A Quick Take on Governor Christie's Entitlement Plan

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.

Health Care

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
Policy Ten-Year Savings
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.

True Insurance for Seniors?

 By now, CRFB is probably salivating, licking its collective chops over the red meat Social Security reform proposal Chris Christie hurled at Ken Langone and other Wall Street poobahs to bolster his sagging presidential hopes, recently sputtering on life support. 

 
I’m eagerly awaiting your reply that will likely endorse Christie’s proposal, which flew under the radar of your Social Security Reformer. 
 
Means testing for Social Security on current income is patently unfair and counter-productive. Current seniors, those taking RMDs from 401Ks and IRAs, will bear the brunt. Future seniors will find ways to gift income producing assets to children to stay under the threshold. (People do this to get Medicaid to pay for nursing homes.)
 
I can and do support Means Testing for Part B of Medicare, which is not a paid for benefit, unlike Social Security.
 
Means testing Social Security will provide a horrible degree of uncertainty and unpredictability for seniors, who relied on the government’s promises for more than forty years.
 
Chris Christie and the Heritage Foundation likens Social Security to isnurance. Seriously? Would you pay 12.4% of your annual salary for a term life policy or auto insurance? You might pay that much for annuity if you didn’t have to fork it over to the government to fund someone else’s retirement.
 
I’m hoping you will answer my post or at least make it available to others. This issue is not going away.
 

Your Numbers Don't Work

 

Christie's means testing affects the top 2% of beneficiaries based on current income.

 

Your "Social Security Reformer" means test on current income for the top 1%. When you say Christie's numbers will close 60% of the funding gap, how did you arrive at this number.

 

Also, Christie's policy statement established that his changes would not impact current retirees and near retirees, but didn't specify the cut off point. The policy statement said the means testing would be phased in gradually. How gradually?  If so, how can you boldly assert that his proposal would solve 15% of the funding problem?

 

What does CRFB.ORG know that you are not saying?

 

There aren't specific details

There aren't specific details on the means-testing so we don't know for certain how much it saves, which is why the tilde is there. For the estimate, we went off this option on SSA's website. It starts in 2020 for new beneficiaries and phases out half of benefit linearly between $60,000 and $180,000. It closes 10% of the shortfall, so since Christie's policy phases out the entire benefit but applies it starting at a higher income ($80K to $200K), we figured it would save more but less than twice as much, hence the ~15%.

Christie's proposal

What you have not disclosed is that about 1/3rd of the savings is collected by the IRS in the form of taxation on benefits. That money is returned to Social Security and Medicare. This change will reduce Medicare's take on those taxes by 10-15 billion per year. So while you may strengthen Social Security, it does so by taking revenue away from Medicare. For full disclosure, I think it would be fair to say that the lost revenue has to be made-up someplace else.

Non-SS costs and savings

You make a fair point, but the effects are relatively small. Our numbers account for most of the reduction in revenue from taxation of benefits, which goes to Social Security. What it does not account for is the smaller portion of taxation of benefits that is dedicated to Medicare and would be a deficit-increaser for the rest of the budget.

 

In a final Social Security plan, it is important to take into account the non-Social Security impacts as well. Christie's plan so far will have a variety of impacts moving in different directions. For example, his proposals to raise the retirement ages and reduces the payroll tax after age 62 will both tend to increase income tax revenue and possibly reduce the costs of some non-Social Security programs.

 

On net, it is tough to know whether Governor Christie's plan will increase or decrease the non-Social Security deficits, but we believe the impact will be relatively small -- certainly when compared to the total Social Security impact of his plan.

 

(By comparison, the Sanders plan -- which we analyze in part here -- is likely to have a very large impact on non Social Security revenue).

Not more rules: Less government

U S govt should reduce their presence in the retirement and medical businesses. Less taxes, less payouts. 
 
Seek ways for citizens to fund their own retirement and medical requirements.
 
Stop it with the big daddy  (or mommy) knows what's best attitude. 
 
 
Really. . .
 

Christie

I am pleased to hear someone talk of realist soulutions to the issues.

Christies Social Security plan unfair to savers

 This plan is unfair to those of us in the middle-class who sacrificed fancy cars and expensive vacations during our working years to save for retirement.  Those who splurged during there working lives will get their full social security and those of us who saved will get screwed out of some or all of our benefit that we paid for.  I will get a pension once I retire, but my employer (one of the few coporations to still offer a pension) pays us about 20% below market wages - The promise of a pension keeps us working there despite the low wages.  Under Christies plan, people who saved money from those higher paying jobs will have that money to enjoy during retirement (won't be counted as income because it was already earned) but my pension will be counted as retirement income.  Combining my pension with what I expect to need to withdraw from my 401k in order to support my base expenses will put me over $80,000.   Also, $80,000 is not much money when you live in the San Francisco Bay Area.  A typical mortgage plus property taxes will run $4700 a month or more here (unless you were lucky enough to have bought a home here 25 years ago when it was more affordable).  A cut or reduction to social security will force me to move from home.  Christies' plan penalizes people 

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