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Hearing of House Committee on the Budget House of Representatives - Social Security: Defining the Problem

Location: Washington, DC


February 9, 2005


Mr. Cooper. Thank you, Mr. Chairman.

Mr. Secretary, on page 149 of the December 2001 Presidential Commission on Social Security Reform, they talk about the disability program under Social Security. Many of the comments of my colleagues have talked about the retirement program for Social Security.

Secretary Snow. Right.

Mr. Cooper. But it is well-known, or should be to everyone, that Social Security really has three benefits: The retirement plan, the survivors benefit, and the disability benefit.

Now this commission in 2001 did a lot of great work. But I believe this is accurate to say that, regarding disability, they were unable to come to a conclusion. They said, in fact, that the benefit was a little bit too complicated for them to deal with.

So I would like to ask you today, since the administration is planning on changing one of its most popular and successful programs in American history, I would like to ask you about that disability element.

If a young person or middle-aged person or older person wanted to go out on the marketplace today, could they buy a benefit, a disability benefit, like the one in Social Security? Could they buy such a benefit from a private company? If so, what would the premium be?

Secretary Snow. I think disability benefits are available in the open market. It would depend an awful lot on whether you are a violin player, a major league baseball player or you are climbing trees or working off 100-story buildings in New York City.

So it is a little hard to answer the question in the abstract without knowing the details of the individual.

Mr. Cooper. Well, let me get more specific.

Since you are part of an administration proposing this fundamental change for all Americans, what is the valuation you would put today on the benefit that is available under Social Security disability? What is that worth actuarially?

Secretary Snow. We will see if we have a number. I have not seen the actuary's valuation of the disability benefits implicit in the Social Security system.

But what the President has said--and maybe this cuts to the chase--what the President has said is, he wants to sustain, protect, secure, make safe the disability benefits.

Mr. Cooper. But all the estimates that we have seen involve out-year cuts and benefits, not sustain those benefits, so I think it is crucial for the administration, if they want to change the system, to know the value of what they are changing. It is my understanding--and I do not have the power that a Secretary of the Treasury does--it is my understanding that a disability benefit of this type is unavailable from any commercial source in the world today.

Now, perhaps I am mistaken in that, and perhaps you can find a seller of disability insurance that is as good or better than Social Security is. I would love to have that information. So if you could supply that.

Secretary Snow. We will. I will check on that, and I will check on the actuary's rendering of the valuation of disabilities as well.

Mr. Cooper. But let me express some concern about your preliminary answer though. You said, if you were to buy a disability today, it might depend on if you were a violinist, had some other job or worked on 100-story buildings.

But one of the great benefits of Social Security is it does not matter what your job is as long as you pay into the system. It protects everybody equally.

Because it is hard to predict, especially in this modern life, what career you are going to have. It is certainly hard to predict your health situation. You were unable to attend a meeting last week because of your health, and that was unexpected.

So the value of that disability benefit has to be valued before the administration takes liberties with it.

Let me ask another question.

Secretary Snow. I agree with you. Disability is an important, critically important part of Social Security, and we want to sustain the benefits of Social Security.

Mr. Cooper. I see your brain trust behind you. Do any of them have any idea what the current value of the disability is?

Brain trust?

Chairman Nussle. Well, this is--the gentleman will suspend. The Secretary has been asked to testify. If he would like to refer to them for an answer, otherwise he has offered to give you that answer in the future.

So we will conduct the hearing here.

Thank you.

Mr. Cooper is recognized for the balance of his time.

Mr. Cooper. Thank you, Mr. Chairman.

Another fundamental area to ask. It is one thing to take the existing Social Security pie and reslice that, and some folks may advocate partial privatization of the system. Others may not.

But basically, you are just reslicing the same pie. What is the administration proposing to actually grow the pie to increase the amount of money that average Americans are able to save every year? Today, we have many wonderful ways of doing that--IRAs; 401(k)s; SEPs; other good savings programs; but many Americans are not fully utilizing those savings vehicles. What can we do to grow the savings rate in this country?

Secretary Snow. Probably the single most important thing you can do to grow the savings rate in this country and thus help people have secureretirements is to adopt the President's personal savings account as a part of fixing Social Security.

Mr. Cooper. Mr. Secretary.

Secretary Snow. That is real savings, that is genuine savings.

Mr. Cooper. No.

Mr. Secretary, under the President's proposal he would take up to 4 percent of what is being paid into the current system. He is not suggesting a plan that would really boost savings and additional vehicles on top of the amount that would be allocated to Social Security. He is just talking about reshuffling that.

Secretary Snow. In fact he is, Congressman, in fact, in the budget, you will see a section on lifetime savings accounts, retirement savings accounts, employer savings accounts for employees. No, we recognize--as I responded earlier in--on the current account question--we need to encourage more savings in the United States. The budget reflects the need to do that. But I would say that, in addition to all the things in the budget, the personal retirement accounts that the President is proposing are one other important way, because people will then, say, accumulate, accumulate a nest egg through power of compounding, have more at the end than they otherwise would have; by far, earn rates of return far higher than they could
secure under the Social Security system.

Mr. Cooper. You say that as if it were a guarantee.


Mr. Cooper. Thank you, Mr. Chairman.

I apologize, I had a simultaneous hearing with Armed Services.

First, I think Republicans and Democrats would both agree that four of President Bush's primary initiatives, probably four initiatives that he will be judged by history on, would be the Iraq war, tax-cut permanency, Social Security reform, and the Medicare drug bill.

My chief of staff, Greg Hinote, thought this up. What do those completely different major initiatives have in common? The answer is, sadly, maybe tragically, none of those is accurately reflected in the President's budget.

We learned today that the Medicare drug bill was seriously underestimated. Social Security reform is completely ignored in the budget. The Iraq war is not funded beyond September 30th of this year. And for tax-cut permanency, apparently they are thinking about changing the budget rules, so the cost of that scored a zero.

Mr. Holtz-Eakin. If I could, I would like to point out that Mr. Spratt and Chairman Nussle were given a copy of the testimony we wrote to Chairman Thomas of the Ways and Means Committee today about this question of whether the Medicare drug bill is, in fact, more expensive than originally estimated.

The answer to the question basically is no. I think that if one did an apples-to-apples comparison over the same budget windows, with the same components, we would estimate that it is about $6 billion more expensive than we anticipated. I don't think that the CMS estimates are radically different from that.

So I think for the record it is important to recognize that there has not been a lot of clarity about these cost estimates from the beginning, but it doesn't look like the bill is any more expensive at the beginning than it was at the outset.

Mr. Cooper. Even if we concede that point, three out of the four President's major initiatives are met, representing the budget, which almost makes a travesty of the operations of this committee. You know, we can talk about whether we are seeing 150 programs the President promises to cut and things like that; that is the small potatoes.

The big stuff, none of it is accurately represented in the budget, with the possible exception of the Medicare amendment. On Medicare, did you anticipate that Medicare was going to cover Viagra and other things like that in their medical benefits package? That was just in the news a week or two ago.

Mr. Holtz-Eakin. Well, in our review of Medicare, to date we haven't changed our estimate very much. The most important, even in the young life of the MMA, is the issue of the final regulations. We are reading through the thousands of pages to see if the implementation matches what we envisioned when we did the cost estimate. The answer to that question will arrive with our estimate of the President's budget in March.

Mr. Cooper. Different line of questioning. I asked Secretary Snow if he had a valuation for the disability component of Social Security benefits. He did not give me an answer; said he would try to supply one. Do you have a valuation for the disability component of Social Security benefits or the survivorship death benefit component of Social Security benefits? What would that be?

Mr. Holtz-Eakin. Our analysis includes all three components of the program. It includes the dollar values. I don't know them off the top of my head. We can certainly get them to you. They are buried in our reports.

I will point out that our numbers are the answer to the question: What do you get after the fact, given that you are disabled? The real valuation question is the insurance value if you don't know how it is going to turn out. We are still working, trying to put the best number on that.

Mr. Cooper. So you at CBO still do not have a valuation, an insurance valuation of those benefits?

Mr. Holtz-Eakin. Not a broad social insurance value that--of the type that would be appropriate.

Mr. Cooper. As far as you know, are those benefits commercially available from any company in the United States?

Mr. Holtz-Eakin. Not the type of benefit offered in the broad pool at Social Security.

Mr. Cooper. So, right now, would it be available for purchase nowhere else other than through the Social Security system?

Mr. Walker. That benefit, no.

Mr. Cooper. Final question. What if in a Social Security compromise reform package some part of the corpus of the Social Security Trust Fund was invested in some sort of safe market investment as opposed to just Treasury securities? That would achieve some of the goals of the folks who advocate privatized accounts, wouldn't it, by enabling a better rate of return possibly to be achieved, rather than just the ultraconservative investment and Treasury instruments?

Mr. Holtz-Eakin. It would have the same implications as the analysis of individual accounts. You have higher return at higher risk, risk is present.

Mr. Cooper. Only the risk would be spread across the society, as opposed to perhaps subjecting an individual who may have chosen unwisely--the risk would be spread, as opposed to individualized, right?

Mr. Holtz-Eakin. The same total risk would be present. It could be distributed in many ways.

Mr. Cooper. Has the CBO done a study of that sort of Social Security reform?

Mr. Holtz-Eakin. In the late 1990s, there were a series of studies looking at Social Security reforms, including looking at investments in private accounts. I don't know the names off the top of my head, but we would be happy to get what we have to you.


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