www.baltimoresun.com/news/opinion/bal-the-hoax-of-entitlement-reform-20130108,0,912949.story

baltimoresun.com

The hoax of 'entitlement reform'

By Robert B. Reich

January 9, 2013

Advertisement

It has become accepted economic wisdom that the only way to get control over America's looming budget deficits is to "reform entitlements."

The accepted wisdom is wrong.

Republicans trot out federal budget data showing a 32 percent increase in direct payments to individuals since the start of 2009 -- including food stamps, unemployment insurance, worker's compensation and subsidized housing.

But these expenditures are temporary. They've resulted from the deepest economic downturn since the Great Depression, which forced many families to turn to the government for help.

What about Social Security and Medicare (along with Medicare's poor stepchild, Medicaid)?

Social Security won't contribute to future budget deficits. By law, it can only spend money from the Social Security trust fund. That fund has been in surplus for the better part of two decades, as boomers paid into it during their working lives. Now that boomers have begun to retire, those surpluses are disappearing.

But this only means the trust fund will be collecting from the rest of the federal government the IOUs on the surpluses it lent to the rest of the government. This still leaves the trust fund with a shortage about two decades from now.

Yet the best way to deal with this isn't to raise the eligibility age for receiving Social Security benefits, as many entitlement reformers are urging. That would put an unfair burden on laboring people, most of whose bodies still begin wearing out when they reach their late 60s even though they live longer. And it's not to reduce cost-of-living adjustments for inflation, as even the White House seemed ready to propose in recent months.

Social Security benefits are already meager for most recipients. The median income of Americans over 65 is less than $20,000 a year. Nearly 70 percent of them depend on Social Security for more than half of this.

Besides, Social Security's current inflation adjustment understates the true impact of inflation on elderly recipients -- who spend far more than anyone else on health care, the costs of which have been rising faster than overall inflation.

That leaves two possibilities that "entitlement reformers" rarely, if ever, suggest but are the only fair alternatives: raising the ceiling on income subject to Social Security taxes (in 2013, that ceiling is $113,700), and means-testing benefits so wealthy retirees receive less. Both should be considered.

What's left to reform? Medicare and Medicaid costs are projected to soar. But here again, look closely and you'll see neither is really the problem. The underlying problem is the soaring cost of health care overall, combined with the aging of the boomer generation.

The solution isn't to reduce Medicare benefits. It's for the nation to contain overall health care costs and get more for its health care dollars.

We're already spending nearly 18 percent of our entire economy on health care, compared with an average of 9.6 percent in all other rich countries.

Yet we're no healthier than their citizens are. In fact, our life expectancy at birth (78.2 years) is shorter than theirs (averaging 79.5 years), and our infant mortality (6.5 deaths per 1,000 live births) is higher (theirs is 4.4).

That's because doctors and hospitals in the U.S. have every incentive to spend on unnecessary tests, drugs and procedures. An estimated 30 percent of all health care spending in the U.S. is pure waste, according to the Institute of Medicine.

Our balkanized health-care system spends huge sums collecting money from different pieces of itself: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policyholders.

A major occupational category at most hospitals is "billing clerk." A third of nursing hours are devoted to documenting what's happened so insurers have proof.

Cutting or limiting Medicare and Medicaid costs, as entitlement reformers want to do, won't reform any of this. It would just result in less care.

Taming future deficits requires not only limiting the overall growth of health care costs. It also necessitates cutting our bloated military, and ending corporate welfare (tax breaks and subsidies targeted to particular firms and industries).

"Entitlement reform" only distracts us from these more important steps.

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of "Aftershock: The Next Economy and America's Future." He blogs at www.robertreich.org.