Smart SpendingSmart Spending

Threats to Social Security, Medicare?

The Gang of Six plan to cut the federal deficit calls for changes to both but doesn't spell out many details.

By Karen Datko Jul 20, 2011 2:27PM

You've heard of the Gang of Six by now -- the bipartisan group of senators who have crafted a plan to get the nation past the looming default crisis and into long-term deficit-reduction mode. (We should all be grateful for their hard work, even if we don't agree with them.)


Their proposal is to slash the federal deficit by $3.7 trillion over 10 years. From The Washington Post:

It also calls for raising more than $1 trillion over the next decade by reducing a variety of popular tax breaks and deductions, including breaks for home mortgage interest and employer-provided health care. While some of those savings would be dedicated to debt reduction, the rest would go toward lowering tax rates for everyone, with top individual and corporate rates dropping to at least 29 percent, down from 35 percent.

That got your attention, no? But what exactly would happen to Social Security and Medicare, which, by virtue of their size and growth rate, must be a part of any discussion? (Here's the official plan outline (.pdf file), which we recommend you read in full.)


The Gang of Six is essentially leaving many of the specifics to congressional committees to work out. However, some are included in the outline. Post continues after video.

Social Security

Any changes to Social Security would be separate from deficit reduction but must keep the program solvent over 75 years. "Proponents today are emphasizing that savings from Social Security reform -- means testing is a possibility -- are to be plowed back into the Social Security system," wrote Political Insider blogger Jim Galloway at The Atlanta Journal-Constitution. "They wouldn't be applied to the deficit."


Cost-of-living increases to Social Security benefits would be tied to the "chained" Consumer Price Index, which some consider a more realistic measure of how inflation impacts household spending. That would mean smaller annual increases -- estimated at 0.25 of a percentage point less per year -- for seniors when the cost of living goes up. SSI would be exempted from the shift for five years.



Medicare and Medicaid as we know them would continue -- pretty much. The outline calls for some hefty cuts "while maintaining the basic structure of these critical programs."


The steps include:

The health law's 15-member IPAB would recommend Medicare provider cuts if the program grows faster than a target rate; Congress would have to propose savings of the same magnitude or the IPAB proposal would become law by default. The board was created as a stopgap to force lawmakers to control Medicare spending, something they have historically failed to do.
  • Fixing the flawed system for reimbursing doctors, called the Medicare Sustainable Growth Rate formula, at an estimated cost of $298 billion over 10 years, plus find another $202 billion in heath care savings.
  • Adopting medical malpractice reform.
  • Cutting waste and fraud, which could amount to a lot. "The GAO tells us that we spent last year $50 billion in improper payments in Medicare," Sen. Tom Carper, D-Del., said.

Finally, the Gang of Six proposes to repeal the CLASS Act, a voluntary insurance program to provide in-home care to those who become disabled, including the elderly. It was set to begin in 2012.


What do you think? The chained CPI idea has already drawn lots of criticism. Alex Becker at The Huffington Post wrote:

According to the advocacy group Strengthen Social Security, the chained-CPI could lead to annual Social Security benefit cuts of $560 for those aged 75, $984 for those aged 85 and $1,392 for those aged 95.

The "gang" is composed of Sens. Saxby Chambliss, R-Ga.; Tom Coburn, R-Okla.; Kent Conrad, D-N.D.; Mike Crapo, R-Idaho; Dick Durbin, D-Ill.; and Mark Warner, D-Va.


More on MSN Money:

Jul 21, 2011 7:15AM

Is it only me, that thinks the FED, should repay the SS Trust Fund the $2+TRILLION, they have stolen (sorry borrowed) back?


AND perhaps;


Immediately, QUIT TAKING IT.

Take off the people that have NOT paid into it

STOP making Anchor Babies, INSTANT CITIZENS, that are dependant on it.


Would this not shore up this fund, for it's PURPOSE?


It sure beats the Hell out of telling people that have paid into it for 40-50 years, (by NO choice of their own) they do not get, what they were promised!

Jul 21, 2011 4:51AM

Congress and the Administration taking a pay cut would be a great idea and step in the right direction and setting a fine example of "walking the talk." What's good for us should be a requirement for our gang of six and their kind.


Reduce their benefits, increase their time of service before they can retire and tax their campaign donations as income. No more self voted salary and expense account increases silently slipped into stealth legislation. Transparency vs. slip and side.  Wow, that would fly like a lead balloon!


Balance our budget and come up with an "real" debt reduction and not a temporary deficit  fix or no paycheck until it happens.


Who knows, anything's possible but I won;t hold my breath too long on this one.


Jul 20, 2011 5:09PM
this "gang of six" needs a plan to reduce government pension and health benefits
Jul 20, 2011 4:46PM

Social Security is solvent and can pay 100% of it's benefits through 2032 and has 2.4 TRILLION in (God forbid) U.S. treasuries. Medicare too is solvent until 2024.  The government has given the middle class a 2% tax cut by cutting the FICA taken out of paychecks so the dates had to be re worked downward to these dates recently.

The wealthy (those making more than $380,000 taxable income) have the lowest tax rate in history. Those are the folks that are being protected from a tax increase. They also now have the lowest capital gains tax...15%!

I get the picture now! Our congress is protecting the truly wealthy from the old, the ill, the lame and all of those nasty peons.  

Jul 21, 2011 8:07AM
My 86 year old surviving mother lamented that she has watched Social Security morph from a mandatory government managed savings program benefitting the tax payer into a mandatory tax program benefitting the government..  The Democrats created it under Franklin D. Roosevelt then the Republicans started borrowing from it while issuing all kinds of propaganda to the public about how it would be returned with interest later on.  Then as several generations passed they gently hinted to them that the weekly withholding for Social Security was actually a tax due the government to pay for current retirees.  Now most people under 40 actually seem to believe that.  In essence it has turned into a government sanctioned ponzi scheme with public acceptance.  I find it kind of funny that when Bernie Maddhoff did it to the wealthy they put him in prison but when the government does it to the little guy it is just being fiscally responsible.  LOL
Jul 21, 2011 8:09AM

Hey Jackson... YOU will be an older American a whole lot sooner than you think. When you get there without medicare, you will be totally screwed. Don't take my word for it, call your health plan and see what they want for a decent policy for someone 65 without medicare, not to mention 70 or 80. I doubt any private insurance company would even cover an 80 year old at any price. Remember, the insurance industry bases coverage and rates strictly on RISK evaluation. You will be right about the plan not being there when you reach the age of need as long as you vote and support what your  told by the self serving private insurance industry, the  U.S. Chamber of Commerce and the so called NEWS spin machine media blitz against medicare. Business has resisted medicare since it's inception. Everyone dislikes medicare UNLESS your on it, then republican or democrat, ALL say don't mess with medicare. As far as social security goes you are dead wrong. As the system is set up right now, it will pay out 100% for nearly 30 years before any cuts would have to occur. With some minor doable changes, social security will be solvent for another 75 years. Again both republicans and democrats agree on that premise. the only disagreement  is on how to do it. You don't have a clue about what your ranting about, if you don't support BOTH these programs you are only  helping corporate America SCREW you.

Jul 21, 2011 8:51AM
I think if you cannot buy food ,shelter,medicine we will all start to die at a high rate! This will solve the problem and is what the DEm and REpubs want to happen.It will reduce our elderly population we do not need them around anymore. SORRY you clowns we are not dead yet!  When are we going to start protesting in the streets? 
Jul 20, 2011 10:30PM
The government should ask the congress to take a cut in pay. The american people has helped so many countries when they were in trouble, so who is going to help us ?  We have always bailed them out in a crisis, when the other countries needed our money. The american people are tired of digging deep in their pockets to try and feed our families, and the government are trying to starve us to death. People are losing their homes, and their jobs, their lively hood, and now you are trying to starve us to death.The same congress that sit by and let George Bush screw us right in our face. They can't say that they didn't know anything about it, Congress and all the politicians were were getting a piece of the pie also.There public is outraged at how our government wants us to keep bailing our country out of the hole, Where were they when everthing was going down?, they want us to think that our government has our best interest at stake. Tell me how, Look at all the jobs , that were taken from our coutry, to oversease , and the ones that are left, most of them are given to the foreigners right in our face. If we would go to their countries we would not be able to get the same treatment they receive here. So if the government want the american people to bear the blame for something they did wrong, then" they should take a cut in pay also . 
Jul 21, 2011 11:10AM

I am proposing to add next year in election ballots, to bring all politicians to social security instead of their own pension plan, which is 100% of their present salary for life with the same benefit , and it should include every politicians including POTUS.

I also propose all persons to get  medicare based on cuts in doctors, hospitals, and insurance payment to a realist numbers, not paying $200 for administration of Tylenol type of garbage.

I also propose to evaluate Medicaid to give benefits to genuine people who really deserve, and eliminate all illegal, and people who have never worked and don't intend to.

The tax should be shared by every one. If we all are citizens then we should share our tax burden also instead of 50% people getting free ride.

And finally I also propose to add in next year's ballot to have a mandatory balanced budget for all states as well as fed.


Jul 20, 2011 5:02PM
It's true that Social Security has 2.4 trillion in IOU's from the Treasury for funds collected in excess of benefits paid, however this money has already been spent by the Treasury.  These IOU's also don't count towards the nationl debt, since they are both an asset (SSA) and a debt (Treasury) on the goverment's books.  For Treasury to pay these bonds to the SSA they would have to sell Treasury securities on the open market to raise the funds, thereby raising the Federal Debt.  SS is a pay as you go system and always has been.  There is no "trust fund".
Jul 21, 2011 12:41PM

I can not determine my salary or pay increases, so why should Congress determine theirs. eliminate their pensions and medical benefits. Let them do as they propose that we the people do.


All income should be taxed!

Jul 21, 2011 8:39AM
Why doesn't all government employees who get a pension get there pensions cut in half ,look at all the savings ,get out of IRAQ,PAKISTAN,AFGANISTAN,HAITI,,look at all the savings,stop the space program ,look at the savings ,protect our borders , deport all illegals ,look at the savings
Jul 21, 2011 10:38AM
They named them right, "GANG". Another attack on the middle class. Taking what few tax breaks the middle class have like the home interest deduction . But in the mean time giving the wealthy another break on top of the BUSH tax cuts they received in 2002. The wealthy already can afford accountants to give them every break possible. If you're going to screw the middle class, how about asking the wealthy to bend over just a little.
Jul 21, 2011 10:20AM
Why can't we make taxation understanding that nearly half of the people pay no taxes...what about giving people tax refunds for more money than they paid in.   I say make it fair across the board whether you make 10,000 a year or ten million a year everyone, and I mean everyone pays their fair share.  I have been working for 40+ years and do I want to collect my social security, of course and I have a pension I have been funding but with the cost of everything going up I believe I will need that SS just to survive,   Oh, that's right according to the govenment there is no inflation.  Of note, where are their cuts and pain...for the last 4 years I have been on a wage freeze and my deduction for health insurance continues to go up...We the middle class are always on the short end of the stick.  
Jul 21, 2011 11:33AM
They should close the loopholes and remove the caps on social security income. Collect taxes on all earnings, public and private, including directors compensation, deferred compensations and bonuses, cash and non cash,, in the year awarded. No Caps, No Exceptions, Everybody Pays.
Jul 20, 2011 4:51PM
Are these Medicare cuts in addition to the 500 Billion dollar cut in the health care bill?
Jul 21, 2011 8:20AM
I have read numerous comments, and so far you all miss the point.  Any government has the responsibility to take care of its people, FIRST!!!  What ever it takes. You make sure your people are fed, clothed, sheltered, and have the finest health care possible.  Rich or POOR, or inbetween. Any government that cannot assure every individual, rich, poor or inbetween, have those basic needs, is WORTHLESS !!! The governments today are run by ignorant, arrogant, insolent, children, that want all the toys for themselves !!!  They want billions of cuts for benificial programs, that can help their own people, and in the same breath billions more for WAR to kill other people. On both sides, kill the GOOD, but feed and line the pockets of the BAD and UGLY !!! Get your heads out of your butts people !!! ALL PEOPLE NEED FOOD, CLOTHING, SHELTER, AND GOOD HEALTH CARE. IF THEY CANNOT AFFORD THESE BASIC NEEDS,  THEIR GOVERNMENT IS OBLIGATED TO PROVIDE THOSE NEEDS !!! IF THEY DO NOT,  ANY THINKING INDIVIDUAL SHOULD CONCLUDE --------- draw your own conclusion, BUT GET THE POINT !!! I don't want to hear this crap about socialism either. Every person should carry his OWN LOAD, not freeload, but if he cannot, FOR ANY REASON,  your government should supply those needs AT NO COST !!!  I could rant all day, but, whose going to listen. Its a world full of the blind being led by the blind !!!   
Jul 21, 2011 1:01PM

There is one OTHER thing that NEEDS to be tied to ANY budget that gets passed this year that would prevent this sort of thing from EVER happening in the future, that is :


 ...pass a law that says that "anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”



Jul 21, 2011 1:23PM

@The Rules of the Road

"We have lived in an entitlement society too long (I am only 32) and want everything handed to us.  I have my own financial retirement planner and do not have a section for social security income.  I am not counting on one cent!"


The fact that you don't expect one cent from S.S. because it is an "entitlement" makes you an idiot plain and simple (sorry for the name calling, but there is no help for it here).  The government MADE ME AND my employer pay $8k to $12k per year into S.S. over the last 25 years, with the promise of a retirement benefit (I even get an estimate of that benefit each year based on my contribution amounts!).  That is not an entitlement in my book (welfare is!).  I am paying for a forced retirement plan for my own good (it was for those not disciplined to save for retirement on their own). 


I'll be glad to forgo this "entitlement."  Just give me back my $250k, plus interest, and then I won't expect a cent either when I retire.  WAKE UP MAN!   FYI - S.S. checks only make up about 20-25% of my initial retirement planning, but it would be nice to know that I will get what was promised.  Maybe if the politicians could stop stealing from the SS fund, and stop the mismanagement, SS would be solvent.

Jul 21, 2011 3:14PM

Every financial advisor will tell you to crank up your 401k contributions as you get older. What would be the problem with "cranking up" Social Security withholdings as we get older?


I can only think of one argument against this: it would take too much play money away from the Wall Street gamblers.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.