Bảo hiểm - Chapter 18: Social insurance

Chapter 18Social InsuranceAgendaSocial Insurance BasicsOld-Age, Survivors, and Disability Insurance (OASDI)MedicareUnemploymentWorkers CompensationReasons for Social InsuranceSocial insurance programs are necessary for several reasons:To help solve complex social problemsTo provide coverage for perils that are difficult to insure privatelyTo provide a base of economic security to the populationBasic Characteristics of Social InsuranceSocial insurance programs have certain characteristics that distinguish them from other government insurance programs:Most programs are compulsoryThis makes it easier to provide a floor of income to the populationIt also reduces adverse selectionPrograms are designed to provide a floor of incomePrograms pay benefits based largely on social adequacy rather than individual equityThe benefits are heavily weighted in favor of certain groups, such as low-income persons, large families, and retireesBasic Characteristics of Social InsuranceBenefits are loosely related to the workers’ earnings Programs, benefits, and benefit formulas are prescribed by lawA formal means test is not requiredA means test involves disclosing income and assetsFull funding of benefits is unnecessaryFor example, it is not necessary to fully fund Social Security because workers will always enter the program and support itPrograms are designed to be financially self-supportingPrograms should be almost completely financed from the earmarked contributions of covered employeesOld-Age, Survivors, and Disability Insurance (OASDI)Commonly known as Social Security, OASDI is the most important social insurance program in the USEnacted in 1935, it covers more than 9 out of 10 workersVirtually all private-sector employees, and a majority of state and local government employees are covered under the Social Security ProgramOld-Age, Survivors, and Disability Insurance (OASDI)A worker becomes eligible for benefits by attaining an insured status:To attain a fully insured status, a worker must have 40 creditsIn 2006, a credit is earned for each $970 of covered earningsA maximum of 4 credits can be earned each yearYou are currently insured if you have earned at least 6 credits in the past 13 calendar quartersThe number of credits required to be disability insured depends on the age when you become disabledEligibility for certain benefits depends on insured status:Fully insured: retirement and survivor benefitsCurrently insured: survivor benefitsDisability insured: disability benefitsOASDI: Retirement BenefitsSocial security retirement benefits are an important source of income for most retired workersFor persons both in 1937 or earlier, full retirement age for unreduced benefits is age 65The age will increase gradually to 67Workers and their spouses can retire at age 62 with actuarially reduced benefitsMore than half of the OASDI beneficiaries apply for retirement benefits before the full retirement ageMonthly retirement benefits can be paid to retired workers and their dependentsExhibit 18.1 Social Security Full Retirement Age and Reduction in Benefits by AgeOASDI: Retirement BenefitsThe 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)Indexing results in a relatively constant replacement rate so that workers retiring today and in the future will have about the same proportion of their work earnings replaced by OASDI benefitsThe AIME is based on a weighted benefit formula which weights the benefits heavily in favor of low-income groupsSocial Security actuaries calculate each year the indexing factors that are used to determine the worker’s average indexed monthly earningsExhibit 18.2 Estimated Annual Retirement Benefits1 for Retired Workers with Various Pre-Retirement Earnings (2008–2030)OASDI: Retirement BenefitsA delayed retirement credit is available if you delay receiving retirement benefits beyond the full retirement ageCash benefits are automatically adjusted each year for changes in the cost of livingThe program has an earnings test that can result in a reduction or loss of monthly benefits for workers with earned incomes above certain annual limitsBeneficiaries who have attained the full retirement age or beyond can earn any amount and receive full OASDI benefitsTo encourage private savings and investments to supplement the benefits, the earnings test does not apply to investment income, dividends, interest, rents or annuity paymentsInsight 18.1 To Wait or Not to Wait? Options for Answering the Social Security QuestionOASDI: Survivor BenefitsSurvivor benefits can be paid to the dependents of a deceased worker who is either fully or currently insuredSurvivors include: Unmarried children younger than age 18Unmarried disabled childrenSurviving spouse with children younger than age 16Surviving spouse age 60 or olderDisabled widow or widower, ages 50-59Dependent parentsThe benefits provide a substantial amount of financial protection to familiesOASDI: Disability BenefitsDisability income benefits can be paid to disabled workers who meet certain eligibility requirementsThe benefits provide protection against the loss of income during a long-term disabilityThe worker must meet a five-month waiting period, and satisfy the definition of disabilityThe 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 deathOASDI: Disability BenefitsMajor groups eligible to receive OASDI disability income benefits include:A disabled worker under the full retirement ageThe spouse of a disabled workerUnmarried children of the disabled worker, if under age 18Unmarried children age 18 or older who become severely disabled before age 22Taxation and Financing of OASDI BenefitsSome beneficiaries who receive monthly cash benefits must pay an income tax on part of the benefitsThe amount depends on the level of your combined income, which is the sum of your adjusted gross income, tax-free interest, and ½ of your Social Security benefitsSocial Security benefits are financed by a payroll tax paid by employees, employers, and the self-employedIn 2009, a worker paid a payroll tax of 6.2% on covered earnings up to a maximum of $106,800MedicareMedicare covers the medical expenses of most persons age 65 and olderThe program also includes prescription drug plans and health care plans of private insurersBeneficiaries can select among an array of plans including: The original Medicare planMedicare Advantage plansOther Medicare health plansMedicare prescription drug plans MedicareUnder the original Medicare plan: Beneficiaries can elect any provider that accepts Medicare patientsMedicare pays its share of the bill, and the beneficiary pays the balanceThe original program provides benefits in two parts: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 transfusionsHospitals 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)MedicareMedical Insurance (Part B) is a voluntary program that covers physicians’ fees and related medical servicesCovered services include physician services, clinical laboratory services, home health care, outpatient hospital services, and bloodBeneficiaries must pay a monthly premium for the benefitsCurrently beneficiaries with annual incomes under certain levels pay 25% of the cost of the program, and the federal government pays the restA means test will be applied beginning in 2007The beneficiary must meet an annual Part B deductibleThe program pays 80% of the Medicare-approved amount for most physician services, outpatient therapy, preventive services and durable medical equipmentPayments to physicians are made on an assigned or nonassigned basisMedicareMedicare hospital insurance (Part A) is financed by a payroll tax paid by covered employees, employers, and the self-employedPayroll tax is 1.45 percent on all covered earningsThe program is subsidized by a small amount of general revenuesMedical insurance (Part B) is financed by monthly premiums and the general revenues of the federal governmentMedicareMedicare Advantage Plans (Part C) are private health plans that are part of the Medicare programIf beneficiaries choose this alternative, Medicare pays a set monthly amount to the private planMost plans provide extra benefits and have lower co-payments than the original Medicare planPlans include:Medicare PPOsMedicare HMOsMedicare Private Fee-for-service plansMedicare Medical Savings Account PlansMedicare Special Needs plansMedicareUnder a Medicare PPO, beneficiaries can generally see any doctor or provider that accepts Medicare patientsMembers do not need a referral from a primary care doctor to see a specialistMedicare HMOs are managed care plans operated by private insurersThe plan may require members to choose a primary care physician and get a referral to see a specialistIf the plan covers prescription drugs, members must pay a co-payment or coinsurance charge for each covered prescriptionUnder a Medicare Private Fee-for-service plan, the private company, rather than Medicare, decides how much it will pay and the amounts members must pay for the services provided Under a Medicare Medical Savings Account Plan, Medicare deposits money that the beneficiary can use to pay health-care costsA Medicare Special Needs plan provides more focused care for specific groups of people, such as those with chronic illnessesMedicare Medicare beneficiaries have other choices for coverage besides the Advantage PlansUnder a Medicare Cost plan, members receive care from primary care doctors and hospitals that are part of the networkServices obtained outside the network are covered under the original Medicare plan, but members must pay the Part A and Part B coinsurance and deductiblesDemonstrations and pilot programs that test and evaluate recommendations for improving MedicareA PACE program combines medical, social, and long-term care services for the frail elderlyMedicare Prescription Drug PlansMedicare prescription drug coverage (Part D) is available to all beneficiariesBeneficiaries in the original Medicare plan can add prescription drug coverage by joining a stand-alone planMonthly premiums depend on the specific plan chosenPlans vary in the cost and types of drugs coveredPlans must provide at least standard coverageBeneficiaries pay part of the cost of prescription drugs, and Medicare pays part of the costFor 2009, the average monthly premium for the private plans is an estimated $28.The cost sharing provisions are complexCosts are reduced for low-income beneficiariesExhibit 18.3 Example of Cost-Sharing Provisions Under Medicare Prescription Drug Coverage (2009)Medigap Insurance Medicare beneficiaries can purchase a Medigap policy to cover part or all of medical expenses not paid by MedicareThe policies are sold by private insurers, and are strictly regulated by federal lawThere are 12 plans (A-L) which offer different sets of benefitsOASDI: Problems and IssuesThe program is running an annual surplus, but the OASDI trust funds will soon experience serious financial problemsProjected OASDI tax income will begin to fall short of outlays in 2017The program can be actuarially balanced over the next 75 years in various ways, including:An immediate increase of 14% in payroll tax revenuesAn immediate reduction in benefits of 12%Recent proposed changes include:Using progressive indexing to determine benefitsMove up scheduled increases in the full retirement ageReduce benefits for future retirees across the boardIncrease the OASDI taxable wage earnings baseInvest part of the trust fund assets in private investmentsOASDI: Problems and IssuesThe general revenues of the federal government could be used to fund part of the programHowever, the federal budget is currently running a large deficit because of the war in Iraq and disaster payments for Hurricane Katrina, and the 2008-2009 federal stimulus expendituresReliance on general revenue financing to reduce the long-range deficit is unlikelyMedicare Financial CrisisMedicare Part A has serious financial problemsThe projected 75-year deficit in the Hospital Insurance Trust Fund (HI) is not 3.54% of taxable payrollThe fund is projected to be exhausted by 2019Efforts to hold down costs include:Reducing payments to hospitals and physiciansLimiting spending on specified servicesImplementing a diagnosis-related group method for reimbursing hospitalsInsight 18.2 How Would You Reform Social Security?Unemployment InsuranceThe federal and state governments provide unemployment insurancePrograms pay weekly cash benefits to workers who are involuntarily unemployedCash benefits are paid during periods of short-term involuntary unemploymentApplicants are encouraged through local employment offices to seek employmentUnemployment benefits help stabilize the economy during recessionary periodsUnemployment InsuranceMost private firms, state and local governments, and nonprofit organizations are covered for unemployment benefitsPrivate firms are subject to the federal unemployment taxTo be eligible, an unemployed worker must:Have qualifying wages and employment during the base yearBe able and available for workBe actively seeking workBe free from disqualificationServe a one-week waiting periodUnemployment InsuranceBenefits paid depend on the worker’s past wages, within certain limitsMost states use a formula and pay a fraction of the worker’s high quarter wagesThe maximum duration of regular benefits is limited to 26 weeks in most statesUnder the extended-benefits program, an additional 13 weeks of benefits is paid during periods of high unemploymentPrograms are financed largely by payroll taxes paid by employers on the covered wages of employeesFor 2009, covered employers paid a federal payroll tax of 6.2% on the first $7000 of annual wagesExperience rating is also used, by which firms with favorable employment records pay reduced tax ratesUnemployment InsuranceIn response to the recent financial crisis, the Emergency Unemployment Compensation program was created in 2008The program provides up to 20 weeks of federally-funded benefits to eligible unemployed workers who have exhausted their regular state unemployment benefitsOther important problems include:State unemployment compensation programs do not cover all unemployed personsState fund balances are inadequateA high percentage of claimants are exhausting their regular state unemployment benefitsWorkers CompensationWorkers compensation is a social insurance program that provides medical care, cash benefits, and rehabilitation services to workers who are disabled from job-related accidents or diseaseUnder the common law of industrial accidents (1837), workers injured on the job had to sue their employers and prove negligence before they could collect damagesUnder the contributory negligence doctrine, injured workers could not collect damages if they contributed in any way to the injuryUnder the fellow-servant doctrine, the injured worker could not collect damages if the injury resulted from the negligence of a fellow workerUnder the assumption-of-risk doctrine, the injured worker could not collect if he or she had advanced knowledge of the dangers of the occupationWorkers CompensationThe enactment of employer liability laws between 1885 and 1910 improved the legal position of injured workersBut, workers still had to sue their employers to collect for their injuriesMost states passed workers compensation laws by 1920Workers compensation is based on the fundamental principle of liability without fault; the employer is held absolutely liable for job-related injuries or diseases suffered by the workers, regardless of who is at faultEmployees do not have to sue their employersWorkers CompensationObjectives of state workers compensation laws include:To provide broad coverage of employees for job-related accidents and diseaseTo provide substantial protection against the loss of incomeTo provide sufficient medical care and rehabilitation services to injured workersTo encourage firms to reduce job-related accidentsTo reduce litigationWorkers CompensationWorkers compensation laws provide four benefits:Medical care generally is covered in full with no limitationsDisability-income benefits can be paid after the disabled worker satisfies a waiting periodDeath benefits can be paid to eligible survivors if the worker dies as a result of a job-related accident or diseaseAll states provide rehabilitation services to restore disabled workers to productive employmentWorkers CompensationState workers compensation programs face numerous problems:Medical costs as a percentage of total losses have increased dramatically from about 40% in the 1980s to almost 60% todayWorkers compensation insurers are sensitive to catastrophic exposures both natural and man-madeAttorney involvement in workers compensation claims increases claims costs by 12-15 percentCourt decisions have eroded the exclusive remedy doctrine, which states that workers compensation benefits should be the sole and exclusive remedy for injured workers