Wednesday, 06 February 2013
The bipartisans in Washington are currently focused on Social Security and Medicare – not to improve health care and retirement, but to cut them. There is constant, exaggerated “sky is falling” deficit commentary about purported out-of-control spending caused by these programs, while the real twin crises of poverty retirement and health insecurity are ignored. Popular solutions to these crises exist that would strengthen Social Security and Medicare and spur economic recovery.
Facts You Are Not Being Told About Retirement and Health Care
We are in the midst of retirement and health care crises that are projected to worsen in the coming years, but we do not hear any discussion of real solutions to these problems. We do not hear the truth about retirement and health care in the corporate media or from either party. Here are some facts that paint the picture:
- Senior poverty is growing: According to the Census Bureau, in last decade, there has been a 78 percent increase in Americans over 60 facing the threat of hunger.The Census Bureau puts the rate of poverty for seniors at nearly 16 percent , or roughly one in six seniors.
- Pensions have kept Americans out of poverty: The Census Bureau reports that poverty rates were nine times greater in 2010 in households without defined benefit pension income. Pensions resulted in 4.7 million fewer poor or “near poor” families and 1.2 million fewer families on various forms of public assistance.
- Pensions are disappearing: According to a study by the National Institute on Retirement Security, as recently as 1998, 52 percent of Americans over age 60 received income from a defined benefit pension. But by 2010, that figure had fallen to 43 percent. In the private sector, the decline has been more dramatic, down from 38 percent in 1979 to 15 percent in 2010. This decline will accelerate in coming years because only 10 percent of private sector workers have guaranteed pension benefits compared to 60 percent in 1981.
- Savings and 401K plans are insufficient: 60 percent of households tell the Employee Benefit Research Institute that the total value of their savings and investments, excluding their homes, is less than $25,000, though the Center for Retirement Research has estimated that a typical couple at age 65 can expect to spend $260,000 or more on health care alone over their remaining lifetime.Savings accounts and other conservative investments offer returns below the rate of inflation. The Federal Reserve’s near-zero interest rate policy has starved seniors of income from their savings and chipped away their nest eggs, resulting in $1 trillion in lost purchasing power since 2007.
- Americans cannot afford to save for retirement: Almost half (40 percent) of middle-class Americans without a written retirement plan say they haven’t planned for retirement because they are too focused on “current financial obligations.” Roughly one in two Americans are not saving for retirement at all. In fact, one out of three working families do not have enough money to meet basic needs, so they cannot save.
- Debt is high: Middle-income Americans age 50 and older are carrying more credit card debt on average than younger people, according to Demos’ 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households. That is a reversal of findings from a survey conducted by Demos in 2008. Medical expenses are a main driver of credit card debt.
- Seniors are going into debt with risky and expensive reverse mortgages. More than 775,000 of such loans are outstanding, according to the federal government, and 51,000 were originated in 2011. The rate of default is at a record high – roughly 9.4 percent of loans up from around 2 percent a decade ago.
- Social Security keeps seniors out of poverty: The Center on Budget and Policy Priorities estimates that 45 percent of Americans over 65 would fall below the government’s official poverty line if they did not receive Social Security benefits. According to the Census Bureau, the number of elderly people in poverty would have been higher by almost 14 million in 2010 without Social Security payments.
- Medical expenses are the driving force in poverty among seniors: All other categories of spending, including housing, entertainment, food and clothing, decrease with age, but medical expenses are higher, taking about one-fifth of their budget.
- Medical debt is a leading cause of bankruptcy and foreclosure. One Harvard study found: Illness and medical bills were linked to at least 62.1 percent of all personal bankruptcies; 77.9 percent of the individuals whose illness led to bankruptcy had health insurance at the onset of the bankrupting illness.
Medical bankruptcies will continue to rise under Obamacare, as they have in Massachusetts, which passed a similar bill in 2006, because growing numbers of people will have inadequate health coverage and unbearable out-of-pocket medical expenses.
This is a grim picture of the twin crises of poverty retirement and health insecurity. The demographic of the typical American is one with no pension, no significant savings and dependent on Social Security which pays a meager average of $1,230 per month. At the same time, Americans, even those with health insurance, are likely to go bankrupt or lose their home if they have a serious accident or medical illness.
These are current, real-world crises, but rather than looking for solutions to them, as we wrote in part 1 of this series, the bipartisans are focused on an exaggerated deficitcrisis and the promotion of neoliberal policies of privatization and austerity that will make these problems worse. So, let’s look at some real solutions that would ameliorate these crises, stimulate the economy and cause the deficit to shrink.
Ending Poverty Retirement: Social Security Plus
Martin Feldstein, a former top economic adviser to President Ronald Reagan and Harvard economist, recently noted “I think it’s really shocking that we spend about $500 billion a year on Social Security, and yet we have many, many old people in poverty. Something’s wrong with that system.”
Yes, there is something wrong with that system. It is time for the United States to upgrade Social Security to what political writer Steven Hill calls, “Social Security Plus.” In a December 2012 article in The Atlantic, Hill urges the doubling of Social Security payments in order to end poverty retirement. He argues that a “more robust retirement system would build upon the most stable component” of retirement, Social Security.
As pensions and savings disappear, Social Security has become the only income people can depend on in retirement. The problem is, says Hill, “Social Security’s payouts are so meager – far too low for the program’s new role as America’s de facto national retirement system.” It is time for “doubling the current Social Security payout, and turning it into a true national retirement system.” Doubling Social Security’s individual payout would cost about $650 billion annually for the approximately 53 million Americans who receive benefits. How do we pay for it? Hill puts forward three methods of payment:
First, he suggests lifting the cap on Social Security taxes as we do with Medicare. Hill writes that this approach is “popular with Americans according to opinion polls, and would raise about $377 billion toward the $650 billion needed to double the Social Security payout. As a candidate in 2008, Barack Obama stated that he supported raising the cap on the Social Security tax to help fund the program.”
Second, Hill suggests ending the business deduction for employees’ retirement plans. Since all Americans will receive “Social Security Plus, employer-based pensions would be redundant, so businesses no longer would need the substantial federal deductions they currently receive for providing employees’ retirement plans.” These deductions total a substantial $126 billion annually, bringing us three-fourths of the way toward paying for the program.
Finally, Hill urges cutting or reducing other deductions that disproportionately benefit top income earners. These changes would not only raise the remaining money needed for Social Security Plus, but they would simplify the tax code and narrow the wealth divide. Hill writes there are deductions that “allow the top 20 percent of income earners to reap generous deductions that barely help most low and moderate income Americans. These include deductions for private retirement savings, health care, homeownership and education.”
The funding sources recommended by Hill have been urged by many economists and political scientists, but whether or not you agree with the specifics of how Hill would pay for it, his analysis shows that Social Security Plus is very affordable.
The effects of doubling Social Security would include both a more comfortable and secure retirement for seniors and an economic stimulus. It is the wealthy who tend to hoard their income. Most people spend the money they have on necessities such as food, clothing and health care, and on entertainment or other minor luxuries. This spending is directly infused into the economy.
Ending Health Insecurity: Improved Medicare for All
A recent report from the Institute of Medicine summarized US health care: US health care is failing as Americans pay more, live shorter lives and experience poorer health. Per capita spending on health care in the United States is more than twice what the average industrialized nation spends – even though those nations cover their entire population and the United States doesn’t. Despite more than sufficient total spending, roughly 50 million people in the United States have no health coverage, and our health outcomes place us 37th in the world. Life expectancy in the United States is decreasing.
One of the fundamental aspects of our health care system that sets us apart from other nations with excellent systems is the privatization of health insurance and institutions that provide health services. When the bottom line is profit, it leads to overtreatment of those who can pay and undertreatment of those can’t. The lack of a system that prioritizes health has also led to overpriced prescription drugs. The administrative bureaucracy of our complex privatized system eats up a third of our health care dollars, dollars that could be used for direct patient care instead. None of these problems will be improved by the Affordable Care Act which continues private sector profit in a Wall Street health care system.
In the US, access to necessary health services and new technology is only guaranteed to those who can afford it. Americans self-ration, foregoing or delaying needed care because of the cost. For that reason, we have a high number of preventable deaths,found to be 109.7 per 1,000 people.
Dr. Andy Coates, current president of Physicians for a National Health Program and a practicing physician in upstate New York, says patients often have to choose between critical health needs and basic survival.
“We have an incursion of high-deductible private insurance plans right now,” said Coates. On top of their premiums, he said, people pay “even $5,000 out-of-pocket before their health insurance kicks in. And if you think about the median income being around $40,000 per year for the average households and you think about the middle of low-income households in upstate New York with an income of $14,000 per year … an antibiotic can easily cost a week’s wages.”
Coates goes on to say that there is a model in the United States of a publicly funded system that has worked well for nearly 50 years: Medicare. Although it is not a perfect system – for instance, the out-of-pocket costs are too high and dental services are not covered – Medicare does provide some degree of health security for seniors.
Another area of Medicare that begs for improvement is in long-term care. “Medicare in most cases doesn’t cover nursing home costs, and if [people] have to stay in a nursing home for an extended period, they very quickly run out of money,” Sudipto Banerjee, research associate with the Employee Benefit Research Institute in Washington, DC explained to the Huffington Post. At that point, nursing home expenses are picked up by Medicaid, “but if they are accepting Medicaid benefits, they have to surrender most of their income and assets,” he added.
Where Medicare excels – particularly traditional Medicare, not the privatized advantage plans – is in its cost controls, health outcomes and patient satisfaction. Spending on Medicare is rising more slowly than the private sector in part because its administrative costs are about a tenth of the costs incurred by the private sector and in part because it is a public system that can negotiate fair prices for services. If Medicare were extended to everyone, these cost controls could be expanded.
This means that for the amount of money being spent on health care at present, a Medicare-for-all health system would create lifelong, comprehensive, affordable health care for everyone. Financial barriers to care such as out-of-pocket costs would be eliminated. And people in the United States would experience the health security that people in most industrialized nations expect from their governments.
What Will Investing in Peoples’ Basic Needs Do to the Economy?
Economist Jack Rasmus writes about the three-legged stool of retirement: “The first two of those legs have already collapsed – defined benefit and 401k pensions, and personal savings. And now Congress is about to begin breaking the last leg, Social Security and Medicare, with several rounds of deficit cutting set for March, May and again later in 2013 when big corporate tax cuts take place.” What will this mean for the economy? Rasmus continues that this will “hold back any sustained economic recovery in the US in 2013-14 and beyond.”
Recovery begins with jobs but will not be sustained unless health care and retirement programs are strengthened and expanded. We need to end poverty retirement and health injustice. Doing so would result in an end to health-based foreclosures and bankruptcies and all of the negative consequences that go with those economic catastrophes.
Steven Hill writes:
An expansion of Social Security not only would be good for America’s retirees, it also would be good for the broader macroeconomy. It would act as an ‘automatic stabilizer’ during economic downturns, keeping money in retirees’ pockets and stimulating consumer demand, especially since low and middle income people are more likely to spend an extra dollar on goods and services than are affluent individuals. Social Security Plus also would help American businesses trying to compete with foreign companies that don’t have to provide pensions to their employees, since those countries already have national retirement plans.
You could imagine what the impact of 55 million seniors receiving an additional $1,200 each month would mean for the economy. That money would inject $66 billion into the economy each month, and that spending would have an increased impact through the multiplier effect as it is circulated in the economy.
Adopting an improved Medicare-for-all health system would be a major stimulus to both jobs and economic spending, according to a January 2009 study which found: “Establishing a national single-payer style healthcare reform system would provide a major stimulus for the U.S. economy by creating 2.6 million new jobs, and infusing $317 billion in new business and public revenues, with another $100 billion in wages into the U.S. economy.”
Controlling health care costs is critical to stabilizing the economy. The US Center for Medicare and Medicaid Services projects that health care costs will go up from the 2010 level of 17.5 percent of GDP to 19.6 percent in 2019. The only proven way to deal with the underlying problem of rapid growth in health care is a single-payer, improved Medicare-for-all, system. Both of these changes would put in place the foundation for a strong economy.
Furthermore, expanding Social Security and Medicare would have other benefits. Both would be portable – if employees changed jobs or stayed at home to take care of their families, they would keep their benefits. If the company they worked for closed or moved, they would keep their benefits. This would create health and retirement security.
It would also make businesses more competitive. Employers would not have surprise increases in the cost of health care, nor would they carry the burden of funding pensions or retirement plans. Like their employees, they would have the security of knowing in advance what these programs cost.
Some of the funding for these programs would come from progressive taxation, so the wealthiest Americans would pay more. Putting in place progressive taxation increases the fairness of the economy and reduces the wealth divide, which has become unconscionable.
When we confront the crises of poverty retirement and health insecurity, we discover that Social Security and Medicare are not the problems; they are the solutions.
This is Part II in a series on the deficit and real solutions to the economic collapse. Part I was, Will Exaggerated Deficit Talks Lead to an “Obama Recession?” We Must Still Ask These Questions.