Bridging budget gap

In his 2014 budget, President Barack Obama has included a couple of specific steps to reduce the fiscal shortfalls in Social Security and Medicare. For the former, the White House is proposing the use of a consumer price index that will reduce regular tied-to-inflation increases; for the latter, Medicare, it intends to increase the number of individuals who are required to pay higher supplemental premiums and to increase those premium amounts.

The mismatch between Social Security’s revenue and payments is by far the easier fix, as everyone knows. Beneficial steps can be found in several components, such as increasing the amount of a wealthy earner’s income that is taxed, and postponing slightly the dates that benefits can be drawn.

Now comes the idea of replacing the current consumer price index that usually results in increased Social Security payments with one that adjusts the prices of its components much more frequently as the average consumer’s buying habits change. Known as the “chained CPI” to emphasize the role that each ingredient or link in the index or chain plays, this index has been an average of about 0.3 of a percent lower than the current index during the last 12 years, according to The National Review. While that is a 10 percent reduction from a 3 percent rate as it is currently calculated, that would not necessarily be a reduced monthly payment of that amount.

But it would mean a reduction of billions of dollars over time.

Medicare’s current trajectory is far more troubling. Because it lacks the certainty of a defined-benefit plan, for the beneficiary, Medicare is spending $3 for the health care of a now-retired worker who contributed $1 through his payroll deductions. That deficit is aggravated by the number of baby boomers, those born beginning in 1946, who are just now reaching Medicare age.

It is health-care providers whose Medicare charges are limited by Congress, and constantly increasing costs reduces providers’ enthusiasm for treating Medicare patients.

Now, according to the Associated Press, one in 20 Medicare beneficiaries has the annual income level of $85,000 or more ($170,000 for couples) which triggers the higher Medicare premium payment. Under the White House plan included in the just-released 2014 budget, not adjusting for inflation will eventually cause that number to become one in four.

Monthly payment amounts will increase, as well.

Even requiring more Medicare recipients, those with higher income levels, to make higher supplemental premium payments will not put Medicare on a sustainable footing.

Some Democrats have been quick to condemn the White House’s proposed adjustments to Social Security and Medicare, saying the two safety nets should continue untouched.

The slowly re-emerging economy is slightly reducing the federal deficit as a percent of gross domestic product. That is a welcome direction. But for Medicare, much more than a stronger economy is needed. The White House’s budget includes an effort to better balance Medicare’s significant shortfall, and to shore up Social Security. Those proposals have merit and deserve consideration.

If the White House’s critics on this issue, including those on the left, have other suggestions, they should speak up.

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