Although I grew up in a middle class family in Washington, D.C., my father, one of the pioneers in the early days of radio, was in and out of jobs over the years, usually fired. We went from elegant parties with small orchestras in our home one year to taking in a boarder the next. The stress on my mother from those economic roller coaster rides was enormous, and as children my brother and I felt the pressure. Although I have a good retirement income now, and no rational reason to worry about money, I still do. It is the kind of trauma that gets stamped forever in one’s psyche.
Maybe that’s the reason I have come to worry about the economic security of the elderly as much and maybe even more than their Medicare coverage. Everyone understands that Medicare is in trouble and, one way or other, will have to be changed. In the case of Social Security most analysts have said that with a little tweaking and some relatively small changes, it should be in good shape for at least a few decades.
What I believe the public does not well understand is the interaction between two economic variables: that of the out-of-pocket costs of Medicare, covering only some 75% of so of a beneficiary’s health care costs, and the average person’s gap between Social Security coverage and the money from savings and pension plans they will need for economic security, including the extra health care costs. Worse still, the political debate tends to deal with Medicare and Social Security as separate issues, when it is in fact the combination of medical and economic needs that is the more difficult and important problem.
A fine 2012 Kaiser Foundation study lays out the basic data. Begin with the income of seniors. In 2010 only the top 10% had annual incomes of $65,000 or greater. Most of them, however, had a much lower income, with 10% under the poverty line of $13,194 for couples and some 35% with an income of $26,000. The average annual out-of-pocket expenses for Medicare beneficiaries (copayments and deductibles) is $3,000 to 5,000 and up to $10,000. Nor do those figures take account of long-term care costs, which can run into thousands of dollars each year and are not covered by Medicare, available only in the Medicaid program for those under the poverty line.
Where does the money for those out-of-pocket Medicare costs come from? Where else other than their monthly Social Security checks and any additional money that seniors have from pensions and savings. Only 53% had funds over and above Social Security in 2008. For one-third of those with Social Security, 90% of their income came from that source. Widowed, divorced, or never married people are less likely to have money from pensions than others. Those in the older age groups of seniors, 80 years and above, are not only more at risk for health problems, often of the most expensive kind, but are also more likely to have depleted their savings to take care of the cumulative out-of-pocket Medicare costs. Let’s call that Strike 1.
Strike 2 comes from the paucity of money from the changing pension scene and private savings. Pensions have declined in recent years because of a widespread move from defined benefit plans (guaranteeing a fixed amount of pension money) to defined contribution plans (income from employer/employee contributions, usually of a declining kind of late). Americans are notoriously poor savers, down to 1% of annual income prior to the 2008 recession and rising only slightly since then. Median savings in 2010 were $66,900. Taking into account that Medicare out-of -pocket costs and the shortfall from Social Security can be significant in each retirement year, that little money will not go far. And the poor have even less saved. It takes a great deal of imaginative hope to get around figures like that.
Then there is the likelihood of a strike 3: that of a) a combination of a future Social Security program whose benefits could be cut in the name of debt reduction or would not keep up with annual growth of inflation and b) if Paul Ryan gets his way, or Democrats are forced to agree to it, a cut in Medicare benefits, thus forcing beneficiaries to pay a still higher amount of their income on health care.
As the Kaiser report concludes, saying what by the end had become self-evident: “While a small share of seniors can and will be able to afford to pay a greater share of their health care expenses . . . most seniors face a greater level of financial insecurity in the future.”
The last words of the Kaiser report are not reassuring. Apparently discovering few serious efforts to confront that situation, it offers no pathway to finding a way out, just that policymakers should begin thinking about it all. I can do no better than that myself. All I can suggest at the moment is to urge my fellow seniors to pass along to their children and grandchildren the following advice: save, save, save. And what if they are young unemployed or underemployed recent college graduates with large debts to pay off? Well . . . good question.
Daniel Callahan, 82, is President Emeritus of The Hastings Center and the author of two forthcoming books, a memoir, In Search of the Good: A Life in Bioethics (MIT Press), and a collection of essays and papers, The Roots of Bioethics (Oxford University Press).