Posts in category: Retirement Education

As the 2024 presidential election approaches, millions of Americans are concerned about the future of Medicare and Social Security. Without congressional action, both of these programs could face substantial cuts within the next decade, affecting retirees nationwide.

The next president, whether Kamala Harris or Donald Trump, will play a pivotal role in shaping the direction of this critical issue.

Polling shows an overwhelming majority of Americans—nearly 80%—are against cutting Social Security benefits. This bipartisan consensus spans political lines, with 77% of Republicans and 83% of Democrats agreeing that no reductions should be made. Despite this widespread agreement, both candidates have avoided specifics on how they plan to address Medicare and Social Security’s looming challenges.

Social Security’s financial troubles stem from an aging population (11,000 people are turning 65 everyday in the United Stateds), and a shrinking workforce. If left unchanged, The Social Security Board of Trustees project that the Social Security Old-Age and Survivors Insurance (OASI) trust fund will become insolvent in 2033 and that the Disability Insurance (DI) trust fund will not become depleted in the 75-year projection period.*

The Medicare Board of Trustees project that the Medicare Hospital Insurance (HI) Trust Fund, out of which Part A benefits for inpatient care are paid, will become insolvent in 2036, which is five years later than projected in last year’s report.*

Social Security

Historically, the last major reform of Social Security occurred in 1983 when the program was nearing insolvency. Any new reforms will need congressional approval, but a Harris or Trump presidency will certainly influence the debate.

Kamala Harris has expressed her commitment to “protecting” and “strengthening” Social Security but has yet to provide detailed plans. As a senator, she co-sponsored the Social Security Expansion Act, which aimed to increase benefits for some and extend the payroll tax on incomes above $250,000. Her campaign is expected to follow this approach, likely pushing for a higher tax on the wealthiest Americans to ensure the program’s solvency. President Biden’s current stance is to tax incomes over $400,000, a plan that has broad public support, with 79% of Republicans and 88% of Democrats in favor.

Harris may also push for changes to how Social Security’s cost-of-living adjustments (COLA) are calculated. Today, these adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), but Harris has supported switching to the Consumer Price Index for Elderly Consumers (CPI-E), which would reflect the higher medical costs that seniors often face. While this change could increase benefits, it might also accelerate the need to address the program’s funding shortfall.

Donald Trump has also vowed to protect Social Security, repeatedly saying he would not cut benefits. His campaign has been less clear about specific reforms, but Trump has suggested tapping into oil and gas revenues to shore up Social Security’s finances. However, analysts estimate that even dedicating all oil and gas leasing revenues to the program would cover only 4% of the projected shortfall.

One of Trump’s key promises is to eliminate federal income taxes on Social Security benefits. Under current law, retirees who earn above $25,000 pay taxes on a portion of their benefits. Eliminating these taxes would be a boon for seniors but would reduce Social Security’s revenue by an estimated $1.4 trillion over a decade, hastening its insolvency.

Medicare

During the September presidential debate, Kamala Harris mentioned Medicare three times, highlighting her focus on protecting it alongside Social Security.

“My work protecting Social Security and Medicare is based on long-standing efforts to protect seniors from scams,” Harris said. While she didn’t specify whether she was referring to her work as a prosecutor, senator, or vice president, her commitment to safeguarding these programs was clear.

Harris also pointed to key achievements under the Biden administration, such as Medicare’s new power to negotiate drug prices. “For the first time, we’ve allowed Medicare to negotiate drug prices on behalf of the American people,” she noted, referring to a 2022 law that enables the Health and Human Services Secretary to negotiate costs for high-priced drugs covered under Medicare. Taking a jab at Donald Trump, Harris added, “Donald Trump said he would allow Medicare to negotiate drug prices. He never did. We did.”

Harris has pledged to “fight to ensure that Americans can count on getting the benefits they earned.” While her 2020 campaign centered on “Medicare For All,” she’s now building on the Biden administration’s Medicare reforms, focusing on lowering drug prices and tackling costs.

As president, Joe Biden enacted some of the most significant Medicare reforms since 2006 when prescription drug coverage was introduced. A key part of Biden’s Inflation Reduction Act allows Medicare to negotiate drug prices directly with pharmaceutical companies—a practice already used by the VA and other federal agencies. This change is expected to save billions for both the federal government and Medicare beneficiaries.

The first 10 drugs covered under these negotiations will see price reductions starting in 2026, with more drugs added over time. Additionally, from January 2025, Medicare Part D beneficiaries will have their annual out-of-pocket costs capped at $2,000. Harris referenced this in the debate, stating: “And when I am president, we will do that for all people.”

Another important aspect of Biden’s plan is directing savings from these reforms back into Medicare’s Hospital Insurance Trust Fund, aimed at extending the program’s solvency.

Trump has vowed to protect Medicare benefits but has provided few specifics on how he plans to do so. His campaign has mentioned reversing increases in Medicare Part B premiums, prioritizing at-home care, offering tax credits to caregivers, and removing barriers that contribute to care worker shortages.

During his presidency, Trump made moves to reduce healthcare costs for Medicare beneficiaries, such as increasing price transparency and lowering insulin costs. However, these initiatives had little effect on Medicare’s long-term financial challenges.

Trump has consistently opposed any cuts to Medicare benefits, positioning himself as a defender of the program. He’s suggested that eliminating waste, fraud, and abuse within the system could save money, though no significant reforms were implemented during his time in office to address Medicare’s financial issues.

In 2023, Trump criticized fellow Republicans for considering cuts to Medicare as a way to offset federal spending, stating such measures were unnecessary.

Both Harris and Trump emphasize protecting Medicare, but their approaches differ, and neither has fully outlined how they will tackle the program’s long-term solvency challenges. As the election nears, voters will need to consider each candidate’s stance on this critical issue.

As the 2024 election draws nearer, voters will need to weigh these proposals carefully. While both Harris and Trump pledge to protect Social Security, their plans for fixing the program remain vague. Regardless of who wins, Congress will ultimately decide the future of Social Security and Medicare, but the next president’s leadership will set the tone for the reforms that follow.

Decisions on funding for Medicare and Social Security are primarily made by Congress, but the president plays an important role in shaping the agenda and influencing these decisions.

Congress’s Role

Congress holds the power to legislate changes to both programs, including funding, benefit levels, and eligibility requirements. Any significant reforms to Social Security and Medicare, such as raising taxes, adjusting benefits, or changing eligibility ages, must pass through both the House of Representatives and the Senate. Congress also determines the amount of funding allocated to Medicare each year through the federal budget process.

The President’s Role

While the president cannot unilaterally change funding for Medicare or Social Security, they can propose policies, budgets, and reforms that Congress may consider. The president also has a powerful “bully pulpit” to influence public opinion and push Congress to take action on issues related to these programs. The president’s administration can also implement certain regulations or executive orders related to healthcare costs and program management, though larger reforms require congressional approval.

In short, Congress holds the legislative authority over funding decisions, but the president can influence the direction of the policy debate.

The stakes are high, as Social Security and Medicare remain a critical safety net for 68 million Americans, and ensuring its long-term viability is crucial for the financial well-being of future generations.

Addendum: Fixing Social Security and Medicare Solvency: Key Solutions and Challenges

Fixing the solvency of Social Security and Medicare involves ensuring that these programs have enough funds to continue paying benefits over the long term. Both programs face financial challenges due to an aging population, longer life expectancies, and rising healthcare costs. Several potential solutions have been proposed, though each comes with trade-offs. Here are some common approaches to addressing solvency issues:

1. Increase Payroll Taxes

Social Security and Medicare are primarily funded through payroll taxes. One option is to raise the tax rate or increase the income cap on which Social Security taxes are levied.

• Raise the Payroll Tax Rate: Increasing the current Social Security payroll tax rate (currently 6.2% for employees and employers) would generate more revenue for the program.
• Remove or Raise the Income Cap: Currently, income above $168,600 (2024 level) is not subject to Social Security taxes. Eliminating or increasing this cap would bring in more revenue by taxing higher earners.

Pros: Increases revenue directly without cutting benefits.
Cons: Higher taxes could be unpopular, especially among businesses and high-income earners.

2. Raise the Retirement Age

Social Security’s full retirement age has been gradually rising, but further increases could reduce the number of years people receive benefits.

• Gradual Increase: Slowly raising the retirement age for younger workers (those not near retirement) would reduce the number of years people collect benefits while acknowledging longer life expectancies.

Pros: Reduces long-term costs by shortening the time people receive benefits.
Cons: Could disproportionately affect lower-income workers who may not live as long or who work in physically demanding jobs.

3. Reduce Benefits

Another approach is to reduce benefits for future retirees. This could be done through several methods:

• Means-Testing Benefits: Reducing or eliminating benefits for high-income retirees.
• Lowering Cost-of-Living Adjustments (COLA): Adjusting the formula that determines COLA, which could slow the growth of benefits over time.

Pros: Reduces costs directly, particularly for wealthier individuals.
Cons: Politically difficult, and could hurt low- and middle-income retirees who rely more on these programs.

4. Increase Immigration

Increasing legal immigration could help address the solvency issue by bringing in more workers who contribute to the Social Security and Medicare trust funds through payroll taxes.

Pros: Expands the workforce and increases payroll tax contributions.
Cons: Immigration reform is politically sensitive and would require broad legislative support.

5. Change the Way Benefits Are Calculated

Adjusting the benefit formulas can help with solvency:

• Switch to the Chained CPI: For Social Security’s cost-of-living adjustments, switching to a “chained” Consumer Price Index (CPI) would slow the rate of benefit increases.
• Recalculate Initial Benefits: Lowering the formula that calculates initial Social Security benefits for higher earners could reduce long-term payouts.

Pros: Could reduce benefit growth in a way that is less noticeable for beneficiaries.
Cons: Some argue that this underestimates real inflation for seniors, especially healthcare costs.

6. Cut Waste, Fraud, and Abuse

Many policymakers advocate addressing inefficiencies in both programs to reduce costs:

• Medicare: Efforts to reduce wasteful spending, fraud, and abuse in Medicare’s healthcare payments can help reduce costs without cutting benefits.
• Social Security: Reducing improper payments and tightening eligibility requirements could help reduce costs.

Pros: Could save money without directly cutting benefits.
Cons: While helpful, addressing waste and fraud alone is unlikely to solve the long-term funding challenges.

7. Allow Medicare to Negotiate Drug Prices

Recently, Medicare was granted the authority to negotiate drug prices, starting with the most expensive and widely used drugs. Expanding this authority could reduce the cost of prescription drugs for the program.

Pros: Lowers Medicare costs without cutting benefits.
Cons: Could face resistance from the pharmaceutical industry and some lawmakers.

8. Diversify Revenue Sources

Some proposals suggest new revenue streams to fund Social Security and Medicare, such as:

• Taxing Wealth or Investments: Implementing new taxes on investment income or wealth could bring in revenue for the programs.
• Carbon Tax or Financial Transaction Tax: Other potential new taxes could be directed toward funding these programs.

Pros: Expands revenue without directly cutting benefits or raising payroll taxes.
Cons: Politically contentious and could have broader economic impacts.

Combining Approaches

Many experts believe a combination of approaches will be necessary to fix the solvency of Social Security and Medicare. This could involve modest tax increases, benefit adjustments, and cost-saving measures. Bipartisan cooperation will be key, as both programs are politically sensitive and any reforms will need to balance economic realities with protecting vulnerable populations.

If you are confused by Social Security or Medicare, check out Her Retirement’s resources for both:

www.HerSocialSecurity.com

www.MedicareforHer.com

E-Courses on Social Security, Medicare and more at: Courses – Her Retirement

* Social Security and Medicare Continue on Path to Insolvency, Trustees Confirm | The U.S. House Committee on the Budget – House Budget Committee

Sources:

https://www.newsnationnow.com/

https://www.bankrate.com/