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Chapter 14 Notes Social Insurance Reasons for Social Insurance Why are they necessary o To help solve complex social problems o To provide coverage for perils that are difficult to insure privately o To provide a base of economic security to the population Basic Characteristics of Social Insurance o Social insurance programs are distinct from other government insurance programs because Most programs are compulsory Programs are designed to provide a floor of income Programs pay benefits based on social adequacy rather than individual equity Benefits are loosely related to earnings Programs benefits and benefit formulas are prescribed by law A formal means test is not required Full funding of benefits is unnecessary Programs are designed to be financially self supporting Old Age Survivors and Disability Insurance OASDI o Commonly known as Social Security OASDI is the most important social insurance program in the US o Enacted in 1935 it covers more than 9 out of 10 workers o Virtually all private sector employees and a majority of state and local government employees are covered under the Social Security Program o A worker becomes eligible for benefits by attaining an insured status To attain a fully insured status and be eligible for retirement and survivor benefits you must have 40 credits You are currently insured and eligible for survivor benefits if you have earned at least 6 credits in the past 13 calendar quarters The number of credits required to receive disability benefits depends on your age when you become disabled A credit a quarter A duration of work test must be satisfied before receiving disability benefits You become fully insured after working 10 years o Retirement Benefits Social security retirement benefits are an important source of income for most retired workers For persons born in 1937 or earlier full retirement age for unreduced benefits is age 65 The full retirement age will increase gradually to 67 Workers and their spouses can retire at age 62 with actuarially reduced benefits Monthly retirement benefits can be paid to retired workers and their dependents The monthly retirement benefit is based on the worker s primary insurance amount PIA The PIA is based on the worker s average indexed monthly earnings AIME The AIME is based on a weighted benefit formula which weights the benefits heavily in favor of low income groups Social Security actuaries calculate each year the indexing factors that are used to determine the worker s average indexed monthly earnings Each additional year of work adds another year of earnings to your Social Security earnings record A delayed retirement credit is available if you delay receiving retirement benefits beyond the full retirement age Cash benefits are automatically adjusted each year for changes in the cost of living The program has an earnings test that can result in a reduction or loss of monthly benefits for workers with earned incomes above certain annual limits o OASDI Survivor Benefits can be paid to dependents of a deceased worker who is either fully or currently insured Survivors include Surviving spouse with children younger than age 16 Surviving spouse age 60 or older Unmarried children younger than age 18 Unmarried disabled children Disabled widow or widower ages 50 59 Dependent parents The benefits provide a substantial amount of financial protection to families o OASDI Disability Benefits can be paid to disabled workers who meet certain eligibility requirements The benefits provide protection against the loss of income during a long term disability The worker must meet a five month waiting period and satisfy the definition of disability The worker must have a physical or mental condition that prevents him or her from doing any substantial gainful activity and is expected to last at least 12 months or is expected to result in death Major groups eligible to receive OASDI disability income benefits include A disabled worker under the full retirement age The spouse of a disabled worker Unmarried children of the disabled worker if under age 18 Unmarried children age 18 or older who become severely disabled Medicare before age 22 o Medicare covers the medical expenses of most persons age 65 and older o Beneficiaries can select among an array of plans including prescription drug plans and health care plans of private insurers o Under the original Medicare plan o 4 Parts Part A Hospital Insurance Beneficiaries can elect any provider that accepts Medicare patients Medicare pays its share of the bill and the beneficiary pays the balance Hospital Insurance Part A provides coverage for inpatient hospital stays and other services including skilled nursing facility care home health care hospice care and blood transfusions o Inpatient care is covered for up to 90 days for each benefit period o Inpatient care in a skilled nursing facility is covered up to a maximum of 100 days in a benefit period o Hospitals are reimbursed for inpatient services under a prospective payment system o A flat amount is paid for each service based on its diagnosis related group DRG Is financed by a payroll tax paid by covered employees employers and the self employed o Payroll tax is 1 45 percent on all covered earnings o The program is subsidized by a small amount of general revenues Part B Medical Insurance Medical Insurance physicians fees and related medical services Part B is a voluntary program that covers o Covered services include physician services clinical laboratory services home health care outpatient hospital services and blood o Beneficiaries must pay a monthly premium for the benefits o The beneficiary must meet an annual deductible o The program pays 80 of the Medicare approved amount for most services Is financed by monthly premiums and the general revenues of the federal government Part C Medicare Advantage Plans Private health plans that are part of the Medicare program o Medicare pays a set monthly amount to the plan o Most plans provide extra benefits and have lower co payments than the original Medicare plan Part C Plans include o Medicare PPOs o Medicare HMOs o Medicare Private Fee for service plans o Medicare Medical Savings Account Plans o Medicare Special Needs plans Part D Prescription Drug Plans Available to all beneficiaries Beneficiaries in the original Medicare plan can add prescription drug coverage by joining a stand alone plan Monthly premiums depend on the plan chosen and vary in the cost and types of drugs


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FSU RMI 3011 - Chapter 14 Notes: Social Insurance

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