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Introduction

The United States faces rising costs in its major entitlement programs, Social Security and Medicare, as the population ages. An aging population combined with rising health care costs is projected to “overwhelm the U.S. budget in years to come” if left unchecked. The proposed Entitlement Modernization Plan is designed to preserve the social safety net’s core promises while curbing unsustainable cost growth. It targets roughly $300–$400 billion in annual federal savings once fully phased in, by implementing a set of calibrated reforms. The plan includes three key components:

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• Gradually Raising the Retirement Age for Social Security (affecting younger generations, while current retirees or those near retirement remain unaffected).

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• Capping Benefits for Ultra-Wealthy Retirees by means-testing Social Security and Medicare so that the highest-income seniors receive reduced benefits.

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• Expanding Prescription Drug Pricing Reforms to lower Medicare’s spending on pharmaceuticals (building on recent drug price negotiation policies).

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The goal is to slow entitlement spending growth to a sustainable path – helping reduce federal deficits – without breaking the promise of support for seniors and vulnerable groups. Similar reform packages have been advanced by budget experts to “modernize and protect” the safety net for future generations. Below we analyze the fiscal impacts over the next 5–15 years, compare the plan to alternative scenarios, and discuss key trade-offs, implementation challenges, and distributional effects.

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Key Components and Fiscal Effects

Gradual Retirement Age Increase

One pillar of the plan is a gradual increase in the Social Security retirement age for future beneficiaries. For example, lawmakers could raise the full retirement age (FRA) from the current 67 to 68, 69 or 70 in small increments (e.g. a few months per year) for people born after a certain year. This policy directly slows benefit growth by shortening the period over which retirees collect benefits (unless they delay retirement to the new age). It also reflects improvements in longevity. From a budgetary standpoint, raising the FRA can yield meaningful savings. An analysis by the nonpartisan Committee for a Responsible Federal Budget (CRFB) found that gradually increasing the FRA to 69 (and then indexing it to lifespan) would save about $90 billion over a 10-year budget window. The Congressional Budget Office (CBO) similarly estimated that raising the FRA to 70 (phased in for those born 1978 or later) would reduce federal outlays by roughly $120 billion through 2032. These savings start modestly – since changes are phased in for younger workers – but compound over time. By the mid-2030s, annual Social Security spending would be tens of billions lower than under current law, and the reduction would grow in later decades as more cohorts retire at the higher age. This helps improve the program’s solvency and the federal fiscal outlook. Indeed, CRFB estimates that an increase to FRA 69 (with longevity indexing) would close over half of Social Security’s long-term funding shortfall, significantly shoring up the system’s sustainability for future generations.

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Beyond direct spending cuts, a higher retirement age could have economic benefits that indirectly aid the budget. By incentivizing people to work longer, it can boost economic output and tax revenues. One study found that if all workers delayed retirement by one year on average (in response to an age increase), the extra payroll and income tax revenue would equal about 28% of Social Security’s annual shortfall 40 years from now. In this way, gradually raising the retirement age helps strengthen the program and improve the overall fiscal outlook, while still preserving the option for workers to claim early (age 62) if needed (albeit at a larger benefit reduction). Crucially, the plan’s gradual phase-in means current retirees and those near retirement would see no change – avoiding any sudden cut in benefits for people who have already planned their retirements.

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Means-Testing Benefits for Wealthier Retirees

Another component is capping benefits for ultra-wealthy seniors – effectively means-testing Social Security and Medicare so that high-income retirees receive less generous benefits or pay more into the system. The rationale is that scarce resources should be focused on seniors who depend on these programs, rather than subsidizing those who can well afford their own retirement and healthcare costs. In practice, this could involve reducing Social Security benefit formulas for the top earners or phasing out benefits beyond a certain retirement income level, and requiring higher-income Medicare beneficiaries to pay higher premiums or receive fewer subsidies.

From a fiscal perspective, means-testing Medicare has particularly large payoffs. Medicare currently charges higher Part B and D premiums to singles with income above about $100,000 (top ~6% of seniors). Expanding these income-related premiums to encompass more wealthy beneficiaries (say, the top 10%) could save the federal government hundreds of billions. For example, one analysis finds that if premium subsidies were reduced for the top 10% of Medicare beneficiaries (versus top 6% today), Medicare spending would fall by roughly $438 billion over 10 years. That is on the order of $40–50 billion per year in federal savings by the end of the decade. This occurs because wealthy seniors would pay more of their Medicare costs out-of-pocket, relieving taxpayer burden. Similarly, asking the wealthiest seniors to pay a larger share of Medicare’s costs (through higher deductibles or co-pays for high-income brackets) could contribute additional savings (the plan could be designed so that, for example, only the top few percent of retirees see any reduction in benefits).

Social Security means-testing, on the other hand, offers more modest budget savings – mainly because truly high-income retirees collect only a small fraction of total Social Security benefits. Social Security benefits are modest on average (about $1,800 monthly), and the program’s benefit formula already tilts toward lower earners. Taking benefits away from millionaires might be politically popular, but “wouldn’t save much money” unless the definition of “high-income” were drawn far down into the upper-middle class. For instance, even eliminating benefits for the richest 1–2% of seniors yields only a tiny percentage of program savings (and could be complicated and costly to administer). Thus, major Social Security savings from means-testing would require affecting a broader group (for example, phasing out benefits for seniors with incomes above, say, $50–$100k). The plan, however, is focused on the “ultra-wealthy”, suggesting relatively narrow targeting. That means Social Security savings from this measure might be relatively small – a secondary contributor to deficit reduction – but still symbolically and philosophically important. Even a modest trim of benefits for the top 5–10% of earners can slightly reduce Social Security’s cost growth and improve progressivity. And combined with the Medicare means-testing, it reinforces the idea that the well-off elderly will shoulder more of the adjustment, helping preserve full benefits for those who rely on them most

In summary, means-testing high-income seniors’ benefits would moderate entitlement spending by concentrating cuts on those most able to absorb them. This adds a layer of progressivity to the plan’s cost-curbing efforts. When coupled with the retirement age increase (which affects everyone across the board), the wealthy would contribute proportionally more to closing the fiscal gap. Estimates vary with how aggressively means-testing is applied, but combined Social Security and Medicare changes for the top tier of retirees could plausibly save on the order of tens of billions per year in the 10- to 15-year horizon. For instance, reducing Medicare subsidies for the top decile and tweaking Social Security benefit formulas for high earners might together yield several hundred billion dollars in 10-year savings (on top of the retirement age effects discussed above). This makes means-testing a valuable tool to reach the plan’s overall savings target, albeit one that must be designed carefully to avoid administrative complexity or unintended consequences (as discussed later).

 

Expanded Drug Pricing Reforms

​The third major component is expanding prescription drug pricing reforms to wring out excessive costs in Medicare (and potentially other federal health programs). High drug prices have been a significant driver of Medicare spending growth. Recent legislation (the Inflation Reduction Act of 2022) gave Medicare limited authority to negotiate prices on a small number of high-cost drugs, projected to save about $98 billion in Medicare spending on drugs over 10 year and about $237 billion in total deficit reduction when accounting for related measures. The Entitlement Modernization Plan would go further – for example, allowing Medicare to negotiate prices for a larger set of drugs, implementing stricter inflation caps or international reference pricing, and other measures to cut pharmaceutical costs borne by taxpayers.

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Fiscal impact: By broadening drug price negotiation and other pricing rules, the government can achieve substantially larger savings on Medicare’s prescription drug spending. According to the Congressional Budget Office, a more aggressive negotiation program (such as that envisioned in earlier H.R. 3 legislation) could generate over $450 billion in Medicare savings over 10 years. One proposal to expand the number of negotiable drugs to 30 per year (versus 10 under current law) was estimated to save on the order of $500–$550 billion over a decade. That translates to roughly $50+ billion per year on average, once fully implemented – with annual savings potentially growing over time as negotiated prices compound and more drugs fall under the policy. In the 5- to 15-year timeframe, these reforms would start to bite: for example, by 2030, Medicare could be paying significantly less for many expensive medications than under the status quo, directly reducing federal outlays.

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Importantly, drug pricing reforms not only save the government money, but can also reduce out-of-pocket costs for Medicare beneficiaries (seniors) on prescriptions. By 2026, the existing negotiation policy for a first set of drugs is projected to reduce Medicare spending by 22% on those medications (about $6 billion saved in 2026) and save affected patients $1.5 billion in out-of-pocket costs that year. Expanding these efforts would amplify both types of savings – helping seniors afford medications and yielding federal budget relief.

The plan’s drug cost initiatives, therefore, contribute a major share of the overall entitlement savings without cutting anyone’s benefits directly; instead, they cut what the government (and consumers) pay to drug companies. It’s a pure efficiency gain for the fiscal outlook: Medicare’s spending growth is slowed by tackling prices rather than cutting enrollment or covered services. By year 10 of implementation, an ambitious drug pricing reform package could be saving on the order of $60–$80 billion per year (depending on scope), substantially easing Medicare’s financial pressure.

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Projected Fiscal Impacts (5–15 Year Horizon)

Over a 5- to 15-year horizon, the Entitlement Modernization Plan would significantly improve federal fiscal trends. While the full $300–$400 billion annual savings would not materialize immediately (due to gradual phase-ins), the plan would start bending the cost curve within the first decade. Here’s how the timeline might look:

• Near Term (First 5 Years): Savings are relatively modest in the initial years (perhaps a few tens of billions annually by year 5). The retirement age increase has little effect at first (since it only applies to younger workers becoming eligible later). Drug price reforms ramp up slowly as negotiated prices phase in (the first negotiated drug prices under an expanded program might take effect around 2026-2027). Means-testing yields some early savings, especially from higher-income Medicare premium changes that could take effect sooner (for example, raising premiums on wealthy retirees could begin within 1–2 years and start saving a few billion). Overall, in the first half-decade, the plan might trim spending growth enough to modestly reduce annual deficits (which are otherwise projected around $1.5–$2 trillion). These early-year savings, while not huge relative to a $6 trillion budget, signal progress and can build confidence in the reform trajectory.

• Medium Term (Year 5–10): The savings accelerate. By the 10-year mark, multiple reforms are in full swing. The Social Security FRA might be on its way to 68+, affecting new retiree cohorts and saving on the order of $10–$20 billion in that year (for instance, by 2034 CBO projected about $37 billion less outlay in that year from raising FRA to 70 gradually). Medicare means-testing would by now encompass a broader group of high-income seniors, yielding perhaps on the order of $40–$50 billion less in annual Medicare subsidy costs (as per the earlier cited estimate of $438 billion over 2020–2029, which by 2030s means tens of billions each year). The drug pricing reforms would also be reaching peak effect: with a larger basket of drugs negotiated or regulated, annual Medicare drug spending could be dramatically lower than baseline – maybe $50+ billion saved in 2031, for example, based on CBO’s projections for expanded negotiation. In total, by roughly 2030, annual federal savings could plausibly be in the high hundreds of billions, approaching the $300 billion mark. Cumulatively over 10 years, the plan’s provisions might save on the order of $2–$3 trillion (this rough magnitude comes from adding: ~$1 trillion from drug reforms, a few hundred billion from retirement age, and a few hundred billion from means-testing – acknowledging uncertainty and overlap). For context, that could reduce the debt in 2033 by several percentage points of GDP relative to current baseline. (CBO projects debt held by the public to reach 118% of GDP by 2033 under current policies; achieving multi-trillion deficit reduction would slow that debt buildup noticeably.)

• Longer Horizon (Year 10–15 and beyond): The full fiscal benefits hit stride after a decade and continue growing. Around 2035–2040, annual savings in the $300–$400 billion range are feasible if the plan is fully implemented. By this time, the Social Security retirement age might be approaching 69 or 70 for the youngest retirees, substantially reducing benefit payouts relative to prior law (while also increasing payroll tax receipts somewhat, as people work longer). Medicare’s cost curve would be appreciably lowered – not only from means-testing and drug pricing, but also because a later Social Security retirement age often implies a later Medicare eligibility age if aligned (though the plan as stated did not explicitly mention raising Medicare’s age, some policymakers might synchronize them). Even without an explicit Medicare age hike, if more seniors delay retirement and employer health coverage lasts longer, Medicare spending growth could slow slightly. By year 15, the annual deficit reduction from the plan might reach the targeted ~$300–$400 billion, which could be roughly 1% of GDP or more in that year – a significant easing of fiscal pressure. Over 15 years, the cumulative deficit reduction could exceed $4 trillion, depending on economic conditions.

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In qualitative terms, this means the plan would meaningfully improve federal budget health. It would not single-handedly erase deficits (which are driven by multiple factors including tax revenues and other spending), but it would take a large bite out of the structural imbalance. For example, if deficits in the 2030s are projected at $2+ trillion annually under a no-reform scenario achieving $300–$400 billion in annual entitlement savings would cut those deficits by perhaps 15–20%. This relieves some of the pressure on the Treasury, slowing the accumulation of debt. Just as importantly, it would extend the solvency of trust funds: Social Security’s trust fund, currently on track to be exhausted by 2034, would last longer as payouts are tempered (potentially avoiding the sudden ~20% benefit cut that would otherwise occur upon insolvency). Medicare’s Hospital Insurance (Part A) trust fund, facing depletion in the late 2020s, would also benefit if some of the savings (like drug savings or higher premiums) feed into that part of the program – possibly preventing a funding crisis there. In short, over a 5–15 year horizon the plan buys substantial fiscal breathing room and helps ensure these programs remain viable. This comes at the cost of some benefit reductions for future upper-income retirees and a societal adjustment to a higher retirement age, but yields a stronger budget outlook moving forward.

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Comparison to Alternative Policy Scenarios

To put the Modernization Plan in context, it’s useful to compare it against two benchmark scenarios: (1) taking no action(status quo), and (2) implementing only partial reforms (for example, only addressing drug prices, or other piecemeal changes, instead of a comprehensive package).

• Status Quo / No Reform: If policymakers do nothing, the fiscal trajectory is decidedly bleak. Entitlement spending will continue to grow faster than revenues, driven by the retirement of the Baby Boom generation and ever-increasing healthcare costs. CBO projects that federal debt held by the public will rise from about 98% of GDP today to 118% of GDP by 2033 under current law– and keep climbing afterward – largely because Social Security, Medicare, and Medicaid outlays are expanding. Annual deficits are expected to average roughly $2 trillion over the next decade, adding to the debt each year. A major contributor is Social Security and Medicare benefits outpacing the dedicated taxes that fund them. In practical terms, “doing nothing” is not a sustainable option, because it leads to trust fund insolvencies: Social Security’s combined trust funds are slated to be depleted by 2034, at which point current law would impose across-the-board benefit cuts of around 20% to seniors if no fix is in place. Medicare’s Hospital Insurance trust fund (Part A) could exhaust even earlier (around 2030 or so, per trustees’ reports). The human and political cost of an unplanned entitlement crunch would be enormous – sudden benefit cuts or massive last-minute bailouts. Moreover, rapidly growing entitlement spending would crowd out other priorities or force painful austerity down the road. In short, under a no-reform scenario, federal finances head into increasingly dangerous territory, and the social safety net’s future becomes uncertain (with younger generations doubting if it will exist for them at all). The Entitlement Modernization Plan is an attempt to avert that scenario by acting sooner and in a measured way, rather than waiting for crisis. Its $300–$400 billion annual savings by the 2030s would substantially mitigate the rising cost curve that, under current policy, fuels ever-higher debt. By preserving trust fund solvency and reducing deficits, the plan addresses the long-term problem before it becomes unmanageable.

• Partial Reforms Only (e.g. Drug Pricing Alone): Another scenario is one where policymakers enact only a subset of reforms – for instance, focusing solely on prescription drug costs (or only on raising the retirement age, or other single-measure approaches). This would yield some fiscal improvement, but considerably less than the comprehensive plan and likely prove insufficient to stabilize the fiscal outlook. For example, if Congress were to implement drug price reforms akin to those in the Inflation Reduction Act but not touch Social Security or broader Medicare benefits, the 10-year savings would be on the order of $237 billion. Even more aggressive drug measures (like the H.R.3 negotiation proposal, ~$500 billion/10yr in savings) would reduce deficits by only about $50 billion per year once phased in – helpful, but that’s only a fraction of the entitlement spending surge. Meanwhile, Social Security benefits would continue to grow along baseline, and Medicare costs (apart from drugs) would still rise with healthcare inflation. In such a partial-reform scenario, the unsustainable dynamics of entitlements would barely be dented. For instance, drug savings alone could not prevent Social Security’s insolvency or significantly delay it, since they don’t address the Social Security program at all. Nor would they solve Medicare’s long-term funding gap, which is also driven by hospital and physician services costs. Similarly, if the government only raised the retirement age but did nothing about healthcare costs or high-end benefit payouts, we would shore up Social Security somewhat but still face ballooning Medicare and Medicaid expenditures. Or, if only means-testing were done (say, cutting off wealthy seniors’ benefits) without broader reforms, it would be politically symbolic but fiscally minor – as noted, means-testing Social Security by itself saves little unless it encroaches far into the middle class.

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In contrast, the comprehensive Entitlement Modernization Plan addresses multiple drivers of cost simultaneously: it slows growth in Social Security outlays (via the age change), reins in Medicare spending (via drug pricing and premium tweaks), and targets changes where they are most fiscally effective (healthcare prices, and benefits going to those who least need them). The synergy of these measures achieves a far bigger impact on the deficit than any one of them alone. By balancing changes across programs, the plan also spreads the effort: no single group bears all the sacrifice in the comprehensive plan, whereas a one-dimensional reform could hit one area hard and leave others untouched.

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To illustrate, consider the relative impact: Under “drug pricing only”, we might save a few hundred billion over a decade (mostly from pharmaceutical companies’ revenues) but leave entitlement spending otherwise on autopilot – debt would still mount rapidly. Under “retirement age only”, Social Security’s finances improve modestly (perhaps ~$100 billion saved in a decade), but Medicare’s trajectory and the broader budget deficit remain extremely problematic. Under “means-testing only”, we mostly achieve fairness gains with minimal budget relief (unless we push it so far that it undercuts the universality of the programs). By combining all three approaches, the plan yields on the order of ten times the budgetary savings of a single-focus reform. This comprehensive approach is what’s required to meaningfully “bend the curve” of federal spending. In effect, the Modernization Plan could be compared to a multi-course treatment for a serious illness: addressing diet, exercise, and medication together – rather than hoping any single remedy would suffice.

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It’s also worth noting that alternative approaches outside the scope of this plan (such as significant tax increases to fund entitlements at their current growth rate) exist, but they come with their own trade-offs (economic and political). The plan at hand chooses to focus on spending-side changes to curb costs. In doing so, it provides a stark contrast to the “do nothing” scenario (which courts fiscal crisis) and the “do a little” scenario (which falls short of what is needed). For senior policymakers evaluating options, the takeaway is that marginal tweaks will not solve the entitlement challenge – a broad reform package is closer to the scale required. The Entitlement Modernization Plan represents such a broad approach, aiming to save on the order of $3–$4 trillion over 10 years versus perhaps $0.2–$0.5 trillion for typical narrow reforms, or $0 for the status quo.

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Trade-offs and Implementation Challenges

Every element of the Entitlement Modernization Plan carries potential trade-offs and implementation challenges. Policymakers must weigh these carefully. Below we discuss key issues for each component and the plan as a whole:

• Retirement Age Increase – Fairness and Feasibility: Gradually raising the retirement age is economically sensible but is effectively a benefit reduction for future retirees, which raises equity concerns. Critics point out that raising the FRA would cut monthly benefits for roughly three-quarters of Americans (eventually) compared to current law. The burden of these cuts might fall disproportionately on certain groups. Not everyone is experiencing the same gains in life expectancy – higher-income individuals tend to live longer and can work into later age more easily than lower-income workers. Those in physically demanding jobs or with health issues may struggle to extend their careers. Studies show that life expectancy is lower for people of lower socioeconomic status, and the gap in lifespan (and thus total lifetime Social Security benefits) between rich and poor has widened. This means an across-the-board age hike can be regressive: it asks those who are likely to die younger (often lower earners) to give up a larger portion of their retirement period. In effect, the benefit cuts from a higher retirement age would be unfairly borne by lower-income workers, who are less likely to live long enough to enjoy many years of benefits and more likely to have worked in labor-intensive jobs that are hard to continue into late age. To mitigate these concerns, policymakers might consider complementary measures – for example, hardship exemptions or enhanced disability benefits for those who truly cannot extend their working years, or a higher minimum benefit so that those who must claim early (due to inability to work) are protected from poverty. Implementing the age increase gradually (as the plan does) is itself a mitigating strategy: it gives ample notice for younger workers to adjust their retirement planning, and it avoids impacting anyone currently close to retirement. Politically, however, this reform is often unpopular – Americans broadly oppose cuts to Social Security benefits, and raising the retirement age is often viewed as exactly that. Even if it’s gradual, opponents will label it a “cruel cut” that breaks the promise to workers. Building consensus will require clearly communicating that without changes, the whole program is at risk (when the trust fund runs dry, everyone would face cuts). Policymakers will have to justify that this approach is gentler and more equitable than an across-the-board sudden cut or massive tax increases. Implementation-wise, the mechanics of changing the FRA are straightforward (it’s been done before in the 1983 reforms), but the impact will need to be monitored. One challenge is a possible uptick in people claiming disability benefits or other safety-net benefits as an alternative path if they can’t work until the new retirement age – this could offset some savings and would require strong disability determination processes to prevent abuse. In summary, raising the retirement age trades some individual equity and comfort for long-term program solvency. The challenge is cushioning the vulnerable while asking millions to work a bit longer on average.

• Means-Testing Benefits – Savings vs. Incentives: Capping or reducing benefits for wealthy retirees is intuitively appealing (“why should billionaires collect taxpayer-funded benefits they don’t need?”) and indeed can save money, but it introduces its own set of issues. One concern is the potential to discourage savings and work among those nearing retirement. If middle- or high-income workers know that having a higher retirement income or assets will cause them to lose Social Security or pay extra for Medicare, they may have less incentive to save for retirement or to continue productive work. In effect, means-testing could “punish” people who have worked hard and saved diligently, which might be seen as undermining the earned-right nature of Social Security and Medicare. It also blurs the line between social insurance and welfare: Social Security and Medicare were designed as near-universal programs, helping maintain broad political support. If benefits are seen as charity only for those in need, wealthier individuals might eventually withdraw political support for the programs, potentially weakening their future. The administrative challenge is non-trivial as well. Medicare already has income-based premiums (which are relatively easy to administer via tax returns), so extending that further is feasible – it just means collecting more from, say, seniors with incomes above a lower threshold. Social Security means-testing, however, could be trickier, especially if based on total income or wealth. It might involve checking retirees’ income (from tax data) each year and adjusting benefits, or implementing a tax surcharge on benefits for high incomes. Some proposals suggest taxing Social Security benefits more heavily for high-income seniors (currently up to 85% of benefits are taxable; this could be raised to 100% for the top bracket, effectively clawing back the benefit). That could be done through the tax code relatively seamlessly and might be one way to implement this “cap” on net benefits for the wealthy. Still, any means-test adds complexity and could encourage gaming or avoidance – for instance, affluent seniors might rearrange finances to show lower taxable income (using trusts, untaxed assets, etc.) to keep benefits. The plan targets the ultra-wealthy, which presumably limits such gaming since truly ultra-rich have less need to bother with a ~$30k/year Social Security benefit. But if the definition creeps broader, avoidance becomes a bigger issue. Politically, means-testing wealthy seniors might be the most palatable cut of all – it’s easier to ask those with high incomes to sacrifice. However, determining the cutoff will be contentious. Ultra-wealthy (like multi-millionaires) are few; expanding it to merely “well-off” retirees (say with incomes $100k+) brings in many who will argue they are being penalized despite having paid Social Security taxes their whole careers. Policymakers will have to navigate that, possibly by framing it as “asking a bit more from the top 10% to protect the bottom 90%.” In terms of trade-off, means-testing balances equity vs. efficiency: it improves fiscal efficiency by not paying out to those who don’t need it, but it may dent the perceived equity of everyone getting the benefits they paid for. The plan’s design tries to strike a balance by hitting only the “ultra-wealthy”, meaning the vast majority of Americans’ benefits remain intact. This limits any negative incentive effects or public backlash to a small affluent segment (who, in truth, have much less political sympathy when it comes to benefit cuts). Ensuring the savings materialize (especially for Medicare) will require that the policy is implemented firmly – e.g. not allowing the wealthy to opt out of Medicare while avoiding premiums, etc. According to one estimate, expanding Medicare means-testing to more upper-income seniors would slightly reduce premiums for others (since the program’s subsidy burden is eased), which could be a political selling point: middle-class seniors might actually pay less if the rich pay more. Ultimately, means-testing is a tool that must be used carefully: it saves money and targets the sacrifice to those most able to afford it, but it must be designed to avoid undermining the programs’ universality or creating perverse incentives.

• Drug Pricing Reforms – Impact on Innovation: The push to lower prescription drug costs in Medicare (and potentially more broadly in the U.S. healthcare system) is largely a win-win for patients and taxpayers in the short-to-medium term. However, the primary trade-off often cited is the potential impact on pharmaceutical innovation. The U.S. currently pays some of the highest drug prices in the world, and pharma companies argue that those profits fuel research and development (R&D) for new cures. If the government uses its buying power to force prices down significantly, it will reduce manufacturers’ revenues and could lead to fewer new drugs coming to market over time. CBO has examined this issue and concluded that reducing drug companies’ expected revenues by a large amount would indeed decrease the number of new drugs developed in the future. The effect is proportional: modest reductions in revenue have a relatively small impact on innovation, whereas very large reductions (like some far-reaching price-cap proposals) could have a more substantial effectcbo.gov. For instance, the earlier H.R.3 negotiation proposal (which this plan’s drug reform might resemble) was estimated by CBO to result in perhaps 8 to 15 fewer new drugs being approved over a 10-year period, out of an expected ~300 new drugs – a few percent reduction in new drug output, in exchange for the large price savings. Advocates of reform consider that a reasonable trade (given many new drugs are often incremental improvements), but it remains a sensitive point. Policymakers will need to balance cost savings with preserving a healthy innovation ecosystem. Potential ways to mitigate the impact include: targeting price negotiations toward drugs that have already been on the market for some time (allowing companies to recoup R&D costs during an initial exclusivity period), focusing on excessive price hikes rather than initial prices, or providing other R&D incentives for truly breakthrough drugs. Another consideration is the international aspect – some proposals peg U.S. drug prices to those abroad (international reference pricing). While this could yield large savings (CBO noted one such approach could cut prices by over 5% on average, possibly much more), it might also lead companies to raise prices overseas or even limit sales in certain markets. There’s also an implementation challenge in ramping up the government’s negotiating capacity: Medicare has never directly negotiated prices at scale before, so the bureaucracy (at CMS) needs to build expertise, staff, and processes to do this effectively and avoid being outmaneuvered by industry. The political resistance from the pharmaceutical industry will be intense – as seen with the passage of the Inflation Reduction Act’s modest drug provisions, the industry lobbied hard against those and is currently litigating to block Medicare negotiation authority. Expanding those reforms will only heighten industry pushback. Policymakers will need to marshal public support (patients are broadly supportive of lower drug prices) to overcome this. The good news is that unlike raising ages or means-testing, drug price reform is very popular with the public, so politically it’s the easiest of the three components in terms of public opinion. The trade-off to communicate is that Medicare must balance paying for cures versus affording them: saving $50+ billion a year on drugs could marginally slow the pace of new drug discovery, but not doing so could threaten Medicare’s ability to pay for all treatments at all. Finally, from a budget standpoint, drug reforms primarily affect Medicare Part D (and Part B for doctor-administered drugs); one must also consider that if drug spending in Medicare is cut, beneficiaries may spend less out-of-pocket (a benefit to them), and premiums for Part D could drop. The plan’s savings assumed by drug reforms might also slightly reduce federal revenue from pharma-sector taxes (if pharma profits fall) – a secondary effect – but the net effect is still a large deficit reduction. Implementation will require ongoing monitoring: if it appears innovation is suffering more than expected, Congress might need to recalibrate the policy. But overall, this component is a relatively straightforward cost-saving measure with high payoff and manageable risk, especially in the 5–15 year window (when the main impact is lowering currently excessive prices on many drugs whose R&D costs have long been recouped).

• General Implementation Challenges: Executing a reform of this magnitude requires legislative craftsmanship and administrative capacity. Legislatively, bundling these changes into one package might be politically necessary (to secure a “grand bargain” of sorts), but it’s challenging because it touches on multiple committees’ jurisdictions (Social Security changes go through the Ways and Means Committee in the House / Finance in the Senate; Medicare changes through those plus health subcommittees; drug pricing through healthcare committees, etc.). There’s a risk the package could splinter unless there is high-level agreement (e.g. from Congressional leadership and the White House). A phased approach could see pieces passed separately, but then the combined fiscal effect might be less certain. Timing is key: the plan’s gradual approach means the sooner reforms are enacted, the more gentle the phase-in can be while still achieving needed savings in the 10–15 year window. Delaying action only forces harsher changes later. On the administrative side, implementing the retirement age change is relatively automatic (SSA just updates benefit calculators), but implementing means-tests would require coordination between SSA, the IRS (for income data), and CMS (for Medicare premiums). Data-sharing and creating new rules (for example, how to define “ultra-wealthy” – by income, by assets?) would need to be sorted out. The drug price negotiation expansion would require setting up a negotiation framework, perhaps referencing external price metrics or cost-effectiveness analyses; this is a new role for Medicare that will take bureaucratic build-up. Another challenge is ensuring that savings from these reforms actually materialize in the federal budget. For instance, if Medicare saves money on drugs, will Congress commit to using those savings for deficit reduction (or trust fund solvency), rather than expanding benefits elsewhere? The plan’s credibility, from a fiscal impact standpoint, depends on restraint in not rerouting the savings to new spending. Lastly, the plan would likely face legal challenges – particularly the drug pricing provisions (pharmaceutical companies may sue over price controls) and possibly means-testing (though Congress has broad authority to set benefit formulas). The administration will need a solid legal framework (as was done in the IRA for negotiation) to withstand these challenges.

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In balancing these trade-offs, it’s clear the plan demands some sacrifice and adjustment. Workers will gradually work longer before retirement; the richest seniors will receive fewer benefits or pay more; drug companies will see lower profits from Medicare. The benefits, however, are a more sustainable fiscal path and the preservation of Social Security and Medicare for the long run. The alternative – failure to act – would likely result in far more painful, haphazard cuts or fiscal crises in the future. Policymakers must communicate that trade-off: an ounce of prevention now (in the form of gradual reforms) versus a pound of cure later (in the form of sudden benefit cuts or debt emergencies). Achieving the right balance is tricky, but with careful calibration (e.g., not raising the retirement age too fast, not means-testing too deep into the middle class, not undermining drug innovation), the downsides can be managed. The plan explicitly tries to protect vulnerable groups – current retirees see no change, low-income seniors keep their full benefits, and patients still get needed medicines – even as it asks more of the well-off and adjusts to new demographic realities.

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Distributional Effects

The distributional impact of the Entitlement Modernization Plan – i.e. who bears the costs or sacrifices and who benefits – is a critical consideration. By design, the plan aims to preserve the core safety net for those who depend on it, while trimming the benefits or slowing the benefit growth for those who can better absorb the changes. Let’s break down the effects by group:

• Current Seniors: Those already retired (or near retirement) are largely shielded from the changes. The retirement age increase does not affect anyone who is currently at or near retirement age – it’s phased in for younger cohorts. So, someone 70 or 75 today sees no change in their Social Security; someone 64 or 65 today will still hit the current FRA of 67 at most. This is important because current seniors often live on fixed incomes and would have little ability to adjust if their benefits were cut immediately. By exempting them, the plan avoids throwing any current retirees into financial distress. Current seniors would potentially experience the benefits of the drug pricing reforms – lower out-of-pocket costs on medications and a more secure Medicare – and they could be subject to the means-testing on Medicare premiums if they are high-income. However, the “ultra-wealthy” label implies very few current seniors (only the richest) would pay more. In fact, even those affected by expanded income-related premiums might have been paying IRMAA surcharges already, which would slightly increase. So for the vast majority of today’s elderly, the plan means their benefits are intact and their healthcare costs might even go down (due to drug provisions). This is a deliberate choice to uphold the promise to existing retirees and to make the plan politically viable (senior advocacy groups like AARP have fiercely opposed past proposals that hit current retirees).

• Younger Generations (Future Retirees): The burden of the retirement age increase falls on younger workers – Gen X, Millennials, and Gen Z – who will reach retirement in the next few decades. They will have to wait longer to receive full Social Security benefits (and potentially Medicare, if that were aligned). For example, someone who is 40 years old now might have an FRA of 69 instead of 67 by the time they retire. The trade-off for these future retirees is that while they face a benefit cut relative to current law, they also gain from the improved solvency of the system. In other words, it’s a guarantee that Social Security and Medicare will still be there for them – something that is in doubt under a no-reform scenario. Many younger workers today are skeptical that they will ever see a dime of Social Security; this plan aims to ensure they do, albeit starting a couple years later than originally scheduled. In terms of lifetime benefits, as discussed, higher earners among future retirees might not feel much pain (they often continue working longer by choice and live longer). Lower earners, however, could lose a year or two of benefits they would have collected – which is why complementary protections (like disability benefits or supplemental aid for those who can’t extend their careers) are crucial for distributional fairness. It’s also worth noting that future retirees will themselves benefit from drug cost containment and a stronger Medicare; they may pay slightly more in Medicare premiums if they’re high-income, but they’ll also retire into a system that has more stable finances (meaning less risk of drastic benefit cuts or huge tax hikes during their retirement). Intergenerational equity is a theme here: the plan asks the younger generation to adjust their expectations (work a bit longer, and the richest among them get less relative benefit) in order to clean up a fiscal mess they essentially inherited. In return, they get a safety net that’s on sounder footing.

• Low- and Middle-Income Seniors: A key distributional effect is that low-income seniors are largely protected. The plan does not propose any cut to the benefit formula for low earners; the means-test is aimed only at the wealthy, and raising the retirement age – while affecting everyone – still leaves in place the option to claim benefits at 62 (albeit at a reduced level). Many low-income workers already claim early due to necessity; they would still be able to, though their monthly check would be smaller because the full benefit age is higher. That does raise a concern: will more low-income elderly end up in poverty because of the benefit reduction? Social Security currently lifts over 16 million older Americans out of poverty. If benefits are trimmed via the FRA change, some at the margin could fall below the poverty line. Policymakers could counteract this by boosting the minimum Social Security benefit or enhancing Supplemental Security Income (SSI) for impoverished elders – policy options that could be paired with this plan to ensure nobody is left destitute. Medicare changes in the plan actually have a progressive bent: low-income seniors typically have incomes below the thresholds for higher premiums, so they would see no change in their Medicare costs. If anything, by asking higher-income seniors to pay more, the strain on Medicare’s finances is reduced, helping ensure Medicare can keep providing full benefits (hospital care, etc.) to lower-income seniors. The drug price reforms benefit all seniors by reducing drug costs, but they especially help those who spend a large share of their income on medications (often lower-income chronically ill patients). Capping insulin at $35, limiting out-of-pocket costs, negotiating lower prices – those help middle-class and poor seniors afford their meds. So on net, low-to-middle income retirees come out either neutral or somewhat better off: their Social Security is largely unchanged except for the indirect effect of FRA (which we must monitor for hardship cases), and their Medicare is more secure and their drug costs lower. The high-level outcome is that the plan is progressive in impact: it asks more sacrifice from the rich than the poor.

• High-Income Seniors: The group explicitly targeted to contribute more is high-income or “ultra-wealthy” retirees. For Social Security, this might mean those who have substantial other retirement income (from investments, pensions, etc.) or those who had very high lifetime earnings. They might see their benefits capped or phased out above a certain income level. In concrete terms, a retiree with, say, $250,000/year in investment income might lose their $30,000 Social Security benefit entirely – which for them is not financially devastating, but for the program’s finances, not paying that benefit saves money. There is a symbolic aspect too: demonstrating that the very wealthy are not getting a “free ride” from social insurance can build public support for the fairness of reforms. For Medicare, high-income seniors (for example, a retired couple with $300,000 annual income) would pay higher premiums or co-pays. Currently, such a couple might pay roughly $7,000 in Medicare Part B and D premiums per year; under expanded means-testing, that could rise to maybe $10,000 or more. While not trivial, it’s a small share of a $300k income. These individuals will feel the difference, but it’s unlikely to affect their living standards significantly. One might worry that if you take too much from high-income seniors, they might opt out of Medicare Part B (though practically almost no one opts out, since Medicare is still a good deal and often mandatory as primary insurance if you’re over 65). So, the highest-income seniors will fund a larger portion of their own retirements. In return, one could argue, they get the intangible benefit of a stable economy with lower debt, and the knowledge that the safety net is preserved for society (including perhaps their less wealthy family or community members). Some in this group might resent the loss of benefits they feel they “earned” by paying in, but in absolute dollar terms, the modernized system would still likely be net favorable to them (for example, many high earners will still get something from Social Security, and they still enjoy Medicare coverage – just at a higher price). Distributionally, this is a tilt toward progressivity: the rich elderly will bear a larger burden. This aligns with the principle of ability to pay.

• Working-Age Population: Though not the direct focus of the plan (which is about entitlements for retirees), it’s worth noting how the distributional effects ripple to the broader population. If the plan succeeds in reducing deficits, younger working generations benefit from a stronger economy long-term (lower debt can mean lower interest rates, less crowding out of investment, etc.). They also may face less drastic tax increases in the future, since spending is being reined in. However, one could also see a distributional effect in that the working population might end up supporting aging parents a bit longer if those parents have to work longer or get slightly less from Social Security. Ideally, because the plan’s changes are moderate and targeted, it shouldn’t impose new burdens on working-age people – on the contrary, by ensuring the systems’ solvency, it spares younger workers from either paying much higher payroll taxes or supporting their parents entirely out-of-pocket if Social Security went bankrupt. Additionally, if the plan encourages seniors to remain in the workforce longer, there could be some intergenerational workplace dynamics: older workers may occupy jobs longer, affecting job openings for younger workers. But economists often find that a larger economy can absorb a later retirement age without hurting younger workers’ prospects (the “lump of labor” fallacy – employment isn’t fixed, and older workers contribute to growth). In fact, longer work lives can increase GDP and potentially create more jobs overall. So the intergenerational employment effect is likely minimal or even positive.

• Across Regions and Demographics: There are also distributional considerations by geography, race, and gender. For instance, raising the retirement age might adversely impact communities with lower life expectancies – often lower-income, which can disproportionately include certain racial minorities. Means-testing could affect regions with higher concentrations of wealthy retirees (some affluent enclaves or states like Florida with many well-off retirees might see a bigger hit). Drug price reductions benefit anyone who needs expensive medications, which spans all demographics but is especially crucial for older women (who live longer on average) and minorities with higher rates of certain chronic illnesses. The plan does not explicitly differentiate by race or gender, but any disparities in income and health translate into who is affected: e.g., women generally live longer than men, so a higher FRA means women collect a few more years of reduced benefits on average – something to consider in terms of gender equity (though women also benefit from the program’s improved solvency, given their longer reliance on it). Ensuring fair distributional outcomes might involve monitoring these demographic impacts and adjusting policies (for example, targeted outreach or support for communities that might be hit hard by a higher retirement age in terms of needing to retrain or find late-career jobs).

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In sum, the distributional profile of the plan is intentionally progressive and protective. Lower-income seniors are largely safeguarded, middle-income folks see manageable changes, and higher-income seniors contribute more to the solution. Younger generations are asked to adjust (work a bit longer) but stand to gain a solvent safety net. The biggest “losers” in relative terms are the ultra-wealthy retirees and, to some extent, industries like pharmaceuticals – groups that have greater ability to absorb financial impacts. The biggest “winners” are the overall economy and the majority of beneficiaries for whom the safety net will be more secure and even enhanced in certain aspects (like lower drug costs). There will undoubtedly be individuals who feel negatively affected – for example, a 64-year-old manual laborer in the future who must wait two extra years for full benefits may feel it’s unfair. That’s why implementation should be coupled with policies to support those who have difficulty with the changes (job training for older workers, disability coverage, etc.). But on a broad scale, the plan tries to share the responsibility in a balanced way: those with greater means and longevity give a little more back, those with less means are held harmless or helped, and everyone gains from a stronger fiscal foundation. This balancing act is crucial for maintaining political and social support for the reform: if it were seen as balancing the budget on the backs of the poor or middle class, it would rightly face moral criticism. As structured, however, the costs are allocated to those most able to bear them, in service of keeping the safety net viable for the entire populace.

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Conclusion

The Entitlement Modernization Plan presents a comprehensive strategy to tackle one of the toughest challenges in federal policy: restraining the explosive growth of entitlement spending while preserving the essential protections those programs provide to Americans. Over a 5- to 15-year horizon, this plan would substantially improve the federal fiscal outlook – potentially reducing annual deficits by on the order of $300–$400 billion in the steady state and saving trillions over the next decade – through a balanced package of gradual benefit adjustments and cost efficiencies. Unlike austerity measures that simply cut benefits across the board, this plan carefully targets reforms in a way that upholds social equity: it asks the wealthy and the healthy to contribute more (working a bit longer, paying a bit more), and uses government’s bargaining power to lower excessive costs, all to ensure that the promise of Social Security and Medicare can be kept for future generations.

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In purely fiscal terms, the benefits are clear. Slowing the growth of Social Security and Medicare spending will alleviate pressure on the federal budget, helping to stabilize debt over the medium term. By one estimate, raising the retirement age and indexing it to longevity could cut Social Security’s long-run shortfall by more than half, and by another, modernizing Medicare with means-testing and drug negotiations could save hundreds of billions in the next decade. These are exactly the kinds of changes needed to bend the debt curve. For policymakers concerned about the nation’s fiscal sustainability, enacting these reforms would be a major step toward regaining control of the budget. It could shore up trust fund solvency without needing large infusions of general revenue, and reduce the risk of fiscal crisis stemming from ballooning mandatory spending. Importantly, a healthier fiscal outlook also means greater capacity to invest in other priorities – if entitlements consume less of the future pie, more room remains for defense, education, infrastructure, or simply lowering the debt burden for future taxpayers.

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However, this cost-benefit analysis also illuminates the trade-offs inherent in the plan. The cost of achieving these big budgetary savings is not measured in dollars but in the adjustments various stakeholders must make. Future retirees will delay full retirement a bit; the wealthiest retirees will forego some benefits; pharmaceutical companies will likely see lower profit margins on drugs. These groups may perceive the changes as costs to themselves – and indeed they are, relative to the status quo. The plan, therefore, must be pursued with sensitivity and statesmanship. Implementation should be accompanied by public education (so workers in their 30s and 40s understand the Social Security rules are changing and can plan accordingly), by safeguards for vulnerable groups (so no one with ill health or strenuous labor is left without support), and by continued oversight (to ensure drug savings don’t inadvertently harm innovation excessively, for instance).

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Crucially, the benefit of action outweighs the cost of inaction. The reforms in this plan are gradual and targeted; the harm of doing nothing, by contrast, would be sudden and indiscriminate – when trust funds run out or debt pressures force abrupt cuts, all beneficiaries would face steep benefit reductions or the economy would suffer from fiscal turmoil. Thus, when weighing the plan’s costs and benefits, one must consider the counterfactual: avoiding any hardship now only to court far greater hardship later. By acting now, the pain is spread out and minimized. In effect, the Entitlement Modernization Plan can be seen as a form of preventive maintenance on our social contract – a tune-up that keeps these critical programs running smoothly for decades to come.