Lecture Sixteen: Social Insurance

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Lecture Sixteen Social
Insurance
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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

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Main Contents

• Conception of Social Insurance
• Old-Age, Survivors, and Disability Insurance
  (OASDI)
• Types of Benefits
• Problems and Issues
• Unemployment Insurance
• Workers Compensation

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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?

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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?

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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.

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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.

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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.

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Social Insurance

• Reasons for Social Insurance
• Basic Characteristics of Social Insurance

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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

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Basic Characteristics of Social Insurance

• Compulsory Programs
• Floor of Income
• Social Adequacy Rather Than Individual Equity
• Benefits loosely Related to Earnings Benefits
  Prescribed by Law
• No means test
• Full Funding Unnecessary
• Financially Self-supporting

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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

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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

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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 insured
• Currently insured
• Disability insured

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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.

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Types of Benefits

• Retirement Benefits
• Survivor benefits
• Retirement benefits
• Disability benefits
• Medicare benefits
• Financing social security benefits
• Taxation of benefits

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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)

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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.

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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

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Medicare Benefits

• In Unite States, the present program consists of
  the following coverages
• Hospital Insurance
• Supplementary Medical Insurance
• Medicare Choice
• Medigap insurance

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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.

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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.

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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

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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

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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.

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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.
• Reasons
• Solution

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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

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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

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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

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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

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Unemployment Insurance

• Coverage
• Eligibility Requirements
• Benefits
• Financing
• Problems and Issues

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Coverage

• A private firm
• State and local government
• Nonprofit charitable, educational, or religious
  organizations
• Agricultural firm
• Domestic employment

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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

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Benefits

• A weekly cash benefit is paid for each week of
  total unemployment.
• The benefit paid varies with the workers past
  wages, within certain minimum and maximum dollar
  amounts.
• Examples

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Financing

• State unemployment insurance programs are
  financed largely by payroll taxes paid by
  employer on the covered wages of employees.

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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

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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.

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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

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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

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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

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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.

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Workers Compensation Benefits

• Workers compensation laws provide four
  principal benefits
• Unlimited
• Disability income
• Death benefits
• Rehabilitation services

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Problems and Issues

• Some important problems are summarized as
  follows
• Increase in workplace violence
• Carpal tunnel syndrome
• Increased litigation

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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.

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Summary

• Unemployment insurance programs are federal-state
  programs that pay weekly cash benefits to workers
  who are involuntarily unemployed. Unemployment
  programs have several objectives.

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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.

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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

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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.

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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.

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Preview

• Readings
• Text Types of Insurer and Marketing Systems
  (P511-522, P526-542)
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