'Entitlement reform' can further dent seniors coping with health costs

'Entitlement reform' can further dent seniors coping with health costs
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Some in Washington talk about a need for “entitlement reform.”  That translates to possible cuts to Social Security, Medicare, or Medicaid — or all three. One crucial element should not be missed: These safety net programs work in tandem.  Changes to one affect another.  Just-released data show this is particularly true for older Americans, whose financial and health security depend on these programs working in concert.

A new report from the Kaiser Family Foundation lays bare this interdependence.  Nearly three-quarters of retirees see little to no annual increase in their Social Security income after they pay their Medicare hospital and drug premiums.

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Kaiser also took a first-ever look at how well Social Security payments are keeping up with a beneficiary’s out-of-pocket health and long-term care costs and finds a troubling trend: they aren’t.  Such expenses already consume more than 40 percent of Social Security income; even with no changes to these programs, that figure will likely rise to 50 percent by 2030.  But these are just averages, and older or sicker Americans will fare worse.  2030 looks very grim for those age 85-plus: A debilitating 87 cents of every dollar will be consumed by these out-of-pocket costs, leaving them pennies for basic necessities.

Medicare and Social Security are not generous programs.  They are designed as safety nets, providing a measure of income security with the aim of keeping people out of poverty in their retirement. Kaiser’s report analyzed 2013 data, showing the average Social Security recipient receiving a little more than $1,100 per month, a figure anticipated to rise to $1,325 in 2030.

While some retirees have pensions or personal savings to draw upon to supplement Social Security, many others do not.  In fact, Social Security made up 90 percent of family income for a fifth of all people retirement age or over.  Women are hit especially hard, as fewer have their own pension.  Not surprisingly, about a quarter of them are as reliant on Social Security for monthly income.  Many Americans will have spent down all their retirement savings by the time they’re 85, but that’s when health and long-term care costs are most likely to burgeon.  And, in general, people are living longer.

While specific changes to Social Security have not been put on the table, most previous proposals have called for raising the retirement age or cutting the cost of living adjustment for benefits by using a measure of inflation tied to a consumer price index (CPI) that grows more slowly than the index currently used. Policy wonks call this method “chained CPI,” but the practical effect, if it were applied to Social Security benefits, would be a roughly 20 percent cut for those in their 80s.  Now that the Kaiser report has illuminated just how much of Social Security income is consumed by health and long-term care costs, we know either one of these proposed cuts would leave most seniors badly strapped.

I mentioned three interrelated programs, and the last of the three — Medicaid — is critical to helping with seniors’ long-term care expenses.  But there’s an obstacle: to qualify, people must first deplete their life’s savings. Raising the asset limit for eligibility and allowing it to increase with inflation would help. The limit is $2,000 for an individual — the same as it has been since the 1980s.  If it had kept pace with inflation, the limit today would instead be $4,900.   

Kaiser’s new data paint a perilous picture, even before a change to Social Security, Medicare or Medicaid.  Let’s provide seniors, who have contributed throughout their lives, with the solutions they need, not talk of entitlement reform and certainly not an assault on their safety net.   

Debra Whitman, Ph.D., is executive vice president and chief public policy officer at AARP. She is the former staff director for the U.S. Senate Special Committee on Aging and, from 2001 to 2003, Whitman served as a Brookings LEGIS fellow to the U.S. Senate Committee on Health, Education, Labor and Pensions.