How Women Could Lose in a Grand Bargain

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As the fiscal cliff looms, acknowledging the risks of entitlement reform

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Erskine Bowles, co-chairman of the National Commission on Fiscal Responsibility and Reform, after a closed-door meeting with House Speaker John Boehner on Wednesday (J. Scott Applewhite/AP Images)

Women. Even though we are increasingly likely to be better educated than men, we earn less over our lifetimes. We're more likely to take on the caretaking of everyone from children to elderly relatives. We do more in the way of housework than our spouses. We might live longer, but we are more likely to come down with chronic (and costly) illnesses along the way.

And it increasingly looks like the women—especially middle aged and elderly women—will be asked to give more than men when it comes to any "grand bargain" over entitlements such as Social Security, Medicare, and Medicaid.

While the final details of any such "grand bargain" are still being worked out, we can look at what is being proposed to get a sense of what the final plan will possibly contain. There is the idea that the age of eligibility for Social Security and Medicare be raised. There is also the idea that annual Social Security benefit increases meant to adjust for inflation be slowed. Benefit cuts to Medicaid are on the table too.

And why will women suffer in particular? Women are disproportionately dependent on government services at any time of life, a situation that gets worse with age. This can be explained, not by an inability to resist a good sale on sweaters at the local mall, but as the end product of women's lower lifetime earnings, more peripatetic work history, and longer lives.

(I don't want to have an argument about whether women earn less because they choose less lucrative careers and choose to take on the care of children more often than men. I'm simply laying out the ground situation.)

As a result, women are more likely than men to rely on Social Security for a majority of their income in retirement, and would be more likely to live in poverty if not for the program. Moreover, women make up more than two-thirds of those eligible for both Medicare and Medicaid, a reflection of the fact that not only do they live poorer, they are also more likely to need the supplemental coverage for treatment of a long-term disability.

"People talk about these issues separately but they come together," said Joan Entmacher, a vice-president at the National Women's Law Center. "People are so focused on the country's balance sheet they don't think about individuals' balance sheets, particularly those of women."

So where to begin taking this apart?

Let's look at the impact of changing how Social Security cost-of-living adjustments (known by the acronym COLA) are determined. Would-be budget cutters and entitlement reformers from Simpson-Bowles Commission to the Washington Post editorial board are arguing for replacing the current formula with something called Chained Consumer Price Index (known as chained CPI). The difference between the two is estimated at somewhere between 0.25 and 0.3 percent year. The Congressional Budget Office estimates this would save the federal coffers $108 billion over a decade.

The difference—again, we are talking 0.25 to 0.3 percent—is minor at first. The problem is a problem of compounding. Start with a slightly smaller raise the first year, give smaller increases than in the past each subsequent year, and, after a few decades, we're talking real bucks.

According to numbers worked out by the National Women's Law Center, a single elderly woman currently receives a median annual Social Security benefit of $13,200. That translates to $1,100 a month. Under chained CPI, this woman would lose $56 a month by age 80, $87 a month at 90 and $101 a month at 95—that last number is a more than ten percent reduction in benefits.

"That may not sound like a lot to someone who has a lot of money, but that represents a week's worth of food to someone who lives on Social Security at age 80. If she lives to 95 it is two weeks worth of food," Entmacher said.

And that leaves out the point that it is pretty hard to substitute for medical expenses, something that has already become a concern with how the COLA is currently calculated. Healthcare costs, as we all know, have risen at close to double the rate of reported inflation for two decades.

And, unsurprisingly, people over the age of 75 will spend more than twice as much on healthcare than their younger counterparts. As anyone who had made even one visit to an assisted living complex or nursing home knows, the vast majority of the eldest of the elderly are female. Women make up 57 percent of those over the age of 65, and more than two thirds of those over the age of 85.

There is no substitution for antibiotics, or statins, no switching to lower-cost over-the-counter vitamins when a doctor hands you a script for a prescription to be filled at the local pharmacy.

But back to that subject of assisted living complexes and nursing homes filled with old, old women:

A Medicaid cut has the potential to kick women in any number of ways. For the elderly, of course, it means a lack of services, or services they will have to pay for out of their now-diminished Social Security checks. More than two-thirds of those over the age of 65 receiving Medicaid are female, many using it to pay for home health care workers or nursing homes.

Needless to say, someone will need to step up the caretaking duties if paid assistance is cut back, as at least some have argued it should be. And who might that someone be? Well, cherchez la femme. The typical caregiver of an elderly relative is a 49 year-old woman.

There are various plans for cutbacks out there. One recently discussed in the New York Times: a Republican initiative to turn Medicaid into a block grants to the states, which could then alter the eligibility requirements to throw more cost back into the elderly person and their family. States could also choose to allow residential nursing facilities to bill families for the difference between the government payment and the rack rate.

And guess who will pay that bill? One hint: in that New York Times story all the family caretakers they interviewed had first names like Wendy and Rena.

According to a study released by the MetLife Mature Market Institute, a woman who takes on a caretaking role can expect to lose $324,000 in lifetime salary, pension, and Social Security earnings. And that's now. Any cut in services offered is likely to cause caregivers to cut back on their work further and multiply their losses down the line. Toss in chained CPI on now reduced lifetime earnings and ... well, you see the problem.

And I didn't even cover the point that the majority of paid caretakers are female, too, and they earn a paltry median salary of a little more than $20,000,, so if anyone tries to cut what Medicaid will pay them, or the hours they work, that too will impact their total lifetime earnings that will, in turn, impact their future benefits, which will then be subject to the stingy chained CPI formula, so they too will be standing in their kitchen one day, enjoying peanut butter for dinner.

Then there is that idea that we need to raise the age of Medicare eligibility from 65 to 67, an idea that President Barack Obama is rumored to support. This again is likely to impact women more than men, since they are all-too-frequently insured as a dependent via a spouse who is more likely than not to be older than they are. Any change here will increase the number of years they need to pay for individual health insurance, reducing their ability to save money for the post-retirement years, just at the point when they will have their last opportunity to add to them.

This isn't, as Goldman Sachs CEO Lloyd Blankfein recently said in a Wall Street Journal op-ed, "shared sacrifice." By refusing to address the reality of women's financial lives, would be entitlement reformers are dooming all-too-many to a penurious old age.

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Helaine Olen is a journalist in New York. She is the author of the forthcoming Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.

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