Medicare and Social Security Successful Despite Privatization Rhetoric

Today's retirees can find solace in the guaranteed benefits of Medicare and Social Security. These tremendously popular programs have helped to lift millions of elderly Americans out of poverty and allowed them to retire in dignity and in decent health. Despite their success, however, Medicare and Social Security face growing threats from those who want to cut benefits and dismantle large parts of these important programs through privatization.

• The new Medicare law was the single biggest factor in the rapid deterioration of the Medicare trust fund. Administration officials tried to hide this fact by offering up a red herring, stating that the seven year deterioration in the Medicare trust fund was "not caused in any way by the creation of the Medicare prescription drug program." That statement deliberately ignores the effects of the rest of the new law, including dramatic increases in payments to private plans. In fact, the new Medicare law accounts for two years of the seven year difference – as big a negative impact as the combined effects of lower revenues and higher health costs.
• Privatization increases rather than decreases Medicare costs and worsens the program's financial outlook. The new Medicare law removed any pretense of privatization saving money. The new Medicare law has already increased overpayments to private insurers to 107 percent and may eventually lead to overpayments of 125 percent or more. Both Congressional and administration experts agree that private plans cost more than traditional Medicare. The Medicare trust fund suffers as a direct result.
• President Bush should abandon his radical privatization agenda. The trustees report clearly shows that the drive to lure seniors out of traditional Medicare and into private health plans results in the deterioration of the Medicare trust fund and raises costs substantially for seniors and tax payers. The president's ill-advised Medicare legislation should serve as warning that Congress needs to protect Social Security from a similar fate. In the wake of the President's Commission to Strengthen Social Security, experts estimated that allowing workers to put 2.5 percent of payroll into individual accounts would cost Social Security $3.1 trillion in 2001 dollars. This shortfall would have to be covered by tax payers. Also, individual accounts would incur administrative costs that could deprive workers of tens of thousands of dollars in savings during their working lives.

Daily Talking Points is a product of the Center for American Progress, a non-partisan research and educational institute committed to progressive principles for a strong, just and free America.