In the recent debate over the so-called "fiscal cliff," President Obama was reportedly at one point offering to raise the eligibility age for Medicare from 65 to 67 and cut Social Security via "chained CPI.". However, in view of the coming retirement crisis due to the decline in defined benefit plans guaranteeing a specific retirement income, this is a terrible idea. Given that proposals to cut Social Security and Medicare will be repeatedly floated in the coming debt ceiling and related budget fights, we need to understand just how bad an idea this is.
First, let's look at what Social Security and Medicare have done to elderly poverty in the U.S. over time, using the standard poverty line as our measure. Daniel R. Meyer and Geoffrey L. Wallace of the University of Wisconsin have published data on official poverty rates for those over 65:
Official poverty rate for the elderly by year
1968, of course, is just three years after the enactment of Medicare and Medicaid. We can see that elder poverty was halved between 1968 and 1994, and dropped at a slower pace through 2006. In the bad old days, one in four of the elderly lived in poverty: why would we want to go back to that when we are a much richer society today than we were in 1968?
Moreover, before we pat ourselves on the back for how well we have done, we need to consider alternative measures of poverty and the experience of other industrialized democracies. As Arthur Delaney and Ryan Grim report, the Census Bureau has developed a "Supplemental Poverty Measure" (SPM) that includes items such as out-of-pocket medical expenses, which affect seniors more than those under 65. Thus, while the SPM was only slightly higher for all individuals in 2009 than the official poverty measure (15.7% vs. 14.5%), for seniors the increase was from 8.9% to 16.1%.
As Meyer and Wallace relate, when the poverty line was first defined in the United States in 1963, it was approximately equal to 50% of median household income. Today, according to Smeeding et al., it is approximately just 30% of median household income. Meanwhile, the European Union has gone in the opposite direction, defining poverty as 60% of median income. Researchers comparing poverty cross-nationally generally use a 50% of median income standard. How does the U.S. stack up?
Here are Smeeding et al.'s figures for poverty rates in 2000 for all over 65 (figures eyeballed from Figure 1; no table provided):
Country Poverty rate
United States 25%
United Kingdom 18%
I guess we can take solace in the fact that Ireland has a substantially (20 percentage points) higher elder poverty rate for households only comprised of the elderly, as Smeeding reports in a separate paper. Otherwise, the comparison is pretty grim.
Yet what do the Very Serious People, as Paul Krugman calls them, want? At the very least, they want to cut Social Security by changing how inflation is calculated, and they want to raise the Medicare eligibility age from 65 to 67. At some points, it appeared the President would go along.
This is lunacy. As David Rosnick and Dean Baker (via David Cay Johnston) show, cuts to Medicare, such as Paul Ryan's plan, shift far more costs to beneficiaries than what government saves through the cuts. In fact, while the Ryan cuts save the government $4.9 trillion over 75 years, the elderly will pick up $34 trillion in new costs. As Johnston puts it, for every dollar in saving for the government, there will be approximately $6 in net losses to the country as a whole.
Where are seniors supposed to find $34 trillion? Fewer and fewer people will have real pensions, 401(k) plans are vulnerable to market swings, and the Very Serious People want to cut Social Security. The simple answer is that seniors will be worse off than seniors today, yet 47% of the electorate voted for people who would have cut Medicare now.
It's time to take these cruel cuts off the table permanently. What we will need in the future is an augmentation of Social Security, not cuts. We've got to make sure politicians get this through their heads.
Cross-posted at Angry Bear.