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SOCIAL INSURANCE SYSTEMS

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Lecture outline

Healthcare insurance systemRetirement insurance system Unemployment insurance system

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Social insurance system(1)

A system which is aimed at providing

benefits to a defined population in case

of the occurrence of defined events

Social insurance system (2)

Usually government funded systemsGovernment funded means that the system is sponsored by compulsory contributions of the citizens who participate in the system

The system constitutes an insurance against the risk of distavantangous social situations

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Social security system - elements

Healthcare system Pension system Unemployment benefits Other social aid eg. welfare provisions,

disability insurance

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The goals of the healthcare system

Provision of healthcare services

Improvement of the society’s health

Financing of healthcare services

Healthcare system participants

ContributorsPatientsFinancing institutions Regulating and supervisory institutions

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Healthcare system revenue

Taxes

Compulsory healthcare contributions

Payments for healthcare services

Charity payments

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Public healthcare systems

Public healthcare systems impose a financial

burden on the employers

As a consequence the costs of employment

increase

In many economies eg. Poland this constitutes a

barrier in increasing employment

A potential solution are private healthcare

systems

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Private healthcare systems

Private healthcare systems are not compulsory

Usually they cover only a part of healthcare

services therefore they are complementary to

the public healthcare systems

Individual citizens can purchase private health

insurance

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Healthcare system models (1)

Various healthcare systems around the world

Depending on the economic model pursued

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Healthcare system models (2)

Healthcare system model defined by: The way of financing

The organisation of the system- direct or indirect payments

Ownership of the insurance company-public or private

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Examples of healthcare models

National Health System in the UK- funded by taxes,

single payer system

Social Insurance System in Germany or Poland- funded

by compulsory contributions

Voluntary Contributions in the USA

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Pension systems

Pension systems as retirement finance planning

Pension systems can be planned by employers,

insurance companies, the government employer

associations, trade unions

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Pension system models

Defined benefit unfunded system (Pay as you

go system)

Defined benefit funded system

Defined contribution

Mixed system

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Pay as you go system (1)

A defined benefit system The retirement payment is computed

according to a fixed formula The payment depends on the member's

salary and the number of years' membership in the plan

Pay as you go system (2)

Current pensions are financed by current contributions

There is no additional funding of the system

Ageing of the population creates a constraint for the system

Countries can deal with this problem either by expending other budgetary resources or by introducing funded systems

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Age related government expenditure

Source: Stephen G Cecchetti, M S Mohanty and Fabrizio Zampolli, The future of public debt: prospects and implications, BIS Working Paper 2010.

Pay as you go system-examples

The majority of the European countries

Although some of the countries switched

to a defined benefit funded system- eg.

Spain or France

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Defined benefit funded system (1)

The funds are accummulated and managed by

assigned institutions eg. In Poland Demografic

Reserve Fund, in Spain the Social Security

Reserve Fund

The funds are invested and the gains from the

investment are expected to cover the retirement

payments

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Defined benefit funded system (2)

Usually based on two tiers- the pay-as-you go

Tier 1 and funded Tier 2

There is no guarantee that the investments of

the funds will cover the necessary retirement

payments

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The defined contribution system

The individual participants pay specified

contributions to their account

The funds accummulated from the contributions

are invested on the financial markets

At the moment of retirement the accummuluted

funds become available to the individual

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The defined contribution system- examples

Poland- three tiers of the pension system-

the first is a defined benefit funded

system, the second a defined contribution

compulsory system, the third a defined

contribution voluntary system

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Regulation of pension systems

In many countries pension system are

government funded and compulsory (European

countries)

In some countries it is up to the employer or

employee which system to choose (eg. United

States)

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Unemployment benefits

Largely depending on labour market policy

Active labour market policy- mesures aimed at

creating employment eg. traineeships, education

Passive labour market policy- the payment of

unemployment benefits

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Labour market policy

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Social expenses

Source: Eurostat

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Literature

R.W.Melicher, E.A.Norton, Introduction to Finance. Markets, Investments and Financial Management, John Wiley&Sons,2007