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Social Security and the Budget Surplus

The president's proposal would keep the surplus where it belongs,
within Social Security, and prevent it from being frittered away
on tax cuts tilted to the wealthy

by Steve Gorin
Canterbury, New Hampshire

Older adults and others narrowly dodged a bullet last week when the National Bipartisan Commission on the Future of Medicare voted to reject a proposal to change Medicare into a premium support, or voucher, system. The Commission was established to make recommendations to Congress about the future of Medicare.

Medicare provides health care coverage to almost 40 million people. Along with Social Security, it is our fundamental social contract, a solemn agreement between the public and government. Although Medicare's primary beneficiaries are older adults, it also covers people with permanent disabilities and those with chronic kidney disease. Without Medicare, the poverty rate among older adults would increase significantly. In 1995, 70 percent of older recipients and their spouses had incomes of $25,000 or less and almost a third had incomes of $10,000 or less. Medicare is truly one of our nation's great success stories.

Yet, despite its achievements, Medicare does have problems. Unlike many private plans, Medicare does not cover prescription drugs or most long-term care. Medicare recipients also have deductibles and other out-of-pocket costs. Consequently, many beneficiaries purchase private insurance, or Medigap, to take up the slack. In 1996, the average (non-institutionalized) older recipient spent a fifth of their income on health care costs; by 2008, this could rise to 28 percent.

Medicare also has fiscal problems. According to the Social Security and Medicare Trustees, Medicare's Hospital Insurance Trust Fund (Part A), which is financed through payroll taxes, could run out of money in 2008. At this point, Medicare would be able to meet only 85 percent of its benefit obligations.

It is important to note here that even with the projected shortfall, Medicare would still be able to meet most of its obligations. While this situation is not ideal, it is also not a crisis. Moreover, the shortfall has less to do with Medicare itself than broader social and economic forces, particularly the aging of the baby boom generation and the decline in the number of workers contributing to Medicare. The cost of health care generally is also a problem. The Health Care Financing Administration predicts that over the next decade, health care costs in the private sector will increase at a faster rate than Medicare costs. Indeed, Medicare has much lower overhead and administrative costs than private insurers.

To address the Medicare shortfall, Congress created the Medicare Commission in 1997. On March 16, 1999, the Commission rejected a proposal by its co-chairs, Senator John Breaux (D-LA) and Representative Bill Thomas (D-CA), to change Medicare's current structure, which guarantees older adults a package of specific benefits. Under the Breaux-Thomas plan, beneficiaries would receive a voucher to buy private health insurance. Breaux-Thomas would also increase the age of Medicare eligibility from 65 to 67.

Critics of Breaux-Thomas have raised several concerns. First, Breaux-Thomas would not guarantee Medicare's current package of benefits and many recipients could find themselves priced out of badly needed services. Second, by increasing the age of eligibility, Breaux-Thomas would increase the number of people without insurance. Third, by shifting costs to recipients. Breaux-Thomas would force many older adults, who tend to have the greatest health needs, into low-cost health maintenance organizations of varying, and sometimes dubious, quality. Fourth, Breaux-Thomas does little to address the high cost of prescription drugs. Critics argue that Breaux-Thomas is really a wolf in sheep's clothing, a plan to destroy Medicare in the guise of saving it.

Unfortunately, we have likely not seen the end of Breaux-Thomas. Senator Breaux and Representative Thomas have promised to introduce it in Congress, and the plan enjoys support in both parties. On March 16, President Clinton expressed opposition to Breaux-Thomas. The president has also proposed investing 15 percent of the budget surplus in Medicare. We can only assume that Vice President Gore shares the president's approach.

Other presidential candidates have failed to comment on Breaux-Thomas. Given Medicare's importance, it seems unconscionable for candidates for our highest office to avoid addressing this issue. We in New Hampshire have a special responsibility to demand that candidates from both parties state forthrightly where they stand on Breaux-Thomas.

Stephen Gorin, Ph.D. is Executive Director of the New Hampshire Chapter of the National Association of Social Workers.

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Published in In Motion Magazine March 24, 1999.