United States Senate Washington, DC 20510
Dear Senator:

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I am writing to urge you to oppose any deficit reduction deal that cuts benefits to Social Security, Medicare and Medicaid.

We join the vast majority of Americans, of all ages and political affiliation, who do not support benefit cuts. These cuts would hurt millions of middle class and poor Americans who depend on Social Security, Medicare, and Medicaid and also undermine the very social insurance nature of these programs. Targeting the nation’s health and retirement security programs at a time when so many American families are still struggling in this economy is not fiscally responsible and ignores the real-life economic challenges still facing millions of Americans.

Almost half of the nation’s workers have less than $10,000 in savings and 30 percent have less than $1,000. Barely half of all workers have access to retirement plans through their employment and millions retire without enough private savings to provide an adequate income. As other important retirement vehicles – such as pensions and retiree health plans – crumble, Americans have put their faith in the last pillars still standing, Social Security, Medicare and Medicaid.

There are ways to address the deficit that don’t target America’s seniors, disabled and their families. We encourage Congress to continue to search for ways to spur economic growth, create jobs and provide economic equity for all Americans. We urge you to support extension of the Bush-era tax cuts on the first $250,000 of household income, require drug manufactures to provide rebates for drugs used by beneficiaries who are dually eligible for Medicare and Medicaid and mandate that the federal government negotiate Medicare Part D prescription drug prices.

This letter is intended to provide you with our detailed comments on various deficit reduction proposals and their impact on Social Security, Medicare and Medicaid. We hope you will carefully consider how these proposals would impact your constituents as a deficit reduction package is developed in the coming days.


We agree with Senate Majority Leader Harry Reid that Social Security should not be included in deficit reduction discussions. Social Security does not face an immediate crisis and is not driving either the short-term deficit or long-term debt. We believe Social Security should be strengthened for the long-term by increasing the current cap on earnings. Most importantly, initiatives to improve and strengthen Social Security must be made based only on what is good for Social Security – not on achieving arbitrary deficit reduction goals or paying for tax cuts for the wealthy.


The National Committee opposes a proposal to calculate Social Security, Supplemental Security Income (SSI), military and federal civilian retirement and veterans’ benefits cost-of-living adjustments (COLA) using the “chained” Consumer Price Index (CPI) because it would reduce projected benefits for the oldest and most vulnerable Americans who would be least able to afford it.

All beneficiaries would feel the impact of this change, but the impact would be greatest on those who draw benefits at earlier ages (e.g., military and disabled) and who live the longest. The Chief Actuary of the Social Security Administration estimates that application of the chained CPI would result in a yearly 0.3 percentage point reduction compared to the current COLA increase. This reduced COLA would result in a decrease of about $130 per year (0.9 percent) in Social Security benefits for a typical 65 year-old. By the time that senior reaches age 95, the annual benefit cut will be almost $1,400, a 9.2 percent reduction from currently scheduled benefits. Remarkably, this is a benefit reduction that slightly exceeds the one month’s benefit for the average retiree. The cumulative effect of these reductions means that the disproportionate impact will be felt by Social Security’s oldest beneficiaries. These are often women who have outlived their other sources of income, depleted their assets and rely on Social Security as their only lifeline to financial stability.

For SSI beneficiaries, the switch to a chained CPI will be devastating, because, in the case of future recipients, the benefit will have been reduced even before the person has applied. The chained CPI would not affect a person’s initial benefit for Social Security and other federal retirement programs because prior to reaching age 62, the benefit is based on the recipient’s wages, and therefore not affected by COLA changes. In contrast, the COLA for the need-based SSI federal benefit would be reduced by 0.3 percentage points every year. For example, if the chained CPI is implemented for the SSI program in 2015, an applicant in 2030, 15 years later, would receive an initial benefit more than four percent lower than it would be without the chained CPI.

If the true reason for a change in the COLA calculation is to more accurately reflect changes in the cost of living, and not simply to reduce the nation’s debt, then the CPI-Experimental Price Index for the Elderly (CPI-E) would be a better alternative, since it factors in the disproportionate amount seniors spend on health care and the more limited opportunities their patterns of consumption allow for making purchasing substitutions.


The National Committee opposes the payroll tax cut, or holiday, and we have opposed it since its inception more than two years ago. We thought then, and we think today, that it was bad Social
Security policy and that it would be very difficult, if not impossible, to end. The payroll tax cut, coupled with legislation that substitutes the trust funds’ lost revenue with general fund transfers, leaves Social Security increasingly dependent on both general revenue and the actions of Congress for its funding. Such a funding mechanism is a dramatic and dangerous departure from relying on workers’ contributions, which have so successfully funded the program since its enactment in 1935. Extending the payroll tax cut another year would threaten Social Security’s financial integrity and could make it increasingly vulnerable to benefit cuts or privatization.

As an alternative to extending the Social Security payroll tax cut, we suggest that Congress consider extending the “Making Work Pay” tax credits, which we, along with the Center on Budget and Policy Priorities (CBPP) and the Center on Economic and Policy Research (CEPR), believe would do more to boost the economy than extending or expanding the payroll tax cut.


Nearly 50 million Americans 65 and older and those receiving Social Security disability benefits are enrolled in Medicare. They rely on this earned benefit to provide essential health coverage in retirement or because they can no longer work. However, even with Medicare, beneficiaries face large out-of-pocket costs with no catastrophic cap for Medicare’s premiums; deductibles and copayments; supplemental insurance; health services not covered by Medicare such as vision, dental and hearing care and for long-term services and supports. It is important to remember that Medicare beneficiaries are not wealthy; over half have incomes of less than $22,000 per year and many African American and Hispanic beneficiaries have incomes well below this amount. On average, Medicare households spend 15 percent of their income on health care, which is three times more than non-Medicare households spend. They cannot afford to pay more of their household income than they already are for health care.

In addition, Medicare’s costs per capita are growing more slowly than private health spending or per capita gross domestic product (GDP), due to savings achieved in the Affordable Care Act (ACA). The ACA includes provisions affecting Medicare that are slowing the growth in spending and leading to changes in the way care is delivered and paid for that improve quality and reduce costs. We support efforts to expand these improvements, including better care coordination, reforms to fee-for-service payments and enhanced support for primary care health providers. We oppose changes that shift federal health costs to Medicare beneficiaries and others and do nothing to control the rate of increase in health spending. These latter proposals include:

Shifting Costs to Medicare Beneficiaries

Proposals to increase beneficiary cost sharing – such as increasing the Part B deductible, requiring a home health copayment, instituting a Part B premium surcharge for Medicare supplemental policies and setting premiums to cover a larger share of Part B spending – are included in various deficit reduction plans. Supporters argue that people will make wiser choices about using health care services if they have to pay more of the cost. The National Committee opposes these proposals because we believe additional costs could lead many seniors to forego necessary care. Consequently, seniors could develop more serious health conditions, resulting in higher costs. In addition, once a person seeks care, it is physicians and other health care providers who make decisions about the care, tests and other services they receive.

Restructuring the Medicare benefit by combining the Medicare Part A and Part B deductibles, requiring coinsurance for all services and adding a catastrophic cap on out-of pocket spending each year has also been proposed as a way to save money in Medicare. Such changes could be enacted in a way that improves Medicare’s benefits, makes coverage more comparable to large-employer private insurance and eliminates the need for supplemental insurance. However, costs are more likely to be shifted to Medicare beneficiaries if restructuring proposals are considered as part of deficit-reduction plans. A Kaiser Family Foundation analysis of one redesign proposal that includes a combined deductible of $550, 20 percent coinsurance rates and a $5,500 catastrophic cap shows that 71 percent of people with Medicare would pay more for health coverage.

Requiring “Wealthy” Beneficiaries to Pay More of Medicare’s Costs

Medicare beneficiaries with incomes above $85,000/individual and $170,000/couple already pay higher Part B premiums, which cover physician and outpatient services, and for the Medicare Part D prescription drug benefit. Proposals to expand Medicare means testing include increasing income-related premiums under Medicare Parts B and D until 25 percent of beneficiaries, up from about five percent today, are subject to these premiums. A study from the Kaiser Family Foundation found that this would affect beneficiaries with incomes equivalent to $47,000 for an individual and $94,000 for a couple today – meaning it would reach many middle-income Americans.

Wealthy individuals pay more into Medicare during their working years because there is no wage cap on the Medicare payroll tax. Medicare Part A is funded by payroll taxes of 1.45 percent on employees, matched by employers, with self-employed individuals paying the full 2.9 percent. Since 1994, this payroll tax has been levied on all covered wages and selfemployment income without a limit. Therefore, the higher an individual’s earnings, the more he or she will contribute to Medicare Part A during their working years.

Beginning in 2013, higher-income individuals will pay even more to support Medicare. The Part A payroll tax will increase by an additional 0.9 percent on taxpayers earning above $200,000 for an individual and $250,000 for a couple. These same income thresholds will also trigger a 3.8 percent surtax on unearned income, such as interest, dividends and capital gains, which will be applied to Medicare.

Additional means testing would undermine the social insurance nature of Medicare and ultimately raise costs for middle and lower-income seniors who depend on it. If means testing results in Medicare becoming increasingly unfair to higher-income beneficiaries, they may opt out and purchase their own policy on the private market. The departure of higherincome beneficiaries, who tend to be younger and healthier, would increase overall costs and reduce public support for the program.

Raising the Medicare Eligibility Age

Raising Medicare’s eligibility age from 65 to 67 is a benefit cut that is being advanced solely for budgetary reasons with little regard to the harmful consequences for Medicare beneficiaries who have paid into the program during their working years and count on receiving Medicare. Communities of color would be hardest hit because they tend to be in poorer health at earlier ages, accumulate less wealth that can be used to pay for health care due to lower lifetime earnings, and have shorter life expectancies.

Increasing Medicare’s eligibility age does not reduce health spending; rather it shifts costs to others. Many seniors would pay more; others would lose coverage. Individuals who are 65 and 66 years old who lose Medicare coverage would, on average, face higher out-of-pocket health care costs. Although health insurance will be available in 2014 through the health exchanges established under the Affordable Care Act, private insurers can charge older participants up to three times more for insurance than the cost to younger people. And adding older individuals to those buying insurance through the exchanges could raise costs for younger individuals. Some low-income individuals who would have to wait two additional years to become eligible for Medicare may not qualify for Medicaid if they live in a state that does not apply for federal Medicaid expansion funds available through the ACA. State participation in the Medicaid expansion is optional due to the Supreme Court decision on the ACA. In addition, Medicare beneficiaries age 67 and older would face higher premiums without the younger and healthier 65- and 66-year olds as part of the Medicare risk pool.

Costs for employers and the states would also increase if the eligibility age is raised. Employers who provide health care coverage to their retirees would face higher costs as more 65- and 66-year olds received primary coverage through their employer rather than Medicare. State Medicaid programs would have rising costs as some of the people who lost Medicare coverage would shift to Medicaid. Raising the eligibility age is harmful to the Medicare program as well as seniors. Medicare has a proven track record of providing low-cost health care to seniors. Neither seniors nor the Medicare program would be better off if 65- and 66year olds had to look for health insurance coverage in the private sector. Also, raising the eligibility age would reduce Medicare’s share of the health insurance market and weaken its ability to serve as a leader in controlling health care costs.

Instead of benefit cuts, comprehensive reforms in the Affordable Care Act that are expected to contain costs in the entire health care sector, including Medicare, ought to be given a chance to work and to be strengthened.


In addition to building on the improvements to Medicare in the Affordable Care Act, the National Committee supports proposals that achieve savings and strengthen the program for future beneficiaries. Two examples of proposals we support are requiring drug rebates for individuals who are dually eligible for Medicare and Medicaid or receive the Part D Low-Income Subsidy, and permitting the federal government to negotiate Medicare Part D prescription drug prices.

Prescription Drug Rebates for Medicare-Medicaid Dual Eligibles

The National Committee supports requiring drug manufactures to provide rebates for drugs used by beneficiaries who are dually eligible for Medicare and Medicaid, as they were required to do before passage of the Medicare Modernization Act. We have endorsed S. 1206 and H.R. 2190, the Medicare Drug Savings Act, introduced by Senator Jay Rockefeller and Representative Henry Waxman. This legislation would require drug manufacturers to pay drug rebates for dual eligibles and people receiving the Medicare Part D Low-Income Subsidy. The Congressional Budget Office estimated savings of $112 billion over 10 years.

Prescription Drug Negotiation

Under current law, Medicare cannot negotiate for lower drug costs for Part D, resulting in seniors paying more than necessary for needed medications. Negotiating prescription drug prices has lowered costs for individuals receiving military, veterans and Medicaid benefits. If the U.S. Secretary of Health and Human Services could bargain for lower prices for Medicare beneficiaries, it would help lower overall health expenditures without impairing the quality of care offered.


The Medicaid program is a vital safety net for multiple populations. Medicaid provides health insurance to over 60 million low-income individuals, including children and some parents, people with disabilities and seniors. Seniors and people with disabilities account for two-thirds of all Medicaid spending, and the program pays for 62 percent of all long-term services and supports (LTSS). Individuals from communities of color represent about 50 percent of beneficiaries. Many middle and low-income individuals rely on Medicaid in later life to help pay for their LTSS or nursing home care. The average annual cost for nursing home care is over $75,000 for a semi-private room, which most people cannot afford.

Despite the high cost of health care, Medicaid has proven to be a lean program that successfully controls expenses. Research shows that Medicaid costs per beneficiary are rising more slowly than private insurance. According to the Center on Budget and Policy Priorities (CBPP), the average annual per person cost growth for Medicaid was 2.8 percent from 2006-2011, compared to 4.2 percent for private insurance during the same time. From 2012 to 2021, CBPP projects annual per person growth to be 3.6 percent for Medicaid and 5.0 percent for private insurance. Medicaid’s slower growth rate is due to low administrative costs and payment rates to providers.

Because the Medicaid program is critical to millions of Americans, the National Committee opposes proposals that would cut Medicaid funding and restructure the program through block grants, per capita caps or blended rates. The following proposals do not address rising health costs and could jeopardize the quality of care provided to many vulnerable people:

Block Grants

The federal government and the states jointly finance the current Medicaid program. States receive a fixed amount of money for the Medicaid programs. Changing Medicaid to federal block grants means that states would receive less federal money but would have additional flexibility to design and manage their Medicaid programs. Because annual increases likely would not keep pace with rising health care costs, states could run out of money to pay for needed services and cut benefits in different ways. These may include limiting the number of people who can enroll for services, creating waiting lists, increasing beneficiaries’ contributions and reducing payments to doctors and hospitals, which may make it harder to find providers who accept Medicaid beneficiaries, thereby creating access problems.

Additionally, more than nine million individuals who receive Medicaid and Medicare benefits (dual eligibles) could be hurt by block grants. Medicaid pays the Medicare premiums, deductibles and co-payments for millions of these low-income individuals. If states do not have enough money to cover these payments, many seniors could face diminished Medicaid benefits and a loss of their Medicare coverage.

Per Capita Caps

A number of proposals recommend limiting Medicaid funding to per capita caps. Under per capita caps, the federal government would no longer provide a fixed share of each state’s overall Medicaid costs. Instead, each state would receive a fixed dollar amount per beneficiary. Currently, states have different funding levels per beneficiary because of different cost of living and Medicaid options. With per capita caps, more costs would shift to the states, potentially leading to cuts for beneficiaries. Since seniors and people with disabilities are the most expensive Medicaid beneficiaries, they would likely face the largest reductions.

Although federal funding would increase with higher Medicaid enrollment under per capita caps, it would not reflect the costs of the different Medicaid populations or new medical treatments that emerge. This would make it harder for states to predict costs. Other complications of caps include creating new complex funding formulas and funding disparities among the states. These uncertainties may make states less inclined to expand Medicaid coverage.

Federal Blended Rate

Currently, the federal government pays a portion of each state’s Medicaid costs for eligible individuals. The state’s relative wealth determines its federal match. States with more lowincome people receive a higher federal match. Some proposals recommend blending the Medicaid rate received from the federal government with the rate for the Children’s Health Insurance Program (CHIP). The blended rate would be specific to each state. The National Committee opposes changing Medicaid funding to a federal “blended rate” because it would shift costs to states and likely lead to fewer services for seniors and people with disabilities.


The National Committee supports proposals that build on the success of Medicaid, such as expanding the program as outlined in the Affordable Care Act. If implemented by all states, almost 17 million additional low-income uninsured would receive Medicaid coverage, according to the Urban Institute. We support Medicaid expansion because, as noted earlier, the program keeps health care costs down. It also saves lives. In one study, three states expanded Medicaid to an uninsured group and compared them with neighboring states that did not expand coverage. The result was that the death rate went down in states that expanded and up in states that did not. For every 500,000 extra people covered, there were about 2,840 fewer deaths per year.

Unfortunately, several states have indicated that they do not intend to expand their programs because of concerns about higher costs over time. A recent Kaiser Family Foundation report suggests that state Medicaid expansion would be a good deal for the states because of the amount that the federal government would pay. For $8 billion in additional investment by the states, they would receive $800 billion more over ten years in federal funding than they would otherwise receive. We believe Medicaid expansion is critical in providing millions of lowincome people with access to affordable health coverage. Without it, this population could become sicker, more expensive to treat and die prematurely.

In brief, proposals to change Medicaid to block grants, per capita caps or blended rates would cut Medicaid funding, shift costs to states and cause financial hardship to many middle and low income Americans. We urge you to oppose these proposals.

As I stated above, Congress can reduce the deficit without cuts to Social Security, Medicare and Medicaid — cherished and successful programs — if it focuses on improving the economy and asking those who have done extremely well in the last decade to finally pay their fair share.

For the reasons cited above, we urge you to oppose all efforts to include Social Security, Medicare and Medicaid benefits in the budget agreement to avoid the “fiscal cliff.”


Max Richtman
President and CEO