Retirement

The federal government devotes a substantial share of its budget to benefits for the nation's retirees through Social Security, Medicare, Medicaid, and other programs. Additionally, the exclusion of pension contributions and earnings from taxable income constitutes one of the largest preferences in the federal income tax code. CBO regularly analyzes a wide range of proposals to change those programs or those elements of the tax code.

Sub-Topics:

Medicare
Pensions
Private Health Insurance
Social Security

blog post

Raising the Ages of Eligibility for Medicare and Social Security

report

January 10, 2012

read complete document (pdf, 729 kb)

Highlights

Raising the ages at which people can collect Medicare and Social Security would reduce federal spending and increase federal revenues by inducing some people to work longer. However, raising the eligibility ages for those programs also would reduce people's lifetime Social Security benefits and cause many of the people who would otherwise have enrolled in Medicare to face higher premiums for health insurance, higher out-of-pocket costs for health care, or both. This issue brief reviews how ages of eligibility affect beneficiaries under current law and how delaying eligibility would affect beneficiaries, the federal budget, and the economy.

Among CBO's findings:

Policy Option	Long-Term Budget Impact	Implications for Beneficiaries
Raise the Medicare eligibility age from 65 to 67	Medicare spending declines by about 5 percent	Access to Medicare would be delayed for most people; many of the affected people would pay more for health care
Raise the full retirement age for Social Security from 67 to 70	Social Security spending declines by about 13 percent	People would face reduced benefits over a lifetime
Raise the early eligibility age for Social Security from 62 to 64	Social Security spending changes little	Access to Social Security benefits would be delayed for many people, but their monthly benefit amounts would increase

By inducing people to work longer, raising any of the ages of eligibility would increase the size of the workforce and the economy. Although the magnitude of those effects is difficult to predict, CBO estimates that:

Raising Social Security's early eligibility age to 64 or the full retirement age to 70 would, in the long term, boost the size of the workforce and the economy by slightly more than 1 percent.
Raising Medicare's eligibility age to 67 would also boost the size of the workforce and the economy, but by a much smaller amount.

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Raising the Ages of Eligibility for Medicare and Social Security

blog post

January 10, 2012

H.R. 1173, Fiscal Responsibility and Retirement Security Act of 2011

cost estimate

December 2, 2011

read complete document (pdf, 26 kb)

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Spending Patterns for Prescription Drugs Under Medicare Part D

blog post

December 1, 2011

blog post

Spending Patterns for Prescription Drugs Under Medicare Part D

report

December 1, 2011

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Highlights

The centerpiece of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Modernization Act) was the creation of Medicare Part D, a subsidized pharmaceutical benefit that went into effect in 2006. That additional coverage—which provides outpatient prescription drug insurance to seniors and to people under age 65 with certain disabilities—constituted the most substantial expansion of the Medicare program since its inception in 1965. In 2010, the federal government spent $62.0 billion on Part D, representing 12 percent of total federal spending for Medicare that year.

Under Medicare Part D, all enrollees receive a subsidy for prescription drug insurance; an additional low-income subsidy (LIS) is available to enrollees with sufficiently low income and assets. (In this issue brief, Part D enrollees who receive the LIS benefit are referred to as LIS enrollees; all others are referred to as non-LIS enrollees.) Enrollees in Part D choose a prescription drug insurance plan from a number of competing private plan sponsors. Total spending on Part D drugs equals the sum of spending by all payers combined, including plan sponsors, beneficiaries, the federal government, and third-party payers; in this brief, it is measured on a per-beneficiary basis. In 2008—the most recent year for which data were available when the Congressional Budget Office (CBO) undertook this analysis—average spending for non-LIS enrollees was $1,800. The amount of spending varied widely across enrollees in that category: for 7 percent, no spending occurred, whereas for 6 percent, the amount was at least $5,000. Enrollees who spent more tended to fill more prescriptions and more-expensive prescriptions. The federal government covered roughly 40 percent of non-LIS spending through premium subsidies, and beneficiaries covered most of the remainder through premium payments and out-of-pocket spending.

Average spending for LIS enrollees in 2008 was $3,600, double the spending for non-LIS enrollees. A slightly larger share of LIS enrollees (9 percent) had no Part D spending, but a much greater share 23 percent) had spending of at least $5,000. As with the non-LIS population, higher spending among LIS enrollees was driven by beneficiaries who filled more prescriptions and who filled more-expensive prescriptions. The higher spending among LIS beneficiaries most likely reflected that group's generally poorer health status and the more generous coverage available through the low-income subsidy. Because of that additional subsidy, the federal government covered 95 percent of LIS spending in 2008.

This issue brief reviews patterns of Medicare Part D utilization and spending among the non-LIS and LIS populations. Other important topics relating to Part D, such as the provision of public benefits by sponsors of private plans and competition among those sponsors, are beyond the scope of this analysis.

S. 1931, Temporary Tax Holiday and Government Reduction Act

cost estimate

December 1, 2011

read complete document (pdf, 286 kb)

Supplemental Material
blog post

Use of Tax Incentives for Retirement Saving in 2006

image

October 14, 2011

read complete document (pdf, 1593 kb)

Abstract

This CBO publication examines participation rates in and contributions to various tax-favored retirement plans in 2006, with some earlier data presented for comparison. Two features of the Economic Growth and Tax Relief Reconciliation Act of 2001 also are analyzed: increases in contribution limits and an additional incentive, known as the “saver’s credit,” that was created to encourage lower-income taxpayers to save for retirement.

Highlights

In 2006, just over half (52 percent) of all workers who filed tax returns participated in some form of tax-favored retirement plan. Overall, participation was nearly the same in 1997, 2000, 2003, and 2006—ranging from 50 percent to 52 percent.

Use of Tax Incentives for Retirement Saving in 2006

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Participation in 2006 was concentrated in employment-based plans, with 48 percent of all workers either contributing to or being covered by such a plan (47 percent as wage earners and 1 percent as self-employed people). Twenty-nine percent of workers who filed tax returns were wage earners who contributed to 401(k)-type plans. Participants in 401(k)-type plans contributed an average of $4,350 in 2006.

Only 7 percent of workers contributed to IRAs in 2006. Slightly fewer workers contributed to traditional IRAs (3 percent) than to Roth IRAs (4 percent). Contributions to traditional IRAs were larger ($2,840), on average, than contributions to Roth IRAs ($2,590).

Five percent of participants in 401(k)-type plans in 2006 contributed up to the limits established by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Twelve percent contributed amounts equal to or greater than the pre-EGTRRA limits and presumably would have made the maximum allowable contributions in the absence of EGTRRA. For traditional IRAs, EGTRRA reduced the proportion of participants constrained by the contribution limits in 2006 from 73 percent to 52 percent; for Roth IRAs, the corresponding proportions were 62 percent and 39 percent.

The saver’s credit was introduced by EGTRRA to encourage retirement saving by providing tax credits to qualifying taxpayers whose adjusted gross income falls below particular thresholds. In 2006, 25 percent of all workers who filed tax returns were eligible to take the saver’s credit based on their income and tax liability. Only 20 percent of those eligible actually contributed to a retirement account, and 65 percent of those who contributed claimed the credit. The average amount of the credit was $156.

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How Do People Save for Retirement?

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October 14, 2011

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Some Context for Thinking About Deficit Reduction: Social Security and Major Health Care Programs

blog post

September 28, 2011

SSI Extension for Elderly and Disabled Refugees Act of 2011

cost estimate

September 30, 2011

read complete document (pdf, 15 kb)

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Congressional Budget Office

Supporting the congress since 1975

Retirement

Sub-Topics:

Raising the Ages of Eligibility for Medicare and Social Security

Highlights

monthly archive

Raising the Ages of Eligibility for Medicare and Social Security

H.R. 1173, Fiscal Responsibility and Retirement Security Act of 2011

monthly archive

Spending Patterns for Prescription Drugs Under Medicare Part D

Spending Patterns for Prescription Drugs Under Medicare Part D

Highlights

S. 1931, Temporary Tax Holiday and Government Reduction Act

Supplemental Material

Use of Tax Incentives for Retirement Saving in 2006

Abstract

Highlights

monthly archive

How Do People Save for Retirement?

monthly archive

Some Context for Thinking About Deficit Reduction: Social Security and Major Health Care Programs

SSI Extension for Elderly and Disabled Refugees Act of 2011

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