Topic 2 Flashcards
Social Insurance Programs
- OASDI + Medicare
- UC+UI
- TDI: Temporary Disability Insurance
Why Do Social Insurance Programs Exist
- Individuals tend to be myopic in planning
- Private insurance market in some cases is unable to insure a particular risk:
1. Issues with requirements of insurable risk; adverse selections, moral hazards and market failure
Why Is it Important for ERs to understand SI Programs in Designing a Benefit Plan?
- Possibility of individuals being overinsured for particular loss exposure
- Disability: ASDI, Short Term/Long Term, Worker’s Comp, Integrated into plan design - ERs provide much of funding for these programs
2 Major Characteristics of SI Program
- Compulsory purchase of insurance or compulsory participation in a program
- Government acts as an insurer; State, Federal or both
OASDI
- All benefits are monthly income amounts
- PIA: Primary Insurance Amount; function of AIME
- AIME = Average Index Monthly Earnings
- Federal Government is the risk bearer
OASDI Financing
- Financed by payroll taxes
- 6.2% of salary up to maximum taxable usage base (earned income); 2013=$113,7000
- Paid by EE and matched by ER
PIA:
Primary Insurance Amount
AIME
Average Index Monthly Earnings
Health Insurance Tax (OASDI)
- EE pays 1.45% ≤ $200,000
- EE pays 0.9% ≥ $200,000; total 2.3%
- ER matches the 1.45%; not the 0.9%
Worker’s Compensation
On the job injuries/death benefits
Types of Benefits for Worker’s Compensation
- Medical Expenses
- Loss of Income
- Both are economic losses
Worker’s Compensation: Type of Compulsion
State Law
Worker’s Compensation Compulsion Targeted At
Aimed at ER
Worker’s Compensation Risk Bearer
- Private Insurance
- ER if plan is self insured
- State Funds:
1. Competitive (Last resort, High Risk)
2. Monopoly
Sources of Funds for Worker’s Compensation
ER: premiums/self insurance contributions
Unemployment Insurance: Type of Benefit
Loss of Income while unemployed
Unemployment Insurance Risk Bearer
Federal and State
Sources of Funds for Unemployment Insurance
- Payroll Taxes: FUTA (Federal Unemployment Tax ACT), ER pays
- In some states EEs pay small payroll tax: PA<1%
- Tax rate is experienced rated back to ER
TDI
Temporary Disability Insurance
States that Offer TDI
- New York
- Nevada
- Hawaii
- Rhode Island
- California
and Puerto Rico
TDI: Type of Benefits
- Short Term: Up to 6 months
- Non occupational disability insurance
Risk Bearer for TDI
- State
- Private Insurer
Type of Compulsion for TDI
State Law
Funding for TDI
- Premiums paid by ER and/or EE payroll taxes
