Old-Age, Survivors and Disability Insurance on Its 25th Anniversary
ROBERT M. BALL
The social insurance provisions of the Social Security Act represented an almost entirely new concept in American life and in governmental services in this country. While there had been federal, state or local antecedents for other programs embodied in the Act, these proposals were without precedent. Mr. Ball, Deputy Director, Bureaus of OASI, Social Security Administration, Department of Health, Education, and Welfare, here traces the course of these new services over 25 years and discusses the basic principles which made for sound progress.
Social insurance is today a major institution in the economic and social life of the nation--as much taken for granted by the younger generation as free public education or a government-operated post office. Seldom if ever in human history has a major institution been established so firmly in a mere 25 years. And seldom has such a young institution done so much for so many millions of people.
It is worthwhile, I believe, to try to say why this has come about--to say why in so short a time there is such widespread backing for social insurance, when the very idea was little known in the United States at the time of the passage of the Social Security Act just 25 years ago.
Most important in the now general acceptance of the rightness of the social-insurance approach is the use of old concepts in the new institution. In its effect on the lives of retired people, the disabled, and widows and orphans, the impact of social insurance has been nothing short of revolutionary. But it is anything but revolutionary in concept. Social insurance relies on the tradition of self-help, and, like staff retirement systems and private insurance, is connected in people's minds with the responsible and prudent management of their own affairs. The program belongs in this tradition because eligibility for the protection grows out of an individual contribution to the cost of the protection and out of work performed.
Under the program, a person earns his future security as he earns his living, and he pays toward the cost of his protection out of his earnings. Whether one gets a benefit and how much he gets is related to his own work. Further, the benefit serves as a base upon which the worker can build additional income protection for himself, since benefits are payable regardless of savings, pensions, investments, and similar income and resources. The program thus not only helps to prevent poverty and want and relieve the burden that would otherwise have to be carried by public and private assistance, it does this in a way that is squarely in line with our tradition of self-reliance.
It is the use of these conservative ideas with which all are familiar that accounts for the quick acceptance of this new institution. Social insurance has brought about a sweeping social reform within the framework of an old tradition.
The great popularity and electiveness of social insurance has meant rapid growth in coverage, increasing benefit levels and expansion of the system to new risks. Today over 80 million persons are insured, with the result that nine out of every 10 mothers and children are protected against the risk of loss of income from the death of the family breadwinner. This survivorship protection alone has a face value of about $500 billion. More than half of the insured group have worked long enough to meet the more exacting requirements for disability protection. Eighty-five percent of the people now becoming 65 are eligible for OASI benefits, and when other government systems paying work-related benefits are taken into account, 94 percent of those attaining 65 have protection. (Almost three-fourths of all past 65 are protected.) Every month 14 million beneficiaries get benefit checks, and the coverage of current workers is practically universal. The system collects and disburses between $10 and $11 billion dollars a year.
This did not happen all at once. Actually in the first decade or so the program grew quite slowly, and after the addition of survivors' benefits in 1939 no major legislative changes were made until 1950. In that year coverage was broadly extended, benefits were very substantially increased, eligibility conditions were liberalized and other important changes were made. In 1952 benefits were again raised; and then in 1954, 1956 and 1958 coverage was made nearly universal, benefits were further improved and protection against permanent and total disability was added.
As social insurance has expanded over the years, it has taken over much of the load that had been carried by the aid to dependent children program and has gradually been reducing the old-age assistance load. In 1940 old-age and survivors insurance was paying benefits to seven out of every 1,000 people 65 years of age or older, while the old-age assistance recipient rate was 218 per 1,000. Today, about 4 times as many aged people are getting old-age and survivors insurance benefits as are getting old-age assistance.
The insurance program does much more, though, than to reduce the need for assistance. Social insurance in this country has taken a form that has made it not just a program for low-income people; it serves middle-income and higher-income persons as well as those at the lower end of the wage scale. It is important that people be helped to live in retirement at levels above a minimum subsistence, and our social insurance system helps them to do this partly by paying a variable benefit based on past earnings, and partly because people can save on their own and add their savings to the basic old-age, survivors, and disability insurance benefits. Those covered are not only the low wage earners, who in Europe were the group for whom social insurance was first designed, but also farm owners, self-employed business men, professional people, supervisory and executive staff and skilled and high-paid labor.
Throughout all of the rapid and sweeping changes that the Congress has made in the program, certain very fundamental principles of program have been adhered to. They are: (1) Conditioning eligibility on a record of work and varying benefits in accord with past wages; (2) Financing the program through contributions of the workers who benefit from the program, with matching contributions from employers; (3) Providing in advance for full financing of future costs; (4) Extending the program, as administrative considerations permit, to all who work for a living, to their dependents, and to protection against the major threats to the loss of earned income; and (5) Protecting the future security of the individual by making sure that his benefit when paid is related to current prices and levels of living.
Throughout this development the original concept of contributory, wage-related social insurance without a test of need has been carefully adhered to, and program liberalizations have always been accompanied by full provision for financing the costs. The Congress and the Executive Branch, under both parties, have been scrupulous in providing for prudent and conservative financing of this program, with its huge commitments to the future welfare of the aged, the disabled, and the widows and orphans of the nation. The very nature of the contributory program demands and gets this kind of financial responsibility.
The drive for universal coverage of both jobs and risks is clear, and is nearly achieved.
One other principle may also be derived from the legislative history of the past decade. It appears to be an accepted fact that the benefits of the program and the financing will be modified from time to time to keep the program in line with changing economic conditions. In other words, the protection under the program--what people are paying for--in practice, if not in law, is a benefit that keeps up with the movement of prices and also allows for at least some participation in the rising level of living that is the result of our progressive economic system. Modifications in benefit levels are, of course, necessary as wages rise, if the program is to fulfill its function.
The fact that social insurance, as distinct from private contractual insurance, anticipates such changes is not fully appreciated. It is not widely recognized, for example, that the contribution rates in the law are set high enough to allow for benefit improvements as wages go up. Actually, unless liberalizations are made as wages go up, the social insurance system will have more money than it needs.
The first 25 years of social insurance in the United States have been a time of great expansion and significant accomplishment. A firm base has been established in public acceptance of the program. It is popular, soundly financed, and administratively effective. Social insurance is a significant example of the new partnership between positive government and the individual. Far from paternalistic, it is best described as a "social utility" that is used by the individual to develop a more satisfactory and secure way of life.