Arthur J. Altmeyer
PERSISTENT PROBLEMS IN SOCIAL SECURITY
Chairman, Social Security Board
Before the Western and Mountain States Regional Conference of the American Public Welfare Association
September 14, 1944
It is always a pleasure to meet with State and local officials and to have the opportunity of discussing some of our mutual problems. In selecting the subject of "Persistent Problems in Social Security" I wanted to direct attention to problems that are not only timely, but that possess more than passing significance. It is true that the popular topic for discussion today is post-war readjustments. It is likewise true that in post-war readjustments social security will have an important part to play. However, many of us recognize that the "new" problems that may be expected to appear are really old and persistent problems. We have been confronted with these problems in the past and must face them in the long-time development of social security.
One need not remind an audience of public welfare officials that the misfortunes to which social security ministers are persistent risks, which continue, though in varying degree, in prosperity and in depression, in war and in peace. Sickness, death and the infirmities of age do not choose their incidence to fit any man-made order of events. In periods of high employment, such as the present, many aged persons and dependent children are still in need. Last year over $1 billion was expended on public assistance. Even today there are one million persons who are unemployed. And, as you could well testify, there is ample evidence that the substantial social security rolls are attributable, not to any slackening of individual effort, but rather to the persistent character of human needs arising out of the kind of world in which we live. Because social security deals with these permanent and ever-present types of needs, may I first direct our attention for a moment to the permanent, long-range objectives of the program--objectives which we must hold steadily in mind as we strive to solve the problems which a system of such far-reaching consequence inevitably evokes?
In these days money income determines much of man's welfare. A principal approach, therefore, to social security is the provision in time of misfortune of cash payments which partially replace the individual's income that has been interrupted or terminated. In the United States there are two means by which this type of social security is made available: social assistance and social insurance, each of which has a special but related function to perform. The late Oswald Stein, the world's greatest authority on social security at the time of his recent and tragic death, best characterized the true nature of these two systems. He said, in a report of the International Labour Office: "Social assistance is a progression from poor relief in the direction of social insurance, while social insurance is a progression from private insurance in the direction of social assistance." This statement suggests that there are areas of similarity and areas of distinction in the two programs. Let me briefly sketch in what respects it seems to me the present programs have like aims and in what respects their structure and methods differ.
Assistance and insurance are alike in that they seek to provide a minimum degree of economic security. In so doing both strive to remove uncertain and subjective tests of eligibility and to create certainty and objectivity. Both have endeavored to obtain improved methods of financing and thus to create confidence that benefits will be available when they are needed and both are continuously providing more nearly adequate payments to those who qualify for them.
The methods which each program employs complement one another and are both essential in order that protection may be well-rounded and able to meet all foreseeable contingencies that are common to mankind. At the moment in this country social assistance is playing the dominant role, since it must care for those cases where the wage earner was old or died before our social insurance program got under way. As social insurance develops and spreads its protection more widely, it is hoped that it will eventually--perhaps before another generation has passed--become the predominant program and will take care of the bulk of the problem, providing benefits for the great mass of the population. Such a development would not mean, however, that a system of social security can ever dispense with social assistance. Assistance would always be needed as a residual program for those who are not protected by social insurance because they cannot be feasiblely covered or because they become disqualified from social insurance benefits. Assistance would also be required to supplement social insurance benefits when they prove inadequate to meet special needs of individuals.
The two programs, similar in purpose but different in provisions which enable them to meet their respective obligations, show certain rather significant contrasts as they are constituted today. To illustrate, an applicant for social insurance benefits may qualify without regard to his other resources, whereas the applicant for social assistance will have his other resources taken into account. Associated with this difference is another: insurance benefits are provided on the presumption that most people, when they meet certain defined risks, will be in need of cash income, although it may happen that an individual beneficiary may not be. The applicant for social assistance on the other hand, must show actual need if he is to qualify for a grant.
The social insurance beneficiary, moreover, probably enjoys an advantage which is not ordinarily shared by the assistance recipient in that he has the psychologically satisfying feeling that he has paid for his own benefit and that his government is obligated to pay him this benefit. This is owing to the fact that social insurance makes special provision for financing benefit payments by means of contributions or taxes levied upon employers and, in most insurance programs, upon employees as well. While it is true that both types of payments--assistance grants and insurance benefits--are received as a matter of statutory right, the insurance beneficiary is likely, for this reason, to have a greater feeling of confidence about his right than the person who is receiving an assistance grant.
It follows from these contrasting characteristics that the two programs employ somewhat different procedures. In establishing an applicant's eligibility for benefits and the amount of his benefits, social insurance endeavors to employ objective and routinized tests: age, easily determinable family relationships, and the individual's wage record can be ascertained with a minimum of scrutiny of his personal affairs. However, social assistance, as presently conceived, even with the best of procedures, cannot avoid some examination of those factors that affect an individual's need and, therefore, the determination of his grant. For, as I pointed out a moment ago, it is not presumed need but the actual need of the individual assistance applicant which must be determined, and there is no other method by which this may be done except to inquire into whatever of his affairs are relevant to the problem.
And, finally, social insurance enhances the security of the wage earner who anticipates future benefits and of the person who is already entitled by assuring that funds for paying the benefits provided will be available through regular contributions and the creation of reserve funds. Social assistance must generally depend upon annual or biennial appropriations, whether out of general taxation or out of earmarked taxes which are not necessarily related to social assistance needs. This uncertain method of financing, intensified by the absence of reserve funds, puts the greatest strain on social assistance finances during periods of business depression when there is the greatest need for funds.
I have taken time to review these objectives and characteristics of our social security system, which are, of course, perfectly familiar to you, because I wanted to use this common understanding as to what the program now is for a platform from which to launch a discussion of what the program is in process of becoming. Certainly we are all likely to agree that the differences between social insurance and public assistance are being lessened, at least in degree. Look, in the first place, at social insurance. Modifications in the old-age insurance program which were provided in 1939 and which made it a program of old-age and survivors insurance, were designed to give better recognition to the presumptive needs of beneficiaries. The changes took into account the fact that old age beneficiaries with dependents need a higher proportion of former wages than those without dependents and that a surviving family has needs which are not measured by a lump-sum payment to the estate of the deceased wage earner, as was formerly the case. In thus providing dependents' benefits, social insurance places greater stress on adequacy of payments and less on the strictly actuarial equivalent in the individual case. The attention to need and adequacy which are such prominent features of the amendment has always been a basic characteristic of social assistance; its emphasis in insurance reveals one of the principles which the two programs are now sharing. Another similarity has likewise been evident since 1939; the changes in old-age and survivors insurance provided then have made it necessary to employ some administrative techniques developed by social assistance, such as those necessary to deal with guardianship, for example, or those involved in determining the extent of support by the wage earner.
If we look at social assistance, we discover evidence in many places that that program, on its side, is moving in the direction of social insurance. The simplicity and objectivity which characterize social insurance are being increasingly adapted to the purposes of social assistance. Let me point out a few straws in the wind. To pay benefits without regard to the resources of the individual is a fundamental characteristic of social insurance, as we have noted. But social assistance laws in the States are more and more providing for the conservation of certain resources or means of the applicant in the determination of his need. Therefore, insofar as his resources are exempted in determining the individual's need, the assistance program takes on one aspect of the insurance program. There has been, as you know, the general practice of exempting real or personal property below a stated amount and in recent years there has been a trend toward raising the exempted amount. There is an increasing tendency, either through law or by practice, not to take into account casual or unpredictable earnings, gifts from friends, or the production in the household of goods in kind. And there is an inclination to focus on the actual resources of the applicant including only contributions actually received from relatives rather than to undertake to compel relatives to contribute who are not doing so.
The procedures for investigating need are also becoming more standardized and objective. Even where relatives are required to give support, standards for determining their responsibility are becoming more objective, so that fewer relatives need be queried. Standard budgets that look toward defining a minimum scale of living are being developed, and thus there is less room for discretion or caprice on the part of the staff worker. Reinforcing this tendency to rule out subjective judgments is the statutory minimum of assistance which has made its appearance in two States. Under this provision no grant to an old-age assistance recipient can be less than the stated monthly minimum minus his income. Thus his total income cannot fall below the "floor" provided, although if his needs exceed that amount a higher grant may be allowed. The two States do not by law place a maximum on the payment.
The legal right of the social assistance recipient is being strengthened both by law and by public opinion. The statutory right to an appeal is the means by which this theoretical right is translated into protection in practice. Likewise the abandonment of poor law procedures is progressively removing the stigma from the receipt of the assistance payment. These tendencies certainly are removing some of the differences between social assistance and social insurance.
May I mention just one more evidence of increasing similarity? Greater financial stability for social assistance is being achieved in a number of States. Federal grants-in-aid, of course, have done their part. But within the States one discovers a greater stability in appropriations and a greater adequacy of them. One also observes measures for enlarging the tax base which supports social assistance.
To summarize these trends we may say that the social insurance program has been modified to give greater attention to presumptive needs and the social assistance program has at the same time been gaining in simplicity, objectivity, and adequacy. I do not wish to imply that those trends have been consciously directed with the principles of the other program always the goal. Merely this has happened: experience in adapting both programs to our economic and social organization has demonstrated that certain values in each actually have worth in both.
However, we should not lose sight of the fact that in a continental country like our own there are marked differences in principles, ideas and standards respecting social assistance, because it developed from the ancient institution of poor relief. The system which we have allows wide latitude among the States for development in conformity with diverse principles. The trends in some States, as I pointed out, have been in the direction of greater objectivity and simplification; in some States, however, a greater degree of individualization is being stressed. Change in different regions has not been uniform in degree nor even moving in the same direction. Nevertheless, the trends which have been cited are apparent in enough States to justify reference to them as significant movements, and to document the generalization of the International Labour Office which I quoted, namely that, "Social assistance is a progression from poor relief in the direction of social insurance, while social insurance is a progression from private insurance in the direction of social assistance."
In the changes which have been occurring in both programs one can perceive a striving for simplicity and a desire to meet minimum needs with unconditional payments. Since these modifications tend in some respects to bring the two programs of cash payments closer together, they have suggested to many observers drastic modifications, or at least queries which are fundamental and which reflect genuine public concern with the course of social security.
Putting it simply and bluntly, some people want to know why it would not be easier and preferable to abolish both existing programs--social insurance and social assistance--in favor of a unified system paying flat pensions without a needs test to all persons falling within defined categories, such as the aged, the young, the unemployed, the sick and disabled. That question is being asked by thoughtful, informed and socially-minded people. It deserves our earnest and thoughtful consideration, even though such an apparently simple question raises so many fundamental questions that we do not have a completely satisfactory answer--satisfactory to the questioner or to the questioned.
There is not much doubt that a unified system paying flat pensions without the requirement of a needs test would satisfy the criteria of simplicity, objectivity and unconditional payments. All persons who fulfilled certain eligibility requirements, such as age, physical condition, or family relationship, would receive identical payments. The financial situation of the recipient would not be examined and would have no bearing on his pension. If such a system could be established without creating new difficulties and without the loss of the values existing in the present systems all of us I am sure would certainly pray for its speedy inauguration. However, there are a number of considerations that must be kept in mind and a number of problems that must be solved in making such a change.
Most people who advocate a minimum flat payment would base it upon the cost of a reasonable minimum of subsistence. While such a concept is useful in orienting ourselves, it is a most difficult concept to apply in actual practice. The cost of living varies greatly not only as between geographical regions but also as between contiguous districts and as between city and urban communities. Even if agreement could be reached on what constitutes the actual cost of specified articles and services, there would be wide difference of opinion as to what articles and services should be included, since individual and community judgments of what constitutes a minimum of subsistence vary widely in accordance with what is considered to be a reasonable standard of living. Then, too, in a country such as ours where wage rates vary so widely as between occupations and communities serious anomalies might arise as between the income of a person working at prevailing wage rates and the income of a person receiving a flat benefit payment. We might agree that prevailing wage rates should yield at least the same amount as would be fixed as a reasonable national minimum of subsistence but the fact remains that they might not in many communities.
But, in any event, we would not have as a criterion for the determination of the amount of the flat payment the completely objective test of the actual wage loss es in the case of social insurance or the fairly objective test of actual need as in the case of social assistance. It is reasonable to suppose that the amount of the flat payment would be a resultant of heated political debate as to what constituted a reasonable minimum of subsistence. I am not arguing against political debate to give substance to an ethical concept such as minimum of subsistence, because I think it is an essential element in the democratic process. But I think it is desirable that political debate should proceed from a factual and objective basis.
In any event, it would be too much to expect that any system of flat payment would entirely eliminate the need for social insurance or social assistance. A uniform payment could not cover actual needs under all conceivable circumstances. Therefore, some system of social assistance would be necessary to cover needs of some individuals in every community and to cover the needs of a large proportion of recipients in high cost communities.
It is also true that wage rates vary widely in this country, with consequent variation in standards of living and in the amount of the wage loss sustained when work ceases. Therefore, some system of social insurance under which benefits would be related to past wages and present wage loss would probably still be necessary from a social and economic standpoint.
We should also bear in mind that in abandoning entirely social insurance as a method of coping with economic insecurity we would sacrifice the advantages of a system which not only automatically relates benefits to wage loss but also automatically protects benefit rights and automatically controls costs. This automatic relationship arises out of the fact that under social insurance a large proportion of benefits are financed by contributions based on the same pay roll which is used as a basis for determining benefit rights. This creates an inherently stable situation, since any proposal to raise benefits automatically requires consideration of the contributions necessary to support increased benefits and any proposal to reduce benefits would meet with opposition from the beneficiaries who would feel that their past contributions created vested rights.
I have already referred to the psychological satisfaction that social insurance beneficiaries enjoy arising out of the fact that they feel they have paid for their benefits and that the government will meet its obligation to pay them these benefits. It may be argued, and it has been argued, that under a system of flat payments financed out of general taxes the recipients have also paid for their benefits. The usual argument is that they have paid their share of general taxes and have made a contribution to the economic system which entitles them to this payment from their government as a matter of right. However, the fact remains that the relationship between the contribution and the benefit is not nearly so direct as in the case of contributory social insurance. Therefore, whether we like it or not, there is a psychological difference which arises out of the concepts underlying our entire social and economic organization.
But if we do not accept the thesis of those who urge the abolition of the present programs and the substitution of a unified system paying flat pensions without a needs test, we are under the obligation of suggesting ways and means of achieving simplicity, objectivity, certainty, and adequacy through improvement in the present programs. It behooves us as social security administrators to discharge that obligation.
We must frankly admit at the outset that the present programs are far from being perfect. So far as social insurance is concerned, both of the two existing programs of unemployment insurance and old-age and survivors insurance fail to provide protection to millions of workers whom it would be perfectly feasible to protect. They do not cover agricultural workers, domestic workers, or workers employed by non-profit organizations. In the case of unemployment insurance, workers employed in small establishments are also excluded from protection. The benefits payable to workers who are insured are far from being adequate. In the case of old-age and survivors insurance, surveys show that 9 percent of the primary beneficiaries were obliged to seek public or private assistance to supplement their inadequate social insurance benefits. In the ease of unemployment insurance, the average weekly benefit paid is only about one-third of the average weekly wage loss sustained and the duration of benefits is so short that even in a year such as 1941 fifty percent of the beneficiaries exhausted their benefit rights before they were able to find another jobs.
While there has been some improvement in the scale of benefits under the unemployment insurance system, that improvement has been more then offset by the increasingly drastic disqualification provisions that are being imposed. Everybody would of course agree that no person should receive unemployment insurance benefits if he unreasonably refused to accept suitable work. Everybody probably would also agree that there should be some penalty for a worker quitting his job without good cause. Every State provides disqualification provisions in cases where a worker refuses suitable work or voluntarily leaves his job without good cause; or is discharged for misconduct. In 24 States, the individuals' benefits are postponed, usually from one to six weeks depending upon the circumstances in the individual case. However, in 19 States an unemployed worker who quit his old job for perfectly good personal reasons and who is willing to accept suitable work is nevertheless disqualified from receiving benefits unless he can prove that his employer was at fault. Thus, a worker obliged to quit his job because of housing or transportation difficulties or because of family circumstances is disqualified from receiving benefits. Likewise, a person who quits one job to seek another job which more fully utilizes his skills is also disqualified from receiving benefits, even though he does so at the urging of his governments. What is even worse, in 27 States benefit rights are not only suspended, but canceled in whole or in part if a worker commits any of the acts which disqualify him. Thus, some employment insurance laws have taken on the aspect of a penal statute.
Aside from the limited coverage and inadequate benefits provided under our present social insurance systems, the greatest lack is failure to provide any protection whatsoever against non-industrial ill-health and permanent disability. Not only is no protection provided against wage loss but there is no provision for spreading the cost of adequate medical care.
Of course if we strengthened our social insurance system by extending coverage, providing more adequate benefits for the risks already covered, and providing protection against the cost of medical care and wage loss due to ill health, we would greatly lighten the load that social assistance must carry. But even so there are many changes that would need be made in our system of social assistance if it is to meet the criteria of simplicity, objectivity, certainty, and adequacy which I have already mentioned. Under social assistance we have made some progress in establishing the right of privacy, the right to cash assistance, and the right to a fair hearing. But we must admit that social assistance still carries much of the stigma and many of the practices which grew up under the poor laws.
We must admit that there is great inequality in the treatment of persons in similar circumstances not only as between different States but also as between different sections in the same State. We must also admit that we are far from meeting the acknowledged minimum needs of persons who are found to be eligible. While all of us have been aware that assistance payments have been inadequate in many instances, I don't think any of us realized the extent of the inadequacy. The studies conducted by the Social Security Board disclosed that in the 40 States studied in 1941-42, there were 11 States which met the determined need in only 30 percent or less of their cases. These studies also disclosed that the extent of the unmet need was far greater in the case of dependent children than in the case of the aged or the blind.
Just what can we do to remedy these admitted defects? Certainly there is one practice carried over from the old poor laws that ought to be abandoned--that is the practice of denying or reducing assistance to eligible individuals whose relatives fail to meet their responsibilities. Even though legal responsibility of relatives is retained, there is no justification for denying assistance to an eligible individual while the public authority is attempting to compel the relative to discharge his responsibility.
Federal grants related to the economic capacity of the States would do much to enable the States to meet the full needs of eligible individuals as determined by the State. However, unless within the State funds are made available to every locality in accordance with its need gross inequalities of treatment would still exist. Federal grants to the States to assist in meeting the needs of needy persons not falling within the present categories are also necessary. However, if the Federal government provides additional assistance to low income States and if the Federal government makes grants to the States to cover assistance rendered needy persons not falling within the present categories, restrictive residence and citizenship requirements should be eliminated.
Another way in which our present social assistance program should be improved would be to provide Federal matching for the cost of medical care to recipients which is not included in their cash grants but is paid for directly by the public agency. Likewise, the present maximum limitation on Federal matching in the individual case should either be eliminated in the various programs or at least be considerably raised in the case of dependent children.
I thinks that all of us here could probably agree upon most of the suggestions that I have made. All of these suggestions build upon the foundation that we have already laid. They are in accordance with principles and practices which are time-tested and world-tested. None of us would contend that their adoption would spell Utopia but I believe it is not too much to say that they would spell the elimination of human destitution and suffering throughout the length and breadth of this land.
What then, you may ask, are the prospects for their fulfillment? You can answer that question better than I. What our legislatures do in the field of social security, as in all other fields, depends upon what the people of this country want them to do. What the people of this country want their government to do is determined by whether they consider that government action is necessary and desirable. Of course people who believe that destitution, by and large, is due to personal inadequacy or dereliction are convinced that government action aggravates rather than relieves the problem. The attitude of such people at best is kindly toleration and at worst contempt for the poor. Abe Martin must have had such people in mind when he said, "It is not a crime to be poor, but it might just as well be." Some people feel that social security can be provided only at the expense of individual liberty. While it may be true that some who have security are not free, it certainly is also true that no person can be really free who does not have security.
Some people also believe that providing social security will destroy individual initiative and thrift. They fail to realize that all that is proposed is a bare minimum of subsistence upon which individuals will have every incentive to build for themselves a more desirable measure of comfort and well-being through the well-known devices of individual savings, private insurance, and home ownership. But some would argue that providing even this bare minimum destroys the incentive to provide for oneself--apparently the term "incentive" being a polite euphemism for fear of starvation. People who believe this really have very little faith in man as a spiritual being with an innate desire to develop himself to the utmost, to make his greatest contribution to the common good and thereby win the approval of his fellow men. Those who feel that social security destroys incentive are really saying that it is fear, not hope, that must be relied upon as the mainspring of human conduct. But I am sure that the people of this country will decide that social security based upon hope is a surer foundation for our democracy than fear, which is the basis of the totalitarianism now being wiped from the face of the earth.