AARP on the Issues

Source: AARP.org | September 1, 2006

 Table of Contents:

• Introduction
• AARP Policy on Social Security
• AARP Policy on Retirement Security (IRAs)
• AARP Policy on Medicare
• AARP Policy on Long-Term Care
• AARP Policy on Health Care Reform

Need some help here--Need some text to tie all five docs together

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Although a strong retirement is based on four pillars-Social Security, pensions and savings, earnings, and health insurance-Social Security continues to be the most important one for most people.

• Six out of ten beneficiaries today get more than half of their income from Social Security.
• Nine out of ten individuals aged 65 plus receive Social Security.
• Among poor households of retirement age, Social Security is virtually the only source of retirement income.
• Social Security plays a crucial role reducing poverty among older people, particularly women and minorities. Half of all older Americans would be in poverty without Social Security.
• Social Security provides guaranteed, inflation adjusted benefits you cannot outlive.

Social Security is not in crisis, but it does face a long-term shortfall. Without any change, Social Security will be able to pay full benefits until 2040. Even after 2040, incoming revenue will be enough to pay about 70% of benefits for decades to come. But that is not good enough for future retirees. We must restore the long term solvency of Social Security.

For Social Security to remain strong for future generations, some adjustments must be made to ensure its long-term solvency. Solvency options generally fall into three categories:

1. Benefit reductions (one example of this would be changing the benefit formula);
2. Revenue enhancers (one example would be lifting the cap on taxable wages); and
3. Increase return on trust fund investments (for example, hire professional money managers to diversify Social Security trust fund investments).

AARP believes that any Social Security solvency package should:

• Maintain Social Security as a stable defined benefit program that provides guaranteed benefits for life to all who have contributed to the system and meet the qualifications;
• Maintain benefits that protect workers and their families from lost wages that result from death, disability and retirement;
• Maintain a link between a worker's pay and time in the labor force and the worker's benefit;
• Achieve universal participation;
• Maintain the system's financial integrity and fairness by requiring earmarked contributions from both employers and employees;
• Maintain a progressive benefit formula that continues to replace a greater share of low-wage workers' earnings;
• Continue full, annual benefit adjustments to keep pace with inflation; and
• Maintain an adequate early retirement benefit.

There are some who suggest that individual accounts should be part of Social Security. There are two basic approaches to individual accounts:

• Add-ons: Accounts designed to supplement Social Security or "add to" its benefits. These accounts are financed with new money, not money currently earmarked for Social Security and they have no impact on Social Security solvency. We would still need to fix the shortfall. AARP supports "add-on" accounts.
• Carve-outs: Accounts created by diverting or "carving-out" part of the taxes that currently are earmarked to fund Social Security benefits. Rather than improve Social Security, carve-outs actually worsen solvency and increase the need for benefit reductions, large amounts of new government debt or tax increases. AARP opposes any carve-out.

• Low wage earners, predominately women and minorities, for whom Social Security benefits represent a larger portion of pre-retirement earnings than they do for average and higher earners and they would have less to invest.
• Low-income earners, who have less to invest, and are least able to absorb risk. (Lower income workers are already at a disadvantage because their lower earnings mean lower pension amounts.)
• Many women, who would be disadvantaged because they live longer and are especially protected by Social Security's lifetime guarantee of annual cost-of-living adjustments. They also tend to have lower earnings, and more years away from the paid workforce, so they would likely end up with fewer dollars in their individual savings account. Since these accounts would be individually owned, women could also lose important rights to their spouse's benefits, particularly in the event of a divorce.
• Persons with Disabilities, because workers who become disabled at a young age would receive a smaller lifetime benefit because they would not have enough time to build up their individual account.
• African-Americans, who could lose some of the vital protections Social Security provides, including disability and survivor benefits. For example, although African-Americans represent 12 percent of the population, they make up 18 percent of workers receiving Social Security disability benefits; their children represent 21 percent of those who receive benefits as the child of a disabled worker.
• Surviving spouses' benefits could be jeopardized. 4.9 million widow(er)s receive a survivor benefit because a worker has died. Many individual accounts would be too small to make up for the loss in guaranteed benefits, particularly if the worker dies at an early age.
• Today's young workers would have to pay twice: once for their own benefits and again for the benefits of people currently or soon to be receiving them. Diverting just 2 percentage points of the current Social Security payroll tax could cost $1 trillion over ten years.

AARP believes that Social Security benefits for future generations should continue to be guaranteed, inflation-protected and last a life-time. We oppose replacing any part of Social Security's guaranteed benefits with individual accounts. Instead, AARP favors "add-on" accounts. Measures to increase individuals' savings for retirement should be encouraged, but must be in addition to, not in place of Social Security's guaranteed benefits.

Ask the Candidates: Will you support or oppose a balanced Social Security plan to continue the program’s guaranteed benefits for future generations? Will you support or oppose using Social Security taxes to fund private accounts?

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Social Security was never intended to be a worker's sole source of retirement income. Yet many of today's workers will have inadequate retirement income: less than 50 percent of workers are covered by a pension plan. Although most people understand that Social Security will only provide a floor of income, many find it difficult to save for the future. Most investment professionals recommend that a comfortable retirement will require an annual income of about 70 percent of pre-retirement earnings, which is much greater than the 40 percent that Social Security will provide for the average worker.

To help future generations attain a more financially secure retirement, we need to find ways to increase retirement savings. AARP supports adoption of savings incentives and mechanisms that are targeted to those who are least likely to save and are designed to promote new net savings. In addition, any incentives should be promoted by educational efforts. One promising approach that AARP supports is a universal payroll deduction Individual Retirement Account (IRA). A payroll deduction IRA is a practical and low-cost way to provide a retirement savings option for the over 70 million workers who have no employer-sponsored retirement plan.

Under the universal IRA, employers would provide automatic payroll deduction IRAs for their workers unless the employer offers some other type of retirement plan. Employers, however, would not be required to make contributions, maintain the IRA, or determine how or where contributions are invested. The employer would simply act as a conduit—transferring contributions determined by the worker to a specific IRA held by a financial institution via a payroll deduction. Most people, especially those of modest incomes, find it easier to save small amounts on a regular basis, particularly if that amount is automatically withheld from their paychecks

AARP believes that the implementation of the automatic IRA is an important step in helping encourage retirement savings by the half of today's workers that currently lack pension coverage in the workplace. A payroll deduction IRA will help encourage saving by simplifying the savings for workers.

In addition, the current Savers Tax Credit serves as an added incentive for lower to moderate wage workers to save, and we urge that the Savers Credit be expanded and extended. The nonrefundable tax credit, enacted in 2001, provides an annual 50 percent credit—a "matching" contribution—for contributions to a retirement plan up to the maximum eligible contribution of $2,000 (for a maximum credit of $1,000). The credit is phased out at incomes of $50,000 for married couples and $25,000 for singles. The credit is set to expire. In addition, the inability to claim the Savers Credit as a refund means that only about one-fifth of eligible taxpayers can benefit from the credit.

In order to further encourage saving among modest wage workers, and to enhance those savings with a "matching" contribution, AARP supports expanding the Savers Credit and making it permanent.

Ask the Candidates: Do you support or oppose requiring employers to give workers access to automatic payroll deductions to fund their personal IRAs?

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For nearly 40 years, Medicare has enabled millions of Americans who could not otherwise afford health care to get the care they require. Americans of all ages link the availability of Medicare to financial security and independence in retirement. There is a need to ensure that Medicare remains strong, so that it can continue to protect current and future beneficiaries.

Since its inception, Medicare has been a social insurance program: It provides a set of health benefits defined in law to all eligible Americans and individuals with disabilities, and all beneficiaries are entitled to the same level of benefits, regardless of age, income or health status. Individuals become eligible for Medicare benefits by paying into the system through payroll taxes. Requiring an income or asset test to demonstrate the need for Medicare coverage, or conditioning eligibility or cost-sharing on income or assets, would change the fundamental nature of the shared commitment of this earned benefit. Not only would these changes add administratively cost, and complexity, but they would erode popular support for the program, and undermine the principle of social obligation and interdependence among generations that is the hallmark of social insurance.

In 2003 the Medicare Modernization Act was enacted to provide prescription drug coverage to Medicare beneficiaries. Key features of the new Medicare drug benefit include the following: 

• All beneficiaries have access to drug coverage, including those who stay in original Medicare;
• Plans are available in all geographic areas;
• Plans must offer coverage that is at least actuarially equivalent to a standard benefit defined in law; and
• Many low-income beneficiaries receive extra assistance.

While prescription drug coverage in Medicare is a good first step in the effort to provide access to affordable prescription drugs to older Americans, more must be done to hold down the rising costs of prescription drugs.

The Medicare drug benefit relies on private health plans and/or pharmacy benefit managers (PBMs) to negotiate prices and administer and deliver the Medicare drug benefit. Some efforts have been made to enhance private-sector plans' ability to manage drug costs by providing them with independent analyses on the comparable effectiveness of therapeutically similar medications.

However, some analysts question the extent to which health plans and PBMs can reduce drug spending and, for PBMs in particular, the extent to which the price discounts they obtain are passed on to consumers. In addition, the new law has been criticized for prohibiting Medicare from using its aggregate buying power to negotiate prescription drug prices or developing a national prescription drug formulary.

AARP does not oppose the use of pharmacy benefits management or other managed care approaches to providing Medicare beneficiaries with prescription drug benefits. These approaches should result in cost savings, since the private entities can take advantage of volume purchasing on behalf of enrolled beneficiaries. However, Medicare should oversee and monitor private entities' management of Medicare's prescription drugs benefit to ensure beneficiary access to high-quality pharmacy services. Medicare should also be able to use its purchasing power to obtain price discounts that beneficiaries can apply to their out-of-pocket drug purchases by allowing the Secretary of Health and Human Services to negotiate with pharmaceutical companies for reduced drug costs.

AARP also believes that Congress should reduce, and ultimately eliminate, the coverage gap in the Medicare prescription drug benefit; and should eliminate the asset test used to determine eligibility for low-income assistance

Currently, funding for Medicare Part A (Hospital Insurance) comes primarily from the payroll tax. Medicare Part B (Supplemental Medical Insurances) is funded through beneficiary premiums, which covers 25percent of the cost, and federal general revenues, which covers the remaining 75 percent.

Medicare is often targeted as one of the chief causes of the nation's continuing budget challenges, and many have projected an economic catastrophe in the future due to the retirement of baby boomers and increased longevity. However, changing demographics are not the only cause of our fiscal dilemma; in fact, one of the key drivers of our nations' fiscal problems is the health care system, which delivers too little and costs too much. Medicare cannot be adequately strengthened with changes to the entire health care system.

Proposals have been made in Congress to put an annual limit on how much money the federal government spends on Medicare. To maintain significant long-term fiscal discipline, AARP believes that health care costs must be contained through broader health system reform rather than through cuts designed to meet arbitrary budget goals. Legislation that caps or makes across-the-board cuts in Medicare fails to address issues, such as escalating health spending, and simply shifts those costs to individuals, employers, and state and local governments. AARP opposes arbitrary limits in Medicare spending because they will have unintended and undesirable consequences, particulalry for modest income older Americans, those with disabilities, and their families. For example, about 70 percent of Social Security and Medicare benefits are received by households having total annual incomes (including transfer payments) of less than $30,000.

Ask the Candidates: Will you support or oppose allowing Medicare to use its bargaining power to negotiate lower prices for needed prescription drugs? Will you support or oppose imposing an annual limit on federal Medicare spending?

America faces a major challenge in health care and long-term services and supports (LTSS) as the population ages and people live longer lives. The country lacks a comprehensive LTSS system that serves the needs of millions of older people and people with disabilities. Instead, LTSS today are largely uncoordinated, fragmented and costly-primarily paid for by consumers and their families and, in limited circumstances, with public dollars. Millions of vulnerable Americans are denied access to LTSS because they cannot pay for them; do not qualify for public funding; cannot find or are unaware of the types of services and supports they need and can afford; or because the LTSS do not exist in their community.

While the population in need of long-term services and supports (LTSS) is increasing, relatively few people need them at any one time. Because it is difficult to predict who will need assistance, LTSS lend themselves to insurance protection, which is based on the principle of shared risk. Since everyone is at some risk of needing LTSS, everyone should contribute to the cost of providing them. By pooling risk, we can provide coverage for a comprehensive range of LTSS in home, community and institutional settings, protecting all participants from potentially devastating financial costs. Because many people share the risk, each person's payments are small. Older Americans and working people should both contribute to pay a portion of LTSS insurance costs. Both taxes and premiums might be used. A contribution equal to the full actuarial cost of the LTSS benefit is simply too expensive for many Americans, so the financing provisions must protect people with low incomes. However, people must have equal access to services regardless of the source of payment.

People who need long-term care services and supports (LTSS) want to remain in control of their lives as much as possible and stay close to family and friends. They want to avoid impoverishing themselves and their families. Most of all they want to retain independence, dignity, autonomy and privacy. Access to affordable, high-quality long-term care services and supports can be very difficult, however, under the country's multiple, fragmented and poorly financed LTSS systems.

Most consumers, regardless of their age or disability, want control in managing their long-term services and supports (LTSS). To the extent they are capable, consumers want the opportunity to make their own decisions about the LTSS they receive so they can maintain their dignity and maximize their independence and autonomy.

A consumer-directed approach to services assumes that consumers can assess most of their own needs, determine who will best meet them, and monitor the quality of services received. Consumer direction ranges from the consumer making all decisions to an advocate or surrogate managing services for the consumer. But the underlying philosophy presumes that consumers know their own service needs and that meaningful choice can be introduced into all service environments.

Publicly funded LTSS programs have provided opportunities for consumer direction in this and other countries for decades. There are a variety of state programs that cover a wide range of age groups and specific conditions, with programs in almost every state. We believe that consumers should have the option of purchasing or directing their own LTSS using the public funds for which they are eligible; unless (through an assessment process) it is determined they are unable to do so.

Efforts to establish or offer consumer-directed services and supports (LTSS) should include:

• Guidelines and standards for care;
• Consumer education that targets diverse communities and provides information on safety and employment and on accessing available LTSS resources and referral services;
• Counseling, as requested, to assist people in arranging for services and maintaining financial records-inability to manage financial aspects of consumer-directed care should not prevent program participation;
• Semiannual reviews of quality of care and the maintenance of each consumer's health and functional status;
• Timely grievance and appeal procedures for consumers dissatisfied with or denied services;
• Flexibility to allow consumers to perform certain care-management tasks themselves and to receive assistance with other tasks; and
• Emergency procedures and funds to allow people to return to traditional agency-directed home- and community-based services, funded by Medicaid or other sources, if they find they cannot manage their own care.

Federal and state oversight should ensure the safety of participants in consumer-directed services and supports programs. Special attention should be paid to determining whether very vulnerable groups are appropriate candidates for this program.

States should not require home health care consumers, even if they are able to do so, to purchase and manage their own services and supports.

Ask the Candidates: Will you support or oppose a combined approach that involves government and individuals covering long-term care? Will you support or oppose requiring individuals to buy private long-term care insurance?

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The United States has one of the most technologically advanced health care systems in the world. Despite this and other progress in health care, some aspects of the health care system have grown worse and are approaching a crisis. Substantial improvements are urgently needed to meet the growing health care needs of the country. The rising costs of health care pose an ever increasing economic burden for individuals and the nation. Between 1990 and 2004, total annual national health care expenditures rose from nearly $700 billion to $1.9 trillion. Projections that take into account recent spending patterns indicate that national health care expenditures could reach $3.4 trillion in 2013.

For many people access to coverage and services is compromised by its growing cost. The U.S. Census Bureau estimates that in 2004, 45.8 million people of all ages had no health insurance coverage from any source throughout the year. This means one in six people were without coverage. Compared with five years ago, an additional three million people are without coverage. People with existing health problems frequently have difficulty obtaining coverage because insurers typically prefer to enroll only the healthy. Many small employers are priced out of the health insurance market entirely, and large employers offering coverage, increasingly concerned about how to handle their rising health benefits costs, have shifted costs onto their employees and retirees. Although most older people have Medicare coverage, the Medicare program pays only about 50 percent of a typical beneficiary's health care costs. The Medicaid program is a major source of coverage for those living below the poverty level. However, roughly 30 percent of the poor were uninsured in 2004. And in addition to the growing numbers of uninsured, millions are underinsured.

AARP has long advocated comprehensive reform of the U.S. health care system and remains strongly committed to this goal. In the absence of comprehensive national reforms, AARP supports meaningful incremental steps that move us forward towards a health care system that ensures access to quality care and affordable coverage for needed acute and long-term services for people of all ages. One example of incremental reform is the State Children's Health Insurance Program, which was part of the Balanced Budget Act of 1997. It provides state governments with matching funds beyond those available under Medicaid to expand coverage for uninsured children.

What progress has been made in the past ten years has indeed come in small steps. At the same time, the problems of our health care system continue to multiply as we approach a point of crisis. Failure to address the problems in the U.S. health care system will have lasting and negative consequences for the lives of a growing number of people and the nation as a whole.

AARP has developed a set of principles that it will use to guide its efforts in reforming the health care system and participating in the public debate over health care reform at the state and national levels. These principles do not address every health care reform issue, but establish criteria for evaluating and comparing reform proposals. AARP recognizes that there are many paths to this goal.

AARP Health Care Reform Principles:  

• All individuals have a right to health care services when they need them.
• All individuals have a right to access to health care coverage that provides adequate financial protection against health care costs.
• All individuals have a right to high-quality health care.
• All individuals should have a reasonable choice of health care providers.
• Financing of the health care system should be equitable, broadly based and affordable to all individuals.
• Methods of provider reimbursement should promote high-quality medical care and efficient service delivery and compensate providers fairly.
• Health care spending should be more rational and support the goals of more efficient planning, budgeting and resource coordination.
• Health promotion and disease prevention efforts should be strengthened.
• Individuals share a responsibility for safeguarding their health by educating themselves and taking appropriate preventive measures to protect their health, safety and well-being.
• Acute, chronic, and long-term care services should be coordinated and integrated to ensure a continuum of care throughout an individual's lifetime.

If we are to achieve the goals embodied in these principles, we must make dramatic and fundamental changes to our entire health care system.

Ask the Candidates: Will you support or oppose a shared approach involving government, employers and individuals, to providing health care coverage for everyone?