All Commentary
Sunday, January 1, 1961

It Isn’t Insuarance

This article is reprinted by permission from the September ¹9, 1960 Philadelphia Evening Bulletin of which Mr. Cassidy is Assistant Editor.

The federal trade commission has been very active lately in pro­secuting manufacturers who call their products by the wrong name, or make unwarranted claims about what they will do.

More power to it. But who is going to make Senators and Con­gressmen and bureaucrats live up to similar standards of plain hon­esty?

Specifically, who is going to make them stop talking about the various Social Security programs as “insurance” programs, and speaking of the contributors’ “rights” to the promised benefits?

The question promises to be­come a lively one when Congress meets again and takes up anew the question of making health-care for the aged a part of the Social Se­curity system (with a correspond­ing increase in the nick taken from everyone’s take-home pay).

Dignified “Right”

Over and over, in the rump ses­sion just ended, the word “in­surance” kept cropping up in the speeches of Senators urging that health-care be put into the Social Security system. They insisted hotly that the aged should get health-care benefits as “a right.” They should be able to receive them “with dignity,” because “they had paid for them.”

This is noble language. Unfor­tunately, it falls under the head of grossly deceptive language, of a kind that would bring the FTC pouncing down on a manufacturer.

It is charitable to suppose that the Senators and Congressmen who use such language are them­selves deceived about the true na­ture of the Social Security pro­gram. It has been spoken of as “insurance” almost from its in­ception. The word appears in the name of the Old Age and Sur­vivors’ Insurance program.

Social Security Taxes Are Not Insurance Premiums

But it is not insurance. It car­ries no “rights” to anything ex­cept what Congress, from time to time, may grant as a gift. The con­tributions to it, deducted from pay, are not “insurance premi­ums,” but a tax, pure and simple.

Who says so? The Secretary of Health, Education and Welfare says so. The Solicitor General of the United States says so. Finally, the Supreme Court says so.

In a little noted decision last June 20 the Supreme Court ruled finally on a question which has irked many real insurance men for a quarter-century.

The case was that of Nestor v. Flemming. Ephram Nestor, a Bul­garia-born industrial worker in Los Angeles, was deported in July 1956 to his homeland, as a Com­munist. He had been a Social Se­curity contributor since 1939 and was drawing old-age benefits when deported.

He drew two monthly checks after his deportation and wanted his benefits restored on the grounds that he “had paid for them.”

His theory was that on which most discussion of Social Security is based: that he had been paying money into Social Security which would be held for him and, in his old age, given back with interest. He was wrong, and the brief of the U. S. Solicitor-General, on ap­peal to the Supreme Court, leaves no excuse for any Senator, Con­gressman, or bureaucrat ever again to speak so loosely about their product.

“The old-age monthly benefits program which Title II of the So­cial Security Act establishes is not a federally-administered `in­surance’ program,” Secretary Flemming declared in this brief.

No Annuity

“The contribution exacted under the Social Security plan,” he went on, “is a true tax. It is not com­parable to a premium promising the payment of an annuity com­mencing at a designated age.”

The Solicitor-General presented this version to the Supreme Court to explain why Nestor had no “right” to any benefits, and went on to say:

“The ‘Trust Fund’ from which OASI benefits are paid is main­tained by annual appropriations made by Congress…. Unlike pri­vate insurance companies, which essentially require reserves equal to the present value of all benefits, the Social Security program needs no such reserves, since it is as­sured of continuing participation through the exaction of taxes…. The beneficiary or prospective beneficiary acquires no interest in the fund itself.”

Insurance companies, of course, are required by law to charge pre­miums ample to cover the benefits promised, and give a binding con­tract with firmly established rights. Many people in the insur­ance field who deal directly with the public and know firsthand how the public interprets Social Secur­ity language have long been vexed by the loose use of insurance ter­minology. Some highly-regarded actuaries, too, are horrified by the pretense that Social Security con­tributions are scientifically calcu­lated, as with genuine insurance, to cover the promised benefits.

Albert C. Adams of Philadel­phia, past president of the Nation­al Association of Life Under­writers and chairman since 1952 of the Association’s Social Secur­ity committee, has long been a leader in the fight to insist that the government stop the improper use of language in referring to the Social Security program, and expects to redouble his efforts in the light of the Supreme Court’s clear decision.

“In the business community,” he says, “truth in advertising is enforced to permit the public fairly to make up its collective mind as to the wisdom of patron­izing the advertiser.

“In governmental matters, truth in advertising will like-wise per­mit the public fairly to make up its mind as to the wisdom of re­taining or expanding, or restrict­ing, existing legislation. It is as patently unfair for a governmen­tal agency to expand on the basis of false and misleading advertis­ing as it is for a business com­petitor to expand on the same sort of misrepresentations.”   



Calvin Coolidge

The people have to bear their own responsibilities. There is no
method by which that burden can be shifted to the government.
July 4, 1926