Social Security reform: what it could mean for long term care.

The election was barely over when President Bush sounded a drumbeat on Social Security reform. Privatized accounts. Raising the retirement age. Gradual change. All these topics and others were bandied about as quickly as images in a movie preview as the president took hold of what's commonly called the third rail of American politics.

Whether it remains the third rail, however, remains to be seen. As the year begins and Congress awaits the gavel on a new session, the debate has already started to gel among long term care officials.

Perhaps none in the long term care field is closer to the issue than Hal Daub. In addition to being the president and chief executive officer of American Health Care Association (AHCA), he is also the chairman of the Social Security Advisory Board (SSAB), which reports to President Bush.

A former member of Congress, Daub has been involved with Social Security for years. He was careful to note that his personal views are not always the same as what gets articulated by the SSAB or by AHCA, which tends to not follow Social Security policy per se. He said the debate on Social Security reform is an important one to have, and he was pleased that it received such prominent play after the election. "(It) has huge impact on the ability to deliver long term care today and to embrace the serious burden in the future," Daub said. "Social Security reform is critical."

According to AARP, nearly 70 percent of social security beneficiaries derive more than half their income from Social Security.

In the view of AARP, the nation's largest advocacy group for seniors, Social Security is among the four pillars of a secure retirement, and it has stated as its policy the belief that it should continue as the basis of lifetime, guaranteed inflation-adjusted retirement income. The other three pillars are pensions and savings, earnings, and health insurance.

It also stated that changes to any of the pillars should be made gradually and in a fiscally and socially responsible manner.

AARP has acknowledged, however, that some adjustments must be made to Social Security to ensure continued payment of the benefits promised in the future.

Barbara Manard, vice president at the American Association of Housing and Services for the Aging (AAHSA), said that with a national debate still just in the early stages, there is "absolutely no way" of predicting what Social Security reform will mean overall, much less how it might affect long term care facilities.

There are still debates to be raised on the definition of "disability" for instance, which the SSAB has noted has a contradictory definition within Social Security as compared with the definition in the Americans With Disability Act.

Manard said she hopes the debate will look at the disability portion of Social Security "and consider whether or not to reform that to include more modern protections for long term care needs."

With the baby boom generation not far off from retirement, "it is an opportune moment ... to look at Social Security," Manard said. "We're either going to pay now or pay later. There's no free lunch."

Looking purely at the partisan political picture, with Republicans in control of both congressional bodies and the White House, some have speculated that a Social Security reform bill would be easier to pass now than in previous years. An AARP legislative representative, speaking on background, said that while Social Security reform might pass in the House "1 think it would be very difficult to pass the Senate." The two houses of Congress both have Republican majorities, but it could face a filibuster in the Senate. "The way it's shaping up, it's pretty much a party-line vote," the AARP representative said. "You may find some Republican House member who would vote against it." In the senate it takes 60 votes to break a filibuster. "It's not clear (Republicans) can count on all 55 of their senators to break a filibuster on Social Security."

Philosophical debates

The nature of the reform will evolve throughout the congressional debate, but among the topics most discussed is the possibility of creating private accounts.

When it comes to what privatized accounts might mean for current and near-term future residents of long term care facilities, "The devil's in the details," Manard said.

First, however, will be a philosophical debate between those who believe in a collective Social Security system and those who believe in more individualization. "Then the issue of technically how do we do it," she added. "The third issue is how do we pay for a transition."

To Manard, the key issue for the long term care community in this debate is that long term care financing is brought to the table loud and clear. "When we talk about long term care financing needs, the same issues are right on the table," Manard said. "Pre-fund now or get stuck with a huge bill later for our kids.... We just have to be intelligent and face up to them now and have that debate. I welcome it."

Amid the philosophical arguments sure to be deliberated in Congress is which of the two basic approaches to individual accounts is best, the "add-on" or the "carve-out." The add-on would maintain the current benefit structure and add individual accounts; the carve-out would create individual accounts by using part of the taxes that fund Social Security benefits.

AARP has stated that it believes the carve out would "significantly worsen solvency," and that both approaches would require some reduction in program benefits or a tax increase--or both.

Daub demurred in calling Social Security reform the highest health care priority, however. "It's in our top five," he said.

Of the three big social health programs, with Medicare and Medicaid the other two, experts tend to agree that Social Security. The problems are primarily measured through demographics and there are fewer "levers" to pull. But no one is calling it easy.

The AARP representative drew an analogy to the tax reform bill of 1986. That effort began in 1984 as President Reagan was in the last year of his first term. Whether that same sense of priority exists for social security reform right now, he said, is murky at best.

While the debate will be strongly deliberated, however, Daub said he believed reform could be achieved this year. "Members of Congress get it," he said. "It's no longer the third rail of politics."

ONE MAN'S VIEWS ON SOCIAL SECURITY REFORM

Not only is Hal Daub the president and chief executive officer of the American Health Care Association, and the chair of the Social Security Advisory Board, he's also a former Republican member of Congress. He was involved in Social Security issues with the House Ways and Means Committee and the House Committee on Aging.

Daub has five suggestions, which he emphasized were his views, not explicitly those of AHCA or SSAB, for what Congress can do to cobble together a plan.

[check] "Raise the cap on the FICA," Daub said, "but don't raise the tax rate of 12.4 percent." He suggested that the current $90,000 cap should be raised now to $100,000 and by increments annually "until we get to 90 percent of wages covered by FICA, which used to be the level on withholding."

[check] Include all workers who are currently not covered, such as government workers, prospectively going forward. "It's a fairness issue," he said.

[check] Adjust the cost of living adjustment (COLA). "Pay the COLA feature up to 2 percent," Daub recommended. "But if inflation is over 2 percent but less than 3 percent, adjust by half the differential. If inflation is over 3 percent adjust by 1 percent."

[check] Gradually raise the retirement age, beginning in 2023, so that by 2042 early retirement eligibility would occur at 65 (which is the same age of Medicare eligibility) and full retirement at 69. "Otherwise the gap widens between early Social Security retirement eligibility at 62 to full retirement age of 69--a seven year gap compared to four years in 2022."

[check] Daub also recommends what's called the "carve-out" approach, with the goal being "to have a combination of FICA and personal accounts that equal or exceed what you get now if we don't fix the system."

Daub further explained that the FICA benefit is adjusted to affect the personal account cost, "with the long run accumulation's invested growth increasing the aggregate total benefit with the setting of some type of vesting rule, before which forfeiture occurs, and after which an estate-building inheritable balance could be paid to a named beneficiary."

There are categories for comprehensive reform, he continued, "scored to give 75-year solvency and stabilize this important program in order to first, give predictability to the retirement planning process for future generations; and second, to not become hostage to new spending from budget surpluses, or create larger deficits that drive inflation and limit other federal spending requirements. Each component can be adjusted, but are suggested as fiscally prudent and politically achievable."--MS