Chapter 18 Social Insurance
Old-Age, Survivors, and Disability Insurance (OASDI)
-Commonly known as social security, OASDI is the most important social insurance program in the US (Enacted in 1935, it covers more than 9 out of 10 workers) -Virtually all private-sector employees, and a majority of state and local government employees are covered under the Social Security Program
Medicare
-Medicare covers the medical expenses of more person age 65 and older -Beneficiaries can select among an array of plans including prescription drug plans and health care plans of private insurers -Under the medicare plan: Beneficiaries can elect any provider that accepts Medicare patients and Medicare pays its share of the bill and the beneficiary pays the balance
OASDI Survivor Benefits
-Survivor Benefits can be paid to dependents of a deceased worker who is either fully or currently insured -Survivors include: unmarried children younger than 18, unmarried disabled children, surviving spouse with children younger than age 16, surviving spouse age 60 or older, disabled widow or widower (ages 50-59), and dependent parents -The benefits provide a substantial amount of financial protection to families
Workers Compensation
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 important in reducing the economic uncertainty that may result from a job-related disability
Medical Insurance (Part B)
A voluntary program that covers physicians' fees and related medical services and is financed by monthly premiums and the general revenues of the federal government -Covered services include physician services, clinical laboratory services, home health care, outpatient hospital services, and blood -Beneficiaries must pay a monthly premium for the benefits -The beneficiary must meet an annual deductible -The program pays 80% of the Medicare-approved amount for most services
OASDI Benefits Eligibility
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 duration of work test must be satisfied before receiving disability benefits
Fellow-Servant Doctrine
The injured worker could not collect damages if the injury resulted from the negligence of a fellow worker
Unemployment Insurance Eligibility
An unemployed worker must meet the following monetary eligibility requirements: -Have qualifying wages and employment during the base year -Be able and available for work -Be actively seeking work -Meet a one-week waiting period
Medicare prescription drug coverage (Part D)
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 covered -Plans must provide at least standard coverage -Beneficiaries pay part of the cost of prescription drugs, and Medicare pays part of the cost -For 2012, the average monthly premium for he private plans is an estimated $30
Assumption-of-Risk Doctrine
The injured worker could not collect if he or she had advanced knowledge of the dangers of the occupation
OASDI Disability Benefits
Disability income 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
OASDI Retirement Benefits 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
Medicare Hospital Insurance (Part A)
Financed by a payroll tax paid by covered employees, employers, and the self-employed -Payroll tax is 1.45% on all covered earnings -The program is subsidized by a small amount of general revenues
Contributory Negligence Doctrine
Injured workers could not collect damages if they contributed in any way to the injury
OASDI Disability Benefits Eligibility
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 before age 22
Unemployment Insurance Coverage
Most jobs in private firms, state and local governments, and nonprofit organizations are covered for unemployment benefits -Private firms are subject to the federal unemployment tax
Workers Compensation Laws
Most states passed workers compensation laws by 1920 -Coverage is based on the fundamental principle of liability without fault -Employees do not have to sue their employers
Workers Compensation Objectives
Objectives of state workers compensation laws include: -Broad coverage of employees for related accidents and disease -Substantial protection against the loss of income -Sufficient medical care and rehabilitation services -Encouragement of safety -Reduction in litigation
Employer Liability Laws
Passed between 1885 and 1910 improved the legal position of injured workers -But, workers still had to sue their employers to collect for their injuries
Medicare Advantage Plans (Part C)
Private health plans that are part of the Medicare program -Medicare pays a set monthly amount to the plan -Most plans provide extra benefits and have lower co-payments than the original Medicare plan -Plans include: medicare PPOs, Medicare HMOs, Medicare Private Fee-for Service plans, Medicare Medical Savings Account Plans, Medicare Special Needs plans
Unemployment Insurance Problems
Problems with state unemployment compensation programs include: -Programs do not cover all unemployed persons -State fund balances are inadequate -A high percentage of claimants are exhausting their regular state unemployment benefits
Workers Compensation Problems
Problems with state workers compensation programs include: -Rising share of medical costs to total benefits -Fraud and abuse -Impact of an aging workforce on workers compensation costs
Unemployment Insurance
Programs are federal-state programs that pay weekly cash benefits to workers who are involuntarily unemployed -Cash benefits are paid during period of short-term involuntary unemployment -Applicants are encouraged through local employment offices to find jobs -Unemployment benefits help stabilize the economy during recessionary periods
Unemployment Insurance Programs
Programs are financed largely by payroll taxes paid by employers on the covered wages of employees -For 2015, covered employers paid a federal payroll tax of 6% on the first $7000 of annual wages -To strengthen reserves and maintain fund solvency, most states have a taxable wage base that exceeds $7000 -Experience rating is also used, by which firms with favorable employment records pay reduced tax rates
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 -Inpatient care is covered for up to 90 days for each benefit period -Inpatient care in a skilled nursing facility is covered up to a maximum of 100 days in a benefit period -Hospitals are reimbursed for inpatient services under a prospective payment system -A flat amount is paid for each service based on its diagnosis-related group (DRG)
OASDI: Problems and Issues (Changes)
Recent proposed changes include: -Using "progressive indexing" to determine benefits -Increasing the Social Security payroll tax for both employers and employees -Moving up scheduled increases in the full retirement age -Reducing benefits for future retirees
Reasons for Social Insurance
Social insurance programs are necessary for several reasons: -To help solve complex social problems -To provide coverage for perils that are difficult to insure privately -To provide a base of economic security to the population
Basic Characteristics of Social Insurance
Social insurance programs have certain characteristics that distinguish them from other government insurance programs: -Most programs are compulsory (no adverse selection) -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 -Full funding of benefits is unnecessary, programs are designed to be financially self-supporting
OASDI: Retirement Benefits
Social security retirement benefits are an important source of income for most retired workers -For persons both 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
OASDI: Problems and Issues (Deficit)
The deficit can be reduced or eliminated by: -Increase payroll taxes -Decrease benefits -Using general revenues to pay benefits -Some combination of these
OASDI Retirement Benefits Base
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 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
OASDI: Problems and Issues
The program is running an annual surplus, but the OASDI trust funds will soon experience serious financial problems -The combined OASDI trust funds will be exhausted in 2034 -In 2034, non-interest income will be sufficient to pay only about 78% of scheduled benefits -The Disability Income trust fund is projected to be exhausted in 2016
Workers Compensation Eligibility
Two eligibility requirements must be met to receive benefits: -The disabled person must work in a covered occupation -The injury or disease must arise out of and in the course of employment
Workers Compensation common Law
Under the common law of industrial accidents (1837) workers injured on the job had to sue their employers and prove negligence before they could collect damages
Workers Compensation Benefits
Workers compensation laws provide four benefits: -Medical care generally is covered in full with no limitations -Disability-income benefits can be paid after the disabled worker satisfies a waiting period -Death benefits can be paid to eligible survivors if the worker dies as a result of a job-related accident or disease -All states provide rehabilitation services to restore disabled workers to productive employment