Will Debt Panel Tackle Medicare, Social Security?

By Donna Smith

WASHINGTON (Reuters) Sep 08 - A new congressional "super committee" will face tough choices on politically popular government health and retirement programs as it tries to draft a plan to reduce deficits by at least $1.2 trillion over a decade.

The panel has until November 23 to make recommendations that the Senate and House of Representatives are to vote on by December 23.

Here are some questions and answers on Medicare, Medicaid and Social Security -- the biggest items in the federal budget not subject to annual appropriations by Congress.

What's The Problem?

In just one decade, the number of Americans drawing Social Security retirement benefits will jump to 71 million from about 55 million now. Spending for the popular government program will rise to $1.3 trillion from $726 billion this year.

At the same time, spending for the Medicare healthcare program for the elderly will rise to $966 billion by 2021 from $555 billion this year, according to the nonpartisan Congressional Budget Office. Federal spending for the Medicaid health program for the poor is projected to increase to $561 billion in 10 years up from $273 billion.

Will The Committee Tackle These Programs?

That is the big question for financial markets as well as conservative and liberal groups who will be closely following deliberations. These programs are enormously popular among voters, but they are the largest items in the federal budget next to defense spending.

It is too early to say whether the six Democrats and six Republicans on the panel will address those programs. On the eve of the first meeting, Senator John Kerry, one of the Democrats on the committee, was asked about details of what would be addressed and said: "I think we'll all have a better sense after we get going tomorrow."

Many analysts believe the panel will leave Social Security for another time. Meanwhile Democrats have made clear they will not make concessions on Medicare and Medicaid as long as Republicans refuse to consider raising revenues by reducing tax breaks and loopholes or other tax increases.

Why Not Tackle These Issues?

Compromising on basic party principles ahead of the November 2012 presidential and congressional election will be difficult if not impossible for panel members.

Republicans are campaigning for smaller government and want tax reforms to finance lower individual and corporate tax rates, not to cover the cost of existing programs. Democrats want to protect these programs for the elderly and poor and are railing against Republican proposals to privatize Medicare and limit federal oversight of Medicaid.

Most likely it will be left to voters next year to decide how the financial stresses facing these programs will be addressed. Senator Jon Kyl, a Republican member of the committee, Tuesday acknowledged the political realities facing the panel telling reporters that it would be "very, very hard" for committee members to "compromise our principles."

Could The Committee Offer Sweeping Changes?

The panel is being called the "super committee" because the August agreement that provided an increase in the $14.3 trillion debt ceiling gave it broad authority to seek at least $1.2 trillion in deficit reduction over the next 10 years.

They need to be worried about next year's elections. Disgust over the partisan vitriol that dominated the debt ceiling debate is fueling an anti-incumbent sentiment among voters that could upset both Republicans, who control the House, and Democrats, who control the Senate.

Meanwhile, financial market volatility over the debt crisis in Europe and nervousness about the lackluster U.S. economy could also spur panel members to take bold action.

What Could They Do?

It is unlikely the committee could undertake broad reform of Medicare, Social Security, Medicaid and the tax code by November 23. But they could propose some cost cutting measures as a down payment for bigger savings later on. It would be politically difficult, but it might help ease financial market concerns about U.S. debt.

If the panel does decide to tackle Social Security, raising the retirement age, which is set to rise to 67 under current law, is a possibility. Also raising the Medicare eligibility age, currently at 65, is also under consideration.

An idea that gained traction during debt limit negotiations was changing the annual inflation adjustment the government uses to calculate program benefits. Instead of the Consumer Price Index, a different measure would be used that takes into account consumers shifting choices when confronted with higher prices.