1. The Social Security Act, adopting in 1935, called for workers to make payroll tax payments, which were then pooled to pay retirement benefits to primary workers. Survivor benefits (paid to spouses and dependents of the primary worker) and disability benefits were added later, in 1939 and 1956, respectively. The first benefit payments were made in 1940, after the great depression in which many suffered due to lack of savings and bank failures. This was at a time many people still lived in rural parts of the country and had limited access to financial services that allowed for safe steady returns on savings. Now, financial services are readily available to anyone; it has never been easier to save for retirement. Since the social security system is based on having current worker pay payroll taxes to fund payments to retired workers, some have argued that the Social Security system is not sustainable given the unbalanced demographics, with far more retired people who are supposed to receive benefits than younger workers who are paying in.

a. In your opinion, has social security outlived its usefulness? That is, are some of the original justifications for the Social Security system still relevant or have conditions changes such that there is less of a social need for Social Security.

b. If, by the time you retire, social security benefits have been significantly reduced or eliminated completely, would you be bothered. Why?   If you know that this is very likely now (at the start of your working career), does this bother you? Why? How might you behave differently?

2. In your own words, answer the following questions: What is a Managed Care Organization (MCO)? What is a Health Maintenance Organization (HMO)? What are capitation payments? What are the incentives of an HMO in terms of providing low cost care? Are there any adverse incentives for an HMO to cut costs by cutting quality? How might these adverse incentives be mitigated?