Policy: Economy

Yes, older Americans should be encouraged to work more

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Beltway Confidential,Opinion,Obamacare,Jobs,Labor,Health Care,Medicare and Medicaid,Entitlements,Economy

In defending President Obama's health care law in the wake of a Congressional Budget Office finding that it would create disincentives to work, Jason Furman, chairman of the White House Council of Economic Advisers, invoked Social Security and Medicare.

“I have no doubt that if, for example, we got rid of Social Security and Medicare, there are many 95-year-olds that would choose to work more to avoid potentially starving or to give themselves an opportunity to get health care,” Furman said Tuesday. “I don't think anyone would say that was a compelling argument to eliminate Social Security and Medicare.”

Furman was employing an extreme example for the purposes of driving home his point that people choosing to work less in response to government benefits (as CBO said would be the case with Obamacare) is a more positive occurrence than a situation in which employers are firing workers.

That having been said, given the nation's long-term fiscal problems combined with rising life expectancy, it actually would be worthwhile to examine ways to reform Medicare and Social Security to encourage Americans to work longer. And such reforms do not require forcing 95-year-old Americans back into the workforce.

To provide some context, in 1960, according to the Centers for Disease Control and Prevention, men who had reached the age of 65 were expected to live until they were 77.8 years old. By 2010, that had gone up to 82.7 years old. But even though men have been living longer, they have been retiring earlier. In 1962, according to data from the Center for Retirement Research at Boston College, the average retirement age for males was 65.6 years, but in 2010, it was 64.1 years. (The reason for using data for men is that the major surge of women in the workforce during the time period being considered introduces another variable, which skews the historical data and makes comparisons more difficult.)

Taken together, this means that individuals who reach 65 are spending about six extra years in retirement. It’s worth keeping in mind that 2010 was in the midst of the economic downturn that had people delaying retirement — in 2007, just before the financial crisis, the average male retirement age had been 62.9 years.

No doubt, the existence of Social Security and Medicare (which was introduced in 1965) has made earlier retirement easier. But, along with rising health care costs, the flip side is that this has darkened the nation’s long-term debt picture.

So what can be done? One obvious move would be to gradually raise the Social Security and Medicare retirement ages and then index them to gains in life expectancy. Another option would be to change the way benefits are calculated to encourage Americans to work longer. A 2006 paper from researches at Stanford University described a number of disincentives to longer careers created by the Social Security system. For instance, Social Security calculates benefits based on an average of the highest 35 years of earnings and thus, “an individual who has already worked for 35 years has a diminished incentive to work an additional year.”

Getting back to Obamacare, if the law prompts individuals retire earlier and obtain health insurance through exchanges, not only will they be taking taxpayer money in the form of subsidies, but they’ll be distorting the risk pool in insurance exchanges, thus driving up premiums even further for younger Americans.

Liberals, no doubt, would argue that enabling Americans to retire earlier is a good thing. The problem is that there are tradeoffs involved.

Individuals who choose to retire earlier as a result of government benefits are imposing a greater burden on younger Americans.

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