This morning, Governor Chris Christie (R-NJ) delivered an important speech in New Hampshire on the need for entitlement reform. The speech not only focused on the need to address the rapid growth of Social Security, Medicare, and Medicaid but actually put forward a plan to begin addressing these issues. By our rough estimate -- and depending on many of the details -- this plan would save over $1 trillion in the next decade alone while significantly improving the solvency of Social Security and Medicare.
Below is a short summary of Governor Christie's plan.
Social Security Reform
In his speech, Governor Christie called for Social Security reform, explaining that the program "is slowly working its way to insolvency – which the actuaries say will come in the early 2030s, less than 20 years from now... as the number of workers relative to the number of beneficiaries continues to shrink."
To address Social Security's looming insolvency, Christie proposes a number of changes. The most significant policy, in terms of savings, would be to raise the normal retirement age by two months per year from age 67 in 2022 (as under current law) to age 69, and then index it for life expectancy. At the same time, his plan would raise the earliest eligibility age from 62 to 64.
In addition, Christie proposes to calculate COLAs based on the more accurate chained CPI (with a benefit bump-up for 85 year olds), to phase out Social Security benefits for the highest earning seniors (phased out between $80,000 and $200,000 of non-Social Security income), and to eliminate the payroll tax for senior workers.
Christie also calls for a number of significant reforms to the Social Security Disability Insurance (SSDI) program, something we've been exploring through our SSDI Solutions Initiative. The proposals he discussed included encouraging employers to retrain and rehabilitate disabled workers, increasing recency of work requirements, funding Continuing Disability Reviews, and enacting other measures to encourage a return to work.
|Gov. Christie's Social Security Plan|
|Policy||Percent of 75-Year Shortfall Closed|
|Means-Tested Benefits for High Earners||~15%|
|Gradually Raise Normal Retirement Age to 69 and Index to Longevity||~35%|
|Gradually Raise Early Retirement Age to 64||*|
|Use Chained CPI for Cost-of-Living Adjustments||~20%|
|Increase Benefits for Oldest Seniors||~-5%|
|Eliminate Payroll Taxes for Older Workers||~ -10%|
|Tighten Disability Insurance "Recency of Work" Requirements||~5%|
|Enact Other SSDI Changes and Reforms||*|
|Total 75-Year Shortfall Closed||~60%|
Source: SSA, rough CRFB calculations
*Small or unknown impact
Taken together, we estimate these changes would close about 60 percent of Social Security's 75-year shortfall. Although this is not enough to make the program fully solvent, it is a tremendous start. Additional savings could come from changes to initial benefits, the tax rate or base, or a variety of other areas. Our Social Security Reformer tool offers many options to round out his plan.
In addition to closing three-fifths of Social Security's shortfall, many of the policies in Christie's proposal have the potential to encourage longer working lives, which could pay significant fiscal and economic dividends down the road.
Christie proposes a number of reforms to both Medicare and Medicaid, explaining that those programs "are 9 times as big as they were 25 years ago and the U.S. economy is only 3 times as big. This is not sustainable."
To address Medicare's finances, he proposed three changes. The first would build on the policy for Medicare premiums included in the current physician payment bill by further increasing premiums for high earners in a similar way to that proposed in the President's budget. The second would also modernize Medicare's cost-sharing, taking a recommendation from Simpson-Bowles to create a single Part A and B $550 deductible, 20 percent coinsurance up to $5,500 of out-of-pocket costs, and 5 percent coinsurance up to the out-of-pocket limit of $7,500. Finally, he would raise the Medicare eligibility age by one month per year so that it would reach 67 by 2040 and 69 by 2064, a policy that would generate modest but increasing savings over time.
For Medicaid, Governor Christie would place a per-capita cap on federal payments to states, limiting the growth in payments per Medicaid beneficiary (by beneficiary type) to the growth in inflation. In addition, Christie would introduce modest co-pays for doctor and hospital visits for beneficiaries making above the poverty line, provide states with more flexibility in part by streamlining the waiver process, and move beneficiaries eligible for both Medicare and Medicaid ("dual eligibles") into managed care.
|Ten-Year Savings for Gov. Christie's Plan|
|Increase Medicare Means-Tested Premiums||~$35 billion*|
|Reform Medicare Cost-Sharing||~$65 billion|
|Increase Medicare Age by One Month Per Year||~$20 billion|
|Limit Per-Capita Federal Medicaid Spending||~$600 billion|
|Introduce Medicaid Co-Pays for People Above Poverty Line||~$5 billion|
|Streamline Medicaid Waivers and Utilize Managed Care||**|
|Total Health Care Savings||~$725 billion|
|Ten-Year Savings from Social Security Plan||~$200 billion|
|Net Interest Savings||~$140 billion|
|Total Deficit Reduction||~$1.06 trillion|
Source: CBO, SSA, rough CRFB calculations
*Assumes enactment of physician payment bill (H.R. 2)
**Small or unknown impact
The precise savings generated from these policies depends heavily on a number of important technical details. However, we estimate roughly that Christie's health plan would save over $700 billion over the next decade (note this number is highly dependent on the details of his Medicaid per-capita cap), and far more over the long run.
Combined with savings from Christie's Social Security plan and net interest savings, the policies he outlines could save well over $1 trillion. If he adopted the Chained CPI government-wide, including for the tax code, those savings would grow to $1.3 trillion.
It is incredibly encouraging that Governor Christie is speaking on the importance of addressing the unsustainable growth of Social Security, Medicare, and Medicaid. As we’ve explained before, those three programs are on course to grow substantially in the coming decades. As a result, the national debt is on course to grow from a post-World War II record 74 percent of GDP today to 100 percent in the next 15 to 20 years. Governor Christie put forward a thoughtful set of ideas to begin the conversation on entitlement reform, a conversation that needs to happen. As CRFB president Maya MacGuineas said about his speech:
More important than the policy details is the fact that Governor Christie is talking about the need to address the unsustainable growth of our entitlement programs instead of running from the issue. There is no one perfect solution to this problem, and people may disagree with Governor Christie’s proposals, but he should be commended for putting forward ideas and attempting to start a national conversation.