Richard (RJ) Eskow
Published: Wednesday 25 April 2012
Social Security is on an even keel for the foreseeable future. Twenty years from now it’s projected to be in a position to pay only 75 percent of benefits - but that’s easily fixed by lifting the payroll tax cap.

Medicare and Social Security: Fact Vs. Myth

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In the coming days and weeks we'll be hearing a lot of misinformation about the Trustees Report from the Social Security Administration. It's time to separate the myths from the realities:

Myth: "Social Security and Medicare have a cost problem."

Fact: Medicare has a financial problem. As this chart shows, the cost of providing Social Security benefits is not out of control or skyrocketing.

Social Security is on an even keel for the foreseeable future. Twenty years from now it's projected to be in a position to pay only 75 percent of benefits - but that's easily fixed by lifting the payroll tax cap.

Fact: That's a headline we saw repeated across the country in anticipation of the Trustees Report, but it's wrong. What's "straining" Social Security and Medicare today is the unequal distribution of income and a broken regulatory system for Wall Street that has put the entire economy under stress.

Social Security was actuarially stable after it was overhauled by the Greenspan Commission in the 1980s. The Baby Boomers were all alive and (mostly) working by then. So what really happened?

First, a radical upward shift in income toward the "1 percent" - and the "0.0001 percent" - meant that more and more of the nation's income was above the payroll tax cap threshold. That reduced the revenue for Social Security (and much of Medicare) from a projected 90 percent of national income to a figure that's closer to 83 percent.

Secondly, a financial crisis brought on by reckless and under-regulated Wall Street banks crashed the economy in 2008. For millions of Americans it has never come back. Joblessness, along with wage stagnation for the "99 percent," further depleted the programs' revenues.

Myth: We need to place limits on Medicare spending and cut its benefits.

Fact: That's like saying the way to end forest fires is by firing Smokey the Bear. Benefit cuts and spending caps won't solve our health cost problem. There has been an explosion of for-profit hospital chains in the last twenty years, along with profit-driven laboratories, imaging centers, and other types of health providers.

In addition, our system of reimbursing physicians provides an incentive for them to treat more and charge more for their services. That's costly - and it subjects patients to a lot of unnecessary tests. On top of that, the lion's share of our health economy is "managed" by for-profit insurance companies who have little motivation or skill when it comes to prudent fiscal management.

If we expand Medicare to our entire population we'd have a health system like that of all other industrialized countries - whose health costs are roughly 60 percent of our own and grow more slowly than our own. Medicare's cost problem would be solved.

By contrast, the solutions being floated in Washington wouldn't fix the problem - they'd just dump it onto the backs of seniors and the disabled.

Myth: We can't get our Federal deficits under control without cutting Social Security benefits - either by raising the eligibility age, placing gimmicky limits on cost-of-living adjustments, or all of the above.

Fact: Social Security is forbidden by law from contributing to the Federal deficit. It's an entirely self-sustaining program. If the day comes when it can't pay its full scheduled benefits, those benefits must and will be cut. This is a phony argument.

Myth: Too many millionaires are collecting Social Security and Medicare, so we should means-test and deny them these benefits.

Fact: The number of actual "millionaires" on Social Security and Medicare is tiny, by any objective measure. It wouldn't have any significant impact on their budgets to exclude them - although it would help a lot to tax them.

What's more, Medicare and Social Security are social insurance programs. By definition, insurance shouldn't be means-testing like welfare and other aid programs, because you've already paid your premiums. The "means-testing" argument is often used to mischacterize these programs as "welfare," instead of what they really are: Something people have paid into through the payroll tax throughout their working lives, and (in Medicare's case) which they've also supported through their taxes.

Myth: Social Security benefits are too generous. They need to be cut because we can't afford them.

Fact: Our Social Security benefits are lower than those of nations that are economically similar to the US. As we said, the current reductions in revenue were caused by 1) an upward distribution of wealth to the "1 percent" and 2) a financial crisis brought about by Wall Street greed and speculation.

That suggests two possible solutions to Social Security's twenty-year-from-now problem: 1) Lift the payroll tax cap, and/or 2) impose a small financial transactions tax on Wall Street and use it to make up the Social Security shortfall. Either of these approaches would solve the problem.



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ABOUT Richard (RJ) Eskow

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology.

For 2012, the maximum taxable

For 2012, the maximum taxable earnings amount for Social Security (OASDI) taxes is $110,100. There is no limitation on taxable earnings for Medicare's Hospital Insurance (HI) taxes.Employer/EmployerThe Social Security tax rate for employees is 4.2 percent through the end of the yearThe Social Security tax rate for employers is 6.2 percentThe Medicare tax rate is 1.45 percent for employees and employersSelf-EmploymentThe Social Security tax rate for self-employed is 10.4 percent through the end of the year. The Medicare tax rate is 2.9 percent for self-employed.

SS is on wages and not on

SS is on wages and not on investments , it is on earned income and has a upper limit on what one can collect. It is NOT another income tax and is not in place to redistribute wealth, there is a progressive income tax in place now . Investment income is taxed at a different rate than earned income . Thats the tax code not the SS code. Might be the SS has to be given to only those who contribute.

Norman A. Where did you get

Norman A. Where did you get the info about Congress taking SS money for other uses? What are your sources of information?
I thought the Social Security Funds were sancrosanct and could not be touched for anything but benefits for the insured.
I would be very interested in your response.

For 2012, the maximum taxable

For 2012, the maximum taxable earnings amount for Social Security (OASDI) taxes is $110,100. There is no limitation on taxable earnings for Medicare's Hospital Insurance (HI) taxes.
Employer/Employer
The Social Security tax rate for employees is 4.2 percent through the end of the year
The Social Security tax rate for employers is 6.2 percent
The Medicare tax rate is 1.45 percent for employees and employers
Self-Employment
The Social Security tax rate for self-employed is 10.4 percent through the end of the year. The Medicare tax rate is 2.9 percent for self-employed.

SS funds were shifted to the

SS funds were shifted to the general fund and IOU's are now used to represent the funds. Each month the SS sends the treasury a list of checks to issue and the funds are transferred against the IOU account. The reduction of the employee fund by the 2% is to be made up out of general funds . So its a PONZI scheme all the way and a continuance of a fraud by government

The decrease in funding for

The decrease in funding for these programs is actually due to job losses from Trade Treaties that shipped everything overseas causing massive middle class unemployment and under employment; not the upward movement of a small portion of the population. Remember to thank Bill Clinton for NAFTA, GATT and WTO that caused this. Of course current Congressional liar tax cuts, actually cuts in FICA, are making things worse in accord with the Government’s Agenda 21 plan.

If it ain't broke, don't fix

If it ain't broke, don't fix it. Unless you're a republican, then it's if it works, break it.

The solution for Social

The solution for Social Security is not increasing the upward wage limit, but increasing the rate. According to a seminar I attended in February 2011, increasing the upward limit would hold SSI to current standards only an additional 5 years, while raising the rate to 6.7% for everybody would increase the life of SSI by 20 years. A big mistake made in 2011 and 2012, was the temporary rate decrease to 4.2%, which if not paid back by the general fund (that is the plan at least), will shorten the life of current benefits. Additionally, although SSI is to be self sustainable, the government has been "borrowing" the funds for all the deficeit spending, where private pension funds have a more diversified portfolio.

Single Payer Medicare-for-All

Single Payer Medicare-for-All (Socialized Medicine) is the MOST FISCALLY RESPONSIBLE health care plan, and that's why filthy rich Big Pharma and filthy rich Big Health Insurance vehemently oppose it.

Health care should be considered a civil right, NOT a for-profit business.
There is a moral and financial conflict of interest with making money off of the misery of others who are sick and at a disadvantage to fight Big Health Insurance corporations by unjustly denying their customers medically necessary coverage for treatment to save their lives -- there is a perverse motive to maximize profits and executive bonuses and to kill off seriously-ill customers by wrongfully denying them treatment in the name of the Almighty Dollar and the Profit Motive (Big Health Insurance Death Panels).

Taxpayer subsidized research and development of drugs should entitle taxpayers to lower drug costs.

Taxing Big Pharma would also help -- they spend obscene amounts of money lobbying and bribing influence-peddling politicians to rig the tax game in their favor instead of paying their fair share of income taxes.

Ending Medicaid/Medicare fraud would also result in billions of dollars of savings to the taxpayers. (Florida Governor Rick Scott should be in federal prison for perpetrating Medicaid/Medicare fraud on a massive scale.).

I have contacted my

I have contacted my Congressman on several issues with Medicare and been told there is no fraud, it's all hype or some such answer. Medicare pays $200 a month rental on a Oxygen concentration one can buy for $800. They will pay that $200 for 3 years of a 5 year contract. $7,200 for a $800 machine.
Nebulizer compressor that sells for $58 only rental for 10 months , at $38 a month cost. Not to bad a markup .. Told to forget it I am not paying medicare is ???

The billionaire Kochroaches'

The billionaire Kochroaches' right-wing propaganda machines along with billionaire Rupert Murdoch's Fox Noise propaganda machine has been perpetrating their lies about Social Security for years and years, and the conservative authoritarian rethugs and teabaggers blindly, obediently, loyally don't question the bullsh*t.

End the Social Security taxable income cap of $106,800.00 and tax the billionaire Kochroaches, the billionaire Murdochs, and every other filthy rich person on every cent of their obscene incomes above the $106,800.00 Social Security taxable income cap.
The millionaires and billionaires can easily afford to pay their fair share of taxes but simply don't want to because they are GREEDY and Selfishish bastards.
Let them bitch and moan -- it would be music to my ears.
F*uck the GREEDY bastards!

Easy answer as the Koch

Easy answer as the Koch brothers are into oil, Nationalize the oil companies, then the government can supply oil to the public. Just think of how well SS is doing and Medicare and the Post office , now picture the National Oil company run by congress.

palsimon's picture

This article and other

This article and other important information about Social Security, Health Care Reform and other political issues can be found at: http://bit.ly/IZF2W2 for major progressive news: http://bit.ly/IZF2W2

Here is my proposal for

Here is my proposal for Social Security Reform:

[1.0] Remove the Caps on the amounts of Income that is Taxable. Make all types of Income be taxable no matter what they are, where they came from or how they were earned.

[2.0] Make receiving Social Security be "Means Tested."

[3.0] The Medicare and Medicaid programs were established in the 1960s. Medicare, which the Republicans created but failed to fund, should be made the Mandatory Universal Health Care Insurance for every Citizen of the United States of America. The Cost of Medicare must remain a part of the General Federal Budget. Medicaid should also be made a part of the General Federal Budget.

Believe if you check it was

Believe if you check it was part of Johnsons Great Society package and a Dem package also and the cost was set to be no more than a certain amoutn and came in 10 times higher than said.

palsimon's picture

You obviously don't know what

You obviously don't know what you're talking about.

Norman Allen's picture

I spent one night in a

I spent one night in a hospital without surgery for an emergency heart condition. The bill came to nearly $22,000 and to my surprise, Medicare paid it without a single question. Private insurers would pigeon hole the bill until they got charges pinned down. Medicare must incentivize to question costs. Also, if government did not dip into SS fund for corporate wars, there would be plenty of money for the members. Does anyone know how much has been pilferaged from the fund by Congress to keep funding corporate warfare?

Wife just spent 6 days in

Wife just spent 6 days in hospital under Medicare, bill was $27,000 but when looking at it , the discounting to Medicare was a bill for $6,000 and I had to pay $150 under my supplemental insurance plan.

palsimon's picture

Yes, I certainly agree. Even

Yes, I certainly agree. Even private insurers fail to question bills that are obviously out of proportion to the facts. I have seen it by Medicare and by Blue Shield. I even wrote and asked them to check an obviously wrong billing, and Blue Shield didn't care to do it. These people seem to think money grows on trees.

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