Statement by Barbara Kennelly, President National Committee to Preserve Social Security and Medicare Youth Entitlement Summit

June 16, 2008

As you just heard, I represent the National Committee to Preserve Social Security and Medicare. The National Committee is an advocacy organization made up of millions of people who believe that Social Security and Medicare are essential if Americans are to avoid a poverty-ridden retirement. My members include both Democrats and Republicans - the one issue that brings us together is the absolute dedication to the preservation of these two critical programs.

I would like to start this morning by discussing briefly why I'm here, and what I believe the debate about the future of our entitlement programs is really about. Some participants in this conference would lead you to believe that they have a monopoly on protecting our younger generation. They look at their charts and budget numbers and conclude that the only way to protect the future is by cutting Social Security and Medicare benefits for tomorrow's retirees. They use language like "legacy interests" to represent projected financial costs to the government of these programs, without considering that there might be other interests of equal value to the next generation.

I'm here to tell you that my members are every bit as passionate about protecting their children and grandchildren as the organizers of this Summit . We oppose privatization because we want to protect Social Security and Medicare for future generations. Believe me, privatizers want to dismantle Social Security - not for this generation of retirees - but for the generations down the road.

Our difference of opinion is not about the ultimate goal - we are all here because we care about what happens to our younger generation. Where we strongly disagree is on how the goal is to be achieved. Organizations such as mine believe that our children will absolutely need programs like Social Security and Medicare when they reach retirement age. We believe that the best way to represent their interests is not to spend our time talking about how to cut these essential programs, but instead in finding ways to make sure Social Security and Medicare are still strong and vibrant decades into the future.

Because we are primarily focused on the needs of our children rather than shrinking the size of government, we are less likely to buy into the 'sky is falling' rhetoric that young people have been bombarded with over the years. I understand that combining Social Security, Medicare and Medicaid all together into one huge catastrophe-waiting-to-happen makes for great theater, but it makes no sense to those of us who work with these programs every day. While all 3 are entitlement programs, that's about all they have in common.

But combining them all together gives you very large and impressive numbers, particularly if you accumulate decades-worth of future projections into one present day number. In a way, it's not that different than projecting the cost of a house today by adding together 30 year's-worth of mortgage and interest payments into one lump sum. If we really shopped for housing that way, we would all still be renting apartments.

A second point I would mention is that to hear many economists today, every baby boomer in the country is going to retire on the same day - creating the well-worn 'silver tsunami' you hear so much about.

The fact is, baby boomers are no different than anyone else - there are simply more of them than the age cohorts before and behind them. And it will take them at least 2 decades before they have all left the workforce. This will create a long-term funding gap for Social Security. But it does not create an insurmountable crisis. You have to understand, baby boomers are not a secret. They didn't creep up on us like thieves in the night. The bulge in that generation has been working its way through society ever since they were born. When they needed schools, this country built them. When they needed housing, this country helped finance them. Their work and sweat helped built the economy that we see all around us today.

Now they're on the doorstep of retirement, and some economists would like us to think this is an unexpected surprise that will plunge us into economic chaos and leave Generation X and those following behind in abject poverty. But baby boomer retirements are not a surprise. As a result of the changes that were enacted in 1983, Social Security will remain solvent until the youngest of the boomers is nearly 80, and even without changes will pay all but about 25% of benefits thereafter.

Many of the people who are complaining today about long-term spending on entitlements were largely silent when annual deficits were increasing and the debt was rising to its current record level. It wasn't too long ago that we were running a surplus which was paying down debt, and economists were wringing their hands about what disasters might befall us if we actually paid all of our debt off. I wish we still had that kind of problem.

I also find it interesting that the only solvency solution presented by President Bush and so many of those who have opposed Social Security over the years is a combination of private accounts and dramatic benefit cuts. I was quite proud of my members , who have been vocal and active in their opposition to private accounts. But their passion was not born from a desire to protect their own benefits. It was an absolute determination to protect the benefits of their children and grandchildren.

Those who promote private accounts have never suggested privatizing Social Security for older people - in fact, they are quite careful to assure everyone over age 50 that they would not be affected by anything they propose.

Instead, those who promote private accounts suggest dismantling Social Security slowly so that it is nearly non-existent for future generations.  These proposals take money out of Social Security to fund private accounts, making Social Security less solvent. They would cut Social Security benefits for future retirees; they would increase the public debt by trillions of dollars over the next half century or more, and they would transfer the risk of a secure retirement to the individual. This does not sound like a youth-friendly agenda to me.

Social Security has been subject to budgetary limitations since its creation in 1935. Every year for 73 years, the Trustees of the Social Security system have laid out the projected income, outgo and balances of the Social Security Trust Funds over a 75-year period. No other expenditure in the federal budget is subject to that kind of discipline. Appropriators look at defense or education spending annually, but Social Security is reviewed with respect to both its income and its spending over a period that is 75-times that long.  

I just want to remind you that, if we looked backward 75 years, it would be 1933. Try to imagine all the economic and demographic events that have happened in that period.

With that kind of long-range discipline, Social Security needs periodic adjustments, but it is not currently in "crisis" as some would have us believe. Due primarily to demographics, Social Security has a "long-term funding gap." That gap, however, is only about 0.7% of GDP. This is roughly equal to the cost of making permanent the Bush tax cuts for the top 1% of Americans.

In 1983, when we really had reached a severe imbalance in Social Security's income and outgo - and we only had about 3 months-worth of benefits in the Trust Fund - we were able to make adjustments to the program. I fully expect we will do that again in the near future.

But before we accept the premise that dramatic cuts in future benefits are unavoidable, let me tell you a few important things you should know about Social Security and its beneficiaries:

1. Social Security is the largest single source of income for older people. For two-thirds of beneficiaries, it represents more than half of their income. Among lower-income people, Social Security is almost 85% of their income.
   
   
2. Social Security pays a monthly benefit that lasts as long as you live. This is particularly important for women who live longer and find their small assets dwindling.
   
   
3. Social Security benefits are modest. Today the average Social Security benefit is only about $12,000 a year.
   
   
4. Social Security acts as a foundation for retirement. For the average retiree, Social Security replaces only about 40% of their pre-retirement earnings. Most retirement advisors suggest that you need to replace 70% to 80% of your former income.
   
   
5. Social Security provides disability benefits for those who lose wages due to a disabling condition and it provides benefits to young spouses and children if a worker dies.

My generation went through some tough times. But what many young people may not yet understand is how much riskier your financial world has become than ours was - and that you will absolutely need a guaranteed Social Security benefit when you reach retirement age.

Without Social Security, fully one-half of today's seniors would be living in poverty. Many of those who support cutting future Social Security benefits believe younger generations will do better - that they will reach retirement age more financially secure than ours did. But those of us who are dedicated to protecting Social Security don't see the future through the same rose colored glasses.

Consider this:

• Employers are shifting away from providing defined benefit pensions for their employees - today traditional pensions cover fewer than 20 percent of private sector workers.
  
• Increasingly workers have only 401(k) plans to choose from and many fail to enroll in a timely way or save sufficiently. In 2007 the median 401(k) balance for a married-couple nearing retirement was about $120,000 for both of them combined. In today's annuity market, that would buy them a guaranteed benefit of about $8,000 a year.
  
• Employer provided retiree healthcare is rapidly disappearing from retirement benefit packages. It is the single largest issue in labor- management benefit disputes in recent years. Last year General Motors sold its retiree health liability to the United Auto Workers and announced that all new hires would no longer have company sponsored coverage post-retirement. They are not the only company making that decision.
  
• Personal debt is at an all time high for Americans approaching retirement and average national savings rates are currently around negative one percent.
  
• Long-term care costs will typically wipe out the savings of most Americans within the first year of a family member entering a nursing home.
  
• If nothing is done, home energy costs will increasingly eat into the disposable fixed incomes of seniors in the future.
  
• And the recent crisis in the housing sector has put at risk millions of families' homes - the largest single asset many Americans have.

A couple of days ago, the Wall Street Journal - not exactly a model of liberal thought – had the following to say about relying on the market for retirement:

"Increasingly, financial planners and researchers are warning clients that the timing of retirement - in other words, the luck of the draw - will largely determine how a nest egg will fare in the future. If you're fortunate enough to retire at the beginning of a strong bull market, such as the early 1990s, your savings might easily last for three decades. If you're unlucky enough to retire at the start of a bear market or recession - say, early 2000 or late 2007 - you could find yourself struggling financially for years to come."

It is this kind of uncertainty in a financially challenging environment that organizations like mine hope to protect our children from experiencing.

Providing retirement income through Social Security is only one of the twin pillars of retirement security. Because health care costs consume increasing amounts of our retirement income, the future of Medicare is critical to a financially stable retirement. I find it ironic that at a time when we are engaged in a Presidential debate about providing decent health care to our working population, the one universal, affordable health insurance program we do have - Medicare - is well on its way to becoming privatized.

Before Medicare was created, seniors were essentially on their own. Because older Americans are virtually guaranteed to draw higher health claims than any other segment of our population, they were mostly shunned by private health plans. When I was in Congress, I represented Hartford , CT - the insurance capital of the world - so believe me, I understand the insurance industry. They are not charities - they have to show a profit to their shareholders and therefore have little interest in insuring those over 65.

Prior to 1965, that left half of all seniors without insurance coverage.

Medicare changed all that . By creating a universal insurance pool, Medicare allowed the previously uninsurable senior population to share their risks, providing affordable coverage where little had existed before .

I'll be the first to admit Medicare isn't perfect, but for millions of seniors it has been a godsend. It provides basic, affordable, universal health care to a population abandoned by private industry. And although Medicare costs are rising for both beneficiaries and the federal government, the increases are not unique to Medicare. Because it is a health care program, it is subject to the same upward inflationary pressures that are forcing many employers to drop their policies and leaving their workers to join the ranks of America 's 46 million uninsured. In fact, Medicare's low administrative overhead and efficiencies of service have helped Medicare's costs grow at roughly the same rate as insurance for the under-65 population, despite senior's higher need for services.

In fact, according to the Congressional Budget Office, the vast majority of Medicare's cost issues in their projections are not due to the aging of the population. They are the result of continued dramatic increases in the cost of health care generally. If the new Administration and Congress are successful at enacting health care reform that slows the rate of growth of healthcare so that it is no longer growing faster than the rest of the economy, Medicare's long-range financial deficit could be cut by more than one-half.

Instead of strengthening this critical program, this Administration and the previous Congress put it well on the road to privatization with the ill-named Medicare Modernization Act of 2003. The MMA began the move toward privatization by creating a Medicare drug benefit that could only be purchased through private insurance companies. The Part D program has been confusing, and while individual seniors may have saved money because the government now subsidizes a portion of their drug purchases, it has done little to curb the growth of prescription drug costs.

In addition, the MMA created what is now known as the Medicare Advantage program. Medicare Advantage is private health care being sold to seniors under the umbrella of the Medicare program. It is being subsidized to the tune of billions of dollars each year - with the federal government paying about 17% more for each beneficiary covered than it would pay if that beneficiary had stayed in traditional Medicare. Medicare Advantage plans are also designed to draw younger and healthier seniors, breaking up the universal risk pool that makes Medicare work. In time, the traditional program will no longer be affordable, and millions of seniors will again join the ranks of the uninsured.

Some of the same people who insist that Medicare needs to be cut, don't seem to have any problem with the government spending billions of dollars to subsidize private insurance participation in the Medicare program. The inconsistency of that argument is not lost on groups like mine, and I hope it isn't lost on the young people participating in this Summit .

Many who promote cuts in Medicare have bought into the caricature of older people spending their golden years playing golf and traveling around the world. In fact, about 70% of Medicare beneficiaries have incomes under $25,000 and 85% have incomes under $40,000. Almost two out of three elderly households have incomes under $20,000, and they are already spending 30-50% of their incomes on health care.

Arbitrarily cutting Medicare without getting at the root of the continuing upward trend of health care costs isn't a hypothetical financial exercise. It will have real impacts on real people - most of whom have nowhere else to go for coverage and limited options for increasing their resources.

I would like to conclude by saying that groups such as mine hardly have our "heads in the sand" as some people like to say. We recognize the need to fix Social Security and Medicare's funding gaps. In fact, I would argue we are more financially aware and responsible than many on the other side, considering we have a long history opposing the deficit spending that has created today's record federal debt.

We simply believe that this nation's priorities absolutely must include a strong and vibrant Social Security and Medicare program as the foundation of a secure retirement for all Americans.

I find generational warfare biased, since it completely ignores the many ways in which the generations are interdependent. I also find the resurgence of the entire generational equity debate terribly counterproductive. Instead of pitting the generations against each other, our nation would be much better served if some of our bright young people would realize that any successful industrialized nation must have a social insurance component - and if they would put some of their tremendous energy toward supporting what has been a successful social compact between our citizens and their government.

It's not easy balancing individualism with community, but both are essential to the social fabric that holds our country together. There's a reason the mantra of the 'ownership society' does not have more believers - it's because real people understand the 'hazards and vicissitudes of life' that programs of social insurance were designed to protect against because they experience them every day.

The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.