Solution:The social insurance approach is the largest single element in, and the foundation for the social welfare systems of, most industrial countries.
It grew out of voluntary insurance arrangements of the medieval European craft guilds, was institutionalized by European governments in the late nineteenth and early twentieth centuries, and soon spread from there to the whole world. Although there is no universally accepted definition, the social insurance approach is usually based on the following characteristics:
(a) Compulsory Participation: For most persons, participation in social insuranceprograms is specified in the law. In some programs, a small minority may be allowed to choose whether to participate.
(b) Government Sponsorship (and Regulation): Governments create and supervise social insurance programs, but do not necessarily manage them.
(c) Contributory Financing: Most (sometimes virtually all) of the resources needed to run the program are raised through explicit contributions (payroll taxes) collected from the employer and the employee. A worker's contribution is usually a fixed percentage of his or her wage income.
(d) Eligibility Derived from Contributions: Eligibility for benefits under social insurance programs rests, in part, on current or previous contributions by the individual, the individual's employer, or both. Frequently an individual's contributions also make family members eligible.
(e) Benefits Prescribed in Law: Uniform sets of entitling events and schedules of benefits are developed, announced, and applied to all participants. Administrators of the program have little discretion in determining who should get benefits or how much they should get.
(f) Benefits Not Directly Related to Contributions: Social insurance programs usually redistribute toward lower-wage workers or towards persons engaged in activities deemed to be socially desirable.
(g) Separate Accounting and Explicit LongRange Financing: Social insurance contributions usually are earmarked to pay social insurance benefits.
Governments typically keep separate accounts that permit comparisons of program receipts and program benefits, though they may also present financial information that integrates the social insurance programs with other government operations.
Governments also typically develop an explicit plan showing that projected revenues are sufficient to finance projected expenditures for several years into the future.