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 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

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 insured Currently insured Disability 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 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. Reasons Solution

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.

Preview Readings : Text: Types of Insurer and Marketing Systems (P511-522, P526-542) Assignments /Questions