The Rich Don’t Need Social Insurance

The Rich Don’t Need Social Insurance

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It’s time for Americans to rethink the purpose and the design of social insurance. Warren Buffet doesn’t need a monthly Social Security check or 75 percent of his prescriptions paid for by Medicare. We should strengthen these programs so they give real security for seniors who encounter hard times and sickness, but phase out checks and subsidies for upper income seniors.

In this vision of social insurance, the payroll tax would be an insurance premium to assure retirement security, and not a legal right to a stream of retirement benefits.

A couple of years I appeared on a panel in Columbus, Ohio about this fiscal issue. We’d shown the audience of roughly 400 mostly modest earning Americans the dire picture and what the staggering debt burden meant to their children and grandchildren.

Then one of the panelists – former Senator John Glenn – brought this concept to the fore. Maybe Social Security and Medicare should no longer be traditional social insurance, he said, where every senior gets a monthly check and federally financed health care, whether they actually need it or not. Given the dire fiscal situation, maybe these programs should be turned into “real” insurance, available only to those Americans who actually need financial help to enjoy a decent retirement. After all, he added, you pay into homeowners or car insurance or unemployment insurance but you don’t collect unless something dire happens.

I imagined 400 Ohioans rising en masse to voice their anger. But it didn’t happen. Instead they asked questions, and kept an open mind.

I advanced a version of this idea in 2008 with Maya MacGuineas of the New America Foundation. We argued that for most Americans, private saving and purchased insurance should take the place of part of Social Security and Medicare. We proposed that the programs be downsized and refocused to guarantee a much stronger safety net and that the value of the benefits should be adjusted according to income.

Given the deteriorating long-term picture, I now believe Social Security benefits should be phased out completely for upper-income seniors, and that they should pay the full insurance cost of Medicare benefits. The case is especially compelling for the heavily subsidized and voluntary Parts B and D of Medicare, which are financed out of general revenue, not by payroll taxes during working years.

As the President’s debt commission and the Rivlin-Domenici commission reports both have shown, we can only deal with the fiscal problem by reexamining the fundamental scope and purpose of government functions. The first place to start is with the social insurance programs that are driving the looming spending tsunami.

Stuart M. Butler heads the Center for Policy and Innovation at The Heritage Foundation.

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