Suggested Time
I. Introduction |
5 minutes |
II. Reasons for social insurance |
10 minutes |
III. Characteristics of social insurance |
10 minutes |
IV. Social security (OASDHI) |
15 minutes |
V. OASDI: Eligibility |
15 minutes |
VI. OASDI: Types of benefits |
15 minutes |
Break |
15 minutes |
Subtotal |
90 minutes |
VII. OASDI: Benefit amounts |
15 minutes |
VIII. OASDI: Requesting information |
15 minutes |
IX. Medicare: Part A benefits |
15 minutes |
X. Medicare: Part B benefits |
15 minutes |
XI. Managed care coverage under medicare |
15 minutes |
XII. Taxation of social security benefits |
15 minutes |
Subtotal |
90 minutes |
Total |
180 minutes |
COURSE OUTLINE
I. Introduction
A. Types of social insurance programs
- Social security
- Unemployment insurance
- Workers compensation insurance
- Temporary disability insurance
B. Significance of social insurance programs
- The most significant insurance expense for most individuals is their contribution to
social insurance programsprimarily social security.
- Nearly one-quarter of the dollars employers spend on benefits for their employees is
used to make legally required payments to social insurance programs.
- Social insurance is the foundation on which many individual insurance plans and employee
benefit programs are built.
II. Reasons for social insurance
- The need to solve the major social problems that affect a large portion of society
- The difficulty of privately insuring certain types of losses
- The expectation that the government will provide at least a degree of economic security
against the consequences of premature death, old age, disability, and unemployment
III. Characteristics of social insurance
A. Compulsory employment-related coverageMost social insurance programs are
compulsory and require that the persons covered be attached (either presently or by past
service) to the labor force.
B. Benefits prescribed by lawBenefit amounts and the eligibility requirements for
social insurance benefits are prescribed by law.
C. Benefits as a matter of rightSocial insurance benefits are paid as a matter of
right under the presumption that a need for the benefits exists.
D. Emphasis on social adequacyBenefits under social insurance programs are based
more on social adequacy than on individual equity.
- Under the principle of social adequacy, benefits are designed to provide a minimum floor
of income to all beneficiaries under the program regardless of their economic status.
Above this floor of benefits persons are expected to provide additional resources from
their own savings, employment, or private insurance programs.
- Under the principle of individual equity, benefits are actuarially related to
contributions just as they are under private insurance programs.
E. Partial or total employer financingMost social insurance programs require that
the cost of the program be borne fully or at least partially by the employers of the
covered persons.
IV. Social security (OASDHI) The term social security is usually used
to mean the old-age, survivors, disability, and health insurance (OASDHI) program of the
federal government.
A. What is social security?
- Part of the broader Social Security Act of 1935
- Old-age insurance
- Unemployment insurance
- Federal grants for assistance to certain needy groups: the aged, the blind, and children
- Federal grants for maternal and child welfare, public health work, and vocation
rehabilitation
- Old-age insurance
- Survivors benefits (1939)
- Disability insurance (1956)
- Health insurance or medicare (1965)
B. Extent of coverage
- More than 90 percent of the workers in the United States are covered
- Excluded workers:
- Civilian employees of the federal government who were employed by the government prior
to 1984 and who are covered under the Civil Service Retirement System or certain other
federal retirement programs
- Railroad workers
- Employees of state and local governments unless the state has entered into a voluntary
agreement with the Social Security Administration
- American citizens working abroad for foreign affiliates of U.S. employers, unless the
employer owns at least a 10 percent interest in the foreign affiliate and has made
arrangements with the secretary of the treasury for the payment of social security
taxes
- Ministers who elect out of coverage because of conscience or religious principles
- Workers in certain jobs such as student nurses, newspaper carriers under age 18, and
students working for the school at which they are regularly enrolled
- Certain family employment, including the employment of a child under age 18 by a parent
- Certain workers who must satisfy special earnings requirements
C. Financing
- Part A of medicare and all the benefits of the OASDI program are financed through a
system of payroll and self-employment taxes paid by all persons covered under the program
- Part B of medicare is financed by a combination of monthly premiums paid by persons
eligible for benefits and contributions from the federal government.
- The social security program is essentially based on a system of pay-as-you-go financing
with limited trust funds. Current payroll taxes and other contributions the program
receives are used to pay the current benefits of persons who are no longer paying social
security taxes because of death, old age, or disability.
- All payroll taxes and other sources of funds for medicare are deposited into three trust
funds. Benefits and administrative expenses are paid out of the appropriate trust fund
from contributions to that fund and any interest earnings on excess contributions.
- In the early 1980s there was concern over the potential inability of payroll taxes to
pay promised benefits in the future. Payroll tax rates were increased, some benefits were
eliminated, and future increases in other benefits were scaled back
- The trust fund for old-age and survivors benefits will continue to grow and will be very
large by the time the current baby boomers retire. At that time the fund will begin to
decrease as the percentage of retirees grows rapidly.
- There is concern about the future solvency of the medicare portion of the program.
V. OASDI: Eligibility
To be eligible for benefits under OASDI, an individual must have credit for a minimum
amount of work under social security.
A. Fully insuredOne of two requirements must be met.
- Credit for 40 quarters
- Credit for at least as many quarters of coverage as there are years elapsing after
1950 (or after the year in which age 21 is reached, if later) and before the year
of death, disability, or age 62, whichever occurs first
B. Currently insured
- Credit for 6 out of the last 13 quarters, ending with the quarter in which death occurs
- Of no significance if a person is already fully insured
C. Disability insured
- Must be fully insured
- Must have credit for at least 20 out of the last 40 quarters (reduced for persons under
age 31)
VI. OASDI: Types of benefits
A. Retirement benefits
- For workers at 62, but benefits are reduced if taken prior to 65
- Additional benefits for dependents
- A spouse aged 62 or older
- A spouse of any age caring for a child under age 16 or a disabled child
- Dependent, unmarried children under 18 (or older if disabled)
B. Survivors benefits
- Payable for either fully or currently insured status
- $255 lump sum
- Income for dependent, unmarried children
- Income for a spouse caring for children
- Payable for fully insured status only
- Income to a widow or widower
- Income to a dependent parent aged 62 or over
C. Disability benefits
- Must meet the definition of disabilitya mental or physical impairment that
prevents a worker from engaging in any substantial gainful employment. The disability must
also have lasted (or be expected to last) at least 12 months or be expected to result in
death.
- Payable beginning with sixth full month of disability
D. Eligibility for dual benefits
- Only receive an amount equal to the largest benefit
E. Termination of benefits
- Upon death, but the family may be eligible for survivors benefits
- At age 65 for disability benefits, but they are replaced by retirement benefits
- Usually at age 18 for children
- Upon remarriage prior to age 60 for a surviving spouse
VII. OASDI: Benefit amounts
1. Calculation of AIME (See example in reading.) .
2. Determination of the PIA (primary insurance amount) and monthly benefits
- The PIA is determined by a formula after AIME is calculated.
- Workers receive the PIA; other family benefits are based on the PIA.
- The PIA is about $1,150 for a retiring worker who had maximum earnings. The PIA is
between $1,150 and $1,375 for a disabled or deceased worker.
- Total family benefits are subject to a maximum determined by formula.
3. Other factors affecting benefits
- Income levelThere is a minimum benefit for persons who have had low incomes.
- Reduction for early benefits
- 5/9 of one percent for each month prior to age 65 for a worker (that is, 20 percent
reduction at 62)
- 25/36 of one percent for each month prior to age 65 for a spouse (that is, 25 percent
reduction at age 62)
- Late retirementBenefits increase by 3 to 4 percent for each year of delay in
starting benefits after age 65. There is no further increase for delayed retirement after
age 70.
- Earnings test
- The test applies only to income from wages.
- Beneficiaries aged 6569 can have annual earnings of $11,280 (in 1995) without a
benefit reduction. Benefits are reduced by $1 for each $3 of excess earnings.
- Beneficiaries under age 65 can earn only $8,160 (in 1995). Benefits are reduced $1 for
each $2 of excess earnings.
- There is no reduction in benefits for persons aged 70 or older regardless of earnings.
- Cost-of-living adjustmentsGenerally equal to changes in the consumer price index
- Offset for other benefits
- Disabled workers have benefits reduced if OASDI and other government benefits (such as
workers compensation) exceed 80 percent of earnings at the time of disability.
- The spouses benefit is reduced by two-thirds of government pension that is based
on earnings not covered under OASDI.
VIII. Requesting information
IX. Medicare: Eligibility
- Anyone aged 65 or older who is entitled to income benefits under social security or
railroad retirement programsno monthly charge
- Anyone else aged 65 or older who pays the monthly premium
- Others
- Dependents aged 65 or older of fully insured workers aged 62 or older
- Survivors aged 65 or older who are eligible for OASDI survivors benefits
- Disabled persons at any age who have been eligible to receive OASDI benefits for
2 years because of their disability
- Workers who are either fully or currently insured and their spouses and dependent
children with end-stage renal (kidney) disease who require renal dialysis or kidney
transplants
- Anyone who is eligible for part A
- Requires payment of monthly premium
X. Medicare: Part A Benefits
1. Hospital benefits
- 60 days at no cost after an initial deductible
- 30 additional days with copayment
- 60-day lifetime reserve
- Covered expenses
- Room and board in semiprivate accommodations
- Nursing services (except private-duty nurses)
- Use of regular hospital equipment
- Drugs and biologicals
- Diagnostic or therapeutic items or services
- Operating-room costs
- Blood transfusions after the first three pints of blood
2. Skilled-nursing facility benefits
- Provide skilled-nursing care and rehabilitative care for conditions treated in a
hospital within prior 30 days
- 20 days at no cost
- 80 additional days with copayment
- Does not meet the need for long-term care
3. Home health care benefits
- Provided if a person needs skilled-nursing services, physical therapy, or speech therapy
and can be treated at home
- Include part-time home health aides, medical social services, occupational therapy, and
medical supplies and equipment
- No limit on the number of visits
- Benefit is being transferred to part B unless care follows an inpatient stay
4. Hospice benefits
- For persons who have 6 months or less to live
- Include home health care, drugs, bereavement counseling, and respite care
5. Exclusions
- Services outside the United States and its territories or possessions
- Elective luxury services, such as private rooms or televisions
- Hospitalization for services not necessary for the treatment of an illness
- Services performed in a federal facility, such as a veterans hospital
- Services covered under workers compensation
XI. Medicare: Part B benefits
A. Benefits
- Physicians and surgeons fees
- Diagnostic tests
- Physical therapy
- Drugs and biologicals that cannot be self-administered
- Radiation therapy
- Medical supplies
- Rental of medical equipment
- Prosthetic devices
- Ambulance service
- Mammograms and certain other medical screening
- Pneumococcal vaccine and its administration
- Home health services
B. Exclusions
- Drugs and biologicals that can be self-administered
- Routine physical, eye, and hearing examinations
- Routine foot care
- Immunizations
- Cosmetic surgery
- Dental care
- Custodial care
- Eyeglasses, hearing aids, or orthopedic shoes
C. Amount of benefits
- $100 annual deductible
- 80 percent of "approval" charges in excess of deductible
- Possibility of approved charges being less than providers actual charges
XII. Managed care under medicare
A. HMO coverage
- Medicare risk plan
- Medicare cost plan
- Medicare health care prepayment plan
B Medicare select policies
C. Other options available in 1999.
XIII. Taxation of benefits
A. Deductibility of premiums
B. Taxation of income benefits