Market Steamroller
Bush & Wall Street are about to turn a phony Social Security crisis into a real one.
Part one, the tax cut, has already been accomplished. The combo of the $1.3 trillion tax cut and a lagging economy are shrinking federal surpluses available for both Social Security and Medicare. According to a report issued by the consumer health organization Families USA, the President's proposed budget would divert $526 billion over the next 10 years out of the Medicare Trust Fund, and those funds would become available to the government's general fund. Additionally, because of this diversion, Families USA estimates the Trust Fund would lose approximately $172.5 billion in interest payments over the same period as the Trust Fund's reserves are depleted. All this has led Families USA to call Bush's plan “Medicare Euthanasia.”
Not all agree that the funds are gone but Kent Conrad (D-N.D.) and the top Democrat on the House Budget Committee, Rep. John Spratt of South Carolina, say the recently enacted tax cut and Republican spending plans would erode the Social Security and Medicare trust funds by up to $5 billion in 2003 and 2004.
Part Two, the partial privatizing of Social Security is now underway. The stock market may be bouncing but that hasn't thwarted Bush's effort to remake the Social Security system to allow individuals to invest in stocks and bonds. According to news accounts, he has directed his hand-selected commission to report back to him in the fall “with specific plans for creating personal investment accounts within the government retirement program.”
The marketization steamroller is gearing up. Conservatives have primed the Cato Institute and other think tanks to pump out Social Security crisis papers based on the “free-market” utopia Bush and his Wall Street supporters propose. The Concord Coalition and the Third Millenium have been bashing Social Security for some years now. Most recently, a new group, the Coalition for American Financial Security plans to raise funds “in the $100,000 and $250,000s” from insurance companies, mutual fund firms and financial services. (Washington Post, 6/17/01)
As Dean Baker and Marc Weisbrot eloquently explained in their book “Social Security: The Phony Crisis,” all the brouhaha is to provide the moral and intellectual basis for weakening, then destroying a public system that has actually worked to reduce poverty amongst the elderly and disabled members of our society.
The White House, Congress, the media, and general public tends to see Social Security predominantly in terms of retirement, but roughly one-third of all beneficiaries are non-retirees -- they receive benefits as Survivors (SI) or through Disability Insurance (SSDI). A study by the Government Accounting Office on the Bush plan already has concluded that “even under the best of circumstances, Social Security reform proposals would reduce benefits” for disabled people. For a worker with average earnings who first receives disability benefits at the age of 45, the report said, the reduction in lifetime benefits would be in the range of 4% - 18%. The average benefit for disabled workers is now $786 a month.
OK I've complained about the fact that Social Security disability benefits are miserably low -- seemingly inexcusable in a nation as rich as the US but an outcome of class relations:
“the inadequate safety net is a product of the owning class' fear of losing control of the means of production; the American work ethic is a mechanism of social control that ensures capitalists a reliable work force for making profits. If workers were provided with a social safety net that adequately protected them through unemployment, sickness, disability, and old age, labour would gain a stronger position from which to negotiate their conditions of employment. American business retains its power over the working-class through a fear of destitution that would be weakened if the safety net were to actually become safe.” (Russell, Beyond Ramps)
But the current Social Security formula is better than what the Bush plan would usher in. The GAO report said that “income from the individual accounts was not sufficient to compensate for the decline in the insurance benefits that disabled beneficiaries would receive” under the major reform proposals.
This is because disabled persons typically have shorter work histories and would have less time to accumulate money in their accounts.
Private investment of Social Security dollars may work for someone who has a solid and steady income for 40-plus years (provided the market doesn't go south -- there are LONG periods when the stock market does not increase at all or actually declines, then there are individual bad investments), but what happens to people who enter the Social Security rolls earlier in life due to disability? Limited personal investments based on a truncated work history will be inadequate to cover living expenses for the rest of one's life.
Social Security disability is broad and inclusive because it is a universalized approach which is not a part of the commodities market. Not being market-based, it does not have the draw backs of private insurance which sells disability policies as a “product” and must make a profit from the sale. The insurance industry first studies data and calculates rates that will assure profits. It is not a generous process, it is not a just process, rather it is a capitalist game where the "winners" are the companies which get the highest returns possible. A disabled person can pay an extremely high price for minimum or limited coverage which still may subjected to a challenge by the insurer upon making a claim.
Not that there are not procedural problems with the administration of Social Security disability, but a worker's FICA tax, by contrast, buys not only retirement benefits but disability benefits and survivor's benefits if the worker dies leaving dependents.
As attorney Harriet Johnson explains “The comparisons of private investment to Social Security leave these other benefits out of the equation. While we might do better investing our FICA tax privately so far as age-65 retirement is concerned, when we factor in disability and survivor coverage, there is nothing in the private market for anyone -- at any age, any level of health -- to get the level of income protection they get from Social Security for what they pay in FICA.”
During the 20s-40s, insurance companies experimented with offering disability benefits and failed miserably. Edward Berkowitz illustrates how private insurers tried to squeeze profits from disability insurance in his Twentieth Century Fund study, Disabled Policy:
“They [insurance companies] tightened the definition of disability, lengthened the waiting period before a disabled person could begin to receive benefits, refused to sell policies to women, and restricted benefits to those who became disabled under the age of fifty-five. In other words, they offered limited protection and attempted to take only the very best risks. Even so, they lost money.”
In New York, New Jersey, Puerto Rico and Rhode Island, workers are covered by private disability insurance through their employers, who are required by law to provide *temporary* coverage. Employers in many other states voluntarily provide disability; to some extent, it takes pressure off them to continue extended sick pay. The period of disability covered by an employer's policy, however, may be as short as a month or two. Some employers, and many other groups, offer participation in supplemental disability plans, which can also be purchased on an individual basis. The three main types of supplemental disability insurance products are:
Noncancellable, which continues to protect you as long as you continue to pay premiums; benefits may increase with income;
Guaranteed renewable, which only guarantees the availability of coverage but not the premium amount; and
Optionally renewable, which is analogous to term insurance in the sense that each year you and the insurer consider a new contract with new terms.
Almost all plans are premised on one having a certain amount of savings tucked away for a rainy day. They are expensive to buy and can prove hard to collect on a claim. Insurers, in general have relied on shifting costs of permanent disability onto the Social Security system rather than taking the responsibility for providing guaranteed universal disability coverage.
Private insurance corporations also play underwriting games with the disabled population in the medical and life insurance insurance arenas. Disabled persons bear the brunt of a discriminating private insurance market which may sell them something but often sells them an inferior policy to what nondisabled persons can buy. Insurers may limit benefits, restrict the coverage. The insurers can cap policies so disabled persons may be sold an inferior bill of goods, a limited selection of a product to assure corporate profits. Insurers, for example, can discriminate against people with AIDS by refusing to pay for them the same expenses it would pay if they did not have AIDS. (Doe v. Mutual of Omaha Insurance Co., 7th Circuit Court)
Or insurers may rake disabled policy holders over the coals when it comes to what they charge - offering coverage at a higher-than-standard premium (a “surcharge” or “rate-up”) In the case of Howard Chabner, a lawyer who uses a wheelchair, United of Omaha Life Insurance Co charged nearly double the standard life insurance premium. Chabner and his attorneys asked the Ninth U.S. Circuit Court of Appeals to rule that charging a disabled man an arbitrarily high life insurance premium violates federal and state laws on equal access to public accommodations under the ADA.
The insurance corporations, however, complained bitterly. United of Omaha's brief warned that a ruling for Chabner would open the
floodgates: “If the ADA is found to apply to the underwriting and content of insurance policies -- and not merely access to an insurance office -- it will effectively mean that the goods and services of every business in America will be scrutinized under the ADA.”
The Circuit Court found that United discriminated against Chabner by charging him a life insurance premium twice the amount charged to a non-disabled man because it did not rely on experience or upon data when determining the premium to charge Chabner; United based its determination solely on his disability (state law did regulate the sale of insurance and that a similar defense was required by the insurer, who did not meet the defense and so was still liable for gauging Chabner). But the court ruled that the ADA does *not* regulate insurance practices. If United were to come up with sound actuarial data, theoretically it could charge a disabled person more and this would not be discrimination.
What does that do for disabled persons whose disabilities could be a basis for such underwriting formulas -- like many of those now surviving on Social Security, for instance? Insurance corporations can still find ways to eliminate the disabled population from the insurance pool by making the terms unaffordable or insufficient to meet one's needs..
Public disability benefits were set up in the late 1950s in large measure to correct these “market failures”, to provide a safety net that capitalism did not permit and does not permit to this day for the disabled population.
Creating a “new investor class” as the Bush minions put it by taking the money out of the Social Security funds will deplete what is available for disability benefits. Privatization will reduce the revenue going into the Trust Fund from the entire population making it much more difficult to maintain benefits to disabled persons and survivors over the long haul as more people opt out of the system.
Public disability benefits will deteriorate. Disabled persons on these programs, already perched on the edge of survival, cannot afford to have their checks shrink. The market steamroller is pressing the phony crisis into impending one.
Marta Russell can be reached at ap888@lafn.org
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