Mod 1 set 2- Basic Principles of Social Insurance Flashcards
describe how social insurance is a compulsory program, why is this an important characteristic for SI?
• covers healthy and unhealthy people (covers everyone)
• this allows a basic floor of income protection to be
provided at a reasonable cost to the masses
How does social insurance provide a “minimum floor of protection”? Why is this a “minimum”?
- philosophy is that individual is primarily responsible for his/her own economic security(which is case in most countries)
- only a minimum benefit should be paid if government assistance is needed
- benefit should be set at a level that , when combined with other income or insurance, an individual should be able to maintain a reasonable standard of living
What is an important objective for SI?
An important SI objective is to keep people off of welfare
What does social adequacy mean?
• Social adequacy means benefits paid provide a certain standard of living to all contributors
– provides a minimum floor of income to all groups
What does Individual equity mean?
• Individual equity means contributors receive benefits
directly related to their contributions
– (actuarial) value of benefits is closely related to the
(actuarial)value of contributions
Is SI a form of social adequacy or individual equity? What about Private Insurance?
Private Insurance: Individual equity
SI: social adequacy
Social adequacy results in benefits that are heavily weighted to which groups of people?
– lower income groups
– larger families
– those near retirement when retirement program(s) introduced
These people will receive more in benefits than they put in the plan.
Results in SI redistributing wealth.
How are the benefits loosely related to earnings and what does this mean in terms of SI?
- this means that some relationship exists between individual equity and social adequacy
- generally, the higher the worker’s earnings, the greater will be the benefit for that person
Why would it not be wise to have benefits tightly related to earnings in social insurance?
This would result in inadequate benefits being paid to lower income groups
“Rights to benefits with no means test” - what does this mean?
while ‘need’ is recognized in the program, there is no need or “means” test
– individuals receive benefits regardless of their income needs – they only have to fulfill the eligibility requirements
Is the right to receive benefits a statutory or contractual right?
- It is a statutory right
Statutory right: right granted by law
Contractual right: rights granted when individual enters a contract
What does “Benefits based on presumed need” mean? Give an example
Benefits are not automatically paid, but only paid when certain events occur and all eligibility requirements are met, the individual needs to apply for the benefits
- for example, OASDI/ CPP retirement benefits are not automatically paid out upon reaching age 65 but are paid out on retirement(when it is presumed the benefits are needed)
How is SI self supporting?
social insurance is financed and supported through – payroll contributions of employers,
– payroll contributions of employees
– payroll contributions of the self employed
– interest on fund investments
What is full funding?
This is when “the value of the accumulated assets under the plan is sufficient to pay out all liabilities for the benefit rights accrued to date under the plan”
Why is full funding not practical/necessary for SI?
• Full funding is not practical for social programs as it would be quite difficult to determine benefits accrued to date
• Full funding is not necessary for social programs because;
– program is expected to operate indefinitely
– program is compulsory, so always has new people entering
– gov’t can always use its taxing powers to raise additional $$
• Full funding is not desirable- would be detrimental costs
