Social Security and Medicare
Without doubt, the 20th and the beginning of the 21st centuries saw a dramatic improvement in the everyday lives of older adults in industrialized
countries. The increase in the number of older adults and their gain in political power, coupled with increased numbers of social programs addressing issues specifically involving older adults, created unprecedented gains for the average older person (Crown, 2001). As you can see in Figure 14.1, the economic well-being of the majority of older adults has never been better than it is currently. In 1959, roughly 35% of older adults were below the federal poverty line compared to only about 9.4% in 2006 (AgingStats. gov, 2008a).
Whether this downward trend in poverty rates will continue remains to be seen. The baby boomers, the largest generation in American history to become eligible for such government programs as Social Security and Medicare, will also be extraordinarily expensive due to two factors: their low personal savings rate and the projected costs of chronic disease (Samuelson, 2007).
The Political Landscape. Beginning in the 1970s, older adults began to be portrayed as scapegoats in the political debates concerning government resources.
Part of the reason was due to the tremendous growth in the amount and proportion of federal dollars expended on benefits to them, such as through the increase of benefits paid from Social Security during the 1970s (Crown, 2001). At that time, older adults were also portrayed as highly politically active, fiscally conservative, and selfish (Fairlie, 1988; Gibbs, 1988; Smith, 1992). The health care reform debate of the early 1990s focused attention on the spiraling costs of care for older adults that were projected to bankrupt the federal budget if left uncontrolled (Binstock, 1999). Consequently, older adults emerged as the source of most of the United States’ fiscal problems.
It was in this context that the U. S. Congress began making substantive changes in the benefits for older adults on the grounds of intergenerational fairness. The argument was that the United States must treat all generations fairly and cannot provide differential benefits to any one generation (Binstock, 1994). Beginning in 1983, Congress has made several changes in Social Security, Medicare, the Older Americans Act, and other programs and policies. Some of these changes reduced benefits to wealthy older adults, whereas others provided targeted benefits for poor older adults (Binstock, 1999).
The aging of the baby-boom generation presents very difficult and expensive problems (Congressional Budget Office, 2008). In fiscal year 2009, federal spending on Social Security and Medicare alone was expected to top $1.1 trillion. As you can see in Figure 14.2, if spending patterns do not change, by 2030 (when most of the baby boomers will have reached old age) expenditures for Social Security and Medicare alone are projected to consume roughly 13% of the gross domestic product (GDP) of the United States. Without major reforms in these programs, such growth will force extremely difficult choices regarding how to pay for them.
Clearly, the political and social issues concerning benefits to older adults are quite complex. Driven by the eligibility of the first baby boomers for reduced Social Security benefits in 2008 and their eligibility for Medicare in 2011, the next decade will see increased urgency for action in confronting the issues. There are no easy solutions, and it will be essential to discuss all aspects of the problem. Let’s look more closely at Social Security and Medicare.
Social Security. Social Security had its beginnings in 1935 as an initiative by President Franklin Roosevelt to “frame a law which will give some measure of
protection to the average citizen and to his family against the loss of a job and against poverty – ridden old age" Thus Social Security was originally intended to provide a supplement to savings and other means of financial support.
Over the years, revisions to the original law have changed Social Security so that it now represents the primary source of financial support after retirement for most U. S. citizens, and the only source for many (Henrikson, 2007; Kingson & Williamson, 2001). Since the 1970s, however, increasing numbers of workers have been included in employer – sponsored pension plans such as 401(k), 403(b), and 457 plans, mutual funds, as well as various types of individual retirement accounts (IRAs) (U. S. Department of Labor, 2005). This inclusion of various retirement plans, especially savings options, may permit more future retirees to use Social Security as the supplemental financial source it was intended to be, thereby shifting retirement financial planning responsibility to the individual (Henrikson, 2007).
The primary challenge facing Social Security is the aging of the very large baby-boom generation and the much smaller generation that follows. That’s why Nancy, the woman we met in the vignette, and other young adults are concerned. Because Social Security is funded by payroll taxes, the amount of money each worker must pay depends to a large extent on the ratio of the number of people paying Social Security taxes to the number of people collecting benefits. By 2030, this ratio will drop nearly in half; that is, by the time baby boomers have largely retired, there will be nearly twice as many people collecting Social Security per worker paying into the system as there is today (Social Security Administration, 2008). Various plans have been proposed since the early 1970s to address this issue, and several U. S. presidents have made it a major agenda item (including President George W. Bush in 2005), but Congress has not yet taken the actions necessary to ensure the long-term financial stability of Social Security (Social Security Administration,
2008) . As discussed in the Current Controversies feature, the suggestions for doing this present difficult choices for politicians.
Medicare. Roughly 40 million U. S. citizens depend on Medicare for their medical insurance. To be eligible, a person must meet one of the following criteria: be over age 65, be disabled, or have permanent kidney failure. Medicare consists of three parts (Medicare. gov, 2008a): Part A, which covers inpatient hospital services, skilled nursing facilities, home health services, and hospice care; Part B, which covers the cost of physician services, outpatient hospital services, medical equipment and supplies, and other health services and supplies; and Part D, which provides some coverage for prescription medications. Expenses relating to most long-term care needs are funded by Medicaid, another major health care program funded by the U. S. government and aimed at people who are poor. Out-of-pocket expenses associated with co-payments and other charges are often paid by supplemental insurance policies, sometimes referred to as “Medigap” policies (Medicare. gov, 2008b).
Like Social Security, Medicare is funded by a payroll tax. So the funding problems facing Medicare are very similar to those facing Social Security and are grounded in the aging of the baby – boom generation. In addition, Medicare costs have increased dramatically due to more general rapid cost increases in health care.
Due to these rapid increases and the specter of the baby-boom generation, cost containment remains a major concern. In 2008, President Bush and the contenders to replace him all cited rapidly rising health care costs as a major economic problem facing the United States. But unlike Social Security, Medicare is a government program that has been subjected to significant cuts in expenditures, typically through reduced payouts to health care providers. Whether this practice will continue is unclear, especially when baby boomers find out that their health care coverage could be significantly reduced.
Taken together, the challenges facing society concerning older adults’ financial security and health will continue to be major political issues throughout the first few decades of the 21st century. There are no easy answers, but open discussion of the various arguments will be essential for creating the optimal solution.
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