Economy
11:45 am
Wed December 12, 2012

Fiscal Cliff: Why Not Cut Entitlements?

Transcript

MICHEL MARTIN, HOST:

This is TELL ME MORE from NPR News. I'm Michel Martin. Coming up, another young woman, a mother, has been killed by a man who supposedly loved or at least cared for her. That got us thinking about the political fight over the ways to address violence against women. We're going to talk about that with our panel of women commentators. We call it the Beauty Shop and it's coming up later in the program.

But first we are turning to our continuing series about the economy. It's about three weeks until the deadline for the automatic spending cuts and tax hikes known as the fiscal cliff. We fall off that cliff, so to speak, if Congress and the White House don't come to an agreement on a plan to reduce the federal deficit.

The prospect of that has caused policymakers and perhaps even the public to think about changes to programs and tax schemes that have previously been considered untouchable. Things like the mortgage interest tax deduction, defense spending and entitlements. So we decided to take a look at a few items like this asking why not. Today we want to look at entitlement spending and ask why not change Social Security, Medicaid and Medicare.

Here to talk to us about Social Security is NPR correspondent John Ydstie. John has covered the economy, Wall Street, and the federal budget for NPR for two decades. Also with us for her take on Medicare and Medicaid is NPR health policy correspondent Julie Rovner. Thank you both so much for joining us.

JOHN YDSTIE, BYLINE: Thank you, Michel.

JULIE ROVNER, BYLINE: Good morning.

MARTIN: So before we launch into the details I wanted to ask - Julie, I'll start with you - has this word entitlements somehow taken on a pejorative meaning in the way that some people use the word welfare? Do you think that that's true? And if so, why?

ROVNER: I think it really has, particularly over the last couple of years. You know, this whole idea of makers and takers. And yet entitlement really is kind of a neutral word. It's a legal term of art. In federal budget parlance it's just to distinguish between things like appropriations, where Congress allows money to go out and it's only available until it's used up, and things that people are legal entitled to and Congress must give out the money.

So Medicare, Medicaid, Society Security are things that people are legally entitled to if they meet certain qualifications. If you are over age 65 and you paid in, that sort of thing. So that's the only distinction between entitlement spending and other kinds of spending.

MARTIN: John, do you think you agree that entitlements, especially in the conversations that you hear on the Hill and that you're covering, has it taken on kind of a pejorative tone? And why do you think that is?

YDSTIE: I think it has taken on a pejorative tone and I think partly it's because one of the qualifications for some programs is how much money you make. And so poor people are involved and people see that as welfare. So entitlements are basically welfare. I would make the case that if you want to not talk about it legally but the broad definition of entitlement, if you're entitled to anything, any benefit that the government gives, Social Security is one of them.

Because you get it by paying taxes on the first dollar you make, essentially. For many people the first dollar they make is taxed 6-plus percent and goes into Social Security and you pay for it for - 67 years is the retirement age now. And you're promised benefits for that and so certainly you're entitled to that and it's got nothing to do with welfare.

MARTIN: So you say that the president, along with some Democrats, are insisting on dealing with this issue separately from these deficit reduction talks, these so-called fiscal cliff talks. Why is that?

YDSTIE: Well, the president makes the case that Social Security is not - right now, at least - the driver of the deficits and so he wants to put it off and solve it later. And I think he can make a case for that. Right now payroll taxes pay almost all of the benefits, but in the past few years Social Security has begun tapping its trust fund, its fund of special government bonds.

The trust fund was built up over the years when workers were paying more taxes than necessary into the system. The government took the money and gave the Social Security system these special government bonds. They earn interest. Well, right now taxes aren't enough to pay all benefits so they're tapping some of that interest income to pay the benefits. Now, that's not going to be the case in years to come and it will drive the deficit off in the future.

MARTIN: Well, so is Social Security on the table or not?

YDSTIE: Well, it is on the table in one specific way. The Republicans have made a proposal to change the way the government indexes programs for inflation and it could affect Social Security. Or it will affect Social Security if it's adopted. Right now Social Security cost of living adjustment is made using the Consumer Price Index measure of inflation.

Lots of economists say it overestimates inflation's impact and so they want to change it to something called the Chain CPI which better takes into account the fact that when you go to the grocery store and beef costs a lot you buy chicken instead. So it more accurately measures behavior.

Now, opponents say it doesn't measure the cost of living increases for the elderly because they have higher medical costs. And while the changes would be small year to year, over 25 years someone could see a reduction in their benefits of 25 percent. So it's a significant amount. So we'll see what happens. The Democrats don't like this proposal. The Republicans like it. We'll see if it ends up in the final agreement.

MARTIN: Why not change Social Security?

YDSTIE: Well, I think one reason not to change it from the politicians' point of view is that Social Security is viewed as the third rail of American politics. It's like that electrified rail in the subway system. You touch it and you die. And politicians know that people love their Social Security benefits. They don't want them to be changed and so they're very hesitant to make any changes in the program.

MARTIN: We're talking with NPR correspondents John Ydstie and Julie Rovner about reforming entitlement spending. Julie, let's talk about Medicare and Medicaid. There was an effort by Democrats to spare Medicaid from these talks around reducing the deficit but that doesn't seem to be going so well. What's the reasoning behind that?

Medicaid is the program that provides healthcare services to people who are low income, right? As distinct from Medicare which supplies health services to people who are elderly. So what was the logic around sparing Medicaid from these talks?

ROVNER: Well, actually, it's generally Medicaid is the program that takes care of really the poorest of the poor in general and people who are most needy and that very important nursing home care for people, many of whom are actually middle class or were middle class before they spent all their money on nursing home care.

And that was one of the main reasons that lawmakers made sure that Medicaid was spared from the automatic cuts that will go into effect. But they also want Medicaid spared in these discussions of the fiscal cliff if there's going to be some kind of changes to these big entitlement programs. There's another reason they want Medicaid spared and this is an important one: Medicaid is intended as one of the big expansion programs under the Affordable Care Act, the new health law that's going into effect.

And governors right now are deciding whether or not they want to do this. The Supreme Court in its decision last summer made this big expansion optional for states. Now, the federal government is going to pay almost all of that expansion but the governors have to decide whether or not they're going to take the federal government up on that offer.

Well, if they see the federal government cutting back on Medicaid they're worried that the federal government is not going to make good on that promise to pay for that expansion and they may not opt into it. So at a time when the governors are trying to decide whether or not they're going to go into this big expansion of Medicaid, there are a bunch of Democrats - and a bunch of them just yesterday had a big press conference - said we should not be cutting Medicaid right now at this critical time while we're implementing the federal health law, the Affordable Care Act.

MARTIN: What about Medicare? Why not address Medicare?

ROVNER: Well, and I think that everybody thinks that they're going to address Medicare, although the fact is that Medicare has been addressed in a lot of ways. Also, most recently, in the Affordable Care Act. There were a lot of changes to Medicare attempting to save money, save money mostly for Medicare but also pave the way to save money for the rest of the healthcare system.

Find ways to reduce waste to make care more efficient, to make care a better value. Many of those have not taken effect yet. Even ways people talk about making wealthier people pay more, that's already a part of Medicare. So now wealthier beneficiaries pay more and they pay higher Part B premiums as part of the Affordable Care Act. They're going to pay more for their prescription drug premiums.

So there's only so far you could go. There aren't that many wealthy Medicare beneficiaries.

MARTIN: I wanted to ask you both in the time that we have left - we're talking about this as if these were all things that we could control, that the government can control, but isn't there a bigger kind of issue here with all of these programs that we're talking about here, which is just the way the population is changing?

As I understand it, the elderly population is rising, that the number of people aged 85 and older rose nearly 30 percent between 2000 and 2010 and the birth rate, we now know, is falling. Doesn't that affect all these conversations? Isn't this kind of a moving target?

YDSTIE: Well, it's certainly...

MARTIN: John?

YDSTIE: ...going to put strain on social security and the percentage is going to get higher. The percentage of old folks in the population is going to get higher. As we said, social security is going to have to redeem more and more of the bonds that are in the trust fund and 20 years from now, those bonds are going to be gone and the taxes coming in will only be able to pay 75 percent of the benefits, so something has to be done to make the program viable for the long term.

And it's either a reduction of the benefits in some way. It could come in the form of raising the retirement age - that would be a reduction in benefit - or a rise in taxes or some combination of both.

But I think social security is not that difficult to solve. There are many, many, many options that would get you to a program that was sustainable. I think that's not the case in health care.

MARTIN: OK. Julie, what about that? How hard is it?

ROVNER: Yeah. Health care is hard and I think one of the reasons the president decided to do health care in his first term and not do any number of other things is because everyone knows that health care is what's eating the budget. Society is getting older. Older people use more health care. There is more that we can do in health care. Every day, we're inventing new and more expensive things and Medicare and Medicaid are getting more expensive because health care is getting more expensive, so you must find a way to, as they say, bend the curve.

On the other hand, there are things that you can do to save money in Medicare that won't save money for the health care system. One of these things that keeps coming up is raising the eligibility age for Medicare. That would take money off the federal budget line because those people who are age 65 and 66 - if you raise the age to 67, they wouldn't get Medicare, but that would cost money to the entire health care system because now those people would be staying on their employer plan or they'd have to buy their own insurance and the healthiest people wouldn't be on Medicare anymore.

So it would cost everybody. It would cost the health system as a whole more money, even though it would save the federal government some money, so that's not seen as an overall solution. The overall solution to reducing the cost of Medicare and Medicaid is seen as holding down health costs, in general. Not an easy thing to do.

MARTIN: That was NPR health policy correspondent, Julie Rovner. Also with us, NPR economics correspondent, John Ydstie. They were both kind enough to join us here in our Washington, D.C. studios.

Julie, John, thank you.

YDSTIE: You're welcome, Michel.

ROVNER: You're welcome.

(SOUNDBITE OF MUSIC)

MARTIN: Coming up, the fiscal cliff isn't the only thing up for debate on the Hill. Lawmakers are being pressed to agree on a new version of the Violence Against Women Act. The Barber Shop ladies weigh in on this and more just ahead on TELL ME MORE from NPR News. I'm Michel Martin.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.