SOCIAL INSURANCE Chapter 7

What is Social Insurance? Collectively funded program for workers and their dependents that provides economic resources at the conclusion of employment In the U.S. it is commonly known as Social Security Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

History The Social Security Act was passed in 1935 It included two parts, social insurance and public assistance Social Insurance was to be the long-term program that would provide economic security Public assistance was to be the short-term program to cover those in need for the period of time it would take until everyone was adequately covered by social insurance Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

How the program works Workers pay in while working Pay-in is matched equally by employer Amount is tracked by the Social Security Administration and placed in the Trust Fund Amount and years of pay-in are used to calculate benefits Eligible due to retirement or disability Benefits are received for as long as live or continue to be disabled Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Social Security is an entitlement program That means that once a person is eligible, he or she will receive benefits, no matter how much was actually paid into the program Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Social Security Rates 2006 - for individuals OASDI 6.2% Medicare 1.45% Total 7.65 Employers match the above amounts Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Public Perceptions Today there is strong support for the Social Security Program Concern rests as to whether the program will be there in years to come Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Importance of Social Security For elderly persons with low incomes, Social Security provides nearly 90% of their retirement income Social Security is the main source of income for 2/3’s of all elderly people Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Almost half of all elderly people had incomes below the poverty line BEFORE receiving Social Security benefits For 22% of workers older than 65, Social Security is the only source of income Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Limitations of Social Security Social Security is NOT a retirement program, that is, alone it is not enough for a full retirement Women and people of color, due to lower lifetime earnings or employment not covered, receive lower benefits Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Future of Social Security Solvency – will there be enough funds in the Trust Fund to cover future retirees? The answer is, it depends With planning now, there should be sufficient funds, but those plans need to make changes now However, they can be rather incremental changes and still have a significant impat Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Privatization of Social Security Creating private accounts would fundamentally change the Social Security program Privatization would shift the responsibility, and risk, from the collective public to the individual Personal financial abilities vary widely, and this variance is part of the reason why policy makers favored the current structure Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education

Social Responsibility The Social Security Program is the best example of a collective social welfare program in the United States It pools resources and risks, and provides an entitled coverage to all who participate It is the most important retirement program we have in this country Social Welfare Policy and Social Programs: A Values Perspective, by Elizabeth Segal Copyright 2007, Brooks/Cole, a division of Thomson Higher Education