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How Will President Obama’s Budget Impact Medicare, Social Security?

April 11, 2013 at 12:00 AM EST
The president's proposed budget includes cuts to Medicare and Social Security. Jeffrey Brown discusses the various impacts with Joseph Antos of the American Enterprise Institute, Max Richtman of the National Committee to Preserve Social Security and Medicare and Jared Bernstein of the Center on Budget and Policy Priorities.
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JEFFREY BROWN:  A day after the president sent his budget to Congress, several key proposals were hot topics among lawmakers in both parties. 

MAN:  This is 2 million-plus!

JEFFREY BROWN:  Liberal and progressive leaders rallied outside the Capitol this afternoon, sounding off against the president’s decision to curb some entitlement program spending in his budget proposal. 

REP. DONNA EDWARDS, D-Md.:  We have stood with you.  It’s time for you to stand with the seniors of this country.  It’s time for you to stand on their side and say that we’re not going to tolerate a benefits cut. 

JEFFREY BROWN:  Two changes in particular have irked many on the political left.  One is the president’s willingness to adopt a new measure of inflation for the government known as the chained consumer price index.  It would reduce future benefits to Social Security recipients, military veterans and civilian federal employees. 

The president himself expressed reservations yesterday, but he said he made the offer to bring Republicans to the negotiating table. 

PRESIDENT BARACK OBAMA:  And I don’t believe that all these ideas are optimal, but I’m willing to accept them as part of a compromise if, and only if, they contain protections for the most vulnerable Americans. 

JEFFREY BROWN:  That didn’t stop Democrats like Congressman Mark Pocan of Wisconsin from pressing the acting budget director, Jeff Zients, today at a House hearing. 

REP. MARK POCAN, D-Wis.:  And I called my mother.  I woke her up this morning to ask her exactly what she makes on Social Security per month.  She’s 84.  I grew up in a lower middle-class family.  They have a modest home, but she gets $1,101 a month at 84.  And then I went through some of her bills with her and where she is at in her savings.  It’s just not a lot.  And to try to address Social Security in that way to me seems to be breaking our promise to seniors. 

JEFFREY ZIENTS, Acting Director, Office of Management and Budget:  The president, as part of a balanced, comprehensive deficit reduction package included CPI.  The other condition, however, is to protect the most vulnerable, including people like your mother, older Social Security beneficiaries. 

JEFFREY BROWN:  The budget also contains $400 billion in savings from Medicare and other federal health programs.  Those would be achieved through lower payments to health care providers and drug companies and by requiring wealthier Medicare recipients to pay higher premiums. 

In his remarks yesterday, the president also sought to allay concerns about the potential effects of those reforms. 

PRESIDENT BARACK OBAMA:  We will reduce our government’s Medicare bills by finding new ways to reduce the cost of health care, not by shifting the costs to seniors or the poor or families with disabilities.  They are reforms that keep the promise we have made to our seniors: basic security that is rock-solid and dependable and there for you when you need it. 

JEFFREY BROWN:  Back at today’s hearing, the chair of the House budget committee, Republican Paul Ryan, said the plan represents a good first step, but doesn’t go far enough. 

REP. PAUL RYAN, R-Wis.:  The president does deserve credit for challenging his party on entitlements.  Unfortunately, the budget doesn’t include the structural reforms that we need to protect and strengthen critical health and retirement security programs.  These policy changes in this budget wont save these programs.  They will make them a little less expensive, but they still go bankrupt. 

JEFFREY BROWN:  House Speaker John Boehner, meanwhile, rejected the president’s demands for close to $1 trillion in new revenues. 

REP. JOHN BOEHNER, R-Ohio, Speaker of the House:  The president calls this his compromise budget, but his bottom line is this: my way or the highway.  And if that’s the case, then I’m not very optimistic. 

JEFFREY BROWN:  Still, Treasury Secretary Jack Lew said today the administration is optimistic a budget deal can be reached this year. 

And we look at this more closely now with Jared Bernstein.  He served as chief economist and adviser to Vice President Biden from 2009 to 2011 and is now a senior fellow at the Center on Budget and Policy Priorities.  Max Richtman is president of the National Committee to Preserve Social Security and Medicare, an advocacy group.  And Joseph Antos is an economist at the American Enterprise Institute whose research includes Medicare and health care system reform. 

Welcome to all of you. 

 (CROSSTALK) 

JEFFREY BROWN:  Jared, first of all, I will start with Social Security and this chained CPI.  Explain that to us. 

JARED BERNSTEIN, Former Chief Economist to Vice President Joe Biden:  Want to jump right in, huh?

(CROSSTALK)

JEFFREY BROWN:  Yes. 

JARED BERNSTEIN:  Sure.

JEFFREY BROWN:  Well, how is it different from the way things are done? 

JARED BERNSTEIN:  Well, the punch line is that the chain CPI grows a bit more slowly than the CPI that’s currently used. 

Now, Social Security benefits are adjusted for price increases.  They’re adjusted with the Consumer Price Index.  But for reasons that have to do with, most economists, and myself included, view a slightly better, more realistic way of estimating how people actually respond to price changes.  This chain measure does a better job of capturing inflation and it grows more slowly. 

Now, that said, there are critics — and, by the way, that means that your real Social Security benefit goes up less because it’s adjusted by a different deflationary measure.  Now, let me just be clear, though.

JEFFREY BROWN:  And there’s the rub. 

JARED BERNSTEIN:  There’s rub number one. 

Rub number two, which I think is also an important rub, is that the prices that elderly people face are different than the prices that the rest of us face.  They face more medical costs.  They pay more out-of-pocket for medical costs.  So while the chained CPI is a more accurate measure of inflation overall, it’s probably not more accurate for elderly people. 

JEFFREY BROWN:  All right, Max Richtman, you hate this idea, right? 

MAX RICHTMAN, President, National Committee to Preserve Social Security and Medicare:  That’s an understatement. 

JEFFREY BROWN:  OK.  

 (LAUGHTER)

JEFFREY BROWN:  Explain. 

MAX RICHTMAN:  Well, rub number three is that the current formula that’s being used, the Consumer Price Index that is under current law, that is inadequate. 

It doesn’t take into account enough of the goods and services Jared’s talked about that seniors rely on.  So not enough weight is given on health care costs, out-of-pocket costs.  Medicare is a great program.  It doesn’t cover dental care, vision care, hearing aids, and out-of-pocket costs, which go up.  Contrary to what the president said, a lot of out-of-pocket costs are going up under his proposal.  So the current formula is bad.  It doesn’t keep up with inflation. 

JEFFREY BROWN:  So they don’t get enough — seniors don’t get enough cost of living increase now, you’re saying.

 (CROSSTALK)

MAX RICHTMAN:  Now.  And so we’re now going to tell seniors that inadequate COLA you have been getting, you got zero for two out of the last four years, that was too generous?  We have devised a better way — not myself, but in Washington — and your COLA will be even smaller.  So we’re going to go from a flawed, inadequate adjustment for inflation to an even worse formula. 

JEFFREY BROWN:  Can you make a case for why this is a good move? 

JOSEPH ANTOS, Health Policy Analyst, American Enterprise Institute:  Well, let’s be clear that if inflation is zero, which it has been for the last couple years, seniors are not going see a reduction in their Social Security payments.  Let’s not panic about that. 

MAX RICHTMAN:  I hope not.

JOSEPH ANTOS:  It’s illegal. 

The fact is, however, that Social Security, Medicare and Medicaid are the key drivers of our overall fiscal problems.  Max is right.  This represents a cut in payments.  It’s a slow cut in payments.  It’s not a gigantic reduction all at once. 

JARED BERNSTEIN:  A few tenths per year. 

JOSEPH ANTOS:  Yes, exactly. 

What it basically says is, if we went back into a normal economy and we had, say, 2 percent inflation, instead of getting, say, a $200 raise on a $10,000 Social Security payment, you would get $150.  The loss of $50 means something, but the increase also means something. 

JEFFREY BROWN:  But the question is, does it make sense as a way to deal — one of the ways to deal with this large problem that we have?  

JARED BERNSTEIN:  I think only way it makes sense — and, here, the president agrees strongly with what I’m about to say. 

I think the only way it makes sense as an adjustment to Social Security is if you make sure that you offset some of the problems that Max and Joe just mentioned.  And what the president is proposing — this part maybe hasn’t been reported quite enough — is something called a benefit enhancement or a bump up starting after about 10 years of being on Social Security. 

So you do take that hit that we just talked about in terms of the smaller increases for about a decade.  There’s a bump up which will ultimately after 10 years amount to 5 percent of the average benefit, which is about $750.  So the president’s proposing, yes, we think we should do this for a variety of reasons, not least of which is to bring Republicans to the table for other reasons, but we’re going to try to offset the benefit losses with a bump up. 

JEFFREY BROWN:  So there are some protections. 

JARED BERNSTEIN:  It’s a benefit enhancement to protect some of the folks that we worry about. 

MAX RICHTMAN:  I wonder if I could just comment on that.

JEFFREY BROWN:  Yes.  Go ahead.

MAX RICHTMAN:  Because this is being sold, peddled, as a more — this chained CPI as a more accurate measure of inflation.  All right?

It’s not more accurate for seniors, but it’s being presented as more accurate.  If it’s accurate, why do you need a bump?  There’s something wrong with the formula if this — if the COLA is supposed to keep up with inflation, you wouldn’t need that. 

But I also wanted — you didn’t go here, but I want to make this observation.  We shouldn’t even be here talking about this.  I’m glad to be here talking on your show. 

JEFFREY BROWN:  Actually, that’s why — that’s where I want to go. 

MAX RICHTMAN:  All right. 

JEFFREY BROWN:  Because that’s the larger question. 

MAX RICHTMAN:  That is the larger question.

JEFFREY BROWN:  Is Social Security, should it be part of this?

MAX RICHTMAN:  It should not. 

JEFFREY BROWN:  It should not.  Because?

MAX RICHTMAN:  Because it didn’t create the deficit, hasn’t added a dime to the deficit, the debt or the annual deficit, has a surplus of $2.7 trillion, is sound — and Jared knows this — for the next 20 years, not according to Jared, Max, anyone here, is able to pay full benefits for the next 20 years. 

Then there’s a shortfall that needs to be addressed.  We don’t need to solve that today or in the next two months.  We have time to do that.  It shouldn’t be part of the debate.  And I was gratified today to see Senator Max Baucus at a hearing say this shouldn’t be — this change shouldn’t be part of the discussion on debt negotiations. 

I was gratified to hear Leader Pelosi wonder why it’s part of this budget proposal.  So I think we’re making some progress. 

JEFFREY BROWN:  All right.

Should it be part of the debate? 

JOSEPH ANTOS:  We can’t wait 20 years and then decide we have got an emergency. 

This has, of course, been the tendency of policy-makers, to put off the pain until later.  The fact is that we should be making reasonable reforms to encourage people to save more for their retirement.  And 20 years is just about the right amount of time for people to get ready for reality. 

The fact is that this is a budget hit.  This is not a reform of Social Security.  There’s no question about that.  What we need to do is, we need to provide incentives for people to stay on the job longer, if they are able-bodied and able-minded.  And we’re living longer and we’re living healthier. 

JARED BERNSTEIN:  Look, I think just to be clear here, it’s quite obvious that the president put the chained CPI in his budget because he wants to bring Republicans to the table on this key issue of revenues, new tax revenues. 

JEFFREY BROWN:  Well, that’s right.  But he’s implicitly or even explicitly making a case, one you don’t want, that it should be part of the discussion. 

JARED BERNSTEIN:  No, I think he is.

And I think that he’s doing so in such a way with this benefit enhancement, this bump up that tries to offset it.  He himself I think in his commentary has said this isn’t exactly the way I would like to go.  But we have to move forward.  And we also have to be concerned — and this — maybe Max and I depart a bit on this point. 

While I take your point on Social Security, when it comes to achieving a sustainable budget picture in the long run, that has to involve slowing the growth of health costs.  And there, the president also has significant cuts in the budget, about $400 billion from Medicare and Medicaid, largely from Medicare, largely on the delivery side. 

A point that we haven’t made yet — and this gets to some things Max has said — the typical beneficiary of Medicare and Social Security has an income of about $25,000.  So when we start fooling around with these kinds of adjustments and cuts, let’s be mindful of not hurting these economically vulnerable folks. 

JEFFREY BROWN:  Medicare, Joe Antos?  You scoffed when he said this was a significant reform. 

JOSEPH ANTOS:  It’s not a significant reform. 

JEFFREY BROWN:  It’s not?

JOSEPH ANTOS:  It’s a replay of last year’s budget with minor tweaks. 

Last year’s budget proposal from the president didn’t substantially reform the Medicare program.  The fact is that the $400 billion of cuts are offset by $250 billion worth of additional spending that the president assumes will take place in the Medicare program.  So we’re not talking about…

 (CROSSTALK)

JARED BERNSTEIN:  Well, so here we have a disagreement. 

Here’s a fact.  If you look back at the Congressional Budget Office’s projection of Medicare costs over the next 10 years and you look back a couple years ago and you look at today, that projection is down by $500 billion.  That means some of the changes that we and the health care industry have implemented, including things the president has brought to the table, have actually already slowed the growth of health care costs. 

So I disagree with Joe. 

 (CROSSTALK)

JEFFREY BROWN:  Go ahead. 

MAX RICHTMAN:  I do think that the Affordable Care Act has resulted in considerable savings. 

Some of the savings have not even been implemented yet.  So let’s give that a chance to work.  But keep in mind here we’re talking about Social Security and Medicare, we’re talking about retirement security.  As Jared said, about half of seniors right now receive about $22,000 a year in income.  So we’re asking them to get less and to pay more, pay more for premiums, deductibles, co-payments, more for out-of-pocket costs. 

JEFFREY BROWN:  Briefly, a brief last word. 

JOSEPH ANTOS:  OK.

So the key here is that we have to have real reform.  Real reform means that people change the way they behave.  In the case of Medicare, the beneficiaries change the way they behave and the health sector changes the way it behaves.  There is literally nothing in the president’s budget that has that kind of influence.

 (CROSSTALK)

JARED BERNSTEIN:  I know that was the last word, but that’s actually incorrect. 

You said a little bit in your introduction, bundled payments. 

 (CROSSTALK)

JOSEPH ANTOS:  That’s not in the president’s budget. 

JARED BERNSTEIN:  It is.

 (CROSSTALK)

JEFFREY BROWN:  All right, OK, very big subject, short amount of time.  And I promise you we will continue. 

Jared Bernstein, Joe Antos, and Max Richtman, thank you all. 

JOSEPH ANTOS:  Thank you. 

MAX RICHTMAN:  Thank you so much.

JARED BERNSTEIN:  Thank you.