ביטוח לאומי is a system of monthly payments based on your earnings. It is financed through payroll taxes paid by employees and employers. It provides benefits for old age, disability, and survivor’s insurance.
Otto von Bismarck is credited with inventing the idea of social insurance-benefits for formal sector workers financed through dedicated taxation on wages. However, this model excludes many informal workers. A reformed system should include risk management tools that are subsidized for the poorest.
The Bismarckian model of social insurance
There are many different models of healthcare systems used by countries around the world. These range from the centralized national health insurance model to the out-of-pocket payment system. In addition, there is the Bismarckian model of social insurance, which Otto von Bismarck proposed as chancellor of Germany in the 19th century.
The Bismarckian model combines elements of the Beveridge and Bismarck models. It offers universal coverage with private-sector providers, but it is funded by a central government agency. This model is popular in Europe and Japan, but it’s not as widespread as the U.S. version of Medicare and Medicaid.
This system was a great success in its day, but it has become increasingly unsuitable for today’s world of shifting work and non-traditional employment. It is also not suitable for developing countries where formal and stable employment is uncommon. The contributory model of earnings-based contributions is also not suited for informal workers, who account for two-thirds of the world’s workforce. This model excludes them from accessing social protection, and it is time to rethink it.
Latin America initially adopted the Bismarckian model of social protection, which was restricted to formal workers (those who had a salaried job in a firm that complied with the law). Later, it created separate social insurance programs for informal workers, including those who are self-employed or work for family businesses. This system, referred to as non-contributory social insurance (NCSI), is financed from the general budget. This separation makes it difficult to assess the effectiveness of these programs, and it may be reducing access to healthcare for informal workers.
Expenditure on old age social protection
Expenditure on old age social protection includes expenditure on benefits such as pensions, sickness, disability and unemployment. These benefits are designed to protect older people from the financial impact of the loss of income and the loss of capacity to carry out daily activities. Expenditure on this type of protection has grown significantly across Europe in recent years, although differences between countries remain large. In 2014, the UK spent more on this category of social protection than any other country in the EU. This is largely due to the high level of state pensions in the UK.
In terms of the different functions, expenditure on sickness and health care was the largest. It accounted for over half of all social protection spending in most countries. The share of this category peaked at 35.2 % in France and Italy, while it was lower in Ireland. Cash payments were a significant component of this function in many countries.
The analysis also examines the inequality-reducing effects of social protection on gender differences in grip strength at age 50. The results show that higher social protection expenditure reduces the negative association between life-course socioeconomic disadvantage and subjective health trajectories in both men and women. However, the effects of social protection on the relationship between grip strength and SRH were not always consistent.
Growth in old age social protection expenditure
Expenditure on old age social protection is made up of a broad range of cash payments and benefits in kind, ranging from small cash sums to care services. These are generally delivered through the means-tested system and include social security pensions, disability allowances, housing benefits, childcare support and income support for parents on parental leave. They may also be paid to individuals who have a spouse, civil partner or cohabitant and their dependent children. These payments can be a vital lifeline for older people who are unable to work and are struggling to provide for themselves.
Among the six largest domains of public spending on social protection, the fastest growth was observed for the sickness/health care function, followed by family and unemployment. The slowest growth was recorded for the old age and survivors function. These two spheres account for the greatest percentage of expenditure on social protection, with old age pensions representing the largest share of total spending.
The relative shares of these spheres vary considerably across EU Member States. The lowest ratios are recorded in Lithuania, Estonia and Latvia, while the highest ratio is observed in France, Austria and Germany. The analysis of the INDEP data suggests that higher levels of expenditure on the old age and survivors function significantly moderate the negative effects of life-course socioeconomic disadvantage on subjective well-being.
Growth in total expenditure per recipient
The growth of total expenditure per recipient relates to the overall amount of money spent by a social security program on each person who is receiving benefits. This includes both the cost of services and the value of those services, which can vary depending on a person’s needs. The growth of total expenditure per recipient is also affected by inflation, which can decrease the purchasing power of a retiree’s benefit payments. During periods of low inflation, retirees may experience a decrease in their buying power. These reductions are called cost-of-living adjustments (COLAs).
Various factors can influence the growth of total expenditure per recipient, such as the number and type of beneficiaries, service sector trends, and payment rates. To examine these factors, this analysis compares the rate of growth in Medicare Parts A and B payments to the Consumer Price Index for Urban Consumers (CPI-U). The results of this study are shown in eTable 1 in the Supplement.
A large share of total social protection spending in the UK comes from the old age category of ESSPROS, which provides financial protection against risks linked to old age such as loss of income and inadequate living standards. This category comprises both means tested and non-means tested benefits. It includes pensions, both private and public.
In the year to 2014, this category of social protection spending in the UK fell by 0.2% compared with 2013. Figure 1 shows the UK’s rank among the selected countries in terms of total old age social protection expenditure. It uses purchasing power standards to compare expenditures across countries.