In light of concerns about Social Security’s costs and benefit adequacy, La Follette School Professors Tim Smeeding and Pam Herd along with colleagues at The Urban Institute and Syracuse University propose an effective and relatively inexpensive targeted program to provide a minimally adequate income floor to old-age income through the Social Security system.
“A minimum benefit plan (MBP), modeled after the Canadian minimum benefit for the elderly and the United States’ Earned Income Tax Credit (EITC), could provide a cost-effective method for reducing elder income poverty to very low levels,” according to the researchers, who received funding from AARP’s Innovation Challenge to identify policy solutions for strengthening Social Security.
The MBP for low-income retirees has four features: eligibility requirements, benefit levels and income exclusions, administrative structure and take-up, and eligibility limits for other benefit programs.
“This plan most tightly ties benefits to those with the lowest incomes—taking into account family income resources,” they wrote in their report for AARP. “Prior proposals have not taken into account total family/household income resources, thus weakening their targeted nature.”
The plan also ensures that those most economically vulnerable — typically, those who have not had consistent labor force participation, minorities, and older single women — are protected.
Finally, it is sensitive to program interactions, especially in terms of Medicaid. The MBP would not be counted toward Medicaid eligibility, the authors said.
“Older adults with supplemental Medicaid coverage spend $3,000 less annually in out-of-pocket heath care expenditures as compared with people who purchase private supplemental coverage,” the researchers wrote. “A gain of even $2,000 in additional income from a minimum benefit, if it results in the loss of Medicaid coverage, would leave a beneficiary worse off.”
Melissa Favreault, a senior fellow at the Urban Institute Income and Benefits Policy Center, and Madonna Harrington Meyer, a professor of sociology and senior research associate at the Maxwell School of Syracuse University, are the other researchers on the project,
In 2016, AARP launched its Innovation Challenge to identify policy solutions for strengthening Social Security. AARP received an overwhelming number of responses, and selected seven concepts that ranked highest under the blind review. With AARP’s support, the authors further developed their innovation and worked with The Urban Institute to assess the financial and distributional impact of their policy proposals.