This commentary first appeared in Spotlight on Poverty and Opportunity.
With the government reopened, President Obama has called on Congress to work together to enact a comprehensive long-term budget plan. Recently fiscal conversations have too often centered on making cuts to America’s primary social insurance programs for seniors: Social Security and Medicare. Any proposed changes to these significant budget items deserve to be evaluated not just for their impact on future budget deficits, but also for their impact on the living standards of the elderly. Now, as new budget battles loom, lawmakers need to better understand the economic realities confronting elderly Americans.
Many of America’s 41 million seniors are just one bad economic shock away from significant material hardship. Most live on modest retirement incomes, which often are barely adequate – and sometimes entirely inadequate – to cover the costs of basic necessities and support a simple, yet dignified, quality of life. For these seniors, and even for those with greater means, Social Security and Medicare are the bedrock of their financial security. Altering these programs would mean far more than changing numbers in the federal ledger; it could mean serious hardship for millions of elderly Americans.
In a report released early this year, we demonstrated that America’s seniors are not nearly as financially secure as many think. By comparing elderly income levels with the typical expenses of an elderly family using the Elder Security Index from Wider Opportunities for Women we found that roughly 19.9 million, or nearly half (48 percent), of those age 65 or older in the United States are “economically vulnerable,” defined as having an income less than two times the Census Bureau’s Supplemental Poverty Measure threshold, a poverty line more comprehensive than the traditional federal poverty line.
The situation is even more alarming for particular groups of seniors. Women are 10.7 percentage points more likely to be economically vulnerable than men, nearly 60 percent of the older elderly – people ages 80 and older – are economically vulnerable, and large majorities of African American and Hispanic seniors are economically vulnerable—63.5 percent and 70.1 percent, respectively.
Despite the tenuous economic position of so many elderly Americans, recent budget proposals put forward in Congress have recommended huge cuts to the programs that protect these vulnerable seniors. House Budget Committee Chairman Paul Ryan has repeatedly proposed converting Medicare into a voucher system where the government provides a voucher at a set rate per beneficiary and seniors shop for their healthcare plans in a competitive Medicare Exchange. Unfortunately, because the value of the voucher will almost certainly grow at a rate slower than overall health costs, seniors will be forced to spend more out-of-pocket on their healthcare. In fact, the Congressional Budget Office has estimated that under Chairman Ryan’s plan, the average 65-year-old Medicare enrollee would see his or her medical out-of-pocket spending on healthcare more than double.
Forcing seniors to pay more out of pocket will lead some to cut back on needed care, while others would have to spend more and more of their limited incomes on healthcare. This would only make seniors’ current precarious situation worse. We simulated the effects of such a proposal on elderly incomes, and found that doubling out-of-pocket health expenditures (shorthand for both enrollee insurance premiums and enrollee costs for medical care) would shift almost 3.5 million more seniors into financial insecurity. This may appear to be an attractive way to cut federal spending, but, as the figure below shows, it would have real detrimental effects on the lives of millions of American’s most vulnerable citizens. For example, more than two-thirds of blacks and about three-quarters of Hispanics would become economically vulnerable.
In addition to entertaining deep cuts to Medicare, lawmakers also have considered reducing Social Security benefits by tying the cost-of-living adjustment formula to a different measure of inflation known as the “chained” consumer price index (CPI). Like the value of the Ryan voucher for Medicaid, the chained CPI grows more slowly than the current index used to adjust Social Security benefits—meaning that as seniors’ living expenses go up, their Social Security checks are unlikely to keep pace with growing costs. In fact, we estimate that switching to a chained-CPI would force 132,000 seniors, ages 70 to 75, below the threshold of economic vulnerability.
While we can hope that future budget battles will not resurrect these misguided proposals, the truth is that any policy that shifts greater out-of-pocket medical costs onto the elderly, or reduces their Social Security benefits, would represent a tangible financial hardship for many of our country’s most vulnerable citizens. The fact that nearly half of America’s seniors have alarmingly low levels of income relative to the cost of their basic needs should be a wake-up call to lawmakers. We need to strengthen social protections for the elderly, not cut the vital yet meager protections they currently have.