Obama’s attack on Social Security and Medicare

by Dave Lindorff
Summer 2011

(appearing in Hopeless: Barack Obama and the Politics of Illusion, edited by Jeffrey St. Clair and Joshua Frank)

When Barack Obama was running for president, back in 2008, he was pretty definite about his seemingly progressive position on Social Security. While he conceded the arguable point that Social Security faced a crisis several decades hence, he also claimed, both on the stump and in debate with Hillary Clinton, that he was opposed to benefit cuts and to privatization. He also insisted at that time that the answer was to raise the cap on income subject to Social Security taxation, and he declared himself opposed to the idea of putting some “commission” in charge of coming up with a “solution.”

What a difference getting elected makes, especially when you get elected with the help of truckloads of money from Wall Street financial interests.

No sooner had Obama moved into the White House, than he changed his tune and began suggesting, in what has proved over the next two and a half years of his presidency to be his “negotiation” style, which is to give away 90% of the ground before you start to negotiate, that he was open to discussing benefit cuts. He also did a 180-degree turn and announced that he would appoint a deficit-reduction commission to come up with recommendations. When he appointed that commission, he announced in advance that he would be “agnostic” toward any recommended changes, including cuts to Social Security, thus telegraphing in advance, in case the commission members needed encouragement, that he was ready to undermine this key New Deal legacy.

Medicare was tossed into the same hopper. In fact, in the case of Medicare, it got worse. Obama had campaigned for office claiming that he would fix the nation’s disastrous health care system, which for decades now has featured the highest cost and the highest rate of cost inflation, as well as some of the poorest health statistics (life expectancy, infant mortality, etc.) in the developed world, all the while leaving some 40% of the population uninsured and without access to basic care. There was an easy fix to all these problems right in front of him–one which the majority of Americans, and the overwhelming percentage of those who had voted for Obama in November 2008, have consistently told pollsters they favored: extending Medicare to cover everyone, instead of just those 65 and older.

Medicare, while it is hardly perfect, and has been weakened by Congressional restrictions on its ability to negotiate volume discounts for drugs and pharmaceutical products, and by privatization schemes that give huge subsidies to private insurers like Aetna and Humana that compete with Medicare, has nonetheless demonstrated for years that it can deliver quality care fare more cheaply to everyone eligible for it than can private insurers. It has an administrative overhead of just 4%, compared with over 20% for private insurers, and doesn’t operate by trying to deny care, as private insurers do.

It is undeniable that if Medicare were simply expanded to cover all Americans, the result would be immediate and massive savings to both the general public and employers, and even for taxpayers, since it would eliminate the need for hundreds of billions of dollars currently spent annually on veterans’ medical care, on Medicaid care for the poor, on subsidies and reimbursements to hospitals for the so-called “charity care,” and most importantly, on the hidden subsidies for such charity care. These are hidden in the inflated fees charged by hospitals and doctors to insured patients and in the inflated premiums that their insurers charge to cover those inflated fees.

Yet when President Obama assembled a session with health care industry representatives at the White House to help him develop a health care reform plan, he deliberately excluded advocates of the idea of Medicare for all, or what has been called “single-payer,” or alternately the Canadian-style health system, even barring representatives from the doctors’ organization Physicians for a National Health Plan (PNHP).

The fix was in, Obamacare was to be a plan constructed around the needs and interests of the health insurance industry, not around the needs of the people of the country.

Worse yet, Medicare, which is tasked with financing care of the sickest and most costly portion of the population–the disabled and the elderly–was left holding that bag, and even suffered cuts to help finance the additional costs embedded in Obamacare. Not surprisingly, having left Medicare out in the cold, the White House now is talking about cutting what is clearly one of the country’s most successful programs–one that even had Tea Party activists defending it during the health care debates, with their oxymoronic signs saying: “Keep your government hands off my Medicare!”

For four decades Canada has been successfully operating a health care system (called Medicare!), which, exactly like the U.S. Medicare program, is based upon private physicians, free doctor and hospital choice for patients, and which like Medicare in the U.S. remains hugely popular among Canadians and among Canadian businesses, and which covers everyone, at a cost of just over half, in terms of percent of GDP, of what the U.S. spends on health care.

How can it be that the White House, when it was developing its health reform plan, never even invited any of the Canadian system’s administrators and advocates down to Washington to explain how they do it north of the border?

Obama even lied about its relevance, at one point back in 2009, during an address to a joint session of Congress. He conceded that a single-payer system like Canada’s might work well in some countries, but then said,

Since health care represents one-sixth of our economy, I believe it makes more sense to build on what works and fix what doesn’t, rather than try to build an entirely new system from scratch.

Of course, he was dissembling. It wouldn’t be “from scratch,” since we already have a “Canadian-style” system in place for our elderly. It’s called Medicare, and people love it.

The obvious and unavoidable answer is that this president has no interest in finding, or even in hearing about, the obvious solution to the nation’s crisis in health care, which is now costing over 17% of GDP, when it costs just 10% of GDP in Canada, 12% of GDP in France, 11% of GDP in Germany, 8% of GDP in Japan and the UK, and 9% of GDP in Italy. He is interested in finding a solution that will ingratiate him with the insurance industry, the pharmaceutical industry, and the AMA–the most retrograde, greedy, and self-aggrandizing group of doctors you could find–all big contributors to his 2008 campaign.

And so we had the Deficit Reduction Commission, which was headed by two known enemies of Social Security and Medicare, Erskine Bowles and former Wyoming Senator Alan Simpson (who famously said, while serving as co-chair of the commission, that Social Security was “a milk cow with 310 million tits”).

This commission, quite predictably, came out with “rescue” proposals that featured raising the retirement age for Social Security, reducing the benefits for future retirees, and “adjusting” the methodology for accounting for inflation in setting benefit payments for current and future retirees (a downward adjustment, of course)–a sneaky and invisible way of slowly diminishing the benefits paid over time.

And on Medicare, we had the wacky and thoroughly inhumane proposal to raise the age of eligibility from the current 65 to 67. After all, if employers continue to lay people off at 65, as they certainly will, and as people leave their jobs, often not because they want to but because they are no longer physically capable of doing them (think truck and bus drivers whose vision is failing, or manual laborers whose backs, legs or hearts are giving out), what are these retirees to do when they lose their employer-provided health insurance and their incomes, and yet still have to wait 2 years to get access to medical care through Medicare?

(The idea is not even good for business, since the likelihood is that workers, knowing they would be on their own after retiring, would push forward any needed major medical procedures, such as a disk repair or a hip replacement, getting it done on the company plan before they lose it.)

Actually, it is at the other end, among the so called “old old,” where all the costs are to be found. The oldest 10% of Medicare recipients are responsible for about 90% of the entire Medicare budget. People in their late 60s tend not to need all that much care, relatively speaking. In fact, lowering the age of Medicare eligibility would add incrementally less to the program’s cost on a per-person basis as you move down in age from 60 to 50 to 40 to 30. It is only when you get to young children, and to women of child-bearing age, that per-person care costs start to rise again.

If Obama really wanted to cut Medicare’s costs significantly, then instead of making people aged 65 to 67 ineligible, he should make those over 90 ineligible. Obviously this would be viewed by the public as heartless, so he can’t do it, and is hoping that raising the entry age to the program will somehow prove more acceptable. Yet the rationale of axing one age group from access to the program is the same.

Unmentioned, of course, is the harsh reality that raising the age of eligibility for Medicare, besides meaning some people will just go untreated for medical conditions like heart problems, cancer, and diabetes, simply shifts most of the costs of care of those people onto the states’ struggling Medicaid programs, and onto the children of those who have been forced to wait for their Medicare.

But logic, economics, and humane public policy are clearly not considerations in this White House, any more than they were in the Bush/Cheney White House that preceded it. The political calculus is all about pleasing the business interest groups that have the money to give to a reelection campaign. And that would be primarily the insurance industry in the case of Medicare, and the Wall Street gang in the case of Social Security.

The saga of the wholly artificial debt-ceiling “crisis” and of the alleged “crisis” of the nation’s ballooning national deficit, were both just part of a Washington Kabuki theater set-piece in the long campaign by corporate interests to undermine and ultimately destroy Social Security and Medicare.

In truth, the debt ceiling has always been a contrivance for cutting popular social program spending. No other nation even has a debt ceiling. Their legislative bodies just pass budgets and their treasuries just make their principal and interest payments on any debt, as required to maintain a sovereign debt rating. Meanwhile, while it is true that this nation’s overall debt has risen dramatically since 2000, the reason has nothing to do with either Medicare or Social Security, which have, all through the past decade, been taking in more money than they pay out. The debt has risen for several key reasons, none of which is being addressed by either President Obama or the two political parties in Congress.

The first of these is military spending, which annually consumes more than half of all tax revenues collected by the Treasury. The wars that the nation is currently engaged in are being fought on borrowed funds, because the government warmongers, knowing the unpopularity fo these bloody adventures, has been afraid to ask the taxpayers to pay for them directly. One way they have borrowed to cover these enormous expenses is by quietly borrowing from Social Security and Medicare trust funds–the monthly tax which workers pay out of each paycheck, matched by their employers, and which now total $2 trillion, but which are required by law to be invested fully in Treasury bonds, meaning they are lent to the federal government.

Get it? The White House and Congress, for decades, have been collecting our FICA and Medicare taxes, and then taking that money to fund their wars, giving the two trust funds Treasury bills in exchange for which they have promised to pay interest. But now they are turning around and complaining that the interest money is a “burden” on the taxpayer, and that it has to be reduced.

That’s why the Congressional Budget Office in its 2011 report on the Social Security trust fund claimed that it was running a $45 billion “deficit” this year for the first time. It was a point that allowed Obama and the gang in Congress that is gunning for Social Security and Medicare to declare a crisis and to call for cuts in benefits. But the truth is, between the FICA taxes paid into Social Security by current workers and the interest payments paid by the government, the fund was actually running a surplus of $2.6 trillion.

Actually, the deception on the part of the CBO staff was even greater. In 2010, the White House got Congress to agree to “grant” workers a temporary 1-year reprieve of 2% of the 7% normally paid out of every check into the Social Security trust fund. The idea was supposed to be that this would work like a 2% tax cut, which would then put more money in the hands of consumers, who would then go out and buy stuff and stimulate the economy. But in the act of staggering betrayal, these same politicians turned around and are now claiming that the $85 billon that the government paid into the trust fund to cover the missing employee tax payments meant the system was in deficit, and thus benefits needed to be cut. That is, the extra money they said they were “giving” workers as a tax “cut” would actually be coming out of their retirement benefits later, and would also be used as a justification for attacking the Social Security system.

It really doesn’t get more obscene than this.

The other reason for the nation’s huge deficit increase over the decade is the ongoing Bush tax cuts for the wealthy and for corporations, which could have been killed easily by an Obama veto, since they expired in 2010. But Obama has chosen to allow them to continue. Oh, he complains about them, but he had all the power he needed to end them. With only a narrow majority in the House and with Democrats in charge of the Senate, Republicans could never have managed to override, even with the votes of some conservative Democrats.

There is no question but that the Social Security System, which has been piling up surpluses since 1981 to cover the coming tsunami of the Baby Boomers into retirement, is going to come up short without some additional revenue–reportedly by 2037. People are living longer than anticipated, which should be seen as a good thing, not a crisis. But President Obama knows this is not a crisis. As he used to say, back when he was a candidate, it’s a problem that can be easily solved if addressed now, by simply eliminating the cap on income subject to Social Security taxation–a cap that currently exempts all income above $106,000!

In fact, the U.S. is at the low end of developed nations in terms of the percent of retirement income provided by public pension, with the average American having Social Security cover only 40% of their retirement expenses. That percentage could be easily raised, and more of our low-income elders who have no other resources, could be lifted out of abject poverty, if Congress and the President agreed to a stock transfer tax dedicated to Social Security, and if Social Security taxation, currently applied only to wages and the Schedule C profits of small businesses, were applied to investment income, or what the IRS calls, with no sense of irony, “unearned” income.

There are easy solutions for the financial problems facing both Medicare and Social Security. But both are political problems, not actuarial ones, as Obama and the lobbyist-owned members of the two parties in Congress are trying to have us believe.

Despite a current barrage of misleading news reports on both issues, polls show that a majority of Americans instinctually get it and know that the solutions are

  • an expansion of Medicare to cover all Americans, and
  • an increase in taxes on the rich to fully fund Social Security.

It is an indictment of the American political system that despite this clear public preference, President Obama and the elected Representatives and Senators in the Congress, are not even discussing either approach.

Dave Lindorff is the author of Killing Time and The Case for the Impeachment of George W. Bush. He edits the blog This Can’t Be Happening.