TALLAHASSEE, FL – The federal government's own forecasts show that America's Medicare and Social Security systems are headed for fiscal disaster early in the 21st century. But there are reliable methods for fixing both institutions, Dr. John C. Goodman, President of the National Center for Policy Analysis, told the Legislative Leadership Workshop in Tallahassee today.
"As things now stand, by the year 2040, about the time many of today's college students will be retiring, the government will need to take almost one-third of workers' incomes just to pay for Social Security and Medicare," Dr. Goodman told the workshop, which is co-sponsored by Foundation for Florida's Future and the James Madison Institute. "And that's according to the government's intermediate assumptions. Under its pessimistic assumptions, the figure rises to about half of all wages – and that doesn't include anything except those two programs."
None of this need happen if the United States will move now toward a fully funded private system for Social Security and a restructuring of Medicare to give the elderly more individual control, he said.
The U.S. can look overseas for models to reform Social Security with private pension plans, Dr. Goodman said. Chile, Singapore, Hong Kong, Colombia, Peru and Argentina are among the countries with private systems in place. The U.S. could base its own reforms on three principles.
- Instead of the current system, in which the taxes today's workers pay go to support today's retirees, workers would make contributions to their own individual retirement accounts and to survivors' and disability insurance.
- Workers would have a choice of staying in the current Social Security program or switching to the new system without losing any benefits.
- Benefits of current retirees would not be affected.
A system of fully funded individual accounts could have adequate safeguards, Dr. Goodman said. These would include:
- The individual accounts could only be placed with approved financial institutions, which would be limited to conservative investments.
- There would be guarantees of a minimum return and a minimum benefit to retirees.
Medicare restructuring can also be accomplished by giving the elderly more control over their resources and more choice in how they should be allocated, Goodman said.
He proposed the use of Medical Savings Accounts in combination with insurance against catastrophic costs to help control Medicare expenditures. "Elderly health care purchasers could limit their out-of-pocket expenses to between $1,500 and $2,100 annually, depending how the policy is constructed, and the government would be able to keep the growth in per capita Medicare expense to a manageable percentage," Dr. Goodman said. "But just as important, patients could have control over how their money is spent, and which doctors they see and when."