What’s all this talk about cuts in Social Security benefits?
The president has been urging Republicans to agree to a “grand bargain” that would save $4 trillion over the next decade by combining big concessions on either side: Republicans would agree to higher taxes on the wealthy, and Democrats would agree to cuts in Social Security benefits, among other things. Congressional Democrats reacted warily, and House Republicans rejected the proposal outright.
But Obama has continued to press for a “big” deal, and some outside budget analysts say that even a smaller deal, in the $2 trillion range, would be difficult to make without resorting to savings from Social Security. The most likely form this would take is a technical adjustment to the formula used to calculate cost-of-living increases in benefits. Experts have long argued that the formula overstates inflation because it does not take into account changes in consumer behavior in response to rising prices.
Using a different formula, the “chained consumer price index,” would reduce the annual increase in benefits by, on average, about three-tenths of a percentage point, saving an estimated $112 billion over 10 years. The effect of the cut would grow over time — someone retiring at 65 could expect 3.7 percent less in benefits at 75 than under the current law, 6.5 percent less at 85 and 9.2 percent less at 95.
Social Security boosters worry about the impact on older recipients. But switching to the “chained” formula also holds appeal for liberals because it would bring in $87 billion in revenue over 10 years by revising income tax brackets — a tax increase that Republicans might accept because it is technical in nature and coupled with Social Security cuts.
Will Medicare beneficiaries feel any fallout from the cuts?
Yes. But first, some context, because there’s been an awful lot of back-and-forth over Medicare cuts. The 2009 health-care law signed by Obama trimmed $500 billion from the program, mainly by cutting subsidies to insurers selling Medicare Advantage plans and by reducing the rate of growth in payments to medical providers. Then came the House Republicans’ recent proposal to overhaul Medicare by replacing it with subsidies that seniors would use to buy private insurance coverage.
A debt deal will involve more Medicare reductions. The House GOP proposal would cut $250 billion from the program by, among other things, raising premiums for wealthier retirees, reducing payments for home health aides and raising co-payments for lab services. A major likely savings is restricting the Medigap policies seniors buy to supplement their regular Medicare, which fuel Medicare spending by making seniors less cost-conscious. Seniors who want the “first dollar” coverage that Medigap plans provide could instead be required to pay a supplemental Medicare premium.