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Post Gives Us the Bad News on Medicare, Good News May Reduce Pressure for Change

5:16 am in Uncategorized by Dean Baker

The Washington Post long ago eliminated any distinction between news and opinion in its reporting on Social Security and Medicare. Keeping with this pattern, it ran a front page editorial that gave us the bad news from the Medicare and Social Security trustees reports released yesterday.

The entrance to the Washington Post on 15th street Northwest DC

The entrance to the Washington Post on 15th street Northwest DC

“And on Friday, analysts worried that the sunnier projections, together with an improving economy and a rapidly shrinking federal budget deficit, could serve to further dampen enthusiasm in Washington for tackling the nation’s toughest fiscal problems.”

Of course not all “analysts” were worried about the modest improvement shown in the Medicare trustees report and the modest improvement in the economy delaying action on “the nation’s toughest fiscal problems.” That was only the view of analysts whose views the Post chose to present to readers. Other analysts would have pointed out that Medicare costs are more a problem of the broken U.S. health care system (we pay more than twice as much per person for our health care than people in other wealthy countries) than a fiscal problem.

Other analysts would have also pointed out that the impact of the tax increases potentially needed to fund these programs on the living standards of most workers are swamped by the impact of the upward redistribution of income that we have been seeing over the last three decades. To obscure this fact the Post included a comment from the two public trustees, Robert Reischauer and Charles Blahous that could only have the effect of misleading the overwhelming majority of readers:

“‘Even if a Social Security solution were enacted today and effective immediately, it would require financial corrections that are substantially more severe than those enacted’ in the last major reforms to Social Security in 1983, they wrote in a message included in the report.”

It is highly unlikely that even one percent of the Post’s readers know the extent of the reforms implemented in 1983. It is possible that they do remember the tax increases and benefits cuts that were put in place in the 1980s. Most of these had already been in law, although they were moved forward by the 1983 reforms. The payroll tax for Social Security was increased by 2.24 percentage points over the course of the decade. In addition, the self-employed were required to pay the employer side of the tax as well. Since roughly 9 percent of the workforce is self-employed, this amounts to the equivalent of a 2.8 percentage point increase in the tax.

In addition, the Medicare tax was also increased by 1.9 percentage points over the course of the decade. This brings the total tax increase to 4.7 percentage points. Also, the age for collecting full benefits for Social Security was increased from 65 to 67. This increase is being phased in for people reaching age 62 in the years 2002 to 2022.

If Congress were to implement changes to the programs comparable to the ones that were actually put in place in the decade of the 1980s, it would be more than sufficient to keep them fully funded for the rest of the century according to the most recent trustees reports. If the Post had written a news story intended to inform readers it would have pointed this fact out as a clarification of the comments by Reischauer and Blahous, if it included their comments at all.

However, since this piece was written to promote the Post’s agenda of pushing cuts in these programs, it opted not to put the Reischauer-Blahous statement in a context that would have made it understandable to most readers.

Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared. Read the rest of this entry →

Brooks Jackson Uses Annenberg FactCheck to Push for Cuts to Social Security

4:10 am in Uncategorized by Dean Baker

A social security card on a bed of money

The Serious People are after your social security.

The Very Serious People have taken off the gloves. There are no rules when it comes to the battle over Social Security and Medicare as Brooks Jackson shows in his “FactCheck” on the use of the chained CPI to index the Social Security cost-of-living adjustments (COLA).

Jackson strongly endorses the use of the chained CPI, describing it in the first sentence as “a more accurate cost-of-living adjustment.” The chained CPI would have the effect of reducing the annual COLA by approximately 0.3 percentage points. This reduction would be cumulative (e.g. 3 percent after 10 years, 6 percent after 20 years), leading to an average cut in lifetime benefits of approximately 3 percent for the typical beneficiary.

To push his case, Jackson seriously misrepresents the evidence. There is reason to believe that a chained index provides a better measure of inflation, since it takes account of the substitution between goods. However, the Bureau of Labor Statistics (BLS) has been producing an experimental elderly index (CPI-E) for almost three decades, which has generally shown a somewhat more rapid rate of inflation that the standard CPI currently being used to index Social Security benefits. The CPI-E would imply that the current COLA has been underadjusting for inflation, not overadjusting.

Jackson notes the CPI-E, but dismisses it as:

an unpublished, ‘experimental’ index

He then cites BLS’s warning that:

any conclusions drawn from it should be used with caution.’ BLS also concedes that the CPI-E has a number of shortcomings because it simply re-weights the price data collected for its regular price surveys, without attempting to collect some important data specific to seniors.

Given that this experimental index has shown evidence that the elderly see a higher rate of inflation than the population as a whole, it would seem that anyone concerned about having an accurate measure of the rate of inflation experienced by the elderly would want to see the BLS construct a full CPI-E. In fact, several hundred economists recently signed a statement calling on BLS to construct such an index. This would be the obvious route to go for anyone interested in an accurate index for the inflation adjustment of more than $10 trillion in Social Security benefits over the next decade.

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David Brooks Think When Democrats Win Elections They Have to Give Everything to Republicans

3:29 am in Uncategorized by Dean Baker

David Brooks lectures at a podium

David Brooks offers Democrats the worst tax deal ever.

It’s fascinating to read David Brooks’ column today. He boldly argues that Republicans:

have to acknowledge how badly things are stacked against them. Polls show that large majorities of Americans are inclined to blame Republicans if the country goes off the ‘fiscal cliff.’ The business community, which needs a deal to boost confidence, will turn against them. The national security types and the defense contractors, who hate the prospect of sequestration, will turn against them.

Moreover a budget stalemate on these terms will confirm every bad Republican stereotype. Republicans will be raising middle-class taxes in order to serve the rich — shafting Sam’s Club to benefit the country club. If Republicans do this, they might as well get Mitt Romney’s “47 percent” comments printed on T-shirts and wear them for the rest of their lives.

Recognizing their weak position, he says that Republicans should be prepared to allow the top tax rate to rise to 36 or even 37 percent, but in exchange:

Republicans should also ask for some medium-size entitlement cuts as part of the fiscal cliff down payment. These could fit within the framework Speaker John Boehner sketched out Monday afternoon: chaining Social Security cost-of-living increases to price inflation and increasing the Medicare Part B premium to 35 percent of costs.

Excuse me, but what planet is David Brooks on? This would be comparable to Japan asking for Hawaii and parts of California as it was negotiating its surrender in World War II.

If nothing happens right now, the top tax rate goes to 39.6 percent on January 1, 2013. Let’s say that again just in case David Brooks is reading. If nothing happens right now, the top tax rate goes to 39.6 percent on January 1, 2013. There is nothing that John Boehner and the Republicans can do to stop this.

Furthermore, President Obama has a mandate to raise the top tax rate to 39.6 percent. Brooks probably missed this, but we just had a lengthy election campaign where taxes on the rich were the central issue. President Obama won.

Incredibly, Brooks’ proposal for “medium size entitlement cuts” would take a much bigger bite out of the income of retirees than his bold concessions on taxes would take out of the income of the rich. The cut to the cost of living adjustment would reduce lifetime benefits of seniors by around 3 percent. For the third of retirees that rely on Social Security for more than 90 percent of their income, this would be a cut in their income more than 2.5 percent.

In addition, Brooks want to raise Medicare Part B premiums by 10 percentage points of the total cost from 25 percent to 35 percent. With the per person cost projected to be average almost $6,000 a year over the next decade, this “medium size entitlement reform” would raise the cost to seniors by $600 a year. This is equal to 3 percent of the income of a senior with an income of $20,000, a figure that is somewhat higher than the median for people over the age of 65.

So Brooks is looking to cut the income net of Medicare expenses for the bottom half of Social Security and Medicare beneficiaries by almost 6 percent. And, his tax increases?

We don’t know exactly how Brooks would change the tax schedules, but let’s assume that the 35 percent bracket goes to 37 percent, Brooks’ higher number. And we’ll raise the 33 percent bracket to 35 percent. For a couple earning $500,000 a year, this would imply an increase in taxes of roughly $7,600 a year or 1.5 percent of their income.

So Brooks is proposing that as a starting offer (he wants bigger cuts on the table in the year ahead) moderate income seniors will see their income drop by 6 percent due to cuts in Social Security and Medicare, while the wealthy will see their income fall by 1.5 percent from tax increases. It’s interesting to think aboout what he would suggest putting on the table if the Republicans had won the election.

Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.

Photo by the Miller Center released under a Creative Commons License.

Is President Obama Playing Peter Peterson’s Budget Game?

3:59 am in Business, Government by Dean Baker

"Fetch!" says Peterson. (photo: Noviewsnocomments via Flickr)

Okay folks, it looks like the whole country is now playing Peter Peterson’s budget ball. For those not familiar with him, Peterson is a Wall Street investment banker. He has made billions of dollars through his dealings and government subsidies, and now he is using much of this money to accomplish a lifelong quest, gutting Social Security and Medicare.

Toward this end, he has set up a fake news service (the “Fiscal Times“); he’s funded scary, anti-Social Security documentaries; sponsored a set of rigged public forums (America Speaks) and even paid for the construction of a high school curriculum to indoctrinate school children. According to some accounts, he is now the largest employer in the DC area after the Pentagon.

The way Peterson’s budget game works is that you get some deficit or debt target. This is against a backdrop where the baseline projections show the deficits going through the roof in 10-20 years. The reason for the exploding deficit is the projection of exploding health care costs. The US would be looking at massive budget surpluses if it had the same per person health care costs as any other wealthy country.  . . . Read the rest of this entry →

Hugh Jidette and Hugh Janus Go to Washington

8:25 am in Financial Crisis, Government by Dean Baker

By this point, many people have come across the name “Hugh Jidette,” the fictional presidential candidate created by the Peter G. Peterson Foundation to advance its agenda of cutting Social Security and Medicare. In the more realistic version of this story we would have Hugh Janus, the Wall Street lobbyist who is constantly plotting ways to take away the benefits that tens of millions of retired workers depend upon.

Apologies for the descent into 4th grade humor, but that is now the level of the public debate on budget and economic issues in Washington. Every chapter of this debate seems more corrupt and further removed from reality than the last one.

To start, we have President Obama’s deficit commission, led by two self-described clowns, former Senator Alan Simpson and Erskine Bowles. Senator Simpson’s established his notoriety by sending out late night e-mails that were both insulting to the recipients and revealed his stunning ignorance of Social Security’s finances. (Full disclosure: I was one of the recipients.)

One e-mail implied that the director of a major national women’s organization could not read a simple graph. It also expressed his alarm over Social Security projections that had been known to the policy community for almost two decades.  . . . Read the rest of this entry →

Fun With Paul Ryan and the Washington Post

6:25 am in Uncategorized by Dean Baker

The Washington Post really really hates Social Security. They hate Medicare almost as much. Therefore they are willing to give its critics space to say almost anything against the program (the real cause of September 11th) no matter how much they have to twist reality to make their case.

Today, Republican Representative Paul Ryan stepped up to the plate. The Post felt the need to give him an oped column after Paul Krugman cruelly subjected Mr. Ryan’s "Roadmap for America’s Future" to a serious analysis last week. This violated the long accepted practice in elite Washington circles of not holding proponents of Social Security and Medicare cuts/privatization accountable for the things they say. It is therefore understandable the Post would quickly give a coveted oped slot to Mr. Ryan to make amends for such a grevious breach of protocol.

The rest of us may not have the power to invent the facts that would be needed to push our policies, but that doesn’t mean we can’t have fun. Let’s count the inaccuracies (they call them something else outside of DC) in Mr. Ryan’s piece.

1 and 2) In the second sentence we get the line:

"Only in Washington could the government raid one entitlement program [Medicare] to finance a brand-new one [Obama's health care program] and still claim that deficits have been reduced and entitlements have been reformed."

Let’s see, "raid" refers to proposals to contain costs in Medicare. If I spend less on groceries this week, have I "raided" my food budget? At the least, this is an interesting use of the term "raid." Assume for the moment that the projected cost savings can be achieved without jeopardizing the quality of care (Ryan does not argue this point), what is the problem with using savings from one program to finance another and still have some additional savings left over to reduce the deficit?

That’s the same arithmetic they use everywhere, even in Representative Ryan’s home state of Wisconsin. (I know this, when I was in high school I went to a math contest there.) And President Obama’s program was scored as reducing the budget deficit by the non-partisan Congressional Budget Office, so it was not his administration’s own funny numbers.

The second sentence of the second paragraph tells readers: "Last year’s report revealed a $38 trillion shortfall over the next 75 years." Presenting a huge sum like this without any context (e.g. approximately 2.0 percent of future GDP) is certainly misleading, but in keeping with the Post’s policy of affirmative action for deficit hawks like Ryan, we’ll ignore this one.

3) In the next sentence Ryan tells readers:

"This year the shortfall appears to have decreased, but only after the Democrats’ health bill cut $529 billion from Medicare." Okay, this may not be a misrepresentation, just a non sequitur. Yes, if you are to improve a program’s finances you must either increase its revenue or cut its spending, so the Democrats propose to cut spending on Medicare. You caught them in the act, Mr. Ryan.

4) In the next sentence we have: "This apparent improvement was the basis for Democratic celebration — even though the program remains tens of trillions of dollars in the hole."

Okay, this one is beyond debate. The new projections show a Medicare shortfall equal to 0.3 percent of GDP over its 75 year projection period. This is equal to $2.7 trillion. And, even in Washington, $2.7 trillion is not "tens of trillions."

The next sentence is: "With the same legislation that cut more than half a trillion dollars in Medicare spending, the Democrats created a nearly $1 trillion health-care entitlement." Okay, this is not an inaccuracy, but Mr. Ryan the deficit hawk has now managed to attack the Democrats for cutting Medicare three times and we have just started the third paragraph.

5 and 6) Ryan then tells us: "The Obama administration’s own chief actuary has explained that in addition to the dubious assumptions on provider cuts and other claims of savings, the health-care law’s Medicare cuts cannot be used to both reduce Medicare’s unfunded obligations and pay for a new entitlement."

Okay, the chief actuary is a non-political position. The current chief actuary, Richard S. Foster, was not appointed by Obama.

The accounting used by the Obama administration with the Medicare savings is the standard accounting used for trust funds for decades.

7) Ryan begins the fourth paragraph: "Put simply, Medicare is on course to collapse." No, the trustees report released last week implies that it has a relatively minor shortfall. The trustees could be wrong, but if their projections prove accurate, then Medicare is actually in fine shape.

8) In the middle of the paragraph we get: "Exacerbating our unsustainable trajectory, health spending explodes under the Democrats’ health plan — raiding Medicare, expanding Medicaid and creating two entitlements without any clue of how to finance the ones we have now." Actually, CBO and the trustees showed health spending growing less rapidly than they had been without the plan. And, note that we have our fourth "raid" of Medicare.

9) The paragraph concludes: "the CBO warned last month of a devastating debt crisis within two decades." Actually, CBO bears part of the blame on this. It made a mistake in its projections which it subsequently corrected.

10) The fifth paragraph begins: "We do not have a choice as to whether Medicare will change from its current structure." No, if the trustees projections are correct, then we do not have to change Medicare’s structure beyond the changes in current law.

11 and 12) Later in the paragrpah Ryan tells us: "the Democrats’ political machine has attacked my contribution to this debate, making the false claim that the only solution put forward to save Medicare would "end Medicare as we know it."

The main attacker of Ryan is Paul Krugman. Krugman is very far from being part of the "Democrats’ political machine." In fact, he is almost certainly the embodiment of the "professional left" recently criticized by White House spokesperson Robert Gibbs.

Of course Ryan’s plan would end Medicare as we know it. It replaces a Medicare system that pays directly for health care with a voucher system. The voucher is explicitly designed not to keep pace with health care costs. Ryan describes the rate of increase in the size of the voucher as "a blended rate of the CPI and the medical care component of the CPI." In other words, something less than the rate of increase in health care costs. It is also means-tested, so that individuals with incomes above $80,000 would see their voucher cut in half (we might see a lot of people earning $79,999 under the Ryan plan) and those with incomes over $200,000 would not get the voucher.

13 and 14) In the next paragraph Ryan boasts that his Medicare cuts (raids?) would maintain the program’s solvency: "while reforming the program to ensure it will be there for younger generations. Future seniors would have access to the same coverage I enjoy as a congressman."

Of course the current projections already show that the program will be there for younger generations, so they don’t need Mr. Ryan’s plan, if the projections are correct. Of course there is absolutely nothing that ensures that Mr. Ryan’s Medicare voucher will provide seniors with the same coverage that he enjoys as a member of Congress.

15) The next paragraph reads:

"Far from the claims of "radicalism," this proposal is based on a key reform from the National Bipartisan Commission on the Future of Medicare, chaired by then-Sen. John Breaux (D-La.). That commission in 1999 recommended "modeling a system on the one Members of Congress use to obtain health care coverage for themselves and their families."

Ryan’s Medicare voucher might be a voucher system in the same way that a Yugo and a BMW are both cars, but there is absolutely nothing about Ryan’s proposal that ensures Medicare beneficiaries the same quality of care as members of Congress.

16) Ryan then describes his Medicare voucher:

"The Medicare payment would grow every year, with additional support for those who have low incomes and higher health costs, and less government support for high-income beneficiaries."

Actually, the payment is explicitly designed to fall behind the rate of medical care cost inflation. Rather than those with lower incomes getting more, those with higher incomes (above $80,000 a year) would fall further behind inflation.

17 and 18) The penultimate paragraph begins: "If we act now, we can avoid disruptions for current seniors while advancing patient-centered reforms so Medicare will be strengthened for future beneficiaries. The alternative is the European-style death spiral of the welfare state: kick the can down the road as our debt explodes."

Again, the latest projections from the Medicare actuaries imply that there is no great urgency to "act now." The "European-style death spiral" might ge useful political ad hominem, but it has no meaning. Some European countries, like Greece and Italy, do face severe budget problems, however some of the countries with the most expansive welfare states, like Denmark and Sweden, have much lower debt burdens than the United States.

19) Ryan continues: "Under an ever-expansive, all-consuming central government, costs will be contained with Washington’s heavy hand imposing price controls, slashing benefits and arbitrarily rationing seniors’ care."

Actually no one has raised the issue of rationing in any context. President Obama’s plan will limit the procedures for which the government will pay, as is currently the case with Medicare. However, there is nothing that President Obama has put forward that would do anything to prevent people from getting whatever care they are willing to pay for. Apparently the word "rationing" scores well in focus groups, which is why Ryan and other Republicans use it frequently in their attacks.

20) The second to the last sentence in the last paragraph tells readers: "Ironically, if Democrats succeed in demagoguing to death efforts to save Medicare, that political victory will hasten the program’s end." Of course, the Medicare trustees projections are correct, the program is nowhere near death, so we don’t need Mr. Ryan’s voucher plan to save Medicare.

Ryan concludes by telling readers that his proposal is "my sincere attempt to break the political paralysis on entitlement reform, to show that this challenge can be met — mathematically and politically — and to challenge those who disagree with my proposal to offer their own."

In the forgiving spirit of Friday the 13th, I will not count the reference to sincerity as an inaccuracy. The 20 inaccuracies and 4 references to raiding Medicare can speak for themselves. Of course to the seniors who would be unable to afford decent health care if Mr. Ryan’s plan became law, his sincerity won’t make any difference.

But, I am happy to offer my own test of Mr. Ryan’s sincerity. How about giving Medicare beneficiaries the option to buy into the more efficient health care systems in Europe, Japan, and Canada. The beneficiaries and the taxpayers will split the savings. This leaves the current system intact for those who like it, while offering seniors who opt to go elsewhere for their health care the opportunity to pocket tens of thousands of dollars while saving taxpayers money as well. What’s wrong with giving people a choice, Mr. Ryan?

Good Medicine: Why Not for Everyone?

8:09 am in Uncategorized by Dean Baker

As part of his health care package, President Obama proposed creating an independent commission of medical experts that would determine the medical procedures for which Medicare will pay. The reason is that patients now receive many costly procedures that provide little or no medical benefit. If we can reduce this waste, we can have large savings, while possibly even improving health outcomes. President Obama describes this as promoting good medicine.

He has a case, but there is one problem with this picture. If the plan is to promote good medicine, why are we just doing it for the elderly receiving Medicare? Why don’t we want good medicine for everyone?

Specifically, the government could apply the experts’ judgments on appropriate procedures to any insurance plan that receives government support. This would mean that any plan that enrolls patients with government subsidies would be bound by the expert panel’s judgment. If we are confident that our experts will be acting based on sound medical evidence, why shouldn’t their assessment apply everywhere?

In addition to the "why not" question, there is also a very important reason why we should want everyone else to be treated like Medicare beneficiaries: quality assurance. There is a disturbing tendency among our Washington elites to treat seniors as a species apart. For example, people who complain about high tax rates on the wealthy have no trouble proposing means-testing schemes for Social Security and Medicare that would impose far higher effective tax rates on middle income retirees.

If the same rules for medical procedures were applied to everyone as to the elderly, it would be far less likely that genuinely useful procedures would be excluded from coverage just to save the government a few dollars. With Read the rest of this entry →