Thursday, December 24, 2009

Do Social Security and Medicare "undermine" cohesive extended families?

Social conservatives sometimes make the argument that social welfare programs allow individual adults a “false sense of independence” and freedom from responsibility for other adult relatives, a part of life taken for granted until the time of the New Deal, at least.

Particularly, sometimes it is said that social security and Medicare free families from responsibility for their own aged. I found this argument in revisiting Jennifer Roback Morse’s “Love & Economics: Why It Takes a Family to Raise a Village”, a permutation of the title of a well known 90s book by Hillary Clinton. Morse was reviewed on the books blog here Sept. 25, 2008. The point came up again in reviewing Bruce Bartlett’s recent book on the failure of Reaganomics, reviewed yesterday on the books blog.

But are Social Security and Medicare really like “welfare”? Most middle class wage earners experience social security as a “forced savings annuity.” For people with enough covered employment (which is most employment), or legally married to people with enough covered employment, their social security benefits depend roughly on how much they made (up to the FICA-taxable limit) over their working lives. They can start social security earlier (age 62) but at some loss of monthly income (it’s rather steep actuarially) but still the concept is roughly like that of an annuity.

The problem is that the promises to recipients are outgunning the tax and revenue system to support them, and the trust fund mathematics seems to look worse every month. That’s compounded by the fact that people are living longer (drawing benefits longer, which works out badly for people who retired too early -- although there can be the option of paying SSA back and restarting at a higher benefit if you are going to “live longer”).

That’s why libertarians want to replace social security with a privatized (if quasi mandatory) pretax but privatized savings system, with some management to prevent overly risky investments. Theoretically, if everyone took care of themselves this way, government could get out, and adult children would not need to become involved with their parents either; everyone keeps their independence.

But one big problem is that social security originally started in the 1930s as like a “welfare” program for the aged. The original recipients had not contributed taxes, so there is a compounded cost in converting to a privatized system (like Chile) which itself has gotten rather large.

Medicare is, of course, in even more dire straits, but a lot of that is due to inefficiencies (in record keeping, and in unnecessary tests to avoid malpractice suits).

In fact, Medicare does not cover long term care (generally speaking). Seniors must use their own savings and then go on Medicaid or depend on adult children or family members. Up to 28 states have filial responsibility laws or “poor laws” allowing states to pursue adult children for long term care expenses of parents. These are rarely enforced (except in “lookback period” situations where parents gave away assets to kids)

One “problem” is that people are living much longer, without working much longer, and many families are smaller than they used to be. Medicine is able to prolong life, often with inexpensive medications, with good quality, but after 10 or 15 extra years of good quality (even prolonging employment and creativity) there may be a much longer period of disability than would have occurred in past generations, where people often died suddenly of life-threatening diseases while still in their 60s and 70s. Furthermore, at all ages, sophisticated life-extending medical treatments can be contemplated today (like organ or marrow transplants) only in environments where there are cohesive families that can make them work.

That’s why the “age of technology” is curiously leading us back to reconsider our “social contract” again.

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