An Open Letter to the American People On Healthcare

By Samuel Wilder King II and Jason Kerwin

This article was first published in the Honolulu Advertiser on September 27th, 2009 http://www.honoluluadvertiser.com/article/20090927/OPINION03/909270341/1108/OPINION02/Retiring-at-older-age-saves-Medicare

The year is 2080. Half of the entire American Gross Domestic Product (GDP) is dedicated to Social Security and Medicare, and interest on debt to finance those programs. Then a financial crisis drives the US government bankrupt. The government’s inability to fund Medicare and Social Security leaves millions of senior citizens with no means of support and no backup plans. Without fundamental changes, this will be America’s future. While healthcare reform is vital, President Obama and Congress are ignoring the critical point that even if healthcare costs go down Social Security and Medicare will still be unsustainable.

When Social Security began in 1935, someone who lived to 65 expected to live to 77. Today, that person would live to 83. Medicare was created in 1965 as part of Social Security legislation, so it used the same minimum age. The Social Security retirement age has increased by just two years in the last seven decades, and Medicare still starts at age 65.

Source: Center for Disease Control and Prevention,

http://www.cdc.gov/nchs/data/nvsr/nvsr56/nvsr56_09.pdf

What makes this a problem is the huge number of people approaching retirement. Baby Boomers did not have as many children as their parents, and their children had even fewer, so each year the number of workers supporting each person on benefits drops.

Source: US Census Bureau,

www.census.gov/ipc/www/idb/country.php,

en.wikipedia.org/wiki/File:Uspop.svg

The best option to keep these programs viable is to increase the eligibility age by one month for every three calendar months without increasing benefit payouts – starting now. This is a simple solution that requires no new government bureaucracy. We should continue this increase until the average person receives benefits for 12 years, just as they did in 1935. Today, that would mean a retirement age of 76. This will decrease costs and increase the number of people paying money into the system. Since people live longer today, retirements should start later. Doing it gradually allows people to adjust their retirement plans and prevents a sudden collapse of the US economy like the 2008 financial crisis.

The chart below, provided by the nonpartisan Government Accountability Office, shows that with current trends, spending on healthcare alone will ruin the country’s financial position in 70 years. The black line represents projected government revenues as a percent of GDP (the total annual income of the entire country). It outlines the future we described above – Medicare, Medicaid and Social Security will totally consume government revenues by 2080, and total government spending will be seven tenths of GDP.

whitehouse.gov/omb/assets/financial_pdf/08guide.pdf

One way to estimate the savings from pushing the retirement age back is to look at how much we would have saved if it were already higher. Based on numbers provided by the Department of Health and the Kaiser Family Foundation, we calculate that an eligibility age of 76 would have saved Medicare about $80 billion in 2002 out of a total cost of around $230 billion. A 2000 AARP study published in the Social Security Bulletin had similar results, estimating that increasing Medicare eligibility to 70 by 2040 would cut costs by $67.3 billion in that year. Our plan would have an eligibility age at 75 by 2040, yielding higher savings.

We also estimate that if Social Security’s retirement age were 76 today we would save approximately $280 billion in 2009, out of a total of $660 billion. Moving the eligibility age upwards, so that it remains in line with life expectancy over time, reduces long-run Social Security costs by as much as 40% and Medicare costs by up to one-third. It also increases the number of people in the workforce, further shoring up the system. Poor seniors would still be covered by Medicaid; we could implement additional programs targeting the needy without a large impact on savings.

In the end raising the retirement age makes sense. People live longer today, which is a wonderful thing. In concert with other cost-control reforms currently being discussed, revising the retirement age upward will reduce the fiscal impact of Social Security and Medicare and help prevent their collapse. Doing it slowly will allow people to adapt their retirement plans now rather then letting them count on a system that is guaranteed to fail. Best of all, it is simple, cheap, and requires no additional government bureaucracy.

Samuel Wilder King II is a Punahou ’02 and Georgetown ’06 graduate. He served as a political consultant in Baghdad from March to December 2008 and is currently managing Adrienne King’s campaign for the Republican nomination for Lieutenant Governor in Hawaii. His blog can be found at thekinginstitute.blogspot.com. He is a registered Republican.

Jason Kerwin is a Punahou ’02 and Stanford ’06, MA ’07 graduate, and worked for the last two years as a researcher studying cost control in Medicare. His work is published on the Center for Medicare and Medicaid Services website: http://www.cms.hhs.gov/HealthCareFinancingReview/downloads/09SummerPg33.pdf

http://www.cms.hhs.gov/Reports/downloads/MaCurdy.pdf

He is currently a first-year doctoral student in economics at the University of Michigan. He is a registered Democrat.