More Social Security Give-and-Take

READERS WRITE BACK

George Fulmore makes a couple of important points in his comment on my recent post “Social Security Give-and-Take Leaves Old Folks in the Hole.” First, he responded to my statement that some people might pay more in Medicare Part B and D premiums next year, even though there will be no increase in Social Security benefits:

My understanding is that there cannot be an increase in the Medicare Part B premium that is greater than the increase in one’s Social Security payment. In other words, the amount of the Social Security check (out of which Part B premiums are paid) is not to be less than it was the year before. If there is no increase in SS payments, then there can not be an increase in Medicare Part B for those of us already in both systems.

 This limit does indeed apply in most cases, but there are exceptions, as explained in the latest newsletter of the Medicare Rights Center:

Part B premiums are expected to rise over the next two years. However, three quarters of people with Medicare will be protected from these increases by the “hold harmless” provision of the Social Security Act. In order to mitigate the financial impact of increasing Part B costs on people with Medicare, the provision ensures that the increase in Part B premiums cannot exceed the COLA for a given year for people with Medicare who have the premium deducted from their Social Security checks. With no COLA predicted for 2010, the Part B premium will be frozen for these people.

However, premiums for the remaining 25 percent of people with Medicare—including the wealthiest, who already pay a higher Part B premium, and those with low incomes who have their premiums paid by Medicare Savings Programs—will be subject to unusually large increases over the next two years to compensate for the decrease in revenue caused by the hold harmless provision. The Part B premium for 2009 is $96.40, but the Congressional Budget Office estimates that the basic premium will rise to $119 in 2010 and $123 in 2011.

States also face an increased financial burden as a result of Part B premium increases that states will pay through Medicare Savings Programs for qualifying low-income people with Medicare. Since these premiums are not deducted from Social Security checks but paid directly by state governments, states will be subject to the higher premium. Moreover, a low-income individual who is dropped from an MSP during 2010 is not protected by the hold harmless provision and must pay the higher premium.

New Medicare enrollees will also pay the higher premium, as will currently enrolled high-income people with Medicare who now pay a higher premium based on their income.

In addition, there is no provision that protects people with Medicare from increased Part D premiums, which are also predicted to rise next year. This means that people participating in Part D might see an increase in premium expenses even while experiencing a freeze in their monthly income.

George’s second point has to do with the practice of hijacking the contents of the so-called Social Security Trust Fund to pay for the rest of the federal budget:

As for the overall “problems,” because all the surplus income from the payroll tax that should have been deposited into the SS Trust Fund has been spent by other federal programs, instead of having $2.2 trillion of REAL money in the SS Trust Fund, it only has IOUs. In any case, those IOUs have the backing of the full faith and credit of the United States, which should make them good as gold.

With regard to the “full faith and credit of the United States,” I’m reminded of an expression from my childhood, when New York’s public transit fare was still 5 cents: “That and a nickel will get you a ride on the subway.” Let’s hope I’m wrong.

But more importantly, George’s comment highlights another major fallacy about Social Security. The conventional wisdom is that old people are now living off the payroll taxes of the young, who will themselves have no Social Security to count on, since it’s all being sucked up by us greedy geezers. The truth is that it works the other way, too: The money we paid into the Social Security system was in fact used to finance the Iraq War, tax cuts for the rich, and the banking bailout.

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