its findings, automatic spending cuts totaling that amount would kick in starting in 2013. Medicare would be subject to the automatic cuts, although Social Security and Medicaid would be exempt.

The enormous pressure to identify $2.4 trillion in cuts boosts the odds that Social Security benefit cuts will be proposed. Re-stating what I’ve said so many times: this would be unfair and unwise. Social Security doesn’t contribute to the deficit, and it will be a critical source of support for recession-ravaged seniors in the decades ahead.

The most likely cutting tactic is the chained CPI measure of cost-of-living adjustments (COLA). This is the only way to get near-term savings from Social Security, since it reduces benefits for current retirees. By contrast, a higher retirement age would have to be phased in over many years.

A chained CPI could be implemented as early as 2013. The chief actuary of the Social Security Administration estimates that the chained CPI will rise about 0.3 percentage points less per year than the inflation measure used now, the CPI-W. With compounding, that translates to a monthly benefit cut of 8.4 percent for a retiree at age 92 (calculated from age 62, the first year of eligibility), according to the National Academy of Social Insurance.

But the chained CPI wouldn’t affect only Social Security recipients – at least not if implemented as suggested by the Bowles-Simpson deficit reduction report, which suggested that it be applied to a range of federal benefit programs, and to the tax code.

On the benefit side, a chained CPI would impact Social Security, civilian and military pensions and veterans’ benefits and Supplemental Security Income. On the revenue side, a chained CPI might be applied to inflation adjustments for tax brackets in the personal income tax code. According to the Congressional Budget Office, benefit adjustments could yield $217 billion over 10 years, with 52 percent of that — $112 billion — coming from reduced Social Security COLAs; income tax bracket creep would generate $72 billion.

The revenue side of the chained CPI could be a poison pill that kills the idea entirely. A chained CPI serves as a stealth tax hike by reducing tax bracket adjustments and subjecting more of individuals’ earnings to higher tax rates over time. Tax hawks like Grover Norquist oppose it, and some tax experts argue that it would be regressive, hitting middle class taxpayers hardest – although there isn’t universal agreement on that point.

Medicare also will be on the operating table in the second round – either via automatic cuts or negotiated reductions. The automated cuts would be directed at health care providers, but seniors could face more means testing or a higher eligibility age– something the Obama White House offered up during one phase of debt ceiling talks.

If that happens, seniors age 65 to 67 would shop for coverage in the public health insurance exchanges to be launched under the Affordable Care Act. The Congressional Budget Office has estimated that increasing the eligibility age could save Medicare in excess of $124 billion over the next 10 years. But the Kaiser Family Foundation (KFF) projects much lower savings, because much of the cost would shift to federal premium and cost-sharing subsidies under the exchanges and lower Medicare premium receipts.

9 comments

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Fair enough, if and olnly if there is aggressive pursuit of age discrimination claims for older job seekers who are so greedy as to want money to buy foods with.

Posted by xxxxxxyyyzzz | Report as abusive

If that happens, ALL seniors and most of the public will vote out anyone who tries it

Posted by theJoe | Report as abusive

Chained CPI and like nonsense as if the current cola adjustments were actually based on reality. It is another example of the way our government can be extremely efficient when it comes to cutting benefits for its most vulnerable. It is said that a society is measured in how it treats these people. That being the case, this country must rank at the bottom of the civilized nations of the world.
I thank God for my dual citizenship.

Posted by tchirn | Report as abusive

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Social security is operating in the red as of this time last year- 5 years ahead of projections! What else have they/will they miss by a mile? Grow/spend/gamble our way out-ya, right!

Posted by DrJJJJ | Report as abusive

how about this amazing idea: You only get out of social security what you put in!!! This means if you put in $0 you get $0. If you put in $30,000 you get 30,000 + 2% interest. Reverse what Jimmy Carter did and only allow those who have payed in to get something out. In addition, quit using Social Security as disability welfare– it isn’t what the system was designed for. Once you use up the money in your account, that’s it you’re done- no more checks. In addition, give new retirees a chance to take a lump sum minus 10%. It would be worth it just to not have to deal with the corrupt U.S. gov.

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Posted by Beware of the looming cash deficit – Houston Chronicle | Report as abusive

Isn’t this a bit late? More than half the boomers are already past the traditional cutoff for “near retiree” benefits changes.

Posted by threeRivers | Report as abusive

Contrary to the belief that many seniors have of ‘I paid into social security and I deserve to retire on it’ . I have to say that this Ponzi scheme is about to collapse. I base this on my own calculations of my own situation. During my long career I had well paying jobs and contributed every year until I was forced into retirement at age 60 and couldn’t find work thereafter. I went onto SS at age 64 and am now 71, collecting around $20K/yr ($140K total over the 7 years). My total FICA taxable income (at the capped amounts each year) was $1.2M. If we multiply that by the 0.15 total contribution of my portion plus the companies portion of FICA then we have a total of $180K in my SS ‘individual retirement account’. If we then divide that by the $20K/yr that I’ve been collecting then it means that I am only funded to the tune of 9 years of retirement (ie only 2 years more!). So who’s going to pay for the rest if I live to 90 like my forebears? Bernie Madoff? No all those poor younger suckers – only 3 of whom are supporting this scam instead of the 12 there were years ago. Anybody with a brain and a pencil should be able to figure this one out(but, of course, not one media pundit has) But I guess this leaves out politicians and most voters. And figure that this SS scheme only pays out about 15-20% of ones average max income in the last few years. Now try these calculations on some of those public employee unions that have promised a 75% payout. It can’t be done. We seem to live not in Amerika the home of the free and brave but in a ‘Fantasy Island’ populated by greedy mongoons.

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Posted by Tea Party groups see Medicare overhaul chance – Reuters | Conservatives for America | Report as abusive

Where did these idiots come up with these fake figures? Social Security is fully paid for through about 2035, at which time it will be paying out more than it takes in (unless there are adjustments in the income level for taxes) and currently would cease making full payments about 2050 or so. It is the ONLY fully paid item in the government inventory and is not part of the budget at all. Liars, cheats and Republicans want to trick people into believing their lies about S.S., Medicare and Medicaid. Don’t fall for it. Another consideration is that about 50% of all who pay into S.S. are dead by the time they have collected two years of payments, freeing up their money for payment to those living longer. All this anti-Social Security crap is hype. It’s one of the best written laws in the world and is used as an good example world-wide.

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While congress is busy beating the dead dog by cutting medicare and raising the social security elgibility age for people who worked all their lives and paid into the system why don’t they remove the cap on social security that stops rich people from paying social security tax after $110,100 income?

Posted by rlain | Report as abusive