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Former CBO Director Urges Multiple Changes to Put Elderly Programs on Sounder Footing

If there's any funding crisis more frightening than the one facing the Social Security system, it is the one confronting Medicare, the federal health insurance program for those who are disabled or over the age of 65. Economist Dan Crippen, director of the Congressional Budget Office during President George W. Bush's first term, says it will take a mix of innovative and difficult measures to bring either one under control.

To put the size of the two programs in perspective, Cridden told the SVIA Forum that Social Security spending currently equals about 4 percent of the country's gross domestic product while Medicare equal about 2 percent. By the year 2030, however, both are projected to equal about 6 percent of GDP. Medicaid, the federal health program for low-income citizens, is also facing dramatic growth and a funding crisis of its own. Now equal to about 1.5 percent of GDP, it will equal about 4 percent by 2030. The general demographic issue of an aging population with fewer workers for each retiree generating higher costs for these programs is well known. However, the acceleration in the relative growth rates for Medicare and Medicaid versus Social Security is surprising to most people. This relative acceleration is driven by the fact that health care inflation (which drives Medicare and Medicaid costs) is significantly higher than the broad inflation measure used to index Social Security payments.

While President Bush has been a strong advocate of creating individual savings accounts within the Social Security program, that proposal presently seems dead in the water, perhaps in part because, as Cridden noted, it wouldn't do anything to solve Social Security's funding crisis since Social Security will be paying out more than it takes in through payroll taxes.

Other options exist that would bring the program back onto sound fiscal footing, but not without some pain. Raising the retirement age, Cridden said, would save the Social Security program $72.6 billion between 2006 and 2015, while constraining increases in initial benefits would save $103.6 billion over the same time period.

Solving the Medicare and Medicaid problems, Cridden said, will require government to understand where the programs incur most of their costs, and, therefore, where there is potential to realize the greatest savings. A study of Medicare payments between 1995 and 1999 showed that 84 percent of Medicare benefits went to just 20 percent of Medicare participants. Medicaid is similarly lopsided, with 25 percent of participants consuming about 70 percent of the benefits. Reducing what these most needy citizens cost the government doesn't depend on stripping them of their health care benefits, Cridden said, but rather on finding ways to provide care to them more efficiently and effectively, such as treating them outside of an expensive hospital environment when it's possible and when they desire it.

Cridden said he anticipates that Congress eventually will turn to a variety of measures to save the Social Security, Medicare and Medicaid programs, from reducing Social Security benefits and increasing taxes to enacting major Medicare reform. "We also need to rethink our immigration policy," Cridden added, noting that the more workers the nation has supporting retirees through payroll taxes, the more sustainable social programs will be.

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