OP-ED

The Really Bad Math Behind the Social Security Cuts

Among the sacrifices Congressional representatives placed on the altar of deficit negotiations is an “inflation adjustment” that will shave “only” a few hundred dollars from an average, newly retired Social Security beneficiary’s income each year. But the cruel hoax is that the reduction will amount to as much as $1600 when the beneficiary is older, poorer, and sicker.  Many seniors already have a tough time paying for food, rent, and medical care.

Even worse,  reductions in beneficiaries’ incomes may well cost government more for potentially preventable hospital and long-term care.  Senator Elizabeth Warren and other New England lawmakers should be lauded for splitting from Democratic representatives and the Administration regarding this ill-conceived proposal.

Many senior citizens are already vulnerable to economic hardship.  A recent US Census analysis that counts rising medical expenses found that over 1 in 6 elderly people live in poverty, unable to meet basic living expenses, and almost 20% more are living just above the poverty line. Social Security is the only or largest source of income for about 70% of seniors; the average monthly check is only about $1200.

The typical retirement savings of seniors is a paltry $50,000 — barely enough to get through several years’ living expenses, let alone 20-30 years of retirement.  This is not the result of cavalier actions by the older generation; these are the Americans whose home values have plummeted, whose defined-benefit pension plans have been decimated or disappeared, and whose retirement accounts were eviscerated by the Wall Street meltdown of the last decade. Yet the current proposal punishes these Americans as if they were at fault for their poverty.

Fidelity Investments has estimated that the average retired couple will need more than $200,000 to pay their out-of-pocket medical expenses during retirement, and that figure is probably conservative.

The arithmetic of Social Security benefit reductions just doesn’t fit with this reality.


What are the consequences of having to rely on Social Security alone?  High out-of-pocket health care costs can be “catastrophic” because they cause people to go without essential medical care. Our studies published in the New England Journal of Medicine show that a 50% reduction in drug benefits in New Hampshire for low income, chronically ill seniors backfired.

The NH policy reduced the use of essential medicines (e.g., for diabetes and heart disease), worsened chronic illness, increased acute care, and doubled the rate of permanent institutionalization in expensive nursing homes. These increased admissions raised government costs several times more than the drug “savings,” not even counting increased pain and suffering of patients and their families.

Dr. Nicole Lurie, the current US Assistant Secretary for Preparedness and Response, showed that about 15% of people (many seniors) who are admitted to hospital emergency departments experience significant hunger before admission.  Frequently, seniors skimp on medicines to pay for food, and this leads to illness and further hospital care.

Similarly, our studies show that almost 30% of disabled Medicare recipients in poor health skip or split pills to make them last longer because they can’t afford their prescription drugs, even in the era of the Part D drug benefit. One study indicates that splitting pills increases hospitalization of heart disease patients by 21%.

The current debate in Washington encapsulates the growing political and ideological divide as to how the costs of deficit reduction should be allocated across various parts of the population.  No single proposal more starkly embodies that issue than efforts to trim and chip away from recipients of an earned, contributory entitlement at precisely that time in their lives when they can least afford reduced incomes, and have the least capacity to compensate for them.

As a result, governments at all levels will be left mitigating the harm those income reductions produce.  Reducing the Social Security cost-of-living adjustment, in other words, is not only morally unacceptable, but substantively counterproductive.

Stephen Soumerai, ScD is Professor of Population Medicine and Director of the Drug Policy Research Group at Harvard Medical School and Harvard Pilgrim Health Care Institute.

Livongo’s Post Ad Banner 728*90

22
Leave a Reply

17 Comment threads
5 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
15 Comment authors
linkStanley LangworthyBob HertzBob SBobby Gladd Recent comment authors
newest oldest most voted
link
Guest

Thank God! Someone with brains speaks!

Stanley Langworthy
Guest

One good thing about this article is its meaningful essence that has awaken silence over those voiceless individuals that their voices be heard regarding their issues and concerns individually. It’s an important thing that needs to be answered intelligently.

Bob Hertz
Guest
Bob Hertz

In this case Barry I was not eagerly calling for more taxes. Rather I was making the point that some things do not happen without coercion. Taxes are one form of coercion, but forced savings and mandatory pensions are another form also. And perhaps a more efficient form. My point is that pure freedom and long life spans may not go together. Freedom means that some persons will make mistakes. Back in the 1920’s, people who outlived their money would just plain suffer. Social Security was introduced when this became nationally unbearable. My point may not be a greatly important… Read more »

Bob Hertz
Guest
Bob Hertz

America has chosen (more or less) not to require younger people to save, and not to require corporations to sponsor pension plans. Other nations do this a lot, but America seems to find this ‘paternalistic’ and an infringement on the freedom of young people to consume, or the freedom of corporations to seek out cheap non union labor. The current status of senior citizens ( which is likely to worsen) is the direct result of the freedoms described above. The only way out is higher taxes to generate more money for the elderly poor. So we are back to government… Read more »

Barry Carol
Guest
Barry Carol

“I suspect it may be cheaper to coerce younger people to save, then compound interest is on your side.” Bob – The whole point of putting money aside by companies and employees in a defined benefit pension plan, 401-K or IRA is to use investment returns to pay for a significant percentage of retirement income. Social Security doesn’t do that though it would have if the surpluses generated for years were actually saved and invested rather than spent on other government programs and replaced in the so-called Trust Fund with IOU’s. The only way to redeem the IOU’s and to… Read more »

Bob S
Guest
Bob S

I agree strongly with the need to maintain fair increases in the social security cost of living adjustments. I thought it might be useful to summarize my take-away points from your op-ed: 1. Cutting social security will reduce economic access to medications and preventive medical care; this will actually increases overall costs as patients present with serious illnesses requiring hospitalization. 2. For older SS recipients, the reduction in payments will actually be $1,600/year which they CANNOT afford. 3. Medical care inflation (while improved) still exceeds any inflation index, so cutting SS and Medicare benefits is even worse. 4. The proposal… Read more »

Michael Turpin
Guest

“A society grows great when old men plant trees whose shade they shall never sit in.” Um, what’s the opposite of that?

Bobby Gladd
Guest

what’s the opposite?

My country, tis of ME,
Sweet land of only ME,
Of ME I sing…

Peter1
Guest
Peter1

Let’s rescue dishonest banks and sink low income seniors.

Steve Soumerai
Guest
Steve Soumerai

Thanks for these excellent posts! Agreed that Medicare is the elephant in the room, especially given the impending costs of baby boomers like me. While medical care inflation has subsided somewhat it still eviscerates any tiny increases in the current COLA: 1.5% for December 2013. I agree that some retirees can make it on social security alone in other parts of the country. But a large proportion of the older generation is in poverty, depending solely on a measly $12K in social security income. Where can you live on that? As many of you have commented this program is one… Read more »

Barry Carol
Guest
Barry Carol

Steve – I think it’s important to note that many of the lowest income seniors have other resources available to them. They may be eligible for both Medicare and Medicaid. They may be living with adult children and thus have no housing costs or they may be in government subsidized housing or apartments covered by rent control regulations. They are most likely eligible for food stamps as well. The poverty statistics don’t take the value of these in kind programs into account which makes the numbers suspect. I’m not saying there aren’t a lot of people both old and young… Read more »

Steve Soumerai
Guest
Steve Soumerai

Hi Barry: Good points. There are clearly some “what ifs” that may help some folks avoid the worst effects of social security cuts. But there are millions more who are in poverty and are suffering right now. An editor at THCB showed me some data indicating that we were near the bottom of almost two dozen industrialized countries in terms of income security for our seniors. It is true that some elderly are well-to-do. But these are not the vulnerable people I was writing about. Paul had it right that a typical $50K savings will not last long. Those with… Read more »

Paul
Guest
Paul

I think it is too broad a statement to state that folks could live on social security alone because the amount of the benefit varies so much depending on the person’s earning history. Sure people can sell their homes and capture some of their equity to use for expenses during retirement. However, the housing market is depressed in most areas of the country, so that even if they are able to sell their homes, the equity that was expected has been cut drastically. Thankfully, most folks at retirement age have owned their homes long enough not to be “under water”j,… Read more »

BC
Guest
BC

Wherever one stands on the SS issue what first must happen is fixing a very large problem with the program. Namely, by law, all excess SS proceeds must be invested into govt. bonds. The end result is the money gets spent. SS currently has a $2.5 trillion surplus, but again the money has been spent so the govt. now has a massive IOU. The same thing has occurred with military and federal civilian pensions. All such debt amounts to roughly $4.5 trillion dollars, which is called intra-governmental holdings. I think one could invest some of the proceeds into very stable… Read more »

Barry Carol
Guest
Barry Carol

It’s important to note that for reasonably healthy older people who own their home outright and who no longer have young children to support and educate or job related expenses, they can live a middle class lifestyle on far less income than young families with a mortgage, children to feed and educate and commutation costs. There have been articles recently about any number of small and mid-size cities where people can live reasonably comfortably on Social Security alone. To cite one small example, a neighbor of mine is in the process of selling here home here in NJ. It will… Read more »

userlogin
Editor

“They need to stop taking that money if they’re not going to give it back. Seniors and veterans are hurting bad already.”

Michael Turpin
Guest

Did I miss something? The math is bad. Stephen is spot on. We are expecting to be short what, $8T? on Social Security versus $50T in underfunding on current Medicare liabilities? Most of these budget cut geniuses do not understand how inexorably tied these programs are to the health and well being of beneficiaries. Before we once again spin the roulette of unintended consequences, let’s keep our eyes on the orize– get Medicare fixed if we can focus on this third rail, we can find the desired $8T five times over. It starts with raising the Medicare eligibility age to… Read more »

userlogin
Editor

“take ss and medicare and veteran’s benefits out of the budget negotiations…..!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!”

Barry Carol
Guest
Barry Carol

The Medicare Part B increase for 2014 is ZERO. The monthly premium will remain $104.90 which is 9.1% lower than the 2011 cost of $115.40 per month.