Social Security and Public Administration Efforts

Today, social security is seen as a topic for political debate. Admitting that Social Security and Medicare are inherently political scares many people, fearful that shifts in public opinion and the nation’s politics might trigger undesirable policy changes. Taking into account economic and social changes and shortage of funds, George Bush proposed privatize social security in order to reduce funds shortage and increased needs of baby boomers. Thus, this reform failed because of lack of clarity and moral hazard for middle age employees. Critics admit that particle privatization typical for many countries would not work in the USA because of current economic instability and increased number of retires in the next ten-15 years.

In general, social insurance programs function as insurance programs that provide money should a particular problem (sickness) or condition (old age) arise. Hence, one can speak of social insurance as a contingency payment against the financial or medical risks associated with the realities of modern life. At the same time, social insurance programs operate as social benefit systems in which the government transfers money from one group, the working able-bodied, for example, to another, such as the retired.

Social insurance, in other words, has some of the features of a public assistance program (Altman, 2005). It is neither exactly like private insurance, which operates on the principle that a person is getting either a monetary return or a service in direct proportion to his investment or fee, or welfare, which operates on the notion that the government should tax those with income or property to support the poor Social Security and Medicare represent the major forms of social insurance in America and, they form two of America’s most necessary and most effective social programs.

Hybrids of the social insurance type, such as proposed by Bush Administration, face opposition from right-wing purists who favor private control over the economy and want the government off the people’s backs. And they are criticized by leftwing purists who want bold programs of income redistribution (Beland, 2007). Program defenders must argue for the programs on pragmatic grounds as successful mixtures of public responsibility and private initiative, or in effect, as the best that people can get out of a system in which proponents of public and private approaches to Social Security continually tug at one another (Altman, 2005; Beland, 2007).).

Critics (Altman, 2005) admit that the real purpose of social security reform is to ruin it and create a private account for all citizens. Social security is a real burden for the government demanding more and more funds each year. Today, the country witnesses a restructuring of the welfare state away from an ideal of universal benefits based on common citizenship to a residual notion of state welfare, based on means-tested benefits for the marginalized poor.

The encouragement of private provision over collective insurance, the emphasis on selective as opposed to universal benefits, and the deployment of a regulatory approach as a means of capping social security spending, are all important features of this process.

On a number of occasions, the Government had to abandon or modify proposals which proved too controversial (Beland, 2007). Whilst the emphasis on selective benefits serves to marginalize claimants and to make their position the more vulnerable, there are clearly limits beyond which it is politically unacceptable to go, even if these limits shift with time. Much depends upon the character of the claimant population involved. For example, the Government has been far more successful in withdrawing benefit entitlement from under 18-year-olds than it has been in curtailing social security benefits for pensioners (Altman, 2005; Sacks and Lerner 2005).

The tension between these competing objectives and constraints is manifested in the absence of any coherent approach to the reform of social security. The Social Security Act, like the Finance Act, has become an annual ritual in Parliament, comprising a number of piecemeal measures to achieve limited objectives (Beland, 2007). The frequent amendments to the statutory instruments governing the detailed benefit rules are likewise characterized both by their narrow objectives and by their obscure drafting. All too often further statutory amendments are necessary as inadequacies and inconsistencies in earlier legislation become evident. The way the benefit system is administered and claims for benefit adjudicated also reflects these tensions (Sacks and Lerner 2005).

Some economists admit that current social security system is still alive and can function successfully for many years without restructuring and privatization. As public trusts, Social Security and Medicare are the constant objects of future planning. Hence, program officials attempt to estimate future costs and to indicate ways of meeting those costs. As government programs (Sacks and Lerner 2005).

Social Security and Medicare benefits reflect the perceived wisdom of Congress, which is capable of legislating windfalls to groups whose political favors it seeks or of expanding protections for those at greatest risk. At the same time, as insurance programs, Social Security and Medicare strive to provide basic protections for all contributors. Social Security costs a lot, and the numbers confirm this impression. For instance, in 1992, the program’s revenues came to $341 billion and its expenditures reached $287 billion. Most of this money went for the payment of actual benefits, but about $2 billion was used to administer the program (Beland, 2007).

These large, expensive, and complicated programs touch the lives of every American. No other programs provide more extensive protection, and no other federal domestic programs cost more. In the development of these programs, certain themes have endured as persistent policy issues and driven the political discussion. In particular, four general themes or issues illustrate the choices implicit in Social Security and Medicare (Sacks and Lerner 2005).

The first issue concerns whether the benefits offered by the programs match contemporary perceptions of social need. Are the programs promising too much for the elderly, the disabled, and their dependents or too little? Economists and policy-makers use the shorthand label of “adequacy” for this theme. Even as the range of benefits has broadened, the program still contains what some see as gaps and others regard as areas in which private and state programs need to be strengthened. Either way, most people agree that longterm care represents a contingency for which most are psychologically and financially unprepared. Some suggest that the list of Medicare benefits should be expanded to include payments for nursing homes and other long-term care services (Beland, 2007).

A group of liberal defenders of Social Security has argued that politics as practiced in this country leads some conservatives to characterize Social Security as a program in crisis, mainly as a strategy to undermine the program. Given large federal deficits, some are concerned that the temptation to scapegoat the old (and the disabled) and to cut back on expenditures earmarked for Social Security and Medicare will be very great (Beland, 2007).

Others worry that as Social Security accumulates large reserves during the next decade, Congress will be unable to avoid the political temptation to raise benefits. Yet another view, and one held by some conservatives, is that a different type of politics is threatening Social Security and Medicare. Insiders, it is argued, have restricted the flow of information about the program and obscured the nature of the choices that needed to be made (Beland, 2007).

Without the proper information and because it was easy to expand the program in the beginning, politicians have not always acted in society’s interest. They have overexpanded the program and promised more to future generations than the program can reasonably deliver. Hence, they argue, there is a crisis in the program that demands redress, but whether Congress, the very agent that engineered the crisis, can reform the program remains in doubt.

If, for example, everyone gets benefits under Social Security, then it is inevitable that some people who do not need the benefits will nonetheless receive them. It does not mean, however, that Social Security benefits are simply “middle class entitlements,” which are poorly targeted to persons in greatest need, as some on both the right and the left argue (Matthews and Matthews-Berman 2008).

Giving something to everyone may be the best way to underwrite the political stability of the system and assure that the poor get something; it may also be seen as wasteful. The political system must somehow decide this matter by striking a balance between contributions and benefits (Beland, 2007).

According to Bush proposal, private account will help to improve conditions of living and ensure high income for elderly. Thus, Congress rejected this opinion stating that this system does not meet needs and demands of the elderly. The second persistent theme or issue, therefore, concerns the financing of the programs. Do the programs have enough money to honor their promises? (Sacks and Lerner 2005).

If Social Security has too much, should people spend the surplus or maintain it as an indirect mechanism for increasing national savings? If it does not have enough, how should people raise the money to finance the shortfall? Critics use the term “financing” as the shorthand label for this theme Financing dilemmas follow from the fact that social insurance programs are easier to begin than to sustain and are sensitive to economic downturns. At first, the money comes flowing in, and because none of the retired population is covered, little of the money goes flowing out (Matthews and Matthews-Berman 2008).

As a general rule of political behavior, early surpluses tend to get spent (in part because social needs are greatest as such programs begin), and taxes tend to remain low. The result is that mature social insurance programs have greater tendencies toward financial instability, in part because of anticipated outflows of revenues, but also because their short-term financing is increasingly dependent on the economy (Parks, 2007). The programs escaped this problem for a long time because of unexpected growth in the number of people working and unexpected increases in wage rates, combined with relatively prudent expansions in the benefit levels and careful monitoring of the programs’ financing (Matthews and Matthews-Berman 2008).

Congress has, for the most part, resisted this suggestion, fearing that the use of general revenues would be hard to control and would lead to benefit increases that would be difficult to sustain. Even so, many indirect infusions of general revenues are made into the program, including the revenue produced from treating a portion of Social Security benefits as taxable income (Parks, 2007). The second proposal would put Social Security financing on a pay-as-you-go basis. In this approach, Congress collects, through payroll taxes or some other means, only the amount of money necessary to sustain the program on a current basis (Parks, 2007).

This approach, however, has the benefit of keeping taxes low, avoiding the difficult problem of how to preserve the supposed surpluses in the program. This approach has the disadvantage of leaving the future to take care of itself, arguably bequeathing large burdens to future generations. Some people believe that benefits should directly reflect contributions. They tend to favor quasi-private investment opportunities, such as Individual Retirement Accounts, over expansions of Social Security. Others consider it unfair that Social Security and Medicare benefits go to the rich. They view the relatively low living standards of many aged and disabled persons as manifestations of the program’s lack of fairness (Reznik and Shoffner 207).

Others consider it unfair that lower-income beneficiaries receive proportionately larger benefits. Still others see problems with the fact that housewives receive no credit for the work they perform or the fact that some generations bear greater tax burdens than others. Congress and state legislators typically fund social insurance programs from earmarked taxes rather than from general revenues. Whereas welfare seeks to ameliorate the effects of poverty, social insurance works to prevent poverty and to lessen economic insecurity across all income classes (Reznik and Shoffner 207).

Roughly half of everything that federal, state, and local governments spend on social welfare, including education, housing, welfare, veterans programs, health, social insurance, and other human services, goes toward social insurance expenditures that amount to 9 percent of the gross national product. The major social insurance programs cover nearly all workers and their families. Each month tens of millions of Americans benefit from these programs. Utilizing social insurance principles, citizens pool their resources, thereby enabling them to share their risks, such as disability or the death of a wage earner, with others (Reznik and Shoffner 207).

Program costs are estimated for each social insurance program and are then divided by the number of people paying into the program. Altman questions (2005): ‘”Are these investments secure, as presumably the Treasuries held by foreign banks are, or are they, in Bush’s language, “just IOUs”-impliedly worthless-like those held by Social Security?” (p. 282). On a regular basis, employees and/or employers make premium payments (also called payroll taxes or payroll tax contributions) (White, 2003).

Then, when these risks which workers and their families are protected against occur, benefits are paid as an earned right. In other words, in exchange for a relatively modest premium payment, the insurer assumes the risk that would otherwise have to be borne by the individual and his or her family (White, 2003).

Bush proposal failed because it needs the needs of young generation only depriving middle aged population source of income and sufficient living standards. As the name implies, social insurance is a social mechanism that insures widely against identifiable risks to which large groups of citizens are subject. These programs share many of the characteristics economists are about to discuss; however, program structures can vary considerably.

For instance, although Social Security is primarily funded by payroll tax revenues, the federal Civil Service Retirement System and many state and local public employee pension systems are arguably funded primarily by general revenues (although some consider the governmental contributions to these programs to be the equivalent of employer contributions to Social Security).

In social insurance programs, as in private insurance, some pooling of risks occurs, although some of the pools are broader than others (White, 2003). Social Security–Old-Age, Survivors, and Disability Insurance (OASDI)–draws revenues from nearly everyone in the country; workers’ compensation, the social insurance program that covers industrial accidents, draws revenues only from employers in selected industries. OASDI operates through a broad trust fund; workers’ compensation often functions by means of insurance policies purchased from private carriers. Differences abound. Still nearly all types of social insurance programs, like private insurance programs, involve payments of premiums and the possible receipt of benefits (Beland, 2007).

Much misunderstanding about what social insurance programs are supposed to do and how they work derives from a failure to recognize that they are not neatly structured to achieve only one end. Such programs seek to provide adequate benefits especially for low-income persons while also maintaining stable financing; they seek to reward work while also assisting those who cannot; they seek to expand access to health care while also containing hospital costs.

The existence of many goals–not all of equal value-institutionalizes the need for compromise and balance and also necessitates complexity. Social insurance may resemble private insurance, but it is fundamentally different (Beland, 2007). The driving principle of social insurance programs is concern for adequacy–that benefits meet the basic needs of persons these programs are designed to protect. The emphasis on social adequacy is consistent with societal goals directed at providing for the general welfare, protecting the dignity of individuals, and maintaining the stability of families and society (Sacks and Lerner 2005).

Another difference: people choose to buy private insurance; they are often forced to pay taxes for social insurance. Because of this feature, social insurance programs are not hindered by what economists call “market failure” even though these programs are structured to accept all, that is, to include persons who for such reasons as illness or advanced age would not be considered suitable for many private insurance plans (Beland, 2007).

Critics suggest (Beland 2007) that the Bush’s proposal was rejected because the government feels accountable to people and any mistakes or pitfalls will cast the state much money than those saved on social security reform. Population might object to higher taxes or might not want disability protection in the first place, feeling perhaps that disability constitutes a less pressing need than, say, health insurance.

Beland suggest that: “they fail to shed a satisfactory light on social policy development. A more complex and integrated theoretical framework is needed” (p. 12). Nor would the public necessarily allow the federal government to price discriminate giving a completely different meaning to matching premium and risk in the public sector as compared to the private sector. In this manner, the design and maintenance of social insurance programs are every bit as demanding as marketing private insurance (Beland, 2007).

The contrary nature of public opinion also makes social insurance difficult to run. his sort of broad comparison between private and social insurance helps to illuminate the chief characteristics of social insurance. Private insurance depends on a search for profit. But, as noted, a concern for adequacy–that benefits meet people’s basic needs–drives social insurance. The advantage of social insurance in this regard lies in the way that it helps to solve social problems; the disadvantage stems from a lack of limits that a market might otherwise set, though the political process, careful financing, and the linkage of benefit payments to payroll and other forms of taxation serve as a check (Altman, 2005).

At the same time, adequacy must somehow be blended with the principle of individual equity or social insurance will collapse. If someone contributes to social insurance solely for the relief of social distress, then the distinction between social insurance and welfare diminishes until the two concepts merge. The rationale for earmarked taxes becomes impossible to sustain. In social insurance, as in private insurance, individuals receive benefits that bear a reasonable relationship to their contributions (Altman, 2005).

That is, the more they put into social insurance systems, the more they generally get out, either in monetary benefits or in the value of insurance coverage. The concepts of adequacy and individual equity are not consistent with each other and lead to some of the complexity that is inherent in social insurance. The typical compromise can be found in the basic Social Security benefit formula. The higher your average wage, the higher your benefit, but the lower your average wage, the greater your return on your Social Security investment (Beland, 2007).

To illustrate, someone earning $1,000 will receive a higher Social Security benefit than someone earning $500, but the higher benefit will not be twice as much as the lower benefit. In this manner, social insurance relates benefits to contributions yet, when properly managed, also recognizes some social problems as more pressing than others and some social groups as more needy than others (Altman, 2005; Sacks and Lerner 2005).

The very concept of adequacy also raises a fundamental question of just how far social insurance should go. If it went all the way, its beneficiaries could rely upon it exclusively and not need to make other arrangements for their old age. If it went part of the way, its beneficiaries would have to supplement their Social Security benefits with private savings. Americans have chosen social insurance as a basis upon which individuals and their families can build toward their economic security (Beland, 2007).

Except for the poorest individuals, social insurance programs go only part of the way. Programs like Social Security provide a floor, rather than a ceiling, of protection for two reasons. One has to do with the proper roles of the public and private sectors. The American proponents of Social Security have, with very few exceptions, never sought to crowd out private pensions and investments. If anything, the growth of the public programs has stimulated the growth of private programs.

Survivors’ benefits have not impeded the growth of the life insurance industry, nor have Medicare benefits halted the growth of private health insurance. The other reason has to do with fears that generous benefits will lead to socially unproductive behavior. Workers’ compensation benefits never replace all of a worker’s earnings for fear of creating an incentive for workers to injure themselves (Reznik and Shoffner 2007).

Policymakers make efforts to keep workers’ retirement incomes below the amount they could make from staying in the labor force. If social insurance benefits are limited in amount, the conditions of eligibility and the benefits are nonetheless defined by law. That creates a strong sense of entitlement and greatly limits the discretion that agencies have in awarding benefits. Voluntary participation would heighten the similarity between social insurance and private insurance, with the exception that social insurance would not be able to deny anyone coverage. The social insurance programs would end up carrying the greatest risks at increasingly high costs and would become financially untenable.

The defining characteristics of private funds proposed by Bush now become clear. They include a concern for social adequacy, a concern for individual equity, a right to benefits that is clearly defined by law, universal coverage, and a concern for stable financing. Social insurance, like private insurance, protects against losses from identifiable risks. In the Social Security program, if not in all social insurance programs, both the right to benefits and the amount of benefits are related to prior earnings in employment.

Taken together, these characteristics produce programs that have a mildly progressive impact on the distribution of income in American society. Social Security benefits, for example, tend to be fairly progressive in that they involve substantial transfers from the rich to the poor and from the working to the non-working. The taxes themselves have a tendency to be regressive.

References

  1. Altman, N. J. (2005). The Battle for Social Security: From FDR’s Vision To Bush’s Gamble Wiley.
  2. Beland, D. (2007). Social Security: History and Politics from the New Deal to the Privatization Debate (Studies in Government and Public Policy). University Press of Kansas.
  3. Matthews, J. L., Matthews-Berman, D. (2008). Social Security, Medicare & Government Pensions: Get the Most Out of Your Retirement & Medical Pensions. NOLO; 13 edition.
  4. Parks, J. (2007). Rejected on Social Security, Bush Stealthily Tries to Privatize Medicare. Web.
  5. Reznik, G. L., Shoffner, D. (2007). Coping with the Demographic Challenge: Fewer Children and Living Longer. Weaver; Social Security Bulletin, 66, pp. 37-39.
  6. Sacks, A., Lerner, K. (2005). Social Security Benefits Including Medicare (2006). CCH Incorporated.
  7. White, J. (2003). False Alarm: Why the Greatest Threat to Social Security and Medicare Is the Campaign to “Save” Them. The Johns Hopkins University Press.