Social Security, Medicare Face Hits


White House Says Proposals Would Begin Curbing Long-Term Drivers of the Deficit, but GOP Calls the Moves Too Small

As President Barack Obama’s new budget indicates, the two political parties actually have agreed in the last two years to some significant steps to reduce deficits down the road.

One big question is whether the budget points a way toward restraining the largest long-term drivers of the deficit, which are government entitlement programs, particularly for health care.

The White House says its budget blueprint represents a good start down that path by offering proposals to curb the growth of Social Security, Medicare and other federal benefits programs.

In particular, Mr. Obama proposed curbing the growth of Social Security benefits over time by switching to a slower-growing gauge of inflation. That’s a move that some critics—including AARP, the big seniors group—criticize as unfair to senior citizens, though the budget plan included some protections for the very elderly and very poor, among other groups.

The president also proposed significant changes to Medicare, including further moves toward means-testing of the program by charging well-to-do senior citizens higher premiums. That is a direction that many Democrats have long resisted, contending that it is a step toward turning the Medicare program into a safety-net program for lower-income people.

Mr. Obama suggested other changes to benefit programs, such as raising patient fees to help curb the growing cost of military health care.

Deficits hawks generally applauded the plans, which include about $400 billion of savings in Medicare and other health programs, and $130 billion of savings from the change in calculating cost-of-living increases for benefit programs such as Social Security.

The administration portrays those savings as a kind of good-faith down payment toward negotiations with Republicans on a grand budget deal that could go much further to hold down future deficits. But many Republicans saw the president’s offered moves on entitlements as either too small or too cosmetic to signal that he is willing to make real changes.

House Budget Committee Chairman Paul Ryan (R., Wis.), speaking to reporters on Wednesday at an event sponsored by National Review magazine, called the Obama plan a “status quo budget.” He faulted it for producing too little deficit reduction—and no new reductions, he calculates, until 2020, four years after the president leaves office.

The debate is playing out against a backdrop of a deficit trend for the next few years that has improved somewhat because of hard-fought spending and revenue decisions the two parties have hammered out—but that eventually stands to get much worse.

The president’s budget envisions a deficit next year of $744 billion, down from $973 billion this year. Next year’s deficit would amount to 4.4% of gross domestic product, below this year’s 5.3%, but above the 3.7% of GDP that would be the case if the administration had chosen to continue spending levels forced by this year’s mandatory budget sequester cuts.

Under Mr. Obama’s plan, the deficit would continue to decline in following years, provided Washington agreed to live under the kinds of spending limits the two parties have enacted over the last two years.

But economists forecast that the country’s fiscal problems then would begin to really snowball within about 10 years, driven largely by the baby boom generation drawing Social Security and Medicare benefits in rising numbers, as well as by climbing interest rates. Roughly 46 million Americans received Social Security retirement benefits in 2012, a figure forecast to grow 40% by 2023, with a similar increase for Medicare.

Given that pressure, the Medicare fund that pays hospital bills is expected to burn through its reserves by 2024. The Social Security system is in better shape, but its growing obligations will pressure the government to repay money it borrowed from the program to cover other costs.

Sen. Orrin Hatch of Utah, the top GOP lawmaker on the Senate Finance Committee, said the budget “barely makes a dent in our sky-high debt, while not doing enough to fundamentally reform Medicare, Medicaid and Social Security.”

Others thought the president’s move on entitlements more significant.

“No president has offered this much, in the sense that Obama has touched what [former Cabinet secretary] Jim Baker called the third rail of politics—Social Security,” said Steve Bell, a former longtime GOP budget expert in the Senate who now is senior director of economic policy at the Bipartisan Policy Center.

Corrections & Amplifications
The president’s proposed changes to Medicare and other federal health programs would reduce federal spending by around $400 billion over 10 years. An earlier version of this article said those savings would come only from Medicare.

A version of this article appeared  on The Wall Street Journal. 

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