In 1965, health care programs and Social Security spending were less than a sixth of Washington's budget, but today they consume almost half of all federal spending and crowd out other national priorities. Without action, the problem will only get worse: Spending will more than double -- as a share of our economy -- by 2040.
Unless we make changes to preserve and protect Medicare and Social Security, the trust funds will be exhausted and benefits will be cut. In Medicare, hospital benefits will be cut by nearly 15 percent in 2030. In Social Security, benefits will be cut by more than 20 percent in 2034.
Be honest about the problem: Medicare's current path is unsustainable. Medicare spending is crowding out other national priorities. On the current path, the country will spend more on Medicare than it will on national defense by 2019. Over the next 75 years, the program will exceed dedicated financing sources by $28 trillion.
Implement bipartisan Medicare premium support. Under current law, seniors in Medicare can choose the traditional option (called fee-for-service) or private health plan options (called Medicare Advantage). However, politicians, bureaucrats and lobbyists -- not doctors, patients and innovators -- decide how much government pays for those benefits. Under this proposal, private health care plans (like Humana and Kaiser), other innovators and traditional Medicare will compete on the best price to offer Medicare benefits to seniors. Seniors' premium support will be based on the average of those prices -- and be 6 percent lower on average. Competition will make spending more efficient, and seniors could pay less and have more options.
Stabilize Medicare's finances with common-sense reforms.
Increase means-testing for Medicare premiums: This proposal further reduces the level of government subsidies for wealthier seniors, as consistent with bipartisan proposals. For example, a senior making $160,000 would receive a 35 percent subsidy from the government under this proposal (compared with 50 percent under current law).
Improve Medicare management practices: Ten percent of Medicare's annual budget is now subject to waste, fraud and abuse. The Government Accountability Office has made common-sense recommendations to reduce the level of improper payments, which Governor Bush will review and implement as appropriate.
Ensure fee-for-service providers are appropriately reimbursed: Payments should balance access to services with obtaining efficiency from providers. Updates should be implemented with a particular focus on reimbursement innovation, instead of simply blunt cuts.
Provide financial security through Health Savings Accounts (HSAs): Once a senior enrolls in Medicare, he or she cannot save money in a tax-free HSA. Governor Bush will allow seniors to keep their HSAs to help save for out-of-pocket health care spending. In addition, a senior's health plan or provider could contribute money to an HSA.
Redirect ObamaCare's Medicare cuts to Medicare solvency: ObamaCare raided Medicare by more than $800 billion to create a new entitlement. Instead, Governor Bush will ensure that Medicare savings in current law go toward improving Medicare solvency and securing it for the next generation.
American retirement income security solutions:
Encourage private saving to reduce government dependency: Make it easier for Americans to save more of their own money for retirement, reducing the need to rely only on Social Security.
Increase access by reducing complexity: Reducing unnecessary burdens could make it easier for employers, especially small businesses, to offer retirement plans.
Increase retirement plan options for workers: Workers in most large- and medium-sized businesses have access to a 401(k) retirement savings plan, but many small businesses cannot afford to pay toward retirement plans for their workers. Governor Bush will help small business workers by allowing them to automatically save part of their salary in a "starter 401(k)" plan, even if their employer cannot afford to contribute a matching amount.
Make it possible for small businesses to pool together: Multiple small businesses should be able to access a single retirement savings plan for all their employees, which will save administrative costs and complexity.
Make it easier for employees to enroll in their own retirement savings plans: Governor Bush would encourage employers to automatically enroll their employees in a retirement savings plan. This makes it easier for workers to save their own money for retirement because their employer handles the sign-up process and automatically saves part of their paychecks.
Make it easier for employees to save more money from each paycheck: Employers can currently help their employees save by automatically diverting up to 10 percent of each paycheck into a private savings account. Governor Bush will eliminate the 10 percent arbitrary limit on this savings tool.
Make it easier for individuals to save: Earlier this year, the Obama Administration rewrote the rules for who is qualified to give investment advice for retirement plans. These sweeping proposed regulations will limit consumer choice of financial advisors, hurt low-income Americans and drive up the costs of private saving. Governor Bush will not let that happen.
Recognize that Americans are living longer, healthier lives and make it easier for those who choose to work longer.
The following reforms will value work:
Adjust benefits for seniors who choose to retire early or work past the retirement age: Under current law, seniors who choose to retire before the normal retirement age (66) get smaller Social Security checks, while seniors that choose to work longer get bigger checks when they retire. Half of workers retire as soon as possible and most workers retire before reaching the full retirement age. Governor Bush will give even smaller checks to those who choose to retire early and even bigger checks to seniors who choose to wait to claim Social Security benefits.
Eliminate the retirement earnings test: Under current law, the government reduces the amount of Social Security benefits for seniors who choose to continue working and make more than $15,720 a year. Governor Bush will eliminate that provision, so seniors can enjoy a full private-sector paycheck and their full Social Security benefit check.
Eliminate the payroll tax for seniors at age 67: This will eliminate a 6.2 percent tax on work for seniors who choose to work well past the retirement age.
Increase the Social Security retirement age: Workers are now eligible for full Social Security benefits at age 66 (gradually increasing under current law to 67). Workers can choose to retire as early as age 62, if they agree to a lower Social Security check each month. This proposal, similar to one in the bipartisan National Commission on Fiscal Responsibility and Reform (Simpson-Bowles), will very gradually change these eligibility ages by a month every year starting in 2022.
Stabilize Social Security's finances by implementing bipartisan proposals. No current retirees or seniors approaching retirement will see a cut in benefits under this proposal.
Three reforms, which have all received bipartisan support, would slow the growth of Social Security costs:
Provide a minimum retirement benefit for low-income workers: Seniors who have worked for 30 years will be guaranteed a minimum benefit that is approximately $15,000 a year (125 percent of the federal poverty level for an individual). This will guarantee that seniors do not live in poverty.
Slow the growth of costs over time by adjusting benefits for wealthier seniors: Under current law, the government determines the amount of a worker's Social Security check through a complicated formula based on the worker's average earnings. This proposal will change that formula so that wealthier workers, who can afford to save for retirement on their own during their careers, get smaller checks from Social Security during retirement.
Change how Social Security checks are updated each year: Each year, the government updates the amounts of the Social Security checks they send to each senior. The annual update is based on growth in the overall American economy, but the government currently uses inaccurate data to calculate the changes. This proposal will use a more accurate measure of inflation called the chained consumer price index.