CHAPTER XXVI
THE MAJOR FACTORS AFFECTING COST

The preceding chapters of Part III have been devoted primarily to a consideration of what we have termed predominantly social issues. We turn now to the financial issues. Among the questions to be considered are: What estimates are possible regarding the costs of social insurance? What methods should be used in financing social security and relief? Are reserves necessary in social security financing? and What are the obligations of the future? Before starting the specific chapters, it seems desirable to present a summary of the broad social factors that determine the cost of social security and relief. It will be in the nature of a brief review of the preceding chapters considered from the standpoint of costs.

The basic element in determining costs is the standard used for defining need. The higher this standard is placed the larger will be the costs. Two factors operate to make this fact inescapable. The first is that the higher the standard is placed, the larger benefits will have to be; the second, the higher the standard, the greater will be the number of persons who will have to be given funds to raise them to the standard.

A second major factor is whether a means test is used, and if it is to what extent. If like standards of need are assumed, the least costly system is the one which employs a means test for all benefits and gives benefits only to the extent necessary to bring the individual or the family to the standard level. Cost increases as the means test is abandoned or relaxed for successive categories. Abandonment of the means test necessitates payments to persons not in need, and in some cases to persons who have never known need.

Costs are greatly increased if the system minimizes the objective of relieving or preventing need and moves in the direction of insuring the beneficiary a substantial fraction of the earnings to which he has been accustomed. It then partakes

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