Introduction: The Social Security Act has established a number of programs aimed at providing the material needs of families and individuals. It also aims to protect disabled persons and the aged against expenditures from illnesses that can drain their savings. The human services values of Social Security is to keep families bonded together, and allow the children to grow up healthy and financially secure (Organizational History, 2014). This paper outlines the history of the Social Security policies in the US, their effectiveness, the cost of Social Security services programs and SSA funding. This paper also explains about the future of Social Security in the proposals of policymakers to improve the Social Security services. Thesis: Are the Social Security policies effective in providing benefits to the beneficiaries? Yes, the Social Security policies are effective in giving benefits to the beneficiaries.
History of the Social Security policies in the US
The former name of the SSA or Social Security Administration is SSB or Social Security Board. According to Organizational History (2014), it was created at the time of President Roosevelt through the Social Security Act of August 14, 1935. Since it was a new entity, it had no staff, facilities and budget. Its initial staff came from a donation made by the Secretary of Labor. The sources of its temporary budget were Harry Hopkins and the Federal Emergency Relief. The Board consisted of three executives appointed by the President. However, on July, 1939, the SSB had lost its independent status after the creation of Federal Security new sub-cabinet. The SSB had a new name of Social Security Administration on July, 1946 headed by Arthur Altmeyer as the first Commissioner. On April, 1953, President Eisenhower replaced this agency by a new one called Department of Health, Education and Welfare or HEW, and SSA became part of it. On May 1980, the Department of Health & Human Services took over HEW, and SSA became a major part of HHS. Through the years, debates were heard in the halls of Congress regarding the return of SSA to independent agency status. These debates became momentum in 1981 after the National Commission on Social Security (NCSS) recommended that SSA should become an independent body. In 1983, the National Commission on Social Security Reform, also known as the Green Commission, raised this issue again and created a special study to handle this matter. In 1984, a special study was completed, and it brought out several options to make SSA an independent Board. This issue led to several legislative proposals in the coming years. On August 1994, President Clinton signed legislation returning SSA back to its independent agency status (Organizational History, 2014). So, the life cycle of SSA started in 1935 as an independent agency, and in 1939, it became a sub-cabinet agency. Then, SSA returned to its full-circle independent status in 1995.
Effectiveness of the Social Security Policies
Social Security has remained as one of the nation’s most effective, successful, and popular programs in the US. It provides a stable scheme for workers to build their plan for retirement. Social Security also provides social insurance protection to all disabled workers and to families of deceased breadwinners (Policy Basics, 2012). According to Gould (2013), Social Security is the most effective program in the US when it comes to anti-poverty. Without Social Security, more than 25 million people or 8.3 percent of Americans would be categorized below the SPM poverty level. Thus, the refundable tax credits, including the Earned Income Tax Credit, make eight million Americans above the SPM poverty. Other programs that keep the American families afloat include food stamps, housing subsidies, Supplemental Security Income and unemployment insurance. While the US is trying to recover from the recession almost similar to the Great Depression, the government-funded safety net programs are active to keep more Americans from falling into poverty. The SPM or the Supplemental Poverty Measure is a government initiative to mitigate poverty (Gould, 2013). The SSI or Supplemental Security Income program provides needy, old people with income support. This program replaced the federal adult assistance programs previously existing in 50 states including the District of Columbia. It also helps the blind or disabled adults, as well as blind or disabled children. In January 1974, 3.2 million people received federally-administered payments. This number has increased by December 1974 to almost 4 million until the middle of 1980. From that time, it rose steadily and reached about 6 million in 1993. By December 2013, it increased to about 8.4 million. From this total, about 4.9 million belonged to the ages 18 and 64. Those with age 65 and older reached 2.1 million, and people under the age of 18 recorded 1.3 million (Fast Facts and Figures, 2014). On the other hand, according to Research, Statistics and Policy Analysis. (2014), the Social Security's minimum benefit has declined in relative value. It fails to meet a full benefit that is equivalent to the poverty threshold, and it does not reach more beneficiaries each year. Lawmakers and other key policymakers have presented proposals to adopt some methods to revise the special minimum benefit. They propose that the benefit may either be a part of the reform movement of Social Security or as a stand-alone policy option. Most of these new options would focus on indexing the benefit to wages, thus ensuring its sustainability into the future. However, these options have differences on how they interpret a “year of coverage,” the number of years of coverage required to qualify for such benefits increase and the amount of the full benefits increase. These choices would determine the eligible recipients and the sufficiency of their benefit (Research, Statistics and Policy Analysis., 2014).
The cost of Social Security services programs
According to Program Cost and Size (2000), the overall cost and size of the SSI or Supplemental Security Income program for the disabled and the Social Security disability program include only the costs of cash benefits of the programs. They exclude the administrative costs incurred in managing the programs. The costs for each of these programs have increased significantly over time in terms of nominal dollars, the real value of dollars (inflation-adjusted), and the percentage of GDP or gross domestic product. These programs have increased in terms of the number of recipients and beneficiaries out of the eligible population. However, these programs passed through a period of expansion and contraction. The most significant finding shows that the costs of Medicare health coverage for the disabled have increased more dramatically. Accordingly, an increase in Medicaid is faster than the cost of the cash benefits for the disability programs (Program Cost and Size, 2000).
1. Social Security Disability Cost - The total cost of cash benefits for the Social Security disability program has increased significantly since its creation. From 1990, the cost of disability has increased by 93 percent in real terms. The benefits costs of Social Security has grown rapidly in the 1970s and reached its peak in 1978. However, these costs have declined during the 1980s resulting from changes in the program administration. The reason is the reduction in the number of applications received and awards given. Moreover, the number of disabled-worker beneficiaries has also decreased. But in 1980s, the benefits costs had increased again, and they continued to rise in the following years. The biggest increase in cost is for the disabled-worker beneficiaries amounting to nearly $65 billion out of the total amount of $77 billion in 2003 (Program Cost and Size, 2000).
2. Average cost per beneficiary – Since 1970, the average cost per beneficiary has increased for the cash benefits of Social Security disability. However, the average costs were stable for disabled widows and widowers as well as disabled workers from the mid-1980s until lately. Therefore, the increased benefits costs are not attributed to the increasing number of beneficiaries. In 1972, legislation provided an automatic benefits adjustment for a yearly increase in the consumer price index starting in June 1975. This adjustment aimed at stabilizing the benefits, but the method used in the adjustment has caused overcompensation in inflation. The reason is that it did not achieve the factor that was expected in inflation-related wage increases (Program Cost and Size, 2000). From 1980s to 1990s, the average cost for disabled widow and widowers as well as disabled workers was stable, while the cost of benefits for disabled adult children has increased. This increase was attributed to the rise in the number of women insured for disability since women receive lower earnings than men. On the other hand, the cost per disabled adult children beneficiary has increased by 67 percent during that period. Accordingly, the cost for workers and widowers has started to increase since 2000. One reason for the increase is that the wage increase has exceeded the price increases during the late 1990s, resulting to higher real benefits.
Funding of the SSA
The funding of life and disability insurance protection program comes from the workers by making SS payroll tax contributions. In 2011, around 96 percent of workers aged 20 to 49 who are covered by Social Security have received life insurance protection. For a young worker having average earnings, with a spouse and two children, his/her Social Security protection policy has a face value of $476,000 (Policy Basics, 2012). All the money that SSA collects from taxes and other income go to the Social Security trust funds in the US Treasury. These two trust funds are the Old-Age and Survivors Insurance Trust Funds that handles payment of retirement and survivors benefits. On the other hand, the Disability Insurance Trust Fund handles payment of disability benefits. The only purpose for using these trust funds is to pay the benefits of SS members and to settle the program administrative costs. Under the law, these trust funds should be invested in special Treasury bonds guaranteed by the US Government. The trust funds receive corresponding market rate of interest for the bonds they hold. When they are needed to pay benefits or upon maturity, the Treasury redeems them (What are the Trust Funds, 2014).
The future of Social Security in the US
According to Policy Basics (2012), even up to 2033, Social Security can pay full benefits to its members without any changes. The most modest changes can make this program on a sound financial status up to 75 years and beyond that period. Financial experts have predicted that Social Security’s costs will increase in the coming years since people who belong to the big Baby Boom generation (born between 1946 and 1964) would reach their retirement years. However, Social Security is ready for this scenario because, from 1980, it has collected more money in taxes and some other income annually than the amount of benefits that it has paid out. Thus, it has reserved combined trust funds amounting to $2.7 trillion, which it invested in high-interest bearing Treasury securities. These trust funds will allow Social Security to pay full benefits to its retiring members even up to 2033 without making any changes in the program. One of its two funds, the DI or Disability Insurance trust fund is projected to face an exhaustion by 2016. But a much bigger fund – the Old-Age and Survivors Insurance trust fund can last up to 2035. Combining these two funds can last up to 2033 (Policy Basics, 2012). When the combined trust funds would be exhausted after 2033, SS can still pay ¾ of its scheduled benefits with the use of its annual tax revenue. However, some people are alarmed that SS may not be around in the future when today’s young workers have reached their retirement age. In answer to this claim, the long-term gap between the projected income and scheduled benefits of SS program is approximately one percent of GDP or gross domestic product over the next 75 years. This projection would increase to 1.5 percent of GDP by 2086 (Policy Basics, 2012).
Proposals of policymakers to improve the Social Security services
Regarding a wider and more effective Social Security plans, many policymakers have presented proposals to increase the benefits for older beneficiaries. According to Research, Statistics and Policy Analysis (2014), these proposals focus on the two policy options for beneficiaries aged 85 and older to take effect in 2030 with the use of the Modeling Income for the Near Term model. These options include the primary insurance of older beneficiaries amounting to a five percent increase. However, these policies differ in the calculation of the increase in benefits. Both of these proposals would increase the monthly benefits of older beneficiaries. Moreover, they would reduce the poverty levels for the aged individuals, in relation to the current scheduled benefits. But these options differ in the calculation of benefits increases for older beneficiaries (Research, Statistics and Policy Analysis., 2014).
Conclusion: In response to the thesis, the Social Security policies are effective in providing the needs of the beneficiaries as shown in this paper. Without Social Security, many people who are disabled and aged would suffer financial distress especially when disease strikes. These policies enable families and individuals to feel secure and bonded together despite the continuing economic crisis. They also allow the children of beneficiaries to grow healthy and financially secure. However, with the looming depletion of the Disability Insurance fund, policymakers should do something to address it focusing on the overall Social Security solvency. In case they cannot agree on a credible solvency package, they should reallocate the revenues gained from the two trust funds, which they have often applied in the past (Policy Basics., 2010).
References
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What are the Trust Funds? Social Security Administration. 2014.
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