[Vision2020] Entitlement Reform For the Entitled

[Art Deco]

[image: Opinionator - A Gathering of Opinion From Around the
Web]<http://opinionator.blogs.nytimes.com/>
May 20, 2012, 9:51 pmEntitlement Reform For the EntitledBy EZEKIEL J.
EMANUEL <http://opinionator.blogs.nytimes.com/author/ezekiel-j-emanuel/>

Ezekiel J. Emanuel<http://opinionator.blogs.nytimes.com/author/ezekiel-j-emanuel/>on
health policy and other topics.
Tags:

Income <http://opinionator.blogs.nytimes.com/tag/income/>,
Medicare<http://opinionator.blogs.nytimes.com/tag/medicare/>,
Retirement <http://opinionator.blogs.nytimes.com/tag/retirement/>, Social
Security <http://opinionator.blogs.nytimes.com/tag/social-security/>,
taxes<http://opinionator.blogs.nytimes.com/tag/taxes/>

Philadelphia

IF nothing is done about entitlement spending, and if our current tax
breaks continue, then by 2025, tax revenue will be able to pay for
Medicare, Medicaid, Social Security, interest on the debt and nothing else.
The rest — defense, medical research, highways, education, energy — will
have to be financed by deficits. Social Security’s funding is predicted to
run short in 2033, Medicare’s trust fund in 2024.

Like much else in Washington, there is little bipartisan agreement on what
to do about it. When it comes to Social Security and Medicare, Republicans
emphasize cuts and privatization, while Democrats strongly oppose both
approaches. Neither side was able to embrace the 2010 bipartisan
Simpson-Bowles plan, which proposed lowering Social Security’s
cost-of-living adjustments, increasing the taxable maximum income and
raising the eligibility age to 69 by 2075.

But here is a better bipartisan reform: Graduated eligibility. Instead of
having a fixed age at which people can get Social Security and Medicare, we
should link the age of eligibility to lifetime wealth. The richer you are,
the older you would have to be to be eligible for Social Security and
Medicare.

Here’s how it would work. People in the bottom half of the lifetime
earnings distribution would become eligible for normal retirement benefits
at age 65 for Medicare and 66 for Social Security, just as they are today.
But people in the next quarter of the lifetime earnings distribution would
become eligible for the respective programs at 67 and 68, and those in the
top quarter would become eligible at 70 and 71. All eligibility ages would
increase over time, as they are scheduled to now.

In all income brackets, those choosing to retire later than the standard
age would still receive higher Social Security benefits, called
delayed-retirement credits. For those choosing to retire earlier and accept
reduced benefits, on the other hand, nothing would change in the lower
bracket, while the minimum age would increase in the two higher income
brackets. And wealthier older people would have the choice of buying into
Medicare at age 65, though they would have to pay for it before the age of
70.

Demographic changes since Social Security was first enacted are a good
argument for raising the retirement age. In 1935, a man who reached the age
of 65 was likely to live almost 13 more years (and a woman, almost 15). But
today, Americans who reach 65 are likely to live nearly 19 more years.

But graduated eligibility also accounts for the fact that the rich live
longer than the poor, and that the longevity gap is increasing. In 2007,
the Social Security Administration did a study of mortality and income.
Among 65-year-old men born in 1922, those with income in the top half lived
an average of 2.2 years longer than those in the bottom half. But among
65-year-old men born in 1941, those with income in the top half were
projected to live an average of 5.3 years longer. Thus, requiring wealthier
Americans to wait five more years to claim Social Security and Medicare has
the effect of giving an average rich and an average poor person nearly the
same number of years of benefits.

This reform also combines several important values. The main reason Social
Security and Medicare have such strong public support is that they are
universal benefits; they are not just for the poor. With graduated
eligibility, all Americans will still get benefits, regardless of income;
the only thing that changes is when. And because the rich, on average,
would live longer and get the same number of years of benefits as those in
lower income brackets, the plan should appeal to those who still feel
strongly that everyone should pay their fair share.

It also makes practical sense. Americans in the bottom half of the income
distribution are more likely to have jobs in manual labor, which is more
physically difficult for older people to perform. White-collar workers in
the upper bracket don’t face the same physical demands. And their greater
earnings mean they should be able to save more to support themselves longer.

Graduated eligibility should be based on lifetime earnings instead of any
particular year’s income, which can be quite volatile. It would be
administratively simple to determine each citizen’s lifetime earnings,
because the Social Security Administration already has all this data. And
this measure would have the benefit of encouraging personal responsibility;
people making more than the median income would have an incentive to save.
Anyone who earned a lot at one time but frittered it away would have to
continue working longer.

Either in the lame duck Congressional session after the election or in
2013, there will surely be debate about a deal to address taxes and the
deficit. Graduated eligibility should be on the table. It would not
completely close the shortfall of the trust funds, but it would put Social
Security and Medicare on a stronger financial footing, while reaffirming
their universal nature and reflecting the fortunate fact that Americans are
living longer.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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