Government Regulations And Social Insurance Programs


Government Regulations And Social Insurance Programs

The main social insurance programs like Social Security, Medicare, and unemployment compensation are funded by a payroll tax on the earnings of individuals who may receive benefits. Do you think the social insurance programs are effective? How are social insurance programs affected by the socioeconomic and political forces? Explain your answers.

Be sure to make connections between your ideas and conclusions and the research, concepts, terms, and theory we are discussing this week.

Week 8 Mini-Lecture: The Social Safety Net

Some folks are born into generational wealth. For most of us, however, financial well-being is chiefly a question of employment—what type of job you hold, how secure it is, and how well it pays. But government policies also play a role in how society’s financial resources are distributed. Social insurance programs are one such measure. As the name implies, they are based on the insurance principle. Individuals must pay into the program in order to receive the benefits. Social Security is the leading social insurance program. Established in the 1930s as part of Franklin Roosevelt’s New Deal, it provides monthly Social Security benefits to retirees who paid Social Security tax on their income while working. The current tax rate is 6.2%. That amount is deducted on pay day from workers’ wages. Social Security is called an entitlement program. This means that if an individual meets the eligibility requirement, he or she is entitled to the designated benefit. Government cannot decide one day to cancel an entitlement program or to grant the benefit to some previously eligible recipients while denying it to others.

Public assistance programs don’t offer this type of protection. They are not entitlement programs. The poor do not have an unqualified claim to benefits. Government can choose at will to cancel such a program or change its eligibility criteria, as in the case of TANF, which reduced the length of time a family can receive public assistance.

Now, when Medicaid, or healthcare for the poor, was enacted in 1965, Congress also enacted Medicare, which is healthcare for retirees. Unlike Medicaid, which is a public assistance program, Medicare is a social insurance program. As is the case with Social Security, it is financed by a special tax, about 1.45% on workers’ wages. Social Security and Medicare are federal programs in their entirety. States do not administer them or have a say in eligibility or benefits. Accordingly, recipients get the same level of benefits, regardless of where they reside.

Social Security and Medicare are highly efficient programs in that they do not require a large bureaucracy to check and recheck recipients’ eligibility. When workers reach the prescribed age and conditions of eligibility, they automatically qualify for the benefits. Less than 1% of Social Security spending is eaten up by administrative costs.

Medicare is more administratively complex in that it involves payments to doctors and hospitals. Even so, according to a Kaiser Family Foundation study, only about 2% of Medicare spending is for expenses other than patient care. In contrast, some private insurance companies, which seek to make a profit and heavily market their products, spend up to 20%, or 10 times the amount for Medicare, and non-patient care.

Now, Social Security and Medicare are not anti-poverty programs in the literal sense. Recipients come from all income groups. In fact, the higher one’s income while working, the larger the Social Security payment upon retirement. Such individuals pay more in Social Security taxes during their working years and accordingly, get a larger benefit when they retire.

As it happens, families in the top one-fifth by income receive more in Social Security and Medicare benefits than the poor receive in total on food stamps, housing, and dependent care. And although these programs end up keeping millions of Americans out of poverty, it remains  a large and persistent problem in the United States. Although the U.S. has less poverty than many countries, it has more poverty than comparable ones. Our poverty level, for example, is twice that of France and Germany. It’s also significantly higher than that of Great Britain and Canada.

The U.S. government uses the cost of living as the basis for dividing the poverty line, which is the level of income below which a family is defined as poor and thereby eligible for certain forms of public assistance. The government sets the threshold for poverty as the annual cost of a thrifty food budget multiplied by three to cover the cost of housing, clothing, and other necessities. That’s not a lot of money. For a family of two, it works out to roughly the same amount of money that many college students pay for room and board—and that’s for only one person and just for food and shelter.

By the government’s formula, about one in seven Americans live in poverty. This number changes as conditions change, but that’s roughly 45 million people. If they could somehow join hands and form a line, it would stretch all the way from New York City to Los Angeles…and then back again. Again, it’s not a small number.

America’s poor include individuals of all ages, races, and regions, but it’s concentrated among certain groups. Minority group members have a poverty rate twice that of white Americans. Women have a poverty rate exceeding that of men. Children are one of America’s most impoverished groups. Roughly one in five American children live in poverty, many coming from single-parent homes.

Since 1970, most Americans have seen almost no growth in real income, which is income adjusted for inflation. The wages of the bottom 60% of workers have been flat year after year. In terms of real income, their pay has stagnated. In contrast, the top 20% has done much better. Their income has risen over four decades from about $100,000 a year on average to roughly $180,000 a year today. But the biggest winners have been those at the very top. Since 1970, the percentage of all national income received by the top 1% of earners has jumped from roughly 10% to roughly 20%. In other words, their real income has doubled, such that the top 1% now gets roughly one in five of all dollars earned by American workers. The median yearly income for this group exceeds $600,000.

Stagnant wages and poverty remain significant problems for the richest nation in the entire world. We have the tools to address these problems in a more comprehensive manner than we have to date. Yet when I talk with students about social insurance policies and poverty, inevitably someone will bring up abuses of the existing system. And yes, of course cases of fraud occur. To use one program as an example, SNAP (still referred to as “food stamps” by some) is a program that helps feed millions of Americans. The fraud rate is assumed by many Americans to be enormous. In actuality, the fraud rate decreased from 3.5% in 2012 to less than 1.5% in 2017.

Of course, government programs should aim to run efficiently, effectively, and deliver the most benefits possible. But let me say something that might not be too popular: many Americans tend to be incredibly judgmental of other Americans. Viciously so, in fact. But, to use a common example, judging whether a SNAP recipient has expensive possessions or what is in their grocery cart is not actually solving anything; it’s also exactly none of your business. Public policies, however, are part of the answer, but we need to make sure we accurately identify existing problems to be able to chart a path forward.

I noted at the top that financial well-being is chiefly a question of employment. Wage stagnation is a sign of a system in need of repair. One in five children living in poverty is a sign of a system in need of repair. A single mother working two or three jobs to barely make ends meet certainly shows admirable worth ethic, but it is also a sign of a system in need of repair—because childcare is already work in and of itself. Whether and how we address these problems will go a long way toward determining the health and stability of our nation going forward and whether the 21st century will be marked by American progress, stagnation, or decline. I am rooting for progress, and that is going to require ongoing frank discussions with the American people about what kind of society and government they want.

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