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Robert Reich
NationofChange / Op-Ed
Published: Monday 7 January 2013
Taming future deficits requires three steps having nothing to do with entitlements: Limiting the growth of overall healthcare costs, cutting our bloated military, and ending corporate welfare (tax breaks and subsidies targeted to particular firms and industries).

The Hoax of Entitlement Reform

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It has become accepted economic wisdom, uttered with deadpan certainty by policy pundits and budget scolds on both sides of the aisle, that the only way to get control over America’s looming deficits is to “reform entitlements.” 

But the accepted wisdom is wrong. 

Start with the statistics Republicans trot out at the slightest provocation — federal budget data showing a huge spike in direct payments to individuals since the start of 2009, shooting up by almost $600 billion, a 32 percent increase. 

And Census data showing 49 percent of Americans living in homes where at least one person is collecting a federal benefit – food stamps, unemployment insurance, worker’s compensation, or subsidized housing — up from 44 percent in 2008. 

But these expenditures aren’t driving the federal budget deficit in future years. They’re temporary. The reason for the spike is Americans got clobbered in 2008 with the worst economic catastrophe since the Great Depression. They and their families have needed whatever helping hands they could get.

If anything, America’s safety nets have been too small and shot through with holes. That’s why the number and percentage of Americans in poverty has increased dramatically, including 22 percent of our children

What about Social Security and Medicare (along with Medicare’s poor step-child, Medicaid)? 

Social Security won’t contribute to future budget deficits. By law, it can only spend money from the Social Security trust fund.

That fund has been in surplus for the better part of two decades, as boomers contributed to it during their working lives. As boomers begin to retire, those current surpluses are disappearing.

But this only means the trust fund will be collecting from the rest of the federal government the IOUs on the surpluses it lent to the rest of the government. 

This still leaves a problem for the trust fund about two decades from now. 

Yet the way to deal with this isn’t to raise the eligibility age for receiving Social Security benefits, as many entitlement reformers are urging. That would put an unfair burden on most laboring people, whose bodies begin wearing out about the same age they did decades ago even though they live longer. 

And it’s not to reduce cost-of-living adjustments for inflation, as even the White House seemed ready to propose in recent months. Benefits are already meager for most recipients. The median income of Americans over 65 is less than $20,000 a year. Nearly 70 percent of them depend on Social Security for more than half of this. The average Social Security benefit is less than $15,000 a year.

Besides, Social Security’s current inflation adjustment actually understates the true impact of inflation on elderly recipients — who spend far more than anyone else on health care, the costs of which have been rising faster than overall inflation. 

That leaves two possibilities that “entitlement reformers” rarely if ever suggest, but are the only fair alternatives: raising the ceiling on income subject to Social Security taxes (in 2013 that ceiling is $113,700), and means-testing benefits so wealthy retirees receive less. Both should be considered. 

What’s left to reform? Medicare and Medicaid costs are projected to soar. But here again, look closely and you’ll see neither is really the problem. 

The underlying problem is the soaring costs of health care — as evidenced by soaring premiums, co-payments, and deductibles that all of us are bearing — combined with the aging of the boomer generation. 

The solution isn’t to reduce Medicare benefits. It’s for the nation to contain overall healthcare costs and get more for its healthcare dollars. 

We’re already spending nearly 18 percent of our entire economy on health care, compared to an average of 9.6 percent in all other rich countries.

Yet we’re no healthier than their citizens are. In fact, our life expectancy at birth (78.2 years) is shorter than theirs (averaging 79.5 years), and our infant mortality (6.5 deaths per 1000 live births) is higher (theirs is 4.4). 

Why? Doctors and hospitals in the U.S. have every incentive to spend on unnecessary tests, drugs, and procedures.

For example, almost 95 percent of cases of lower back pain are best relieved by physical therapy. But American doctors and hospitals routinely do expensive MRI’s, and then refer patients to orthopedic surgeons who often do even more costly surgery. There’s not much money in physical therapy.

Another example: American doctors typically hospitalize people whose diabetes, asthma, or heart conditions act up. Twenty percent of these people are hospitalized again within a month. In other rich nations nurses make home visits to ensure that people with such problems are taking their medications. Nurses don’t make home visits to Americans with acute conditions because hospitals aren’t paid for such visits.

An estimated 30 percent of all healthcare spending in the United States is pure waste, according to the Institute of Medicine.

We keep patient records on computers that can’t share data, requiring that they be continuously rewritten on pieces of paper and then reentered on different computers, resulting in costly errors. 

And our balkanized healthcare system spends huge sums collecting money from different pieces of itself: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policy holders.

A major occupational category at most hospitals is “billing clerk.” A third of nursing hours are devoted to documenting what’s happened so insurers have proof.

Cutting or limiting Medicare and Medicaid costs, as entitlement reformers want to do, won’t reform any of this. It would just result in less care. 

In fact, we’d do better to open Medicare to everyone. Medicare’s administrative costs are in the range of 3 percent.

That’s well below the 5 to 10 percent costs borne by large companies that self-insure. It’s even further below the administrative costs of companies in the small-group market (amounting to 25 to 27 percent of premiums). And it’s way, way lower than the administrative costs of individual insurance (40 percent). It’s even far below the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

Healthcare costs would be further contained if Medicare and Medicaid could use their huge bargaining leverage over healthcare providers to shift away from a “fee-for-the-most-costly-service” system to a system focused on achieving healthy outcomes. 

Medicare isn’t the problem. It may be the solution. 

“Entitlement reform” sounds like a noble endeavor. But it has little or nothing to do with reducing future budget deficits. 

Taming future deficits requires three steps having nothing to do with entitlements: Limiting the growth of overall healthcare costs, cutting our bloated military, and ending corporate welfare (tax breaks and subsidies targeted to particular firms and industries).

Obsessing about “entitlement reform” only serves to distract us from these more important endeavors. 

This article was originally posted on Robert Reich's blog.

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ABOUT Robert Reich


ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

The first step to get our

The first step to get our members of congress to pay attention to what the people want is to get the petition signed at - (click on or copy and paste into your browser)

booby idea = keep soc sec as

booby idea = keep soc sec as is and let the checks bounce in 2036 he figures he will be dead by then

So many younger people have

So many younger people have bought into the notion that Social Security is unsustainable. Furthermore, many Democrats, for whatever reason, think that by "giving a little" on Social Security proves that they are reasonable and that maybe Republicants will then move closer to the center. Any giving on Social Security is idiocy, though; this group of Republicants hates Social Security: they don't want to bleed it a little, they want its femoral artery.

how about....... the

how about....... the government just creat a "trust fund" like the one for socialsecurity and medicare . the government could just put a few hundred trillion worth of iou's in there and we would no longer have a deficit in spending for anything!! we could just draw onthe trust fund!!!

brilliant Robert
no wonder so many of the comments above want you to be part of the government.

With all due respect to

With all due respect to Prof.Reich and the "sane" commentators, we ALL are cognizant of the REAL problem in D.C., and statehouses across the country. Our leaders, the vast majority of them, are corrupt...right down to their red,white and blue socks. The historical fact of the matter is simply that they've ALWAYS been corrupt. Presidents such as
Jackson,Polk,Cleveland,McKinley,Taft,Harding,Nixon and particularly Reagan made an art out of the practice. And the urge to grab a paintbrush and get in a few strokes is simply too attractive for most to deny. These are perdurably the people who aspire to "public service." And the public will keep on "serving" them, until and if the voters of America realize they've been flipping a "one-sided" coin for a long,long time.

Make no mistake the

Make no mistake the repugnants are aiming to get rid of our earned benefits SS and Medicare, bit by bit. And Obama is more than willing to hand cuts to them. Wolf in sheeps clothing

The problem is not knowing

The problem is not knowing where to cut, its how to get the Congress to act on these specific items.

And Oh Yeah I'd like to add one more....Ask God to appear in Congress and advocate for these items. We can do this one first. Its always nice to start with the easy ones.



"Limiting the growth of

"Limiting the growth of overall healthcare costs, cutting our bloated military, and ending corporate welfare (tax breaks and subsidies targeted to particular firms and industries)."

Yes, Mr. R, you are right about our bloated military. And agricultural subsidies for corn (cheap corn is causing obesity), $55 billion in oil depletion allowances (what could be more stupid, or crooked?) and more--they must be stopped.

However, you are shortsighted in condemning corporate "tax breaks". Who do you think pays when corporations are taxed? We, the people. The 99%. In the value of stock in our pension plans--anyone out there planning to retire? In the rising prices of goods--corps. will just pass on the cost of tax hikes to consumers. Taxing corporations is NOT an enlightened way to raise revenue.

Rifbeach (commenter at

Rifbeach (commenter at bottom), I see no value demanding window-dressing appointments from an elite centrist (Obama) already famous for compromise favoring the right and the wealthy. "Dear Mr President, I demand that you appoint someone whose input might influence you to impoverish me more slowly. Thank you."

Also, consider Reich's paragraph: "Taming future deficits requires three steps having nothing to do with entitlements: Limiting the growth of overall healthcare costs, cutting our bloated military, and ending corporate welfare (tax breaks and subsidies targeted to particular firms and industries)."

That's fine so far as it goes, but note it says nothing about trillions in wealth being undertaxed and transferred from the many to a wealthy few. See

Obama is similarly mum about it. The audacity of hope is a lullabye that calms the sheep as they are being led to socio-economic slaughter.

Greghilbert, your last

Greghilbert, your last sentence is very well put. Obama's pretty words are not meant to inspire and lead Americans into action. Obama's rhetoric is meant only to mollify, numb and pacify us into accepting the right and the wealthy's economic rape of this society. It is said that Obama likens himself to Lincoln. Any half-assed student of history knows what an outrageous joke that is.

You're also correct that all the crap and pablum floating about in punditry world that the US is "broke" and cannot reform its economy unless entitlements are slashed ignores the big elephant at the table of what has been estimated at $32 trillion the wealthy is hoarding in off shore havens. Even one-half of that hoard would completely right the American economy, and provide a tax vacation for the 99%, and an investment pot for our descendants. I say just seize that money, either there, or in asset equivalents here. The wealthy won't miss it, that hoard is just sitting off shore doing nothing. It might was well be put to good use.

All worthwhile

All worthwhile suggestions....But why is the idea of reviewing the military budget left as a short note at the end? The largest part of this nation's budget is devoted to the DoD. If you include Veterans Affairs and Homeland Security, the fraction spent on Medicare is tiny.... shamefully so.

There can be no real conversation about budget deficits and debt without turning a critical eye on defense spending and the rationale for such a larded up program at all. It is after all, not about security for the US, it's about economic hegemony for US banks and increasingly, national loyalties are less and less a factor..... making our military largesse ever more questionable.

Right on target Robert R.!

Right on target Robert R.! Both parties are, in essence intentionally trying to depopulate America, as they once did the American Native. . Their insane goal? A 90% reduction of population, as I predicted beginning in 1974. They, not the Creator, are the self-appointed Un-'Messiah's of planet Earth carving out a "Paradise" for themselves, while they each own billions of acres and split all of the wealth. They have promised many people a stake in their Conspiracy, but they will only allow/admit less that 4% of those promised a place in their "Paradise". Their view:

"If God did not come to the aid of the American native, why would He if He exists, not also approve of our ridding the planet of entitlements slackers?"

They just do not Get It, or Him, or us.

Last month, the Senate Budget

Last month, the Senate Budget Committee reports that in fiscal year 2011, between food stamps, housing support, child care, Medicaid and other benefits, the average US household below the poverty line received $168 a day in government support. What’s the problem with that much support? Well, the median household income in America is just over $50,000, which averages out to $137.13 a day. To put it another way, being on welfare now pays the equivalent of $30 an hour for a 40-hour week, while the average job pays $25 an hour. And the person who works also has to pay taxes, which drops his pay to $21 an hour. It’s no wonder that welfare is now the biggest part of the budget, more than Social Security or defense. And why would anyone want to get off welfare when working pays $9 an hour less?

Turn off the faux-noise

Turn off the faux-noise machine, it's rotting your brain...

The biggest part of the discretionary budget is the execrable war machine! Over $1.3 TRILLION per year...

A government "Of, By and For the People" is supposed to provide for basic human needs. What part of that escapes you and your kind?

Until we heal ecosystems and

Until we heal ecosystems and close the military industrial complex the republicans will continue to loot america.

With a lot of help from their

With a lot of help from their fellow travelers in the other right-wing of the Corporate War Party, the "Democrats"

Please, please, I beg of you!

Please, please, I beg of you! Won't some Americans please, sometimes, look at other countries to see how some of them, sometimes, might be doing something even a little bit better than the American way? Universal, single-payer healthcare is cheaper, better quality, more effective system.

State by state adoption of Medicare-for-all, as Vermont has done, is how Canada got our healthcare system we all are proud of. Couldn't this be done ?

Let's demand the Obama

Let's demand the Obama Administration hire Robert Reich in a top cabinet or related position. His input is sorely needed.

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