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Lecture Sixteen:
Social Insurance
Learning Objectives
Explain the reasons why social insurance programs are established.Describe the basic characteristics of social insurance programs.Identify the major benefits provided by the Old-Age, Survivor, and Disability Insurance (OASDI) program .Identify the major benefits under the Medicare program.Describe the basic objectives and important provisions of state unemployment insurance program .Explain the basic objectives and major provisions of workers compensation insurance.Compare several typical social insurance systems in China
Main Contents Conception of Social Insurance Old-Age, Survivors, and Disability Insurance
(OASDI) Types of Benefits Problems and Issues Unemployment Insurance Workers Compensation
How a total disabled Family living?
Case 1: Diane is a single parent, age 30, who became totally and permanently disabled in an auto accident in 2006. she is the sole support of her son, age 3. Assume that she is eligible for social security disability benefits. She lose her previous job with annual earnings are $ 35,000. How does Diane and her son keep living? How it would be if Diane is Chinese living in China?
How a total disabled Family living?
How does Diane and her son keep living?
How it would be if Diane is Chinese living in China?
How a total disabled Family living?
In the U.S., Diane and her son would receive monthly disability benefits of approximately $ 1797, which is a social insurance program ,and enable her to maintain at least a minimum standard of living.
What Is Social Insurance?
Social insurance programs are compulsory government programs with certain characteristics that distinguish them from private insurance and other government insurance program.
The Various programs provided a safety net against the financial insecurity that can result from premature death, unemployment, poor health, job-related disabilities, and old age.
What Is Social Insurance?
Social insurance programs are especially valuable to individuals and families with limited incomes.
Different countries have establishes different social insurance systems based on its socioeconomic development.
Social Insurance
Reasons for Social Insurance Basic Characteristics of Social Insurance
Reasons for Social Insurance
To solve complex social problems.
Certain risks are difficult to insure privately
Provide a Base of Economic Security to the Population
Basic Characteristics of Social Insurance
Compulsory Programs Floor of IncomeSocial Adequacy Rather Than Individual EquityBenefits loosely Related to Earnings Benefits Prescribed by LawNo means testFull Funding UnnecessaryFinancially Self-supporting
Old-Age, Survivors, and Disability Insurance (OASDI)
OASDI program commonly known as Social Security, is the most important social insurance program in the United States. Covered occupations Determination of insured status
Covered Occupations
The following groups are covered under the social security program:
Employee in private firms
Federal civilian employees
State and local government
Employees of nonprofit organizations
Self-employment
Other group
Determinations of Insures Status
To become eligible for the various benefits, you must attain an insured status. There are three types of insured status:
Fully insuredCurrently insuredDisability insured
Types of Benefits
The total program consists of social security (OASDI) and Medicare. The OASDI program pays monthly retirem-ent, survivor, and disability benefits to eligible beneficiaries. The Medicare program covers the medical expenses of almost all persons aged 65 and older and certain disabled beneficiaries younger than age 65.We discuss only OASDI cash benefits at this point; Medicare has been covered in lecture 14.
Types of Benefits
Retirement Benefits
Survivor benefits
Retirement benefits
Disability benefits
Medicare benefits
Financing social security benefits
Taxation of benefits
Retirement Benefits
Social security retirement benefits are an important source of income to most retired workers. Full Retirement Age (examples) Early Retirement Age (examples) Monthly Retirement Age (examples) Retirement Benefits Amount (examples) Delayed Retirement Credit Automatic Cost-of-Living Adjustment Earnings Test (examples)
Survivor Benefits
Survivor benefits can be paid to the dependents of a deceased worker who is either fully or currently insured.
Unmarried children younger than age 18.Unmarried disabled children.Surviving spouse with children younger than age 16.Surviving spouse age 60 or older.Disabled widow or widower, ages 50 through 59.Dependent parents.Lump-sum death benefit.
Disability Benefits
Disability –income benefits can be paid to disabled workers who meet certain eligibility requirements, including the following:
Be disability insured
Meet a five-month waiting period
Satisfy the definition of disability
Medicare Benefits
In Unite States, the present program consists of the following coverages:
Hospital Insurance
Supplementary Medical Insurance
Medicare + Choice
Medigap insurance
Financing Social Security Benefits
OASDI benefits are financed by a payroll tax paid by employers, and the self-employed; interest income on the trust-fund investment; and revenues derived from taxation of part of the monthly cash benefits.
Taxation of Benefits
The amount of benefits subject to taxation depends on your total combined income.
Combined income includes earnings, pension income, dividends.
Taxable interest from investments and other sources plus tax-exempt interest plus one-half of your social security benefits.
Problems and Issues
Social security and Medicare are currently faced with serious problems and issues. three timely issues include:
The long-range OASDI actuarial deficit
The Medicare financial crisis
Coverage of outpatient prescription drugs under Medicare
The long-range OASDI actuarial deficit
Numerous proposals have been made to eliminate the long-range deficit. Other proposals would seek to reform the OASDI program. For sake of simplicity, the various proposals can be grouped into the following categories:
Maintaining the present program
Establishing individual accounts
Using the projected budget surplus to save Social Security
The long-range OASDI actuarial deficit
Over a long range, the combined Old-Age And Survivors Insurance (OASI) and Disability Insurance (DI) trust fund is expected to be financially solvent only until 2041.
Individually, the OASI trust fund , which pays retiremetn and survivor benefits, is projected to pay full benefits until 2043.
The DI trust fund , which pay disability benefits , is projected to pay fun benefits until 2028.
The Medicare financial crisis
The 2002 Board of Trustees report showed that the Hospital Insurance trust fund is projected to remain solvent only until 2030. Even so, the projected tax income will fall short of outlays beginning in 2016.
ReasonsSolution
The Reasons for Medicare Financial Crisis
This unsatisfactory financial condition is due to several factors, including:
An increase in the number of Medicare beneficiaries
Inflation in hospital costs exceeding the overall rate of inflation
Fraud and abuse by health care providers
Substantial increases in home health care costs
An inefficient and inflationary fee-for-service method of reimbursement
Solution to Medicare Financial Crisis
Increasing gradually the Medicare eligibility age from age 65 to 67 to match the scheduled increase for OASDI
Increasing competition by allowing beneficiaries to enroll in private health insurance plans that would compete with the traditional fee-for-service Medicare plan
Outpatient Prescription Drugs Under Medicare
In 1999, Medicare beneficiaries, on average, paid estimated out-of-pocket expenditures of ＄ 2430 on health care, or 19 percent of their annual income
In 1996, approximately one-third of all Medicare beneficiaries had no coverage for prescription drug
Unemployment Insurance
Unemployment insurance programs are federal-state programs that pay weekly cash benefits to workers who are involuntarily unemployed.
Unemployment insurance has several basic objectives: Provide cash income during involuntary unemployment Help unemployed workers find jobs Encourage employers to stabilize employment Help stabilize the economy
Unemployment Insurance
Coverage Eligibility Requirements Benefits Financing Problems and Issues
Coverage
A private firm State and local government Nonprofit charitable, educational, or religious organizations Agricultural firm Domestic employment
Eligibility Requirements
An unemployed worker must meet the following eligibility requirements: Have qualifying wages and employment during the base
year Be able and available for work Actively seek work Be free from disqualification Serve a one-week waiting period
Benefits
A weekly cash benefit is paid for each week of total unemployment.
The benefit paid varies with the worker’s past wages, within certain minimum and maximum dollar amounts.
Examples
Financing
State unemployment insurance programs are financed largely by payroll taxes paid by employer on the covered
wages of employees.
Problems and Issues
State unemployment insurance programs have numerous problems. Some important problems are summarized as follows: Decline in the proportion of unemployed who receive
benefits Inadequate reserves Imperfect experience-rating formulas
Workers Compensation
Workers compensation is a social insurance program that provides medical care, cash benefits, and rehabilitation services to workers who are disabled from job-related accidents or disease.
The benefits are extremely important in reducing the economic insecurity that may result from a job-related disability.
Workers Compensation
Development of Workers Compensation Objectives of Workers Compensation Types of Laws Complying with the Law Covered occupations Eligibility Requirements Workers compensation benefits Second-injury funds Problems and issues
Development of Workers Compensation
An employer could use three common law defenses to block lawsuits from injured workers: Contributory negligence doctrine Fellow-servant doctrine Assumption-of-risk doctrine
Objectives of Workers Compensation
State workers compensation laws have several basic objectives:
Broad coverage of employees for job-related accidents and disease
Substantial protection against the loss of income
Sufficient medical care and rehabilitation services
Encouragement of safety
Reduction in litigation
Eligibility Requirements
This means the injury or disease must arise out of and in the course of employment. The following situations are usually covered under a typical workers compensation law:
An employee who travels is injured while engaging in activities that benefit the employer.
The employee is injured while performing specified duties at a specified location.
The employee has a heart attack while lifting some heavy materials.
Workers Compensation Benefits
Workers compensation laws provide four principal benefits:
Unlimited
Disability income
Death benefits
Rehabilitation services
Problems and Issues
Some important problems are summarized as follows:
Increase in workplace violence
Carpal tunnel syndrome
Increased litigation
Summary
Social insurance programs are compulsory insurance programs with certain characteristics that distinguish them from other government insurance programs.
The old-Age Survivors, and Disability Insurance program, commonly called Social Security, is the most important social insurance program in the United States.
The current Medicare program consists of (1) Hospital Insurance,(2) Supplementary Medical Insurance, and (3) Medicare+ choice.
Summary
Unemployment insurance programs are federal-state programs that pay weekly cash benefits to workers who are involuntarily unemployed. Unemployment programs have several objectives.
Review Questions
1.Why are social insurance programs necessary?2.Decribe the basic characteristics of social insurance programs.3.Explain the meaning of fully insured, currently insured, and
disability insured under the OASDI program.4.Describe briefly the major benefits under the OASDI program.5.Explain the definition of disability used in the OASDI
program.6.Describe briefly the major benefits under the Medicare
program.
Review Questions
7.Describe the basic objectives of unemployment insurance programs in the US
8.Explain the eligibility requirements for receiving unemployment insurance benefits in the US
9.Describe the basic objectives of workers compensation laws in China
10.Identify the major benefits under a typical works compensation law in China
Application Question Discussion
The Social Security program is expected to experience severe financial problems in the future. Numerous proposals have been made to save Social Security.
a. Why is the Social Security program expected to experience severe financial problems in the future?
b. Explain the various proposals for dealing with the future financial problems that the Social Security program may encounter.
Case application
Since late 1990s, the Chinese Social Security System has been changing in China. Explain the various programs for both urban residents and rural residents. What are the confronted problems? Provide some proposals for dealing with the problems.
PreviewReadings :
Text: Types of Insurer and Marketing Systems (P511-522, P526-542)
Assignments /Questions
