On April 10, 2013, President Obama submitted his Fiscal Year (FY) 2014 budget to the Congress. This budget proposes a total spending level of $3.78 trillion in FY 2014 and calls for over $1 trillion in budget reductions that include some unacceptable proposals. This paper summarizes some of the key proposals affecting seniors in the President’s FY 2014 budget.
Unlike previous budgets, the President’s FY 2014 budget targets Social Security benefits as a means of reducing the deficit. Despite the fact that Social Security has the financial resources to pay all benefits through 2033, Social Security benefits are targeted in this budget for substantial cuts by adopting the “chained” consumer price index (CPI) for the purpose of calculating Social Security cost-of-living adjustments, or COLAs.
The Administration characterizes this switch as a technical adjustment. However, using the “chained” CPI will substantially reduce the Social Security benefits of current and future beneficiaries. The amount of the reduction is substantial. Three years after enactment, a typical 65 year-old would see a decrease of about $130 in Social Security benefits. At age 95, the same senior would face a 9.2 percent reduction—almost $1,400 per year.
While all beneficiaries will feel the impact of this change, its effect will be greatest on those who draw benefits at earlier ages (e.g., military retirees, disabled veterans and workers) and those who live the longest. These are often women who have outlived their other sources of income, have depleted their assets, and rely on Social Security as their only lifeline to financial stability.
Seniors and others receiving benefits recognize that the current COLA already undercounts the higher inflation they experience because they spend a disproportionate amount of their income on health care. A lower COLA will make it increasingly difficult for current and future generations to make ends meet.
Would this new “chained” CPI be more accurate? We do not think so. And despite words to the contrary, the White House also knows this new formula is not more accurate for seniors, which is why it has promised exemptions and benefit “bump-ups” to try and soften the impact. But it still leaves millions of seniors facing benefit cuts, breaking the promise President Obama made to protect America’s middle class families.
An especially problematic aspect of the “chained” CPI proposal in the President’s budget is that it disproportionately affects communities of color. African American retirees would be negatively affected by the cuts stemming from the “chained” CPI because they rely heavily on Social Security benefits for retirement income. And because, on average, they have shorter life expectancies than other Americans, they would benefit less than other Americans from the benefit bump-ups that are proposed for people who have been on the rolls for many years.
Clearly, it will be up to members of Congress to set fiscal priorities that actually represent the needs of the average citizens they were elected to represent. The vast majority of Americans, of all political parties, oppose cutting Social Security and Medicare to reduce the deficit. The National Committee calls on all members of Congress to reject the Administration’s proposals to cut seniors’ Social Security benefits.
The President’s budget includes a number of legislative proposals that, unlike the “chained” CPI, would strengthen the Social Security Administration’s (SSA) ability to administer the Social Security program. Among them are proposals to allow SSA to develop and test improvements to the disability insurance program, provide assured and adequate funding for program integrity activities, and extend the period of time during which individuals admitted to the U.S. on humanitarian grounds can receive Supplemental Security Income.
We are pleased to see that funding to restore the mailing of annual Social Security statements has been included in the President’s request. These statements provide workers with information about the Social Security program, including a benefit estimate as well as information about the amount of wages that have been reported to a worker’s Social Security earnings record. Provision of these statements to the 156 million workers who are supporting Social Security with their contributions is required by law.
SSA’s Administrative Funding
With SSA’s enormous workloads and challenges, the President is requesting $12.3 billion for SSA’s FY 2014 appropriation for administrative funding, a seven percent increase over the 2012 enacted level. The President’s budget request for SSA in FY 2014 exceeds the agency’s recommendation by $68 million, and establishes a new funding source, allowing a more dependable revenue stream for conducting Continuing Disability Reviews and Supplemental Security Income Redeterminations. The National Committee applauds this proposal, which will help to ensure that only those eligible for benefits receive them and which will achieve significant deficit reduction. However, if this new funding source is not approved, it is critical that the agency be funded adequately through existing funding sources to fulfill its service and stewardship responsibilities.
The National Committee opposes proposals in the President’s budget which would shift additional costs to Medicare beneficiaries. Over half of Medicare beneficiaries had incomes below $22,500 per year in 2012, and they are already paying 27 percent of their 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 do not share the Administration’s view that people will make wiser choices about using health care services if they have to pay more of the cost. Rather, we agree with research which shows 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.
The President’s budget includes the following four proposals which would increase costs for future beneficiaries.
- The President’s budget proposes to apply a $25 increase in the Part B deductible in 2017, 2019, and 2021 for new beneficiaries. This increase would be in addition to the current Medicare Part B deductible that beneficiaries pay which, along with general revenues, funds Part B physician and outpatient services. This proposal is estimated to save approximately $3.6 billion over 10 years.
- The President’s budget proposes a home health copayment for new beneficiaries beginning in 2017. A $100 copayment per home health episode would be applicable for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay. This proposal is estimated to save approximately $730 million over 10 years.
- The President’s budget proposes a Part B Premium surcharge for new beneficiaries who purchase “so-called” near first-dollar Medigap coverage. The surcharge would be equivalent to about 15 percent of the average Medigap premium (or about 30 percent of the Part B premium) for new beneficiaries who purchase Medigap policies with particularly low cost-sharing requirements, starting in 2017. Many seniors of modest means depend on such Medigap plans to ensure they have predictable and lower out-of-pocket costs. Other Medigap plans would be exempt from this requirement while still providing beneficiaries options for protection against high out-of-pocket costs. This proposal is estimated to save approximately $2.9 billion over 10 years.
- The President’s budget proposes to further increase income-related premiums under Medicare Parts B and D. Beginning in 2017, the Administra?tion proposes to restructure means-testing in Medicare Parts B and D by increasing the amount of income-related premiums, and maintaining the income thresholds associated with income-related premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums. A Kaiser Family Foundation study found that this proposal would affect individuals with incomes equivalent to $47,000 for an individual and $94,000 for a couple. This proposal is estimated to save approximately $50 billion over 10 years.
The President’s budget includes numerous proposals to strengthen Medicare’s financing and improve the quality of care provided to beneficiaries. We support many of these proposals, including
- Building on provisions in the Affordable Care Act that will provide better care to Medicare beneficiaries and reform Medicare payments to physicians.
- Supporting initiatives to prevent, detect and recover improper payments, including fraud, waste and abuse.
- Allowing Medicare to receive the same rebates as Medicaid for brand name and generic drugs provided to beneficiaries who receive the Part D Low-Income Subsidy, beginning in 2014.
- Increasing manufacturer discounts for brand name drugs from 50 to 75 percent in 2015, effectively closing the coverage gap “donut hole” for brand name drugs in 2015, five years sooner than under current law.
- Promoting lower pharmaceutical costs by providing for faster development of generic versions of biologic drugs, and prohibiting “pay-for-delay” agreements between brand name and generic pharmaceutical companies that delay entry of generic drugs into the market.
The National Committee is pleased that the President’s budget does not make major structural changes to the Medicaid program. Medicaid pays for about 62 percent of all long-term services and supports and many older adults and people with disabilities depend on the program for their health care needs.
The President’s budget maintains funding for the Qualified Individual program and extends the program through December 31, 2014. The QI program pays for Medicare Part B premiums for qualified beneficiaries with limited income. Specifically, the QI program provides States 100 percent federal funding to pay the Medicare Part B premiums of low-income beneficiaries with incomes between the 120 and 135 percent of the federal poverty level.
Administration for Community Living
The President’s budget includes $2 billion for the Administration for Community Living, which administers the Older Americans Act programs, as well as other programs to support independent living for seniors.
Low-Income Home Energy Assistance Program (LIHEAP)
The President’s budget includes $3 billion for the Low-Income Home Energy Assistance Program, which is a reduction from current funding. Many older adults, individuals with disabilities and low-income families receiving LIHEAP are struggling to meet basic needs, and should not have to choose between buying food and medicine or paying for home energy.
Government Relations and Policy, April, 2013