What is social security?
What is social security?

What is social security?

What is social security?

Social insurance may be an unknown concept, but most people are familiar with its programs. Citizen-funded, government-administered programs that support society in times of economic instability, whether due to economic hardship, disability, or age, are considered social insurance.

Social security programs are funded by the people who use them. Look at an average paycheck and you will see deductions for Social Security, Medicare and Unemployment. These deductions feed the pool of benefits that create a safety net for retirement or in case of emergency or illness.

Most people do not think of social security benefits, unemployment benefits or work injury compensation as insurance, but that is exactly what they are: a system that provides a cushion to protect participants from financial harm.

Examples of federal social insurance programs include:

  1. Social Security provides a basic income to them in their later years.
  2. Unemployment insurance offers income compensation after a job loss.
  3. Medicare provides low cost health insurance to people over 65 years of age.
  4. Working compensation replaces lost wages after an employee has been injured on the job, and finances vocational rehabilitation.
  5. Social insurance disability insurance provides income to those who are unable to work due to illness, injury, pregnancy or childbirth.

The history of social insurance

Although the social insurance programs we know of are a relatively new institution, public assistance to people whose incomes are below the federal poverty line has a long history dating back to colonial times in North America. The colonies modeled their own aid programs according to 17th-century Elizabethan Poor Laws. The shift from almshouses to programs that encouraged independent living occurred in the 19th century.

Formal social insurance programs were first introduced by German Chancellor Otto von Bismarck in 1883, starting with state-offered health insurance and rounding off their benefits with workers’ compensation and pension benefits. Other European nations quickly followed Germany’s lead.

Social security programs that most Americans would recognize today were introduced to the United States in 1935 when President Franklin D. Roosevelt signed the Social Security Act into law. A social security program of this kind was required, Roosevelt said, as communities grew in size and family support became harder to find. Roosevelt wanted to give citizens who had worked hard the opportunity to rest in their golden years or in times of physical illness.

In 1965, President Lyndon B. Johnson signed the Medicare Bill into law that provided affordable health care for seniors. Disability benefits followed in the 1980s.

Differences between social security and public assistance

When it comes to government-administered benefit programs, one of the main differences between public assistance programs such as Supplemental Nutrition Assistance Program (SNAP) or temporary assistance to needy families (TANF) and social insurance programs is financing.

Social insurance programs are universally funded through payroll deductions or taxes and are available to anyone who has paid into the system. These payroll taxes are earmarked for these specific programs, not general taxation.

Public assistance programs are based on financial need and have no premiums, so to speak. Instead, federal aid programs are paid for from the federal budget: $ 4.6 trillion by 2020, which was 21.8% of U.S. GDP that year. Many programs, such as Medicare, CHIPand SNAP also receives funding from state budgets.

For example, when a family is considered to be below or close to the poverty line, they are entitled to food and shelter assistance through programs such as SNAP or TANF. They are not required to pay for these programs. Instead, they must qualify based on their average income as determined by the Internal Revenue Service.

In contrast, the size of a citizen’s social security benefits is based on how much they have earned during their 35 most lucrative years of work. Similarly, the unemployment benefit is based on the time and salary that an employee has paid into the unemployment system under a single employer.

Many social insurance programs are also subsidized by employers. Employees pay half of the stipulated tax rate and their employer pays the rest. For the self-employed, contributions to social insurance programs are paid through self-employment tax.

Key takeaways

  • Social insurance is a universally funded financial safety net administered by the government.
  • Programs include Social Security, Unemployment Insurance and Medicare.
  • Social insurance differs from public assistance based on sources of funding. Social insurance is financed by contributions from each individual citizen who benefits from the services.

Many social insurance institutions have private insurance counterparts, such as private disability insurance, pension accounts or private health insurance. All of these services require additional premiums or contributions paid out of pocket. Contributions to social insurance programs from all citizens, however, ensure that premiums / taxes are kept low and the resource pool is kept stable for those who need help.

The state’s supervision of social security

Since social insurance programs are all administered by either the federal or state government, they can be occasionally amended to increase the benefits beyond what is funded by individual citizens. One such example was the introduction of unemployment benefits for contract staff as provided for by CARES law of 2020. The Social Services also reassess ongoing payments based on the cost of living, which ensures that the benefit amounts keep pace with common expenses.

The bottom line

The need for communities to provide financial assistance to people whose incomes are below the federal poverty line, older adults and the disabled is not new. The colonies created aid programs based on the British Elizabethan poverty laws of the early 17th century. The United States established a more formal system, recognizable to most people today, when President Franklin D. Roosevelt signed the Social Security Act of 1935, which established a federal safety net for elderly, unemployed, and disabled Americans. Since then, the country has added social insurance programs to the needs of different populations, such as child health care and assistance to injured workers. Beneficiaries of social insurance programs have already contributed to the sources of funding, a factor that distinguishes them from public assistance.

Leave a Reply

Your email address will not be published.