The ongoing brouhaha over proposed health care changes shows how costly the term “entitlement” can be.
There are two relevant meanings of the word. One is an exact legal definition relating government funding to benefit eligibility. The other, more ambiguous, describes people’s sense of having a moral right to some government payment, regardless of legal details. It is this second meaning, manifest in the expressed fears that some existing benefit will be lost, that may scupper any meaningful change in our nation’s health care system, or, more broadly, any chance of ever balancing the federal budget.
The two meanings are related, however, and a closer look shows how even discretionary government payments come to be regarded as moral rights.
In the narrow sense, a government program providing cash or in-kind benefits is an entitlement when the legislation that establishes it makes an open-ended commitment to provide the benefit to everyone who meets stipulated criteria, regardless of the total cost. Having made that commitment, Congress must then appropriate, and some government agency must disburse, whatever amount of money is needed to provide the specified benefits to all qualified individuals who request them.
In non-entitlement programs, Congress may also specify general eligibility, but then it appropriates a discrete amount of money. The money is distributed by some procedure to qualified applicants, but when those funds are used up, that is it—at least until more money is appropriated. Some people who may meet the eligibility criteria may not get the benefit.
Social Security, Medicare, food stamps, and veteran’s benefits all are entitlements. So is Temporary Assistance to Needy Families, commonly termed “welfare.” So, on an annual basis at least, are agricultural crop subsidies.
Take Social Security. The Social Security Act, with numerous amendments over time, spells out the program’s benefits and who is eligible. It sets FICA tax levels and formulas for calculating exact benefits for each eligible individual. If you have paid into Social Security and are eligible for old-age, survivors or disability benefits, you will get a payment.
This individual benefit does not depend on how much money Congress decides to spend; it is an entitlement. From time to time the government adjusts benefits formulas and tax rates to keep the program solvent, but at any point in time all eligible recipients have a right to their payments. The same applies to the other entitlement programs.
That is not the case for WIC, the Women, Infants and Children nutrition-subsidy program. Congress appropriates a set amount of money each budget year for WIC. Individual states, which administer the program, have to devise procedures to allocate the funds fairly and effectively, but not everyone who meets the program’s criteria gets all the possible benefits. That depends on funding.
The same is true for student financial aid and for Section 8 rental housing subsidies. The same was true for the Cash for Clunkers program. These are all “non-entitlements” for which benefit levels depend on how much money is appropriated.
This technical definition of “entitlement” is important in government finance since lowering spending for entitlement programs requires amending the underlying legislation. This is politically difficult.
The other sense of “entitlement” can also cause problems. There is no law like the Social Security Act that establishes agricultural subsidies as a long-term promise to the citizenry. But 75 years of successive short-term subsidy bills have trained farmers to view some level of government support as a moral right. Even farm organizations aligned with the Republican Party, which once called for government withdrawal from agriculture, now demand payments year in, year out, high prices or low, good crops or bad, even as their leaders profess commitment to free markets.
For the first 30 years of Social Security, increases in benefit levels to compensate for inflation were at the discretion of Congress. Fifteen years passed before the first such adjustment. But then a Republican president and Democratic-controlled Congress agreed that benefit levels should increase automatically with the Consumer Price Index. Now some senior groups are outraged that there will be no increase for 2010 because general price levels have fallen rather than risen. An annual payment increase is viewed as a moral right.
The same is true for the minority of Medicare recipients who benefit from the Medicare Advantage program. It was introduced to demonstrate that subsidizing private insurers could provide equal service at lower cost than standard Medicare. It has turned out to be a program that confers a higher level of benefits at a higher cost. But many of its recipients do not acknowledge that they are getting a special benefit that the majority in their age cohort do not. Instead, they see the program to which they have become accustomed as a right and believe that termination of the program would be a fundamental injustice.
Unwillingness to give up any subsidy, once enjoyed, may be a core feature of the human psyche. But unless our society is willing to collectively overcome it, we are doomed to follow the path of Japan, that of a stagnant economy with an aging population and a national debt growing far faster than the economy itself.
© 2009 Edward Lotterman
Chanarambie Consulting, Inc.