social insurance Archives - Page 2 of 2

Originally published at Forbes.com on November 4, 2019.

Elizabeth Warren just released her proposal for funding the single-payer healthcare system she calls “Medicare for All” but which is far more generous than the existing Medicare system, promising all medically necessary/appropriate services/treatments not just with respect to traditional healthcare but also dental, hearing, vision, and long-term care, both in-home and institutional, all without any premiums or direct cost to recipients, and without any wait (”care when they need it”). (See Warren’s just-released proposal, in which she references the Medicare for All Act of 2019 as a guide for details, a summary of which is at sponsoring Representative Pramila Jayapal’s website.)

I’ve written previously on another platform that, however often supporters of a national healthcare system claim that this is “what every other country does,” this is in fact not the case, that even the most generous of Social Insurance-based healthcare systems top out at covering 85% of expenditures, with the remaining 15% coming from out of pocket costs or private health insurance, and that either directly through required cost-sharing or non-covered treatments, or indirectly as wait times lead those who can afford it, to supplement or replace the state-provided benefit. As an example, in Australia, which literally calls its state program “Medicare,” the public system covers 67% of healthcare spending.

And now, not only does Warren promise unheard-of generosity in benefits, but she promises that this can be done in a way that’s “free” for everyone but the wealthy. There’s a lot of smoke and mirrors here, including a substantial understatement of the actual cost of her plan ($20.5 trillion over 10 years rather than the $30 trillion that both Bernie Sanders and progressive supporters of the plan estimate), claims that she can hold administrative costs down to the figure Medicare reports for its existing program for the elderly, simply by fiat, and a tax on employers that’s meant to represent the equivalent of what they currently pay in their share of the premiums but becomes after a phase-in something more akin to a (very large) tax on headcount (and a lot more – which I griped about elsewhere), but her bottom line consists of substantial tax hikes on the wealthy and corporations.

And, in the same way as no other country imagines that all medical (and ancillary) care can be provided by the federal government with no limits, copays, or waits, it is also the case countries simply don’t fund their systems by means of “taxing the rich” but expect the same citizenry that benefits from the system, to pay for it, either as a part of an income tax system in which everyone pays at rates higher than in the United States, or through a payroll tax similar to our FICA tax, or both.

Of Bernie Sanders’ favorite countries, that is, Scandinavia: Denmark funds its system mainly through a national health tax of 8% of taxable income, and Norway and Sweden fund their systems through national and local taxes, according to the Commonwealth Fund’s International Health Care System Profiles.

The United Kingdom funds its system through both general tax revenues and a employee tax of 2.05% of pay up to GBP 45,032 in annual earnings, and 1% thereafter, plus an employer tax of 1.9% of earnings.

German employees and employers pay 7.3% of pay up to a EUR 53,100 per year cap, plus 1.275% each up to the cap for long-term care (which, incidentally, covers only a portion of those costs).

In France, employees pay between 0% and 6.5%, employers pay 13.5%, and the national government pays an additional amount from general tax revenues.

And to our north, again, Canada funds its system through general tax revenues, as well as up to a 4.3% employer payroll tax, varying by province, and, in Ontario, a premium of about 1% of pay, capped at $900 for income of $200,000.

(In each of these cases, this excludes the additional costs to individuals for out-of-pocket costs and private insurance.)

The fundamental premise of social insurance is one of “we’re all in this together.” These are programs in which everyone pays (with certain exceptions for the poor) and everyone benefits.

And consequently, to truly implement a system such as what Warren promises, in which it is the wealthy and corporations who bear the burden of providing health benefits for Americans, would not be placing us within the norm for healthcare-providing countries, but far outside it.

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Originally published at Forbes.com on September 13, 2018.

[Edited on September 14 to correct the 125% poverty level figure]

In the news today, the Democrats have announced that they’ve formed an “Expand Social Security” caucus to promote bills such as the one introduced as “Social Security 2100 Act” earlier this year. As I wrote back in April, the bill

applies Social Security taxes to income over $400,000 (with no apparent inflation adjustment) with trivial benefit accruals. . . . The proposal also includes other changes including setting a minimum benefit at 125% of the single individual poverty line, that is, $15,175, for a 30-year working lifetime with average-wage increases afterwards, increasing employer and employee contributions by 1.2 percentage points in a graded fashion, and merging the Old Age and Disability Trust Funds into a single Trust Fund.

Now, for years and years, the talking point in favor of keeping Social Security benefits unchanged had always been that those benefits had been earned, fair and square, by the contributions workers paid in over their working years. But now people generally understand that’s not the case. The system is more-or-less pay-as-you-go, with a reserve built up from excess contributions paid in by Baby Boomers, which is now being spent down until it’s gone entirely.

So Social Security expansion supporters have changed their talking points. The announcement of the new caucus at Common Dreams quotes Rep. John Larson (D-Conn.):

Social Security is not an entitlement. It’s the insurance that American workers have paid for.

To be sure, it is true enough that Social Security is an important safety net for Americans too old to work, and my personal preference is for a flat benefit that’s sufficient to keep all Americans out of poverty, but with other solutions for helping middle-class Americans preserve their middle-class-ness.

But insurance?

I’m an actuary. I know what insurance is. Property-casualty insurance companies (and actuaries in particular), to take one example, develop premium rates based on individual circumstances, such as, for homeowner’s insurance, the relative risk a home has of fire or theft or other kinds of damage, and the replacement cost in case of damage, with insurers staying in business by insuring enough people to be able to pay out the claims for policyholders who file them. If I have a more expensive house, I pay higher premiums. If I have an anti-theft system at my home, I have lower premiums. And so on.

Social Security is not insurance. We do not pay premiums based on our individual risk. We do not pay “premiums” at all; we pay taxes, and some people pay disproportionately more taxes than their benefit accruals would call for, and subsidize the others — singles subsidize couples, the childless subsidize families, and those paying at rates near the earnings cap subsidize low earners. The Expand Social Security caucus seeks, in part, to increase everyone’s tax rates, but also to increase the degree to which the wealthy subsidize the poor and the middle class. This is not insurance.

To be fair, Social Security is social insurance. But social insurance is not insurance. To be fair, Social Security is social insurance. But social insurance is not insurance. Social insurance is simply the name given, fairly commonly outside the United States, to government social welfare programs meant to cover the bulk of the population as opposed to the needy, and generally paid for out of payroll taxes which may or may not be given a name like “social charges” or “social contributions.” Like insurance, social insurance protects against the vicissitudes of life, as they say, such as disablement or the need for health care, but other social insurance benefits don’t “insure” against some misfortune at all, but are simply benefits available to all citizens, in the form of old age state pensions or children’s benefits.

Why does this matter?

In my preferred “flat benefit” Social Security reform, there would be no payroll taxes at all; it’d just come out of general tax revenues. I’ve also stated that I tend to think, when I’m cynical, anyway, that, in the end, there’s a high likelihood that the end result of the Trust Fund emptying-out will be that amounts will be made up by general tax revenues. So my complaint isn’t really that it’s unfair that there are subsidies in the system and that the rich pay disproportionately more relative to the benefits they earn, because my proposal would have exactly that result, given the progressivity of our income tax system.

My complaint, rather, is with the dishonestly of telling Americans that they have “earned” their benefits, that they have a “right” to them, that it would be just as unjust for the system to change as it would be for an insurance company to deny a claim based on a fully paid-up policy, especially while at the same time calling for an increase in the degree to which the benefits not just of the poor but also the middle class are subsidized.

So, yes, let’s reform the retirement system, to decrease the degree to which Americans fall through the cracks. And employer-provided traditional pensions are no longer a real part of our retirement system, so let’s find a consensus about the best path forward for income replacement. But let’s do so honestly.

January 2025 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.