On Thursday morning, AEI's Andrew Biggs, the Urban Institute's Eugene Steuerle, and Stanford University's John Shoven convened to discuss the structural problems of Social Security and Medicare that decrease work incentives for older Americans. The panelists agreed that as people live longer and the expected duration of retirement benefits increases, the programs should be reformed to incentivize people to work longer. Steuerle proposed offering partial retirement options to encourage workers to continue working even after they reach the Social Security claiming age.
Biggs recommended eliminating the 12.4 percent payroll tax rate for workers older than 62, which would increase the tax incentive for older workers to stay in the work force in a simple, revenue-neutral approach. Shoven then described the "Medicare Secondary Payer" requirement -- in which workers over the age of 65 are required to purchase employer-offered health insurance if it is available rather than claim their Medicare benefits -- as an on-average 30 percent tax for workers over the age of 65. He proposed removing this tax by adopting Medicare as a primary payer to keep people in the workforce longer. Near the end of the discussion, Steuerle emphasized the importance of taking a holistic approach to entitlement reform, which includes but is not limited to improving work incentives at older ages.
Social Security and Medicare are the two largest government programs, accounting for 36 percent of federal expenditures in 2011. In the coming decades, both programs will experience substantial cost growth because of a decreased ratio of workers to retirees and — in the case of Medicare — growing health care costs. Without reform, these programs will continue on an unsustainable path.
Reform proposals often focus on altering the level of entitlement benefits and payroll tax rates. However, Social Security and Medicare programs currently discourage work at older ages and discriminate against two-income families. Our expert panel will discuss ways to restructure the programs to improve work incentives, fairness, and solvency.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.