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http://www.addictinginfo.org/2011/09/15/social-security-is-not-a-ponzi-scheme-private-health-insurance-is/Social Security Is Not A Ponzi Scheme, Private Health Insurance Is
Rick Perryz has been making a lot of headlines lately with his claim that Social Security is a Ponzi scheme. Before 2008, when Bernie Madoff was arrested for his Ponzi scheme, it’s doubtful most Americans had heard the term. Republicans, whose main agenda is to privatize absolutely everything, saw the Madoff scandal as an opportunity. The term ‘Ponzi scheme’ is pithy. It’s easy to remember. It rolls right off the tongue and it fits nicely on a bumper sticker. For the rabid right, it had all the attributes for a great talking point in going after their number one target, Social Security.
It’s working. In a poll, two thirds of Republicans and nearly half of the general public believes Social Security is a Ponzi scheme.
‘Ponzi scheme’ has become synonymous with ‘fraud,’ and there is a certain amount of truth there, but Ponzi schemes are a specific type of fraud. They are similar to pyramid schemes. Ponzi schemes only work when people can convince a lot of investors to participate. Investors are promised huge returns. The closer an investor is to the top of the pyramid, the larger the return. A Ponzi scheme is designed to collapse, leaving the bottom rungs of investors broke.
I’ll grant you that there are a couple of basic similarities between Social Security and Ponzi schemes. They both require a large number of participants whose contributions are paid to other people, but the same could be said of investments in the stock market or money put into bank accounts. In all three of those cases you are loaning your money to the institution in anticipation of a future payout.
That is where the similarities end. Social Security is not a Ponzi scheme. There is no expectation of profit, by anyone. The administrators of Social Security don’t profit. Elderly people (those at the “top”) certainly don’t profit, and contrary to popular belief, there is no risk.
According to the Congressional Budget Office, if we do nothing at all, Social Security will be solvent through 2038 and mostly solvent long past that. That’s if we do nothing. There are a couple of very easy fixes for Social Security. If we eliminate the payroll cap, voila, the system is flush with cash. We do need to do one thing though. We need to do what Al Gorez had talked about in 2000, put Social Security in a lock box.
The Bush administration had a habit of funding expensive programs, like tax cuts to the wealthy, with the Social Security trust fund. This benefitted them in a couple of ways. It gave them access to quick cash and allowed them to hide the tax cuts from the budget. If we “locked” the fund, or made it impossible to access, it would be safe.
Now that we know that Social Security isn’t a Ponzi scheme, let’s look at one of the biggest Ponzi schemes in the country, private health insurance. Let’s look at what private health insurance does:
First, they recruit large numbers of investors, with a promise of a future payoff that will be much greater than their investment (a bout of cancer will easily exceed your investments into your insurance). – Ponzi scheme
The system is extremely top heavy. In 2009, insurance executives were paid as much as $110 million. – Ponzi scheme
Health insurance is a very risky investment. A typical health insurance company pays out on just 60% of collected premiums. In other words, if you, over a lifetime, pay $100,000 to an insurance company, you can expect to receive about $60,000 in medical care. The rest of your premiums will go to executive compensation, marketing, broker commission and administrative costs. Insurance companies are extremely profitable. During the recession, they have experienced double and even triple digit increases in profit, while regularly and consistently raising premiums. How do health insurance companies maintain that type of profit margin? It’s simple. They deny, deny, deny. Health insurance companies are denying about 30% of medical claims. In other words, when you invest in health insurance, there is absolutely no guarantee of payout, unless you are at the top of the pyramid. – Ponzi scheme
What is the Republican solution for dealing with Social Security? It is very similar to the private health insurance model. They want to privatize it. They want to invest our dollars in the risky stock market. They want to make it so that the people at the top will make a tremendous amount of profit from our money. They want to make it a very risky program for all those at the bottom. They want to turn Social Security into a Ponzi scheme.
For more on the Republican’s idea for Social Security, see the Chilean Model.
