Wednesday, February 23, 2005

Premium discussion on Social Security 

Doug and Flash are discussing Social Security. Flash says:
The best Insurance policy I have right now is the money withdrawn from FICA. There is a potential return of premiums. The premiums help support the security of our society. It is more then just a retirement account, it is what helps individuals dig out of awful situations. It helps provide for families when a parent dies prematurely. It assists in providing dignity to those faced with untimely dilemmas that they could not control.
In part he's right. There are four parts to Social Security, or which retirement is one. While Flash focuses on the I in FICA, I prefer to focus on OASDHI, which is "Old Age, Survivor, Disability and Health Insurance." That's the actual name of the Social Security Act as passed in 1965. It did start initially only as a retirement plan and not an insurance plan (to answer Doug's update), but back then it was known as OAI. The S, D, and H came in the fifties and sixties. (UPDATE: Scholar Dave points out the S came in 1939, two years after Helvering. While I'm looking this up, disability insurance was added in 1956, and Medicare in 1962.)

Now the H part is Medicare, which is not part of the current discussion, but the S and the D are parts for which Flash would be correct. A few weeks ago the WSJ (subscribers link) published an article which described how those parts come into play for several people. They constitute about 17% of Social Security payments. The 2% that would continue to be collected in Social Security under the Bush Administration's privatization plan would, in good part, have to continue to pay this amount. The remainder would be a safety net, means-tested (which I take it would please Doug.) So in some sense, the insurance that Flash is concerned about is untouched by the Bush plan.

One of the under-reported items in this debate is whether that is a good insurance policy. Flash thinks so, but doesn't compare it to the possibility of private alternatives. I haven't read enough about this point, and it seems to be something missed in the discussion.