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A Theory of Health Care Spending

Deficit Reduction on the Backs of Elders - a Foregone Conclusion?

category_bug_politics.gif Last week, a friend at The National Committee to Preserve Social Security and Medicare alerted me to an interview with former Senator Alan Simpson by Maria Bartiromo of CNBC. Before I get to that, some background.

In February, President Obama appointed Simpson co-chair his budget deficit commission which will meet all though this year and issue recommendations on deficit reduction in December. The question is, as Saul Friedman pointed out in his Gray Matters column ten days ago, how can a man who throughout his career has vehemently opposed – and tried to kill - Social Security and Medicare possibly “be an honest broker?” as Saul put it.

“[A]s recently as 2005,” wrote Saul, “Simpson, a conservative from Wyoming who left the Senate in 1997, supported attempts by President George Bush to privatize Social Security by turning part of the pension and insurance program into millions of individual investment accounts, which by now would have lost 20 percent of their value.”

There is an ongoing concerted effort by conservatives to conflate the deficit with “entitlement” spending – Social Security, Medicare and Medicaid – when there is no connection as Saul and I have been pointing out for years: Saul again:

“Social Security's long term fiscal problem has nothing, absolutely nothing, to do with Social Security’s role in the deficit. For, as I have emphasized in my column for years, Social Security costs the budget not one cent – aside from the one percent it spends on its thousands of employees and field offices.

“Indeed, Social Security helps finance the deficit by loaning the treasury money, for which it earns interest (about $700 million a year.)”

One more thing for you to think about before I get to the shocking (on several levels) interview with Simpson. Back in 2005, when President Bush tried to privatize Social Security, why did 80 or 90 percent of elders oppose the move? After all, it would not have affected anyone older than 55.

Because elders have always understood the value and importance of keeping Social Security funds separate from the instability of the stock market (even before the 2008 crash), and want that security for their adult children and grandchildren. Now read what Simpson told Ms. Bartiromo about that:

“Those people are lying when everything that was proposed last year, year before, year before didn’t affect any over 55. Now, anything I’ve heard so far doesn’t affect anyone over 60. Where does the howling come from? These people don’t care a whit about their grandchildren…not a whit.”

As Saul explained in his story, Alan Simpson played a major role in an assault on two organizations – AARP and the National Council of Senior Citizens - that had supported President Clinton's failed effort at health care reform. As a result, AARP's director was forced to resign and the NCSC folded.

Simpson is now playing the same song. From his Bartiromo interview:

“You’ve got scrub out (of) the equation the AARP, the Committee for the Preservation of Social Security and Medicare, the Gray Panthers, the Pink Panther, the whatever.”

Without those organizations, there is no one in Washington to speak for elders. Here is the seven-minute interview:

It is important to note in the interview that Fox News is not the only partisan game on television. The entire tone and tenor of Maria Bartiromo's interview supports, without question or proof, that cutting entitlements is the way to cut the deficit.

Medicare has big problems, some of which will be addressed with health care reform, should it pass Congress. Social Security, on the other hand, has minor problems that President Obama has correctly asserted can easily be fixed for decades to come by raising or eliminating the $106,000 cap on salaries subject to the tax.

What in the world was he thinking by appointing co-chair of his commission a man who is adamantly opposed to maintaining Social Security for future generations and sees cuts as a foregone conclusion?


At The Elder Storytelling Place today, Gail Title: Aging Groomers

Comments

every time those people e mail me for money, I mention this crazy thing our President has done, by appointing this loony Simpson.
God save us

Yes, of all people to appoint, why him? Also of concern, is what I've read about on Bloomberg,and elsewhere about IRAs and 401(k)s being converted into annuities, thereby in effect giving saved retirement money to the government in exchange for monthly annuity payments in retirement. What do you think?

What was Obama thinking? I am coming to the conclusion that Obama's Achilles heel is his desire to appear bipartisan. If he doesn't get over it, he will be 'done in'.

He was thinking what he did when he undermined health care reform with his demand it be bipartisan. Something stinks there and it doesn't make me comfortable trying to decide what it is. Have liberals been sold out?

I am stunned. 'Bi-partisan' and 'crazy' are not synonyms.

"The big three" according to Simpson: "Entitlements, Medicare, and Social Security." Well, that's a big ONE as far as I'm concerned. I am entitled to my Medicare and my Social Security. I paid for them. My children will be better off if we budget for Social Security and Medicare. are there other entitlement programs? WIC comes to mind. We could save some money by increasing the number of malnourished pre-schoolers.

Our cities will be better off if we protect entitlement programs like WIC and return some of the other safety-net entitlement programs that have already been scrapped. Also, we ought to get to work on restoring a public educational system we can be proud of.

Fear of taxes is a contagion that's been spread throughout the land by the fortunate few who have influence and power due to their wealth. Fear of terrorists--absent another super-power we have created an enemy to justify maintaining a huge defense budget.

I suggest we increase corporate taxes and taxes on the wealthy few, cut the defense budget, and eliminate the gulags (cut funding required for state and federal prisons by releasing those held for non-violent crimes).

As for Simpson, I hope there are others on the commission who can muzzle him. Time will tell.

I laughed when I first heard somebody refer to Barrack Obama as "The Manchurian Candidate of the 21st century" but I don't think it's all that funny anymore.
Certainly he's not a tool of the Russians or even the Chinese but, what if, he has been recruited and formed by the robber barons of Wall St. and other free market gangsters, to completely subvert the government of the United States in preparation for a takeover by the forces of the night/right and the installation of an oligarchic dictatorship?
"Oh no, it can't happen here you say"?
How about Timothy Franz Geithner and his mentor Larry Summers? Whose side do you think they're on?
Yours and mine? Yeah right. And the latest Supreme Court rulings?
I won't use the word "conspiracy" but it does somewhat fit a pattern doesn't it.
The question is "How low can he (Obama) go" before people wake up.
Obstructionist Republican naysayers to the right of us- dubious Democrats to the left of us. Simpson & Co. "retrofitting" our Social Security system. Isn't there anybody out there that's on our side?

Every time I hear him, Simpson sounds more like a nut-job. And he's a dangerous nut-job in such a critical position. It sounds like he knows how history will view him and he doesn't care, which makes him sound even more irrational. I've been hanging on to my loyalty to Obama by my very fingernails, but this appointment may be the last straw.

Seniors have to be very vigilant about entitlements being cut. President Bush refused to go to the last White House Conference on Aging and tried vainly to cut social security. He did not go away. He simply has a different face in Mitch Mc Connell et al. When states like California start to make massive cuts in in home support, as they are threatening ( we are the bellwether state), untold millions of elders could end up in nursing homes, if they even have the medical beds, which they don’t. The confluence of Republicans and budget deficit bodes ill if older people are not aware and organizations like AARP are there to advocate for them.

You cut those entitlements and seniors will be dependent on their children. Is that what anyone wants?
It's bad enough as it is.

Hey, let's cut all those wasteful "entitlement" programs. Who says people are entitled to anything? Put the disabled on the streets with the old folks; eliminate health care for the impoverished through that waste of dollars, Medicaid; stop ridiculous expenditures like school lunch programs. In fact, let's eliminate public education! What a drain on the taxpayer, all this supporting of schools. Let kids figure out stuff for themselves, maybe put them to work when they're young enough to train right. What the heck is government for if not to protect the rights of individuals -- well, the ones who happen to be corporations?

When Obama was elected, I was over joyed. I knew that he was a moderate but I hoped for programs that would pull our country and our government back from its dangerous pull to the right. It's difficult to know what's really happening because of all the irresponsible and hysterical media buzz but I am as afraid now for our country (and me as a 65+ elder) as I was under Bush.

One interesting observation. In the 1982(?) social security revision that saved Social Security. It was supposed to create a surplus so that when we boomers retired the system would be able to pay out benefits. Now I agree that there is a surplus on paper.

The problem is that as these funds were paid into the treasury, they were converted to a special class of US treasury note or bond. However, and here is the rub, this means that since 1982 these surplus payments have been used to reduce the annual deficit each year. Now that we are reaching the point were the bonds are needed to pay out benefits, we now have an additional demand on the budget which is growing year by year.

Because the surplus was never effectively saved but spent, we don't really have the money to pay off these bonds without impacting the budget deficits negatively. This is the same problem most local and state governments are having with many of their pension plans as well. And it will impact the benefit levels in the future no matter what we may want.

Now I don't agree with the concept of individual control of private accounts but I think that a true pension system should be broadly invested (diversified) in many asset classes. If Yale's trust fund does it successfully why not the main national pension system (Social Security)?

One good effect would be to take the cookie jar away form the politicians (both democrats and republicans) so that they won't be able to play around with money they should keep their hands off of. Run Social Security as true pension plan not a ponzi scheme.

Kevin

your heart is in the right place. but you don't understand how money works, and the bad guys rely on that.

the Trust Fund bonds ARE a loan to the government. There is nothing else they could be... you cannot just leave money in a "lock box." It has to be spent or it ceases to exist as money. The point is that when you put your money in a BANK, the bank lends it to someone who uses it... arguably to build something useful. It used to be that the safest thing you could do with your money was lend it to the government, who used it to build a stronger richer country. The country can afford to repay the money it borrowed from Social Security, but the Republicans have convinced even the democrats that raising the taxes to do so would cripple the economy. They say that with a straight face after eight years of Bush tax CUTS crippled the economy.

Social Security is essentially pay as you go. It doesn't really need the trust fund. As you say, spare money from Social Security could be invested in private markets, or other public bonds (cities and counties), but there would be "market risk" there. Again, not a terrible problem, given the "government risk" we are seeing by investing it in US bonds, but the people paying the payroll tax would have to understand the risk. Could be the "market" investments would make money and allow us to cut the payroll tax. But it could also lose money requiring us to raise the tax. That last is not horrible, the raise would be about one tenth of a percent per year. But the bad guys would still tell you the sky was falling and the only thing to do would be to cut Social Security benefits. They just don't like "poor" people to have security.

Coberly

I do I understand that the trust fund is a loan. That is what any bond is in reality. The problem with the trust fund being exclusively in US treasury notes is that for the last 25+ years, these funds have flowed into the treasury and were used by the administrations and congress to mask the true size of the deficits in those years. Now if the government had used the excess social security finds to reduce the national debt. That would have placed us in a better financial state now. So that as the bonds were cashed in the current budget borrowing would have less of an impact on our national debt.

Now my suggestion that the surplus be invested in a diversified portfolio would have meant that the trust fund would have generated a greater return over that 25+ years. Increasing the size of the trust fund because of the tangible assets it held. I agree that by holding other assets you may introduce additional risk. But as a matter of fact, by diversifying the portfolio you actually reduce the risk not increase it. Sure in some periods, like now you would see a significant short term under performance and possible loss but over time your return will be larger.

What a horrible, misleading interview. Shame on you, Maria.
First, the "entitlements" are NOT the problem with the federal debt, nor will they ever be. Social Security has $2.4 trillion in its Trust Fund. $2.4 trillion! Medicare is only down about $150 billion per year, compared to more than $1 trillion per year of federal spending that goes to the wars and the militiary industrial complex. These latter two ARE the problem, not the so-called "entitlements." Until we can stop the wars and sharply reduce spending on the military industrial complex, we do not reduce the federal budget.
For more on this, go to: http://www.warresisters.org/pages/piechart.htm

Social Security was never a pay as you go system, and certainly it was not after the 1983 adjustments, which raised the payroll tax so that the Trust Fund would have more in it to accommodate the Baby Boomers. The Trust Fund should have $2.4 trillion of real something in it!
And back to Maria's interview, people are NOT retiring after age 65 on average. In fact, about 70% of those 62 are now taking their SS benefits.
It's time to raise taxes to repay the SS Trust Fund, which is short, primarily, because we have had wars and excess military expenses that were not paid for because of the Bush tax cuts.

Back to the interview, why should SS benefits be restricted based on some "means test" any more than pension income, dividend income or other sources of retirement income. One receives SS benefits commensurate with when one pays via the payroll tax (based on the top 35 years of work). If you paid it into this defined benefit program, there should be NO restrictions later to what you are to receive in benefits.

The SS Trust Fund has US Bonds in it. A US Bond is backed by the full faith and credit of the US (i.e.the US Tax Payer) there is no cash, gold, stocks or other tangible assets being held. So when the bonds are cashed in those dollars have to paid by the US Treasury. The US Treasury raises those funds by selling other debt instruments (bonds) to raise the cash. Of course today this all actually occurs electronically via computer systems.

There are a number of issues that are being misrepresented here.

Firstly, Social Security is now a burden on our overall fiscal outlook. The General Accounting Office (GAO) announced two weeks ago that, for the first time in twenty-five years, more money was outflowing from Social Security than inflowing into it from taxpayers. That's right folks - Social Security is BROKE, and it will need a financial bailout AND tax hikes going forward.

Secondly, as much as I distrusted the idea of privatizing Social Security ten years ago, we would have been better off had we gone that route. Why? Because the notion that there is a Social Security trust, with trillions socked away for our retirement, is a bald-faced lie. There is now nothing, but debt. That's right, DEBT. The baby boomers are expecting to collect from Social Security what isn't there. At least with a privatized system, YOU have some say in where the money goes - and just as importantly - where the money does NOT go!!!

America, as you and I grew up knowing it, no longer exists. It has been turned upside down fiscally, and morally. And, unfortunately, we've passed the point of no-return. Accept the notion that your personal survival is your own personal responsibility - NOT Uncle Sam's. Because, from this point forward, Uncle Sam is a basket case of insolvency.

"The Trust Fund should have $2.4 trillion of real something in it!"

I don't know what kind of weed is being smoked here or what kind of glue is being sniffed here, but perhaps I'd need some of it to understand some of the foolishness I see posted....

The "Trust Fund" is a lie, stuffed with IOUs issued by the US Treasury. In essence, it's DEBT that future generations will have to shoulder. I'm 56 years old, and I know there will be nothing left for me. I fully expect to work until I die.

To believe in anything else at this juncture, as Obama projects trillion-dollar US fiscal deficits for the NEXT TEN YEARS, is simply delusional.

Saul Friedman's position is that Social Security is not broke. Here's his post from February 27, 2010, on TGB:

http://bit.ly/axKZqo

Worth reading, as is all of Saul's commentary.

Social security was intended to be a safety net so we elders would not have to starve in the streets after our working days were over. It is solvent now, as Saul points out. In the longer run, it won't be without some adjustments. Two should about do it:

1. Move the age for initial benefits up from 62 to 64 in several stages. In most occupations, people are able to work at these ages without any problem, and the trend in society now is in this direction anyway.

2. Remove the earnings limit at which folks stop paying in, but leave the benefits schedule as it is. This is a "tax on the wealthy" in a way. However, if it is accompanied by a mechanism that raises benefits for individuals who contributed more if their income falls below a specified level, the "insurance" part of the plan would be maintained.

Within a few years, a third step perhaps should be considered in the area of survivors' benefits. Since women are pretty close to achieving parity in salary levels in the work force, and most women work outside the home now, it makes little sense to provide survivor benefits for them when husbands die. Ditto the other way around, if the woman is the primary bread winner.

Medicare is the real funding problem. That would be solved by reforming health care to put all Americans into the system. Right now it is untenable because only the older part of the population is contributing, and that is the part using most health care. It is necessary to bring the younger people in to produce sufficient revenue to fund the elder care.

In case anyone missed it, here's a link to today's AP article about the state of Social Security:

http://bit.ly/bQFLL4

@Gabby re Medicare: I agree that "Medicare for All" would have been a useful solution to the funding problem. Too bad we're stuck with health care reform that won't include any kind of public option.

Saul Friedman?
Well, I hate to have to awaken you from a preferred political slumber, but here is the truth, in today's headlines!!!

Social Security to start cashing Uncle Sam's IOUs

http://news.yahoo.com/s/ap/us_social_security_ious

@TJA -- I don't think anyone would suggest that Social Security is in fine shape, including Saul Friedman, who I doubt ever endulges in political slumber! However, there appear to be fixes for the situation that don't require cutting benefits for future recipients.

The AP article referenced by both of us (see my comment containing the link to the article just above your most recent comment with the same link) says: “As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program's finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there's concern that the looming crisis will lead to reduced benefits.”

Saul’s post says: “The Social Security trustees and the Congressional Budget Office have said the nearly $3 trillion trust fund will last for at least another 30 years. Former Federal Reserve Chairman Alan Greenspan said the projected shortfall after that is easily fixed for decades with a small raise (two percent split between employer and employee) in payroll taxes.
Obama also minimizes Social Security’s fiscal problem and suggests simply raising or removing the current $106,000 ceiling on salaries subject to the tax.”

I think removing the $106,000 ceiling on social security taxes is not unreasonable. If you were receiving a substantial salary as an executive, would you mind setting aside a few extra dollars to ensure that your much lower paid employees could live decently in their retirement years? I wouldn't.

The issue seems to be getting Congress to act. As challenging as that will be, I remain hopeful. The situation is serious and they don't have much time to debate alternatives, but, ultimately, I sincerely hope that neither you, TJA, nor I will have to work until we die!

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