Social Security and Medicare are the targets of a growing number of new budget plans aimed at reducing federal spending. President Obama’s Fiscal Commission recently voted 11-7 to cut Social Security benefits for all seniors, and require beneficiaries to pay substantially more for their Medicare.
While the Commission’s plan received the support of a majority of the 18-member commission, the plan was three votes shy of the 14 votes needed to force Congressional action. Nevertheless, both President Obama and Congressional leaders said they would include many of the recommended proposals in their upcoming budgets for fiscal 2012, which are due soon.
A number of the Commission’s proposals would hit seniors particularly hard. Here are a few highlights:
• COLA cuts: Use the “chained” Consumer Price Index (CPI) to calculate annual cost-of-living adjustments (COLAs). Supporters say that the difference would be small, reducing the COLA about .3 tenths of a percentage point per year. But TSCL estimates this “small” change would cost retirees, with average benefits of $1,170 in 2011, some $15,223 over a 25-year retirement.
• Benefit formula cuts: Change the benefit formula reducing benefits for new retirees with both high and average earnings.
• Increase the retirement age: Raise both the eligibility age both for full benefits, currently at 66 and set to rise to 67 and, for the first time, raise the earliest eligibility age which is currently 62.
• Increase the taxable maximum wages. Raise the maximum wages upon which Social Security is paid, currently $106,800.
• Impose new Medicare deductibles and impose new coverage restrictions on Medigap plans: Impose a new $500 deductible for both Medicare Part A and Part B that Medigap plans would be restricted from covering. Would also limit the co-insurance or co-pays that Medigap plans could cover to 50 percent of the next $5,000 in Medicare cost-sharing. Currently plans pay most, or all, of the Medicare cost sharing.
Depending on health, and type of Medigap coverage, seniors would get hit with up to $3,100 per year in new costs that were previously covered by their health plan.
Although Social Security and Medicare need some changes to enable the programs to continue paying scheduled benefits in a timely manner, TSCL believes that benefit reductions should not be imposed on people who have already retired, or are close to retirement. Other deficit reduction options exist, and Congress needs to allow time for the public to more fully learn about the proposals, consider the choices, and have an opportunity to provide input to elected lawmakers.
Sources: “Divided Deficit Panel OKs Proposal,” John Maggs, Politico, December 3, 2010. “The Moment of Truth” The National Commission on Fiscal Responsibility and Reform, December 2010.