Dr. Binstock: If one is careful in choosing stable, reliable companies, which is a very important part of it, it can fit the needs of some families better than others. I purchased it to provide income protection for my wife. I think that's a good reason to do it. If you are hung up on providing an inheritance to your children, that's another reason to do it. If you are hung up on not ever becoming a ward of the state by not going on Medicaid, that's another reason to do it. If you're very wealthy, there's no need to purchase it. It depends on the circumstances and goals of the individual. I know that many of my colleagues in the field of aging say, “Oh, that's a silly thing to purchase.” They say it doesn't make economic sense. But it actually depends on your personal situation and goals.
Hrehocik: Is Social Security collapsing?
Dr. Binstock: The Trustees of the Social Security system project it will not “collapse” over the next 75 years. Their latest report in 2008 projected that Social Security would reach a point in 2041 where it could only pay 78% of the benefit. So, the notion that Social Security is going to go flat broke is wrong, and in fact, in each of the last few years, the percentage that Social Security will be able to pay, has increased. It used to be about 70% then it rose to 75%, then it rose to 78% and that's, of course, if public policy stays the same. What we know about public policy is that it changes all the time. So, it will probably pay 100% in 2041.
Hrehocik: What could be done to make up that shortfall?
Dr. Binstock: There are lots of things that could be done rather easily. The trustees of Social Security in their report say if you added .85 of 1% to the employer and the employee payroll taxes that would solve the problem completely for a 75-year period. In my view, you don't even have to do that. You could do a number of things together. You could make that a much smaller tax increase. You could, for example, put in a miniscule increase, say .01 of a percent, and gradually increase it over the years and it would be perfectly viable politically. Of course, you have to go higher than .85 because you started out so slowly. There are other things that could be done. For example, you could do away with the cap on the Social Security portion of the payroll tax which has people earning above $102,000 paying no payroll taxes on the rest of their earnings for the year. If you eliminated that cap completely, you've basically solved the problem. Obama is actually saying that he would have people earning over $250,000 keep paying the tax. In other words, he has a doughnut hole between the $102,000 and the $250,000 where you don't pay. Well, that's sort of silly. It would help, but if you just eliminated the cap, you would be doing the same as has been done with Medicare since 1993. In other words, since 1993, people of any income pay their Medicare tax all year. So, that was done without any big political uproar. We've lived with that for 15 years. I think that's politically viable. But suppose you didn't go all the way up on that; suppose you have a doughnut hole like Obama's and lifted the cap just a little higher. You could do many things. You could levy a small tax increase on the payroll tax; you could do something with the cap on how much income you earned; you could slightly reduce benefits, but you wouldn't call it that. Only economists would say that. You could do that by raising the age of eligibility for Social Security benefits—higher than age 67 that it's projected to be in 2027. In fact, you could follow the model of the legislation that instituted the age of 67, which was passed in 1983. It raised the “full retirement age” from 65 to 67 starting in 2003, to be gradually implemented so it will not reach age 67 until the year 2027 legislation. The early part of it actually has had quite a jump and is now well over age 66. But the rest of it is going to be very slow. You could accelerate it to keep in step with the average life expectancy and get it up to 70, for example. So that would help and there is a lot of lead time. It's not until 2041 when there will be a shortfall, not a collapse. And then there's some who say you can even dedicate part of the payroll tax and the estate tax for Social Security. So, personally, I and my co-author Jim Schulz (Aging Nation: The Economics and Politics of Growing Older in America, Baltimore, Md., Johns Hopkins University Press, 2006) favor doing a little bit of each of these things which is pretty much what the 1983 amendments to Social Security did when there was a problem of shortfall anticipated there. There was a little bit of castor oil spread around.
Hrehocik: And with respect to Medicare?
Dr. Binstock: With respect to Medicare, the problem is much tougher because Medicare isn't the problem. It's the overall healthcare system. Numerous studies have shown that population aging does not account for much of our increase in healthcare costs. Most health economists would put aging at no more than 10% of the problem. So the real cost increases, which then go over to the Medicare system, are the introduction of new technologies and procedures that are high cost. And they're endless. Think of the example of noninvasive imaging. For years we had the X-ray. We added the MRI, the PET scan, and the CAT scan. We didn't stop using the X-ray. Medicare gets confronted with the recovery costs. So there are lots of things covered in recent years that are very expensive. You also have direct-to-consumer advertising. And if Medicare covers something, how can your private insurer say they don't cover it because it's an experimental procedure? So, in a sense, Medicare decisions do affect a lot of our healthcare system, so a lot of the cost containment Medicare did also helped out in the private sector, too.