Finding Savings in Social Security Far from Simple

Finding Savings in Social Security Far from Simple

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Lawrence Haas’s response to Henry Aaron raises three important issues. I’m sorry to have to question his conclusions about each.

Haas writes: “we don’t know enough about how to greatly reduce health care costs without doing severe harm to beneficiaries, providers, and the health care system as a whole.” Yet, strangely enough, policymakers in other countries seem to know how to have much lower costs. If “we” don’t know enough to control costs without “severe harm” to “the health care system as a whole,” that is because our commentators and policymakers choose not to know.

The U.S. spends around 17 percent of our gross domestic product on health care and still does not cover everybody. The French, Germans and Swiss, the most expensive systems after the U.S., spend around 11 percent, and cover everybody. Policymakers in those countries know that it is possible to have highly competent caregivers and care systems for somewhat lower costs than we pay in the U.S. – especially if physicians do not have to go deep into debt in order to earn their credentials. They know that it is possible to have much lower administrative overhead if you have much more coordinated insurance and payment systems.

What is the “severe harm” in those systems? There doesn’t appear to be a shortage of doctors in these countries, in spite of the lower (but still quite nice) incomes. The public does not complain about having a less complicated insurance system or simpler billing; nor are caregivers bothered by having simpler systems to navigate. Health statistics and reports on experience (especially in France) are quite favorable.

As a matter of policy, Haas’s point only makes sense if you think of the “health care system” mainly as an agglomeration of claims to incomes. Then, yes, any cost control, now or in the future, will “severely harm” whoever loses income. But if you think of it as a system designed to provide health care, there is no reason at all to believe that better cost control requires “severe harm” to the system. Dislocation to powerful interests, sure. But let’s call things by their right names.

He also argues: “(o)n the spending side, we should restructure Social Security so that it better reflects the society of the future, one in which people live longer, lead healthier lives, and can work well beyond the traditional retirement age of 65.” The problem here is the assumption that a Social Security which “better reflects the society of the future” would be less expensive. But, first, many workers will still not be all that healthy when they hit 65, and many employers will not want those workers anyway. Truck drivers and package deliverers, cops and elementary school teachers, construction workers and nurses, factory workers (if any are left) and sanitation workers – there is a long list of careers for which earlier retirement is likely to be seen as desirable by employees and in some manner forced on them by employers. As anyone should be able to tell at the moment, people wanting to work does not mean they will find decent jobs.
Any increase in the normal retirement age (NRA) is actually a decrease in the standard benefit for anyone who cannot find a job at some point before that NRA – in a situation where other retirement income is likely to be more and more uncertain. This is the second point that should be considered in any balanced assessment of the society of the future. The economic risks of other pension arrangements have grown dramatically over time, as evidenced by the elimination of other defined-benefit plans, the questionable solvency of many that remain, and the past decade’s events in the financial markets. Imagine if Social Security had in fact been cut back in the 1990s – as people making much the same arguments about healthier workers frequently proposed. The pain from the financial crisis would be even greater than it is today; as it is, Social Security has provided the vital backstop for millions of people. With economic risks becoming only greater in the future, having a decent government guarantee could become even more important.

Any program as complex and important as Social Security justifies continual review. The program long had a system of Quadrennial Review Commissions. But the argument that review should be part of a broad effort to reduce the budget should not be presented as a way to make sure the program “better reflects the society of the future.” A real assessment of that question would begin with no presumptions about the budgetary result.

Last, he argues correctly that deficit reduction efforts should not only consider health care. Absolutely so – among other things, it should consider revenues, as he prefers. Yet I’m puzzled by his use of the 1993 deficit reduction package in this context. He says “conservatives simply won’t agree to tax hikes unless they see liberals agreeing to domestic spending cuts, and vice versa.” No Republican voted for the 1993 package anyway, so the case doesn’t fit the claim. What are called conservatives these days appear unlikely to vote for tax hikes under any conditions.

Moreover, Social Security was not included in either the 1990 or 1993 packages. So the history does not support any claim that Social Security should be made part of deficit reduction now in order to make a deal possible. Perhaps some conservatives would vote for tax hikes in return for privatizing Social Security, so great is their hatred for the program. But I’m not sure that would fit Haas’s goal of making the program better reflect the society of the future – if it’s a society in which most Americans would want to live.

When dealing with the budget, I’m not a fan of excluding any issue, in principle. Yet, whether we are talking about Social Security, defense, education or health, income taxes or consumption taxes, we should start by understanding the policy options and their consequences on non-budgetary grounds. That means there is much better reason than Mr. Haas suggests to look for health care savings – and much more doubt than he implies that the right Social Security reform would lead to spending reductions at all.

Post a comment below or check out the rest of our experts' debate on the issue: Henry Aaron on Social Security's alarmist math; Lawrence Haas on finding savings in Social Security; George Hager on the Social Security' accounting fiction.  

Joseph White is Director of the Center for Policy Studies at Case Western Reserve University.