V I E W P O I N T

Budget Enforcement Mechanisms Threaten Today's and Tomorrow's Retirees

Budget Enforcement Mechanisms under Consideration

In an effort to address the nation's current debt and deficit problem, policymakers are considering a number of budget enforcement mechanisms. These mechanisms would enact budgetary procedures that set limits on the amount of spending by the federal government. Whether through a balanced budget amendment, specific dollar caps on discretionary or direct spending, or caps based on spending as a percentage of GDP, these enforcement mechanisms pose a dangerous threat for retirees both today and in the future.

If enacted and applied to Social Security and Medicare, these mechanisms would require across-the-board spending cuts ("a sequester") to close the gap between projected spending and the level at which the cap has been set, if the cap were to be exceeded. Never before have Social Security or Medicare been included in similar sequestrations. They were exempt from automatic cuts under Gramm-Rudman-Hollings and are exempt under today's Pay-As-You-Go sequestration rules.

Unfortunately, the nation's debt problems cannot be solved by simply establishing spending caps and declaring the crisis over. They require difficult policy decisions weighing which programs would be reduced or eliminated and how beneficiaries of those programs would be affected. More importantly, spending caps do nothing to address the appropriate level of federal revenue, or the $1 trillion in tax expenditures that add to our deficit.

How would sequestration of Social Security and Medicare affect seniors?

Policymakers could avoid across-the-board cuts by making specific reductions to programs to meet established targets before a sequester would occur. However, depending on when the caps are initiated and the level at which they are set, the impact could be immediate, affecting even current beneficiaries. And even if Congress does act and adjust the programs, the reductions would be dramatic if some of the cap levels currently under consideration are enacted.

If a budget enforcement mechanism including Social Security and Medicare is enacted and Congress does not act to avoid sequestration, our nation's seniors may open their mail to find they are being notified of a percentage reduction in their monthly Social Security check. Many of these same seniors rely on Social Security benefits for all or most of their income in retirement, and are already facing the erosion of their primary means of financial support through Cost-of-Living Adjustments that do not fully keep up with inflation, or are not provided at all, as has been the case for the past two years. Cutting their modest benefits through automatic sequestration tied to spending in the rest of government could create significant hardship to millions of seniors who rely on fixed incomes in retirement.

We believe it would be equally unacceptable to subject Medicare to sequesters tied to arbitrary global spending caps. If spending is projected to exceed the caps, the reductions necessary to bring spending under the caps would no doubt be dramatic, almost certainly affecting current beneficiaries and the health care providers who serve them. If Congress fails to act and a sequester ensues, what would happen? Payments to doctors and hospitals would have to be reduced by the percentage necessary to bring spending under the cap levels. Seniors may be asked to pay out-of-pocket for these expenses while many providers, no longer able to tolerate the additional uncertainty in their reimbursement rates, would likely stop treating Medicare patients, potentially leaving millions of seniors foregoing the care that they need.

Additionally, one can only imagine the bureaucracy that would be required to inform beneficiaries, hospitals and physicians of these unanticipated changes in their payments and respond to their questions and concerns.

National Committee Position

The National Committee is opposed to the inclusion of Social Security and Medicare under any sort of budget enforcement mechanism such as a spending cap.

Seniors paid their Social Security taxes during their working years so that they would have a safe, reliable source of income in their retirement. Subjecting them to the vagaries of sequestration, not knowing from one year to the next how much their Social Security benefits might be reduced, all in the name of meeting an arbitrary spending cap level, is a violation of our country's compact with its citizens. Social Security did not the cause the nation's debt problems and Social Security beneficiaries, who worked all their lives and paid into the system, should not be expected to pay for our fiscal mistakes.

We believe subjecting Medicare to spending cap limitations would pose undue burdens on beneficiaries and providers. Although all businesses are subjected to some uncertainty by virtue of the nature of the business cycle, cuts triggered by sequestration would only apply to providers willing to accept Medicare patients. This would place an unreasonable burden on those providing health care services to the elderly and disabled, and could well create a crisis as providers increasingly close their practices to Medicare patients.

Conclusion

We all agree that the nation's debt problems must be addressed, Social Security's long-term financing issues must be solved and health care costs must be brought under control. These problems can be solved by policymakers developing thoughtful solutions to specific problems, not by simply passing laws that mandate across-the-board cuts. These solutions should be developed without placing undue burdens on today's seniors and future retirees.

Government Relations and Policy, May 2011