For immediate release:
Tuesday, March 21, 2006
12:01 a.m. EDT

 

Contact:
Christopher Fleming
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cfleming@projecthope.org

Social Insurance Makes Markets Possible, Yale Scholars Say

Marmor and Mashaw Say That Many Proposed ‘Reforms’
Would Gut Social Insurance Function Of Medicare, Social Security

Bethesda, MD -- Medicare and Social Security embody a peculiarly American version of social insurance that is notably conservative and market-oriented, Theodore Marmor and Jerry Mashaw of Yale University assert in an article published today as a Health Affairs Web Exclusive. The article is accompanied by two Perspectives, one by Brookings Institution senior fellow Henry Aaron and the other by Thomas Saving, the director of the Private Enterprise Research Center at Texas A&M University.

Problem with current reform proposals. Marmor and Mashaw say that Medicare and Social Security should and do evolve, but they maintain that many current proposals to “reform” or “modernize” the entitlement programs would destroy their important social insurance function. Proponents style these reforms -- which “emphasize not protection against common economic risks in a changing world but individualized risk bearing” -- as conservative, while portraying Medicare and Social Security as liberal budget-busters. Marmor and Mashaw vigorously challenge these categorizations.

“Looked at historically, social insurance is a deeply conservative idea, the major viable alternative to state socialism,” the Yale authors say. “Social insurance is a precondition for the maintenance of market capitalism precisely because it tends to insure against risks” -- such as age, illness, accident, and involuntary unemployment -- “that the private insurance markets deal with poorly or not at all.”

The American version of social insurance in particular is “profoundly traditional” and “work-oriented,” say Marmor and Mashaw. In the United States, “universal” social insurance “has generally meant all workers or contributors, not all citizens or residents.” Thus, “for Americans, universal entitlement has always been a concept tied to, supported by, and supporting a market economy.”

Financial future of Medicare, Social Security. In addition, Marmor and Mashaw challenge the notion that Medicare and Social Security are unaffordable. “According to most informed commentators, Social Security’s fiscal future can be stabilized through quite moderate program adjustments,” they say, adding that “fearful projections of Medicare’s financial future reflect a problem of U.S. medicine, not a crisis caused by Medicare’s structure.” They point out that Medicare’s per capita spending growth rate has often lagged behind the growth rate for private-sector health care in the United States, and they observe that “in other developed countries, experience has repeatedly demonstrated the superior capacity of more-universal social insurance programs to restrain growth in overall health spending.”

Aaron seconds Marmor and Mashaw on the importance of preserving the social insurance provided by Social Security and Medicare. But he suggests that on the question of affordability, and in particular on the affordability of Medicare, they are “not wrong but misleading.” Even if Medicare’s design is not at fault, spending on the program is on pace to quadruple from 4.2 percent of gross domestic product (GDP) in 2005 to 16.1 percent in by 2040. If those “who believe that social insurance protections are vital and must be sustained don’t stop denying that an affordability problem exists and design ways to cope with it, those who are itching to scuttle social insurance will be more than pleased to save us the trouble,” Aaron warns.

Saving joins Aaron in arguing that entitlements as currently structured are unaffordable. He also asserts that “intergenerational social insurance is at best inefficient and at worst unworkable. Much of the current financial problems of Social Security and Medicare are the result of retired and older working cohorts pressuring Congress to give them benefits to be paid by a combination of current young and unborn generations, without regard to generational equity.”

That is why “Social Security reform is primarily about generations prepaying their retirement benefits,” Saving continues, adding that “it is conceivable that [generational] cohorts could prepay their retirement health insurance through premium payments throughout their lifetime.” Such prepayment “does not preclude social insurance and in fact provides the funds for such insurance.”

You can read the article by Marmor, a professor of public policy and management at the Yale School of Management and of political science at Yale University, and Mashaw, the Sterling Professor of Law and Management and a professor in Yale’s Institute of Social and Policy Studies, at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w114.
Aaron’s Perspective is at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w135,
and Saving’s Perspective is at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w138.

ABOUT HEALTH AFFAIRS:

Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.

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©2006 Project HOPE–The People-to-People Health Foundation, Inc.