COLUMN ONE : Footing the Bill for Our Future : Tight budgets, soaring health care costs and aging baby boomers are creating a generational competition for federal funds. Plans to cut benefits for the elderly are politically dangerous.

Jaci Crim has nothing against old people. But the 40-year-old baby boomer from Ft. Worth can’t afford health insurance for her three young boys, and it doesn’t seem fair to her that older Americans have some of their medical bills paid by Medicare at the same time they collect Social Security.

“My generation barely has its head above water, while a tremendous amount of money is going for the older generation,” Crim said.

On the other side of the generational divide is Dale Hines, a 74-year-old retired teacher in Granada Hills, Calif., who insists that “seniors are really strapped.” He rejects as “terribly unfair” proposals to make the elderly pay more income taxes on their Social Security benefits or bear a bigger share of their Medicare costs.

The tightening federal budget, the soaring cost of health care and the graying of America are all coming together in a way that is creating growing competition among the generations for scarce dollars and political attention.

Democratic presidential nominee Bill Clinton calls on affluent older Americans to pay higher monthly premiums for their Medicare coverage and suggests that they might eventually have to pay more taxes on their Social Security benefits.

President Bush says he wants to put a cap on all entitlement spending except Social Security, a step that could eventually restrict payments to doctors and hospitals providing Medicare services.

Independent candidate Ross Perot, who says rich people like him should give up their Social Security benefits entirely, appeals to seniors to join in a program of “shared sacrifice” to reduce the deficit.

To defenders of these programs, the critics appear to be forgetting that Social Security and Medicare enjoy immense popularity in part because they provide universal coverage. Everyone pays and everyone eventually participates, regardless of means. As a result, they have managed to avoid the stigma sometimes attached to traditional welfare programs for the needy.

“These are social compacts between workers of all ages, not just seniors,” said Martha A. McSteen, president of the 5-million-member National Committee to Preserve Social Security and Medicare and a former Social Security commissioner. “To distinguish between the rich and the middle class would set up class distinctions, which none of us in this country want to do.”

To a large extent, these programs are attracting scrutiny simply because they have been so successful. Social Security, created during the New Deal reforms of the 1930s, helps 36 million retired workers and surviving spouses to live independent lives without asking their children for financial aid.

Medicare, enacted during the Great Society days of the 1960s, protects 31 million people over the age of 65 and more than 3 million disabled Americans of all ages from potential bankruptcy by paying a significant share of their hospital and doctor bills.

But spending on the elderly is consuming an ever-growing share of federal outlays--30% now compared with 15% in 1960--and some experts contend that it is diverting scarce dollars from other pressing social needs. While Social Security has significantly reduced economic hardship among the elderly, poverty has been increasing among other groups, particularly children.

“Kids have been hurt, and the challenge is to balance things again,” said House Budget Committee Chairman Leon E. Panetta (D-Carmel Valley). Panetta wants Congress to divert more funds to children’s programs for education, health and nutrition, even if that means slowing the growth rate of future spending on the elderly.

Social Security benefit payments are expected to total $301 billion during the fiscal year that began Oct. 1, surpassing defense outlays of $292 billion for the first time to become the government’s biggest single expenditure.

Funding Crisis Looms

Social Security actually reduces the magnitude of the federal budget deficit because payroll taxes currently exceed benefit payments; this year’s surplus is estimated at $47 billion.

But all of the surplus, and much more, will be needed when the baby boomers begin retiring. Assets in the trust fund will reach a peak in the year 2014 but will be exhausted in the year 2036 unless Congress raises payroll taxes.

Medicare, meanwhile, is expanding at three times the rate of inflation and faces potential bankruptcy within the next decade. Propelled by soaring health care costs, Medicare spending is expected to explode from $146 billion this year to $228 billion five years from now.

Unless the rate of spending is curtailed or taxes are raised, Medicare--funded by a payroll tax on income, premiums paid by the elderly and general revenues--will run out of money in 1997.

Both Social Security and Medicare are “entitlement” programs that provide automatic benefits to all who qualify under the terms of the legislation that governs them. They are not subject to the congressional appropriations process, the annual ritual that forces advocates of other programs to compete for a limited pool of discretionary dollars. And Social Security benefits are adjusted automatically each year to account for rising living costs, protecting participants from the ravages of inflation.

“Social Security is the most effective anti-poverty program ever devised,” acknowledged Horace Deets, executive director of the 34-million-member American Assn. of Retired Persons.

Without Social Security, a staggering 44% of the elderly population would live below the poverty line, according to the Social Security Administration. Instead, the elderly poverty rate is just 11%, the lowest of any major age segment of the population.

Other groups of Americans have not fared as well. The poverty rate reached an unprecedented 20% last year among children--classified as those under 20--a trend that reflects the increasing prevalence of single-parent households as well as the effects of recessionary job losses and declining wages for unskilled labor.

Some members of Congress want to direct more money to such areas as the Head Start preschool program, immunization to protect children from disease and the Women, Infants and Children program that pays for milk, juice and other nutritional essentials for poor pregnant women and youngsters.

But efforts to help children are constrained by the runaway growth in another entitlement program: Medicaid, which helps pay medical bills for the poor.

Political Clout

Almost 40% of Medicaid (called Medi-Cal in California) benefits are spent on the elderly, primarily for nursing-home care for the destitute.

Suggestions that spending on the elderly should be constrained are voiced with utmost caution. Most politicians are exceedingly accommodating to the AARP, the National Council of Senior Citizens, and the National Committee to Preserve Social Security and Medicare. All three organizations have aggressive lobbyists working the halls of Congress and have proven their ability to generate thousands of letters and phone calls.

The political savvy and voter participation of the elderly contrasts sharply with that of other demographic groups. “Children don’t vote, and the poor are unorganized,” wrote Yale University professor Theodore R. Marmor in the book, “America’s Misunderstood Welfare State.” “Programs for the non-aged are often morally controversial, lack support by well-organized interest groups and involve substantial (financial) participation by the states.”

Even the critics of current entitlement policy are not calling for reductions in existing benefits for the elderly. To do so would be viewed as political suicide. At most, they argue that the growth of future benefits should be limited.

Bush, for example, wants to base future Medicare outlays on a formula that accounts for inflation and the increase in the number of participants. But if health care costs continue to grow much faster than inflation, the inevitable result would be cuts in the fees paid by the government to doctors and hospitals. Doctors might stop treating Medicare patients, or shift the costs to patients covered by private insurance.

Other reform advocates would leave benefits alone but require affluent beneficiaries of Social Security and Medicare to pay higher taxes or insurance premiums.

Most Social Security beneficiaries pay no income taxes on their monthly benefits because their annual incomes fall below a threshold of $25,000 for individuals and $32,000 for couples. Those whose incomes exceed those levels--about 18% of the elderly--pay income taxes on up to 50% of their Social Security benefits.

Without specifying the numbers, Clinton wants the affluent elderly to pay more, and Perot says that 85% of the benefits should be subject to taxation.

In addition, Perot wants Medicare taxes to be paid on all income; currently, individuals pay no such taxes on income exceeding $130,200 a year. He also wants to reduce the size of cost-of-living increases on pensions for federal retirees for the next five years.

All Medicare beneficiaries pay $31.80 a month for the Part B insurance coverage that helps pay doctor bills. But those premiums only cover 25% of the burgeoning cost of the program, with the rest coming from general tax revenues.

Perot wants the elderly to pay 35% of total Part B costs, a step that could add as much as $12 a month to the premiums, according to AARP calculations.

The Administration’s latest budget included a proposal to make affluent Medicare recipients--individuals with incomes above $100,000 and couples above $125,000--pay an additional $95 a month, enough to cover 75% of the cost of Part B. The suggestion was dead on arrival in Congress. Clinton has endorsed the same principle, but history suggests it has little chance of enactment.

Affluent seniors run the risk of getting hit several times--with higher personal income taxes, a bigger share of their Social Security benefits subject to taxation, plus higher Medicare premiums, notes John Rother, legislative director of the AARP.

If that occurs, “they would wonder whether it is truly a shared sacrifice,” he said.

The AARP has held its fire against Clinton only because he has offered the tantalizing promise of a new health care system that would give them help with prescription drug costs and the ruinous expenses of nursing homes.

Veteran members of Congress are wary of reform proposals because they vividly remember the 1988 “catastrophic care” debacle. In an effort to curry favor with the elderly, they wound up alienating the most affluent and vocal members of that community.

The catastrophic care law approved by Congress that year was the biggest expansion of benefits since the creation of Medicare. It offered coverage of unlimited days of hospital care, a $1,700 annual ceiling on out-of-pocket payments for doctor bills and, for the first time, prescription drug coverage.

The elderly themselves would have paid the bill. For 60% of less-affluent Medicare recipients, the charge would have been limited to $5 a month. The other 40% of beneficiaries--those who paid federal income taxes--would have been subject to a special tax, ranging up to $800 a year for individuals with incomes of $45,000 or more.

Screams of outrage erupted from retirees who already enjoyed good health benefits through corporate or union plans, and vehemently objected to paying the cost for their poorer brethren.

An abject Congress voted overwhelmingly to repeal the law in October, 1989, just 16 months after its passage.

The experience “sent a huge shudder through this place,” Panetta said. It was a bitter moment for the AARP. Members of Congress “turned and ran like hell when letters started coming in and left us alone to support catastrophic (care),” Deets said.

Tensions Heighten

That fight made a determined activist out of Hines, a retired teacher who was president of a 200-member AARP chapter in the San Fernando Valley.

When he began publicly campaigning against the catastrophic-care law, AARP headquarters “wrote me a letter saying I was supposed to keep my mouth shut,” he said. Hines ignored the advice and helped mobilize angry seniors in California and elsewhere.

Senior groups and their advocates insist there is no conflict between the generations. Poverty among the young “is not caused by greedy geezers taking away their money,” said Dr. Edward Schneider, director of the Andrus Gerontology Center at USC. “It’s the huge growth in single-parent families, where there is often no significant breadwinner.”

The senior groups now take the firm position that children can be helped--and the elderly’s special benefits protected and even expanded--through the traditional liberal recipe calling for reduced defense spending and higher taxes.

But that runs headlong into the widespread public opposition to higher taxes.

“The public has not yet shown a willingness to increase taxes,” said Fernando Torres-Gil, professor of social welfare at UCLA and former staff director of the House Committee on Aging.

This conflict heightens the unmistakable “tensions between those who receive benefits and those who pay for it,” Torres-Gil said. “At a time of severe deficits and economic recession, you find these tensions becoming real.”

Crim, a former social worker who is married to a free-lance video producer, seems to be a living embodiment of these tensions. The baby boomers “are not a bunch of spoiled brats,” she said. “I’m intelligent; I have a college degree. But we just can’t do as well as our parents did.”

Crim has been working part time for the League of Women Voters in Ft. Worth, and has been trying to start a full-time business since her youngest son began kindergarten. Unable to afford health insurance, she and her husband are scrambling to make ends meet.

“Medicare seems like a huge luxury to me,” she said. “I pay all the bills for my boys, whether it’s for shots or a broken arm or broken collar bones. Medicare is an entitlement based on age, not need. We can’t afford it.”

“It’s not an easy solution, but all of (Social Security) should be taxed,” said Crim, a local leader of the American Assn. of Boomers, a small group that wants to represent the generation of Americans born between 1946 and 1964.

The 18% of Social Security recipients who pay taxes on their benefits now are likely to expand to all retirees by the time baby boomers retire because the income cutoffs--$25,000 for individuals and $32,000 for couples--are not adjusted for inflation.

And Social Security won’t be as good a deal for Crim in other ways. The minimum age for collecting full benefits, now 65, will rise to 66 after the turn of the century and to 67 in the year 2012. And it will take her longer to recover the taxes she’s contributed.

A married couple retiring today with average benefits will recover all the taxes they contributed to Social Security in just four years and five months, including interest calculated at the Treasury bill rate.

For Crim’s contemporaries, a couple retiring in the year 2012, it will take seven years and six months, according to Social Security Administration calculations.

Medicare already faces a grim economic future because spending is expected to significantly outpace the payroll tax collections that finance it. And the health needs of the baby boomers, the largest generation in U.S. history, could push the program over the edge, said Schneider of the Andrus Gerontology Center.

“Cost containment won’t work,” he warned, adding that the number of Alzheimer’s disease sufferers is likely to more than double and that health-conscious habits won’t help much in combatting age-related diseases.

Predictions like these depress Crim. “I’m afraid that when we get ready for retirement, there won’t be anyone there to pay for it unless we tax our children at a ridiculous rate,” she said. “It’s an impossible situation. We all need to come to the table and say: ‘This just won’t work.’ ”

The AARP’s Deets says he wants to help. “It’s a scandal what’s happening to our children--we have an obligation to the country to help,” he said, noting that the AARP has formed an alliance with the Children’s Defense Fund.

But Deets doesn’t want to help at the expense of his members. “If I get out and sacrifice first, will anyone else join me?”

The Benefit Give-and-Take

Here is where money for two main benefit programs comes from, and where it goes:

SOCIAL SECURITY

Revenues

Payroll taxes by 132 million workers and their employers. Worker and company each pay 6.2% of the first $55,500 of earnings.

Benefits

Monthly payments to:

-- 29 million retirees age 62 and over

-- 7 million survivors

-- 4.6 million disabled workers of all ages and their families

Average Benefits

Retired worker: $634

Couple: $1,074

Widowed mother and two children: $1,250

Aged widow: $590

Disabled worker: $608

Disabled worker, spouse and children: $1,045

MEDICARE

Revenues

Payroll taxes by 132 million workers and their employers. Each pay 1.45% on first $130,200 in salary. Medicare beneficiaries pay $31.80 a month for Part B insurance, which helps pay doctor bills. This covers 25% of the Part B cost. General tax revenues cover the rest.

Benefits

Covers 30 million people over the age of 65 and the disabled of all ages.

Part A: You pay $652 for first day in hospital. Medicare covers next 59 days without charge. You pay $163 a day for days 61 to 90, and $326 a day for days 91 to 150.

Part B: You pay first $100 of doctor bills. You pay 20% of Medicare-approved charges for additional bills.

Source: Social Security Administration, Health Care Financing Administration