Topic 2: Role of Social Insurance Programs
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What are the Social Insurance Programs?
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-OASDI & Medicare -WC -UI -TDI
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Why do Social Insurance Programs exist?
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-Individuals are myopic -Private market cannot handle certain risks and experiences \"Market Failure\" because they cannot handle certain risks
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Why Private Market cannot handle risks?
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-Moral Hazard -Adverse Selection -Length of Payments -Loss is not definite -Systemic Risk (Catastrophic Risk)
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Why is it important for ERs to understand Social Insurance Programs?
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-Possibility of overinsurance -ERs Provide much of the funding for the programs
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What are the two major characteristics of SI Programs?
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1. Compulsory purchase of insurance OR compulsory participation in a program 2. Government acting in a \"risk bearing\" capacity
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What are the Types of Benefits in OASDI?
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-OA -S -D
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Who is the Risk Bearer/Insurer of Social Security?
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Federal Government because they guarantee Benefits
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What are the sources of funds for Social Security?
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-Payroll Taxes -Earned income in covered occupations
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What is not a source of funds for Social Security?
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Investment Income and Disability Income
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What is the rate for Social Security? (%)
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7.65%
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What is included in the Social Security Rate?
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-OASDI -HI (Medicare Part A)
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What is the rate for OASDI? (%)
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6.2%
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What is the rate for Medicare Part A? (%)
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1.45%
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What is the Maximum Taxable Wage base for 2014? ($)
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$117,000
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How is Social Security funded?
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Money goes into one of several 'Trust Funds'
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What are the 'Trust Funds' in Social Security?
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-OASI -DI -HI
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How to fix current deficit in Social Security?
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Either Reduce Benefits or raise tax rate
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What are the characteristics of Social Security Benefits?
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-All Benefits are monthly amounts -All based on the Primary Insurance Amount (PIA)
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What is PIA a function of?
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Average Indexed Monthly Earnings (AIME)
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Who must comply with Social Security Law?
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ER
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Who makes sure ERs comply with Social Security Law?
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Federal Government
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What are types of benefits in WC?
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-On-the-job insurance for injuries/death -Medical Expenses -Loss of Income
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Which two WC Benefits are an Economic Loss to an ER?
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1. Medical Expenses 2. Loss of income
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Who are the Risk Bearers for WC Benefits?
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-Private Insurer like AIG or ACE -ER if self-insured -Stands funds in way similar to auto insurance market
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Why ERs may not be allowed to self insure WC in every state?
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In case of bankruptcy
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What are the kinds of State Funds in WC?
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-Monopoly funds -Competitive Funds -Independent Funds
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What are Monopoly Funds?
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Only way for ERs to get WC insurance (Ohio has this)
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What are Competitive Funds?
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Being able to buy from private insurers
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What are Independent Funds?
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Do not carry over into other states?
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What are Fund Issues in Competitive Funds?
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Adverse Selection Problem
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How rates are regulated in WC?
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Tax Private insurers to make up the difference in the lower price
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What are the sources of funds in WC?
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-Premiums -Self-insurance contributions
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Who are the risk bearers of Unemployment Insurance?
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-State Government -Federal Government by ONLY issuing standards and funds
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What are the Sources of Funds for Unemployment Insurance?
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-Payroll taxes -Some states the EEs pay a small payroll tax
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How is the tax rate for Unemployment Insurance determined?
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Experience rating back to ER
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Why is Experience Rating used to determine tax rate for Unemployment Insurance?
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To control Moral Hazard
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How many states require ERs to offer TDI?
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5 and Puerto Rico
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Who are the risk bearers of TDI?
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-Private Insurance -State funds
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What are the sources of funds for TDI?
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Premiums paid by ER and/or EE payroll taxes
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What is the Potential Problem of TDI?
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Moral Hazard
