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  • Writer's pictureThe San Juan Daily Star

Why Medicare and Social Security are sustainable

By Paul Krugman

The GOP response to President Joe Biden’s truthful statement that some Republicans want to sunset Medicare and Social Security has been highly gratifying. In other words, the party has reacted with sheer panic — plus a startling lack of message discipline, with both Mike Pence and Nikki Haley saying that actually, yes, they do want to privatize or “reform” Social Security, which is code for gutting it.

Now Republicans are talking about slashing “woke” programs like Medicaid and food stamps. It’s going to be fun when the party realizes who depends on these programs and how popular Medicaid, in particular, is even among its own voters.

The press’ response to Biden’s remarks has, however, been less gratifying. I’ve seen numerous declarations from mainstream media that of course Medicare and Social Security can’t be sustained in their present form. And not just in the opinion pages: There’s been at least some reversion to the early 2010s practice of including anti-social-insurance editorializing in what are supposed to be straight news reports, with highly disputable claims about these programs’ futures presented as simple facts.

So let me try to set the record straight. Yes, our major social programs are on a trajectory that will cause them to cost more in the future than they do today. But how we deal with that trajectory is a choice, and the solution need not involve benefit cuts.

A good starting point on all these issues is the Congressional Budget Office report on the long-term budget outlook — a report issued every year, with the most recent report released in July. (The numbers were updated this month, but the basic picture hasn’t changed.) The CBO does excellent work, without a policy agenda, and is an extremely useful resource.

The current report offers a very clear depiction of both the budget challenges facing our major social insurance programs and the sources of those challenges.

But the budget office is not necessarily always right — in fact, the ways in which it has proved wrong in the past are highly illuminating. There’s a widespread narrative to the effect that Medicare and Social Security are unsustainable because they won’t be able to handle the mass retirement of baby boomers. But only about half the projected rise in spending is the result of population aging. The rest comes from the assumption — and that’s all it is, an assumption — that medical costs will rise faster than gross domestic product.

Before I get there, a word about demography. You might think that the projected aging is all about the baby boomers. But the baby boom is generally considered to have ended in 1964. So the last of us — yes, I’m one of them — will hit 65 in 2029, just six years from now. Most baby boomers are already there.

So why does the CBO project continuing budget pressure from aging? Because it assumes that life expectancy, specifically life expectancy at age 65, will keep rising. That has certainly been true in the past, but given America’s mortality problems, I’m not sure that it’s safe to assume this trend will continue at past rates.

Still, let’s grant the aging bit. What about “additional cost growth” in health care?

Well, historically health spending has risen faster than GDP — largely, we think, because doctors can now treat many more things than in the past, and this effect has outpaced cost savings from improved technology. But excess cost growth has slowed considerably since around 2010 — perhaps in part because of cost-reduction aspects of the Affordable Care Act. In any case, the leveling off is unmistakable.

This health-cost slowdown has, as it should, affected budget projections. Back during the early 2010s, the heyday of the Very Serious People who insisted that Medicare and Social Security were unsustainable, CBO projections assumed that health spending would grow at historical rates. This meant that under current policies long-run projected spending was indeed enormous, and obviously unsustainable.

But that has changed, a lot. I don’t know if people still repeating the old slogans about the need for entitlement reform realize just how much projections of future spending have come down.

A side note: The CBO used to do 75-year projections, but apparently realized at some point that these are of little value, because nobody has any idea what the world may look like in 75 years. I used to joke that long before we got there, Skynet would have killed us all, but now we know better: Bing’s chatbot will do us in. In any case, the projections now go only 30 years ahead.

Anyway, CBO projections now show social insurance spending as a percentage of GDP eventually rising by about 5 points, which is still a lot but not unimaginably large. And here’s the thing: Half of that is still the assumed rise in health care costs. And there are things we can do to control costs that don’t involve cutting off Americans’ benefits. Bear in mind both that U.S. health care is far more expensive than that of any other nation — without delivering better results — and that since 2010 we’ve already done quite a lot to “bend the curve.” It’s not at all hard to imagine that improving the incentives to focus on medically effective care could limit cost growth to well below what the CBO is projecting, even now.

And if we can do that, the rise in entitlement spending over the next three decades might be more like 3% of GDP. That’s not an inconceivable burden. America has the lowest taxes of any advanced nation; given the political will, of course we could come up with 3% more of GDP in revenue.

So no, Social Security and Medicare aren’t inherently unsustainable, doomed by demography. We can keep these programs, which are so deeply embedded in American society, if we want to. Killing them would be a choice.

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