Social insurance is any
governmentA government is the body within a community, political entity or organization which has the authority to make and enforce rules, laws and regulations.....
-sponsored program with the following four characteristics:
- the benefits, eligibility requirements and other aspects of the program are defined by statute;
- explicit provision is made to account for the income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
and expenseIn common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...
s (often through a trust fundIn common law legal systems, a trust is an arrangement whereby property is managed by one person for the benefit of another. A trust is created by a settlor , who entrusts some or all of his property to people of his choice...
);
- it is funded by tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
es or premiums paid by (or on behalf of) participants (although additional sources of funding may be provided as well); and
- the program serves a defined population, and participation is either compulsory or the program is heavily enough subsidized that most eligible individuals choose to participate.
Social insurance has also been defined as a program where risks are transferred to and pooled by an organization, often governmental, that is legally required to provide certain benefits.
In the U.S., programs that meet these definitions include
Social SecuritySocial Security in the United States currently refers to the federal Old-Age, Survivors, and Disability Insurance program....
,
MedicareMedicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. The medicare program also funds residency training programs for the vast majority of physicians in the...
, the
PBGCThe Pension Benefit Guaranty Corporation is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and...
program, the
railroad retirementThe Railroad Retirement Board is an agency of the United States government created in the 1930s to administer a social insurance program providing retirement benefits to the country's railroad workers....
program and state-sponsored unemployment insurance programs. The
Canada Pension PlanThe Canada Pension Plan is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's public retirement income system, the other component being Old Age Security...
(CPP) is also a social insurance program.
Typical similarities between social insurance programs and private
insuranceInsurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known...
programs include:
- Wide pooling of risks
A risk pool is one of the forms of risk management mostly practised by insurance companies. Under this system, insurance companies come together to form a pool, which can provide protection to insurance companies against catastrophe risks such as floods, earthquakes etc. The term is also used to...
;
- Specific definitions of the benefits provided;
- Specific definitions of eligibility rules and the amount of coverage provided;
- Specific premium, contribution or tax rates required to meet the expected costs of the system.
Typical differences between private insurance programs and social insurance programs include:
- Equity versus Adequacy: Private insurance programs are generally designed with greater emphasis on equity between individual purchasers of coverage, while social insurance programs generally place a greater emphasis on the social adequacy of benefits for all participants.
- Voluntary versus Mandatory Participation: Participation in private insurance programs is often voluntary, and where the purchase of insurance is mandatory, individuals usually have a choice of insurers.
Discussion
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Social insurance is any
governmentA government is the body within a community, political entity or organization which has the authority to make and enforce rules, laws and regulations.....
-sponsored program with the following four characteristics:
- the benefits, eligibility requirements and other aspects of the program are defined by statute;
- explicit provision is made to account for the income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
and expenseIn common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...
s (often through a trust fundIn common law legal systems, a trust is an arrangement whereby property is managed by one person for the benefit of another. A trust is created by a settlor , who entrusts some or all of his property to people of his choice...
);
- it is funded by tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
es or premiums paid by (or on behalf of) participants (although additional sources of funding may be provided as well); and
- the program serves a defined population, and participation is either compulsory or the program is heavily enough subsidized that most eligible individuals choose to participate.
Social insurance has also been defined as a program where risks are transferred to and pooled by an organization, often governmental, that is legally required to provide certain benefits.
In the U.S., programs that meet these definitions include
Social SecuritySocial Security in the United States currently refers to the federal Old-Age, Survivors, and Disability Insurance program....
,
MedicareMedicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. The medicare program also funds residency training programs for the vast majority of physicians in the...
, the
PBGCThe Pension Benefit Guaranty Corporation is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and...
program, the
railroad retirementThe Railroad Retirement Board is an agency of the United States government created in the 1930s to administer a social insurance program providing retirement benefits to the country's railroad workers....
program and state-sponsored unemployment insurance programs. The
Canada Pension PlanThe Canada Pension Plan is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's public retirement income system, the other component being Old Age Security...
(CPP) is also a social insurance program.
Similarities to private insurance
Typical similarities between social insurance programs and private
insuranceInsurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known...
programs include:
- Wide pooling of risks
A risk pool is one of the forms of risk management mostly practised by insurance companies. Under this system, insurance companies come together to form a pool, which can provide protection to insurance companies against catastrophe risks such as floods, earthquakes etc. The term is also used to...
;
- Specific definitions of the benefits provided;
- Specific definitions of eligibility rules and the amount of coverage provided;
- Specific premium, contribution or tax rates required to meet the expected costs of the system.
Differences from private insurance
Typical differences between private insurance programs and social insurance programs include:
- Equity versus Adequacy: Private insurance programs are generally designed with greater emphasis on equity between individual purchasers of coverage, while social insurance programs generally place a greater emphasis on the social adequacy of benefits for all participants.
- Voluntary versus Mandatory Participation: Participation in private insurance programs is often voluntary, and where the purchase of insurance is mandatory, individuals usually have a choice of insurers. Participation in social insurance programs is generally mandatory, and where participation is voluntary, the cost is heavily enough subsidized to ensure essentially universal participation.
- Contractual versus Statutory Rights: The right to benefits in a private insurance program is contractual, based on an insurance contract
In law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
. The insurer generally does not have a unilateral right to change or terminate coverage before the end of the contract period (except in such cases as non-payment of premiums). Social insurance programs are not generally based on a contract, but rather on a statuteA statute is a formal written enactment of a legislative authority that governs a country, state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law and the regulations issued by...
, and the right to benefits is thus statutory rather than contractual. The provisions of the program can be changed if the statute is modified.
- Funding: Individually purchased private insurance generally must be fully funded. Full funding is a desirable goal for private pension plans as well, but is often not achieved. Social insurance programs are often not fully funded, and some argue that full funding is not economically desirable.
See also
- Generational accounting
Generational accounting is a method of national accounting for measuring redistribution of lifetime tax burdens across generations from social insurance, including social security and social health insurance....
- Social Insurance Number
A Social Insurance Number is a number issued in Canada to administer various government programs. The SIN was created in 1964 to serve as a client account number in the administration of the Canada Pension Plan and Canada's varied employment insurance programs. In 1967, Revenue Canada started...
(Canada)
- Social security
Social security is primarily a social insurance program providing social protection, or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...
- Social Security (United States)
Social Security in the United States currently refers to the federal Old-Age, Survivors, and Disability Insurance program....
- Social Security (Sweden)
Sweden's social democratic economic formula, a capitalist system interlarded with substantial welfare elements, was challenged in the early 1990s by high unemployment...
- Social Security (Australia)
Social Security, in Australia, refers to a system of social welfare payments provided by Commonwealth Government of Australia. These payments are administered by a Government body named Centrelink...
- Social Security Disability Insurance
Social Security Disability Insurance is a payroll tax-funded, federal insurance program of the United States government. SSDI, managed by the Social Security Administration, is designed to provide income to people who are unable to work because of a disability...
(United States)
- Social health insurance
- Social Protection
- Social safety net
Social Safety Nets are non-contributory transfer programs seeking to prevent the poor or those vulnerable to shocks and poverty from falling below a certain poverty level. Safety net programs can be provided by the public sector or by the private sector...
- Social welfare provision
- Welfare state
There are two main interpretations of the idea of a welfare state:* A model in which the state assumes primary responsibility for the welfare of its citizens...