Social Security: Many pay more in taxes than they'll get back

http://money.cnn.com/2013/04/14/news/economy/social-security-benefits/index.html

NEW YORK (CNNMoney)

Up until now, Social Security has been a windfall for many retirees: They collected far more in benefits than they shelled out in taxes.

That's changing. Many of those retiring will have paid more into the coveted entitlement program than they will get back.

Here are the numbers:

A couple who each earned the average wage during their careers and retired in 1990 would have paid $316,000 in Social Security taxes, but collected $436,000 in benefits, according to data crunched by Eugene Steuerle, an economist at the Urban Institute.

Had that couple turned 65 in 2010, however, they would have paid $600,000 in taxes, but could expect to collect just $579,000. This is the first time in the program's history that taxes outweighed benefits for this group, a couple with average earnings.

The imbalance will get more pronounced for future generations of retirees. Couples now in their early 40s will have forked over $808,000 in Social Security taxes by the time they retire, but get back only $703,000 in benefits.

The Urban Institute included payroll taxes paid by both the employee and employer, but did not include the portion used for Social Security's disability insurance program. Since 2000, taxes for just the retirement program have totaled 10.6% -- 5.3% from the employee and the same from the employer. The levy is paid on income up to a certain threshold -- $113,700 for 2013. The institute said it adjusted its calculations for inflation plus 2%, about what a person could have traditionally realized in savings had they put the money in the bank.

So why is the shift happening now? It's because the first waves of recipients saw their promised benefits rise without sufficiently large tax increases to pay for them, Steuerle said. Rates rose significantly after the program was overhauled in 1983.

"Younger generations are paying much higher tax rates for the same benefits," he said.

Still, there are many folks who will collect more than they'll have paid. The typical American couple do not each earn the average wage during their careers since women often have lower incomes or take years off to raise children. In this scenario, the couple would receive more benefits than they pay in taxes because the wife's checks often will be based on her husband's earnings. Also, most lower-wage workers receive more in benefits than they pay in taxes.

To be clear, Social Security, created in 1935, doesn't operate like a savings account. Today's workers' taxes are funding the monthly checks being sent to today's retirees.

When it comes to Medicare, however, virtually all Americans are getting far more than they pay in taxes, which is 2.9% on all of one's income, not including the new 0.9% surtax on high earners. The couple turning 65 in 2010 paid a scant $122,000 in Medicare taxes, but can expect to get $427,000 in benefits.
And that pattern isn't reversing any time soon ... the spread actually widens for future generations.
Though many people are now putting more into Social Security than they will take out doesn't mean the entitlement program is on sound footing. A big part of the problem is that there are fewer workers to support the growing number of retirees.

The system is now paying out more in benefits than it collects in income, with the difference coming from the so-called trust fund, the result of surplus revenue previously paid into the system. But the trust fund is set to run out in 2033, after which the program will only be able to pay about three-quarters of promised benefits, according to the Social Security trustees.

"What we are paying into the system is paying for our parents' benefits," Steuerle said. "But it's not clear what that entitles us to get from our kids."

2012 Medicare debate

http://yourlife.usatoday.com/health/healthcare/story/2012-01-02/2012-Medicare-debate-is-all-about-the-baby-boomers/52334578/1

WASHINGTON – Baby boomers take note: Medicare as your parents have known it is headed for big changes no matter who wins the White House in 2012. You may not like it, but you might have to accept it.

Dial down the partisan rhetoric and surprising similarities emerge from competing policy prescriptions by President Barack Obama and leading Republicans such as Wisconsin Rep. Paul Ryan.

Limit the overall growth of Medicare spending? It's in both approaches.

Squeeze more money from upper-income retirees and some in the middle-class? Ditto.

Raise the eligibility age? That too, if the deal is right.

With more than 1.5 million baby boomers a year signing up for Medicare, the program's future is one of the most important economic issues for anyone now 50 or older. Health care costs are the most unpredictable part of retirement, and Medicare remains an exceptional deal for retirees, who can reap benefits worth far more than the payroll taxes they paid in during their careers.

"People would like to have what they used to have. What they don't seem to understand is that it's already changed," said Gail Wilensky, a former Medicare administrator and adviser to Republicans. "Medicare as we have known it is not part of our future."

Two sets of numbers underscore that point.

First, Medicare's giant trust fund for inpatient care is projected to run out of money in 2024. At that point, the program will collect only enough payroll taxes to pay 90 percent of benefits.

Second, researchers estimate that 20 to 30 percent of the more than $500 billion that Medicare now spends annually is wasted on treatments and procedures of little or no benefit to patients.

Taken together, that means policymakers can't let Medicare keep running on autopilot and they'll look for cuts before any payroll tax increases.

Privatization is the biggest divide between Democrats and Republicans.

Currently about 75 percent of Medicare recipients are in the traditional government-run, fee-for-service program and 25 percent are in private insurance plans known as Medicare Advantage.

Ryan's original approach, part of a budget plan the House passed in the spring, would have put 100 percent of future retirees into private insurance. His latest plan, developed with Sen. Ron Wyden, D-Ore., would keep traditional Medicare as an option, competing with private plans.

Older people would get a fixed payment they could use for private health insurance or traditional Medicare. Proponents call it "premium support." To foes, it's a voucher.

Under both of Ryan's versions, people now 55 or older would not have to make any changes. GOP presidential candidates Mitt Romney and Newt Gingrich praise his latest plan.

How would it work? Would it save taxpayers money? Would it shift costs to retirees as Ryan's earlier plan did? Would Congress later phase out traditional Medicare? Those and other questions must still be answered.

"I'm not sure anybody has come up with a formula on this that makes people comfortable," said health economist Marilyn Moon, who formerly served as a trustee helping to oversee Medicare finances.

White House spokesman Jay Carney says the Wyden-Ryan plan "would end Medicare as we know it for millions of seniors," causing the traditional program to "wither on the vine."

But what administration officials don't say is that Obama's health care law already puts in place one of Ryan's main goals by limiting future increases in Medicare spending.

Ryan would do it with a fixed payment for health insurance, adjusted to allow some growth. In theory that compels consumers and medical providers to be more cost-conscious. Obama does it with a powerful board that can force Medicare cuts to service providers if costs rise beyond certain levels and Congress fails to act.

Like several elements of Obama's health care overhaul, the Independent Payment Advisory Board is in limbo for now, but it is on the books. If the board survives Republican repeal attempts, it could become one of the government's most important domestic agencies.

The White House wants to keep the existing structure of Medicare while "twisting the dials" to control spending, said a current Medicare trustee, economist Robert Reischauer of the Urban Institute think tank.

Ryan's latest approach is arguably an evolution of the current Medicare Advantage private insurance program, not a radical change, Reischauer said. That's particularly so if traditional Medicare remains an option.

"In the hot and heavy political debate we are in, participants are exaggerating the difference between the proposals," he said.

During failed budget negotiations with Republicans last summer, Obama indicated a willingness to make more major changes to Medicare, including gradually raising the age of eligibility to 67, increasing premiums for many beneficiaries, revamping co-payments and deductibles in ways that would raise costs for retirees, and cutting payments to drugmakers and other providers.

"I was surprised by how much the president was willing to offer in terms of Medicare changes without a more thorough vetting and discussion," said Moon. Obama sayshttp://www.blogger.com/img/blank.gif he will veto any plan to cut Medicarhttp://www.blogger.com/img/blank.gife benefits without raising taxes on the wealthy.

Democrats are still hoping to use Ryan's privatization plans as a political weapon against Republicans in 2012, but the Medicare debate could cut both ways. For the 76 million baby boomers signing up over the next couple of decades, it will pay to be watching.

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Online:

Medicare: http://www.medicare.gov

Ryan-Wyden plan: http://tinyurl.com/ct7utja

10 Things Medicare Won't Tell You

http://www.smartmoney.com/retirement/planning/10-things-medicare-wont-tell-you-1324333528533/

Here are the 10 items. Click on the link above to read the entire article.

1. We fork over millions for unproven procedures.
2. Think Social Security is broke? Just look at Medicare.
3. We pay for dead people.
4. Don't expect a five-star plan.
5. We're not popular with many doctors.
6. We get ripped off a lot.
7. We don't cover a lot of the care seniors need most.
8. Paws off that cash, grandpa: Your settlement is ours.
9. Complain all you want ...
10. Want Your Way? Just ask.

Medicare, Social Security finance outlook worsens

http://www.marketwatch.com/story/medicare-social-security-finance-outlook-worsens-2011-05-13-1223390
By Ruth Mantell, MarketWatch

WASHINGTON (MarketWatch) — The outlook for Medicare’s finances have worsened on a slow economic recovery and higher costs, while the outlook for Social Security has also declined, trustees for the programs said Friday.

Medicare’s Hospital Insurance Trust Fund is now expected to be exhausted in 2024 – five years sooner than projected last year. Upon exhaustion, dedicated revenue will be able to pay 90% of costs for the hospital-insurance program.

Meanwhile, government officials said trust fund reserves for Social Security will be exhausted in 2036, one year sooner than expected last year. Afterwards, tax income will only be able to pay for three-quarters of scheduled benefits though 2085.

For the first time since 1983, Social Security spending was greater than non-interest income in 2010. A $46 billion deficit is projected for 2011, compared with $49 billion in the prior year.

Also, trust fund exhaustion for disability insurance is expected in 2018. Costs for disability insurance have been greater than non-interest income since 2005.

“Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided,” according to a summary of the reports for the programs.

The reports about Social Security and Medicare come as U.S. lawmakers remain embroiled in arguments about how to tame the deficit. While House Republicans have presented a plan to cut Medicare, neither side has offered a formal proposal to curb Social Security’s rising costs.

On Friday the trustees urged prompt action from U.S. lawmakers, and noted that an aging population and spending growth in coming decades will ramp up costs for Social Security and Medicare, the two largest federal programs,

“If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected have adequate time to prepare,” according to the trustees’ summary. “Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower-income workers and those who are already substantially dependent on program benefits.”

Beneficiaries of Medicare and Social Security are worried that lawmakers’ proposals could result in harmful cuts.

“As leaders begin to hammer out solutions, we urge them not to subject Medicare and Social Security to arbitrary spending limits that could jeopardize the benefits that millions of older Americans have earned through a life time of hard work,” said A. Barry Rand, AARP’s chief executive, in a recent statement.

“Rather than singling out Medicare, we believe the focus of any reforms should be on making the delivery of health care more efficient and cost effective to all Americans. And we believe we should tackle our budgetary challenges and devise common-sense solutions without making damaging cuts to Social Security — which, as a self-financed program, should be addressed in a separate debate focused on the need for retirement security.”

Treasury Secretary Timothy Geithner called for reforms to protect current and future retirees, saying “larger, more difficult adjustments” will be needed if reform is delayed.

He added the debt limit is due to be reached by Monday.

“Because Congress has not yet acted, we have now set in motion a series of extraordinary measures that will give Congress some additional time to raise the debt limit. I want to again encourage Congress to move as quickly as possible, so that all Americans will remain confident that the United States will meet all of its obligations – not just our interest payments but also our commitments to our seniors,” Geithner said in a statement.

Ruth Mantell is a MarketWatch reporter based in Washington.

Medicare rise could mean no Social Security COLA

http://news.yahoo.com/s/ap/20110327/ap_on_go_ot/us_social_security_cola
By STEPHEN OHLEMACHER, Associated Press

WASHINGTON – Millions of retired and disabled people in the United States had better brace for another year with no increase in Social Security payments.

The government is projecting a slight cost-of-living adjustment for Social Security benefits next year, the first increase since 2009. But for most beneficiaries, rising Medicare premiums threaten to wipe out any increase in payments, leaving them without a raise for a third straight year.

About 45 million people — one in seven in the country — receive both Medicare and Social Security. By law, beneficiaries have their Medicare Part B premiums, which cover doctor visits, deducted from their Social Security payments each month.

When Medicare premiums rise more than Social Security payments, millions of people living on fixed incomes don't get raises. On the other hand, most don't get pay cuts, either, because a hold-harmless provision prevents higher Part B premiums from reducing Social Security payments for most people.

David Certner of AARP estimates that as many as three-fourths of beneficiaries will have their entire Social Security increase swallowed by rising Medicare premiums next year.

It's a tough development for retirees who lost much of their savings when the stock market collapsed, who lost value in their homes when the housing market crashed and who can't find work because the job market is weak or they are in poor health.

"You just don't have the words to say how much this impacts a person," said Joyce Trebilcock, a retired legal secretary from Belle, Mo., a small town about 100 miles west of St. Louis.

Like most U.S. retirees, Trebilcock, 65, said Social Security is her primary source of income. She said a back injury about 15 years ago left her unable to work, so she applied for disability benefits. Now, she lives on a $1,262 Social Security payment each month, with more than $500 going to pay the mortgage.

"I've cut back on about everything I can, and I take the rest out of my savings," Trebilcock said. "Thank God I've got that. That's going to run out before long, at the rate I'm going. ... I have no idea what I'm going to do then."

Medicare premiums are absorbing a growing share of Social Security benefits, leaving retired and disabled people with less money for other expenses, according to a report by the Congressional Research Service.

Social Security recipients spend, on average, 9 percent of their benefits on Medicare Part B premiums, plus 3 percent on premiums for the Medicare prescription drug program. By the time someone retires in 2078, he or she will spend nearly one-third of their benefits on premiums for both Medicare programs, the report said. Also, when premiums for the prescription drug program increase, as they do almost every year, they can result in a pay cut for Social Security recipients.

"We could very well be entering a period where we're all stuck with flat benefits because of the growth in health care costs," said Mary Johnson, a policy analyst at The Senior Citizens League.

By law, Social Security cost-of-living adjustments, or COLAs, are determined each year by a government measure of inflation. When consumer prices go up, payments go up. When consumer prices fall, payments stay flat until prices rebound.

There had been a COLA every year from 1975 through 2009, when a spike in energy prices resulted in a 5.8 percent increase, the largest in 27 years. Since then, the recession has depressed consumer prices, resulting in no COLA in 2010 or 2011.

Older people might feel they are falling behind because they haven't had a raise since 2009, but many are benefiting, said Andrew Biggs, a former deputy commissioner of the Social Security Administration who is now a resident scholar at the American Enterprise Institute.

Consumer prices dropped, but Social Security benefits didn't drop, Biggs said. At the same time, health care costs went up, but Part B premiums stayed the same for most beneficiaries.

"They are better off because of that," Biggs said. "Somebody else is paying for a greater share of their health care. This will get me hate mail, obviously. But it is what it is."

Next year, the trustees who oversee the Social Security project a 1.2 percent COLA. President Barack Obama, in his spending proposal for the budget year that begins Oct. 1, projects a COLA of 0.9 percent. The average monthly payment is $1,077, so either way, the typical increase is projected to be between $10 and $13.

The current spike in energy prices could boost next year's COLA, if it lasts through September, when the increase for 2012 will be calculated. The COLA will be announced in mid-October.

Medicare Part B premiums must be set each year to cover 25 percent of program costs. By law, they have been frozen at 2009 levels for about 75 percent of beneficiaries because there has been no increase in Social Security. That means the entire premium hike has been borne by the remaining 25 percent, which includes new enrollees, high-income families and low-income beneficiaries who have their premiums paid by Medicaid, the federal-state health care program for the poor.

The 2009 premium levels, which are still paid by about three-fourths of beneficiaries, are $96.40 a month. Most of those who enrolled in the program in 2010 pay $110.50 a month and most of those who enrolled in 2011 pay $115.40.

The Medicare trustees project a Part B premium of $113.80 a month for next year. Obama's budget projects a monthly premium of $108.20, said Donald McLeod, a spokesman for the Centers for Medicare and Medicaid Services. McLeod cautioned that the projections could change significantly by September, when 2012 premiums are calculated.

Under either projection, a small share of beneficiaries would get lower premiums. The vast majority would get higher premiums that could swallow their Social Security COLA.

"That little raise helps us," said Estelle Jones, 66, of St. Paul, Minn. "Food, heating bills, water bill, all that stuff has gone up. ... All my medicines are very expensive, and every month I have to figure out how I am going to pay for them."

House passes bill stopping Medicare premium hikes

http://www.usatoday.com/news/washington/2009-09-24-house-medicare-premiums_N.htm
WASHINGTON (AP) — The House voted overwhelmingly Thursday to eliminate monthly premium increases for millions of Medicare patients next year.

It voted 406 to 18 to send the bill to the Senate, which is expected to act soon.

Lawmakers said older Americans shouldn't have to pay higher Medicare Part B premiums because they are not expected to get a cost of living increase from Social Security.

The vast majority of Medicare recipients already are exempt from Part B premium increases because of a hold-harmless provision that kicks in when there is no increase in Social Security.

Still, several million would face monthly premium increases of $8 to $23, without congressional action. The standard monthly premium is $96.40 this year.

House Majority Leader Steny Hoyer of Maryland, in a rare break with fellow Democrats, voted against the measure, saying it would mainly help wealthy Medicare recipients.

"If we take care of everybody, we won't be able to take care of those who need us most," Hoyer said.
___

NOTE: Wealthy Medicare recipients pay a higher monthly premium than $96.40, as much as $308.30 per month, see http://www.medicare.gov/MPPF/Include/DataSection/MedigapDetails/PartBMessage.asp