Social Insurance: America’s Neglected Heritage and Contested Future
By Theodore R. Marmor, Jerry L. Mashaw and John Pakutka
(Published by CQ Press, October 15, 2013))
The United States has a relatively comprehensive system of social insurance. Our programs of social provision begin with a bedrock assumption: family income will generally come from work wages or salaries, deferred compensation in the form of pensions, or investments in financial markets (roughly speaking, invested savings, although inheritance plays a small part for many families). We live and work in a vibrant market economy.
We recognize, however, that over the life cycle of any individual there are risks to adequate income from temporary or long-term inability to work and inadequate reserves to withstand major shocks, such as catastrophic medical expenses.
The overall lesson is clear: America’s social welfare programs directed at family economic security are complex compromises. They represent balances among visions of social welfare goals and understandings of the proper location of public responsibility. They also reflect compromises among conceptions of governmental and individual and private responsibilities and governmental and market allocation of goods and services. The complex nature of American social programs is hardly an accident. It is the outcome of the forces – political, economic, social, and philosophical – that shaped policy judgements at critical junctures in American history, that is, the point at which these programs were enacted, amended, or reformed.
Heterogeneity and complexity are not necessarily bad things in themselves. They may be the results of differing political preferences, differing local conditions, or the differing needs of various populations. Heterogeneous arrangements may also provide opportunities for experimentation and learning that are beneficial in the long run. But looking at the now so-called universal access to health insurance in the United States, it is difficult to perceive whether any of these values are being served. Moreover, the heterogeneity and complexity in these arrangements provide quite different levels of access to health insurance for different populations, a situation that is almost certain to lead to serious administrative difficulties and public misunderstandings. Whereas the relatively simple structure of Medicare, both in its coverage and financing, has led to immense popularity and very substantial improvements in the economic security of American seniors, both Medicare’s “modernization” in the Medicare Modernization Act of 2003 and the complex and administratively challenging provisions of the Affordable Care Act of 2010 raise all-too-obvious possibilities for health system cost inflation, citizen and provider dissatisfaction, and continued political struggle. “Universal coverage” is to be applauded from the perspective of increasing Americans’ economic security, but program design matters.
Social insurance programs engage most of the electorate precisely because they cover common risks and insure most of the population. And because practically everyone is both a contributor and a potential beneficiary, the politics of social insurance tends to be of the “us-us” rather than the “us-them” form. Each individual’s sense of earned entitlement or deservingness makes reneging on promises in social insurance programs politically costly. Each individual’s responsibility to contribute to the common pool makes extravagant promises of “something-for-nothing” future benefits less politically attractive.
The common pool feature of Medicare cannot plausibly be a cause for fiscal concern. The experience of other industrial democracies has repeatedly demonstrated the superior capacity of more universal social insurance programs to restrain growth in overall medical expenditures. Any comparison of growth in health expenditures of the United States and social insurance nations such as Germany, the Netherlands, and France would show American expenditures to have grown more rapidly in recent decades. And these are countries with both older populations and more widespread and intensive use of health care than in the United States. (The simple facts in the previous sentence are so little appreciated that we suggest you read the sentence again.) Countries with older populations, greater use of medical care, and, in addition, equal or better health results do a better job of restraining medical inflation than the United States. None of them rely on competition of individual responsibility as a major cost-control device.
It is hard to argue, and we will not, with the motivation of the ACA’s sponsors and supporters. Broadening health insurance coverage to include more than 50 million uninsured Americans is a worthy goal – as is any attempt to get a handle on cost inflation in health care expenses in the United States. But we believe that the idea that these goals are best pursued through market-mimicking and means-tested social provision is profoundly misguided. Fragmented risk pools will not promote either perceptions of fairness or us-us politics in the provision of health insurance. And patient choice and competition among insurers has no demonstrated record of cost control in medical care either in the United States or elsewhere in the developed world. The MMA and the ACA modernize health insurance in the United States by moving further toward the health insurance models that have long been available in private markets. Both statutes seem to imagine that health care economics works like the market for breakfast cereals and that individual choice in risk bearing is the solution to concerns about both quality and efficiency. We know of no evidence that could sustain these beliefs.
We should not leave this discussion without underscoring the profoundly traditional, indeed conservative, and work-oriented vision that American universalism embraces. It says not that you are entitled because you are part of the nation, although that is surely a plausible vision of universality, but that you are entitled because of your contribution to the nation. Funding is linked to earnings, and entitlement is defined largely by years of work. Hence for Americans, universalistic entitlement has always been a concept tied to, supported by and supporting, a market economy. That the protection of social insurance – and the demand for its expansion – should be thought to be the distinctive position of “liberals” is, to say the least, ironic. That the reform of social insurance should be thought to be best accomplished by moving in the direction of market-like devices that shift risks onto individuals and families already buffeted by the staggering economic uncertainties of a rapidly globalizing economy is, in our view, a serious mistake. “Modernization” in this form misunderstands what social insurance is about.
Social insurance defines a nation. Do we join together to protect each other from the many threats of financial disruption, or do we let each individual or family fend for themselves against odds of success? Compared to other nations, the record in the United States has been spotty. What are we doing right, what are we doing wrong, and how can we improve? “Social Insurance,” by Theodore Marmor, Jerry Mashaw and John Pakutka provides the answers.
Americans are very familiar with Medicare and Social Security, and, of course, are quite protective of them. But they are just two programs of social insurance, and they mesh with many other policies designed to protect us against the threat of being born poor, the threat of the early death of the family breadwinner, the threat of ill health, the threat of involuntary unemployment, the threat of disability, and the threat of outliving one’s savings. It is these threats and our current policies toward them that the authors describe, while providing us with an understanding of how we can improve security for all of us.
Everyone should have this book. For individuals already well versed in social insurance, it provides an oversight that organizes thoughts while providing us with clear explanations of the problems and solutions that we can share with others. For the business community, it explains social insurance in terms that astute businesspersons would recognize as smart business decisions on how to address these threats – for themselves and for their employees. For advocates of free markets who are uncomfortable with “government solutions,” it explains how social insurance is an essential component in maintaining a vibrant market economy. For politicians, once the public has a better understanding of social insurance, it shows them that they must abandon deceptive rhetoric and move forward with beneficial reform. For libertarians, well… they should read this to try to understand why people want to be in this together, then, if they still can’t get it, they should dig moats around their castles.