The Next Shoes Drop: What the Attacks on the ACA Foretell for Medicare and Social Security

I wrote this piece back in the spring when ACA repeal and replace was looming. I feared that that win or lose on healthcare, the new administration and congress would be moving on to tax “reform” and necessarily cutting the largest and most important social programs in the federal budget – social security and Medicare.  However, because the ACA efforts kept mutating and I couldn’t find an audience for a look beyond the issues of the day, I held the piece.  Now the tax plan is out and the next shoe(s) have dropped – the initial proposal calls for cutting over $400 Billion from Medicare (and a Trillion from Medicaid) in the usual 10 year budget window.  Because even with very optimistic assumptions about growth in the economy (and the planned cuts) this tax bill still increases the deficit by $1.5 Trillion, I strongly suspect that it will be the staged provocation for further cuts to social programs (like social security) in the future.  So I still hope that we can learn from the effort to repeal the ACA and glean some valuable insights into how congress and the administration will be treating Social Security and Medicare and the people who depend upon them.



While the flames of congressional and administration efforts to repeal and replace “Obamacare” seem to be reigniting from their smoldering embers, I hope there is some capacity to appreciate the gift that the administration and congressional leadership have given us.   Now that we have seen the various house and senate bills, we know not only their specific ideas regarding health insurance, but also something about their principles.  While application of these principles to Medicaid and the individual market (what is usually meant by Obamacare) is bad enough, these same principles will, without a doubt, define the approach to the other two really big parts of the federal budget and national safety net:  Social Security and Medicare.

Driven by a political need to cut taxes and a small government ideology, congressional leaders will be back soon, especially if the current health policy revenant can be held off till the witching hour at the end of the month.  Regardless of the outcome of this current policy battle, we can expect more of the same – and instead of Medicaid and the exchange markets, Medicare and Social Security could easily be the victims next time.  We need to attend the warning we have inadvertently been given because we will soon face second and third “dropped shoes” with enormous potential for mischief and misery.

For all of the Affordable Care Act’s complexity, length, struggles, and controversy it actually expressed a pretty simple idea, everyone should have health insurance. It also reflected some basic principles:

  • The better off should help the less-well off – it had tax surcharges on income above $250,000 to fund expansion of Medicaid to low income people between 100% and 138% of poverty;
  • A competitive market is a good thing – it created the state or federal individual market “exchanges” on which people can buy insurance with sliding scale subsidies from private plans;
  • But fair markets need regulations that protect buyers and sellers – and so the ACA required standardized “essential benefits” from insurers (e.g., no exclusions for pre-existing conditions) and used penalties to require people buy insurance to force even healthy people into the market (e.g., the individual mandate);
  • Budget discipline – hard to believe, but with the taxes on insurance companies, medical devices, high incomes, and a variety of other “revenue enhancers,” the ACA actually reduced the budget deficit and extended the fiscal life of Medicare versus prior projections.

Deducing the New Principles

We have now seen how the republican leadership wants to address the “problems” of Obamacare. A commonly voiced concern was that deductibles and premiums are too high/rising too fast for the 11.4 million people on the individual market exchanges (state or federal).  The congressional leaders address the problem not by lowering deductibles and premiums but by changing the way that people are subsidized so that some people will have lower premiums and some will have radically higher.  They also recreate ways through which insurance plans can once again offer plans with wildly varying covered services, resurrecting the risk of discovering too late that whatever your need is, it isn’t covered. From this we can deduce a retreat from “fairness” meaning a level playing field, to a world of unbridled markets.

In the 32 states that chose to expand eligibility for Medicaid from only the terribly poor to the just plain poor, relatively few people who gained coverage in the program complained of problems[i].  Under the ACA 11.9 million people previously ineligible for Medicaid but making up to 138% of the federal poverty limit (e.g., the working poor with an income of $24,600 for a family of 4) got Medicaid.  With the various taxes in the ACA not only were federal budget deficits reduced, but 90% of the cost of care for these new Medicaid beneficiaries was paid for by the federal government rather than the usual 50-50 state-federal split.  Not only were people newly entering Medicaid seemingly satisfied with the program, which for the most part, doesn’t have co-pays and deductibles, but they also reported that it was pretty easy to find health care services that accepted the insurance.

However, despite the lack of consumer complaints and the fact that states got to choose to participate in the expansion (or not), the proposals called for a reversal of the expansion. Over a few years there would have been a reduction of the federal match leading back to a 50-50 and states would be forced to drop out.  In fact, any reduction in the 90% match will trigger obligatory opt-out in 7 states right away.  And, in several proposals, even the federal payments for individuals currently covered at the 90% federal match rate would be whittled away through administrative gotchas.  I can only conclude that the real opposition to expansion derives from the taxes on high incomes that were used to finance it.  To add insult to injury, some administration spokespeople have suggested that the working poor who are they main beneficiaries of the expansion should just find better jobs that provide healthcare coverage[ii]From these choices we can conclude that the republican leadership are more concerned about tax cuts than they are coverage for the vulnerable. (And we can see that respect for state choices only goes so far.)

Then, out of the blue, the congressional proposals also included some fundamental changes to the long-standing Medicaid program that existed before Obamacare was even a dream in the mind of Tom Daschle. Under these plans, the federal share of Medicaid payments would no longer be a roughly 50-50 split of actual costs, rather the federal share will become an annual ‘block’ payment or a per person annual capitated payment.  This puts a priority on predictability for the federal budget and expresses a touching faith in the ability of state governments to do more with less.  However, its real expression of principle can be seen in the ticking time bomb hidden in the policy.  Under the rhetoric of devolution and local control, the future federal block or cap payments would only increase with general versus the much higher rate of health care inflation.  This subtle difference will lead to big cuts in spending over just a 10 year period.  Given that Medicaid already only pays doctors and hospitals a fraction of what Medicare or commercial insurance does, I don’t see how this can be done without just wrecking the program or requiring the states to pick up the slack.

There didn’t seem to be any state leaders who felt this is a really good idea even in the red-red states that choose not to expand Medicaid. The Obama administration was actually quite generous in allowing states to make modifications to the Medicaid program through waivers and demonstrations (e.g., Mike Pence’s mandatory premium payments from individuals[iii]) and there is no reason to believe the Trump administration wouldn’t be even more trusting.  No matter what flexibility they might get to reshape the programs, state leaders knew that these block or capitation proposals would have made the program unsustainable.  There is only so low you can make your payments to physicians and hospitals before they will have to say, “No, thank you.” Again, the only reasonable conclusion for the gratuitous inclusion of these policy changes is that driven by a need to cut taxes republican leaders were willing to try to shift the costs of what is already a barebones program onto the states, heedless of a predictable mix of bad fiscal impact for the states and bad healthcare outcomes for the poor.

Application to Social Security and Medicare

So we know that the top priorities are cutting taxes for the wealthy, cutting benefits to those perceived as ‘unworthy,’ and that there is not the slightest commitment to promises of “better healthcare” made by the President or congressional leaders. What conclusions can we draw from these principles that might apply to two other major federal programs that are the other cores of the social safety net:  Medicare and Social Security?  While the “repeal and replace” argument has been about healthcare coverage for approximately 20 million people, if we were to see the same principles and proposals applied to Social Security and Medicare, we risk even more serious damage to the lives of three times as many people.

Social security is the national income support program for retirement and disability financed by a flat payroll tax of 12.4% split between employers and workers. Payout is determined by age at retirement as well as one’s contributions in social security taxes.  Social security currently makes payments to some 66.5 million people in America,[iv] 46.1 million older adults and 20 million people with disabilities or who are survivors of deceased relatives.  Its overall average monthly payment is $1,256 which represents over 75% of the total discretionary income of retired persons who were in the lower 40% of life-time income and 50% of the income of the middle fifth[v].  For a younger disabled person or the surviving child or spouse of a deceased worker, social security can be even more important.  Virtually everyone is or will be a social security beneficiary in some way.

Medicare is the only “universal” health coverage program in the US. Started in 1965 at a time when few older adults had health insurance because they were considered such bad risks by insurance companies, Medicare (combined with Social Security) has been a stunning success in reducing poverty among older Americans.  The program covers 55 Million people, 46 million 65+ and 9 million younger disabled people (Added in 1972).  Medicare coverage is earned for older adults by virtue of an individual (or spouse) working for 10 years or more and paying the dedicated Medicare payroll tax of 2.9% (split between the worker and employer).  In addition, people 65+ pay a monthly premium of $134 (deducted from Social Security) and a wide variety of deductibles and copays.  (Thanks to Obamacare, premiums are now substantially higher for high income participants.[vi])  And again it is a fair program, in that except for a very few unlucky people, you will have your chance to benefit from the program when the time comes.

Like Medicaid, these programs have been under attack for years from multiple sides aiming to undermine their legitimacy and trying to fracture the new deal/great society consensus. First, like Medicaid, they are attacked on the basis that they are “expensive” entitlements taking up more and more of the federal budget.  Second, paradoxically, it is argued that they are doomed – that they will go ‘bankrupt’ any day now and therefore just can’t counted upon anyway.  And last, they are poo-pooed as inefficient “government programs” which should be handed over to the private market or just become the individual responsibility of people to plan for in their lives.  These attacks are disingenuous at best and driven by a desire to cut taxes and reduce the size of government.

Others have responded to these attacks in detail, but in brief I will say that yes they are expensive because the things they buy – health care and minimal income security for people with serious disabilities or in retirement – are expensive.[vii]  However, unlike Medicaid, they are only “entitlements” in the sense that you are entitled to them because you have earned them, not in the sly sense we are encouraged to assume.  After all, who wants to be an ‘entitled’ person?  In 2017, almost everyone alive who gets these benefits (or will) earned them by paying their dedicated payroll taxes or being married to someone who did.

But they are NOT on the verge of “bankruptcy.” In the case of social security, income from the dedicated social security taxes plus the release of savings put aside in advance for the aging of the baby boom generation, will cover 70% of the forecast social security payout forever.  Obviously this leaves a gap after the savings run out in 2035, but not such an insurmountable one that the answer must be to cancel the program – a fix would be fairly easy especially if undertaken as soon as possible[viii]. While Medicare is in somewhat worse shape than social security in that it is already paying out more than it takes in through taxes (or is held in the trust fund) and therefore is drawing on “general revenues,” it is in no way “bankrupt.” Oddly, the ACA actually made Medicare more sustainable by premium increases for high income beneficiaries and some other cost reductions and revenue enhancements that would have been reversed in some of the repeal proposals.  (BTW – A big part of the fiscal future of Medicare is also pinned on reducing the actual utilization of services and real cost of care by increasing efficiency, coordination, and value – not just shifting responsibility from one payment source to another.)

And as for the notion of privatization of these social programs – can I just laugh? Even in the boom years, George W. Bush couldn’t make the math work to continue to send social security checks to current beneficiaries while redirecting the dedicated payroll tax into personal 401k ish plans.  Post-great recession and its stunning demonstration of market risk, fuggedaboutit.  And as for Medicare – it is almost 35% “privatized” now.  In Medicare Advantage, constituting 35% of the beneficiaries, the premium dollars are handed over to private insurance companies (e.g., United Health Care, Aetna) who take the risks of the cost of care and have the incentives to improve health so as to avoid costly healthcare crises.  And yet, the promised efficiencies have pretty much failed to materialize.

The Paul Ryan idea of converting Medicare into a defined contribution system (like 401ks) where people can use a fixed premium “voucher” to shop for a health plan greatly exaggerates the effectiveness of “market magic” and is moreover a transparent ploy to reduce benefits by the same buried time bomb hidden in Medicaid block/per capita grants – the premium payments would certainly not be increased at the relevant rate of inflation. This is not really about choice or even value, but rather about cost shifting onto individuals regardless of ability to pay.

In the face of income stagnation for the majority of Americans for more than 20 years and more extreme income disparities than any time since before the great depression, I think suggesting that we should give up our universal, intergenerational social insurance system for health and retirement and shift to a “every barrel on its own bottom” approach where you get only what you sock away for yourself, is ludicrous.

In fact most of these “problems” with social security and Medicare are driven by the good news of the aging of the US population. Despite recent reversals, people are living longer, which is good for them and their families.  The costs have been foreseeable for many year and at least among politicians who were not entirely feckless, actually planned for (e.g., the famed 1983 O’Neill-Reagan agreement to increase social security tax rates, in ADVANCE of the retirement of the baby-boom generation, and put the excess away for the future need[ix].)

If we heed the lessons from the ACA repeal and replace efforts we can see a strange bedfellows coalition of budget hawks, libertarians, and small government ideologues are perfectly willing to do “something” even if it has to be done in secret, the math doesn’t add up, and the hypocrisy stinks to high heaven. President Trump made silly promises about the repeal and replacement of Obamacare “it will be great!” and swore no one would lose Medicaid.  And yet he seems unconcerned that congress is making him a liar and he is certainly no constraint on their actions.  By the way, he also promised that no one would touch Medicare or Social Security.

We must not allow zealots to continue their efforts to delegitimize these fundamentally fair and successful programs to provide basic health and income supports to people who have earned them and rely upon them. The aging community has done its best to oppose the cuts to Medicaid and attacks on the exchanges and individual market – I hope we can hold on for another week and a half when the window for action through reconciliation ends.  But whether or not we succeed in protecting “Obamacare,” we must not ignore the threat to Medicare and Social Security. Failing to protect them now will not benefit other vulnerable groups – it certainly isn’t on the table to take existing social security or Medicare payroll taxes and use them to support other social programs.  And if these cornerstones of a just and civil society are destroyed now, how would we ever find the consensus and vision to restore them?








[vii] For all the horror about healthcare premium costs and deductibles on the exchanges, the premiums needed to buy Medicare equivalent coverage for people over 65 who most depend on healthcare to maintain quality of life, would knock your socks off.  Despite the fact that Medicare has 20% co-insurance with no stop-loss, a monthly premium deducted from social security, and annual deductibles (and only got a drug benefit in 2006), covering people over 65 is so expensive that in 1965 before Medicare, about half of older adults had no health insurance.

[viii] It is one of my greatest frustrations with the Obama administration that with this gap looming and the voices for privatization muted by the discrediting of the George Bush administration and its legacy of financial crisis, they still failed to even propose sensible fixes to social security – some mix of pushing up the cap on the taxability of income, increases in social security tax rates, reductions in payment growth due to inflation, win-win incentives for people who can to stay in the workforce, or other “solves.”