Abstract
Until 1935, workers’ compensation was the only major social insurance program in the United States. Individual states had public assistance programs that provided income for some older persons, widowed mothers, and the blind, but the eligibility requirements were severe. The demand for federal assistance in these areas increased during the Great Depression of the 1930s. Work relief programs were established beginning in 1933, most notably the Civilian Conservation Corps (young men on conservation projects), and the Works Progress Administration. In 1935, the Social Security Act was passed which established: 1) the federal/state system of unemployment insurance benefits discussed in the last chapter, 2) need-based income assistance for families with dependent children, the aged and the blind, 3) federal grants for child and maternal health and child welfare services, and 4) oldage insurance. In 1939, survivor’s benefits were added, disability insurance benefits (discussed in chapter 10) were added in 1956, and hospital insurance (Plan A of Medicare) and supplementary medical insurance (Plan B of Medicare) were added in 1965.
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Notes to Chapter 10
These are the rates effective in the year 2,000. In 1999, the breakdown of payroll taxes was slightly different: 5.35 percent for OASI,. 85 percent for SSDI, and 1.45 percent for HI.
These data come from various tables in the 1997 Annual Statistical Supplement to the Social Security Bulletin: see especially Tables 4.B1 and 4.B11 and 2.A3.
In periods of high inflation and relatively low wage growth, the trust funds may increase proportionately with wage growth if the trust funds are relatively low.
So if a worker’s AIME is updated and recomputed to account for earnings after age 62 (the first year of eligibility, though the worker chooses not to retire until age 65), the benefit formula in effect in the index year is used to calculate the PIA but then the PIA is adjusted for inflation from the index year forward to the current year.
Indeed of the 67 percent of the males retiring before age 65, three quarters of them, or 50 percent of all males, retire at age 62. For females, the movement to early retirement is even stronger, of the 73 percent of the females retiring before age 65, almost 80 percent of them, or 57 percent of all females, retire at age 62 (Table 6B5, 1997 Annual Statistical Supplement to the Social Security Statistical Bulletin).
The figures in Table 10.3 are adapted from Table 6.A3 of the 1997 Annual Statistical Supplement to the Social Security Bulletin. The shift towards early retirement is even greater in many European nations where the implicit tax from continuing to work is often very high: pension values often do not increase with work past the early retirement age, but frequently older workers can readily collect disability and unemployment benefits without being subject to the time limits and work search requirements required of younger workers. Workers tend to retire soonest where the combined effects of pensions and other benefits give them the greatest incentive to do so (see the Economist, “Growing Old Extravagantly, ”June 20th, 1998, p. 92).
The family maximum for those whose first year of eligibility is in 1997 is calculated as: 150% of the first $581 PIA, 272% of the next $258 of PIA, plus 134% of the next $255, plus 175% of the PIA over $1094. see Table 2.A13, 1997 Annual Statistical Supplement to the Social Security Bulletin.
For each hour worked, the claimant forgoes $3.33 in benefits. So the number of hours pass the exempt amount that exhaust benefits, X, satisfies the following equation: X × $3.33 = $9,990. Hence, X=3,000 hours. Therefore, the breakeven point in terms of hours of work is 3,000 hours pass the exempt hours, 1,550 hours. 1550 hours + 3,000 hours = 4,550 hours.
Those enrolling late would include all those initially refusing to enroll when they became eligible for Part A benefits, and those over 65 years of age who did not qualify for HI benefits for some reason.
Wall Street Journal, “Off the Chart: Another Vaunted cure for Medicare Yields a Gloomy Prognosis, ”Wednesday, December 30, 1998. For an earlier, and much more healthier prognosis for managed care, see Wall Street Journal, “Managed Eldercare. HMOs Are Signing Up New Class of Member: The Group in Medicare, ”April 27, 1995. The problem with many plans is that far more severely ill people signed up than expected. In some cases, managed health care groups were so anxious to expand their population that they recruited elderly patients from doctors’ waiting rooms—an almost certain means by which to assure an adversely selected population.
The earnings test described above further reduces the attraction of the defined benefit nature of current Social Security benefits relative to the privately funded, individual retirement account benefits.
The following discussion relies heavily on Gramlich (1996), and National Academy of Social Insurance (1998).
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Butler, R.J. (1999). Social Security: Retirement, Medicare, and Survivor Benefits. In: The Economics of Social Insurance and Employee Benefits. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-4927-7_10
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