Means testing

What Is Means Testing?
Social Security expenditures could be reduced over the long term by applying a means test to retired workers and their dependents and beneficiaries otherwise eligible for benefits under the current program. Means testing would reduce or eliminate benefit payments to participants whose current income or assets exceed specified thresholds. There are many ways this could be done. For example:

- An income test could take into account all income or only “wealth-related” income, such as investment income or income from a business;

- Similarly, an asset test could include all assets or exclude widely held assets such as houses and cars;

- The means test could be applied one time when benefits begin or at regular intervals after benefits begin;

- The test could eliminate benefits altogether for those exceeding the threshold, or phase out benefits gradually as income or assets increase beyond the threshold.

- The Medicare reform package enacted by Congress late in 2003 includes means testing provisions, which increase the Part B premium for high-income retirees, and bases the cost to the participant of the new drug benefit in part on current income and assets.

Several proposals for applying means testing to Social Security benefits have been made, but the proposal that has gained the most public attention came from the Concord Coalition, a bipartisan group of fiscal conservatives. The Concord Coalition made its proposal, which it calls “affluence testing,” in the mid-1990s and has not updated it recently, so some of the specific dollar thresholds are now outdated. Under affluence testing as originally proposed, Social Security benefits would begin to be reduced if family income exceeds $40,000 with reductions reaching 85 percent if family income exceeds $120,000.