White House For Sale

Multinational Monitor, May/June 2004

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Social Security Privitization
By Lee Drutman

Among President Bush's biggest campaign promises in 000 was a plan to privatize Social Security. Although a sluggish stock market has kept it as just a promise, Social Security privatization remains high on the President's priority list.

"It is a 2005 item," says Michael Tanner, director of the project on Social Security at the Cato Institute, a libertarian think tank and champion of Social Security privatization. "We expect the President to raise the issue as the campaign goes forward. I think the feeling is that once the election is over, in terms of domestic priorities, this is number one."

In his 2003 State of the Union Address, for example, Bush said, "As we continue to work together to keep Social Security strong and reliable, we must offer younger workers a chance to invest in retirement accounts that they will control and they will own."

This is exactly what the financial institutions that have donated significant sums of money to both of Bush's presidential campaigns want to hear. While anti-government ideologues like Tanner may advocate for Social Security privatization because they simply don't like entitlement programs, big financial institutions like Social Security privatization for simpler reasons. More private investment spells more lucrative commission and account management fees for financial conglomerates.

"We are talking tens of billions of dollars a year in fees and commissions," says Dean Baker, co-director of the Center for Economic and Policy Research, a Washington, D.C.-based nonprofit that opposes Social Security privatization. "Privatization just drains money away for the financial sector."

Baker notes that countries that have privatized their retirement security systems, such as Chile and Great Britain, have found that management costs run about 15 to 20 percent of the total retirement savings. By comparison, the operating cost of the current U.S. system is just 6/10th of 1 percent.

Though champions of Social Security privatization claim that the Social Security system is facing an impending collapse, the Social Security program is actually running a surplus, with more money coming in from taxes than being paid out in benefits. Using very conservative assumptions, Social Security trustees expect this surplus to grow until 2018 and for the current system to be able to pay full benefits until 2042. Hardly the makings of a crisis, says Baker.

But since the impetus to privatize Social Security depends on an assumption that the Social Security system is unsustainable, supporters of privatization have a tendency to dramatize the situation. "Fiscal problems with Social Security threaten to swamp everything else," argues Tanner.

For example, a 2002 Bush Treasury Department study argues that Social Security and Medicare are running a $44 trillion deficit. But a closer look shows that only 16 percent of that deficit is actually from Social Security and 62 percent of that deficit will come after 2077.

Similar assumptions of impending fiscal doom pervade the President's hand-picked 16-member Commission to Strengthen Social Security, which in 2001 offered three proposed reforms to Social Security. All three called for using part of the money collected from Social Security to create "individually controlled personal retirement accounts." Around the same time, a coalition of pro-privatization groups (essentially a who's who of big Wall Street firms), pledged to raise $20 million to support privatization.

Critics of Social Security privatization, however, point out that it is a bizarre "solution" to remedy purported financial difficulties.

For one, doing so would start taking money out of the existing Social Security system. Since it is current payments into the system that provide current benefits, such a move would make Social Security's failure a self-fulfilling prophecy.

For another, investing in the stock market introduces a dangerous element of risk into a system that is supposed to be first and foremost a social insurance program to ensure that people don't have to grow old in poverty. As the recent stock market tumble shows, investing in stocks is far from a guarantee of future wealth. Under Social Security privatization, some people would likely wind up better off, but some people would wind up worse off. Much of that would depend on both luck and timing - hardly the hallmarks of a social insurance program.

"Social Security is set up to ensure that people who spent their life working have a core retirement savings," says Baker. "The idea is if you spend your life working, you'll have something to show for it, and the current system is the best way of doing that."

Besides generating billions in commissions and fees for the financial institutions that donate heavily to the Republican Party, there may an even bigger political advantage for Republicans in privatizing Social Security. Polling data shows that the more money people have invested in the stock market, the more likely they are to vote Republican. Some

Republican strategists, such as Grover Norquist, believe that Republicans should do all they can to get more people invested in the stock market. The argument is that people might be more likely to favor Republican policies of reduced government and limited economic intervention, if their ability to retire depended on growing corporate profits instead of social insurance. As Norquist puts it, Republicans can be trusted to "club baby seals" if it helps corporate profits.

Whether or not President Bush can get Social Security privatization passed if re-elected remains to be seen. But the financial services industry accounts for the most Rangers and Pioneers in Bush's 2004 campaign (100 at last count, according to Texans for Public Justice) and they have made it no secret that privatization of Social Security is a top priority.

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Medicare Drugs: Prescription for Failure
By Jeff Shaw

With millions of seniors going without insurance coverage for prescription drugs, and with drug prices skyrocketing, providing affordable access to vital medications would dramatically improve quality of life for millions of vulnerable people - and be a political win as well.

Late last year, the Bush administration began pushing a bill that, it said, would create a secure prescription drug benefit for seniors and provide an increase in catastrophic medical care coverage. And, Republican leaders claimed, it would cost less than $400 billion over a 10-year period. What's not to like?

One problem: those claims turn out not to be true. Loopholes, technicalities and a "benefit" that's not very generous on its face mean seniors will see few savings from the Medicare deal. But the new program will be costly nonetheless. After Congress approved the prescription drug bill in a bitterly contested vote, it emerged that the Bush administration had bullied a civil servant into silence about the bill's actual cost to the taxpayer.

Problem number two: The Medicare drug bill requires the federal government to pay for medications, but it prevents the government from negotiating bulk discounts for the products it pays for. In other words, the bill blocks the government from seeking the simplest cost-containment measures.

Every European has authority to negotiate lower prices for medicines under government reimbursement programs, noted consumer advocate Ralph Nader in a November letter to U.S. senators.

"If the U.S. government has no authority to protect consumers or taxpayers, they will predictably be exploited by drug makers," Nader wrote. "This is particularly galling, because U.S. taxpayers already provide massive direct and indirect public subsidies for the development of new drugs. U.S. taxpayers and consumers should not be by hamstrung by the Medicare bill. If Sam's Club can negotiate for lower pharmaceutical prices, why can't Uncle Sam?"

Problem number three: The bill includes provisions designed to pave the way for Medicare privatization, transferring control of the Medicare program from extremely efficient government agencies to the high overhead, bureaucratic-heavy private insurance industry.

"One of the worst things about this bill," says Representative Dennis Kucinich, D-Ohio, "is that by forcing traditional Medicare to compete against private plans beginning in 2010, it may well lead to the privatization of Medicare and putting seniors in the hands of 'insurance sharks' who are more concerned about profits than providing quality medical care."

Insurance companies "make money by 'cherry picking' that is, by insuring healthy and wealthy customers and excluding the less healthy and less fortunate," Kucinich says. "Under this bill, they will be free to do that, thus leaving the poorest and the sickest elderly folks to be insured by Medicare. Of course, that will allow the private insurance companies to make money, while the Medicare program loses it."

"As seniors are slowly finding out, the new Medicare law does much more to help the administration's friends in the pharmaceutical lobby than it does for seniors," says Ron Pollack, executive director of Families USA, a non-profit health advocacy group.

Supporters say that the bill will help the elderly get access to the drugs they need.

"Seniors will soon be able to get a discount card to help them save money on their prescription drugs, and a $600 credit each year will give low-income seniors even more relief," said Health and Human Services Secretary Tommy Thompson after passage of the bill. "With the new cards, the benefits of the new Medicare law will soon be a reality for millions of Americans who need help paying for prescription drugs."

But according to Families USA, the law has a number of little-publicized loopholes, like not supplying a definition for the "base price" of discounted drugs. Without a fixed base, drug companies could inflate the cost of their medications, then apply the "discounts," undercutting and perhaps even eliminating consumer savings. Additionally, nothing in the law assures transparency, so consumers have no way of knowing the actual prices at issue, nor the profit these companies generate.

The law restricts consumer choice, raising the peril of "bait and switch" tactics. Cardholders have to select a particular discount program and remain tied into the program for one year. However, companies can change the drug coverage and price information once every seven days. Thus, seniors in need of costly arthritis medicines could choose a program on the basis of plentiful and inexpensive treatments for the disease - and have the price shoot up a week later, or see the drugs dropped from coverage entirely.

The discount card program is supposed to generate savings via "sponsors" which turn out to be insurance and drug companies - which hypothetically will be able to negotiate discounts from the pharmaceutical manufacturers, and then pass savings on to seniors. But Families USA says the incentive may be for the sponsors to increase seniors' drug bills. More expensive drugs get the sponsors more lucrative rebates, which provides incentive to direct consumers to those drugs rather than less-costly alternatives. That would increase profits for the companies and costs to consumers.

Worse, critics charge that for millions of seniors, the bill will actually reduce benefits.

"Seniors who have supplemental drug coverage through Medigap must drop it if they want to join the new drug benefit," details Representative Bernie Sanders, I-Vermont. "Employers will drop drug coverage for 2.7 million retirees due to the new drug benefit.

Employers will reduce drug coverage for up to 9 million additional retirees due to flawed employer subsidies in the law. 6.4 million seniors who have drug coverage through Medicaid now will be forced to enroll in the Medicare drug benefit. As a result, they will have higher cost sharing and be denied coverage entirely for some drugs."

The American Association for Retired Persons played a key role in winning passage of the bill, for which the organization received massive condemnation from allies and its own members alike.

"We see it as a foundation to build on," says Kirsten Sloan, AARP"s national coordinator for health. "It's not perfect, but it's much more of a start than folks realize."

That foundation, which critics say is so infirm, will come at a much higher cost than Members of Congress believed when adopting the Medicare drug plan.

The Medicare bill barely passed the House of Representatives, squeaking by 220-215, and only after Republican leaders kept the vote open for an unprecedented period so they could arm-twist and cajole fence-sitting members. Crucial to passage was support from a significant number of conservative Republican legislators who had vowed not to support any policy with costs exceeding $400 billion. One of those who voted for the bill, Joel Hefley of Colorado, said later, "I think any of us who voted on that bill have to have pause if we got the wrong information."

Chief Medicare actuary Richard Foster estimated the bill's costs at $534 billion over 10 years, but he reports that administration officials threatened his job as a means of keeping him silent before the vote was held.

This dishonesty, says Family USA's Pollack, should provoke suspicion about how the law itself will be implemented.

The "astonishing revelation that the Bush administration purposely withheld crucial information about the costs of the new Medicare legislation provides an important lesson for America's seniors, namely: Beware of the administration's false claims and hype about the new law," says Pollack.

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