Social Security, Medicare can be made sustainable

The GOP response to President Joe Biden's truthful statement that some Republicans want to sunset Medicare and Social Security has been highly gratifying. In other words, the party has reacted with sheer panic — plus a startling lack of message discipline, with both Mike Pence and Nikki Haley saying that actually, yes, they do want to privatize or “reform” Social Security, which is code for gutting it.

Now Republicans are talking about slashing “woke” programs like Medicaid and food stamps. It's going to be fun when the party realizes who depends on these programs and how popular Medicaid, in particular, is even among its own voters.

The press's response to Biden's remarks has, however, been less gratifying. I've seen numerous declarations from mainstream media that of course Medicare and Social Security can't be sustained in their present form.

So let me try to set the record straight. Yes, our major social programs are on a trajectory that will cause them to cost more in the future than they do today. But how we deal with that trajectory is a choice, and the solution need not involve benefit cuts.

A good starting point on all these issues is the Congressional Budget Office report on the longterm budget outlook — a report issued every year, with the most recent report released in July. The CBO does excellent work, without a policy agenda, and is an extremely useful resource.

The current report offers a very clear depiction of both the budget challenges facing our major social insurance programs and the sources of those challenges.

But the budget office is not necessarily always right — in fact, the ways in which it has proved wrong in the past are highly illuminating.

There's a widespread narrative to the effect that Medicare and Social Security are unsustainable because they won't be able to handle the mass retirement of baby boomers. But only about half the projected rise in spending is the result of population aging. The rest comes from the assumption — and that's all it is, an assumption — that medical costs will rise faster than gross domestic product.

Well, historically health spending has risen faster than GDP — largely, we think, because doctors can now treat many more things than in the past, and this effect has outpaced cost savings from improved technology. But excess cost growth has slowed considerably since around 2010 — perhaps in part because of costreduction aspects of the Affordable Care Act. In any case, the leveling off is unmistakable.

Anyway, CBO projections now show social insurance spending as a percentage of GDP eventually rising by about 5 points, which is still a lot but not unimaginably large.

And here's the thing: Half of that is still the assumed rise in health care costs. And there are things we can do to control costs that don't involve cutting off Americans' benefits. Bear in mind both that U.S. health care is far more expensive than that of any other nation — without delivering better results — and that since 2010 we've already done quite a lot to “bend the curve.” It's not at all hard to imagine that improving the incentives to focus on medically effective care could limit cost growth to well below what the CBO is projecting, even now.

And if we can do that, the rise in entitlement spending over the next three decades might be more like 3% of GDP. That's not an inconceivable burden. America has the lowest taxes of any advanced nation; given the political will, of course we could come up with 3% more of GDP in revenue.

So no, Social Security and Medicare aren't inherently unsustainable, doomed by demography. We can keep these programs, which are so deeply embedded in American society, if we want to. Killing them would be a choice.