Congress should refurbish an old Social Security benefit in next stimulus

Congress should refurbish an old Social Security benefit in next stimulus
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In a typical year, about 2.8 million Americans die. The ultimate effect on mortality of the current public health emergency is unknown, with estimates of 60,000 deaths ultimately occurring. Death is certainly an unpleasant topic, but the country can take some comfort in its well-developed social insurance programs which provide income to survivors. Most Americans likely know that Social Security pays monthly benefits to aged widows and widowers — but many people may be unaware the Social Security program also supports minor and disabled children, widowed mothers and fathers, disabled widows and widowers, and even some elderly parents upon the death of a worker.

Almost all Social Security benefits are monthly benefits, but there is an exception: the lump sum death benefit (LSDB).

This is an old feature of Social Security, having been put into place with the original Social Security Act in 1935. Over time, the one-time benefit came to be viewed by many policymakers as a way of acknowledging the higher expenses a widow faced due to a spouse’s final illness and funeral. This little-known benefit from the Social Security program may be due for some refurbishing. The reason? The benefit is only $255. 

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That some Americans even know about this Social Security benefit is probably due to late night commercials from companies selling funeral policies. These commercials helpfully inform the viewer that the government death benefit is only $255. But hidden in these commercials is something interesting: The LSDB is one of the more general benefits paid by the government. While a widow would need to be aged, disabled, or caring for children to draw monthly Social Security survivor benefits, she does not need to be any of these things to get the LSDB.

In the early days of the Social Security program the dollar amount of the benefit was based directly or indirectly on the earnings of the deceased individual, but Congress capped the benefit in 1954 at $255. Congress last revisited the benefit in 1981, restricting the benefit to widows and certain children. Prior to this, the LSDB was even more general and could be paid to a family member or the person responsible for the funeral costs.

The spread of COVID-19 in the United States has focused attention on death and the hardship it brings to survivors. But, even before this public health emergency, there was growing concern about increased mortality, particularly among young and middle aged Americans affected by the opioid crisis or other causes of "deaths of despair." And hardship among survivors is real. A careful study by SSA researchers of Social Security beneficiaries found poverty rates are substantially higher among aged widows, disabled widows, and widows with children.

Refurbishing this old Social Security benefit could be done in two ways: increase the payment amount and make it more generally available.

Had the $255 amount been adjusted for price inflation since 1954, it would stand at about $2,500 today. Congress is considering another round of economic impact payments and one possible approach would be to include an increase in the lump-sum death payment as part of that effort.

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Longer-term it might also be worth considering broadening eligibility for the LSDB (perhaps by making it easier for workers to achieve "insured" status under Social Security). Even though 2.8 million Americans die in a typical year, only about 800,000 of those deaths result in a LSDB. A broad-based benefit of $2,500 would be a way for Social Security to provide a modest life insurance benefit that would not crowd out private insurance but would give all survivors some breathing room during a difficult time.

Finally, refurbishing the LSDB would improve the administration of government programs. Timely death reports to SSA are needed to stop Social Security and other federal payments to persons who have passed. But perhaps of more importance, timely death information often leads to individuals receiving monthly benefits they are due. Americans missing out on Social Security monthly benefits is not uncommon. Each year, in its Agency Financial Report, SSA identifies groups of individuals who did not receive monthly benefits they were due because of the agency’s errors or lack of awareness of benefit eligibility among the public. A person inquiring about a LSDB may learn from SSA about her eligibility for a monthly benefit or a family member’s eligibility. 

One rationale for the LSDB has always been that it is an incentive for individuals to report deaths to the government, but at $255 that incentive is showing its age.

David A. Weaver, Ph.D., is an economist and retired federal employee who has authored a number of studies on the Social Security program. The views in this article do not reflect the views of any federal agency.