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Social Security's Chief Actuary: 23% Cut Will Hit Seniors If We Do Nothing

House Budget Committee Chairman Paul Ryan held a hearing on February 28, 2012 with Stephen Goss and Richard Foster, the Chief Actuaries for the Centers for Medicare and Medicaid Services, Social Security Administration.

RYAN: I've heard people advance, here in Congress, that the [Social Security] Trust Fund is fine until 2036, and we don't have to do anything until then -- so why worry about it now? I want to get at the nature of that. Correct me if I'm wrong, but if we do that then we have an across-the-board cut of about 23% that occurs in benefits -- is that correct?

GOSS: Exactly.

RYAN: And does that hit everybody equally? Meaning, does a 23% cut hit a low-income worker just as much as it hits a high-income individual?

GOSS: As we understand it -- our General Counsel at Social Security across several administrations -- has indicated that the law actually does not speak explicitly to this. The Commissioner standing at that time would simply have 77 cents available for every dollar of scheduled benefits, and would not be permitted to spend more that that -- we do not have borrowing authority. So a decision would have to be made about how would get the money. We could have an across-the-board 23% cut immediately, or a Commissioner could say, 'well we're not going to pay the March benefits in March -- we'll wait until April -- wait until more revenues come in to allow full payment a month late.' After a few months we would perhaps then have to start paying benefits two months late. So this would be a way that it could be handled.

Of course, if people have to pay rent on time, that would be a difficulty. There's no easy way out on this. One could channel this towards having bigger reductions for people with higher benefits -

RYAN: That would be a decision up to Congress at the time, right?

GOSS: We hope and pray that Congress would indeed act well before we ever hit the Trust Fund reserve exhaustion.

RYAN: Given that we have this abrupt 23% cut that occurs in law -- current law -- is it not wise so start reforming now, sooner, so that the distribution of the change is spread more broadly and evenly across income cohorts? Let me ask it this way: does that abrupt 23% cut hit current senior cohorts? A person who's turning 62, or 65 today -- that effects them as well, correct?

GOSS: It certainly would. They would be at an older age at that time but clearly it would affect them. That is assuming that we wait and do absolutely nothing until that point.

RYAN: So if one provides reforms soon, could you not prevent these kinds of effects from hitting those current cohorts? Could you not phase reforms in gradually that prevent that 23% cut from happening so it doesn't affect people who are currently in or near retirement? Could you structure reforms that prevent that from happening if you act sooner?

GOSS: Absolutely. We have a number of proposals -- including yours Chairman Ryan -- and many other proposals that would take exactly that approach. Our trustees and everybody who speaks on this has opined extensively about the value of acting sooner rather than later, so that we can have gradual changes phased in and we have more options if we act relatively soon.

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Chief Medicare Actuary on President's health care claims: "I would say false, more so than true"

At a House Budget Committee hearing earlier today, Medicare's Chief Actuary Rick Foster provided a concise, damaging verdict on two key promises of the health care law's proponents.

McCLINTOCK: "True or false: The two principle promises that were made in support of Obamacare were one, that it would hold costs down. True or false?"

FOSTER: "I would say false, more so than true."

McCLINTOCK: "The other promise... was the promise that if you like your plan, you can keep it. True or false?"

FOSTER: "Not true in all cases."

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