“Hands off My Medicare”: The Deadly Legacy of Social Insurance

House and Senate Democrats hammering out the health care bills this week share the conviction that only those who pay into the insurance system are deserving of its benefits. This may be good politics, but it’s bad public policy. And, while appealing to moderates in both parties, it’s an assumption that’s going to doom health care reform.

This “social insurance” system is organized around regular contributions from wage earners. These contributions are then returned in the form of benefits (funeral expenses, pensions, unemployment insurance). It works, in other words, more like a toll road than a public right-of-way. The on-ramp to that toll road is a “covered job,” the point at which revenues are collected and benefits are disbursed.

Social insurance was embraced by American reformers early in the last century. At the time, the American state was ill-equipped, fiscally and constitutionally, to offer much more. And the “contributory” model was easy to reconcile with American ideals of self-help and small government. “The wage earner,” as one reformer argued, “has a more real basis for feeling that the benefits he receives are rights to which he as a citizen is entitled.”

The same notions were at the heart of the New Deal. “We put those payroll contributions in there so as to give the contributors a legal, moral, and political right to collect,” Franklin Roosevelt observed, “. . . with those taxes in there, no damn politician can ever scrap my Social Security program.”

FDR was right, but perhaps not in the way he intended. The social insurance idea opened a political chasm between two tracks of social policy. Those Social Security programs financed through contributions (such as the old age pension program), became untouchable. Their commitments were sacred. Their recipients were unequivocally deserving.

But those programs financed through general revenue were always vulnerable. Their budgets were uncertain. Their goals were questioned. And their recipients were suspect. Ronald Reagan’s “welfare queen” was condemned not because she defrauded the system, but because she did not contribute to it.

The social insurance idea is even more troublesome for health care. Before the 1940s, health insurance offered indemnity coverage, simply replacing the wages of those who were sick. Over time, health insurance began to cover the growing costs of medical care and hospitalization. As it did, the logic of social insurance collapsed.

Public health insurance would not and could not work like social security. Health care was an uncertain risk. This meant, as the American Medical Association and others argued tirelessly, that healthy contributors might see little return while the sick and the malingering claimed the lion’s share of benefits. Reformers clung to the political and fiscal appeal of social insurance. The passage of Medicare and Medicaid in 1965 replicated the split between contributory and general revenue programs. But they were pounding a square peg into a round hole.

In turn, it never made much sense to funnel family health coverage through job-based insurance. This burden was always resented by employers. Indeed job-based health plans were slow to add dependent coverage and quick to retreat. Premiums for family coverage have risen over 130 percent in the last decade, a rate three times the growth of wages. Although current health reform pays homage to the American system of job-based coverage, “covered workers” have been almost entirely displaced by “consumers” and “individuals.”

So where does this leave us? In the current debate, the social insurance ideal is so triumphant that any hint of general benefits based on general revenues (public education anyone?) is a nonstarter. Instead, we get a bewildering patchwork of job-based coverage, mandated private insurance, and maybe expansion of public programs. In each case, one’s right to coverage is intrinsically linked to one’s contributions.

The final irony, of course, is the peculiar conviction that contributory government plans are not run by the government at all. Town hall protesters (and nearly 40 percent of Americans in a recent poll) have urged reformers to “keep your government hands off my Medicare.” This says something about the cynicism of reform’s opponents. But it says much more about our longstanding and debilitating fascination with social insurance.

Defense of this idea has generated flashpoints of debate in both bills (the storm and fury over the public option, the “keep what you have” sanctity of private coverage) and the important differences between them. Social benefits rest not on the basis of need, nor on general rights and obligations of citizenship. They remain — as reformers in the last century liked to put it — an “earned right.”

As long as this is the case, health reform will be dead on arrival. The current bills do little more than prop up job-based social insurance, or mop up around its edges. The proposed patchwork of mandates, regulations, and subsidies do nothing to address the administrative waste, actuarial complexity and naked profiteering that created the health care crisis in the first place.

Colin Gordon

Colin Gordon is professor and chair of history at the University of Iowa and a writer for the History News Service. He is the author of “Dead on Arrival: The Politics of Health Care in Twentieth-Century America.”

Republished with permission from the History News Service.


  1. says

    Yes, government-paid benefits that are presented (or masqueraded) as the results of one’s own contributions do acquire (even for Republicans) a sanctity and rightness that other benefits do not. Interestingly, the Social Security system itself exploits this fact to quietly provide disability benefits (as well as pension benefits) which in many cases obviously could not possibly be pre-covered by the person’s own contributions. Maybe let’s live with that. Even an indulgent and sometimes overly game-able philosophy of societal operation – ‘from each according to ability, to each according to need’ – calls for at least a nominal ‘from’ as well as ‘to’.

    The writer concludes: “The proposed patchwork of mandates, regulations, and subsidies do nothing to address the administrative waste, actuarial complexity and naked profiteering that created the health care crisis in the first place.”

    I agree with the statement ‘do nothing’, but not with the judgment that it was ‘administrative waste, actuarial complexity and naked profiteering’ that primarily ‘created’ the ‘health care’ ‘crisis’.

    Yes, for me personally, what most galls in my otherwise quite good med insurance coverage is precisely what the author notes, the ‘administrative waste and actuarial complexity’ – and all the ‘naked’ or covered profiteering that is enabled by schedules and schemes of crazily inflated for-the-record prices and then discounts.

    However, all these things are about insurance, not sick care, let alone ‘health’ or its ‘care’. Yes, there are big problems (‘crises’?) involving health or anyhow sick care, but they transcend mere insurance.

    For ordinary people, the ‘crisis’ is that too many of us get or stay needlessly sick or untreated. Out-of-pocket expense (not pre-covered by insurance) is a big deterrent to better behaviors and outcomes, but is not the only one.

    Sure, regardless of cause, big expenses are always a problem. In arenas other than medicine, insurance focuses on the real problem – occasions of catastrophically high expense. That was its original function, and that’s all there was in medical services insurance too when I first entered the professional work force 40 years ago. But meanwhile, what used to be routine pay-after-service medicine has since been craftily bundled into comprehensive pre-payment plans called ‘health insurance': a clever but dishonest way to make problems of health and sickness look primarily like a problem of insurance.

    Meanwhile, for hospitals and other treatment facilities, the ‘crisis’ is that there are too few first-stage and affordable facilities (walk-in clinics) and for this reason, or simply from unapropos attitude, people are instead going as a first resort to overly potent and expensive late-stage facilities (ERs).

    With or without the device of more insurance coverage, we will not have more affordable medicine without change in priority and attitude: so that more low-key first-stage clinics are staffed, and people get used to going there first and often.

    Attitude problems moreover cannot be solved any too readily when many of the most at-risk are in fact ‘los invisibles’ – the people many of us want to pretend aren’t really here, and who in turn don’t want to be too visible themselves to anyone identified as, or representing, any kind of government official.

  2. harry says

    This is well written. The oldest health care system actually run by the government is the IHS, founded in 1954 after years of bad treatment by the “indian agents” who were providing care to Native Americans as required by treaty. Now this is really a right, it is required by treaty between Indian governments and the US government. My fear is simple, if our government can not live up to their treaty obligations how can I trust them to live up to those for me.

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