Connect the Entitlement Dots
Kevin Drum picks up
a ball I've been kicking around
for the past few days—that Medicare
, not Social Security, is the real problem that needs fixing. Now let's make this argument a little more sophisticated and add a twist: The two problems are actually related, and fixing Medicare could potentially ease the pressure on Social Security.
Here's what I mean. At the moment, using various benefit formulas, Social Security pays out around 40 percent of workers' pre-retirement wages. However, much of that pension check is eaten up by a premium collected for Part B of Medicare. Thanks to spiraling health care costs, those premiums are going up much faster than prices, and much faster than wages. At the rate we're going, Medicare premiums could soon eat up over half of our Social Security benefits.
Under the Social Security Commissions Model 2
—which would cut benefits by indexing them to prices—Social Security benefits would eventually decline to around 20 percent of pre-retirement wages, and retirees could see their entire check
gobbled up by Medicare premiums. In other words, they'd be living entirely off of their savings. To repeat: That's no safety net whatsoever. No safety net. Whatsoever.
So if Congress "fixes" Social Security but not Medicare, they will destroy Social Security. End of story. Conversely, if Congress controlled the growth of Medicare but did nothing to Social Security, the Part B premiums would hold steady, and eventually decline
as a share of one's retirement benefits. So presto! Congress has automatically increased the size of Social Security benefits, and has a bit more flexibility to cut payouts down the road if it turns out the system can't stay solvent.