CHARACTERISTICS OF SOCIAL INSURANCE

Even though there are variations in social insurance programs and exceptions to the rule always exist, social insurance programs tend to have the following distinguishing characteristics:

- Compulsory employment-related coverage

- Partial or total employer financing

- Benefits prescribed by law

- Benefits as a matter of right

- Emphasis on social adequacy

Compulsory Employment-Related Coverage
Most social insurance programs are compulsory and require that the persons covered be attached—either presently or by past service—to the labor force. If a social insurance program is to meet a social need through the redistribution of income, it must have widespread participation.

Partial or Total Employer Financing
While significant variations exist in social insurance programs, most require that the cost of the program be borne fully or at least partially by the employers of the covered persons. This is the basis for including these programs under the broad definition of employee benefits. The remaining cost of most social insurance programs is paid primarily by the persons covered under the programs. With the exception of Medicare and certain unemployment benefits, the general revenues of the federal government and state governments finance only a small portion of social insurance benefits.

Benefits Prescribed by Law
Although benefit amounts and the eligibility requirements for social insurance benefits are prescribed by law, benefits are not necessarily uniform for everyone. They may vary by such factors as wage level, length of covered employment, or family status. These factors are incorporated into the benefit formulas specified by law, and covered persons are unable to either increase or decrease their prescribed level of benefits.

Benefits as a Matter of Right
Social insurance benefits are paid as a matter of right under the presumption that a need for the benefits exists. This feature distinguishes social insurance programs from public assistance or welfare programs under which applicants, to qualify for benefits, must meet a needs test by demonstrating that their income or assets are below some specified level.

Emphasis on Social Adequacy
Benefits 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. This emphasis on social adequacy also results in disproportionately large benefits in relation to contributions for some groups of beneficiaries. Under some programs, high-income persons, single persons or small families, and the young are subsidizing low-income persons, large families, and the retired.

If social insurance programs were based solely on individual equity, benefits would be actuarially related to contributions, just as they are under private insurance programs. While this degree of individual equity does not exist, there is some relationship between benefits and income levels (and thus contributions). Within certain maximum and minimum amounts, benefits are a function of a person's covered earnings under social insurance programs. However, the major emphasis is on social adequacy.