The essential position of social insurance coverage within the US and insurance policies for reform

In 2021, The Hamilton Project took a deep dive into social security in the United States. Our keystone analysis shows that social security plays a crucial role for workers and families – both in times of crisis, such as the pandemic and the economic recession that followed, and in normal economic times. The social security system also helps buffer the economy when growth stagnates and supports consumer purchasing power when income growth is weak.

To help policymakers shift the focus from emergency aid to long-term economic recovery, we examine the role of social security and highlight policy proposals for reforms that would significantly and permanently improve the US social security system.

What is social security?

As the Hamilton Project defines, the social security system consists of a series of government programs that provide economic security in the short term or provide services to improve economic opportunities in the long term. The authors of the framework paper divide social insurance into five categories: (1) education and human resource development, (2) health insurance, (3) income support, (4) nutrition and (5) housing. In fiscal 2019, the federal government spent $ 2.7 trillion (about 13 percent of the country’s GDP) on social security programs. As can be seen in the figure below, the largest programs are income support – which includes social security – and health programs.

Social security programs are delivered to eligible recipients in a variety of ways, including cash (e.g. tax refund checks), vouchers, insurance, or the provision of a specific good or service (e.g. a box of groceries or a rental unit in a public housing estate). To learn more about how the government determines eligibility and provides program benefits for these programs, please read the framework paper here.

Social security has been shown to dramatically reduce poverty rates in the United States, especially among children and older adults. In 2019, social security programs cut the poverty rate in half – as measured by the anchored Supplemental Poverty Measure (SPM) – from 22 percent, before certain program benefits are counted, to 11 percent. However, inequality remains very high in the US, especially when compared to other advanced OECD countries. The United States is not only among the countries with the greatest inequality before tax and program benefits; it is also the country with the greatest inequality after considering these policies.

Suggestions for improving social security in the US

Over the past few years, The Hamilton Project has commissioned a number of innovative and pragmatic policy proposals to improve social security programs. Various proposals aim to strengthen the system in areas where it is weak or show worrying gaps, to improve the targeting of various types of support or to make the programs more efficient. Other proposals allow the system to reach the most vulnerable families and individuals both during economic downturns and more stable economic times. The Hamilton Project proposals also aim to make the system more responsive to increases in demand during a recession so that the system can better support both households and the economy during those times.

Personnel development and education

Despite the strong evidence of investment in early childhood education and the expansion of early childhood intervention programs over the past decade, these programs are still not widely available. Prior to the pandemic, only 36 percent of eligible children ages three to five and 11 percent of eligible children under three had access to Head Start or Early Head Start. A recent proposal by Elizabeth Davis and Aaron Sojourner, commissioned by the Hamilton Project, promotes strategies to expand access to quality, affordable early childhood and educational services by stimulating competition between eligible childcare providers. The proposal would cover the cost of local childcare providers to make them more affordable and accessible to low-income families.

Additionally, investing in workforce development can help retrain today’s workforce for the post-pandemic economy. A 2018 proposal by David Neumark would create a government-funded, location-based employment program that would enable local partnerships to provide subsidized jobs in underserved communities. Other suggestions include a piece by Richard Arum and Mitchell Stevens titled Twin Proposals for the Future of Learning, Opportunity and Work, and a paper by Harry Holzer outlining a more coherent and effective workforce development system in the United States.

health

The United States relies primarily on a mixed health care system, with most people covered by either public or employer-funded insurance, but millions are still left out and uninsured. The federal government operates four main health insurance programs – Medicare, Medicaid, CHIP, and premium tax credits (which lower the cost of insurance purchased through the Affordable Care Act health insurance marketplaces).

In a 2019 Hamilton Project proposal, Matthew Fiedler, Jason Furman, and Wilson Powell III show that Medicaid and CHIP could be improved by automatically increasing the federal share of Medicaid costs during an economic downturn to help states help relieve “financial shocks” associated with temporary spikes in enrollment. In addition, The Hamilton Project has published three proposals to expand paid leave, including a proposal from Tanya Byker and Elena Patel for 2021 entitled “A Proposal for a Government Paid Parental and Sick Leave Program.

social care

Income support programs serve to alleviate poverty and hardship and help people cope with developments such as old age, disability, job loss and raising children. These programs include Social Security, Unemployment Insurance, Child Tax Credit, Income Tax Credit, and Temporary Aid to Needy Families that provide assistance through direct cash payments, refundable tax credits, or tax breaks.

The pandemic and the economic recession that followed has highlighted the inadequacies of one program in particular: the UI system required dramatic federal action to effectively help millions of unemployed people. In a recent proposal for a Hamilton Project Policy, Arindrajit Dube puts forward a comprehensive plan to address many of the shortcomings in the unemployment insurance system through a revamped, fully federal UI system. A 2019 proposal by Gabriel Chodorow-Reich and John Coglianese also offers policy reforms to make the UI a more effective automatic stabilizer during economic downturns. also offers policy reforms to make the UI a more effective automatic stabilizer during economic downturns.

nutrition

The COVID-19 pandemic led to a sharp increase in households with food insecurity. However, with the temporary expansion of government nutrition programs such as SNAP, WIC, and child nutrition programs, resources have been made available to households and individuals to better support adequate and healthy nutrition during the recession. For example, the creation of a temporary new food aid program, the Electronic Power Transmission Pandemic Program, helped millions of families with children bring food to the table during the pandemic.

Because SNAP is among the most efficient programs at expanding rapidly and providing valuable benefits during economic downturns, proposals that would allow the program to expand further when the economic slowdown set in and continue to provide increased benefits for the duration of the downturn would be to offer the effectiveness of the program as an automatic stabilizer. A 2019 suggestion by Diane Schanzenbach and Hilary Hoynes shows ways to link SNAP benefits to automatic economic triggers during recessions. Other suggestions, including a 2013 article by Diane Schanzenbach and a 2016 paper by James Ziliak, would change the calculation of the Thrifty Food Plan, which the USDA uses to determine SNAP benefit levels, so that SNAP can better meet the nutritional needs of the participants.

protection

A number of housing assistance programs help make housing more affordable for tenants and homeowners, such as the Housing Choice Voucher program, which offers subsidies that reduce the cost of renting a unit of choice for a family, as well as social housing and project-based Section 8 assistance when renting. Funding for these programs is nowhere near enough to support low- to middle-income tenants, and access to these programs is limited, with long waiting lists in many areas. Only 25 percent of people whose incomes are low enough to qualify for government rent allowance receive such allowance.

In a recent proposal from the Hamilton Project, authors Robert Collinson, Ingrid Gould, and Ellen Benjamin Keys propose guidelines to strengthen the real estate safety net during recessions by adding automatic stabilizers to major government housing programs. This would help tenants and homeowners stay in their homes during the downturn and encourage the continued construction and renovation of affordable housing.

Conclusion

The social security system in the United States, put in place by federal, state, and local authorities, provides protection from what President Franklin Delano Roosevelt called the vicissitudes of life: disability, lost earnings in old age, layoffs, and other setbacks. The social security system also provides support to help people meet their basic needs and acquire the skills and services they need to enter and succeed in the job market. To learn more about the social security system and suggestions for improving it, read the full framework paper here.