Social Security and Medicare make little sense as anti-poverty programs. They pay out based on age, not need. A retiree who earned a respectable income over their lifetime shouldn't need Social Security to provide for their retirement. They had the means to save back enough to cover their retirement years. Such a person could easily have a million or so dollars saved up.
The obvious way to means test is...to observe your means. Look at the retiree's assets, then apply some kind of threshold at which point benefits are subtracted. (More likely a sliding scale, such that holding an extra dollar doesn't magically cause thousands of dollars worth of annual payments to disappear.) This may seem superficially fair, because such means testing would avoid the bad optics of making government welfare payments to millionaires and billionaires. But there's an obvious moral hazard problem. If saving less results in a higher Social Security income, people will be encouraged to save too little for retirement. Some people save back nothing for retirement, leaning on the lazy assumption that Social Security will be adequate to cover living expenses. (It's not for most retirees.) Means testing based on current assets would exacerbate this problem. Some fools would deliberately aim for zero assets to literally maximize Social Security. That's an extreme case, but even normal, rational people would be nudged in the direction of inadequate savings.
The smart way to means test is to count total lifetime income, not current assets at the time of retirement. Two people who have had identical incomes over their lifetime have had roughly equal opportunities to save. If one saves frugally and the other saves back nothing, we shouldn't feel compelled to help out the latter. Both people had the same lifetime means, but they made different choices for what to do with their earnings. There still may be some frugal individuals with modest incomes who retire millionaires. They may get Social Security payments because their lifetime income was low, even though they don't technically need it. And there will be people with high lifetime earnings but inadequate savings who get nothing. Hopefully, the government makes a credible commitment to not bail out these people. The best scenario is that they get the message early in their working lives that nobody is coming to save them, and that they should set aside what they'll need for their own retirement.
This scheme mostly avoids the moral hazard problem. There might be some people who deliberately earn less over their lifetimes to game the system, but a smartly designed payment scheme would avoid any such gaming. There should be no "cliffs", whereby earning one extra dollar causes thousands of dollars of Social Security payments to disappear. And there should be no point on the sliding scale where earning a dollar in income loses you more than a dollar in Social Security payments. Social Security payments should be such a gentle slope with respect to lifetime income that there is no temptation to earn less in the marketplace. This should be easy enough to do if we think of it as a program to avoid indigence in old age, rather than a program to fund the retirements of middle-income earners. A minimalist income floor can be provided without distorting the incentives to earn and save over a lifetime.
Medicare is a little more complicated, because it's not just an entitlement program. It vastly distorts the market for medicine by being one of the largest single payers. We would need to have pro-market reforms, whereby people get comfortable paying out of pocket for most of their medical expenses rather than having third parties pay for almost everything. Patient price shopping and transparent pricing would bring costs down and eliminate a lot of wasteful spending. But given that, the same arguments would apply.
I think there are a couple of major barriers to this kind of reform, one ideological and one selfish (both are cynical). The selfish one is that current and near-future retirees don't want to see anything happen to a government program that they're planning to draw an income from. I think the kind of means testing I describe here wouldn't impoverish many retirees, because people with modest or high incomes typically save for retirement (beyond what they expect to collect from Social Security). Still, it would be a little unfair to change the deal on people who are in or near retirement. So a more palatable (you could even say fairer) plan would be to start the means testing on people who will be retiring more than, say ten years in the future. Means testing could be on a gradient that scales up over time, so people retiring in ten years could get essentially the same benefits as current retirees while people retiring 25 or 30 years in the future could get the full effect of means-testing. This solution is so obvious that the "It's unfair to current retirees" argument carries no water at all. We should be asking, "What's the optimal state of this welfare program? What does the transition look like if we have decades or a century to ease into it?" The specter of current retirees being left in the cold, having their incomes revoked without warning, is nothing but a scare tactic.
The ideological opposition comes from the left's knee-jerk love of entitlement programs. They prefer to have a broad base of recipients for these programs so it becomes difficult to reform them, even if that means throwing government money at people who don't need it. They want everyone to have "buy-in" so the whole population becomes part of the program's constituency. When politicians start talking about fiscal responsibility and reigning in the unsustainable spending of Social Security and Medicare, they want boomer-cons and senior Trump voters to fight back saying, "Get your government hands off my Social Security." This dynamic serves up some delicious hypocrisy, but it also makes government transfer programs politically untouchable. It's a dishonest way to sell something to the public. If transfer programs that specifically target the needy are politically unpalatable, if the American public wouldn't vote for them or would underfund them because of a lack of buy-in, then we shouldn't have them in their current incarnation. But it looks like we're stuck with them for the long term.
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