The Pressing Need to Reform Entitlements

BY DOUGLAS SCHOEN

After 16 days of political brinkmanship, lawmakers passed a temporary funding plan that raised the debt ceiling and reopened the federal government.

But now, the nation is just barreling toward a new set of deadlines — lawmakers have until January 15 to deal with the budget and February 7 to deal with the debt ceiling. Until Congress sets the country on stable financial footing for the long term, we’re bound to play this game over and over again.

As lawmakers begin negotiations, the conversation must start with tax and entitlement reform. This begins with Medicare and Social Security, as they’re the most pressing challenges facing our country.

At its current cost trajectory, the Medicare trust fund will run out of money by 2024. Social Security’s trust fund will be exhausted by 2033. And by 2022, these two programs could account for well over half of federal spending. Left unabated, this rapid cost growth will endanger the health and security of America’s seniors. Legislative inactivity effectively puts our country’s most vulnerable in serious danger.

One of the most promising ideas gathering serious bipartisan interest is the transition to a “chained CPI” methodology for calculating Social Security’s cost-of-living adjustments. This fix was designed by independent, nonpartisan experts to make the program’s calculations more accurately reflect changes in the cost-of-living.

There’s also growing support for expanding “means testing,” a common-sense reform that would ensure that Medicare and Social Security funds go to those Americans who actually need them. Currently, hundreds of millions of dollars are flowing to many people who are outright wealthy. Means testing would strengthen these programs and allow them to serve those members of society who are truly in need.

Both of these ideas should be included in any serious fiscal deal. But they’re still not sufficient to secure Medicare and Social Security for future generations, lawmakers must do more.

One place to start is slowly increasing the eligibility age for Medicare and Social Security. In 1930, shortly before Social Security was enacted, average life expectancy for men was about 58 years. The average woman lived to 62. When Medicare was created in 1965, life expectancy was about 67 for men and 74 for women. Today, a woman that turns 65 can expect to live beyond 85. And a 65-year old man can expect to live beyond 78.

For these programs to be available to future seniors, they must account for this increase in average lifespan.

Gradually adjusting the eligibility age for full retirement benefits would better account for modern demographics, shore up program finances, and — importantly — increase economic growth. Congress could ensure smooth implementation by exempting Americans 55 and older.

According to the nonpartisan Congressional Budget Office (CBO), smart, gradual eligibility adjustments would decrease Medicare spending by at least 5 percent and Social Security spending by 13 percent. Such reform would also substantially boost the size of the American workforce and expand the economy by over one percent.

Another way to strengthen Medicare and Social Security is by increasing the number of Americans paying into these programs. A significant percentage of state and local employees, for example, aren’t subject to Social Security payroll taxes. Requiring all new state and local workers to support the safety net is a reasonable reform that could earn bipartisan support and shore up the program’s finances.

Finally, while Social Security and Medicare should remain a central part of our nation’s commitment to our seniors, citizens should be given more opportunities to go outside these programs to build a supplemental nest egg. Lawmakers can make that possible by strengthening incentives for private savings. And they should allow Medicare beneficiaries to use program dollars to purchase comparable coverage in the private sector.

The CBO itself has called the federal government’s current fiscal trajectory “unsustainable” and warned that “unless substantial changes are made to the major health care programs and Social Security, those programs will absorb a much larger share of the economy’s total output.”

These smart reforms would strengthen these vital public programs and go a long way toward addressing the CBO’s concerns. While the government’s doors are once again open, our fiscal house remains a mess. Congress needs to get serious.

Douglas Schoen is a political strategist and author of Hopelessly Divided: The New Crisis in American Politics and What it Means for 2012 and Beyond, published by Rowman & Littlefield Publishers.