Social Security has generally lost visibility as Washington and voters have focused on healthcare. It is ironic because any questions about healthcare should put Social Security in the spotlight on the front-page.
A Strange Place to Lose Visibility
Why? The Affordable Care Act (ACA) added about $1 trillion of projected revenue to the program in 2010 (see the comments for details). At the time, economists believed that this legislation would cause paychecks to rise as healthcare costs are reduced. This sequence is great for Social Security because compensation will shift from healthcare premiums that are exempt from payroll taxes to wages that are taxable.
I am not saying that the ACA was smart legislation, nor that laws by themselves will control the cost of healthcare. The point here is that the Trustees assume that it would push the cost of health insurance down and consequently the paychecks of workers higher.
Questions about the financial stability of Social Security are drawing near zero attention because of a healthcare initiative that stands to cost the program $1 trillion.
The ACA = Higher Wages Far Into the Future
Here is the theory condensed. Employee compensation is broken into two parts, wages and the costs associated with employment. Health insurance is an example of the latter. If the costs of employment go down, wages must rise so that total compensation remains the same.
That is the theory, and it depends upon two different assumptions. First, the ACA will lower the cost of health insurance experienced by the employer. Second, the employer will spend the savings on employee wages.
The economics are sound, and discussed in greater detail in the 2010 Trustees Report. More analysis can be found on the SSA’s site (see independent analysis). In that report, the authors concluded:
“The health insurance cost trends exerted a disproportionate downward pressure on money wages below the taxable maximum.”
If you doubt their reasoning, healthcare costs are a visible element of rising income inequality. This is part of the reason that the program’s revenue base has fallen from 90 percent of wages to 83 percent over the past 30 years.
We Are Talking a Lot of Money
The ACA represents a $1 trillion smart-move for Social Security.
This money does not arrive in one year. It arrives over the course of decades. The $1 trillion figure is the value in 2010, so we are dealing with a massive change. We are talking about repealing the law, and no one is talking about breaking Social Security.
Are They Right?
I don’t know, but the 2017 Trustees Report gives you an idea of what might happen if they are even slightly wrong. In that tome, the trustees decided that the projected cost savings were too high. The CMS data that they review suggests that businesses were not saving as much as we had previously expected. So there is less money to share with employees. The drop was nearly .01 percent, a figure so small that it was lost in the rounding process. That adjustment led the Trustees to increase the system’s unfunded liabilities by $500 billion.
The Visible Takeaway
Before we dismantle the ACA, someone ought to ask what will happen to Social Security.
For people interested in the question, the Bipartisan Policy Center published a preview of the 2017 Social Security and Medicare Trustees’ Reports written by the former Public Trustees of the Social Security and Medicare Trust Funds Charles P. Blahous III, Ph.D. and Robert D. Reischauer, Ph.D. (see more).
Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.
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