How To Undermine An Ownership Society
By Robert Kuttner
President George W. Bush has spoken repeatedly of an Ownership Society. In his acceptance speech at the Republican National Convention in New York, he quite reasonably declared: "Ownership brings security, and dignity, and independence." Specifically, in the ownership society he envisions, "more people will own their health plans and have the confidence of owning a piece of their retirement."
Reflect on this for a moment. It's one thing to own your own home or your business. It's a far less secure proposition to "own" your own health plan. Ever since the New Deal, public policy in America has protected ordinary people against unforeseen risks, precisely so that they can take the deliberate risks of starting businesses and committing themselves to mortgage payments and becoming owners. Public policy has also given subsidies to lower-income people so that they too can get on the ladder to ownership. What Bush is really proposing is to shift economic risks back onto individuals -- at a time when other sources of economic security, such as long-term employment and stable pensions, are dwindling.
FOR HIS HEALTH PLAN, Bush wants to expand so-called Health Savings Accounts. These are tax-sheltered accounts tied to insurance with very high deductibles. By limiting the insurer's exposure, the approach allows for lower premiums. Health insurance would be delinked from employment, and people would freely choose what sort of insurance they wanted and use the Health Savings Accounts to pay the out-of-pocket costs. Said Bush in his acceptance speech: "These accounts give workers the security of insurance against major illness, the opportunity to save tax-free for routine health expenses, and the freedom of knowing you can take your account with you whenever you change jobs."
Sounds great. But there are four huge problems. First, the approach fragments the risk pool. Younger and healthier people would choose cheap, high-deductible policies, thus opting out of the broader insurance pool. Older and sicker ones would have to pay a king's ransom to get coverage. Second, individual policies are far more expensive than group policies to underwrite and administer, so the whole system would be less efficient. Third, the most cost-effective approach to health is prevention, but these high-deductible policies don't cover preventive care. So more people, especially those of modest means, would tend to skimp on prevention to save money. Finally, there's nothing in it for low-income people who lack the means to use a Health Savings Account, except for a tax credit so puny that it covers only about one-fifth the cost of decent insurance. "Catastrophic" is an apt name for the whole approach.
The allure of owning your own retirement plan also demands a closer look. "We must strengthen Social Security," Bush said, "by allowing younger workers to save some of their taxes in a personal account -- a nest egg you can call your own, and government can never take away." Sounds great. But the fellow proposing to take away part of the current Social Security guarantee is not "the government." It's Bush.
A recent Brookings study, Coming Up Short, by Alicia Munnell and Annika Sunden, is a searing indictment of "owning your own retirement." So-called defined-contribution plans, where the retiree has no assurance of a return, simply shift the risk from the employer or the government to the individual. The average 401(k) has assets to cover only a few years of retirement. It puts timing of retirement at the mercy of stock-market flukes. And in order to make plans safe from Enron-style corporate larceny, in which people are locked into company stock while it's tanking, it's necessary to have strong government regulation of the sort that Bush resists. By all means, let's encourage people to increase their retirement savings, but not, as Bush proposes, by looting the one portion of the retirement system that is absolutely guaranteed -- Social Security.
Look at American history, from the Homestead Acts to agricultural extension services, Federal Housing Authority loans, the GI bill, pension regulation, and public subsidies to health and education. The truth is that America's ownership society is built substantially on social investment and social insurance. It's certainly not built on shifting all risks to the individual. In spite of himself, President Bush has opened a useful debate about what it really takes for America to become a secure society of owners.
Robert Kuttner is co-editor of The American Prospect and author of Everything for Sale.