May 16, 2012

United States Senate
Washington, DC

Dear Senator:

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I urge you to oppose a number of Fiscal Year 2013 Budget Resolutions that are to be considered by the Senate this week . Rep. Paul Ryan and Senators Patrick Toomey, Rand Paul and Mike Lee’s Budget Resolutions, all of which are similar in their primary thrust, would be devastating to today’s seniors and future retirees, people with disabilities, spouses, survivors and children due to the proposed changes they make to Medicare, Medicaid, Social Security and other programs. Indeed, the additional tax cuts for the very wealthy that are included in these budget resolutions should not be paid for by middle and lower income Americans. In addition, we are concerned about proposals in Senator Jeff Sessions’ Budget Resolution which would shift costs to Medicare beneficiaries and would adversely affect low-income seniors if Medicaid payments to states were determined by a blended rate.

The Medicare “premium support” proposals included in the Ryan, Toomey and Lee Budget Resolutions would privatize Medicare and shift costs to Medicare beneficiaries . Under these proposals, individuals who become eligible for Medicare in the near future would not enroll in the current program, which provides guaranteed benefits. Rather, they would receive a voucher, also referred to as a premium support payment, to be used to purchase private health insurance or traditional Medicare through a Medicare exchange. The annual growth in Medicare spending would be limited to a growth rate that would likely be lower than the growth in health costs. This would mean that beneficiaries would be subject to additional out-of-pocket expenses because the amount the federal government would provide for their voucher would be limited.

The Ryan and Toomey budget resolutions call for private plans to provide benefits that are at least actuarially equivalent to the benefit package provided by fee-for-service Medicare. This gives private companies the ability to tailor their plans to attract the youngest and healthiest seniors, even if payments are “risk adjusted” to take health status into account, which would leave traditional Medicare with older and sicker beneficiaries. Their higher health costs could lead to higher premiums that people would be unable or unwilling to pay and thus to a death spiral for traditional Medicare. This spiral would adversely impact people who are currently enrolled in traditional Medicare, despite the authors’ assertions that nothing would change for people who are already 55 and older.

Senator Rand Paul’s budget would end Medicare in 2014 for all seniors and place them in the Federal Employees Health Benefits Program (FEHBP). The current Medicare fee-for-service program would no longer be an option for seniors. Like the Ryan plan, seniors would receive a voucher to cover a portion of costs, rather than a defined benefit as under current law. This approach would cut federal Medicare spending by more than $1 trillion over the next 10 years.

In addition to privatizing Medicare, the Ryan and Toomey budgets would increase the age of eligibility for Medicare from 65 to 67 (the Paul budget recommends age 70) and repeal the Affordable Care Act (ACA). Without the guarantees in the ACA, such as requiring insurance companies to cover people with pre-existing medical conditions and limiting age rating, it would be very difficult and expensive for older people who were no longer eligible for Medicare to purchase private insurance. Repealing the ACA would also take away improvements already in place for Medicare beneficiaries – closing the Medicare Part D prescription drug cover gap known as the ?donut hole,? providing preventive screenings and services without out-of-pocket costs, and providing an annual wellness exam.

Senator Jeff Sessions’ budget would shift additional costs to Medicare beneficiaries. Over half of Medicare beneficiaries have incomes below $22,500 per year, and they are already paying 27 percent of the average Social Security check for Part B and D cost-sharing in addition to paying for health services not covered by Medicare. Medicare beneficiaries with annual incomes over $85,000 for individuals and $170,000 for couples are paying higher income-related premiums. We are troubled by the view that people will make wiser choices about using health care services if they have to pay more of the cost. Rather, we believe it is likely that these additional costs could lead many seniors to forego necessary care, which, in turn, could lead to more serious health conditions and higher costs down the road.

The Ryan, Toomey, Paul and Lee budget plans include reductions to Medicaid funding that would affect low-income seniors . Older adults and people with disabilities account for two-thirds of all Medicaid spending and represent about 1 in 4 enrollees .  The proposed changes to Medicaid, turning it into a state block grant program, would affect older Americans by jeopardizing the availability and quality of nursing home care as well as long-term services and supports in the community.  Low-income seniors’ ability to receive Medicaid assistance to help pay their Medicare out-of-pocket costs would also be impaired.  In short, block grants do nothing to change Medicaid’s underlying program costs and shift more of the cost burden to beneficiaries and states .

The Sessions’ budget applies a Medicaid blended rate that could affect low-income seniors. Medicaid pays for about 62 percent of all long-term services and supports.  Currently, the federal government pays a portion of each state’s Medicaid costs for eligible individuals.  The state’s federal match is based upon the state’s relative wealth, and states with more low-income people receive a higher federal match.  The Sessions’ plan would “blend” Medicaid rates with the rates received from the federal government for the CHIP health program for children.  This blended rate would be specific to each state, and would automatically increase if a recession forces enrollment and state costs to rise, beginning in 2017.  The National Committee is concerned that this could jeopardize the availability and quality of long-term care both in nursing homes and the community as well as low-income seniors’ ability to receive assistance through the Medicare Savings Programs, which help pay for their Medicare out-of-pocket costs.

The budget plans offered by Rep. Ryan, Senator Paul and Senator Lee include provisions that ultimately would result in drastic reductions in Social Security benefits. Starting with the Ryan budget, it includes a new trigger mechanism that would force the development of proposals to cut Social Security and facilitates their enactment by allowing Social Security changes to be made through Budget Reconciliation legislation. The proposed trigger mechanism would compel Congress and the President to make proposals addressing the long-term financing of Social Security on the basis of an arbitrary and uncertain 75-year actuarial horizon. In addition, these plans would eliminate the 60 vote majority required to make Social Security changes in the Senate. Including benefit cuts in Budget Reconciliation legislation without this protection would enable the Senate to make such cuts with 51 votes rather than 60. Incorporating Social Security into Budget Reconciliation procedures would signal to America ‘s seniors that Congress is more likely to cut Social Security benefits. As such, we oppose the proposal to authorize Social Security changes through Budget Reconciliation.

In addition, the budget plans advanced by Senators Paul and Lee take a more direct approach in slashing Social Security.

The budget proposed by Senator Paul includes a plan that would substantially reduce Social Security benefits by increasing the retirement age and making the benefit formula less generous for most workers. Beginning in 2017, the plan would increase the normal retirement age by three months each year until it reaches age 70, and then index it to life expectancy thereafter. The plan would also increase the early retirement age with no hardship exemption. This proposal is far more aggressive than other proposals to increase the retirement age. For instance, the Paul plan would increase the retirement age to 70 in about 20 years, while the Fiscal Commission plan called for increasing the retirement age to 69 over about 60 years. The Paul budget would also apply “progressive indexing,” which indexes initial benefits to the CPI instead of wage growth for career average earnings above the 40th percentile (earnings of about $33,000 in 2012). This change would be phased in from 2018 through 2055. It would lead to a flattened benefit structure as the difference between benefits for a high earner and a middle earner narrows. Overall, this plan would cut benefits for the average earner by 39 percent.

The budget plan proposed by Senator Lee is similar to that of Senator Paul. It proposes to increase the normal retirement age to 68 for workers born in or after 1959, an unconscionable proposal in light of the fact that these workers are in their early 50’s and would have to make massive changes in their retirement planning to accommodate such an abrupt change. Toward the end of the century, the retirement age under Senator Lee’s plan would verge on 70. Even more extreme, Senator Lee also proposes to increase the early retirement age. Currently 62, the Lee proposal would increase the early age of eligibility to 65 for workers born in or after 1964.

Both Senators Paul and Lee advocate using the chained consumer price index, or CPI, to determine cost-of-living adjustments (COLAs) for Social Security. This is nothing more than a cut in benefits masquerading as a technical change. In fact, the chained CPI will permanently cut COLAs for generations of retirees and the disabled, including those already on the rolls, making it harder and harder for them to make ends meet. Studies have shown that over time switching to the chained CPI will cut benefits annually by a total of almost $1,400. We agree that it is critical that the COLA be calculated based on an accurate formula. But if accuracy is really the goal, Congress should change to a COLA formula that more accurately factors in the large health care expenses most seniors face. If that is the goal, then the Bureau of Labor Statistics’ CPI for the Elderly, rather than the chained CPI, is the most appropriate measure of inflation.

The National Committee urges you to oppose the budget resolutions being considered by the Senate, which would be extremely harmful to seniors, people with disabilities, spouses, survivors and children. We look forward to working with you on proposals to strengthen Medicare and Medicaid that do not shift burdensome health care costs to beneficiaries, as well as proposals to provide adequate funding to programs of importance to the retirement and health security of middle and lower income Americans.


Max Richtman
President & CEO