America’s entitlement programs have seen an exponential rise in costs, leaving millions of workers and retirees in a precarious position. They restrict workers’ opportunities while leaving them susceptible to health care or financial crises.
America’s mounting entitlement crisis threatens future generations with security and wealth. Congress can reduce these rising expenses by passing thoughtful, commonsense reforms sooner rather than later.
Social Security
Most workers contribute to Social Security through a payroll tax. Employees and employers each pay 6.2% of wages up to $142,800 earned per year, with an increased rate for self-employed individuals. These revenues are invested into a trust fund at Social Security that pays out benefits immediately upon eligibility.
Benefits under this program are calculated based on its Program Index Adjustment (PIA), which is index-indexed for inflation. It takes into account factors like each worker’s average monthly earnings before retirement and adjusts it according to cost-of-living increases so that each retiree receives a benefit amount that remains constant over their lifetime.
Many people worry that they won’t have enough money when they retire to cover living expenses. This may be due to a situation known as “dual entitlement,” in which someone collects both retirement and spouse benefits from Social Security.
Women often face unique challenges when it comes to dual entitlement, as they typically earn less than men and take more time off work. Furthermore, they tend to have smaller savings accounts, accumulate fewer pensions, and receive smaller benefits than men do. It is no wonder then that dual entitlement has become so important for these groups of individuals.
Good news: Social Security isn’t expected to run out of funds anytime soon. Unfortunately, if Congress fails to address its fiscal problems through thoughtful reforms, the program could face future fiscal strains. Policymakers will have to choose between benefit cuts or tax increases in order to finance these changes – a difficult choice given the growing national debt. Fortunately, there are relatively modest solutions that could put Social Security back on solid financial footing without increasing government expenditures.
Medicare
Medicare is a health insurance program that covers hospital stays, care in nursing homes or hospice, doctors’ services and medical supplies. It also pays for certain prescription drugs and helps cover some preventive healthcare costs.
Medicare, unlike private health insurance, is managed by the Centers for Medicare and Medicaid Services (CMS). It consists of several components: Part A covers inpatient hospital stays; Part B pays for doctor’s services; and Part C provides supplemental coverage (Medicare Advantage plans) to cover both doctor’s services as well as other expenses.
The program is funded through two trust funds. One set aside specifically to receive Medicare payments, while the other draws upon non-dedicated revenue sources.
In 2018, Medicare expenditures totaled $740 billion, or 3.7% of GDP. While this represents a relatively small part of the federal budget, it accounts for an astronomical amount in terms of our national debt.
Beneficiaries must pay a monthly premium for each part of the program they access, along with co-insurance and deductibles. Furthermore, beneficiaries may need to pay an increased premium if their income exceeds $85,000 for individuals or $170,000 for married couples.
However, many beneficiaries don’t have to pay this additional premium. Some have been able to reduce their costs by signing up for an affordable Medicare Advantage plan (which covers both Parts A and B).
Additionally, the actuarial literature indicates that beneficiaries have seen significant decreases in high-cost catastrophic medical spending after becoming eligible for Medicare. These reductions are largely concentrated at the top of the spending distribution, with particularly large drops at seventy-fifth and ninetieth percentiles.
Medicaid
Medicaid is a health insurance coverage program for low-income individuals funded by the federal government. States design their eligibility standards, benefit packages, provider payment policies and administrative structures according to broad guidelines; making it an intricate program with many variations in how it’s run.
In contrast to Medicare, which uses a single national income limit, Medicaid has income limits that differ by state. This policy is known as “continuous eligibility.” It offers protection to individuals whose circumstances change slightly and makes it easier for them to maintain coverage.
Medicaid can cover many basic needs, such as dental and vision care for many Americans; however, others require more intensive treatments. People suffering from mental illnesses, opioid use disorders, or serious chronic physical ailments may require prolonged hospitalizations in order to receive the necessary care.
Medicaid can be an expensive program for many beneficiaries. It may not be accessible to people in the middle class and has a significant cost share for states and hospitals. As a result, Medicaid becomes an unaffordable option for many.
Due to this, the Affordable Care Act (ACA) established an income-based eligibility cap for non-elderly adults. This limit sets people to an income level that is higher than their state’s average monthly Medicaid rate but lower than poverty – commonly referred to as “income-based coverage.”
Another ACA policy safeguards enrollees from sudden loss of coverage due to minor changes in income or other factors. This is known as “income-based coverage” or “continuous eligibility.”
Some states have implemented work requirements on their Medicaid programs. While some people already work or qualify for exemptions, these policies will create significant bureaucratic obstacles for many adult enrollees, particularly sick or disabled individuals, parents, caregivers and children. If implemented, these regulations could result in many losing coverage and have an adverse impact on access to care as well as health outcomes.
Supplemental Security Income
Supplemental Security Income (SSI) is a federal program that provides monthly cash payments to low-income older adults and people with disabilities who have limited resources and income. While administered by the Social Security Administration (SSA), SSI does not form part of Social Security retirement benefits and it’s funded through general revenue rather than payroll taxes.
SSI is a means-tested program, meaning it evaluates eligibility based on financial need rather than disability or work history. Those receiving SSI must submit to periodic reviews known as SSI redeterminations for further consideration.
The Supplemental Security Income (SSI) program is vital to low-income older and disabled individuals who are often at risk of economic and social disadvantages. Unfortunately, SSI has a long-standing structural issue that leaves many of its beneficiaries facing inequity.
By 2022, an estimated 7.6 million Americans will have received Supplemental Security Income (SSI). This program assists those over age 65, blind or disabled who have little to no income and resources.
These beneficiaries are disproportionately Black, Latino and Asian American; however, white people make up the largest group. Therefore, improving SSI would help close racial equity gaps, provide basic necessities to low-income older and disabled individuals and enhance their quality of life.
SSA uses a complex formula to decide whether someone qualifies for Supplemental Security Income (SSI). It takes into account factors like income, pensions and regular Social Security benefits as well as how much an individual owns up to $2,000 individually and $3,000 jointly.
Recently, the Social Security Administration approved a cost-of-living adjustment for Supplemental Security Income (SSI). This marks the fourth biggest increase since 1981 and will increase benefit amounts for singles and married couples by 8.7% through 2023.
Pensions
A pension is a set amount of money you will receive upon retirement, calculated based on your final salary and how long you worked for your employer. However, the exact amount depends on the terms and regulations set by the business.
Private companies’ pension plans must comply with the Employee Retirement Income Security Act (ERISA). Companies are required to offer such plans and ensure adequate funding is available; additionally, they must insure their pensions through the Pension Benefit Guaranty Corporation.
Private pension funds tend to be more financially secure than public pensions due to their legal protections. Unfortunately, many private pension funds are severely underfunded.
Furthermore, many companies are struggling to stay afloat and some have frozen their pension plans so new employees cannot access them. Although the financial repercussions of this are uncertain, it appears likely that private-sector DB pensions will decrease in number in the near future.
In addition to the risk of not receiving your benefits, contributing after-tax dollars to your pension could also cost you tax savings. The government taxes contributions made after-tax but does not tax any part of their return if those dollars were invested in annuities or other investments.
Due to this, many people have turned to 401(k) plans as their primary source of retirement income. These plans offer the same advantages as traditional pensions but let you invest your after-tax money in a more flexible manner.
One factor driving the growing popularity of 401(k)s is that they allow you to take out your own money when needed. This makes them attractive to younger employees and they usually provide lower costs than pensions do. When selecting a plan, be sure to take into account your situation and retirement goals as well as consult with an experienced financial advisor about which option would work best for you.
