GOP, Like Companies, Wants Workers to Carry the Safety Net
In an era when employers are retreating from the guaranteed benefits that once defined the American social safety net, should government accelerate or resist the trend?
That’s a critical question surrounding not only President Bush’s proposal to restructure Social Security but also Republican plans to rethink the way the nation provides healthcare to the elderly (through Medicare) and the poor (through Medicaid).
Across all these fronts, Bush and other Republicans are looking to limit government’s financial exposure and shift more of the risk for ensuring pension and healthcare security to workers and retirees in the name of increasing choice.
That’s exactly what employers have done for a generation, replacing plans that guaranteed workers a fixed monthly pension with systems that obligate employers to make only a monthly contribution to investment accounts workers manage themselves. On healthcare as well, employers are replacing programs that provided workers a defined benefit with alternatives that promise only a defined contribution.
Bush and other Republicans want to realign the public safety net along the same principles, while Democrats want to maintain, as much as possible, the defined benefits guaranteed by Social Security, Medicare and Medicaid. As the baby boom generation retires, this argument looms as one of the new century’s defining political struggles.
The revolution in private-sector benefits paints the backdrop for this political debate. In the age of global competition, employers are steadily eroding the cradle-to-grave promises of retirement and healthcare security that American business offered during its post-World War II zenith.
“The philosophical move going on is employers are increasingly limiting their obligations,” said Robert J. Blendon, professor of health policy and political analysis at Harvard University. “They are passing more of the costs onto individuals and letting them figure out how to deal with rising healthcare costs ... [or] rising inflation as they retire.”
The change has most affected pensions. Once employers were typically responsible for setting aside money to pay pension obligations. That burden has largely shifted to employees, who must navigate the financial markets to fund their retirements.
As recently as 1992, more workers were covered under defined benefit plans that promised a fixed monthly pension than plans that provided only a defined contribution to a worker’s retirement, such as a 401(k). Now nearly three times as many workers rely on defined contribution than defined benefit plans, according to the nonpartisan Employee Benefit Research Institute.
The same trends are affecting employer-provided healthcare. Retirees have felt the shift first. Just 13% of companies still provide health benefits for retirees. And more of those that do are capping the amount they pay for premiums, leaving retirees liable if the cost is greater, the benefit research institute has found.
Similar ideas are limiting employers’ contributions to health coverage for active workers. Fewer employers (especially small businesses) are offering it at all. Some restrict coverage to the worker, excluding family members. Others are more explicitly applying the defined contribution approach by promoting health savings accounts. Rather than purchasing conventional insurance, employers under that approach can contribute a fixed sum to an account workers use to pay most of their healthcare costs out of pocket.
These are the models conservatives want to adapt to the public safety net. Bush’s Social Security plan would leave most Americans more reliant on the returns from their private investment accounts than the program’s guaranteed benefits (which he proposes to reduce significantly from promised levels for all but the poor), according to calculations by Jason Furman, a former Clinton administration official. That would essentially transform Social Security from a defined benefit to a defined contribution plan.
Similarly, Bush has endorsed a plan that would ensure seniors a fixed sum of money to purchase health insurance, rather than the fixed menu of health benefits Medicare now guarantees. Republican Govs. Jeb Bush of Florida and Mark Sanford of South Carolina are likewise pushing to end guaranteed benefits under Medicaid and instead provide poor families a fixed sum to purchase healthcare. Bush is proposing tax credits to promote the move toward health savings accounts for workers.
These ideas raise distinct issues but present common philosophical choices. Like the parallel changes in the private sector, each GOP proposal compels individuals to bear more financial risk. In return, it offers them more choice (about how to invest their retirement money, for instance) and ownership (of assets like individual investment or health savings accounts).
Dallas Salisbury, the benefit research institute’s president, says workers like 401(k) plans largely because they consider them more tangible than the promise of a guaranteed pension that employers might later break. Over time, the same dynamic could help Republicans sell defined contribution systems for Social Security or Medicare to voters who fear government won’t provide the benefits it is promising.
Yet the public resistance to Bush’s Social Security plan suggests that for now, the loss of guaranteed benefits in the workplace has made Americans prize such guarantees from government even more. Bush is right that rising costs eventually will force government to scale back its healthcare and retirement promises. But the Social Security debate makes clear he hasn’t yet convinced the country that such a reexamination will require Washington to limit its own financial risk, as employers have already done, by transferring risk to workers and their families.
Ronald Brownstein’s column appears every Monday. See current and past columns on The Times’ website at www.latimes.com/brownstein.