Economics, Entitlements, Pethokoukis

Yuval Levin on means testing Medicare and Social Security

The always-insightful Yuval Levin takes to the pages of The New York Times to clearly and succinctly explain how best to means test Medicare and Social Security. First, two broad principles: a) give rich old folks fewer benefits rather than nick them for higher premiums, b) assess wealth based on lifetime, pre-retirement earnings to encourage work and savings. For the wealthiest Americans, Levin would start by raising the Medicare eligibility age. As for Social Security, he directs to a plan from AEI’s very own Andrew Biggs:

In Social Security, there are even more opportunities for means-testing. Andrew G. Biggs of the American Enterprise Institute has proposed having the top third of beneficiaries (by lifetime income) receive no annual cost-of-living adjustment in retirement. The middle third would get half of today’s adjustment, and the bottom third would receive the same annual increase they do now. Such a reform, Mr. Biggs found, would reduce Social Security spending by more than a tenth over a decade and fix the program’s long-term financing. (Greater annual adjustments could be made for those who reach extreme old age and are running out of resources.)

Same issue as with President Obama’s pre-K idea. The goal here should be to target the spending rather than create some universal benefit in order get political support (in part to facilitate taxing).

10 thoughts on “Yuval Levin on means testing Medicare and Social Security

  1. Let’s look at someone who is early on in his working career. We’re telling him he has two options:

    1. Work hard, save, pay a lot in taxes and get reduced benefits when he retires.
    2. Slack off, pay less in taxes and get full benefits when you retire.

    How exactly does this encourage work?

  2. social security is income security INSURANCE.

    basically you are guaranteed a minimum annuity if for instance, you work all your life but barely made enough to pay for your food and shelter. The minimum SS benefit is to pay for that food/shelter after you stop working.

    If you are capable of earning more and doing better but you instead decide you’re going to go for the minimum SS benefit but seriously how many people are going to do this – over a 40 year span?

    re: means testing…

    there is already means testing of SS benefits – if you make enough other income, up to 85% of your SS will be taxed.

    Medicare is also means-tested but the thresholds are ridiculous – 100.00 a month premiums for someone who received 70K in retirement income.. owns two houses and 3-4 cars…etc… people who make 70K in retirement income and have a million in assets need to be paying a hell of a lot more than 100.00 a month.

    • Why not means test all things, for instance one could be issued a discount card on all purchases based upon annual income.

      For instance one pound of butter might cost only 1 dollar for incomes of 10,000 or less but would rise to one hundred dollars per pound for those making more than a million dollars.

      We could even make it more “progressive” by charging 300 dollars per pound for millionaires

      Its hard to stop when we start “socializing”

    • I’m not sure that is correct; income insurance would be rated at the cost of replacement income. Thus someone buying $10,000 of replacement income would pay X for it and someone desiring $20,000 of replacement insurance would pay 2X for it.

      Or is that too much free market capitalism for you to bear?

  3. As a conservative, this proposal makes my blood boil. Medicare and social security are social insurance programs (necessary in some form but of dubious Consitutionality), and should not be used as redistributive mechanisms, although they both are at present.

    The medicare tax should be a flat amount, regardless of income, adjusted annually, and wage earners should be
    paying double for non-working spouses. The current
    medicare premiums are artificially too low. There should be options: an increased premium for 100 percent coverage, and also a choice at medicare age to
    be covered until age 85 or to be covered for life, at extra cost.

    Social security COLA’s should be the same percent for all, but there should be no COLA unless a properly computed cost of living rises above five percent.

    The real problem with social security are the unfunded
    auxiliary beneficiaries–spouses and kiddies. Wage earners should pay an additional tax, according to an
    actuarial table, to fund their own potential auxilliary
    beneficiaries.

    Perhaps, people actually should think about curbing their
    expenses and preparing for their eventual retirements,
    instead of relying on redistributionist academics and politicians to bail them out. Less beer and bingo and more saving!

    • Well said, I do not agree with all of your proposals but the sentiment is correct.

      However, that being said your ideas will never happen until the USA itself lies mouldering in the grave of all of its manifold mistakes.

      We are not immune from the decay of national senescence and we are well beyond the point of no return. Oddly it is the young who are the most senescent among us and will drag our brief experiment in self governance to its natural conclusion.

  4. His was a pretty half baked idea. Means test based on life-time earnings? I can just see workers getting close to the cut off and stopping work because the lost benefits outweigh the additional salary to be earned. Lots of off-the-books work will happen to keep people from crossing the limit.

    Great idea; People can opt out of SS if they think they will exceed the income limit in their lifetime? You just know that the limit will be decreased over time so that the programs become simply a welfare program.

    Don’t means test. Fund properly with everyone paying for their benefits

    • That is the correct answer. Pay into ss and Medicare over the years and let it grow with interest. Then withdraw as needed upon retiring up to a max of what you put in.

  5. We appear to have a lot of conservatives (I am one too) who are now claiming their just isn’t enough progressiveness and socialism in social security.

    How odd? but is it explainable?

    Here is the big issue as I see it: Some 30 years ago Ronald Reagan and the democrats agreed that the baby-boomers must not olnly “post fund” their parents benefits but also “pre-fund” their own. Sure it was a rotten deal but what the hell, all that pre-funding cash wont be needed for at least 30 years and we can spend it all now while cutting the federal income tax rates for the large income earners. Its a “win-win” for all and we wil be long gone when the poop hits the fan.

    Well here we are and there is a big hole in the “pre-fund” fund. Who shall fill it up?

    The evolving answer is that the debt should simply be erased and those who were forced to buy those SS treasury notes 30 years ago in order to fund their own benefit must now forgive the USA all of its debts to those who were told “trust the US government.”

    After all the market is just “too risky for you” but in the name of greater “social justice” you must relinquish your claim on the funds that were “saved” for you by the US Treasury.

    Have I got that right my fellow conservatives?

  6. Works for me. The main thing is, the system has to balance, dollars in, dollars out. Means testing is just another form of progressive income tax which is a fair way to tax in a non-regressive way. The other thing that could be done is cap benefits based on contributions. In other words, if you or someone in your family did not contribute $100, then you can not take $100 out. The means testing is just like pooling risk in any insurance program, the risk being the risk of being rich or poor. But you have do have to pay for the insurance.

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