Aleksandra Posarac, Lead Economist DISABILITY AND SURVIVORSHIP

Transcription

1 Aleksandra Posarac, Lead Economist DISABILITY AND SURVIVORSHIP BENEFITS IN SOCIAL SECURITY SCHEMES S 1

2 I WILL BE TALKING A BIT ABOUT: Approaches to disability and survivorship (D&S) benefits in social security schemes Gate keeping: Eligibility certification for disability benefits challenges Benefit designs and economic effects 2

3 D&S BENEFITS Almost all social il security systems, in addition i to providing old age benefits provide disability and survivorship benefits as well. Survivorship benefits stem from both old age and disability benefits. 3

4 D&S: A LITTLE (SIC!) COMPLICATION Slovenia Serbia Poland Bulgaria Albania Finland France Germany Italy Norway USA Vietnam Philipinnes China South Africa Pakistan India Tunisia Morocco Jordan Egypt Mexico Equador Costa Rica Columbia Chile Brazil Old age D&S 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 4

5 SOME COUNTRIES HAVE MORE D&S THAN OA BENEFICIARIES (ADDING $$$$$$$$$$$$ TO IMPLICIT LIABILITIES) D&S/OA % 5

6 TO ILLUSTRATE WHEN GERTRUDE JANEWAY died in 2003, she was still getting a monthly cheque for $70 from the Veterans Administration for a military pension earned by her late husband, John, on the Union side of the American civil war that ended in The pair hd had married in 1927, when he was 81 and she was 18. The amount may have been modest but the entitlement spanned three centuries, illustrating just how long pension commitments can last (The Economist, Special Report on Pensions). 6

7 Similarly, il l someone who becomes disabled d at the age of 25 or35 and retires with permanent full disability pension, may be receiving it for 40/30 years until he/she reaches old age retirement age and may continue receiving now old age pension for the next years. He/she may also have a widow/widower or children who may receive a survivor s pension after he/she dies 7

8 SOME FACTS Survivors benefits are more prevalent in societies iti where labor force participation of women is low; fertility rates are higher, where young women are more likely to marry (much) older men, where marriage rates are high and divorce rates still low, etc. Higher prevalence in Middle East and North Africa, and some countries in East Asia (e.g. Malaysia). In contrast, disability social security benefits are more prevalent in industrialized nations OECD, Central and Eastern Europe 8

9 SIGNIFICANT IMPLICATIONS D&S benefits have a very significant economic and social implications: On the well being of individuals and their households in case of loss of earning capacity because of disability and/or because of a death of an earning household member covered by social security/or receiving old age or disability pension. On the design of the social security system, its parameters, overall cost, tax wedge, redistribution within the overall scheme, affordability and sustainability; On individuals/households labor market, education, and demographic behavior. Critically ii important is that in most systems the benefits are lost if a person gets employed, remarries, finishes school. 9

10 WHY D&S SOCIAL SECURITY? Social security programs lower the impact on individuals and families from income shocks due unemployment, old age, survivorship and disability and enable them to smooth consumption over their lives. Disability social security programs pays benefits to workers who loose a significant fraction of their hi capacity to work due to disability. Survivors social security programs pay benefits to the dependants d of the deceased d workers and pensioners. 10

11 HISTORY D&S benefits came before old age pensions: benefits to disabled veterans and widows; Work injury and occupational illness social il insurance is the first form of social insurance many countries have introduced d it in the 1920s. The rationale was and still is to protect those covered by social security (workers) and their dependant family members from poverty and destitution i because of disability or death of a brad winner. 11

12 D&S; AN OVERVIEW D&S are normally provided as: An integral part of the as part of the package of old age, disability (or invalidity) and survivors social security programs As part of the work injury and occupational illness social security program Often organized, administered, financed and delivered separately from main OA,D&S scheme; However, in some cases, it is all merged together, with benefits differentiation (disability dues to general illness and disability due to work injury and/or occupational illness); In few countries all disability (general illness and work/occupational) is combined as a single disability social insurance program. 12

13 D&S AS PART OF OLD AGE, D&S SCHEME (1) Like old age, D&S benefits are normally pensions payable for life or a considerable number of years OA, D&S benefits are usually provided as part of a single system, with common financing and administration as well as interrelated qualifying conditions and benefit formulas; For a covered individual this means he/she pays a single contribution and would qualify for old age, disability and survivors benefits, depending on the circumstances: some may work entire life and benefit only from an old age pension; some may benefit from all three. In PAYGO systems the consequence is that for two otherwise same individuals d this may imply very different dff balance bl of cost (contributions) and benefits and will require internal redistribution. 13

14 (2) Within OA, D&S, disability (or invalidity in some countries) is usually defined as long term partial or total incapacity to work resulting from a nonoccupational injury or disease. IMPORTANT: Incapacity to work (often to perform the same job/occupation) NOTE: Disability caused by a work injury or occupational disease is usually compensated under separate work injury program 14

15 (3) In OA, D&S, survivors pension is paid to dependents of insured workers or pensioners who die. Note: Pensions for survivors of workers injured while working are provided as part of the 15

16 D&S: COVERAGE Same as for the OA benefits as in most countries the same scheme Determined by many factors, including: The type of the system (universal, employment related, work related ); The age of the system (old systems vs. younger systems); The degree of economic development 16

17 D&S: SOURCES OF FUNDS Same as in the OA: (a) a % of covered wages or salaries paid by the worker; (b) a % of covered payroll paid by the employer and (c)a government contributions. Almost all OA, D&S are financed by some combination of (a) and (b). Many from all three. A fantastic array of options in practice: minimums and ceilings, flat rate, progressive, matching arrangements, exemptions from contributions and government financing for low wage earners. For administrative purposes, a number of countries assess a single overall social il security contribution tib ti covering several contingencies; i All social security benefits (OA, D&S pensions, but also sickness, maternity, death grants, medical costs, rehabilitation, ti assistive iti devices.) are financed from single contribution. 17

18 D&S: QUALIFYING CONDITIONS For disability pension: Principle requirement: loss of productive capacity after completing a minimum period of work (increases with age) and/or having met the minimum i contribution tib ti requirement. Many programs grant the full disability benefit for a two thirds loss of working capacity in the worker s customary occupation, but this requirement may vary from 1/3 to 100 percent. The qualifying period is normally much shorter than for an oldage benefit for very young covered workers it could be only several months. Most commonly 3 5 years of contributions or covered employment. Entitlement often has age limitations: the lower limit is commonly related to the lowest age for employment: 14, 15 or 16 years of age; the upper is frequently the statutory retirement age, when disability benefit is converted to old age benefit. 18

19 For survivors benefits: The deceased worker was a pensioner; If still working: he/she completed a minimum period of covered employment, an/or satisfied the minimum i contribution i requirement; The qualifying contribution period is often similar / the same as that for disability benefit. Surviving spouse, children, other dependants may also need to meet certain conditions i (age, school enrollment, co residence, no income.). 19

20 D&S: DISABILITY BENEFITS Provisions very similar to those for the aged. Usually the same basic formula applies for total disability as for oldage: a cash amount calculated as a % of average earnings; Increments and dependants d supplements are generally identical i under the total disability and old age programs. For persons with total disability, a constant attendance supplement, usually percent of disability pension may be paid to those assessed as in need of help on a daily basis. Medical expenses, physical (medical)rehabilitation services, occupational rehabilitation hbl programs, assistive devices Partial disability benefits are usually reduced according to a fixed scale (often based on the % of the working capacity loss). 20

21 D&S: SURVIVORS BENEFITS Most schemes pay a monthly benefit, although some schemes pay only lump sum benefits. The benefit is generally a % of the pension at death, or the pension the insured would have if he/she had attained pensionable age or become disabled at that time. The pool of dependants vary tremendously. Survivor benefits are paid to some categories of widows under nearly all programs. The amount ranges from 50 75% (even 100%) of the deceased insured person benefit. 21

22 Sometimes to all widows of the deceased insured men. More commonly there is an age condition, disability and/or that she (they) take care of underage children. If awarded to younger widows, the benefit ceases once children reach certain age, or the widow remarries. Children (special provisions ii for full orphans); parents, cousins. Special provision for divorced widows. Some systems also provide for widowers. Normally all survivors benefits = 100% of the deceased person benefit, but sometimes to 200% or even more. 22

23 D&S: WORK INJURY AND OCCUPATIONAL DISEASES SCHEME (1) Oldest type of social il security: provides benefits in cases of work connected injuries and occupational illnesses. Programs usually provide temporary and permanent and partial and total disability benefits they are very similar to disability benefits provided under OA, D&S scheme, only the level (replacement rate, etc.) is higher. 23

24 (2) Types of systems Two basic types: social insurance system type and various forms of private or semiprivate arrangements required by law; In most countries, work injury programs operate through h a central public fund, which h may or may not be part of the general social security system. All employees subject to the program must py pay contributions to the public fund, which in turns pays benefits. Countries relying on private arrangements require employers to insure their employees against the risk of employment injury. 24

25 (4) Sources of funding: Work injury / occupational illness benefits are primarily financed by employer contributions, i reflecting the traditional assumption that employers should be liable when their hi employees suffer from work injuries or occupational illness. Contributions are often quite small: <1% of the payroll py and the contribution base is frequently capped. 25

26 (5) Benefits: Benefits for temporary disability Permanent total disability (monthly) Permanent partial disability (monthly) Normally no qualifying period is required The concept of work injury has been expended to cover injuries occurring while commuting to and from work. The benefits are almost always DB and the replacement rate is usually high and can be up to 100%. A small number of programs pays a lump sum equal to several years of wages. 26

27 Supplements may be added d for dependants d and for pensioners requiring constant attendance of another person in which h case benefits may exceed former earnings. Medical and hospital care; rehabilitation services; assistive devices. Funeral grants. 27

28 SURVIVORS BENEFITS UNDER WORK INJURY Most work injury programs also provide (monthly) benefits to survivors; Commonly the benefits are payable py to a widow, regardless of her age, until her death, employment or remarriage; dependant children, parents, and other relatives. The benefits are higher than in the OA, D&S scheme. They often exceed 100% percent of the deceased person pension/earnings, although in most systems the total amount is capped. In some countries survivors are paid a lump sum and some also provide education benefits/support to dependent children. 28

29 (3) Coverage: Commonly cover wage and salary workers and exclude the self employed. In highly industrialized nations all employees may be covered; However, agricultural employees are commonly excluded, or the coverage is limited to those operating power driven machinery; Sometimes employees of small enterprises may be excluded. 29

30 GATE KEEPING: DISABILITY DETERMINATION/ CERTIFICATION (1) To access disability social security benefits, claimants are required to be formally certified as disabled. Disability certification is commonly done through a formal agency/service provider, sometimes as part of the social security agency, sometimes outside it and under the ministry of health, or ministry of labor and social affairs Criteria are normally defined by the MOH. In some, particularly lower income settings, there are no formal detailed criteria or operational instructions Assessment is based on medical ldiagnosis where capability bl to work is assessed in relation to the health condition. Could be done by a single MD or by a medical board comprising various medical specialties. Practical arrangements vary tremendously. 30

31 (2) In some, particularly lower income settings, there are no formal detailed criteria or operational instructions Assessment is based on medical diagnosis where capability to work is assessed in relation to the health condition. Could be done by a single MD or by a medical board comprising various medical specialties. Practical arrangements vary tremendously. Issue: there are sometimes separate certification services (with different e tcriteria) for dsab disability tyunder OA, D&S scheme and work injury scheme (plus a separate one for disability social assistance programs) 31

32 (3) Critically important gatekeeper Prone to transparency and governance issues, particularly when benefits are sizable. Moreover, disability is difficult to measure. It is a subjective experience. Easier for physical than mental disabilities. Majority of new claims are related to mental health conditions or muscular skeletal skeletal conditions (arthritis, pain, back pain ) that are difficult to prove and even more difficult to be linked to working capacity Each disability certification system has both falls positives (inclusion errors) and falls negatives (exclusion errors): U.S. audit found 48% false denials, 19% false approvals; Self assessed disability compared with SSA decisions: 20% false positives, 60% false negatives. Big issue: what is the right ih mix of false positives ii vs. false negatives? Ideal is to assess objectively but where to put the bar? 32

33 (4) The bar is directly related ltd to the definition fiiti of disability and related understanding of the capacity to work. Current disability certification systems mostly approach disability as a medical problem. That is why in most schemes, persons with high blood pressure (mostly manageable), diabetes (manageable), paraplegics, etc. would be assessed as totally disabled and put on disability benefit. However, the definition of disability has changed from di l bi h il d fiii f id bili medical to bio psycho social definition of idsability. 33

34 (5) Dfiiti Definition: International ti Classification of Disability Functioning and Health (ICF, WHO 2001) Defines disability as an umbrella term for impairment, activity limitation and participation restrictions. Disability refers to the negative aspects of the interaction between individuals with a health condition and personal and environmental factors (such as, negative attitudes, inaccessible transportation and public buildings and limited social support) What is assessed is difficulties in functioning taking into account both the body and the environment. 34

35 (6) Therefore, according to this approach a blind person, may not be able to operate the crane, but can perform an array of other jobs; a person in a wheel chair can easily continue to perform his/her job with some adjustments t in the environment, etc. This approach is however yet to be internalized not only by disability certification systems, but also by people on or seeking disability benefits. Equally importantly, it is yet to be fully operationalized: ICF classification of body structures, parts and functions is done, but not participation measurement Some countries are moving in that direction: Germany, the Netherlands 35

36 TO BE HONEST, IN TERMS OF KNOWLEDGE ON DISABILITY CERTIFICATION AND GOOD PRACTICE Operationalizing i ICF for disability certification has just begun: World Bank/WHO project; Little is known how reasonably effective and efficient model to organize and implement disability certification may look like. The World Bank is developing a tool on Disability Certification. 36

37 AND, IN GENERAL Old age pensions have been the focus of researches, international institutions, policy makers, leaving disability and survivors social insurance and issues related their design and economic and social impact on a side. Perhaps it is time to move the light beam? 37

38 DISABILITY ON THE RISE. In OECD countries, around 6 percent of the working age population is on disability benefits (up o percent in some countries) higher rate than the rate on unemployment benefits prior to the 2008 crisis; In OECD countries average public spending on disability benefits = 2% of GDP, in some countries 4 5% (Norway, the Netherlands, and Sweden) Working age disability has become one of the biggest social and labor market challenges. In many countries, disability benefits have become the benefits of last resort, because people cannot find a new job, access social assistance, retire early or just do not feel capable/ and/or willing to work until late in the old age (retirement t age is too high) h) particularly l in blue collar jobs, so they opt out of the labor market through disability benefits. Disability take up is a one way street: people almost never leave disability for another job. 38

39 It has been observed that disability rolls increase when: Retirement age goes up some of it is perfectly natural because disability difficulties in functioning increase with age; Early retirement options are tightened; Unemployment increases (policy makers may relax disability certification short term horizon linked to political cycle); Eligibility ibili to other benefits is tightened. ih After the conflict, or natural disasters. A paradox that is not: disability is growing although health status of the population is improving (aging, chronic diseases, road traffic crashes, obesity, etc.). 39

40 A LITTLE DOOMS (NOT SO MUCH) SCENARIO 15% (over one billion people) l) of the world population has some form of disability. About million have a very profound disabilities (severe/extreme disabilities). Population is aging and disability prevalence increases sharply with aging The demand for disability benefits can be expected to continue to grow expected to continue to grow. How to contain the threat? 40

41 HOW TO SLOW THE ENTRY INTO AND INCREASE EXIT FROM DISABILITY ROLLS Entry Prevention: work safety, traffic safety, healthy lifestyle; Change approach to disability not a status based on a particular diagnosis, but based on difficulties in functioning. Changing disability certification (ICF and multidisciplinary assessment). Focus on capacity to work (function), on medical and occupational rehabilitation, flexible working arrangements, reasonable accommodation; Sift to partial disability, no penalty for working; Change expectations and public perception. 41

42 Eit Exit: Very difficult Regular recertification Ensure transitional arrangements (unemployment benefit, etc.) Employment policies, including reasonable accommodation Extremely important not to penalize the beneficiaries if they work (not either work or disability benefit). 42

43 I HOPE WHEN YOU GO BACK YOU WILL REMEMBER Survivors and disability benefits are there to stay, with significant economic and social consequences and no reform of the old age benefits will succeed without taking them into account. 43