The Fierce Urgency of "Nothing" (the Democratic plan for Social Security)

by Bruce Webb

Andrew Biggs references an editorial from the Charleston SC Post and Courier Advance Entitlements Reform

However, President Obama’s major entitlement-reform offensive strikes on the Medicare front. He proposed, in his speech to Congress, to deliver “quality, affordable health care for every American” while also bringing runaway costs under control. That challenging goal contradicts the president’s contention, in the same speech, that he doesn’t believe in “bigger government.”

But just as Democrats, including then-Sen. Obama, shouldn’t have rejected President George W. Bush’s Social Security reform proposals without offering coherent counterproposals, Republicans who oppose President Obama’s health-care ideas should offer tangible counterproposals on Medicare reform, too.

And then Biggs comments as follows

In 2005, there was little public or media pressure on Democrats to put their own Social Security reform plan on the table; it was sufficient that they merely oppose President Bush’s plan. I suspect the same won’t be true for Obama’s health proposals, so those who wish to take a different path on health care shouldn’t be complacent that opposition is enough.

The second assertion is perfectly sound, every serious person agrees that the current track of medical inflation is unsustainable, either we need to restrict coverage even more or find some other way to control costs in a way that allows us to maintain or hopefully expand coverage, doing “Nothing” not being a credible alternative. But the same is not true for Social Security, the situations are just not as symmetrical as Biggs would have us believe. Before explaining why I want to include the two paragraphs immediately following from the Post and Courier editorial.

The status quo will lock Medicare on a track toward a balance-sheet train wreck. Medicare trustees warned last year that the system, on its present course, would run out of money by 2019.

Unfortunately, such familiar alarms about Medicare — and Social Security — have long fallen on deaf ears, perpetuating delays in dealing with their problems. With each buck-passing postponement of the hard choices required to achieve long-term solvency, the tasks get more expensive, and thus more likely to send politicians running for cover.

Oops. There are a couple of errors operating here. To see what they are you can follow me below the fold.

As to Medicare. First of all Medicare is not a monolith, its various Parts draw their funding from different sources. That is Part B-Doctors and Part D-Drugs draw their funding from the General Fund and as such cannot “run out of money” anymore than the Defense Department can. The decision of whether to finance visits to the doctor’s office vs buying F-22s is a policy choice and not on a inevitable track to anywhere, still less a “balance-sheet wreck”. So that is error number one.

Error number two is a little more subtle. Medicare Part A-Hospital, which makes up just over half of overall Medicare is indeed funded by payroll taxes whose surpluses and deficits are credited to the HI (Hospital Insurance) Trust Fund. And that Trust Fund is indeed slated for depletion in 2019. Does that mean that Part A will “run out of money”. Well no, not in the sense that the editorial implies. To see why we need to step back and look at the language of the 2008 Medicare Report itself.

Under the intermediate assumptions the HI trust fund is projected to be exhausted in 2019, the same year as in last year’s report but at an earlier point within the year, due to slightly lower projected payroll tax income and slightly higher projected benefits than previously estimated. For the 75-year projection period, the actuarial deficit is virtually the same as in last year’s report, at 3.54 rather than 3.55 percent of taxable payroll.

If we unpack this a little we see that not much harm was done by doing “Nothing” in 2007, you got a little slippage in the date of Trust Fund Depletion offset somewhat by a tiny bit of improvement in the actual actuarial deficit. In contrast lets look at the equivalent passage in the 2007 Medicare Report

Under the intermediate assumptions the HI trust fund is projected to be exhausted in 2019, 1 year later than in last year’s report, due to slightly higher projected payroll tax income and slightly lower projected benefits than previously estimated. For the 75-year projection period, the actuarial deficit is little different from that in last year’s report, at 3.55 rather than 3.51 percent of taxable payroll.

That is if you had just jumped from the 2006 Report to the 2008 you would have seen HI Trust Fund Depletion pushed back by a year even as the actuarial gap increased from 3.51% to 3.54%. This isn’t an argument for doing “Nothing” for Medicare but it renders this from the editorial as being somewhat over heated: With each buck-passing postponement of the hard choices required to achieve long-term solvency, the tasks get more expensive. Well maybe yes and maybe no. Because as we can see the process is not linear, better payroll receipts can push the depletion date back, worse ones can move it up, but in the end Medicare Part A can never run OUT of money in the absolute sense, it can only run SHORT of money. The distinction may seem academic but it is the difference between maybe needing to ration care and cutting off Medicare altogether. The Post and Courier is shouting apocalypse while reality is stating problem. This is particularly so when the proposed solution to some projected shortfall necessitating rationing in 2019 is just to start rationing care today, that just defines the problem as the solution.

Still the editorial’s overall point on Medicare is sound, the Republicans really just can’t be the party of ‘No’ on Health Care. But the same is not true of Democrats on Social Security. When Biggs states the following he is establishing a false parallel.

In 2005, there was little public or media pressure on Democrats to put their own Social Security reform plan on the table; it was sufficient that they merely oppose President Bush’s plan.

First of all there was some media pressure, it is just that the push-back came in the form of ‘There is no crisis’ on the sensible grounds that there was a big difference between a problem that probably would manifest itself by 2018 or so (Medicare) and certainly would do so before mid-century (Health Care generally) and a problem that might manifest itself by 2041 and was in any event on a much smaller scale (Social Security). To lift my own comment from Biggs (additions in italics).

Democrats had a coherent counterproposal. It just was too simple to be comprehended by the Post and Courier.

Take 1.89%. Payroll gap per 2004 Report Add four years of ‘Nothing’. Result? 1.7% Payroll gap per 2008 Report
http://www.ssa.gov/OACT/TR/TR04/II_conclu.html#wp86802

Now you can take other starting and ending points. For example I could take 2004 and 2006 and get the results 1.89% and 2.02%. Or I could change measures and use 2004 and 2008 to yield 2042 and 2041. And then if you like do some elaborate calculations to calculate the savings or loss in current dollars of not implementing a fix in 2004.

No one has to agree with Dean Baker that this is just a Phony Crisis promulgated by people “who say they want to fix the roof (but) actually want to knock holes in it”. And there may be some force in the argument that unfunded liability over the Infinite Future Horizon creates serious issues of inter-generational inequity that will need to be addressed at some point or another. (Personally I am with Dean and think the latter argument is hooey.)

But wherever you land on the fundamental question the twin assertions of “We can’t afford to wait” and “The cost will only get greater if we delay” just are not supported by the historical record from 1997 to 2008. Now oddly they were supported by that record from 1993 to 1996 and retrospectively they may end up being supported by the record from 2008-2011. But from the actual standpoint of March 2009 there just isn’t a whole bunch of the “Fierce urgency of Now” operating.

The 2006 Report was quite the disappointment, the outlook as a percentage of payroll having darkened significantly since 2004. Did this mean the “There is no Crisis” people of spring 2005 had egg on their face? Well not really because you could calculate with some precision the Cost of Inactivity between any two time points. And knock on wood for all ‘current participants’ in all years and for all ‘future participants’ in every year but 2006 the cost of sticking with the Democratic plan of “Nothing” as a plan for Social Security has been negative, that is workers have been left dollars ahead.

“Nothing” is not a particularly compelling plan, it doesn’t fit neatly within the conventions of reporting on policy. Which doesn’t mean it has not proved to be a numerically sound plan. Since 1997.

That is there is no such thing as SocialSecurityMedicareMedicaid and it is not at all hypocritical for Democrats to have refused to endorse some type of reform for Social Security in 2005 while demanding Republicans get off the stump on Medicare in 2009. You simply get a fiercer urgency from 2019 than you do from 2041 (or 2049).

“Nothing”. The numerically proven plan for Social Security since 1997.

“Nothing”. The ‘so far we have dodged the bullet’ plan for Medicare. 2019 is not a drop dead point for Medicare, it doesn’t actually effect Parts B and D in the first place and only effects Part A in minor ways to start with (the actuarial gap being just under 1% of payroll at that point), we have the time to get Medicare the right “Something” and should. But that doesn’t mean Democrats have any obligation to budge on Social Security.

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