Social Insurance Programs Tutorial

Negative Transfer

Ellen receives a _______ _______ because she receives less from the Social Security system than her contributions would otherwise have funded.

Social security taxes

First, employers pay Social Security taxes as well as employees. Second, taxes are only levied up to an income threshold. Third, maximum levels of taxes paid are determined by the tax rate multiplied by income up to the threshold level.

trust funds

Social insurance programs are funded through ____ ____, which are specific funds set up to finance these programs.

Transfer program

Social security is a

transfer function

The other characteristic is the extent to which individual benefits are paid by someone else. This characteristic defines the _______ _______ and is not performed by private insurers. The transfer function is unique to social insurance programs.

Positive transfer

Transfers must go in both directions. That is, Bob receives a ______ ______ from Ellen because he receives more from the Social Security system than his contributions would otherwise have funded.

social security surpluses

Whenever taxes exceed current benefit payments, ____ ____ ____ are said to occur

Paternalism

another rationale for social insurance programs. It may be believed that some members of society will not voluntarily purchase private insurance or save for their own retirement. It may also be believed that private individuals will not save for times when they are too ill to work or are laid-off from work. Advocates of _________ justify social insurance programs on the belief that policymakers better understand what is good for a certain proportion of individuals in society than the individuals do themselves.

Social Security

created in 1935, provides benefits to retired and disabled workers and their dependents.

equal

employers pay Social Security taxes as well as employees. Each pay an _____ share and therefore our current (combined) tax rate of 15.3 percent consists of payments by both employee and employer of 7.65 percent each.

Medicare

introduced in 1965, provides for inpatient costs at hospitals and limited care at nursing homes.

Intragenerational transfers

occur (mostly) due to transfers from high income individuals to low income individuals within a generation. That is, higher income individuals tend to receive fewer dollars in benefits relative to taxes they paid during their working lives than lower income individuals.

economic incidence

of the tax is fully placed on the worker.

social security deficits

whenever current benefit payments exceed taxes, ____ ____ ____ are said to occur

general tax fund

while payroll taxes are used to fund Social Security benefits, all payroll taxes are sent to the of the U.S. Treasury.

payroll taxes

Social Security is financed through _____ _____.

Fully funded

Understanding of assets and liabilities leads to the definition of a "______ _______" pension fund. When future pension payments are guaranteed by the fact that contributions are invested, or saved, until recipients collect retirement benefits, pension funds are fully-funded. These pension funds are therefore solvent at all times and any private pension fund that cannot balance both sides of its balance sheet is termed "not ______ ______" or, more commonly, insolvent.

Equity

considerations play an important role in social insurance programs. It has been argued that private market insurers set insurance premiums too high for various individuals in society. Social insurance programs are designed to meet ______ goals when they transfer income by subsidizing insurance programs for eligible individuals.

Unemployment insurance

enacted in 1935, provides benefits to laid-off workers.

Self-employed workers

must pay both shares for a total of 15.3 percent.

Social insurance programs

of the federal government provide benefits to individuals and families for loss of income due to retirement, disability, illness and unemployment. Although these programs are referred to as insurance programs, they differ in one important respect from private insurance programs: social insurance programs are also income transfer programs. Eligibility for these programs is not based on need, but rather are based on membership in groups such as the elderly, disabled and unemployed. _____ _____ ______ are therefore not necessarily meant for just the poor, but can transfer income to the well-to-do in society.

Statutory incidence

simply refers to who has the legal obligation to collect or pay a tax.

Adverse selection

tends to occur in insurance markets where those at greatest risk tend to demand more insurance than those at low risk. When an insurance company finds that "bad risks" are more likely to insure than "good risks" this is called:

Intergenerational transfers

occur because current benefits are paid by taxes of today's workers. Workers of today therefore transfer income, in the form of payroll taxes, to current Social Security beneficiaries. While it is true that past payroll taxes of current beneficiaries paid for benefits of yesterday's beneficiaries, recall that taxes paid by current beneficiaries have not been saved in trust funds. Put slightly differently, transfers flow from future generations of beneficiaries to current beneficiaries.

moral hazard

-A related problem is that of "_____ _____" that occurs when policies promote behaviors that the policies themselves are supposed to control or prevent. Unemployment insurance may promote a _____ ______ if, through its subsidization of unemployment, workers become unemployed more often or remain unemployed for longer periods of time. -When an insurance company finds that people who are insured take less care of their insured property this is called -When unemployment insurance causes some workers to quit their jobs only because they wish to collect benefits, what is said to occur?

Rationalles for Social Insurance Policies

1. Lack of private markets 2. Promotion of Equity goals of society 3. Paternalism

insurance function

One characteristic is the extent to which individual benefits are financed by payments of beneficiaries. This characteristic is the _______ _________ and is identical to the function performed by private insurers.

Pay-as-you-go

Social Security has what kind of nature?