Is Obamacare Any Different than Social Security?

Fox Business Channel’s David Asman asks, if the health coverage mandate included in the Affordable Care Act is unconstitutional, wouldn’t Social Security also be? At first glance, perhaps.

But the drafters of the Social Security Act were more careful – or less ambitious – than those who wrote the Affordable Care Act. The Roosevelt administration was aware of potential constitutional issues, having been knocked down by the Supreme Court over previous attempts to expand federal powers as part of the New Deal.

As a result, Social Security was structured in two parts: a tax based upon your wages and a benefit based upon your wages, but not a benefit based upon your taxes. This separated out the question of whether the federal government could run, and citizens be compelled to participate in, what looked very much like a private insurance plan.

Moreover, the Supreme Court ruled on the constitutionality of Social Security during the period in which it was threatened with being “packed” with new members more amenable to the administration’s views.

The downside for believers in limited government is that, even if the health coverage mandate is ruled unconstitutional, such a ruling doesn’t say anything of great substance about the federal government’s power to effectively mandate the purchase of health coverage or, for that matter, pretty much anything else. It merely says that future designers of a health coverage mandated will have to be more careful in how they structure and draft their legislation. From my perspective, that’s a disappointment.

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Upcoming event: Why Are More People Claiming Disability Insurance?

Why Are More People Claiming Disability Insurance
and What Should Be Done About It?

Register Now – Space is Limited

Tuesday, April 3, 2012
10:00 a.m. – 12:00 p.m.
B-318 Rayburn House Office Building

Applications for Social Security Disability Insurance have increased in recent years. What does this increase imply for the program overall, and particularly for its funding over the long term? Was this increase anticipated, or was it surprising? Does it affect the effectiveness of the program? This forum will address these questions and present varied perspectives about the causes and consequences of changes in the DI caseload. Speakers will discuss past trends in disability claims; differing perspectives on why the rolls have grown; implications for the effectiveness of the DI program; and implications for the economic security of beneficiaries. Register now to get answers to your questions.

Presenters:

• Stephen C. Goss, Chief Actuary, Social Security Administration
• Lisa Ekman, Senior Policy Advisor, Health and Disability Advocates
• David Stapleton, Director, Center for Studying Disability Policy, Mathematica Policy Research

Discussants:  

• Marty Ford, Chief Public Policy Officer, The Arc
• Tony Young, Senior Public Policy Strategist, NISH

Moderator:    

• Mark Miller, Reuters

This forum builds on the standing-room-only roundtable event, “Increasing Rolls in Disability Insurance: Policy Perspectives,” held on January 27, 2012, at NASI’s annual conference.

Click here to register.

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New paper from the Social Science Research Network

"Smithers, What’s the Name of this Gastropod? King-Size Homer and the Social Security Administration’s Subjective Evaluation of Fatness"
Georgia State University Law Review, Forthcoming
Buffalo Legal Studies Research Paper No. 2012-043

CHRIS PASHLER, SUNY Buffalo Law School
Email: chrispas@buffalo.edu

The Social Security Administration has recently come under criticism for its subjective evaluation of disability claims. Recent studies of the Agency’s decisions indicate that great variances in allowance rates continue to exist within the ALJ corps. These variations in decision making are a challenge to the Agency’s credibility, given the real likelihood that disability applications filed by similarly situated adults are treated differently by the ALJ corps. Prior works have looked at inconsistency at different levels in the disability certification process, but this scholarship has not sufficiently examined why similarly situated claimants are treated differently by the Agency.

This article, however, looks at inconsistency in decision making by focusing on a single impairment — obesity. Prior to 1999, the Agency used Medical Listing 9.09 to evaluate applications involving obese claimants, and the Medical Listing provided specific criteria for the evaluation of the impact of obesity on co-morbid conditions. This Article reviews appeals to the federal courts of adverse disability determinations concerning obese claimants following the repeal of Medical Listing 9.09 where the claimant’s Body Mass Index (BMI) could be ascertained.

This review illustrates that individuals with similar BMI are not evaluated consistently by the Agency. These variations occur because the protocols subsequently adopted by the Agency to evaluate obesity provide little guidance as to how to evaluate the epidemiological link between fatness and health. Reform is necessary because the Agency will not be able to achieve accurate and consistent decisions in claims involving obese claimants until protocols that reflect a better understanding of how obesity impacts both health and functional limitation are developed.

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March 20 event: Radical Reforms for Social Security

For anyone interested: http://www.aei.org/events/2012/03/20/radical-reforms-for-social-security/

Radical Reforms for Social Security

Tuesday, March 20, 2012 | 3:00 p.m. – 4:30 p.m.

AEI, Twelfth Floor
1150 Seventeenth Street, NW, Washington, DC 20036
(Two blocks from Farragut North Metro)

Discussion of U.S. Social Security reform has often centered on incremental changes, such as increasing the payroll tax rate, raising the retirement age or reducing the growth of benefits for high earners. Incremental reforms would maintain the basic structure of the program, which has remained more or less unchanged since the 1930s. This event will examine more radical reforms that — while aiming to accomplish the same goals as the current Social Security program — would do so through fundamentally different structures. Andrew Biggs will discuss a reform plan he put together as part of a 2011 report for the Peter G. Peterson Foundation; Peter Ferrara will talk about the plan he assembled for Newt Gingrich’s presidential campaign; and John Goodman will present his views on the potential for individuals to opt out of Social Security.

Panelists:
ANDREW G. BIGGS, AEI
PETER FERRARA, Heartland Institute
JOHN GOODMAN, National Center for Policy Analysis
Moderator:
NICK SCHULZ, AEI

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Defining survivorship?

Should a child conceived through in vitro fertilization after the death of its father be eligible for Social Security survivors benefits? Part of me says no: Social Security’s survivors benefits are designed as insurance; if you choose to conceive a child knowing that one parent is deceased, that’s different than having a parent die after a child is born.

On the other hand, I suspect that mothers applying for survivors benefits in such instances probably have a good legal case based on how the Social Security Act is written.

National Public Radio explores the question more closely here.

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New paper: “Can the Actuarial Reduction for Social Security Early Retirement Still Be Right?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“Can the Actuarial Reduction for Social Security Early Retirement Still Be Right?”

by Alicia H. Munnell and Steven A. Sass

The brief’s key findings are:

• Monthly Social Security benefits claimed at age 62, rather than 65, are reduced about 20 percent to avoid additional costs to the program.

• When the reduction was set over 50 years ago, a worker claiming at 62 received benefits about 20 percent longer.  As life expectancy has risen, this worker now receives benefits only about 15 percent longer.

• But the cost of benefits, the present discounted value of lifetime benefits, also depends on interest rates.  Rates have generally risen since the 1960s, making future benefits less costly.

• These higher rates have largely offset the impact of rising life expectancy, suggesting that the reduction factor has proven remarkably durable over time.

The brief is available here.

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New papers from the Social Science Research Network

"The Impact of Changes in Couples’ Earnings on Married Women’s Social Security Benefits"
Social Security Bulletin, Vol. 72, No. 1, pp. 1-9, 2012

BARBARA A. BUTRICA, The Urban Institute
Email: bbutrica@ui.urban.org
KAREN E. SMITH, Urban Institute
Email: ksmith@ui.urban.org

Women’s labor force participation and earnings dramatically increased after World War II. Those changes have important implications for women’s Social Security benefits. This article uses the Social Security Administration’s Modeling Income in the Near Term (version 6) to examine Social Security benefits for current and future beneficiary wives. The projections show that fewer wives in more recent birth cohorts will be eligible for auxiliary benefits as spouses because their earnings are too high. If their husbands die, however, most wives will still be eligible for survivor benefits because, despite the increase in their earnings over time, they still typically have lower earnings than their husbands. Even so, the share of wives who would be ineligible for widow benefits is projected to double between cohorts.

"Mathematical Constraints on Financially Viable Public Policy" MARTIN GREMM, Pivot Point Advisors
Email: gremm@pivotpointadvisors.com
MARK B. WISE, California Institute of Technology
Email: WISE@THEORY.CALTECH.EDU

Social Security and other public policies can be viewed as a series of cash in and outflows that depend on parameters such as the age distribution of the population and the retirement age. Given forecasts of these parameters, policies can be designed to be financially stable, i.e., to terminate with a zero balance. If reality deviates from the forecasts, policies normally terminate with a surplus or a deficit. We derive constraints on the cash flows of robust policies that terminate with zero balance even in the presence of forecasting errors. Social Security and most similar policies are not robust. We show that non-trivial robust policies exist and provide a recipe for constructing robust extensions of non-robust policies. An example illustrates our results.

"Social Security Claiming: Trends and Business Cycle Effects" Center for Retirement Research at Boston College Working Paper No. 2012-5

RICHARD WARREN JOHNSON, Urban Institute - Income and Benefits Policy Center, National Academy of Social Insurance (NASI)
Email: rjohnson@ui.urban.org
OWEN HAAGA, affiliation not provided to SSRN
Email: ohaaga@urban.org
BOSTON COLLEGE CENTER FOR RETIREMENT RESEARCH, Boston College
Email: crr@bc.edu

This study examines Social Security claiming behavior, which has important implications for older Americans and for the system itself. Retirees may begin collecting benefits as early as age 62, but early claimants receive lower monthly benefits for the rest of their lives. Our data come from Survey of Income and Program Participation (SIPP) files from 1984 to 2009 linked to administrative records on earnings and benefits. The sample is restricted to respondents with 40 quarters of covered employment who did not claim benefits before age 62. Results indicate that early claiming has declined over the past decade, after increasing over the previous 10 years. For men, the share claiming at age 62 fell from 55.3 percent in the 1930-34 birth cohort to 46.4 percent in the 1940-44 cohort. Over the same period, the share of women claiming at 62 fell from 59.3 to 49.0 percent. The recent trend toward delayed claiming is evident among all educational groups, not just college graduates. Hazard models show that high unemployment boosts Social Security claiming among men with limited education. A 1 percentage point increase in the state unemployment rate is associated with a 0.4 percentage point increase in the likelihood each month that men who never attended college will claim benefits, a relative increase of 6 percent. This estimate implies that the Great Recession increased claiming for men with limited education by about 40 percent. Claiming behavior among women and well-educated men is not significantly correlated with the state unemployment rate, however.

"What Does the Literature Tell Us About the Possible Effect of Changing Retirement Benefits on Public Employee Effectiveness?" PERI Working Paper No. 243

CHRISTIAN E. WELLER, University of Massachusetts Boston - Department of Public Policy and Public Affairs, University of Massachusetts at Boston - Gerontology Institute
Email: christian.weller@umb.edu

Proposals exist to change public employees’ retirement benefits from defined benefit (DB) pensions. This could increase employee turnover and raise initial compensation. More experienced employees are replaced with less experienced ones, reducing effectiveness. But, new hires’ effectiveness could increase with higher compensation. We simulate the net impact of these offsetting effects and find that there is a 60% to 70% chance that effectiveness will fall relative to the effectiveness that would have prevailed without benefit changes. There could be substantial transition costs, which could increase to 0.8% of payroll in the third decade after the switch for a typical DB pension.

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What do older Americans spend their money on? Will they have enough?

A new study from the Employee Benefit Research Institute:

"Expenditure Patterns of Older Americans, 2001-2009" EBRI Issue Brief, No. 368, February 2012

SUDIPTO BANERJEE, Employee Benefit Research Institute (EBRI) Email: banerjee@ebri.org

This paper examines the consumption pattern of the older section of the U.S. population. The majority of the households studied here have either reached retirement age or are on the cusp of retirement. The data come from the Health and Retirement Study (HRS) and the Consumption and Activities Mail Survey (CAMS), which is a supplement of the HRS. CAMS contains detailed spending information on 26 nondurable and six durable categories, and it follows the same group of people over eight years.

Using this information coupled with the income, wealth, health, and labor-market information available in the HRS, this study attempts to summarize the consumption behavior of the American elderly. It has three primary objectives: (1) To examine how consumption patterns evolve with age, income, and other demographic characteristics; (2) To study the income, expenditures, and wealth-holding patterns of the elderly to get a sense of how they are managing their finances and if they are at risk of outliving their assets; (3) To determine if long-term care (LTC) insurance and private health insurance affect the elderly’s consumption behavior.

Household expenses steadily decline with age. With the age 65 expenditure as a benchmark, household expenditure falls by 19 percent by age 75, 34 percent by age 85, and 52 percent by age 95. Home and home-related expenses remain the single largest spending category for older Americans. On average, those over age 50 spend around 40-45 percent of their budget on home and home-related items.

Health-related expenses are the second-largest component in the budget of older Americans. It is the only component which steadily increases with age. Health care expenses capture around 10 percent of the budget for those between 50-64, but increase to about 20 percent for those age 85 and over.

The results show that while high-income households are managing their income and expenses well in retirement, low-income households are struggling. The high-income households maintain high levels of wealth, but whether these wealth levels will be sufficient to support them through very advanced ages or in case of catastrophic expenditure shocks is beyond the scope of this study. But for low-income households that are already struggling, such events will only make matters worse.

There are several key demographic groups that are also not doing well in retirement, and they may be at risk of running short of wealth at some point in retirement. Demographic groups such as singles, blacks, and high school dropouts are outspending their resources in retirement. Not surprisingly, the lowest-income group (bottom-income quartile) which is generally overwhelmingly represented by the above groups, appears to be struggling the most. Long-term care and some form of private health insurance coverage have a significant effect on increased spending by older households.

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