Ask the Experts: Reforming entitlement programs
Bucknell University Provost Mick Smyer was recently appointed to the National Academy of Social Insurances.
Posted: March 18, 2013
By Andy Hirsch
Provost Mick Smyer was recently appointed to the National Academy of Social Insurances (NASI). The group describes itself as a nonprofit, nonpartisan organization made up of the nation's leading experts on social insurance. Smyer discusses some of the problems with the country's major entitlement programs, and some potential solutions.
Question: Is talk of entitlement programs basically running out of money political posturing, or is it a reality?
Answer: First, it is important to differentiate among the different programs. Usually, when we think of entitlement programs, most people are focusing on Social Security, Medicare and Medicaid. Each one has its own set of challenges, but there are solutions.
In its current state, Social Security, for example, is basically solvent until approximately 2033. According to a recent study by the NASI, there are several popular strategies that assure its ongoing fiscal solvency:
- Gradually, over 10 years, increase the cap on earnings taxed for Social Security, which currently stands at $113,700.
- Gradually, over 20 years, increase the Social Security tax that employees and employers pay from 6.2 percent to 7.2 percent. For someone earning $50,000 per year, this would increase their taxes by about 50 cents per week.
- Lower benefits by gradually raising the full retirement age.
- Or means test the benefits, in effect taxing those at the upper end of the income distribution who may not need the benefit.
Q: Some projections give Medicare even less time before becoming insolvent. Are there similar solutions to fixing it?
A: Medicare, the federal program to provide health care for older adults, faces different challenges, choices and time frames. Medicare's growth is a function of two major elements: an aging population and health care costs. The number of older adults covered by Medicare started growing in 2011 when the leading edge of the baby boom started turning 65. By 2030, when the youngest boomers have turned 65, Medicare enrollment will have nearly doubled to approximately 80 million people. Meanwhile, if no changes are made, Medicare's income and trust funds are projected to be solvent until 2024.
But there is some positive news. Health care costs have recently slowed to an annual increase of 3.8 percent, the slowest pace in almost four decades. While Medicare costs have risen at a faster rate, they've been slowed a great deal. Recent estimates, for example, suggest that spending will be $143 billion less than forecasts from just last August. That means we have some time to assess how best to change our health care patterns. Recent suggestions focusing on reimbursing for patient outcomes rather than reimbursing for procedures or visits, for example, are steps in the right direction.
Q: Can you explain what's happening with Medicaid and the impact of health care reform?
A: Medicaid, the combined federal and state program to provide health care and income security for those with the lowest incomes, is in many ways the program with the most urgent need for change. The urgency has two sources: the size of Medicaid's impact on state budgets, and the Affordable Care Act's (ACA) imminent deadline for states to decide on participating in a federal partnership. Medicaid is, on average, 16 percent of states' general fund expenditures, but it ranges from a low of 3 percent in Mississippi to a high of 34 percent in Massachusetts.
Although the rate of program costs and enrollment expansion have recently slowed, the ACA poses a dilemma for states: It seeks to reduce the number of uninsured by expanding the number of low income citizens who are on Medicaid. The federal government will initially cover 100 percent of the costs of enrollment, with states eventually assuming an increasing portion of the costs. Currently, 27 states support the ACA partnership, 16 oppose it and eight are still weighing their options. Eventually, Medicaid costs will be affected by an intricate integration with federal policies, health care cost reductions, and private insurance policies.
Q: Entitlement reform is highly politicized. Do you think meaningful solutions be found in the current political climate?
A: The current policy debates, heightened by the drama of sequestration, reflect the need to have serious leadership in facing longer term issues. Social Security and Medicare both present options for adjustment to maintain these important mainstays for an aging society. Medicaid requires collaboration among state, federal, health care and insurance leadership. Some might see this as a time fraught with problems, but I see it as a great opportunity for leaders to meet the challenge.
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