It's daydreaming to envision universal medical coverage or even a comprehensive social-insurance or pension policy for the elderly in the United States. Although several developed countries, including the United Kingdom, Germany, and Japan, have impressive home- and community-based services for long-term care, the United States has made no real effort to emulate their programs. Not surprisingly, in our era of bottom-line legislating, a country that lacks the political will to protect 44 million of its inhabitants without medical coverage has taken no bold steps in this direction. The distance we have yet to travel in even thinking about long-term care is encapsulated in a statistic Dr. Butler of the ILC often quotes: In our 126 accredited medical schools, we have three departments of geriatrics, while every medical school in England has its own. Why do we give the elderly such short shrift? Time, money, and prestige. They are labor-intensive to treat, Medicare reimbursements are slender, and no one is going to discover a cure for old age. In the face of such systemic obstacles, elderly baby boomers may continue to do what's currently being done: tinker with federal programs and make piecemeal improvements.

Long-Term Prospects
Echoing UN High Commissioner for Human Rights Mary Robinson's assertion that old age is a human rights issue, Dr. Butler warns of the potential for displacement, suffering, and widespread poverty among elderly baby boomers ill prepared for their old age. One recent trend touted as a positive development for seniors who own property and have assets to protect is long-term-care insurance. It is endorsed in certain circumstances by a wide array of organizations--including AARP, which sells policies, the National Alliance for Caregiving and United Seniors Health Cooperative, which do not, and Consumer Reports. Age guru and best-selling writer Ken Dychtwald believes it should be part of a family's long-term financial planning. As president, Bill Clinton recently made it available to be purchased by federal employees.

Still, long-term-care insurance remains controversial, both as an insurance product and as an investment. It is expensive and asks you to pay for a benefit you may not need for 30 years--a nursing home, a home health aide, assisted living. And in 30 years, when you need that benefit, it may be called something else and your policy may not cover the service under its new name. While you can purchase a policy that has inflation protection, you will pay a higher premium. I have heard stories of brokers so eager to make a sale that they sell someone a policy without inflation protection; when the benefit is needed--20 or 30 years later--it may be worth a fraction of what is necessary.
"It's not a scam," said Ron Pollack, executive director of Families USA. "It's just not a good buy." When I asked him why so many senior organizations and advocates encourage it, his heartbreaking answer spoke to the paucity of choices before us: "What else can they say?"

The issue of long-term care is so deeply enmeshed in almost every aspect of life--from our spending, savings, and eating habits to our day-to-day dealings with our aging parents--that imagining how and where we might live 30 years from now is a dizzying prospect. But as we begin, tentatively, to envision these brave new worlds, there are four general housing and social trends to bear in mind.

1. People want to stay home rather than move to an institution. In a May 2000 AARP study of people 45 and older, the vast majority--82 percent--said they would rather not move from their current home if they were to need help caring for themselves. Only 9 percent would prefer "moving to a facility where care is provided," and only 4 percent to a relative's home. It's a good thing that most would choose to stay put: If worst-case scenarios come true, baby boomers will have reduced access to Social Security, Medicare, and Medicaid, and the least affluent may have to find ways to stay safely at home. In senior-housing jargon, staying home in all of its forms is known as "aging in place." Either people fix up their houses to make them infirmity-friendly or, if they are well-to-do and don't mind planned communities, they relocate before they become frail and move to one of a growing number of continuing-care retirement communities. Residents pay a hefty entrance fee in addition to monthly maintenance ($1,500 to $5,000) for housing that accommodates their needs at every stage. They begin in an apartment and move when necessary to the assisted-living wing, then to the nursing wing. It's expensive and becomes even more so when an elderly couple's needs diverge and they are paying for both an apartment and a bed in the nursing wing.

A house retrofitted to infirmities is known as a "smart house." Many observers, including consultant Lenise Dolen, believe that smart houses as well as food-delivery services and chore helpers will change baby boomers' frail old age to a stay-at-home proposition. The huge demand for these services will make them affordable. We might also see an increase in community-based "adult day care" services or community-based home help.

In creating smart houses, innovation is coming from both sides of the Atlantic, with the English excelling in charm and the Americans in efficiency. "A Smart House for People with Dementia," a project of the University of Bath, is a real model house in Gloucester, England, outfitted with computer-driven household systems that issue warnings ("Don't forget, you've left the bath running, Mum"), locate lost objects (pressing an image on the computer pad will make the object warble until you find it), and turn on lights when you get out of bed at night. In a suburb of Portland, Oregon, a new assisted-living facility--Oatfield Estates, run by Elite Care--has incorporated institutional versions of these concepts to help rather than replace human staff members; some residents are even hooked up to electronic locating badges. The pioneering owner, Bill Reed, who was influenced by seeing how his mother had taken care of her mother in her later years, seems to understand that his community is something of a work in progress and that there are complicated challenges in meshing the wonders of technology with human needs for care and attention.

Alan Solomont, a prominent Democratic Party donor who for decades was a leader in building nursing homes and assisted-living communities in Massachusetts, now finances HouseWorks, a smart-house company in Newton, Massachusetts. "We're used to taking people to services they need, but now that the era of big government has begun to wane, we're trying to reverse that and take the services to the people," he said. "I don't know a family that isn't struggling with this issue. The most important thing our country can do now is to recognize that long-term care is an issue and that there is not a big safety net to jump into."

2. Medicaid supports alternatives to nursing homes for poor people, but at pitifully inadequate levels. Since 1981, Medicaid, the federally funded and state administered health agency for the indigent of all ages, has allowed states to apply to the Health Care Financing Administration (HCFA) for what are called "Medicaid waivers," targeted, small-scale exemptions to the rule that Medicaid will pay for indigent care only if the beneficiaries are in nursing homes. Individual states, which must get approval from their legislatures, petition HCFA to provide certain services (such as home health aides, adult day care, transportation, and minor home modification) to a specified number of people, hundreds or several thousand, in a specific population--elderly, disabled, or mentally ill. (To be eligible to participate in a Medicaid waiver program, individuals must meet the same criteria they would for Medicaid to pick up a tab in a nursing home: They must be frail and have no more in total assets than $2,000 to $3,000, depending on the state, not including Social Security payments.) If approved, the states administer these programs for three- to five-year periods. All states currently have Medicaid waiver programs; 37 states have waivers that offer aid to the elderly poor for assisted living. Sadly, Medicaid waivers nationwide are helping only about 60,000 poor seniors to live somewhere other than a nursing home, while every year Medicaid pays the nursing home bill for 68 percent of residents: an average of $56,000, for about 1.02 million people.

The Medicaid waiver program is so modest for two reasons. First, the nursing-home industry depends on Medicaid reimbursements for most of its income and is threatened by anything that directs money elsewhere. (Some traditional nursing homes have minimized the blow from the surge in assisted living by converting properties and getting into the business themselves, though the absence of regulation makes it impossible to monitor the extent and quality of these efforts.) Second, state administrators, whose Medicaid waiver programs must be "budget neutral," keep programs small for fear of the potential "woodwork effect": Poor people who would otherwise not choose a nursing home might swarm out of the woodwork if they knew they could get Medicaid funds to help them stay safely at home--and budgets would soar.

Yet in states where waivers exist, some have saved the state money and kept people where they want to be: at home. According to the 7,000-member Assisted Living Federation of America, Oregon's waivers saved the state an estimated $227 million between 1981 and 1991, from a projected expenditure of $1.35 billion. Maine reduced total long-term-care spending from $228 million in 1995 to $185 million in 1998 and served 3,700 more people.

Again, the question for baby boomers will be whether we reinvent the hydra-headed monster that Medicaid has become or continue to allow our poorest citizens--and their caregiving families--to be subjected to the systemic indignities, inequities, and corruption of these programs.

3. Other government programs are being adjusted to meet the housing needs of the poor and low-income elderly. Again, the United States is taking baby steps toward addressing an overwhelming nationwide need for affordable assisted living. In December 2000, Andrew Cuomo's Department of Housing and Urban Development (HUD) announced a new, $50-million effort--the Assisted Living Conversion Program--to convert subsidized housing for poor seniors into affordable assisted-living space. One wants to applaud any efforts in this direction, but $50 million is hardly a resounding display of federal commitment. Since its founding in 1959, Section 202--the only federally funded housing program specifically designed for seniors--has supported the construction of more than 300,000 individual units in 5,000 housing complexes. But new building has tapered off over the past 20 years, falling from around 15,000 new units annually in 1981, when Ronald Reagan took office, to a projected 6,500 this year. (Poor seniors are also eligible for Section 8 housing, a voucher program administered by HUD, but such assistance can only help defray costs and does not address the needs that may go along with aging.)

Bush administration policies don't inspire hope that the Assisted Living Conversion Program will flourish. Even a partial list of the facilities lucky enough to get grants last year suggests the depth of our nation's collective denial about this problem. One subsidized housing project in New Haven, Connecticut, was awarded $4.2 million to convert or modify 33 apartments; another in Jacksonville, Florida, received $2.7 million to transform 36 apartments into assisted-living units.

Positive news is largely restricted to the local level--and measured in two- and three-digit numbers. A builder of relatively upscale senior residences in Michigan has been an innovator at using federal and state programs in tandem to keep diminishing funds from forcing some of his state's seniors out of assisted-living facilities and into nursing homes. J. Robert Gillette, the president of American House Senior Living Residences, has built 27 senior-housing facilities in metropolitan Detroit; costs for building six of them were subsidized by federal and state tax credits that require a certain percentage of units be rented to low-income tenants at below-market rates.

In addition to the tax subsidies--through the federal Low-Income Housing Tax Credit program and the Michigan State Housing Development Authority--Gillette has incorporated Medicaid waiver programs that help 160 poorer residents pay for housework, meals, dressing, and medication reminders. Because of the size of his operation, Gillette is in a position to have some of his residences subsidize others whose profits are not as high; but he is also willing to reach out creatively to people who need help.

Though the federal government's overall approach to long-term care hasn't changed much since 1965, Gillette and others have taken advantage of the several highly technical tax-credit and financing programs geared toward developers and local governments, rather than consumers, to help bring more affordable senior housing to the market. Such federal initiatives include the Low-Income Housing Tax Credit program, the HUD-FHA 232 Mortgage Insurance program, the Federal Home Loan Bank program, the HOME program, and the HUD Community Development Block Grants. But again, the challenges of coordinating these limited and disparate programs with other public and private funds militate against large-scale changes.

4. Baby boomers are beginning to create their own unique assisted-living communities. Writer Vivian Gornick has spearheaded an ambitious project, still being developed, that would allow women in the arts to age in place once they have moved to a desirable place in which to do it. Gornick's nonprofit organization, the House of Elder Artists, aims to build a 100-apartment building in New York City, a project she described in an interview as a "senior residence for women in the arts in which we can go on living and working until the end of life." She envisions a set of public rooms--dining and living rooms--where residents will give lectures, hold readings, and show artwork. "The most important thing," she emphasized, "is to keep a working mind alive, not to play golf or bingo."

If Gornick's project exemplifies the philosophy of "productive aging" (continuing to achieve and extending work life), another innovative senior-housing project in Santa Fe, New Mexico--primarily for those with low and limited incomes--very openly follows the "conscious aging" movement (seeking spiritual growth and talking openly about aging and death). Artist Geoffrey Landis and psychologist and educator Stefan Dobuszynski, both community activists, are working toward building Jubilados. (Spanish for "those who have joy," jubilados is a term used in Central and South America for "retired people.") The project is based on Buddhist principles of interconnectedness and respect for the earth. Landis and Dobuszynski plan for the 128 units, on 13 acres of arable land just outside Santa Fe, to include a meditation hall, health care unit, and hospice, to house up to 160 people, and to be open for business in 2003. Expecting to attract residents who have devoted their lives to social activism and spiritual development rather than to amassing money, they also anticipate that 30 percent of the residents will be nonelderly individuals. As a nonprofit corporation, they are seeking funding from foundations and government financing programs, including some of those mentioned above.

It's hokey to talk about revolution anymore, but as baby boomers grow old in new ways, we might initiate another one to add to the sexual revolution, the women's movement, and our explorations in cyberspace. We'll have longer and healthier life expectancy than any previous population, and we're slated to add seven or eight years to it by 2030. Though we won't have as many children or spouses to take care of us as our predecessors did, we'll have had a lifetime of practice taking care of ourselves. And we won't all be heading for Florida or Arizona.
But what must be done to spare ourselves the same future that makes so many of our parents' later years a nightmarish tangle with dysfunctional bureaucracies? With only one in three or four seniors able to afford appropriate care now, and with a widespread perception that the elderly are reaping more than their share of the social-welfare bounty, we are getting a taste of the conflicts that will come on a much larger scale. To minimize the pervasive poverty and hardship that Dr. Butler and others predict, Medicare, Medicaid, and Social Security must be reinvented for the twenty-first century. President Bush and Congress ought not rush to "return the people's money to the people." The rest of us, individually, should start stockpiling savings. Collectively, we'd do well to take the standard advice given to addicts: Admit that we have a problem and ask for help.
One of the cruel tricks of life is how fast it seems to go by; how young we often feel and how old we look in the mirror. I joke with a friend that when we move to Shangri-la ourselves, her room will be bigger than mine. Her answer makes me laugh and cry: "And we'll be there in two minutes." I will blink a dozen times and be 60, but what a long, long way our country has to go to begin to address the crushing, hugely complicated problem of how and where the elderly should live. "The biggest surprise that comes to a man is old age," said Leon Trotsky, whose views are out of favor these days. But the biggest surprise coming to millions of baby boomers is how complicated and costly it is to be old in America--and how soon that is going to start to matter to so many of us.
 

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A few short pieces from Paul Krugman’s NYT column

http://www.truthout.org/cgi-bin/artman/exec/view.cgi/38/10377

The Medical Money Pit   By Paul Krugman    The New York Times    15 April 2005

A dozen years ago, everyone was talking about a health care crisis. But then the issue faded from view: a few years of good data led many people to conclude that H.M.O.'s and other innovations had ended the historic trend of rising medical costs.
    But the pause in the growth of health care costs in the 1990's proved temporary. Medical costs are once again rising rapidly, and our health care system is once again in crisis. So now is a good time to ask why other advanced countries manage to spend so much less than we do, while getting better results.
    Before I get to the numbers, let me deal with the usual problem one encounters when trying to draw lessons from foreign experience: somebody is sure to bring up the supposed horrors of Britain's government-run system, which historically had long waiting lists for elective surgery.
    In fact, Britain's system isn't as bad as its reputation - especially for lower-paid workers, whose counterparts in the United States often have no health insurance at all. And the waiting lists have gotten shorter.
    But in any case, Britain isn't the country we want to look at, because its health care system is run on the cheap, with total spending per person only 40 percent as high as ours.
    The countries that have something to teach us are the nations that don't pinch pennies to the same extent - like France, Germany or Canada - but still spend far less than we do. (Yes, Canada also has waiting lists, but they're much shorter than Britain's - and Canadians overwhelmingly prefer their system to ours. France and Germany don't have a waiting list problem.)
    Let me rattle off some numbers.
    In 2002, the latest year for which comparable data are available, the United States spent $5,267 on health care for each man, woman and child in the population. Of this, $2,364, or 45 percent, was government spending, mainly on Medicare and Medicaid. Canada spent $2,931 per person, of which $2,048 came from the government. France spent $2,736 per person, of which $2,080 was government spending.
    Amazing, isn't it? US health care is so expensive that our government spends more on health care than the governments of other advanced countries, even though the private sector pays a far higher share of the bills than anywhere else.
    What do we get for all that money? Not much.
    Most Americans probably don't know that we have substantially lower life-expectancy and higher infant-mortality figures than other advanced countries. It would be wrong to jump to the conclusion that this poor performance is entirely the result of a defective health care system; social factors, notably America's high poverty rate, surely play a role. Still, it seems puzzling that we spend so much, with so little return.
    A 2003 study published in Health Affairs (one of whose authors is my Princeton colleague Uwe Reinhardt) tried to resolve that puzzle by comparing a number of measures of health services across the advanced world. What the authors found was that the United States scores high on high-tech services - we have lots of M.R.I.'s - but on more prosaic measures, like the number of doctors' visits and number of days spent in hospitals, America is only average, or even below average. There's also direct evidence that identical procedures cost far more in the US than in other advanced countries.
    The authors concluded that Americans spend far more on health care than their counterparts abroad - but they don't actually receive more care. The title of their article? "It's the Prices, Stupid."
    Why is the price of US health care so high? One answer is doctors' salaries: although average wages in France and the United States are similar, American doctors are paid much more than their French counterparts. Another answer is that America's health care system drives a poor bargain with the pharmaceutical industry.
    Above all, a large part of America's health care spending goes into paperwork. A 2003 study in The New England Journal of Medicine estimated that administrative costs took 31 cents out of every dollar the United States spent on health care, compared with only 17 cents in Canada.
    In my next column in this series, I'll explain why the most privatized health care system in the advanced world is also the most bloated and bureaucratic.

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Passing the Buck  By Paul Krugman     The New York Times     22 April 2005

    The United States spends far more on health care than other advanced countries. Yet we don't appear to receive more medical services. And we have lower life-expectancy and higher infant-mortality rates than countries that spend less than half as much per person. How do we do it?
    An important part of the answer is that much of our health care spending is devoted to passing the buck: trying to get someone else to pay the bills.
    According to the World Health Organization, in the United States administrative expenses eat up about 15 percent of the money paid in premiums to private health insurance companies, but only 4 percent of the budgets of public insurance programs, which consist mainly of Medicare and Medicaid. The numbers for both public and private insurance are similar in other countries - but because we rely much more heavily than anyone else on private insurance, our total administrative costs are much higher.
    According to the health organization, the higher costs of private insurers are "mainly due to the extensive bureaucracy required to assess risk, rate premiums, design benefit packages and review, pay or refuse claims." Public insurance plans have far less bureaucracy because they don't try to screen out high-risk clients or charge them higher fees.
    And the costs directly incurred by insurers are only half the story. Doctors "must hire office personnel just to deal with the insurance companies," Dr. Atul Gawande, a practicing physician, wrote in The New Yorker. "A well-run office can get the insurer's rejection rate down from 30 percent to, say, 15 percent. That's how a doctor makes money. ... It's a war with insurance, every step of the way."
    Isn't competition supposed to make the private sector more efficient than the public sector? Well, as the World Health Organization put it in a discussion of Western Europe, private insurers generally don't compete by delivering care at lower cost. Instead, they "compete on the basis of risk selection" - that is, by turning away people who are likely to have high medical bills and by refusing or delaying any payment they can.
    Yet the cost of providing medical care to those denied private insurance doesn't go away. If individuals are poor, or if medical expenses impoverish them, they are covered by Medicaid. Otherwise, they pay out of pocket or rely on the charity of public hospitals.
    So we've created a vast and hugely expensive insurance bureaucracy that accomplishes nothing. The resources spent by private insurers don't reduce overall costs; they simply shift those costs to other people and institutions. It's perverse but true that this system, which insures only 85 percent of the population, costs much more than we would pay for a system that covered everyone.
    And the costs go beyond wasted money.
    First, in the U.S. system, medical costs act as a tax on employment. For example, General Motors is losing money on every car it makes because of the burden of health care costs. As a result, it may be forced to lay off thousands of workers, or may even go out of business. Yet the insurance premiums saved by firing workers are no saving at all to society as a whole: somebody still ends up paying the bills.
    Second, Americans without insurance eventually receive medical care - but the operative word is "eventually." According to Kaiser Family Foundation data, the uninsured are about three times as likely as the insured to postpone seeking care, fail to get needed care, leave prescriptions unfilled or skip recommended treatment. And many end up disabled - or die - because of these delays.
    Think about how crazy all of this is. At a rough guess, between two million and three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck for that care to someone else. And the result of all their exertions is to make the nation poorer and sicker.
    Why do we put up with such an expensive, counterproductive health care system? Vested interests play an important role. But we also suffer from ideological blinders: decades of indoctrination in the virtues of market competition and the evils of big government have left many Americans unable to comprehend the idea that sometimes competition is the problem, not the solution.
    In the next column in this series, I'll talk about how ideology leads to "reforms" that make things worse.

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http://www.truthout.org/cgi-bin/artman/exec/view.cgi/38/10723
A Private Obsession  By Paul Krugman   The New York Times 29 April 2005

    American health care is unique among advanced countries in its heavy reliance on the private sector. It's also uniquely inefficient. We spend far more per person on health care than any other country, yet many Americans lack health insurance and don't receive essential care.
    This week yet another report emphasized just how bad a job the American system does at providing basic health care. A study by the Robert Wood Johnson Foundation estimates that 20 million working Americans are uninsured; in Texas, which has the worst record, more than 30 percent of the adults under 65 have no insurance.
    And lack of insurance leads to inadequate medical attention. Over a 12-month period, 41 percent of the uninsured were unable to see a doctor when needed because of cost; 56 percent had no personal doctor or health care provider.
    Our system is desperately in need of reform. Yet it will be very hard to get useful reform, for two reasons: vested interests and ideology.
    I'll have a lot more to say about vested interests and health care in future columns, but let me emphasize one key point: a lot of big companies are essentially in the business of wasting health care resources.
    The most striking inefficiency of our health system is our huge medical bureaucracy, which is mainly occupied in trying to get someone else to pay the bills. A good guess is that two million to three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck to other people.
    Yet any effort to reduce this waste would hurt powerful, well-organized interests, which have already demonstrated their power to block reform. Remember the "Harry and Louise" ads that doomed the Clinton health plan? The actors may have seemed like regular folks, but the ads were paid for by the Health Insurance Association of America, an industry lobbying group that liked the health care system just the way it was.
    But vested interests aren't the only obstacle to fixing our health care system. We also have a big problem with ideology.
    You see, America is ruled by conservatives, and they have a private obsession: they believe that more privatization, not less, is always the answer. And their faith persists even when the evidence clearly points to a private sector gone bad.
    I could cite many examples of this obsession at work. But a particularly good illustration of ideology-induced obliviousness is the 2004 Economic Report of the President, which devotes a whole chapter to health care that can be read as a sort of conservative manifesto on the subject.
    The main message of that report is that US health care is doing just fine. Never mind the huge expense, the low life expectancy, the high infant mortality; it's a market-based system, so it must be good.
    The report even takes a Panglossian view of uninsured Americans - one that is completely at odds with the grim statistics I cited above - suggesting that "many of them may remain uninsured as a matter of choice," perhaps because "they are young and healthy and do not see the need for insurance."
    The president's economists had only one criticism of the system: insurance is too comprehensive, which encourages people to consume too much health care. As they see it, insurance covers too large a percentage of medical costs. The answer to this problem is the creation of, you guessed it, private accounts, which have now superseded tax cuts as the answer to all problems.
    Indeed, a new paper by Martin Feldstein of Harvard, which clearly reflects the administration's views, suggests that Social Security privatization and health savings accounts - tax shelters designed to encourage people to pay medical costs out of their own pockets - are only the beginning. "Investment-based personal accounts," he says, are the way to go for unemployment insurance and Medicare, too.
    O.K., let's not turn this into a Bush-bashing session. President Bush didn't cause the crisis in American health care. His health care policies have made things only a little bit worse.
    The point, instead, is that even though all the evidence suggests that we would be much better off under a system of universal coverage, any such move will be fiercely opposed, on principle, by conservatives who want us to move in the opposite direction.
    And reform will also be opposed by powerful vested interests - my next subject in this series.

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And of course he also has something to say about Social Security…
http://www.pkarchive.org

Spearing the Beast

President Bush isn't trying to reform Social Security. He isn't even trying to "partially privatize" it. His plan is, in essence, to dismantle the program, replacing it with a system that may be social but doesn't provide security. And the goal, as with his tax cuts, is to undermine the legacy of Franklin Roosevelt.

Why do I say that the Bush plan would dismantle Social Security? Because for Americans who enter the work force after the plan goes into effect and who choose to open private accounts, guaranteed benefits - income you receive after retirement even if everything else goes wrong - would be nearly eliminated.
Here's how it would work. First, workers with private accounts would be subject to a "clawback": in effect, they would have to mortgage their future benefits in order to put money into their accounts.
Second, since private accounts would do nothing to improve Social Security's finances - something the administration has finally admitted - there would be large benefit cuts in addition to the clawback.
Jason Furman of the Center on Budget and Policy Priorities estimates that the guaranteed benefits left to an average worker born in 1990, after the clawback and the additional cuts, would be only 8 percent of that worker's prior earnings, compared with 35 percent today. This means that under Mr. Bush's plan, workers with private accounts that fared poorly would find themselves destitute.
Why expose workers to that much risk? Ideology. "Social Security is the soft underbelly of the welfare state," declares Stephen Moore of the Club for Growth and the Cato Institute. "If you can jab your spear through that, you can undermine the whole welfare state."

By the welfare state, Mr. Moore means Social Security, Medicare and Medicaid - social insurance programs whose purpose, above all, is to protect Americans against the extreme economic insecurity that prevailed before the New Deal. The hard right has never forgiven F.D.R. (and later L.B.J.) for his efforts to reduce that insecurity, and now that the right is running Washington, it's trying to turn the clock back to 1932.
Medicaid is also in the cross hairs. If Mr. Bush can take down Social Security, Medicare will be next.

The attempt to "jab a spear" through Social Security complements the strategy of "starve the beast," long advocated by right-wing intellectuals: cut taxes, then use the resulting deficits as an excuse for cuts in social spending. The spearing doesn't seem to be going too well at the moment, but the starving was on full display in the budget released yesterday.
To put that budget into perspective, let's look at the causes of the federal budget deficit. In spite of the expense of the Iraq war, federal spending as a share of G.D.P. isn't high by historical standards - in fact, it's slightly below its average over the past 20 years. But federal revenue as a share of G.D.P. has plunged to levels not seen since the 1950's.
Almost all of this plunge came from a sharp decline in receipts from the personal income tax and the corporate profits tax. These are the taxes that fall primarily on people with high incomes - and in 2003 and 2004, their combined take as a share of G.D.P. was at its lowest level since 1942. On the other hand, the payroll tax, which is the main federal tax paid by middle-class and working-class Americans, remains at near-record levels.
You might think, given these facts, that a plan to reduce the deficit would include major efforts to increase revenue, starting with a rollback of recent huge tax cuts for the wealthy. In fact, the budget contains new upper-income tax breaks.

Any deficit reduction will come from spending cuts. Many of those cuts won't make it through Congress, but Mr. Bush may well succeed in imposing cuts in child care assistance and food stamps for low-income workers. He may also succeed in severely squeezing Medicaid - the only one of the three great social insurance programs specifically intended for the poor and near-poor, and therefore the most politically vulnerable.

All of this explains why it's foolish to imagine some sort of widely acceptable compromise with Mr. Bush about Social Security. Moderates and liberals want to preserve the America F.D.R. built. Mr. Bush and the ideological movement he leads, although they may use F.D.R.'s image in ads, want to destroy it.
Originally published in The New York Times, 2.8.05

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The Heritage Foundation (along with Cato etc)is doing its bit to educate us on Social Security Reform

http://www.heritage.org/Research/SocialSecurity/bg1802.cfm
 
The Top 10 Myths About Social Security Reform by David C. John

Myth #1: We cannot afford to reform Social Security. Establishing a PRA system would cost between $1 trillion and $2 trillion—far more than just continuing the current system.

This myth argues that the “transition costs” for establishing a PRA system would be huge and that the money that would go into those accounts would be unavailable to pay benefits to current retirees. PRA opponents say that the surpluses in the current system are used to build the Old-Age and Survivors Insurance (OASI) trust fund[1] and that, if this money were instead placed in PRAs, the trust fund would run out of money sooner.

Fact: In the long run, establishing PRAs would cost about $20 trillion less than funding the current Social Security system.
Ignoring the costs of the current system is disingenuous. Under any circumstances, keeping Social Security solvent will require a great deal more money than it is currently receiving. This additional money is necessary to reduce the difference between what Social Security will owe and what it will be able to pay.

Although the exact amount that will be needed to establish a PRA system in the first 10 years will depend upon the specific plan that is adopted, the Social Security Administration estimates that the amount needed will be closer to $500 billion than the $1 trillion or $2 trillion figures that are often cited. If Congress retains the current system, Social Security will need almost $27 trillion (in inflation-adjusted 2004 dollars) in additional funding over the next 75 years. If Congress acts quickly to establish PRAs, these costs could be as low as $7 trillion to $8 trillion—about one-third of the cost of doing nothing. A PRA system could save our children and grandchildren up to $20 trillion. This is literally a case where spending billions will save trillions.
The Social Security system will require additional money under any circumstances. The only questions are when additional funds will be needed and in what amounts. Starting in 2018, Social Security will begin to spend more each year than it receives. From then on, it will need billions of dollars of general revenue money to pay promised benefits. There is a “trust fund,” but it contains only what are essentially IOUs that must be repaid out of general revenues.
Practically speaking, the funds for moving to a PRA system would come from the same source as the money that would be necessary to repay the Social Security trust fund. The two main sources of such funds would be general (non-Social Security) revenues and loans in the form of government bonds. The only issues that must be determined are the time at which payments should start and whether the trillions of dollars involved will be used reform the system or simply delay its insolvency.

Paying for the current system or a reform plan will require Congress to balance Social Security’s needs against those of the rest of the economy. In general, as more additional dollars are needed for the current system or a reform plan, less money will be available for other government programs and the private sector.
As this persistent burden on the general federal budget increases, Congress will find it increasingly difficult to get the money for Social Security, making it increasingly unlikely that promised benefits will be paid on schedule.

Myth #2: The Social Security trust fund contains assets that make Social Security secure for the next 40 years.
This myth argues that the system has enough assets to pay full benefits through at least 2042. This estimate is based on combining Social Security’s projected receipts from its payroll tax and other revenue sources with the amount of the bonds that will be in the trust fund.

Fact: The Social Security “trust fund” is essentially a bookkeeping system through which the government lends money to itself.
There is no pool of actual assets that is being reserved to pay the benefits of future retirees. The Social Security trust fund contains nothing more than IOUs (in the form of special issue U.S. Treasury bonds), which the federal government can repay only though higher taxes, massive borrowing, or massive cuts in other federal programs. While many workers thought that the system’s annual surpluses were being used to build up a reserve for baby boomers, the federal government has been spending this money to fund other government programs and to reduce the government debt.

According to the Social Security Administration, in less than 5 years the size of the Social Security surplus will begin to drop, and in less than 15 years, Social Security will begin to run a deficit requiring it to begin cashing the IOUs. Hence, the government will need to find additional money just to repay the bonds as Social Security cashes them. Between 2018 and 2042, the government will have to make up for a total funding deficit of over $5 trillion.
In the private sector, trust funds are invested in real assets ranging from stocks and bonds to mortgages and other financial instruments. Assets are used only for specifically designated purposes, and the fund managers are held accountable if the money is mismanaged. Funds are managed in order to maximize earnings within a predetermined risk level. Investments are chosen that will provide cash at set intervals, allowing the private trust fund to pay its obligations.

The Social Security trust funds are very different. As a report from the federal Office of Management and Budget (OMB) during the Clinton Administration noted:
The Federal budget meaning of the term “trust” differs significantly from the private sector usage.... [T]he Federal Government owns the assets and earnings of most Federal trust funds, and it can unilaterally raise or lower future trust fund collections and payments or change the purpose for which the collections are used.

Furthermore, Social Security trust funds are “invested” exclusively in a special type of Treasury bond that can only be issued to and redeemed by the Social Security Administration. According to a Congressional Research Service report,
[W]hen the government issues a bond to one of its own accounts, it hasn’t purchased anything or established a claim against another entity or person. It is simply creating a form of IOU from one of its accounts to another.[3]
According to OMB, this situation allows funds to appear on the books while in reality they are unavailable:

In short, the Social Security trust funds are only an accounting mechanism. They show how much the government has borrowed from Social Security, but do not provide any way to finance future benefits.
Thus, while Social Security has enough paper assets to finance benefits until 2042, the reality is quite different. Social Security will have enough cash to pay benefits only until 2018. After that, the program will have to rely on ever-growing amounts of additional tax dollars to pay promised benefits.

Myth #3: The Social Security system can be fixed by implementing modest changes, including raising the retirement age, making the wealthy pay Social Security taxes on all of their income, or creating faster economic growth.
Those who spread this myth say that the program’s average annual cash flow deficit (after repaying the trust fund) is 1.89 percent of taxable income—a relatively small gap that could be closed through modest changes in the current system.

Fact: According to the Social Security Administration, the current system will require a total of $27 trillion (in constant 2004 dollars) more revenue than it will receive in taxes over the next 75 years.[5]
It will require much more than modest changes to raise that amount of money. While modest changes may produce enough savings to reduce the deficit for a time, they cannot close it completely. On the other hand, any proposal that does raise a total of $27 trillion through a combination of tax hikes and benefit cuts can scarcely be called a “modest change.”

For example, one proposed “modest” step would be to raise Social Security taxes by an additional 2 percent of a worker’s income. This number was derived by calculating the mathematical average of the additional funds that the Social Security system will need over the next 75 years. However, raising Social Security taxes by 2 percent of income only delays the deficits for about six years—it does not end them. The problem is that this approach does not allow for the fact that Social Security will not need the same amount each year. In the short run, the program will collect more money than it needs, but once annual deficits start in 2018, they will grow ever larger. Increasing Social Security’s revenues by the same amount each year would initially provide much more money than it can use, and then, not nearly enough. By 2050, the program would be running an annual deficit of $280 billion, which would rise to $640 billion per year by 2075.

Another suggested reform is to make higher-income workers pay Social Security taxes on their entire income (rather than on just the first $87,900 they earn). However, this relatively substantial increase on targeted workers’ tax burden would only delay Social Security’s annual deficits by approximately six years. More money would initially come into Social Security’s coffers, but the program would ultimately pay greater benefits to retirees who had higher incomes. Although the government could collect higher taxes from certain citizens without offering higher benefits, such a move would be the first step in transforming Social Security into a welfare program.

Moreover, such a tax increase would seriously harm the nation’s economy. While those who support this tax increase may envision it as a tax on the rich, it would also affect millions of middle-income families. Combined with federal and state income taxes, it would raise their overall taxes to 50 percent—or even 60 percent—of income, discouraging people from working, saving, and investing. To make matters worse, such an increase in taxation would affect entrepreneurs and business owners, resulting in job losses as businesses downsized to make up for the greater tax burden.

Calculations by the Social Security Administration likewise show that faster economic growth would not be enough to fix the deficit problem. Even with a growth rate that far exceeds historic levels, the system would still begin to experience massive deficits within a few years. Higher economic growth—and the resulting higher wages— would allow the program to receive more money in the short run, but it is also correlated with greater benefits for retirees.
Myth #3a: If Congress would stop spending the Social Security surplus and repay the money that it has already spent, Social Security would not need to be fixed.
This corollary to Myth #3 recognizes that the federal government takes excess Social Security taxes and spends them to meet its bills. In return, the Social Security trust funds get only special issue Treasury bonds (i.e., IOUs) that will be repaid later. Those who believe this corollary say that if Social Security’s excess taxes were really invested, the program would have enough money to pay full benefits well past 2042.

Fact: Even if it were possible for the federal government to invest the Social Security trust funds, repaying the borrowed money would only delay—not solve—Social Security’s financial problems.
Repaying the trust fund could delay Social Security’s cash crunch, but it would not eliminate it. According to the Social Security Administration’s own estimates, even with real money in the trust fund, the program will begin to run deficits in 2042 and will continue to run deficits as far into the future as the agency’s forecasting tools can predict.
Social Security’s calculations assume that the trust fund receives the same interest as other federal bonds. Even though the trust fund consists of only promises to repay the money, those bonds are still credited with the same interest rate that other bonds of the same maturity length issued on the same day would receive. The interest is “paid” by issuing the trust fund still more bonds.
If the government could invest Social Security money in stocks, the deficits predicted for 2042 could be further delayed. However, allowing the government to invest the Social Security trust funds could create serious conflicts of interest. For instance, if such investing had been allowed in the past, the U.S. government could have been the largest stockholder in Microsoft at the same time that it was suing the company for antitrust violations. It could also have been the largest stockholder in both WorldCom and Enron at the time of those firms’ demise.

Myth #4: Introducing Social Security personal retirement accounts would result in reduced benefits for existing retirees and those close to retirement.
Opponents of PRAs say that if a portion of the Social Security payroll taxes is diverted to personal retirement accounts, there will not be enough money left to pay the full benefits promised to existing retirees and those close to retirement. They further claim that as Social Security’s obligations increase in the future with the retirement of millions of baby boomers, benefits would need be cut even more.

Fact: For now, Social Security is collecting more than enough money both to pay full benefits to current retirees and those about to retire and to fund PRAs. When extra money is needed for these accounts, it can be found through the same method that is used today to finance Social Security.
Establishing PRAs would not require benefit reductions for either current retirees or those close to retirement. This argument against PRAs assumes that Social Security is a closed system with money coming only from Social Security taxes. This is not true today and will not be the case in the future.
The OASI trust fund pays retirement and survivors’ benefits. In 2003, the OASI trust fund had a total income of $543.8 billion: $456.1 billion (83.9 percent) from payroll taxes; $12.5 billion (2.3 percent) from income taxes paid by higher-income retirees on their Social Security benefits; and $75.2 billion (13.8 percent) from interest paid on the trust fund. Both the income tax and the interest payments that the OASI trust fund received in 2003 came from general (non-Social Security) tax revenues, such as federal personal and corporate income taxes and federal excise taxes. In short, today’s Social Security is not a closed system that relies exclusively on its payroll tax for money and there is no reason to assume that establishing a system with personal accounts should be financed exclusively through payroll taxes.
During 2003, the trust fund paid out $399.8 billion in benefits (73.5 percent of the taxes it collected) and $2.6 billion for administrative expenses (0.5 percent of all the taxes it collected). The remaining $137.8 billion (25.3 percent of tax income) was retained as special issue Treasury bonds in the trust fund. Today’s Social Security receives more money than it pays out in benefits. That money could be used to pay for some of the cost of establishing PRAs.
The sad fact is that regardless of whether or not PRAs are established, Social Security will require hundreds of billions of dollars of additional money. The only questions are when Social Security will require additional general revenues and in what amounts. Under the current system without PRAs, Social Security will begin to require large amounts of additional general revenues in 2018, when the system begins to pay out more in benefits than it takes in each year in taxes.
According to the Social Security Administration, the current program will need $15 billion (in 2004 dollars) in general revenue money in 2018. That amount will grow to $101 billion by 2022, $203 billion by 2027, and will continue to grow each year until the last paper bond in the trust fund is cashed in 2042. In total, the federal government will need over $5 trillion between 2018 and 2042 just to repay the trust fund.

After the trust fund assets run out, current law does not allow Social Security to pay any more in benefits than it takes in annually in taxes. If the law is changed to allow payment of full benefits, Congress would have to come up with an additional $20 trillion to $21 trillion between 2042 and 2070 for a total of almost $27 trillion[6] more in general revenue to make up for the shortfall.[7]
If PRAs are established, it is true that the money that goes into them will not be available for benefit payments. Initially, these accounts can be funded from the excess revenues that Social Security collects each year. After that, the additional money needed to pay Social Security benefits would come from general revenues just as it will if Social Security is not fixed.
A key fact to remember is that while doing nothing will require $27 trillion in additional general revenue money, a reformed Social Security system using PRAs will cost only $7 trillion to $8 trillion. One reason for the lower cost of PRAs is that payroll taxes diverted to PRAs will not be lost. The money will be available to help pay for younger workers’ retirement benefits.

Myth #5: Repealing the Bush tax cuts would save Social Security.
Opponents of PRAs also charge that the Social Security surplus has gone to wealthy Americans as a result of the Bush tax cuts. They further claim that repealing some of these tax cuts would make Social Security financially healthy for many years.
Fact: The Bush tax cuts do not directly affect Social Security’s finances. They did not reduce Social Security’s cash flow, and repealing all or part of the tax cuts will not improve Social Security’s financial outlook.
There are three reasons why neither the Bush tax cuts nor their repeal will affect Social Security:
First, while the Bush tax cuts made major changes to the income tax system, they made no changes to the Social Security payroll tax system, which provides most of Social Security’s revenue. Social Security payroll tax collections were the same in 2003 as they would have been if the tax cuts had never passed. The tax cuts’ only effect on Social Security’s tax revenues was to increase collections from people who filled the new jobs created by the tax cuts.
Second, passage of the Bush tax cuts did not affect the Social Security surplus in any way. As noted above, there is no actual money in the Social Security trust funds, only special-issue government bonds. This has been the case since the trust funds were first created. The Treasury collects all payroll taxes on behalf of Social Security and pays all of its benefits. Any surplus left over after paying the Social Security benefits remains with the Treasury, while the trust funds get bonds, which are essentially IOUs. The government then spends the money on whatever it needs to buy, from aircraft carriers to health care services. This has been true under every President since President Franklin D. Roosevelt and remains true under President George W. Bush.
Third, even if the tax cuts were repealed and every dollar of additional revenue was given to Social Security, under current law the system would be no better off. Because Social Security has no legal way to stockpile or invest extra money, the extra cash would remain with the Treasury, and Social Security would simply receive more special issue Treasury bonds. While this would inflate the size of the trust fund, those bonds would still need to be repaid, just like the existing ones, using federal tax dollars. Social Security would still need $56 billion in additional tax money in 2020, $163 in 2025, and so forth—just as it will with the tax cuts in place. That additional money would still come out of pockets of future taxpayers, just as it must under current law.

Myth #6: Personal retirement accounts would incur high administrative costs that would eliminate any potential benefits, and the only people who would gain would be the wealthy and Wall Street.
Some critics of PRAs argue that workers would incur high administrative fees if private funds managers administer the PRA assets. They claim that these fees would be so high that they would consume a major portion of the money in PRAs.

Fact: Developing a simple personal retirement account system with very low administrative costs would be simple.
State Street Trust, one of the largest managers of retirement savings, has estimated that administering a personal retirement account would cost from $3.55 to $6.91 per person annually, based on proprietary data that the bank accumulated from its experience in managing a host of pension plans.[8] In terms of the percentage of assets under management, the annual fee would be only 0.19 percent to 0.35 percent. This fee assumes an annual contribution per worker equal to 2 percent of his or her gross earnings. The cost would drop significantly if that contribution increased to an amount equal to 4 percent of earnings or higher. State Street Trust’s findings were reviewed and accepted by the Government Accountability Office[9] as accurate.
This low level of administrative fees would certainly not reduce the benefits of a PRA. In addition, history shows that administrative costs are highest when a system is first implemented and start-up costs must be covered. As time passes, administrative costs decline significantly. This has been true for 401(k) accounts, the Thrift Savings Plan (TSP) for federal employees, and even Social Security. For example, the administrative costs of 401(k) plans have decreased over time, despite the plans offering an increasing number of investment options and a higher level of personal service. Although the costs of specific plans vary according to each plan’s complexity, size, and the types of investments, many large companies have been able to keep their administrative costs as low as 0.3 percent by offering only a limited number of broad-based funds.
The federal Thrift Savings Plan, a privately managed retirement plan open only to federal employees, has experienced a dramatic 76 percent reduction in administrative costs since the system started in 1988. Today, participants pay annual administrative fees that are below 0.1 percent of assets under management. TSP’s extremely low administrative costs are significant, given that many experts expect that a PRA system would closely resemble the structure and investment choices found under TSP.
The Social Security system experienced similar reductions in administrative costs during its formative years. In 1940, when the system first began to pay benefits, its administrative costs equaled 74 percent of all Old-Age and Survivors Insurance benefits paid. In 1945, this figure had declined to 9.8 percent. Today, administrative costs make up only 0.5 percent of payments from the OASI trust fund. Even though this is not a perfect comparison with the other two examples, given that Social Security’s structure has changed over the years, it does suggest that fees could be very low.

Myth #7: Unlike stock market investments, today’s Social Security is guaranteed and risk-free.
This myth rests on the belief that there is no investment risk under today’s Social Security system because an individual’s benefits are paid entirely out of taxes. Those who support this myth point out that Social Security is an entitlement that does not require congressional appropriations and that benefits are automatically paid out to anyone who meets the legal qualifications.

Fact: The current Social Security system is not risk-free: Future generations may be unwilling to pay the sharply rising costs of the current Social Security system.
While there is no immediate investment risk associated with Social Security, its future survival will depend on the willingness of future taxpayers to spend the massive additional sums needed to pay the promised benefits. If Congress does not reform the system, annual cash flow deficits are predicted to begin in 2018, with the deficits quickly ballooning to alarming proportions. After adjusting for inflation, annual deficits will exceed $100 billion by 2022, $200 billion by 2027, and $300 billion by 2034.
These annual deficits will necessitate pumping massive additional sums of tax money into Social Security. Paying full promised benefits will require some combination of much higher taxes, borrowing large amounts of money, or sharp reductions in other federal programs. Future generations could face a choice between paying grandma her full Social Security benefits and cutting her grandchildren’s health and education programs.
Social Security taxes would need to increase by nearly 50 percent during the coming decades to pay future retirees their full promised benefits. If taxes were not raised, Social Security benefits would need to be reduced by as much as 35 percent by 2079. No matter which option Congress chooses, younger workers will end up paying much more for potentially lower benefits. Those younger workers would be much better off with PRAs.

Myth #8: Recent volatility in the stock market proves how dangerous PRAs would be.
Opponents point out that the stock market declined by approximately 12 percent during the second quarter of 2002 alone. During the stock market losses from 2000 to 2002, PRAs would have lost much of their value and would be unable to provide adequate Social Security benefits to retirees.

Fact: PRAs would be invested in more than just stocks. Furthermore, because retirement investing would take place over decades, not just a few years, longer-term gains will more than make up for periods of stock losses.
Studies that purport to show that either PRAs or the Social Security trust fund would have lost money over the past few years if they had been invested in stock assume that 100 percent of the trust fund would have been invested in stocks, rather than a diversified portfolio that would have balanced stock losses with gains on bonds or other investments. They also focus on only the short-term market trends, ignoring the gains that would result from longer-term investments.
Morningstar, Inc., an independent market data and analysis firm, estimates that the value of mutual funds invested in diversified U.S. stocks declined 12.1 percent during the second quarter of 2002. However, not all types of investments went down. Mutual funds containing lower-risk instruments such as taxable bonds (which are routinely held by those nearing retirement) rose an average of 1.4 percent over that same period, while funds invested in tax-exempt bonds rose 3.2 percent. Thus, in one of the worst quarters for stock investment, PRAs invested in a diversified portfolio would remain strong.
Over the long run, all of these investments did even better. Over a five-year period including the second quarter of 2002, mutual funds invested in stocks earned an average of 3.9 percent per year, while mutual funds invested in taxable bonds and tax-exempt bonds earned an average of 5.0 percent a year.
PRAs should not be invested solely in stocks. They should instead be invested in a diversified portfolio of stock index funds and different types of bond index funds. The default investment for PRAs should be a lifestyle fund that automatically reduces the proportion of stocks as the worker gets older, thus locking in past gains and sharply reducing the chance of major losses in the years approaching retirement.

Myth #9: Lower-income and minority workers are better off with the current Social Security system. The rate of return is not a primary concern because Social Security is essentially an insurance program.
People who believe this myth argue that the existing Social Security system pays proportionately higher benefits to lower-income workers than it does to higher-income workers and that minority workers likewise receive proportionately more from Social Security’s disability program than non-minority workers. They stress that Social Security was intended to be an insurance program and that, like holders of car insurance, Social Security enrollees should not feel cheated if they do not collect on their investment: It should be enough for them to know that funds will be available if needed.
Fact: Personal retirement accounts would allow lower-income and minority workers to earn more on their Social Security investments and could create assets that could be passed on to their families.
Although Social Security is structured to pay higher benefits to workers with lower incomes, virtually all low-income males are more likely to pay more into the system than they will ever receive in benefits, even under the most favorable assumptions. To receive a favorable rate of return on Social Security payments, a worker must live long enough to receive more in benefits than he or she paid in taxes. Statistics show that lower-income workers have a much shorter average lifespan than upper-income workers. Therefore, although they receive higher benefits relative to their incomes, they receive them for a much shorter length of time.
Making matters worse, the current Social Security system does not allow these workers to create any sort of nest egg that could be left to their families in the event of an early death. Instead, today’s system pays low benefits to limited categories of survivors. In contrast, a PRA system would allow workers to create a nest egg that could be left to their families or even to organizations such as churches.
Just about every male currently under the age of 38 will actually lose money under the current Social Security system. For example, the average single male in his mid-20s earning $13,000 per year would receive approximately 88 cents in retirement benefits for every dollar that he paid in Social Security taxes—a lifetime loss of about $13,400. If such an individual had been allowed to invest the Social Security retirement taxes that he and his employer paid in a portfolio comprised of 50 percent government bonds and 50 percent stock equity funds, he would have earned $145,000 on his investment by retirement.

On average, a 21-year-old African–American single mother earning approximately $20,000 per year (the current average income for African– American females) can expect to receive a rate of return from Social Security of only 1.2 percent. If the amount that she and her employer paid in Social Security taxes had instead been invested in U.S. government bonds, she would have received a return of approximately 3 percent ($93,000 more than from Social Security) to fund her retirement. If the money she paid in Social Security taxes had been invested in a portfolio composed of 50 percent government bonds and 50 percent stock index funds, she would have earned nearly $383,000 (before taxes) for retirement ($192,000 more than from Social Security).
Because of their shorter life expectancies, lower-income Americans are hit especially hard by the inability to include their lifetime Social Security investments in their estates. Except in situations in which a worker leaves behind young children or a spouse who has lower benefits, the payroll taxes of low-income workers will permanently leave their families and their communities at the time of their deaths—and will instead benefit others with longer life spans.

Myth #10: Introducing PRAs would reduce Social Security’s disability benefits.
Currently, both Social Security’s retirement program and its disability program use the same benefit formula to determine a worker’s monthly payment. Establishing PRAs would require changing the benefit formula to reflect the portion of retirement benefits that would be paid from the accounts. Those who oppose PRAs claim that any changes to the current formula would necessarily lower disability benefits. They also say that the PRAs of disabled workers (who tend to be much younger than retirees when they are disabled) would not have enough money in them to make up for lower government-paid benefits.

Fact: PRAs could easily be designed to avoid changing disability benefits.
The solution is simple: create two benefit formulas. Opponents are correct that changing current government-paid benefit formula without retaining the existing formula for disability benefits could reduce disability payments. However, Congress could simply change the law to require the Social Security Administration to use the existing formula to calculate disability benefits and a new formula to calculate retirement benefits. That would leave disability benefits unaffected by any change in the formula for retirement benefits.

Conclusion
America’s workers deserve a more informative, less partisan debate about Social Security reform. While the current system may be able to pay all the benefits that it has promised today’s older workers and those who have already retired, it cannot do so for younger workers.
There are only three ways to avoid the impending Social Security crisis: (1) raise taxes and borrow massive amounts of money, or make massive cuts in other federal programs; (2) reduce benefits promised to younger workers; or (3) make payroll taxes work harder and bring greater returns by allowing workers to invest all (or a part) of them through PRAs. While the first two options would make Social Security returns even lower than they are today, PRAs would not only address the impending insolvency of the system, but also improve retirement incomes and help to close the gap between what the current system has promised and what it will be able to pay. It would also allow workers of all income levels to build a nest egg for the future. Simply put, PRAs can give workers a much more secure retirement income than the current Social Security system.
The debate regarding Social Security reform is not an academic exercise, nor should it be used as a political ploy. The outcome of this debate will determine whether or not younger workers and their children will be able to receive retirement benefits that are comparable to those enjoyed by their parents.
The various myths and scare tactics that have emerged in the course of this debate do not alter the unpleasant realities that will confront American workers if nothing is done. Every day that Congress and the President delay taking action makes it more likely that our children and grandchildren will face the cost of crippling deficits. It is time to put aside the myths that have been stumbling blocks in a quest for authentic, effective, and critically needed Social Security reform.