President Biden took office in 2021 with an ambitious plan to improve the post-pandemic economy and to reduce the level of poverty among older adults. His proposals included increasing Social Security benefits, updating cost-of-living adjustments, reducing drug costs, and expanding Medicare coverage.
Unfortunately for seniors, presidential authority to improve their Social Security and Medicare benefits is limited. Presidents do not make laws. Nor do presidential interpretations of their authority always survive judicial challenges, as the Biden administration discovered when the Supreme Court overturned its plan to forgive student loan debt. A president must persuade Congress to make significant changes in existing legislation before seniors can enjoy benefit increases that the president proposes.
Even in the first two years of the Biden presidency, when his party controlled both legislative houses, Congress was less than cooperative in enacting his full economic plan. Many seniors are seeing lower prescription drug costs, but other proposed reforms are still awaiting legislative action.
President Biden proposed a guaranteed minimum Social Security benefit equal to at least 125% of the federal poverty level for retirees who worked at least 30 years. The federal poverty level for a single family member is $14,580, or $1,280 per month. A benefit equal to 125% of that amount would be $1,518.75. The guaranteed minimum would be about $260 lower than the average Social Security benefit but considerably more than the minimum $1,033 benefit currently paid to low-income workers who remained in the workforce for 30 years.
Biden also proposed a 5% increase for seniors who have received Social Security payments for at least 20 years. A bill introduced in 2022 would implement that increase as well as the guaranteed minimum benefit. The bill would also add $200 per month to all Social Security payments to offset inflation.
The Biden proposal would pay for benefit increases by making wage earners pay Social Security payroll (FICA) taxes on the first $400,000 of their earnings. Currently, wage earners pay FICA taxes on the first $160,200 of their earnings. Thus, a worker who earns $160,000 per year pays FICA taxes on her full earnings while a worker who earns $320,000 a year pays FICA taxes on only half her earnings.
Unfortunately, Congress has shown little interest in protecting Social Security by correcting a tax disparity that favors high-income workers. Because Congress has not agreed upon a mechanism for funding an increase in Social Security benefits, Biden’s proposals have stagnated.
Social Security payments increase automatically each year to account for inflation. Unfortunately, those increase often lag behind the inflation rate. For example, the cost of living adjustment (COLA) in December 2021 was 5.9%. Yet inflation soared in 2022, forcing Social Security recipients to wait until December 2022 for an adjustment that matched current inflation. The 2022 COLA was 8.7%.
While no pending legislation addresses that lag, the 2022 bill seeks to implement one of President Biden’s reforms by changing the way the COLA is calculated. The bill would tie the adjustment to the Consumer Price Index for the Elderly (CPI-E), a measure of inflation that places more weight on goods and services (such as healthcare costs) that are purchased by older adults.
The COLA is currently based on the Consumer Price Index for Urban Workers (CPI-W). Whether tying the COLA to the CPI-E would actually cause benefits to increase is unclear. In any event, it seems unlikely that any change will be enacted during the current legislative term.
The Inflation Reduction Act gave the Department of Health and Human Services (DHSS) the authority to negotiate lower prescription drug prices for seniors. It also capped the cost of insulin at $35 and required drug companies to pay rebates to Medicare if they raise certain drug prices above the inflation rate. Data released by DHSS suggests that these measures are helping older adults save hundreds of dollars each year on prescription drug purchases.
Early in his administration, President Biden acknowledged that his hope of expanding Medicare coverage to include vision, dental, hearing care was “a reach.” Limited versions of those coverages are available through some Medicare Advantage plans, although Professor John McDonough at Harvard’s School of Public Health emphasizes the word “limited” because “it’s a lot less than people imagine.”
At this point, the Biden administration is focused on assuring the financial stability of Medicare. The administration’s proposal again involves raising the cap on FICA taxes so that higher wage earners (and people who earn money though investments) will pay a fair share of Medicare costs. Since Congress has no stomach for raising taxes, Professor McDonough expects the funding issue to be kicked down the road until Congress is forced to raise taxes or reduce benefits.