By Clinton Cabinet member, Robert B. Reich, from Robert Reich's Blog
Posted on May 13, 2009, Printed on May 14, 2009
What are we to make of yesterday's report from the trustees of the Social Security and
Medicare trust funds that Social Security will run out of assets in 2037, four years sooner
than previously forecast, and Medicares hospital fund will be exhausted by 2017,
two years earlier than predicted a year ago?
Reports of these two funds' demise are not new. Fifteen years ago, when
I was a trustee
of the Social Security and the Medicare trust funds (which meant, essentially, that I and a
few others met periodically with the official actuary of the funds, received his report, asked
a few questions, and signed some papers) both funds were supposedly in trouble. But as I
learned, the timing and magnitude of the trouble depended a great deal on what
assumptions the actuary used in his models. As I recall, he then assumed that the economy
would grow by about 2.6 percent a year over the next seventy-five years. But go back
into American history all the way to the Civil War -- including the Great Depression and
the severe depressions of the late 19th century -- and the economy's average annual
growth is closer to 3 percent. Use a 3 percent assumption and Social Security is flush for
the next seventy-five years.
Yes, I know, the post-war Baby Boom is moving through the population like
a pig through
a python. The number of retirees eligible for benefits will almost double to 79.5 million in
2045 from 40.5 million this year. But we knew that the Boomers were coming then, too.
What we didn't know then was the surge in immigration. Yet immigrants are mostly young.
Rather than being a drain on Social Security when the Boomers need it, most immigrants
will be contributing to the system during these years, which should take more of the
Even if you assume Social Security is a problem, it's not a big problem.
Raise the ceiling
slightly on yearly wages subject to Social Security payroll taxes (now a bit over
$100,000), and the problem vanishes under harsher assumptions than I'd use about the
future. President Obama suggested this in the campaign and stirred up a hornet's nest
because this solution apparently dips too deeply into the middle class, which made him
backtrack and begin talking about raising additional Social Security payroll taxes on
people earning over $250,000. Social Security would also be in safe shape if it were
slightly more means tested, or if the retirement age were raised just a bit. The main point is
that Social Security is a tiny problem, as these things go.
Medicare is entirely different. It's a monster. But fixing it has everything
to do with slowing
the rate of growth of medical costs -- including, let's not forget, having a public option
when it comes to choosing insurance plans under the emerging universal health insurance
bill. With a public option, the government can use its bargaining power with drug
companies and suppliers of medical services to reduce prices. And, as I've noted, keep
pressure on private insurers to trim costs yet provide effective medical outcomes.
Don't be confused by these alarms from the Social Security and Medicare
Security is a tiny problem. Medicare is a terrible one, but the problem is not really
Medicare; it's quickly rising health-care costs. Look more closely and the real problem
isn't even health-care costs; it's a system that pushes up costs by rewarding inefficiency,
causing unbelievable waste, pushing over-medication, providing inadequate prevention,
over-using emergency rooms because many uninsured people can't afford regular doctor
checkups, and spending billions on advertising and marketing seeking to enroll healthy
people and avoid sick ones.
He doesn't let the other shoe drop, does he!
Robert Reich is professor of public policy at the Richard and Rhoda Goldman School
of Public Policy at the University of California, Berkeley. He was secretary of labor
in the Clinton administration.