Road Ahead for Social Security & Medicare

1. Road Ahead for Social Security & Medicare Linda Bennett AFSCME Legislation Department  Karen Gilgoff AFSCME Retirees Department

2. Agenda – Focus on Twin Pillars of Retirement Security – Medicare & Social Security • Overview of Medicare & other improvements due to Health Care Reform • Social Security threats from new federal commission on deficit reduction. • Fight Back Exercise

3. Health Care Reform in 60 seconds • Patient Protection and Affordable Care Act (P.L. 111-148) • Health Care and Education Reconciliation Act of 2010 (P.L. 111-443)

4. Improvementsto Medicare • Improvements to Guaranteed Benefits • Improved Value of Medicare Advantage Plans • Delivery system reforms to Improve Quality of Care • Strengthening Fiscal Health

5. Medicare Part D “donut hole” Key Facts • More than half of all Medicare beneficiaries are in Part D prescription drug plans • 3.4 million had spending in the coverage gap in 2007 • The gap in 2010 is $3,610 out-of-pocket; enrollees pay 100% in gap • Has the greatest impact on the sickest seniors

6. Standard Medicare Prescription Drug Benefit, 2010 Before Health Care Reform Plan pays 15%; Medicare pays 80% Enrolleepays 5% $6,440 in Total Drug Costs($4,550 out of pocket) $3,610 Coverage Gap (“donut hole”) Enrollee pays 100% $2,830 in Total Drug Costs ($940 out of pocket) Enrollee pays 25% Plan pays 75% $310 Deductible SOURCE: Kaiser Family Foundation illustration of standard Medicare drug benefit for 2010 (standard benefit parameter update from Centers for Medicare & Medicaid Services April 2009).

7. Medicare Part D “donut hole” Because of Health Care Reform • $250 rebate for Part D enrollees with any spending in the gap in 2010 • Beginning 2011, 50% discount on brand-name drugs • In addition, Medicare coverage for generic drugs in the coverage gap will also begin to increase • Beginning 2013, Medicare coverage for brand-name drugs will begin to increase • By 2020, Medicare pays 75% and enrollees pay 25% until enrollees qualify for catastrophic coverage • Catastrophic threshold reduced, 2014 - 2019

8. 5% paid by enrollee 15% paid by plan; 80% paid by Medicare 15% paid by plan; 80% paid by Medicare 100% paid by enrollee 75% paid by plan 75% paid by plan 25% paid by enrollee 25% paid by enrollee 100% paid by enrollee 100% paid by enrollee Standard Medicare Prescription Drug Benefit, 2020Before and After Health Care Reform Before: After: Catastrophic coverage Brands: 50% discount25% paid by plan Generics: 75% paid by plan 25% paid by enrollee Coverage gap Initial coverage limit Deductible SOURCE: Kaiser Family Foundation illustration of standard Medicare drug benefit in 2020 under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010.

9. In 2010, the donut hole… but

10. By 2020, the donut hole will have faded away.

11. Improvements to Medicare Guaranteed Benefits • Provides new annual wellness visit with personalized prevention plan • Eliminates cost-sharing for prevention services • Boosts payments for primary care

12. Improvements to Medicare • Improved Guaranteed Benefits • Improved Value of Medicare Advantage Plans • Strengthening the Financial Health of Medicare

13. Medicare Advantage Plans & Health Care Reform • NO Changes to Medicare GUARANTEED BENEFITS. • Improvements in value for MA beneficiaries. • Changes to the way insurance companies get paid to offer MA plans.

14. Medicare Advantage Plans Overview Key Facts • Medicare Advantage (MA) IS NOT a Medigap policy • MA plans are private insurance plans that can have different benefits and cost sharing than traditional Medicare • 24% of Medicare beneficiaries are now in Medicare Advantage plans • Medicare pays MA plans -- on average -- $1.14 for what $1.00 would cover for the same person in traditional Medicare

15. Medicare Advantage Plans Snapshot Key Facts • Overpayments have not led to better health for members but have increased insurance company profits • Higher payments to MA plans allow for some extra benefits, but increase Medicare spending, contribute to solvency problems, and increase Part B premiums for all beneficiaries • ALL beneficiaries are paying over $43.20 more each year in Part B premiums to subsidize private MA plans

16. Improved Value of Medicare Advantage Plans With Health Care Reform • 2011 - protects out-of-pocket costs for Medicare services and for people who use the most health care. • 2014 - all MA plans will have to spend more on health care benefits, rather than on administrative costs, marketing and profit. • $.85 out of every $1.00 must go to Medicare-covered health benefits.

17. Improved Value of Medicare Advantage Plans With Health Care Reform • 2012 - depending on where you live, some MA plans will be paid less than they are currently paid. The reductions will be phased in to align payments with traditional Medicare fee-for-service. • 2012 - MA plans will be paid a bonus if they provide higher quality care.

18. What will happen to MA plans because of the reductions in overpayments? Just as now, MA plans will continue to make a business decision every year whether to: • Continue to be a private contractor with the Medicare program; • Increase premiums; • Change or reduce the cost-sharing they charge and the extra benefits they offer.

19. Other Medicare Improvements and Changes Delivery system reforms to Improve Quality of Care • Boosts payments for primary care • New Center for Medicare and Medicaid Innovations • New Coordinated Health Care Office within CMS • Numerous programs, pilots, demonstrations to improve quality and efficiency Strengthening Fiscal Health • Reduces payments to Medicare Advantage plans • Reduces payments for hospitals and other medical providers • Creates new Independent Payment Advisory Board • Higher premiums paid by high-income beneficiaries. • Increase in payroll tax for higher incomes

20. Health Care Reform in 60 seconds • Coverage for the Uninsured • Strengthening Early Retiree Health Coverage • Long-term care benefit expansion • Elder Justice Act Protections • Financing of Coverage

21. Agenda – Focus on Twin Pillars of Retirement Security – Medicare & Social Security • Overview of Medicare & other improvements due to Health Care Reform • Social Security threats from federal commission on deficit reduction. • Fight Back Exercise

22. “For over 70 years, Social Security has been a pillar of our national economy, providing income to millions, even when the job market & the stock market have failed us miserably. Why would anyone want to change it now?” • AFSCME Pres. Gerald W. McEntee Fight against Soc. Sec. Privatization, 2005

23. Workers contribute 6.2% of pay, on a maximum of $106,800 in earnings (max in 2010, but cap goes up each year). Employers match this contribution, for a total of 12.4% of pay. Today’s contributions cover today’s benefits -- basically pay-as-you-go. It’s an insurance policy that protects workers AND their families. Benefits replace a portion of lost wages due to death, disability or retirement. How Does Social Security Work?

24. Composition of Social Security Recipients Source: SSA, Master Beneficiary Record, 2008

25. Social Security: It’s A Good Deal • Benefits for low-wage workers replace a larger % of their earnings, in order to give them a more adequate retirement income. • Higher-wage workers get a smaller %, but more $, reflecting larger contributions. • All beneficiaries get FULL COLAs (cost of living adjustments) – 100% of the annual increase in the CPI. • Once your benefits start, they’re paid monthly for as long as you live. They can never run out.

26. Retirement Income: 1962 vs. 2007*Social Security is More Valuable Than Ever *Percentage of older people receiving income, by source.

27. Social Security: 2010 Snapshot • Social Security currently has a • surplus of $2.4 trillion. • Trustees say all benefits can be paid in full through 2037, even if no changes are made. • The surplus may be gone in 2037, but payroll contributions alone will cover ¾ of all benefits, leaving a 24% shortfall. • This manageable shortfall - 2% of taxable wages - will be corrected over time. Source: 2009 annual report of the Social Security trustees.

28. Is Social Security Growing as a Share of the Economy? • Today, Social Security benefits are about 4.4% of GDP. • In 2034, when nearly all baby boomers will be retired, total benefits will rise to 6.2% of GDP – an increase of just 1.7 percentage points over 25 years. • The impact on GDP was much greater when the boomers were kids. In the 1950s, 60s and 70s, spending on education rose by 2.8 percentage points over 25 years. • The U.S. educated the biggest generation in history; surely we can afford the boomers in old age.

29. Retired Population Up,But Workers’ Total Dependents Down from 1960 Average

30. Social Security Does NOTAdd to Federal Deficits • Social Security has a dedicated revenue source: payroll contributions. It’s self-sustaining and doesn’t depend on the govt.’s general fund. • By law, Social Security is prohibited from borrowing in order to pay benefits. • Revenue that exceeds annual benefit payments is invested in U.S. Treasury Bonds at market interest rates; Social Security can draw on the principle and interest as needed.

31. Real Reasons for the Deficit • Tax cuts in 2001 & 2003: most went to high-income households (top 1% = over $350,000 a year). • Costly wars in Iraq & Afghanistan. • Great Recession.

32. Deficit Mania The Great Recession is driving up the deficit: • High unemployment = lower tax revenue & bigger federal outlays for unemployment insurance, Medicaid, food stamps, etc. • Deficit hawks are using this short-term fiscal problem to build support for long-range federal budget cuts. • Many in Congress wanted a fast-track “entitlements” commission, to focus on trimming benefit programs such as Social Security and Medicare. • Under pressure, the President responded with the National Commission on Fiscal Responsibility and Reformand a broader vision for deficit reduction.

33. Deficit Hawks & Chicken Littles • Pres. Obama says whole budget is on the table - taxes & military spending, too. Commission is not just about benefit programs. • 18 commissioners: 12 from Congress (6 Dems, 6 GOP), 6 named by the President. Many are deficit hawks who say the sky is falling. 14 votes required to send recommendations to Congress. GOP says “no” to new taxes.

34. Bowles & Simpson Commission Chairs are NC Dem Erskine Bowles & former GOP Sen. Alan Simpson of WY. “We’re going to mess with Medicare, Medicaid and Social Security because, if you take those off the table, you can’t get there.”Erskine Bowles “This country is going to the bow-wows unless we deal with Entitlements - Social Security and Medicare.”Alan Simpson

35. If it doesn’t add to the deficit, and it’s so important to American families, why is Social Security being targeted for cuts?

36. As the notorious Willie Sutton said, when asked why he robbed banks: “Cause that’s where the money is!”

37. Can the U.S. Afford Social Security? Definitely, YES. The cost of making permanent the 2001 & 2003 Bush tax cuts (the lion’s share going to the wealthiest 1%) is 3 timesthe cost of Social Security’s shortfall over 75 years. The very same people who championed those tax cuts for the rich are now threatening the retirement security of average Americans. Who are these predators? Some of them are billionaires….

38. Meet Peter G. Peterson, Wall Street Billionaire Peterson is a longtime deficit hawk, Nixon Commerce Secretary & Social Security privatizer. He donated $1 billion to his foundation in order to build public support for deficit reduction. To push his message, he started a newspaper, sponsors forums, and funds town hall meetings. Peterson’s #1 target? Social Security.

39. Medicare & Medicaid are alsoon the Chopping Block Most experts agree that Medicare and Medicaid costs are growing rapidly and the primary cause is general health care inflation. But before the dust even settles on the new health care reform law, some on the fiscal commission are calling for big cuts in both benefit programs.

40. So, get ready to fight. Our retirement security is under attack!

41. Agenda – Focus on Twin Pillars of Retirement Security – Medicare & Social Security • Overview of Medicare & other improvements due to Health Care Reform • Threats from new federal Debt Commission • Fight Back Exercise

42. Fighting Back in an Infected Environment • Retirees and workers have heard about health care reform & deficit issues in an infected environment • Fear mongering • Downright lies • Hostile and sometimes racist verbal attacks • Fight back for November by inoculation

43. Poll: 41 percent believe in death panels

44. Exercise Task ½ of the tables will focus on Medicare/ health care reform ½ of the tables will focus on Social Security/Fiscal Commission threat Develop 3 key inoculation issues

45. Linda Bennett, AFSCME Legislation Dept. 202-429-1153 lbennett@afscme.org  Karen Gilgoff, AFSCME Retirees Dept. 202-429-1274 kgilgoff@afscme.org AFSCME1625 L St. NW  Washington, DC 20036