General Insurance

Chapter 18 - Social Insurance

Lecture Overview-

Social Insurance

We jump ahead a little bit from chapter 15 to chapter 18. Here we'll discuss basic social security and some other programs like unemployment compensation and Worker's Comp. I really want you to focus on the Social Security system and Medicare. Social Security, you'll note in this chapter, is called OASDI which stands for Old-Age, Survivors, and Disability Insurance. We will go even further than the book and look at some more current information on the SSA.gov website. We'll get to that shortly.

The history of Social Security is quite interesting and rather important in understanding its purpose today. You'll notice in this chapter that the Social Security Act was passed in the 1930s and enacted in 1935. This act still covers about 90% of all workers. Social Security served as a great crutch during the Great Depression by providing income to those in need. It is not an individual equity program, but more based on social adequacy. Social Security provides only a minimal amount of subsistence for recipients.

Keeping that in mind and moving ahead to the 1960s, Medicare was added as part of the security system. Medicare covers the medical expenses of most people over age 65 and beneficiaries. Medicare usually has a payroll tax of 1.45% on all covered earnings. There are notes on that in your text.

Tax example using ssa.gov information

Please pull up the Social Security website for a minute and let me discuss a few interesting facts that you'll find. If you will type in SSA.gov, you will find a wealth of information on all facts of the OASDI program. Search specifically for 2015 tax rates. You'll probably get rates and limits to research statistics and policy analysis, although there are several parts of this website that cover the 2015 tax rates. You may find it interesting to go back and look at historical rates as well. Looking at the 2015 tax rates you will see that the SS portion is 6.2% and the Medicare and hospital insurance is 1.45% for every individual. Together that is 7.65% of earnings. That tax rate is applied to all earnings up to $118,500. You'll see on this research statistics and policy analysis page that there is no limit on the income earned for the Medicare portion of the tax. So if someone, say Warren Buffet, makes $2 million this year in earned income, he would pay 1.45% on all of that income. Since he would be self-employed, he would also match that up for a total of 2.9%. Keep in mind that the employer matches all money paid into the OASDI and Medicare systems.

Going back to the text and the overheads, you will want to spend some time looking at the benefits that are available through the OASDI system, specifically the age for full retirement and other options. Moving on through these topics, carefully read the information on Medicare coverages as you hear a lot about this on the news on a regular basis.

Unemployment

The next topic addressed in this chapter is unemployment insurance, and as you know this is a federal program that pays benefits to workers who are involuntarily unemployed on a short-term basis. Benefits are funded by payroll taxes paid by employers on wages that the employees earn. You'll note in this chapter that as of 2012, employers pay a federal payroll tax of 6% on the first $7000 of annual wages. Most states require that to go beyond $7000.

Worker's Compensation

The last topic in this chapter is Worker's Compensation. It will be interesting to Google the history of workers comp and get a little more information outside your textbook. The current law was created in 1837 to cover injuries on the job rather than requiring the employee to sue and prove negligence before they could get reimbursed for the damages. Note the objectives of the Worker's Compensation law. I always like to ask students to question whether the original objectives are still needed. Post a comment into D2L regarding whether you think any structural rules have changed that make the purpose of Worker's Compensation different from what it was originally. It's quite an interesting topic to think about!