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6 Reasons Joseph Stiglitz and Other Top Economists Think Means-Testing Medicare & Social Security Is a Destructive Idea

Means-testing is a back-door strategy for taking away benefits earned by hard-working Americans.

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As political economist Thomas Ferguson told me: “The truth is that means-testing is a device to destroy political support for what are still the most popular of all government programs – programs that have survived decades of attacks by the right.”

3. Means-Testing Doesn’t Make Economic Sense

Proponents of means-testing will tell you it’s a great way to save money. But that’s not really true. In fact, it will likely raise costs for middle- and lower-income seniors who rely on Medicare and Social Security to live decently in retirement. 

Means-testing will cause many high-income beneficiaries to view the programs as unfair, and they will opt out, purchasing their own insurance and retirement policies on the private market. Programs like Medicare and Social Security depend on spreading risk across a large pool of people. For example, the departure of higher-income beneficiaries from Medicare, who tend to be younger and healthier, would increase overall costs and diminish public support.

Means-testing impacts costs in several other ways. For one thing, it would turn Medicare and Social Security into what economist James K. Galbraith referred to in an email as “an administrative horror show” that will make the programs more expensive to run.

It’s interesting how conservatives constantly argue that raising tax rates distorts the economy and produces disincentives to work. Joseph Stiglitz pointed out to me that means-testing has just the effect conservatives say they are against: “The phase-out is an effective increase in the marginal tax rate. So if your income goes up and you lose benefits, that’s a disincentive for working. Every means-testing has that adverse effect.” Dean Baker further pointed out that very high effective marginal tax rates give people enormous incentives to game the system.

But what can we do about rising healthcare costs? In his blog, Jared Bernstein cites growing healthcare costs as a reason for means-testing. Healthcare costs are certainly growing, but not because of the benefits received by the elderly. They are growing because of monopolistic conditions in the insurance industry, insanely high prices for drugs charged by pharmaceutical companies, and a fee-for-service system that encourages doctors to charge for expensive and unnecessary services. If you want to deal with rising healthcare costs, you deal with those issues.

People who want to means-test Social Security come up with all sorts of baloney to convince you that the program is in crisis when it isn’t. In fact, it is solvent, prudently managed, cost-effective, and carefully monitored. Social Security is indisputably America’s most successful program to date, which is why people love it. A 2011 poll shows that despite all the political posturing and fabrications , most Americans still have not bought the lie that the program is in crisis. In fact, most of them would like to see benefits increased!

4. Means-Testing Plays into Conservative Deficit Hysteria

Conservatives promote deficit hysteria because they have a fundamental hatred of government and wish to destroy the New Deal programs that have benefitted the middle class and the poor. If they were really concerned about deficits and spending, they would not support costly and unnecessary wars, monopolistic conditions, and extremely low taxes for the wealthy and large corporations.

By falsely asserting that the benefits of Medicare and Social Security are major drivers of the deficit, conservatives try to divert attention from the wasteful things that actually drive deficits.

Social Security does not contribute to the deficit. It is a well-managed program in fine fiscal condition, and there is no justification for tampering with it now. The Trustees Report shows that the program will be able to meet all of its obligations at least until 2033. If there is a tweak needed down the road, that can be handled very simply by raising the cap, which stands now at just over $100,000. If you are truly concerned about income inequality, raising the cap is a much better way to address it than means-testing.