Antipoverty Effectiveness of Social Insurance Programs Today’s Reading Schiller Ch. 13-Social Insurance Programs DeParle, Ch. 18: A Shot at the American Dream: Milwaukee, Fall 1999

Today’s Questions How do social insurance programs differ from means-tested programs? What are the most important social insurance programs by number of beneficiaries and total benefits? What is a social contract and how does this concept relate to Social Security? How important are social insurance programs in the fight against poverty?

How do social insurance programs differ from means-tested programs? Entitlement Eligibility conditioned on work in covered employment, not on income and assets Benefits are not determined by need Absence of work incentive rules (offset rates and disregards) by and large

What are the most important social insurance programs by number of beneficiaries and total benefits? See the Annual Statistical Supplement, 2008 – upplement/2008/highlights.pdfhttp:// upplement/2008/highlights.pdf –Especially appendix D—Calculating Social Security Retirement Benfefit

Social Insurance Programs, 2007 Program Coverage (millions) Beneficiaries (millions) Benefits (billions) OASDI $585.0 Medicare $425.3 Unemployment Insurance 133.6Avg 2.6/wk$32.3 Workers’ Compensation (2006) 130.3?$54.7 Black Lung Benefits 0.04$0.6 Veterans’ Benefits Total $1097.9

Major Means-tested Programs Program Participants (mo. avg. millions) Benefits (billions) TANF (FY2008) 4.7$5.7 SSI (2007) 7.4$41.2 Food Stamps (FY2008) 28.4$34.6 Medicaid (2006) 57.7 (annual unduplicated count) $268.5 Total $323.0

Links to sources TANF – 2008/tanf_2008.htmlhttp:// 2008/tanf_2008.html SSI and Medicaid – upplement/2008/highlights.pdfhttp:// upplement/2008/highlights.pdf Food Stamps (SNAP) –

What is a social contract and how does this concept relate to Social Security? Do you think you will receive a Social Security benefit that resembles today’s benefit when you retire? Why or why not?

How important are social insurance programs in the fight against poverty? OASI –“Social Security is still a highly effective antipoverty mechanism. Its antipoverty effectiveness results from the massive amount of income that is transferred and from the fact that virtually all older people receive Social Security benefits.” (Schiller, p. 241)

Antipoverty Effectiveness, cont. Medicare –“Because Medicare is an in-kind benefit, it does not directly affect the official poverty count. Medicare reduces the expenses of the aged and allows them to stay above the poverty living standards even if their cash income falls short of official poverty thresholds.” (Schiller p. 245)

Antipoverty Effectiveness, cont. Unemployment Insurance –“Most UI benefits are not paid to poor people or even to people who are at high risk of becoming poor.” (Schiller, p. 247)

Antipoverty Effectiveness of Social Security To what extent does Social Security decrease poverty among –the elderly? –children?

Source: “Social Security and Elderly Poverty,

Antipoverty Effectiveness of Social Security, cont. Nearly half of all elderly persons had income below the poverty line before receipt of Social Security benefits. After receiving Social Security, only 1 in 9 remained poor. –Source: House Ways and Means Committee 2004 Green Book,

Antipoverty Effectiveness of Social Insurance, 65 yr Poverty rate (%) Cash income before transfers 49.9 Plus Social Insurance 11.5 Plus means-tested cash transfers 10.4 Plus means-tested noncash transfers 9.0 Plus EITC and less Federal payroll and income taxes 9.0 Total reduction in poverty rate 40.9 % points Source: 2004 Green Book

Antipoverty Effectiveness of Social Security, cont. Is the antipoverty effectiveness of Social Security overstated? –Order sensitive problem –Behavioral effects

Antipoverty Effectiveness of Social Security, cont. What factors other than Social Security might explain the decline in poverty among the elderly? Demographic trends Labor force participation Saving Living arrangements

Source: H. Boushey, “Social Security: The Most Important Anti-Poverty Program for Children, Center for Economic and Policy Research, March 28, program-for-children/ program-for-children/

Antipoverty Effectiveness of Social Insurance, < 18 yr Poverty rate (%) Cash income before transfers 19.7 Plus Social Insurance 17.4 Plus means-tested cash transfers 16.7 Plus means-tested noncash transfers 14.8 Plus EITC and less Federal payroll and income taxes 12.6 Total reduction in poverty rate 7.1 % points Source: 2004 Green Book