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Social Sci LibreTexts

17.2: Policies for Reducing Poverty

Social Insurance

Social insurance are government-sponsored programs, such as Medicare, that provide benefits to people based on individual contributions to that program.

learning objectives

  • Describe the characteristics of social insurance programs

Social insurance has 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. It is any government-sponsored program with the following four characteristics:

  1. The benefits, eligibility requirements, and other aspects of the program are defined by statute;
  2. Explicit provision is made to account for income and expenses (often through a trust fund);
  3. It is funded by taxes or premiums paid by (or on behalf of) participants (although additional sources of funding may be provided as well); and
  4. The program serves a defined population, and participation is either compulsory, or the program is subsidized heavily enough that most eligible individuals choose to participate.

Social insurance differs from welfare in that the beneficiary’s contributions to the program are taken into account. A welfare program pays recipients based on need, not contributions. Medicare is an example of a social insurance program, while Medicaid is an example of a welfare one.

In the United States, Social Security, Medicare, and unemployment insurance are among the most well-known forms of social insurance.

Social Security

Social Security in the U.S. is primarily the Old-Age, Survivors, and Disability Insurance (OASDI) federal insurance program. Social Security is funded through payroll taxes called Federal Insurance Contributions Act tax (FICA) and/or Self Employed Contributions Act Tax (SECA). Tax deposits are collected by the Internal Revenue Service (IRS) and are formally entrusted to the Social Security Trust Funds. Social Security provides monetary benefits to retirees, their spouses and surviving dependent children, and disabled workers.

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Social Security Poster: Social Security is one of the best-known social insurance programs in the United States. It provides benefits to retirees, surviving family members, and disabled workers who have contributed to the Social Security Trust Fund through payroll taxes. 

 

Medicare

Medicare is a national program that guarantees access to health insurance for Americans aged 65 and older, younger people with disabilities, and people with certain chronic diseases. Medicare is funded through revenue from FICA and SECA payroll taxes, as well as through premiums paid by Medicare enrollees and general fund revenue from the federal government.

 

Unemployment Insurance

Unemployment insurance provides a monetary benefit to workers who have become unemployed through no fault of their own. Benefits are generally paid by state governments, and are funded in large part by state and federal payroll taxes levied against employers. These payroll taxes were established by the Federal Unemployment Tax Act (FUTA), and allow the IRS to collect federal employer taxes used to fund state workforce agencies. FUTA covers the costs of administering the Unemployment Insurance and Job Service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

 

Public Assistance

Public assistance is the provision of a minimal level of social support for all citizens.

learning objectives

  • Define and describe different types of public assistance

Public Assistance

Public assistance, also referred to colloquially as welfare, is the provision of a minimal level of social support for all citizens. In most developed countries, public assistance is provided by the government, charities, social groups, and religious groups. It is funded by government agencies and private organizations.

Public assistance systems vary by country, but welfare is usually provided to individuals who are unemployed, those with an illness or disability, the elderly, those with dependent children, and veterans. Individuals must meet specific criteria to be eligible to receive public assistance.

In the United States, the funds for public assistance are given at a flat rate to each state based on population. Each state has to meet certain criteria to ensure that individuals receiving public assistance are being encouraged to work themselves out of welfare. The goal of public assistance is to support individuals who are in need of help while encouraging them to seek employment and better their lives.

Forms of Public Assistance

Public assistance is offered in a variety of forms including:

  • Monetary payments: individuals are paid bi-weekly or monthly based on their income level. Individuals must apply for monetary public assistance and meet specific criteria. Monetary payments will be lessened or stopped once the individual’s income reaches a certain level. An example of monetary payments is Temporary Assistance for Needy Families (TANF), which provides a cash benefit to families in need.
  • Subsidy: government funded programs that provide assistance to citizens on federal, state, local, and private levels. Subsidies help to provide food, housing, education, healthcare, and financial support to individuals in need. Examples include Medicaid.
  • Vouchers: are bonds given out by the government or other welfare organizations. A voucher is worth a certain monetary value and can only be spent on specific goods.
  • Housing assistance: provided by the government to ensure that individuals have shelter. In some cases individuals will receive free housing while other will receive housing at a discounted rate. Housing assistance is based on an individual’s level of income.
  • Universal healthcare: health care coverage that provides health care and financial protection to all citizens. It provides a specific package of benefits to all members of society with the goal of providing financial risk protection, improved access to health services, and improved health outcomes.
  • Public assistance is provided by the government, charities, social groups, and religious groups. It is funded by government agencies and private organizations.
  • Public assistance systems vary by country, but welfare is usually provided to individuals who are unemployed, those with an illness or disability, the elderly, those with dependent children, and veterans.
  • Forms of public assistance include monetary payments, subsidies, vouchers, housing assistance, and universal healthcare.

 

Key Points

  • Social insurance programs share four characteristics: they have well-defined eligibility requirements and benefits, have provisions for program income and expenses, are funded by taxes or premiums paid by participants, and have mandatory or heavily subsidized participation.
  • Social insurance programs differs from welfare programs in that they take participant contributions into account. Welfare benefits are based on need, not contributions.
  • Social Security, Medicare, and unemployment insurance are three well-known social insurance programs in the United States.

Key Terms

  • social insurance: Any government-sponsored program where risks are transferred to and pooled by an organization that is legally required to provide certain benefits.
  • public assistance: Payment made to disadvantaged persons by government in order to alleviate the burdens of poverty, unemployment, disability, old age, etc.
  • subsidy: Financial support or assistance, such as a grant.
  • voucher: A piece of paper that entitles the holder to a discount, or that can be exchanged for goods and services.

 

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