THE WHITE HOUSE

Office of the Press Secretary

PRESIDENT CLINTON AND VICE PRESIDENT GORE:

Saving Social Security and Strengthening Medicare

January 27, 1999

In His State of the Union Address, President Clinton Put Forward His Framework To Save Social Security And Strengthen Medicare. A week ago, President Clinton proposed his framework to allocate the projected budget surpluses over the next 15 years to meet America's challenges.

     Save Social Security Now.  The President's framework includes
     transferring 62 percent of the projected budget surpluses over 
     the next 15 years -- more than $2.7 trillion -- to the Social 
     Security system and investing a portion of the transferred 
     surpluses in the private sector to achieve higher returns for 
     Social Security -- just as any state or local government, or 
     private pension does.  This will keep Social Security solvent 
     until 2055.  The President believes we must work on a bipartisan 
     basis to make the hard-headed but sensible and achievable 
     choices to save Social Security until at least 2075, while 
     reducing poverty among single elderly women and eliminating the
     limit on what older Americans on Social Security can earn.

     Letter from Social Security Actuary Shows President's Proposal
     Saves Social Security Until 2055.  Today, a memo from Stephen
     Goss, Deputy Chief Actuary of the Social Security Administration,
     was released, and it stated that the President's "proposal would
     extend the estimated year in which the combined OASDI trust funds
     would become exhausted by 23 years, from 2032 to 2055.  It would
     reduce the size of the estimated long-range OASDI actuarial
     deficit by over one half, from 2.19 to 0.76 percent of taxable
     payroll." [Memorandum from Stephen Goss, Deputy Chief Actuary of
     the Social Security Administration, January 26, 1999]

     Strengthening Medicare for the 21st Century.  Today, President 

Clinton emphasized the importance of his proposal to dedicate 15 percent of the projected budget surpluses to the Medicare program, as part of his broad framework to save Social Security and Medicare for the 21st century. These resources alone would extend the life of the Medicare Trust Fund to 2020, as confirmed by the Medicare actuary in a letter released today. However, the President stressed that the dedicated surplus dollars should be used in the context of broader Medicare reforms that modernize and improve the program.

President Clinton Emphasized That Dedicating Revenues is Essential to Preserving and Strengthening Medicare.

     Letter from Medicare Actuary Shows President's Proposal Keeps 
     Medicare Solvent Until 2020.  Today, a memo from Richard Foster, 
     Chief Actuary of the Health Care Financing Administration 
     (HCFA), was released, and it stated that "the assets of the 
     HI trust fund would be depleted in calendar year 2020 under 
     [the President's] proposal, as compared to 2008 under present 
     law."  [Memorandum from Richard Foster, Chief Actuary of the 
     Health Care Financing Administration, January 27, 1999]

     Medicare, like Social Security, Faces Challenge of the "Senior 
     Boom."  Medicare's enrollment is expected to double by 2030.  
     Moreover, by 2030, the ratio of workers (who help finance 
     Medicare through payroll taxes) to beneficiaries is expected 
     to decline by over 40 percent.

     Without New Surplus Revenue, Medicare Spending Would Have to 
     Be Reduced Significantly.  For the Hospital Insurance (HI) Trust 
     Fund to be solvent only through 2017, it would take a 10 percent 
     reduction in baseline spending in each year (all else held 
     constant).  For example, in 2000, this would amount to about 
     $15 billion -- more than Medicare pays for all of home health 
     care.

     Growth Would Have to Be Slowed to below General Inflation.  
     Even if Medicare per capita cost growth were constrained to 
     general inflation in every year -- virtually unprecedented 
     in health care and less than half projected private spending 
     growth rate -- the Trust Fund would only be extended to 2016.

     Experts Validate That Additional Revenues Are Critical to 
     Preserving and Strengthening Medicare.  Health economists and 
     experts agree:  not only are new revenues needed but the 
     surplus is a good source.  Experts supporting this proposal 
     include:  Robert Reischauer, Henry Aaron, Judy Feder, Marilyn 
     Moon, and Uwe Reinhardt and other respected economists.

     The President Underscored His Strong Belief That Surplus Dollars 

Should Be Utilized In the Context of Broader Reforms to the Program. The President emphasized that it would be ill-advised to expand Medicare in the absence of broader reforms. He stressed that the additional dedicated dollars should be used in conjunction with important reforms which would modernize the program by providing market-oriented purchasing tools, additional savings, and a long-overdue prescription drug benefit.

The President's Framework Would Also Allocate Projected Surpluses To Provide Tax Relief for Retirement Security and To Prepare America for the Challenges of the Future:

     Create New Universal Savings Accounts -- USA Accounts.  After 
     we save Social Security, the President would allocate 12 percent 
     of the projected surpluses to create new Universal Savings 
     Accounts (USAs).  USA Accounts would be a $536 billion tax cut 
     over the next 15 years to help Americans save for their futures, 
     providing Americans a flat tax credit to make contributions into 
     their USA Account and additional tax credits to match a portion 
     of an individual's savings -- with more help for lower-income 
     workers.

     Prepare America for the Challenges of the Future.  And after 
     Social Security reform is secured, the President's framework 
     would allocate 11 percent of the projected surpluses for 
     military readiness and other pressing domestic priorities.

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