Social Security

Earlier today, I mentioned that the Dems have circulated a draft of their ’08 platform, and that I meant to comment on it if time permitted.

Well, I’ve had a chance to slightly-more-than-skim through it, and I can offer a few thoughts:

On health care and health insurance – I don’t think the Dems are planning to rely on too much in the way of contributions from the health insurance sector this cycle.  Several pages of the document seem focused on grilling health insurers.

There is, at least, one comment in the platform expressing a desire to control health costs, but the focus seems to be on addressing inefficiencies in the system (where there is indeed room for improvement), rather than the real drivers of health care inflation – Americans’ perceived entitlement to the latest and greatest (and generally very expensive) procedures and treatments, and the tendency for medical professionals to treat specific complaints, rather than undertaking thorough diagnosis, and considering the potential efficacy of less-sexy-but-still-effective treatments.  The platform buys into the notion that Americans should have access to the very best health care (and admirable goal), but does nothing about the unspoken question of “who’s going to pay for this”?

(Actually, I should take that back.  Throughout the platform there are promises to not raise taxes on families earning less than $250,000.   Above the magic $250,000 mark, the platform calls on households to pay “a bit more”.)

There are actually quite a few calls for new programs, to bolster the health and welfare of Americans.  They are all admirable goals….but the only spending cut I see mentioned in the platform involves ending our military involvement in Iraq.  I wonder if a Democratic monopoly in Washington would actually be significantly less fiscally irresponsible than the Republican monopoly was, or the lame duck / deadlocked government we have now is.

True, I didn’t expect to see a robust fiscal plan laid out in a platform…but it would be nice if a few more hints of budget-balancing could be seen in the document.

Also on the health care reform section of the platform – I can’t help but notice how many of the abuses (and perceived abuses) the Dems seek to end are targeted towards traditional health insurance providers.   Most health insurance these days comes from employer-provided plans which would likely be relatively exempt from such reforms…and/or have already been subject to such reform through amendments to ERISA.

Missing from that section – reform of ERISA itself.   While ERISA definitely provided some much-needed consumer protections in what was a then-failing pension system in the 1970’s….there are a few loopholes in the law which permit administrators of employee health plans to behave badly with minimal repercussions.   More detail can be found in an earlier post of mine…and it’s something that I’d like to see fixed.

The Social Security plank is disappointing, I think.   While it’s understandable that the Dems would slam corporations for underfunding pension plans, or walking away from promises previously made, statements like:

We recognize that Social Security is not in crisis

smell a bit like an attempt to score political points, rather than paint a constructive plan.  Yes, the platform advocates bolstering Social Security’s financing, and yes “crisis” is in the eye of the beholder…but acknowledgement that acting sooner rather than later would reduce the burden of any fix, and acknowledgement of the even-worse fiscal situation of Medicare would be refreshingly frank from a political party.

Oh well.  Democratic and Republican platforms these days seem to be mostly puff pieces anyway, so my frustration is to be expected.  I imagine this document and the forthcoming GOP platform will only reconfirm my disappointment with both major parties.

Late last week, the New York Times carried an article discussing Senate inquiries into whether disability insurers were gaming their financials by obliging claimants to apply over, and over, and over, and over… for SSDI.

Sick and injured people must often wait more than a year before their claims can be decided by one of Social Security’s administrative law judges, a delay Mr. Grassley called “abominable.”

“The last thing those who rely on Social Security need is for insurance companies to be clogging up the system by forcing ineligible applicants to apply,” he said.

Mr. Grassley told the insurers to report on how many of their claimants they had compelled to apply for Social Security in the last five years; how many appeals they had required people to file; and what methods they had used to screen the people beforehand to make sure they truly had a chance of qualifying for the government benefits.

The New York Times reported in April that disability insurers were making claimants apply for Social Security even when they did not qualify and were cutting off insurance checks if the claimants failed to do so.

I’m not in a position, myself, to comment on those allegations from an insurance point of view – it’s outside my area of expertise.

However, I have had the misfortune of experiencing the mess that is Social Security from the viewpoint of helping my disabled wife through the process.

I don’t think the problem is (or “is just”) disability insurers clogging the system.  Our experience was that if you weren’t obviously disabled (paralyzed, comatose, missing eyes or limbs) or weren’t near retirement age, your objective was to get through the initial review and the second review as quickly as possible, so that you could hire a disability lawyer and join the 2-3 year long queue to get in front of a judge.

The Social Security Disability standards are rather arcane, and one has a tendency to wonder about some of the civil servants involved.  For example, the first denial my wife received included a regurgitation of her doctor’s opinion about her condition…reversed.  “Cannot bend and pick up 25 pounds” became “is able to bend an pick up 25 pounds”, for example.

Look, if disability insurers have knowingly been forcing non-qualifying claimants into the SSDI system repeatedly, I agree that needs to stop.  However, given private disability insurance is always secondary to Social Security, it’s understandable that insurers would want eligible folks to claim those benefits.

The likely problem arises from Social Security’s definition of “eligible” being so fuzzy in practice, and the SSDI claim process being so onerous that no one in their right mind would want to go through the process, but for desperation, masochism, or duty to a private insurer.

I don’t know whether disability insurers actually aggravate the mess of Social Security Disability.  However, I think there are plenty of other potential areas of improvement in the process that could be tackled which would improve the process tremendously.

For those of you who have an interest in demography, immigration, Social Security, sustainability and/or just the general shape of the future, you might be interested in a lengthy article in this Sunday’s NYT Magazine discussing the causes and potential impact of Europe’s record-low birthrate.

Some of the points raised in the article

• In parts of Europe, the birth rate has dropped to roughly 60% of the rate needed to maintain a static population (ignoring migration).
• Demographers in Europe are particularly concerned about the sustainability of pension schemes in an environment where the worker-to-retiree ratio is so low; some European countries are toying with workforce-expanding measures including increasing retirement age to the unthinkable (?!) age of 65.
• Several towns in eastern Germany are apparently de-developing unused neighborhoods and districts, downsizing and combating urban blight to better support their smaller populations.
• In Western societies, it’s theorized that birth rates are increased when either there is extensive social support for working mothers (e.g. subsidized daycare, and extensive maternity and paternity leave in northern Europe), or when society doesn’t penalize working mothers who take a few years off from their career (e.g. the United States).  Countries where society expects mothers to stay at home with the children (Italy, Greece) see the lowest birthrates.

It’s a fascinating read.

There’s an interesting exchange at Donklephant in which Alan Carl takes issue with the tax provisions of Obama’s proposed economic plan:

It’s quite easy for a family of four to make $200,000 a year and sink most of that back into basic expenses with only moderate indulgences. Raising their taxes would force them not to eliminate yachts (they don’t own any) or $1,000 a night rooms during Las Vegas binges (they don’t do that) but to live in a smaller home or, most likely, reduce their personal savings, putting less in their IRAs and education funds and the like so the government can have a bigger piece of the pie. That is not only unfair it’s counter to the very notions of personal responsibility.

The key problem with Obama’s and most other Democrat’s economic plans is that they see the wealthy and even the kinda sorta wealthy as undeserving of their income. [...] They should not be obligated to forfeit a larger share of their income simply because they’ve worked hard and become successful. Payments into Social Security are capped because payments out of Social Security are capped. Unless we’re going to start paying higher earners more in Social Security after they retire, it is profoundly unfair to ask them to bear a greater burden while they are working.

We can debate the appropriateness and effectiveness of higher taxes for the ultra rich, but penalizing families who make $200,000 a year places the aspirational cap extremely low. It actually creates disincentives for people to strive for higher incomes and penalizes hard working Americans who’ve done nothing wrong but make good choices and become successful.

I was about to post a response at Donklephant when I noticed someone had already made the same observation I was about to make, the punchline of which is:

Either you get out of Iraq and cut defense spending, along with reforming Medicare, medicaid, social security, cut aid to Israel, etc.

Or you pay higher taxes, there is no free lunch

I agree with Alan’s assessment—shifting the tax burden is counter-productive, and/or unfair. Unfortunately, the situation the country is, itself, inherently unfair. Any solution will likely be perceived by someone as unfair.

We have a problem in this country—we have a massive amount of debt, and commitments that the country has made to spend more money will only aggravate that problem unless something is done.

Over the long term, “something” needs to include a helluvalot of spending cuts and unwinding of past commitments, so that government’s need for revenue can be kept at a more sustainable level. Making sudden, immediate cuts probably would be rather damaging to the economy right now, and as a practical matter, political and social forces will limit the amount of cuts that can be made.

In the absence of cuts, additional revenue needs to be scrounged up from somewhere. In an ideal world, the country would win some ultra-ultra-powerball, or the folks responsible for the mess would be relieved of funds to pay to return the country to fiscal sanity.

However, the fact of the matter is that we, the voters of America, are responsible for the mess. We haven’t demanded fiscal responsibility from our elected leaders, and we’ve let them get credit-happy while being distracted by bread and circuses.

We need to clean up that mess. That clean-up is going to suck, and it’s going to be perceived as unfair by at least some groups, especially since the clean-up needs to be done in a manner that doesn’t damage the country’s prospects post-cleanup.

That limitation necessarily means that the burden is going to be borne by folks of certain income levels. And the folks who will feel that the worst are those who appear wealthier on their tax returns than reality dictates.

It sucks. It isn’t fair. But the sooner we accept that life isn’t fair, the sooner we’ll be done.

One of the more popular articles in Tuesday’s New York Times was an article entitled, “Insurers Faulted as Overloading Social Security”.

The Social Security system is choking on paperwork and spending millions of dollars a year screening dubious applications for disability benefits, according to lawsuits filed by whistle-blowers.

Insurance companies are the source of the problem, the lawsuits say. The insurers are forcing many people who file disability claims with them to also apply to Social Security — even people who clearly do not qualify for the government program.[...]

[D]isability insurers tell many of their claimants to appeal Social Security’s rejections again and again, until some are finally accepted. Then the insurers can take those people off their rolls, shifting the cost to the government.

I have the misfortune to have experience on both sides of the subject here. One of the programs I work with in the day job offers LTD cover. Also, my wife was disabled in a car accident six years ago. Last year, we finished a 3-year struggle to get Social Security to recognize her disability (after signing away a large chunk of her back benefits check to get a lawyer to represent us).

I’m rather disappointed in the one-sidedness of the NYT article.

Whether the aggressiveness of some LTD providers in encouraging claimants to pursue SSDI claims is deliberate manipulation of the system, or just a reflection of the random nature of the Social Security disability determination process, I cannot say.

I can support the idea that the Social Security claims intake process is painfully slow and overloaded. Some of that is clearly lack of resource on Social Security’s part, and some of that is probably a large number of applications from ineligible claimants which Social Security is required by law to give appropriate consideration to.

However, a fair amount of the burden on Social Security disability also has to be it’s random nature. With my wife’s claim, we encountered some of the most idiotic denials, and had to permit poking-and-prodding by doctors who didn’t normally specialize in my wife’s ailments. In fact, when we were in the process, the guidance we were given was “grin and bear it” through the random rejections of initial application and request for reconsideration, so that we could get into the long queue to go before an ALJ who would actually give consideration to my wife’s condition.

There has to be a more efficient, reasonable way to screen SSDI applicants. The current bureaucratic mess has also got to be a significant drain on the system.

If Social Security disability applications could be processed more efficiently, more reasonably, and with more predictable results (other than a presumption of “deny twice, and let a judge handle it the rest of the way”), presumably the “get back in line and try again, until you get a favorable answer” strategy that LTD insurers are alleged to pursue wouldn’t be needed.

Seen at the Washington Post:

Trustees for the government’s two biggest benefit programs warned Tuesday that Social Security and Medicare are facing “enormous challenges” with the threat to Medicare’s solvency far more severe.

The trustees, issuing a once-a-year analysis of the government’s two biggest benefit programs, said the resources in the Social Security trust fund will be depleted by 2041. The reserves in the Medicare trust fund that pays hospital benefits were projected to be wiped out by 2019.

Both those dates were the same as in last year’s report. But the trustees warned that financial pressures will begin much sooner when the programs begin paying out more in benefits each year than they collect in payroll taxes. For Medicare, that threshold is projected to be reached this year and for Social Security it is projected to occur in 2017.

In English, that last paragraph means that this year, Medicare will have to start drawing upon its trust fund to pay the bills. Of course, since the Medicare trust fund has already been spent to fund other government priorities, cashing in the IOUs the Treasury left behind means that the feds will have to borrow that much more….

Every year the federal government stalls in addressing the projected shortfalls, the harder it will become to avoid them. The menu of choices available to address the funding issues has been well-known for years. However, politicians seem far more enthusiastic about playing politics than in actually making the tough decisions required.

If you’ve been reading my blog for a while, you’re probably aware that one of my pet peeves with Washington is the degree to which it’s neglecting the financial prospects of Social Security and Medicare.

The key dates for Social Security have been reasonably widely distributed:  The most recent forecasts project that in 2017, Social security will have to begin tapping interest income from the OASDI trust funds in order to maintain operations.   In 2027, it is projected that the OASDI trust fund itself will have to be tapped.  And in 2041, it is expected that the trust fund will be exhausted, and revenues will be able to fund only a portion of projected benefits.

(The real situation is more complex, since the retirement and disability sides of Social Security technically have different accounts.  Disability’s dates are 2005/2013/2026, while Retirement’s are 2018/2028/2042.)

For Medicare, the magic dates are less-well known.  In 2007, Medicare is expected to have had to tap interest income from its trust fund to satisfy its obligations.  In 2011, the Medicare trust fund is expected to be tapped.  And, in 2019, it’s expected that the Medicare trust fund will be exhausted.

In the past couple of years, there has been quite a bit of discussion about the nature of the trust funds — do they “exist” or not.  From my perspective the “existence” / “non-existence” of the trust funds is a question of semantics.  The accounts exist, but the federal government has borrowed against them to reduce the appearance of a budget deficit.   When the trust funds are tapped, the feds will have to pay themselves back, via some combination of revenue increases, a reduction in spending, and external borrowing.

In plain English — starting this year, paying for past borrowing begins to become an increased drag on the federal government’s budget, and without something happening, it’s going to get worse.

Sadly, the nature of American politics is such that politicians tend not to think beyond the next 2, 4, or 6 years…and future budget crises don’t seem quite as important as winning that next election.  That’s a shame because as time drags on, the challenge of addressing the forecasted shortfalls will grow exponentially.

In an ideal world, Washington would have already done something about this by now.  I’d like to think that the winners of this year’s elections will take on the challenge.   But I won’t hold my breath.

For Social Security, the potential fixes are known.  They include:

• Increasing the OASDI tax rate;
• Adjusting the cap on earnings subject to OASDI tax;
• Increasing the age at which one becomes eligible for partial or total social security benefits;
• Reducing the rate of future increases in social security checks for some or all beneficiaries; or
• Some combination of the above

The challenge is reaching political consensus on which of those options, or what combination of those options, are most palatable to the country.   Heck, if the Executive and Legislative branches didn’t want to make the tough call, they could simply survey the country, asking which option(s) would citizens prefer, and allocate the fix based on the survey.

(I personally don’t have a strong preference.  I’d just like the powers-that-be to pick one and move on, so I can plan accordingly.)

For Medicare, the challenge is somewhat tougher, and is (or at least should be) wrapped up in with the larger health care debate going on.  We as a society seem to believe that Americans are entitled to the most advanced health care and newest medications.  Are we as a society willing to pay the cost?  Or, is there a way to better manage that cost.  Or, does everyone need the most expensive treatments from the get-go?

In the past couple of years, there was talk of “private accounts” as being part of the solution for the Social Security mess.  Personally, I don’t think anyone with a couple of ounces of actuarial or financial sense believed that private accounts were the solution.  I’m not necessarily opposed to the idea of private accounts — personally, I’d rather invest my retirement savings rather than letting it sit as a piggy bank for the Treasury to drain — but that sort of a change would need to be implemented as one part of a larger reform effort.

These are some of the items I’d like to see the next President and the next Congress tackle in 2009 (or even during lame-duck season late in 2008), if only they could take a moment or two out of their busy 2010/2012/2014 reelection campaign schedules to do so.

The aftermath of my wife’s accident almost six years ago has been a most…educational process. For example, we learned (the hard way) to not count the availability of Social Security disability benefits, even though my wife had been paying the premiums (via taxes) for years. So, this article in the New York Times strikes a chord with me:

Two-thirds of those who appeal an initial rejection eventually win their cases.

But in the meantime, more and more people have lost their homes, declared bankruptcy or even died while awaiting an appeals hearing, say lawyers representing claimants and officials of the Social Security Administration, which administers disability benefits for those judged unable to work or who face terminal illness.

The agency’s new plan to hire at least 150 new appeals judges to whittle down the backlog, which has soared to 755,000 from 311,000 in 2000, will require $100 million more than the president requested this year and still more in the future. The plan has been delayed by the standoff between Congress and the White House over domestic appropriations.

There are 1,025 judges currently at work, and the wait for an appeals hearing averages more than 500 days, compared with 258 in 2000. Without new hirings, federal officials predict even longer waits and more of the personal tragedies that can result from years of painful uncertainty.

In my wife’s case, it took two appeals, and signing over 25% of the back payments to a lawyer to get disability benefits started 62 months after that driver scrambled her brain.

It could be worse, I suppose. For example, a few months ago, we finally got a trial date in the lawsuit associated with the accident. The trial will come not quite 80 months after the accident.

Thankfully, we were able to adapt to being a one income family, and fortunately actuarial employers tend to have pretty good health insurance. However, I can definitely empathize with those who were the sole breadwinner prior to their disability.

My wife’s disability attorney mentioned that the SSDI bureaucracy isn’t quite as bad as all the above would suggest—the bureaucracy is set up to move the “visibly disabled”, or folks for whom it seems obvious to a casual observer will be disabled until retirement age. Where the system breaks down is in the bureaucracy involved in differentiating the folks pretending disability to get free money from those whose long-term disability is less obvious (i.e., younger victims or those with “invisible” conditions).

While I do regularly profess a desire that Congress be deadlocked to avoid engaging in real mischief…there are times that inaction in the District is annoying. The playing of politics while the resolution of an identified resource need is sidelined troubles me.

Of course, despite the implications of the NYT article, I’m not sure that simply throwing more judges at the backlog is the issue. You’d think that something could be done about the initial triage process, to reduce the number of cases entering the formal appeal queue.

So, remember the national debt?

Remember how a few of us complain about disguising the deficit by allocating the Social Security and Medicare Trust funds to offset it?

MSN Finance has a nice little chart documenting the magnitude of the offset:

So, while it seems that the powers that be have problems in remembering that it’s not good to spend more money than you have, at least they’ve mastered the knack of disguising that tendency.

Seen in the Wall Street Journal (subscriber link):

The introduction of a voluntary flat tax is a cornerstone of Mr. Thompson’s proposal. Taxpayers could choose to pay a flat income tax, which would be charged at two rates: 10% for joint filers with income up to $100,000 (or $50,000 for individuals) and 25% on incomes above that. Americans who opted for the flat-tax plan, however, wouldn’t be allowed to take tax credits or deductions including mortgage interest, and would continue to pay taxes on capital gains and dividends.[...]

Mr. Thompson suggested his plan would be funded, in part, by changes to the Social Security system. He has proposed limiting payments to future retirees by cutting their initial benefits. “And if you do that in conjunction with indexing the initial Social Security benefit to inflation instead of wages, at the end of the day you’re going to save Social Security,” Mr. Thompson said on Fox News Sunday.

The Journal points out that Fred’s tax plan is somewhat lacking in details, and may be somewhat unrealistic when it comes to the spending cuts required to balance to current revenues, much less reduced taxes from such a voluntary flat tax scheme.

(When the Journal expresses concern about a tax reduction plan, you know there’s something to be concerned about.)

Also, it’s sad to say, but the plan seems to be likely DOA due to Thompson’s touching the third rail of American politics. He dared to talk about possibly reducing Social Security benefits, a move that would likely cost him a portion of the senior citizen vote.

I respect his chutzpah, but I’d like to see a few more numbers attached to the plan, rather than simple talk about general goals that, on the surface, don’t seem to balance out.