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Beyond BLS

Beyond BLS briefly summarizes articles, reports, working papers, and other works published outside BLS on broad topics of interest to MLR readers.

November 2022

Why has targeted social insurance spending increased in the United States?

Summary written by: Justin Holt

Social insurance is a set of governmental transfers that increase the economic wellbeing of individuals. These transfers can be grouped into two main categories: universal and targeted. Universal programs provide a benefit to all individuals who qualify with no required means test (in essence, irrespective of wealth and income). Examples of universal programs in the United States are Social Security and Medicare. Targeted programs provide benefits to individuals who qualify based on a means test. In the United States, prominent examples of targeted programs include, Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and the Earned Income Tax Credit (EITC).

In “Targeting, universalism, and other factors affecting social programs’ political strength (The Hamilton Project, Brookings Institution, August 2022), Robert Greenstein considers the history, effectiveness, and longevity of targeted and universal programs in the United States. The main finding of Greenstein’s research is that certain targeted programs have demonstrated greater growth in spending and in the number of beneficiaries served compared with universal programs. In general, targeted and universal programs have grown in both real dollar terms and in the number of beneficiaries. From 1979 to 2019, the average annual growth, in U.S. dollars (adjusted for inflation and population), for universal programs was 2.36 percent and for mandatory targeted programs was 3.39 percent.

Greenstein argues that there are three main reasons why particular mandatory targeted programs have increased in spending and scope in comparison with universal programs. First, targeted programs have lower total costs. Second, targeted programs have an increasing number of individuals benefiting directly or indirectly from program spending. Third, the targeted population is considered to deserve the transfer. Populations seen as more deserving (children, retirees, and the disabled) are more likely to receive continuous and increasing amounts of cash and in-kind transfers. Whereas populations seen as less deserving (working age adults who are not disabled) are less likely to receive continuous and increasing amounts of transfers.

Some targeted programs are no longer only for individuals with low incomes. For example, Medicaid currently covers three times the share of births as it did in 1985. Greenstein argues that this increase in coverage leads to broader support for a program. Also, programs can build secondary constituencies (groups that benefit from transfers without directly receiving them) that become interested in the continued existence and expansion of particular spending. For instance, food retailers have an interest in nutrition spending, and those who work for hospitals have an interest in healthcare spending.

In Greenstein’s analysis of the effectiveness of social insurance, he documents the poverty reduction effects of various programs in 2017. Social Security lifted 26.9 million people of all ages above the poverty line. Targeted tax credits moved 5.1 million children out of poverty. SNAP helped 4.3 million people leave poverty conditions.

Greenstein has a set of concluding recommendations to improve the effectiveness of social insurance. One recommendation is to increase the enrolment rate of targeted programs. Enrollment rates can be increased by automatically providing benefits to eligible individuals. For example, in 2021, distribution of the Child Tax Credit increased when payments were sent out automatically to recipients based on their previous year’s tax return.