Over at The New Republic Josh Patashnik writes,
Isn’t that second sentence sort of an odd interpretation of this chart? Clearly, the projected growth rate of health care costs is unsustainable, and finding ways to change that ought to be, far and away, the country’s top fiscal priority. But it’s not as though the chunk of money going to Social Security and “other spending” is simply an afterthought; this is 15 percent of GDP we’re talking about. I’ve never understood the argument that simply because their growth rates are close to zero they shouldn’t be part of the conversation. If you thought one part of your household budget were going to expand dramatically, wouldn’t you want to look for savings everywhere, rather than betting (probably unrealistically) that you can get the one offending budgetary item entirely under control?
That is precisely my thinking when I write things like “the actuarial imbalances for Social Security and Medicare pose serious medium to long term fiscal issues….” It isn’t that Social Security is in crisis and we must gut it, but that it seems like wildly optimistic to think that the problem can be solved entirely by addressing the underlying problem with Medicare: the completely unsustainable projected growth rates for health care expenditures coupled with some rather bad demographics. Note that the later is pretty much a fact and all you have to work with then is the former—changing the growth rates for health care over the coming decades. Arguing that we can ignore Social Security and even other spending is not simply hoping for the best it is being foolhardy.
Or to put it another way since some commenters here just can’t seem to wrap their minds around this concept. Sure, if Medicare were not a problem Social Security would not be much of a problem. With some reasonable policies we could get it under control. However, Medicare is at problem. Let me say that again: Medicare is a problem. And the third time is the charm—Medicare is a problem. So please spare me all your posts, and blabbering on about how we could solve the problem with Social Security while ignoring Medicare. Unless you have a plan that will assuredly solve the Medicare problem it is just mind bogglingly silly to ignore Social Security.
Update: In comments there are some who are having problems understanding my position on Social Security and Medicare. So I’ll try once again.
Medicare and Social Security are in actuarial imbalance and are likely to produce very bad fiscal situations in the not too distant future (think 10 years or so) if nothing is done. Why is this the case? There are two reasons.
The first is demographics. The baby boomers are starting to retire and there are alot of them. As such both Social Security and Medicare will see fairly substantial increases to their expenditures over the next couple of decades. For Social Security what will happen is there will be a ramp up in expenditures which will level off and is projected to hold constant for the next 75 years. By itself this isn’t a serious problem. The short fall for Social Security even in the infinite horizon case is around $13 trillion. Some minor modifications to the program would likely put it back in actuarial balance. Yes, these modifications might entail things like increasing the payroll tax, expanding the tax base the payroll tax applies too, increasing age for eligibility of benefits and indexing it to life expectancies, changing the COLA adjustment formulas, etc. Nothing huge or drastic and certainly nothing like gutting the program.
The second problem is that health care expenditures have been rising very quickly over the past few decades or so. This is bad news mainly for the actuarial imbalance in Medicare. This is where the bulk of the problem lies. To fix this problem is likely going to take more than applying the same modifications noted above in discussing Social Security–although they would help to be sure. What needs to be done is reform health care and the laws and policies pertaining to health care. One place to start is Medicare itself as it is likely one of the reasons why health care expenditures have been growing at such a high rate [1].
So, the reason why we can’t ignore Social Security is that it is unlikely that we will be able to fix the health care problem both in a timely fashion and sufficiently to completely solve the problem with Medicare. Indeed, one reason is that Medicare could be part of the problem, and it seems unlikely we are going to get rid of Medicare. So, we need to look at both programs and make modificiations like the ones noted here to help improve the fiscal outlook. At least until the isse of the rate of growth for health care expenditures is brought under control.
Finally it has been suggested that this is some sort of conservative conspiracy. However, these modifications noted here have been proposed by none other than Alice Rivlin of the Brookings Institute. Also Lawrence H. Thompson of the Urban Institute who writes,
As the baby boomers leave the workforce, additional stress on programs designed to support retirees will build, and some combination of benefit reductions and tax (or other revenue) increases will be necessary to maintain fiscal balance in both Social Security and Medicare. Benefit reductions might involve further increases in the Social Security retirement age, selected reductions in cash benefits, or increases in Medicare cost sharing. Revenue increases could involve general revenue transfers to finance either the cash benefit or hospital insurance programs directly or to fund a transition to individual accounts, or a more traditional payroll tax increase.
There is also Edward Gramlich, C. Eugene Steurle, and Randolph Penner, also from the Urban Institute. These are not exaclty hot beds of conservative propaganda.
