US Social Security and Medicare System Danger of Insolvency
If ever the American social programs have been more in jeopardy it is now, with the current state of the U. S economy. Lawmakers and the U. S government have long been aware that Social Security and Medicare in their present states can no longer be maintained. Talk of change has been going on, especially during campaigns, but so far nothing has been accomplished.
The supposed “lock box” has not been locked and the money being collected now through payroll taxes is barely enough to pay for today’s social security and Medicare recipients.The social security administration reports in their 2009 annual report that the current social security program is not sustainable and insolvent. Social security income tax revenues received fell dramatically in comparison to expenditures in recent years. And we can only expect the situation to become drastically more critical when the baby boomer generation begins to retire.
“The coming challenge of paying Social Security, Medicare, and Medicaid benefits to 77 million retiring baby boomers will be one of the greatest economic chal¬lenges of the 21st century.What Federal Reserve Chair¬man Ben Bernanke called the “calm before the storm” ended on January 1, 2008, when the first baby boomers became eligible for early Social Security benefits. In three years, they will also become eligible for Medicare. ” (Riedl, Brian March 2008) The Social Security administration report also states: “For the third consecutive year, a “Medicare funding warning” is being triggered, signaling that non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare’s outlays.A Presidential proposal will be needed in response to the latest warning.
“ Action to fix Social Security and Medicare is desperately needed, preferably sooner than later. There still may be time to implement and phase in changes, but the longer we wait the fewer options we will have. How did we get here? And how did Social security and Medicare come into being? Social Security was the brain child of the Committee on Economic Security (CES). The CES was given the task of studying and developing a plan to provide income for the elderly and disabled.
Originally this fell to family members or, in some cases, by the government. President Franklin D. Roosevelt believed in a need for a national system. In January 1935, the CES came up with a plan for President Roosevelt outlining a program. This plan became the Social Security Act (SSA), which was passed by Congress on August 14, 1935.
The CPA Journal outlined the intentions of the Social Security Act originally as “The law provided a monthly benefit to individuals age 65 and older and no longer working.The monthly benefit was paid to the primary worker when he retired; the amount received was based on the individual’s payroll tax contributions. The SSA also provided unemployment insurance, aid to dependent children, and grants to states for medical care. The Social Security Board was established and charged with implementing a system to enroll employees, report earnings, and collect payroll tax contributions. ” Currently, the average annual benefit is approxi¬mately $15,000.
Those who live long can receive benefits well in excess of what they paid into the system.Those who die young can pass only mini¬mal benefits on to their survivors. For the most part, they can leave little to nothing of their contributions for their heirs. (Riedl, Brian March 2008) The enactment of Medicare was in 1965.
This was the first time in history that our Federal Government provided healthcare coverage to a certain segment to the American population. What started out as a small plan deliberated by the Johnson administration for limited stay hospital coverage then grew by leaps and bounds. In the end it became a part A, hospital coverage and part B physician coverage and Medicaid.A bombshell was dropped on President LBJ who when asked what he thought said “I’d go get my brother. ” LBJ, a legendary Texan storyteller went on to tell the following story in his memoirs: “Well, I remember one time they were giving a test to a fellow who was going to be a switchman on the railroad, giving him an intelligence test, and they said, “What would you do if a train was coming east going sixty miles per hour, and you looked over your shoulder and another one was coming from the west going sixty miles an hour? “.
. . And the fellow said, “I’d go get my brother.And they said, “Why would you get your brother? ” And he said, “Because he hasn’t ever seen a train wreck. ” (NEJM 2008) It seems he not only was a storyteller but also could tell the future.
Troubles began appearing in 1979 when a report indicated that current levels of payroll taxes wouldn’t be enough and as a result a tax rate hike and reduction in benefits. In 1983 Alan Greenspan issued a report calling for changes to be made to sustain and strengthen Social Security. Changes again were made, increasing the age of retirement, and requiring federal employees to as well.Then again the future of Social Security was discussed by a president in 2005. “In his February 2005 State of the Union Address, President George W.
Bush indicated that strengthening Social Security was one of the priorities for his second term in office. He stated that unless significant changes were implemented, Social Security is headed toward bankruptcy. ” Since Social Security was implemented in 1935, there have been 20 increases in the OASDI (Old Age, Survivor, and Disability Rate). In 1935 the earnings subject to taxation were $3000 maximum. Today there is no cap on the maximum.When Social Security began there were 16 workers for every Social Security recipient; today there are 3.
3 workers for every recipient. And with the current unemployment rates so high, that means less people are working and paying into the system. The “pay as you go” approach is no longer feasible. Also consider the fact that people are living longer nowadays.
“In 1935 fewer people lived long enough to collect benefits; the average life expectancy was 67 years. Today the average life expectancy is 77 years, and there are more than 48 million recipients”. (The CPA Journal 2006)A big concern for older Americans today is running out of money. They also face rising healthcare costs healthcare costs, diminishing social security benefits and social programs. Many retirees do not save enough for retirement and rely on Social security and Medicare to get by.
Or older people find themselves still working past age 65 to make ends meet. “Many retirees worked their entire adult lives but never qualified for a pension or earned enough to put anything aside. Others started retirement with a nest egg but never thought it would have to last 20 or 30 years.A fifth of older Americans now survive on nothing but Social Security.
A third depends on it for at least 90 percent of their income. For a retired worker, the average monthly benefit will be $1,153 this year. ” tells Bob Moos from the Dallas News. (2009) “The total cost of entitlement programs will increase from 8. 4 percent of GDP to 18. 6 percent of GDP by 2050.
In comparison, the entire federal budget is 20 percent of GDP. To cover these additional costs, Congress would need to raise taxes permanently by the equivalent of $12,072 per household or eliminate every other federal program. ((Riedl, Brian March 2008)We find ourselves in a challenging conundrum, to say the least. Very few people of Generation X or younger hold out much hope for getting any Social Security or Medicare benefits when they retire. The ongoing joke is that more people believe they’ll see a UFO in their lifetime before they’ll see a penny in social security or Medicare benefits. This also pits one generation against another.
Some feel a sense of entitlement and the fact that they will get reduced benefits or none at all seems very unfair.Instead, young people can be proactive and start saving money for retirement, even it’s just a little bit. If left in an IRA or 401K for the long haul, the money will steadily grow and help out when they are older and can no longer work and earn. If your employer does any kind of match on 401 retirement savings, try to save and invest the most possible. The key is to start as early and contribute as much as possible.
If you leave your job or switch companies roll over that money instead of cashing it out. If self employed start an IRA.Also, an important way to protect yourself from financial ruin if you get sick is by looking into a Medigap policy or other Medicare supplemental plan to help cover healthcare costs that Medicare doesn’t. Experts also recommend trying to pay off your mortgage as soon as possible; this will be one less expense to worry about.
Be very vary of reverse-mortgage schemes targeting seniors, they have been getting a lot of people in trouble and some lose their home as a result. Educating the public on financial matters would be a great place to start.What can be done to resolve this bankruptcy of a program originally designed to help out such a vulnerable group in our American society? There are varying ideas on the subject and no one idea seems particularly easy. A viable but very unpopular change could be to increase payroll taxes, which of course be met with much resistance. Or increasing Medicare premiums and co-pays may save extra money.
One thing for sure that can and needs to be done as soon as possible is to work to cut Medicare waste and fraud. This seems relatively obvious but strong enough measures have not been taken to address excessive waste and excessive fraud.According to an article by Hope Yen from the Associated Press, “The government paid more than $47 billion in questionable Medicare claims including medical treatment showing little relation to a patient’s condition, wasting taxpayer dollars at a rate nearly three times the previous year. Excerpts of a new federal report, obtained by The Associated Press, show a dramatic increase in improper payments in the $440 billion Medicare program that has been cited by government auditors as a high risk for fraud and waste for 20 years.
(AP November 2009)Fraudulent claims have included such outrageous abuse like Medicare prescriptions from deceased doctors, diabetic shoes for leg amputees and blood glucose strips for impotence. Plans to crack down on fraud include hiring additional agents and prosecutors, increase training on billing correctly, background checks on Medicare claimants and increase penalties for fraud. (AP 2009) Another widely talked about option to fix Social Security is our government can privatize Social Security by investing a small percentage of the current payroll tax revenues.This would also lessen the chance that the government could use surpluses to pay for current deficits. The so called “lock box” would remain locked. The retirement age can be raised.
After all, experts say, the retirement program President Franklin Delano Roosevelt started never envisioned retirees’ living as long as they do now — on average at least a decade longer. “As a result, it now costs an awful lot more money than anybody ever expected 70 years ago,” says David John with the Heritage Foundation.If you raised it to something like 72 and then kept on going in future years, that would pretty much solve problem,” says John. Senator Chuck Nagel, R-Nebraska has proposed raising the age to 68 for workers 44 or younger. (Gregory, David May 2005) This seems very simple, but it is quite unpopular with the older Americans, who also have a large influence over elections. And politics seem to be a large part of the problem.
The likelihood of one or some of these examples of solutions to be implemented in fairly high. The situation currently is not sustainable and lawmakers know it.During the presidential campaigns and election the issue of the future of Medicare and Social Security was often debated and a definitely a hot button and sensitive issue with voters. “Although aware of this coming crisis, Members of Congress have largely ignored it because all of the possible reforms are considered politically risky.
Yet delays only increase the pain of the ultimate reforms, which are becoming about $1 trillion more expensive annually. Furthermore, many believe that Americans ages 55 and over should be exempt from any reforms.One-third of all baby boomers have already crossed that threshold, and at 4 million per year, all of them will have crossed it by 2019. ” (Riedl, Brian March 2008) With our economy still floundering and no perfect solution it seems time is running out to change things around. Someone is going to have to make some hard and unpopular decisions.
Of course Medicare and Social Security didn’t decline over night; it took almost seventy years to reach this point. We can’t fix it over night either. Unfortunately, there is no Social Security fix that’s pain-free.