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Celebrate Social Security’s Lean Design of Universality

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Kate McGovern
August 12, 2022

The 87th anniversary of Social Security is an opportunity to reflect on Franklin Roosevelt’s vision for social insurance. As a practitioner of Lean process improvement principles, I appreciate the simplicity of design and the resulting social equity.        

Rather than establishing a bureaucracy that required seniors to apply for assistance, Roosevelt proposed contributory social insurance. Those who worked and paid into the system would be eligible, regardless of their personal financial status. As he signed it into law on August 14, 1935, Roosevelt proclaimed:

We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.

As Jacob Hacker explained in The Great Risk Shift, “social insurance transformed individual misfortunes into common problems…social insurance pools risks on terms that enable the poor as well as the rich, the aged as well as the young.”

The Benefits of Universality

Social Security differs from typical social programs in form and substance. Eligibility based on work records allows for an overhead of less than one percent, in contrast to the complex regulations of traditional social services. In addition to administrative ease, there are social and political advantages to universality. Programs viewed as “welfare” carry a stigma and are frequent targets for budget cuts. Conversely, if everyone is eligible, everyone has a stake in it.

Funding in Perpetuity

Social Security is funded by payroll tax contributions split equally between employees and employers. In 1937, the tax was one percent from each. Designed to be self-financing, the rates were to be adjusted to respond to demographic shifts in the population. Each annual report provides a 75-year projection, providing ample notice for adjustments. The most recent increase, to 6.2 percent, was in 1990.

According to the 2022 Trustees’ report, the trust fund reserves were $2,852 billion, sufficient to pay full benefits until 2034. Without an adjustment, the fund’s reserves will become depleted in 2034. At that point, the incoming payroll taxes will only be sufficient to pay 77 percent of scheduled benefits.

Proposals to act

There are a range of proposals that could be implemented well in advance of 2034. For example, the cap on income subject to contributions could be raised. In 1937, payroll taxes only applied to the first $3,000 in earnings. Overtime, the cap was gradually increased. The tax max now increases at the same rate as average wages.

In 2021, the 6.2 percent tax only applied to the first $147,000 of earnings. So, someone with an income of $1,147,000 paid the same as someone who earned $147,000. There are various proposals for adjusting the cap upward or scrapping it altogether, making all income subject to the 6.2 percent rate.

Benefiting 65 million Americans

In 2021,  65 million seniors, disabled workers, dependents and survivors of deceased workers received monthly Social Security checks. The amounts are modest, but extremely significant to the recipients:

  • The average benefit for retired workers was $1,550/month; $18,660/year.
  • Disabled workers received an average of $1,280/month; $15,360/year.
  • Among the elderly, 37 percent of men and 42 percent of women depend on Social Security for 50 percent or more of their income. It represents 90 percent or more of the income for 12 percent of men and 15 percent of women.

Universality applied to health care

Medicare, like Social Security, applies without regard to income. The principle of universality allows an overhead of less than two percent. However, as discussed in a previous column, the U.S. health care market as a whole is a hodgepodge of public programs and private insurance plans which generate massive overhead.

FDR and his successor Harry Truman both proposed universal access to health care. Yet, even incremental gains faced strong political opposition. It was not until 1965 that Medicare passed, and then, only for people 65 and older. A significant gain was made in 2010 when the Affordable Care Act expanded access for 20 million people. Yet, more than 30 million remain uninsured.

Using Medicare’s lean design of universality, all Americans could have access to health care. There are proposals for an incremental approach, first expanding Medicare to adults aged 55-65 and children 0-18. Gradually, those 19-54 could be included. In his final State of the Union address, FDR proposed a Second Bill of Rights to include “the right to adequate medical care and the opportunity to achieve and enjoy good health.”

On the 3rd anniversary of Social Security in 1938, FDR declared, “We must face the fact that in this country we have a rich man’s security and a poor man’s security and that the Government owes equal obligations to both. National security is not a half and half matter: it is all or none.” On the 87th anniversary, let us celebrate FDR’s vision for social insurance as we acknowledge that it remains unfinished.   

Author: Kate McGovern, MPA, Ph.D. is a Lean trainer and practitioner in the public sector. Formerly a professor for the State of NH, Kate is an instructor at College Unbound and a consultant with Daniel Penn Associates. She is the author of A Public Sector Journey to Lean: Fighting Muda in Times of Muri. [email protected] @KateMcGovern_

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