What Medicare Does Not Cover

Senior Couple On ComputerHelen Johnson gave a welcoming smile to the group of older men and women who had assembled at the senior center in the Maryland Eastern Shore town of Snow Hill on a recent evening. All of them were caregivers for spouses or parents with debilitating illnesses.

“We’re very concerned about you,” began Johnson, 74, who organizes support programs for a nonprofit agency serving the elderly. “You spend so much time tending to your loved ones, you don’t have time for your self.” But Johnson’s comforting message masked worries of her own. There was the gnawing pain in her arthritic knee, which gets so bad by late afternoon that she can’t stand up for more than a few minutes at a time. There was her dread of the drive home after dark, which has become difficult as her eyesight has weakened. And perhaps most wearying, there was the knowledge that despite her dislike of working evening hours, she had no alternative.

Nearly a decade after reaching retirement age and qualifying for Medicare, Johnson cannot afford to give up her job. Even with the paycheck it brings, her income is only a few notches above the federal poverty level. Her situation is so common that it presents an uncomfortable — and not always acknowledged — challenge for policymakers seeking to rein in spending on Medicare: Nearly half of Medicare recipients have incomes at or below 200 percent of poverty — $21,780 for an individual, $29,420 for a couple.

At a time of growing concern about federal deficits and the national debt, few dispute the need to take on Medicare. The health insurance program for seniors and others with certain disabilities already accounts for 15 percent of the federal budget — behind only Social Security and defense spending. And that share is expected to rise as health-care costs continue their upward spiral and more baby boomers retire, threatening the long-run solvency of Medicare.

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Yet several of the most prominent solutions under discussion largely derive their savings by shifting a greater share of the cost onto beneficiaries. The Republican plan sponsored by Rep. Paul Ryan (R-Wis.) and passed by the House of Representatives in April, for instance, would substantially reduce federal spending on Medicare by capping the government’s contribution to the program and transforming it into a system of “premium supports” granted to seniors to partially subsidize their purchase of private insurance plans, with seniors responsible for any additional costs. This would more than double out-of-pocket health-care spending by a typical senior to $12,500 per year, according to estimates by the Congressional Budget Office.

And the ability of many seniors to shoulder that burden appears questionable. Only 5 percent of Medicare beneficiaries have incomes of $80,000 or above, a figure that includes any income from a spouse. As for the 47 percent who are at or close to poverty, on average they are already spending nearly a fourth of their budgets on health care, according to an analysis of Medicare survey data by the Kaiser Family Foundation.

“There’s this impression that there’s a great deal of wealth among the Medicare population, this image of wealthy seniors playing golf and enjoying their retirement years,” said Tricia Neuman, director of the Kaiser Family Foundation’s Medicare Policy Project. “But while some are lucky to do so, many are living on a fixed income, struggling to make ends meet . . . with really limited capacity to absorb rising costs.”

Back to work

Johnson, a single woman with a master’s degree in education who spent a lifetime working for social service agencies, is in one of the toughest categories. Virtually her only retirement income is a monthly Social Security check of roughly $1,450. If she had to rely on that alone, her income would be just above 150 percent of poverty — too low to cover her bills but too high to qualify her for federal and other assistance programs that could offset her Medicare premiums and other health costs under either current law or the Ryan alternative. That plan also offers extra help only to seniors at or below 150 percent of poverty. (The Ryan plan would not apply to Johnson because it exempts current seniors, taking effect only as Americans 55 and younger reach retirement age.)

Johnson said she started feeling the pinch within a few years of her retirement in 2000. Her only son, beset with troubles of his own, was not in a position to help.

She said she started by eliminating the little luxuries: “no more dinners out with the girls; no more new clothes.”

Then she dipped into her savings, all but depleting the roughly $30,000 in her 401(k) account to cover big-ticket expenses such as a forest green Toyota Camry to replace her old car and a new water pump and windows for her house, a four-bedroom bungalow her father built virtually by hand in the mid-1940s. She also took out a home equity loan to pay for a new roof, a debt on which she still owes $7,000.

And she never completely stopped working, initially putting in a day a week for her last full-time employer, a nonprofit agency based in Salisbury, Md., called Maintaining Active Citizens, or MAC.

Yet even bills that seemed manageable when she first retired started ballooning: $75 a month for a phone and DSL connection, where once she spent $34; $102 for a light bill that used to be closer to $50. Meanwhile, nearly a fifth of her Social Security check was needed for her Medicare and supplemental coverage premiums.

Four years ago, Johnson concluded that she simply had to work more hours.

The three-day-a week-job coordinating MAC’s caregiver project has boosted her income by about $1,000 per month.

“It’s helped me tremendously,” she said. “There’s not as much pressure to keep robbing Peter to pay Paul — you know, send a bill and pay only part of it, keep track of the gray periods when you don’t have to pay in full yet.”

But the respite feels precarious. Funding for the caregiver project expired at the end of last month. MAC’s executive director, Margaret Bradford, thinks she can patch together enough resources to continue employing Johnson while she applies for a new grant, but there’s no guarantee it will be approved.

And the job is of no use if Johnson can’t stay healthy enough to work. After years of bronchial trouble, she has developed chronic obstructive pulmonary disease, which can leave her breathless and tired. The medication she takes to control it has also caused her to gain substantial weight, exacerbating her arthritis.

‘I don’t want to be here’

But Johnson, a farmer’s daughter who put herself through the University of Maryland one night class at a time, isn’t ready to give up.

The stereo in the exercise room at the Peninsula Regional Medical Center in Salisbury was playing Fleetwood Mac: “Don’t stop thinking about tomorrow. Don’t stop, it’ll soon be here.”

Beads of sweat moistened Johnson’s brow as she strode on a treadmill set to 0.9 mph.

A nurse monitored Johnson’s heart rate and blood oxygen levels to ensure she was not overdoing it. The three-day-a-week pulmonary rehabilitation program is designed to teach patients strengthening exercises in a controlled setting.

This was Johnson’s eighth session, and she was not precisely enjoying it.

“My hands are going numb and my knee hurts,” she said, huffing slightly. “To be honest, I don’t want to be here. . . . But I see this as allowing me to stay mobile. We’re trying to find the solution to help me keep going.”

And if they fail?

“I face up to the fact that it might get a whole lot worse,” she said. “But I just pray and hope for the best. You can’t worry too far ahead because you’ll make yourself sick. So I’m just enjoying what I have and take things one day at a time.”


Social Security in Trouble

Is Social Security in trouble? Will Social Security go bankrupt? This NYT article sheds some light on the solvency of Social Security.

Social Security – It’s Worse Than You Think

CONGRESS and President Obama have pushed through a relatively modest stopgap measure to avoid the “fiscal cliff,” but over the coming years, the United States will confront another huge cliff: Social Security.

In the first presidential debate, Mr. Obama described Social Security as “structurally sound,” and Mitt Romney said that “neither the president nor I are proposing any changes” to the program. It was a rare issue on which both men agreed — and both were utterly wrong.

For the first time in more than a quarter-century, Social Security ran a deficit in 2010: It spent $49 billion dollars more in benefits than it received in revenues, and drew from its trust funds to cover the shortfall. Those funds — a $2.7 trillion buffer built in anticipation of retiring baby boomers — will be exhausted by 2033, the government currently projects.

Those facts are widely known. What’s not is that the Social Security Administration underestimates how long Americans will live and how much the trust funds will need to pay out — to the tune of $800 billion by 2031, more than the current annual defense budget — and that the trust funds will run out, if nothing is done, two years earlier than the government has predicted.

We reached these conclusions, and presented them in an article in the journal Demography, after finding that the government’s methods for forecasting Americans’ longevity were outdated and omitted crucial health and demographic factors. Historic declines in smoking and improvements in the prevention and treatment of cardiovascular disease are adding years of life that the government hasn’t accounted for. (While obesity has rapidly increased, it is not likely, at this point, to offset these public health and medical successes.) More retirees will receive benefits for longer than predicted, supported by the payroll taxes of relatively fewer working adults than projected.

Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing.

This omission can be explained by the fact that the Office of the Chief Actuary, the branch of the Social Security Administration that is responsible for the forecasts, is almost exclusively composed of, well, actuaries — without any serious representation of statisticians or social science methodologists. While these actuaries are highly responsible and careful and do excellent work curating and describing the data that go into the forecasts, their job is not to make statistical predictions. Yet the agency badly needs such expertise.

With considerable help from the actuaries and other officials at the Social Security Administration, we unearthed how the agency makes mortality forecasts and uses them to predict the program’s solvency. We learned that the methods are antiquated, subjective and needlessly complicated — and, as a result, are prone to error and to potential interference from political appointees. This may explain why the agency’s forecasts have, at times, changed significantly from year to year, even when there was little change in the underlying data.

We have made our methods, calculations and software available online at j.mp/SSecurity so that others can replicate or improve our forecasts. The implications of our findings go beyond social science. As the wave of retirement by the baby boomers continues, doing nothing to shore up Social Security’s solvency is irresponsible. If the amount of money coming in through payroll taxes does not increase and if the amount of money going out as benefits remains the same, the trust funds will become insolvent less than 20 years from now.

To save Social Security, which has lifted generations of elderly people out of poverty, tough choices have to be made. One option is to continue raising the retirement age, perhaps to as high as 69 or 70. While the full retirement age is gradually increasing to 67 (for people born in 1960 or later) from 65, this increase is not enough to counterbalance the gains in longevity.

A second option is to increase payroll taxes, for example by taxing wages over $113,700, the current earnings limit. A third is to limit the annual cost-of-living adjustments, possibly by changing how those adjustments are calculated. A fourth is to reduce benefits — for example, by lowering the initial benefits for workers whose lifetime wages are above the national average (currently $43,000 a year). Other choices, in numerous combinations, are possible, too.

One factor that might be considered is new research suggesting that retirement itself, although popular, may reduce life expectancy by breaking lifelong routines and disrupting deep social connections. One might question how much government policy should actively encourage retirement, as opposed to merely making it an option.

Americans need to discuss these difficult choices — and the Social Security Administration needs the ability to improve its forecasting technology by adding statisticians and social science methodologists to help its actuaries institute more formalized quantitative and statistical procedures.

In 1983, after the last time the trust funds ran a deficit, the National Commission on Social Security Reform, led by Alan Greenspan and with members appointed by President Ronald Reagan and Congressional leaders, produced a report that led to changes in payroll taxes. But in the quarter-century since, there have been only modest changes in the program.

We know much more now about mortality and demography, and so an open debate today about Social Security’s future could be even more productive than it was then. The high levels of partisan strife may not make the present seem like the best time to reach a bipartisan agreement. But few issues are more important to more Americans, of both parties, and the longer we ignore the problem, the more disruptive any change will need to be to keep Social Security alive.

Social Security COLA

Social Security COLA is on the table.

Liberals do not like it, but recalculating the Social Security COLA benefits is part of the talks over the year-end “fiscal cliff” and may become to Democrats what raising taxes is to Republicans: a powder keg.

Averting a cliff dive next week may well depend on the parties stomaching both possibilities.

When Georgia Democrats talk about Social Security, they sound a lot like their Republican colleagues talking about tax rates.

“It’s certainly not something that is acceptable to me,” Rep. Hank Johnson, a DeKalb County Democrat, said last week when asked about “chained CPI.”

The term refers to changing how inflation is calculated, affecting a slew of policies including Social Security COLA  benefits and marginal tax rates. The government currently uses the consumer price index, based on a fixed set of goods. A “chained” consumer price index takes into account the fact that people are likely to substitute more expensive goods for cheaper ones as prices shift, and many economists argue it is a more effective measure of inflation.

And in a town looking for ways to save money, it’s a bonanza: The Committee for a Responsible Federal Budget, a group pushing the chained CPI as part of a budget deal that follows the Bowles-Simpson fiscal commission’s outline, estimates the switch would save $236 billion over the next decade if implemented in 2014.

But much of that money comes out of the pockets of senior citizens by shaving their benefit increases. Even if this is “fairer,” many Democrats object to any serious tinkering with the sacrosanct, FDR-era program. They argue that any savings ought to go to the fast-draining Social Security trust fund rather than deficit reduction.

Johnson said both the Congressional Black Caucus and Congressional Progressive Caucus oppose chained CPI. Atlanta Democratic Rep. John Lewis issued a statement this week complaining that “some are using Social Security as a carrot to get a deal.”

That “some” reportedly includes President Barack Obama, though Lewis was not naming names. Obama is reported to have floated the idea during last year’s debt-ceiling standoff with House Speaker John Boehner, and it has re-emerged this time as a way to wring savings from entitlement programs.

The two remained far from a deal as the weekend arrived, after the House Republican rejection of Boehner’s plan to allow taxes to rise on income over $1 million, which he had figured could give the GOP some leverage. The blowup – coming in dramatic fashion after Boehner prayed aloud “to accept the things I cannot change,” then told his members to go home for Christmas – put a spotlight on the Republicans’ intransigence against even a modest tax increase.

While many Democrats seem to be drawing a red line around Social Security and liberal groups are vowing to hold their feet to the fire Grover Norquist-style, some Democrats are leaving wiggle room.

Atlanta Democratic Rep. David Scott said he was “very much against messing with Social Security COLA or Medicare” but was noncommittal when asked directly if he would refuse to vote for a deal that included chained CPI. “I’m not going to tell you absolutely categorically no because I’ve got to weigh that against (what the) damage will be if this is what it takes for us to avoid the cliff,” he said.

House Minority Leader Nancy Pelosi said last week that she feels chained CPI “strengthens” Social Security, offering a window into the thinking of a woman who has proven to be more effective at vote-whipping than Boehner