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Social Security, Medicare require fixes, experts say

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A billboard showing the debt limit is seen in Washington, D.C. on April 17, 2023.

Mandel Ngan | AFP | Getty Images

As lawmakers work to hammer out a debt limit deal, experts already say more needs to be done to curb the nation’s spending, and that could include Social Security and Medicare reform.

The debt ceiling is the maximum amount of money that the federal government may borrow to pay its bills. If the government crosses that threshold, it may default on its debt.

The point at which the government may not be able to pay all of its obligations — known as the “X date” — could happen in the first two weeks of June, according to the Congressional Budget Office. Treasury Secretary Janet Yellen has warned the U.S. could run out of money as soon as June 1.

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Thus far, lawmakers have been unable to quickly resolve the issue. House Republicans have passed legislation called the Limit, Save, Grow Act to raise the debt ceiling. But Democrats including President Joe Biden have rejected the terms.

While there is optimism both parties will come together to address the issue, experts say it is unlikely any compromise will include long-term fixes for the nation’s fiscal woes.

Debt held by the public as a share of GDP averaged about 46% to 47% from 1973 to 2022, Jason Fichtner, chief economist at the Bipartisan Policy Center, noted during a webcast hosted by the think tank on Monday.

That debt is now near 100%, he said, while the CBO is projecting it could climb to 118% of GDP by 2033, the highest level recorded.

Debt likely to require more negotiations

The fiscal imbalance is leading to significant debts and deficits, noted Warren Payne, senior advisor at law firm Mayer Brown. And while the debt limit will be an “action-forcing event,” the results likely will not go far enough, he said.

“We’re not going to have any big substantial change in the debt and deficit trajectory based on what is coming out of the negotiations right now,” Payne said.

“It’s going to be really important that this conversation continues into another round of negotiations,” he added.

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One way to save may be to address spending on programs like Medicare and Social Security, the experts said. Both programs could be in the crosshairs if the government hits the debt ceiling and is forced to choose among its obligations.

Long-term, both programs have complex reform needs. Medicare’s Hospital Insurance trust fund will be depleted in 2031, according to the latest projections from the program’s trustees.

Meanwhile, Social Security’s trust fund used to pay retirement benefits will be able to send full checks for just 10 years, the Social Security trustees project. At that point, 77% of those benefits will be payable. When combined with Social Security’s disability trust fund, the projected depletion date is 2034.

Rather than wait for a big overhaul, more incremental changes can be made these programs now, experts suggested during Monday’s Bipartisan Policy Center panel.

Curb excess Medicare spending

While debt ceiling negotiations have focused on work requirements for government programs, there may be other ways to help reduce spending, noted Jim Capretta, senior fellow at the American Enterprise Institute.

In Medicare and Medicaid, “there’s a lot of waste, fraud and abuse, and it has been that way for a long time,” Capretta said.

The government may be able to do better with more resources by implementing additional background checks and requirements to make sure providers are legitimate before they get paid, he said.

In addition, Medicare is paying different prices for the same services based on where they are provided provided, and may save a “pretty good amount of money” by revisiting that policy, Capretta said.

Admittedly, these changes may not solve all of Medicare’s fiscal woes, he said, but may provide a more immediate way to start to cut costs.

Automatic adjustments to Social Security

Social Security benefits are largely based on payroll taxes that fund retirement or disability benefits.

The program has some adjustments in place for inflation or wage growth.

However, it does not correct for a mismatch when demographics change, Capretta noted.

By building automatic adjustments into Social Security — such as for length of retirement, mortality estimates, fertility estimates and wage growth — the program could self-correct on a gradual basis, which would enable it to stay solvent, Capretta said.

We’re not going to have any big substantial change in the debt and deficit trajectory based on what is coming out of the negotiations right now.

Warren Payne

senior advisor at Mayer Brown

This would avoid requiring Congress to enact changes to keep the program in balance, he said.

Notably, one change enacted in 1983 — raising Social Security’s retirement age to 67 — is still getting phased in for today’s retirees.

Those reforms went right up to the deadline before Congress was able to act because Social Security is so “politically fraught,” noted Payne.

Future negotiations may have the same urgency, he said, as lawmakers generally avoid topics like raising the retirement age or hiking payroll taxes.

“What we’ve seen recently is Congress is largely incapable of even having that conversation,” Payne said.

Read More: Social Security, Medicare require fixes, experts say

2023-05-16 13:06:50

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