Chapter 14: Social Insurance REASONS FOR SOCIAL INSURANCE - To help solve social problems o Historically NOT the role of government - To provide coverage for perils that are difficult to insure privately o Does not compete with the private market - To provide a base of economic security o Entitlement … BASIC CHARACTERISTS OF SOCIAL INSURANCE - Compulsory o All of us pay a percentage with an employer’s match - “Floor” of income - Emphasis is on Social Adequacy rather than Individual Equity - Benefits are only loosely related to earnings - Benefits prescribed by law - No “means testing” o Don’t look at your assets - Full funding unnecessary SOCIAL SECURITY (OASDHI) - Most Employment Situations Covered - Payroll Tax Withholding Required - Participants Accumulate “Quarters” of Coverage o Fully insured o Currently insured o Disability insured SOCIAL SECURITY (OASDHI)- Financing is on a “Pay-as-you-go” system - COLA- cost of living adjustments - Financing is NOT actuarially sound - Employee Pays Payroll Tax - Employer Matches Employee Contribution - Maximum Taxable Earnings Set Each Year SOCIAL SECURITY BENEFIT RULES - Benefit Amounts Based on Primary Insurance Amount (PIA) o Covered earnings averaged o Adjustment for inflation o Legislated minimum benefit - Loss of Benefits Possible o Disqualifying income o Loss of eligible status SOCIAL SECURITY BENEFITS - Retirement Benefit o 1/2 payable to spouse - Survivors’ Benefit o Payable to spouse o Payable to children - Disability Benefit o Payable to disabled employee MEDICARE - Payable to Retirees, Designated Others - Part A - Hospital Expense Insurance - Automatic - Hospital services - Deductible - Graduated cost sharingMEDICARE - Part B - Physicians’ Services o Voluntary o Requires monthly premium o Includes cost sharing - Part C - Medicare Choice [Optional] o HMO or other managed care plan o May pay extra benefits, e.g., prescription drugs o May remove need for “Medigap” policy New to Medicare - Part D – Prescription Drugs o Requires separate premium o Must chose from several plans o Deductibles and co-pays o Very expensive … OTHER PROGRAMS - Workers’ Compensation o No-fault system of recovery for injured workers o States set standards and benefits - Unemployment Compensation o Part of original Social Security legislation o Purpose is to treat short-term, temporary unemployment o States set standards and benefits o Federal Government uses tax
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