RMI 3501 Lecture Notes - Lecture 2: Disability Insurance, Eminent Domain, Unemployment Benefits
16 Oct 2016
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Topic 2: the Role of Social Insurance Programs
• SI Programs
o OASDI and Medicare
o WC
o Unemployment insurance
o Temporary Disability Insurance (TDI)
• Major characteristics of SI programs
o Copulso puhase of isuae o opulso patiipatio i a poga la
▪ Aimed toward EE, ER, or both
o “oe go’t atig i a isk eaig apait
▪ Essentially an insurer (acting as an insurer)
▪ Fedeal go’t o state go’t
• Why do SI programs exist?
o Individuals are often myopic (short-sighted) in their planning
o Piate isuae ould/ould hae aket failue
▪ Failure to insure a particular risk
▪ Issues ith espet to euieets of a isuale isk
• Catastrophic loss possibility
• Moral hazard
• Adverse selection
• Make sue loss eig isued is defiite
o Easy to verify (see)
• Why is it important for ER to understand SI programs when they design EE benefits?
o Possibility of overinsurance in some cases
▪ Disability is the biggest problem of this
▪ Programs must be coordinated/integrated into plan design
o ER provides much of the funding for SI program
▪ iidee of the ta
• ta of doig lao- making labor more expensive
• OASDI = Social Security
o 3 types of benefits
▪ OA= old age (retirement)
▪ S= survivor (life insurance)
▪ D= disability
o Who is the risk bearer?
▪ Fedeal go’t
o Sources of funds
▪ Payroll taxes paid on earned income in a covered occupation
• What percentage of occupations is covered?
o 99%
• Payroll taxes
o “peifi taes to fud OA“DI as opposed to geeal
eeues
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