GAO Head: Changes Needed In Social Security, Medicare
The head of the Government Accountability Office last week said changes are needed in the structure of Social Security, Medicare and other government programs aimed at an aging population if the U.S. is to deal effectively with
the ballooning budget deficit.
The issue is important to the insurance industry because the Bush administration wants to package creation of personal accounts in Social Security for younger workers with a decrease in retirement benefits for them, and the insurance industry will insist during the upcoming negotiations that its products be part of the mix of offerings to be made available under private accounts.
But Jack Dolan, a spokesman for the American Council of Life Insurers, said the issue of private accounts under Social Security is different than another Bush administration idea likely to surface in 2005, creation of Lifetime Savings Accounts. LSAs are separate because they are in reality “hot savings accounts” that allow individuals to tap their tax-free savings at any time for any purpose.
“They are a bad idea,” Dolan said. “People need to be encouraged to save for the long term, especially when you consider the potential changes in Social Security, coupled with Americans increasing longevity.”
David Walker, comptroller general of the GAO, told a conference of the American Institute of Certified Public Accountants that a moderate restructuring of Social Security might not be as painful as expected.
Walker said that introducing changes for younger workers while leaving benefits
intact for imminent retirees could blunt the overall impact because older workers already expect cuts
and younger workers are not counting on Social Security to the extent current retirees do. “That means everyone will get more than they think,” he
said. However, he said, a White House proposal to allow workers to maintain individual retirement investment accounts within the Social Security system might not be enough on its own.
“Personal accounts are not a panacea,” he said. Other changes he suggested include raising the retirement age or lowering the “replacement rate,” which compares Social Security benefits with pre-retirement income.
Walker said change was necessary because the ratio of aged to the total U.S. population was rising from less than 10% in 1950 to a projected 20% or more by 2075; the elderly dependency ratio is projected to rise from less than 15% in 1950 to 30% or more by 2075; and that both will occur while the percentage growth in the U.S. labor force is declining from about 2.25% in 1970 to a projected less than 0.5% in 2080.
He also cited statistics showing that Social Security and Medicare/Medicaid spending totaled 30% of federal spending in 1984, and 41% in 2004, largely due to larger Medicare/Medicaid spending.
“We face large and growing structural deficits largely due to known demographic trends and rising health care costs,” Walker said, adding “the sooner we get started, the better. Less change would be needed, and there would be more time to make adjustments.”
Reproduced from National Underwriter Edition, December 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.