Social insurance, according to the dictionary, is any insurance program provided or mandated by the government to give financial assistance to people in need, such as those who are unemployed, sick, disabled, or elderly. People go through difficult times sometimes, especially when the economy is down and jobs are hard to find. Accidents also happen, and they can render a person incapable of finding gainful employment and supporting themselves and their families.
The responsibility of taking care of people who come upon hard times rests on the government. It used to be that families bore this responsibility, but a lot of people don’t have families or are separated from them, or their families may also be incapable of supporting them. Families themselves may need help, such as when the breadwinner dies, loses a job, or can no longer work because of a physical handicap. Thus, the government has to step in, and it does so by providing social insurance. In the United States, these are the government-sponsored programs that provide social insurance; the Social Security Administration, Medicare, the Pension Benefit Guaranty Corporation (PBGC) program, and the railroad retirement program.
One type of social insurance is offered by the Social Security system, which is the main component, and probably the most well known, in the list. It is funded by mandatory, government-collected taxes. It provides four main benefits, which are collectible in instances of retirement or old age, disability, survivorship or dependence, and death. The Social Security system takes up the biggest slice of the federal budget, at nearly 21%. An additional 20% of the federal budget is allotted to Medicare, another form of social insurance.
Medicare provides health benefits for the elderly and sick or disabled individuals who meet certain criteria and is another form of social insurance. The benefits generally include expenses for hospitalization, medical procedures, and prescription medicines. Meanwhile, the PBGC encourages citizens to enroll in voluntary pension plans so that in later life they can enjoy pension benefits. It is not funded by tax revenues, but mainly by insurance premiums and investment income from these. The railroad retirement program is overseen by the U.S. Railroad Retirement Board (RRB) and provides retirement benefits for railroad workers and their families.
In addition to these insurance programs of the federal government, there are also state-sponsored insurance programs for the unemployed. Social insurance is different from private insurance, which is largely voluntary insurance that is paid for by the person, and where the benefits provided are commensurate to the amount of insurance purchased. In contrast to private insurance, access to social insurance is mandatory and based on legal rights and humanitarian considerations, rather than on an insurance contract.