Ryan Right to Punt on Social Security Reform

Written by Eli Lehrer on Thursday March 31, 2011

A new budget proposal from Paul Ryan will make Medicare and Medicaid reforms while leaving Social Security more-or-less untouched. Ryan's got the right priorities.

A new budget proposal from Rep. Paul Ryan will make Medicare and Medicaid changes while leaving Social Security more-or-less untouched. Ryan—whose own Social Security Plan is worse than the status quo -- is right, politically and practically, to make these programs his priorities.

In many ways, Medicare and Medicaid may actually be easier to modify than Social Security.  Those programs would still be able to accomplish their fundamental goals after reform. Most reform proposals for Social Security however would change the system fundamentally.

Medicare (which provides health insurance for the elderly and disabled) and Medicaid (which provides insurance for the poor) have both grown at unsustainable rates. Both, currently, are less-than-total insurance programs: Medicare, in its plain vanilla variety actually requires a 20 percent (ouch!) co-insurance in many cases while Medicaid, which is mostly “free” to beneficiaries, rations care because low reimbursement rates make it very difficult to see specialists.

The promise of both programs is that the government will help with medical care but won’t always do absolutely everything. Medicaid is means-tested while Medicare, through payroll taxes, premiums paid by beneficiaries, and the cost of supplemental policies, does already have an income-related component. Benefits have generally increased in Medicare in recent years—drugs, preventative exams and more have been added—and reducing benefits in some ways (not paying for ineffective back surgery) could logically follow.

Changing these programs even in ways that might seem radical such as replacing Medicare with a voucher program doesn’t fundamentally change the effort to provide a significant (but not limitless) form of medical coverage.

Social Security, on the other hand, makes a very particular promise: everyone pays the same percentage into the system and, upon reaching retirement age, everyone gets a modest pension (up to a limit) that’s directly related to working income, goes up with average wages each year, and is a foundation for retirement.

Although the benefits aren’t technically guaranteed as a matter of law, the Social Security Administration has bonds (backed only by the full faith and credit of the government rather than any real assets) that will pay every penny promised until around 2041. The program isn’t social assistance (if you never work, you don’t get a penny) and provides decidedly meager benefits to people at the bottom. But politics and the full-faith-and-credit backing of bonds means that it’s a close-to-certain retirement program.

Changes to the system that would add private, individually owned-accounts, detach benefits from pre-eligibility-age earnings through means testing, or establish a minimum benefit for people who work their entire lives for low wages would represent fundamental changes in what the system does.

I personally favor doing all three of these things and think they would be good for the country but, relative to tweaking Medicare and Medicaid, they are fundamental changes: all of them would move Social Security in the direction of becoming a social assistance program rather than a pension plan. Other proposals such as simply cutting benefits across the board and then adding tax advantages to encourage more private investments or even transforming the program into a simple minimum income guarantee also would create fundamental changes in what Social Security does.

Medicare and Medicaid are in more trouble than Social Security and cost more. For the moment, Ryan is right to make them his top priorities.

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