This document provides an overview of social insurance programs in the United States, with a focus on Social Security. It begins with definitions of income and income maintenance programs. It then discusses the two major tiers of welfare policy: reducing poverty through social assistance programs, and providing income security through social insurance programs like Social Security. The bulk of the document details Social Security, including its history, components, funding through payroll taxes, benefits provided, impact on poverty rates, and debates around proposed reforms to address projected shortfalls in coming decades.

1. Hanna Mark,
MSW
SW112
July 8, 2014
SOCIAL INSURANCE

2. I. Defining Income & Income Maintenance Programs
II. Social Security
I. Other Major Social Insurance Programs
AGENDA

3. INCOME

4. Two major areas of focus for US social welfare policy:
1. Reduce poverty
2. Provide income security for people unable to work
TWO MAJOR TIERS OF WELFARE POLICY

5.  Reducing Poverty
 Includes SOCIAL ASSISTNACE programs like:
 Supplemental Security Income (SSI), General Assistance (GA), Temporary
Assistance to Needy Families (TANF), Food Stamps (SNAP), Earned Income
Tax Credit (EITC)
 Means-tested, safety net programs
 **Will be focused on next lecture
 Income Security
 Includes SOCIAL INSURANCE programs like:
 Social Security, Unemployment Insurance, Worker’s Comp
 Non-means tested; protects against loss of earnings when you can’t
work (de-commodifies labor)
 Addressing poverty not its main goal, although it might address it
residually
 **What we’re talking about today!
MAJOR TIERS OF WELFARE POLICY

6.  Income: The resources that people use to meet their needs
and to purchase the goods and services they want
 Can be cash or in-kind
 Liquid
 Resources people can use immediately
 Wealth: Different from income in that it involves non-liquid
stock of resources
 Can in be converted into income? (Sure!)
 Income can be reduced, interrupted, terminated ( major
issue)
 Income can be too low to sustain acceptable living standards
 What do we call it when it’s below acceptable standards?
 POVERTY!
 What have we created in our country to address these problems?
INCOME

7.  AKA’S: Income transfer, income security, income protection, or
social protection programs
 Purpose:
 Maintain a person’s/family’s income when their regular income is
interrupted or terminated
 Support (supplement or subsidize) a person or family’s income
 When is income interrupted or terminated?
 By contingencies (a.k.a, risks)
 Accident, labor, sickness, unemployment, disability, retirement, etc.
 Established by legislation
 Typically involves cash benefits from the government. Typically
administered by the state.
INCOME MAINTENANCE &
SUPPORT PROGRAMS

8.  Funded from CONTRIBUTIONS paid by members (e.g. dedicated
payroll tax)
 REMEMBER: You pay into it!
 Contributions are pooled
 Usually, contributions come from both employer and employee.
Benefits are often subsidized by the government.
 Eligibility determined by how much you’ve contributed over time
and other conditions, e.g.:
 Minimum age
 Actively looking for work
 Mental or physical disability
 Universal: People receive benefits as legal entitlements
regardless of personal wealth
 Less stigma
SOCIAL INSURANCE: IN-DEPTH

9. SOCIAL SECURITY

10.  19th Century:
 Otto von Bismarck (Chancellor of German) creates the first social
insurance program in 1883
 20th Century:
 Other countries followed
 US: 1935 Social Security Act (FDR’s New Deal)
 Response to the Stock Market crash of ‘29 and subsequent Great Depression
 OASI program based on recommendations by Prof. Barbara Armstrong of Berkeley who had
studied income maintenance in other Western countries
 Legislation: Title II of the 1935 Social Security Act
SOCIAL SECURITY: BRIEF HISTORY

11.  Original Social Security Act (1935):
 Included mix of insurance and assistance programs
 Aimed to support elderly poor, dependent children, the blind, some
disabled children
 “Worthy” Poor
 Categorical approach to welfare
 Only provided benefits to approx. 40% of workers
 Excluded: Farm & domestic workers, self-employed, state and local gov’t
employees
SOCIAL SECURITY:
BRIEF HISTORY (CON’T)

12. 3 kinds of income for US retirement system:
 Private Savings
 Approximately 3/5 of all Americans have some by retirement
 Often: 401k’s (employer alternatives to pensions)
 Can be inherited
 Pensions (Part of your employment benefit package)
 Most not inflation-safe
 Only about one-fourth to one-third of all workers have plans
 Risks: switching jobs, bankrupt companies, corporate raids of funds,
stock-related risks
 Cannot be inherited
 Social Security
 Largest/sturdiest leg
SOCIAL SECURITY:
A THREE LEGGED STOOL OF RETIREMENT

13.  4 Parts
 OAI
 Old Age Insurance (1935)
 SI
 Survivor’s Insurance (1939)
 DI
 Disability Insurance (1956)
 HI
 Medical & Hospital Insurance (Medicare; 1965)
OASDI is currently serving over 58.5 million people (May, 2014).
It is the the largest item of federal expenditure. It is the
nation’s most successful antipoverty program.
SOCIAL SECURITY: COMPONENTS
For elders, focus for today

14. State % Poverty Before OAI % Poverty After OAI
CA 37.8 8.5
TX 41.4 10.7
LA 50.3 15.0
NY 42.8 10.9
WI 42.6 5.1
IMPACT ON POVERTY FOR THOSE 65 AND
OLDER, 2011

15.  Acknowledges shared responsibility of all citizens
 Public, compulsory, and nearly universal
 Approx. 97% of all workers/self-employed, or 156 million people pay in
 Classic social insurance model:
 Program pools resources based on contributions (payroll tax) and pays
out benefits to older adults who have contributed and reached a
specified age
 Managed by the federal gov’t through the Social Security
Administration (independent since 1994)
 Not linked to states
 Modest benefits compared to other countries
(US) SOCIAL SECURITY: COMPONENTS

17. “When compared to several other systems in
industrialized nations, the US Social Security stands
out as one of the best in the world for protecting
workers and retirees from the economic vicissitudes
that could dramatically reduce a lifetime of
contributions.
While retirement benefits for American workers may
be initially lower than for workers in privatized
pension systems, the benefits are more predictable
which allows US workers to better plan for their
retirement.”
–Karger & Stoesz, p. 218-219.
THAT BEING SAID…

18.  Eligibility:
 Based on contribution record (approx. 10 years)
 “Full” retirement = age 65 for people born 1937 or earlier; increases
incrementally, and eventually to age 67 for people born after 1959
 Contributors can receive reduced benefits starting at 62
 Benefits:
 Consist of a cash pension for:
 Individuals of-age
 Survivors of deceased contributors
 People who become disabled while working (must have contributed @
some point)
 Income-related (The higher you earn, longer you pay in, more you get)
 Fully inflation protected (c/o Nixon’s COLA, 1972)
 Redistributive
SOCIAL SECURITY: COMPONENTS, CON’T

19.  A payroll tax paid equally by you and your employer, each 6.2%
(totaling 12.4%)
 Also, approx 1.5% for Medicare
 OASDI taxed on salary and wages for the first $117,000 only
(amounts above are not taxed); HI has no cap
 Taxes are only on earnings and not on other income
 Full taxation for working-only people
 Partial taxation for wealthy because it doesn’t tax other income, like
capital gains
 Tax rate of 6.2% is same for all earners
 Bigger hit on those with less money
 So how is it redistributive?
SOCIAL SECURITY: HOW IT WORKS

20. Replacement ratio = OAI Benefits / Earnings
A wage earner making $3,000/month retires and become
eligible for $1,000/month in OAI benefits.
Her replacement ratio is ____________ ?
 33%
SOCIAL SECURITY: COMPONENTS, CON’T

21.  Fairness is rewarding individual effort and merit:
 Individual equity principle
 Pay more in, get more out
 The result is that income inequality present during working years is
maintained beyond working years
HOW MUCH SHOULD BENEFICIARIES GET?:
CONSERVATIVE PERSPECTIVES

22.  Liberals say fairness is social adequacy
 Community wide standards for meeting basic needs
 Redistribution and concern for poor and for those excluded from full
participation in labor market
 Poor moms, farm workers, home health aides, disabled individuals
 Should get fair retirement, no matter your lifetime earnings
HOW MUCH SHOULD BENEFICIARIES GET?:
LIBERAL PERSPECTIVE

23.  Low earners get more than they would if there were no SS and
high earners get their benefits capped
 Low earners get a higher replacement ratio:
 If conservative model were in place, ratio would be based all on
earnings (income, interest, investments, etc.)
 If liberal policies were in place, ratio would be higher for the poor
 Average ratio: 58% for low earners, 40% for median earners,
22% for high earners
HOW MUCH SHOULD BENEFICIARIES GET?:
THE COMPROMISE

24. (2014) Monthly Yearly
Average Retiree $1,294 $15,528
Average Retired
Couple (Both
Receiving
Benefits)
$2,111 $25,332
High Income
Retiree
$2,642 $31,704
Low Income
Retiree
$886 $10,633
OAI BENEFITS FOR RETIREES 65+
(2011) Median Yearly Income
for Beneficiary Families
White $19,757
African
American
$14,400
Hispanic $14,400
Asian $17,957

25. In 2010, 91% of elders received at least some of their income
from OASDI
SOCIAL SECURITY:
MAJOR INCOME SOURCE FOR ELDERS
Income Source % Elders receiving
Jon Pensions & Annuities 36
Savings/Assets (e.g., 401k) 57
SS/OASDI 91
Job Earnings 18
Other (SSI, charities, family, etc.) 9

26. Earnings
25%
Income from
Assets
14%
Pensions &
Annuities
19%
OASDI
40%
Other
2%
PERCENT OF INCOME FOR ELDERLY
FROM EACH SOURCE, 2010
For many, Social Security is the only income source guaranteed to last a lifetime

27. PERCENT OF INCOME FOR ELDERLY FROM
EACH SOURCE, BY INCOME QUINTILE (2010)
Beneficiaries usually have little income for other sources, especially amongst the folks
in the lower income quintiles

28. 90.6
48
63.5
84.2
35.6
39.6
77.2
22.1
30.1
68.8
29
52.8
Social Security Pensions & Savings Assets
% Population Dependent on Income Source
White African American Hispanic Asian American
INCOME SOURCES OF OLDER AMERICANS
BY RACE & ETHNICITY (2011)
Source: AARP calculations of 2012 US Census Data

29.  Plays a larger role in retirement income for
people of color than whites
 People of color still tend to receive less
 Urban Institute argument: Across decades, OASI
redistributes from people of color to whites
Whites live longer than African Americans
Whites less likely be in single headed households
(survivors benefit)
Whites less likely to be disabled
Whites and Asians tend to have less children than
Blacks and Latinos
SOCIAL SECURITY & RACE/ETHNICITY:
HOW REDISTRIBUTIVE IS IT, REALLY?

30. SOCIAL SECURITY & RACE/ETHNICITY:
DISPARITIES IN RETIREMENT SECURITY
 Nari Rhee
 PhD, 2007 from Berkeley – Geography
 Currently: National Institute on Retirement (www.nirs.org)
 Previously: UC Berkeley Institute for Research on Labor &
Employment (www.laborcenter.berkeley.edu)
 Research Focus: Retirement Security, esp for low-wage workers
 KQED’s Tell Me More Interview:
http://www.npr.org/2014/01/14/262404288/minorities-
savings-accounts-arent-adding-up-for-retirement

31. Imbalance in Social Security due to:
1. Decreasing worker:beneficiary ratio
1. Previous year’s tax revenues were enough to pay for all benefits,
until the 1970s
2. Ratio used to be 17 workers: 1 beneficiary. Now its 3.8 workers: 1
beneficiary. In 30 years, it is expected to be about 2: 1.
3. This is known as: An Adverse Dependency Ratio
2. Increasing lifespan
1. 63 years in 1935; 78 years today
SOCIAL SECURITY: THE “CRISIS”

32.  ‘Til 1983: Pay-as-you-go; input matched output
 Since 1983: Partial reserve system in place, surplus income
stored
 Surplus income invested in gov’t bonds that earn whatever interest
rate is in place
 Reserve’s principal and interest are guaranteed by the federal gov’t
 Considered one of the safest investments in the world
 SS trust fund earned $108 billion in interest in 2010
SOCIAL SECURITY: “THE CRISIS”

33. Key Dates:
 2010: Costs of OASDI exceeding tax income
 2012: Reserves are $2.5 trillion and rising
 2018: DI fund exhausted
 2023: Annual benefit payments will exceed OASI income (taxes +
interest) for the first time. Trust fund assets will start to decline.
 2035 (-2052??): Trust fund reserves are exhausted. Incoming taxes
finance only 70% of benefits
FUTURE OF THE OASI TRUST FUND

34. Some Solution Proposals:
1. Prolong the SS “start” time to a later age
1. Suggestion: Age 70
2. Increase payroll tax, and attempt to build a surplus now so
that we are saving up for 20 years from now
1. Suggestion: 12.4%  15%
2. Or, reduce the tax rate to 4.2% for all low-income workers
1. Raise the earnings cap to cover 90% of all wages
1. Adjust the COLA downward
SOCIAL SECURITY: THE CRISIS
78.9
74.6
82.8
86.5
76.9
Life Expectancy at Birth (in years)
Source: Kaiser Family Foundation, 2010

35.  Incremental
 Modest guaranteed benefit cuts
 Modest tax increases
 No diversion of OASDI tax to other types of accounts
 Main idea:
 Allow government to invest some of the SS trust fund into stocks,
rather than asking individuals
 Higher returns can mean higher risk
 Status quo
SOCIAL SECURITY:
REFORM PROPOSALS

36.  Partial Privatization
 Cuts in guaranteed benefits of 10%
 Partial diversion of OASDI tax to private investment accounts
 Main Idea:
 You can invest a portion of your tax into stocks instead of into SS
trust funds
 Requires knowledge of the stock market
SOCIAL SECURITY:
REFORM PROPOSALS

37.  Radical Privatization
 Cuts guaranteed benefits substantially but establishes minimum
safety net
 Diverts most of OASDI tax dollars to private accounts
 Main Idea:
 Everyone would be required to contribute, but it would be a private
investment
 Based on a personal responsibility approach
 Believe that private system would produce greater returns than the
government system
 Gets rid of the redistributive function of Social Security
 Proponent Example: CATO Institute, Bush
SOCIAL SECURITY:
REFORM PROPOSALS

38. SOCIAL SECURITY DEBATE:
KRUGMAN VS. TANNER
A little bit more perspective:
https://www.youtube.com/watch?v=7tR
n6oEB3qg

39.  Bush Plan shot down due to:
 Voter interest (elders) & stock market distrust (crash of 2001; then again
2008)
 Concerns of limited privatization  full
  Voluntary system that would destroy SS
 Move towards expanding not cutting?
 Harkin (D-IA) legislation: Strengthening Social Security Act ( March,
2013)
 Alters method for calculating benefits (boosting approx. $70/mo)
 Alters method for calculating COLA; moves instead towards CPI-E
 Phases out tax cap
 Same bill introduced in the House (January 2014)
 Incentivizing other means
 Obama Admin’s MyRA (no market risk, nice rate of return up to $15k)
 Harkin’s restoration of pensions with guaranteed monthly payments that
put more responsibility on worker so businesses/cities less adverse
SOCIAL SECURITY: TODAY

40.  Estimated that 1/3 of undocumented immigrants are
currently paying in
 SSA: In 2010, net contribution of $12 billion
 Currently, immigrants who can prove earnings with pay stubs
or W-2 forms can get credit for earnings
 Contested
 Border Security, Economic Opportunity, and Immigration
Modernization Act of 2013
 Center for American Progress (supporter of immigration reform):
 If 70% of illegal immigrants are given legal status, they would contribute
net $500 billion to SS in 36 years
 Social Security Administration:
 Would add $276 billion in revenue over 10 years while costing $33 billion
SOCIAL SECURITY & IMMIGRATION

41. OTHER SOCIAL
INSURANCE PROGRAMS

42.  Established by statue
 Government uses the tax system to provide deductions and
credits (tax advantages) which function like direct benefits
 Eligibility determined by defined criteria but you *must* be in
the tax system to benefit
 Examples:
 Occupational Pension Deductions
 Individual Retirement Accounts (IRAs)
 401ks
FISCAL BENEFITS

43.  Funded by the employer from their own resources
 Government may require employer to establish a special fund or to join
a special fund used by all employers
 Eligibility determined by defined criteria, no means test applied
 Benefits usually paid in cash
 Historical roots:
 Initial workers’ comp laws required employers to compensate workers;
avoidance was common
 ‘Negligence’ often used to avoid payment
 No fault coverage later introduced  Employer requirement to take out
insurance or join special funds
 Now used to mandate benefits like: sick leave, parental leave,
termination, compensation payments, retirement pensions
 Minimum wage, workers comp, living wage, etc. are all included
here
EMPLOYER MANDATES

44.  Purposes
 To provide temporary and partial wage replacement to involuntary and
unemployed workers &
 To help stabilize the economy during recessions
 Overseen by the Department of Labor, administered by each
state (federal/state partnership)
 Employers are required to contribute to a trust fund
 Two main components:
 Regular state-funded benefits, for a maximum of 26 weeks
 Federal/state extended benefits program; additional 13-20 weeks,
depending on state’s unemployment rate and its related laws
UNEMPLOYMENT INSURANCE (UI)

45.  Eligibility
 Unemployed
 Ready & willing to work
 Registered to work with state employment service
 Working in a covered position
 Ineligibility
 Fired for misconduct
 Quit without a legal reason
 Failed to register with the state employment services
 Refused to take an equal or better job
 Striking
 Benefits
 Determined by states
 Approximately 46% of previous wages
UNEMPLOYMENT INSURANCE (UI)

46.  Current Issues
1. Limited coverage
2. Benefit decline
3. Outdated assumptions about unemployment
4. Women and unemployment
5. Meeting financial obligations
6. Equity problems
UNEMPLOYMENT INSURANCE (UI)

47.  In 2011, 4,963 workers were killed on the job. Approximately
13/day.
 3 million injuries or illnesses requiring day away from work; in
2011, median days away = 7
 WC began in WI & NJ in 1911, now approx. 97% of all UI
covered workers also are covered by WC
 Excluded: Business owners, independent contractors, volunteer, farm,
railroad, maritime, and domestic workers
WORKER’S COMPENSATION (WC)

48.  For victims of industrial accidents or occupational illnesses
 Provides cash, medical assistance, rehabilitative services, and
disability/death benefits
 Employers assume the cost of occupational disabilities
without regard to fault
 Programs vary from state-to-state
 Types: Private insurers, state sponsored insurers, employer
self-insurers
 Main issues
 High cost for businesses
 Benefit levels super variable from state-to-state
 Benefits distributed are complexly calculated and uneven
WORKER’S COMPENSATION (WC)

49. TIME FOR DISCUSSION!