University of Prishtina

Faculty of Economics
Applied Economics and Management

Social Insurance Programs

Economics of the public sector
Prof. Assc. But Dedaj

Ermira Kastrati
ermira.kastrati2@student.uni-pr.edu
 Abstract
Modern societies are largely dependent on social insurance systems, such as health
insurance, pension plans, and unemployment insurance. These programs provide access to
vital services and financial security while pooling resources to reduce economic risks. By
distributing the expense of medical care, health insurance promotes early detection and
preventative care for improved health outcomes. Pension plans give people a reliable
source of income after retirement, enabling them to maintain a respectable quality of living.
The provision of temporary financial assistance during job searches by unemployment
insurance promotes worker mobility and reemployment. These initiatives help create a
more equitable and stable society where people are more prepared to withstand life's
adversities.

Social insurance schemes have an impact that goes beyond people's personal health. By
encouraging an active and efficient labor force, they reduce the burden on healthcare
systems and stimulate the economy. Additionally, by guaranteeing a basic level of security
for all individuals, these initiatives support the integration of society. However, the design
and effectiveness of social insurance programs can vary significantly across countries.

While many countries have well-functioning programs, others struggle with issues including
inadequate funding, limited coverage, or inefficiency. Kosovo, a new country aiming for
stability, provides an example. Even though they are present its social insurance schemes
are not yet operating at their best. Enhancements like coverage expansion, benefit
increases, and administrative efficiency improvements might greatly strengthen social safety
nets and give Kosovar citizens more empowerment. Kosovo can help ensure that everyone
has a more secure and prosperous future by strengthening these programs.

Despite the challenges of implementation and ongoing program optimization, social

insurance programs remain essential. They provide a crucial safety net for individuals and
families, fostering social stability and a more equitable distribution of resources. Investing in
these programs strengthens the foundation of a society, allowing its citizens to thrive even
in the face of unforeseen circumstances.
 1. Introduction
Social insurance programs were not always a central component of modern societies. Their
emergence is rooted in the social and economic transformation of the 19 th and early 20th
centuries. (reference) The Social Security program that would eventually be adopted in late
1935 relied for its core principles on the concept of "social insurance." Social insurance was
a respectable and serious intellectual tradition that began in Europe in the 19th century and
was an expression of a European social welfare tradition. Germany, under Chancellor Otto
von Bismarck, is credited with establishing the first national social insurance programs in the
1880s, encompassing health insurance, accident insurance, and old-age pensions. These
programs aimed to address worker discontent and provide a basic level of social security.

Whereas, now social insurance programs play a very important role in the modern society
that we live in. The present world presents a complex set of challenges. Illness,
unemployment, and retirement can disrupt financial stability and well-being, leaving people
feeling more vulnerable. In response to these kinds of situations, social insurance programs
emerged. These programs are government-backed initiatives providing health insurance,
pension schemes, and unemployment insurance. They gather resources from participants,
to create a system of shared responsibility and offer financial security during different kinds
of difficulties. These programs contribute to a more stable and equitable society by
spreading the cost of medical care, ensuring income after retirement, and offering
temporary financial support during job searches.

One of the key benefits of social insurance programs is their ability to promote a healthy
and productive workforce. Despite their importance, these programs can vary significantly
in their design and effectiveness across countries. While many nations have improved and
well established programs, other nations face a lot of challenges in this area, especially
young nations.

However, we are going to present an overall view of this subject matter. To understand the
importance of social insurance programs and what they offer, we should delve into each of
these concepts individually.
 2. Coverage and Eligibility
Social Insurance Programs like health insurance, pension schemes, and unemployment
insurance, form a very important set of programs for individuals facing the issues that these
plans cover. However, to access these benefits you need to fulfill certain qualifications. The
extent of coverage and eligibility criteria can differ significantly depending on the program
and the country you live in. Let’s explore these systems:

Coverage
 Health insurance: a contract that a person has with a health insurance provider. The
insurance company promises to pay a portion of your medical expenses in
compliance with the conditions of the policy in exchange for regular payments. This
coverage can include hospital stays, surgeries, prescription drug orders, and other
medical procedures in along with standard services like doctor visits and
preventative care. Health insurance aims to help people in affording healthcare
services and gaining access to essential medical treatments. It can be offered by
government programs or by private businesses.

 Pension schemes: a long-term savings plan designed to provide financial security

after retirement. Usually, both the company and the employee must contribute.
Throughout the course of your working years, these contributions are invested and
accumulate. You can use this money as a consistent source of income after you're
old enough to retire. Pension plans are designed to make sure that retirees may
continue to live comfortably even after they leave the workforce.

 Unemployment insurance: a temporary financial assistance program offered by the

government to qualified individuals who are laid off without cause. Employer and
employee payroll taxes are used to fund this insurance scheme. It provides these
residents with temporary financial assistance to help them pay for necessities while
they look for employment. For a limited period of time, unemployment
compensation usually offers a portion of the worker's prior salary in an effort to
lessen the financial burden of unemployment and help with an easier and more
seamless return to work.

Eligibility
 Health insurance: Eligibility in this program can vary widely. Some countries have
universal coverage, where all citizens are automatically enrolled. Other countries
might have a mix of employer-sponsored plans, private plans, and government
programs, with factors like age employment status, income and other factors that
influence eligibility.

 Pension schemes: Participation in pension schemes often requires contributing

financially during your working years. These contributions might be mandatory or
voluntary, and there may be minimum contribution thresholds and age
requirements (be above the age 65) to qualify for these benefits when you retire.
  Unemployment insurance: To be eligible for unemployment benefits, you usually
need to have recent employment with sufficient earnings and be actively searching
for a job and that should also be documented. The duration of benefits and
qualification criteria may differ between different locations.

3. Funding and Financing

Funding and financing for social insurance programs vary widely depending on the country
and the specific program. The sources of funds may be: Payroll Taxes, Government
Contributions, Investment Income, Premiums and so on.
We can take an example of how you can fund Unemployment Insurance Programs and the
steps needed towards a modern social insurance programing in the case of Kosovo – a
young nation with present social insurance schemes but not yet operating at their best.

- The unemployment fund must have a financing scheme and that can be : 1. Financing of
the Fund itself 2. Financing of the unemployed 3. Training of the unemployed by adapting
to the needs of the labor market.

1. Financing of the Fund itself : With the establishment of the Unemployment Fund by a
special Law, the obligations for contributions from employees and employers are also
regulated, which must be paid on a monthly basis from their own income as social
contributions to this Fund. The unemployment fund is the assurance of the perspective for
all citizens of the age of majority of the state to use the right to participate in the labor
market with a dignified job from which they can earn an income for a stable and
comfortable life.

If we take the number of employees in the Republic of Kosovo, which is over 400,000
employees with an average monthly salary of around £500.00, and all employees are
obliged by the Law to contribute on the unemployment fund insurance by 1.5 % of salary
and also the employer by 1.5%, then 6,000,000.£ would be accumulated in this Fund on a
monthly basis.

According to the needs in life, the Government could also contribute to the Fund from the
state budget as well as International Financial Institutions with grants or various programs.
From these social contributions and various supports, this Fund for a short period of time
will be able to give its effects in the consolidation of the labor market in the country and
adaptation of the workforce according to the developing trends of the market’s demand.
Almost all European countries apply such methods of financing the unemployment fund.
Such a form, after a more detailed analysis, could also be regulated by our State.

2. Financing of the unemployed: All adult citizens of the Republic of Kosovo who have
appeared at employment centers to look for a job are considered unemployed. Individuals
of mature age who have never worked before and also people who were employed but for
any reason have lost their job and are currently looking for a new place of work are
considered unemployed.
The unemployment fund will have to help all the unemployed by segmenting them
according to the preparations they have and analyzing the needs of the labor market. If the
majority of the unemployed do not have suitable profiles to meet the needs of the labor
market, then the Fund, in cooperation with various enterprises that need work force,
prepares a training program for the unemployed to prepare them for this segment of the
labor market.

The unemployed who would be included in such programs would have to be paid by the
unemployment fund with a salary of about 80% of the average salary to be stimulated to
integrate into such programs of adapting their profiles in harmony with the trends and
Market needs.

While the category of unemployed who for any reason have lost their job and have been
presented at the unemployment center for a job, they should immediately join the benefit
funding from the unemployment scheme. The payment of this category should be made
immediately and at 80% of the payment that they have been receiving in the previous job in
the last 6 months. Even this group would have to be conditioned to be active in searching
for another place of work to realize these benefits for at least one calendar year. Naturally,
even in this classification, schemes of training programs should be taken into consideration
to suit the needs of the market.

3. Training of the unemployed by adapting to the needs of the market: All regional
employment centers should build real capacities to first deal with the identification of the
market's perspective and its development trends in the region where they exercise their
activity. For example, the regional center in Peja should have detailed information about the
economic and business capacities of the Peja region. Based on this information, it then
analyzes the profile of the contingents of the unemployed who are registered in these
centers. Based on this data, it then can organize programs to revitalize the contingent of the
unemployed, trained and qualified to meet the needs of the labor market.
 4. Case Study: A look at Social Insurance in Switzerland
Switzerland is often considered a country that has perfected social insurance programs.
They are known for their comprehensive coverage, high quality services, and efficient
administration. The country has a decentralized system, with each canton (state)
responsible for implementing and managing its own social insurance programs, under the
framework of federal laws.
Switzerland has a universal healthcare system that requires all residents to have basic
health insurance coverage. The system is based on the principle of solidarity, with premiums
calculated based on income and age, but not on health status. Individuals can choose from a
variety of private insurance companies, but the basic benefit package is standardized by law
to ensure comprehensive coverage for essential health services.
This country also has a multi-pillar pension system that includes a public pension (first
pillar), mandatory occupational pension (second pillar), and voluntary private pensions
(third pillar). The first pillar known as the AHV/AVS, provides a basic pension to all residents,
funded through contributions from employees, employers, and the government. The second
pillar is a mandatory occupational pension funded by contributions from workers and
employees, providing additional retirement benefits. The third pillar consists of voluntary
private pensions, which individuals can contribute to for additional retirement savings.
Whereas, for the unemployment insurance it consists of the same basic model of this
program as mentioned earlier. So, the system provides financial support to individuals who
have lost their jobs involuntarily. It is funded through contributions from employees and
employers and it is administered by the cantons. Benefits are typically provided for a limited
period and are based on the individual’s previous earnings.
Switzerland also provides an insurance with people who suffer from disabilities. It
provides benefits to individuals who are unable to work due to a disability. The system is
also funded from contributions employee, employer and the government and it provides
benefits such as income replacement, vocational training, and support services.
So, the pursuit of a perfect social insurance system is an ongoing process. While Switzerland
provides a strong example of comprehensive coverage and generous benefits, there is
always room for improvement. By learning from Switzerland’s strengths and acknowledging
its challenges, other countries can strive to create effective social insurance programs.
 5. Kosovo and Social Insurance Programs
Kosovo’s social safety net operates differently than many other countries. It primarily relies
on social assistance programs, rather than social insurance. This means there’s no single
program funded by employee and employer contributions. However, several social
programs exist, targeting different needs. These include:
 Social Assistance Scheme (SAS) – Targets low-income families. It is the main social
assistance program in Kosovo. In 2017, 88% of social assistance expenses were spent
on this scheme. SAS is the only program aimed at reducing poverty in Kosovo and,
above all, is the only program that uses household income and assets to identify
beneficiaries.
 Pension Schemes – Provide income for retirees, including basic pensions,
contributing pensions, and disability pensions. Regulation of the pension system
Based on Law no. 04/L-101 for Pension Funds in Kosovo, the pension system in
Kosovo is divided into three pillars:
The first pillar: The basic pension is a pension that the Pension Administration
(within the Ministry of Labor and Social Welfare) pays to all permanent residents of
Kosovo who have reached retirement age.
Second pillar: Individual savings pensions provided by the Kosovo Pension Savings
Fund. The Pension Savings Fund was established with the sole and exclusive purpose
of administering and managing individual accounts for savings-based pensions.
Based on the current Law no. 04/L-101 on Pension Funds of Kosovo, every employer
is obliged to contribute on behalf of his employees to the FKPK, as well as the
employee is obliged to contribute on his own behalf.
Third pillar: Supplementary pension funds of the employer, Supplementary
Individual Funds, the first two pillars are mandatory pensions, Basic Pensions
provided by the Ministry of Labor and Social Welfare and Individual Savings Pensions
provided by the Kosovo Pension Savings Fund. The third pillar, Employer
Supplementary Pension Funds and Individual Supplementary Pensions, are voluntary
funds where employers can provide their employees with supplementary pensions,
but also individuals can provide individual supplementary pensions through
individual supplementary pensions.
The funds cannot be withdrawn until retirement age, and the retirement age is 65.
 Other schemes – Support war veterans, families of martyrs, and people with
disabilities.

Kosovo should consider analyzing other nation’s social insurance systems. But the most
concrete and accurate comparison would result with a country that has a similar number of
inhabitants, size of country and similar development trends. Because otherwise, if we
compare our country with countries like Switzerland, it can be demotivating due to the
different levels that we stand in always in the context of development. Switzerland can be a
country that we can aim to achieve its success in the distant future.
 6. Challenges and costs of imposing these programs
While social insurance programs offer safety for citizens, implementing them comes with its
own set of challenges and costs.

Challenges:
 Social insurance programs require funding. This often comes from payroll taxes
levied on both employers and employees. It can be a burden, especially for low-wage
earners and small businesses.
 There are also existing debates about whether generous benefits might discourage
people from seeking work, and potentially reduce the workforce and economic
output. They can increase labor costs for employers and potentially reduce
incentives for job creation. It is important to consider these impacts and implement
programs in a way that minimizes negative economic consequences.
 A considerable challenge remains in the managing process of a social insurance
program. They require a solidly built administrative system and this can be expensive
and complex to set up and also to maintain.
 Ensuring that social insurance programs provide fair coverage of all segments in a
society can be challenging. There may be groups like informal workers, that are
difficult to reach or exclude from coverage, leading to issues of inequity.

Costs:
 Implementing a new program involves upfront costs for infrastructure, staffing, and
benefit payouts. The ongoing cost of funding benefits can be significant, especially as
populations age and healthcare increase.
 One of the primary challenges of imposing social insurance programs is the financial
burden they place on individuals, employers, and governments. Financing these
programs requires contributions from different stakeholders, which can be very
costly and may require adjustments to tax policies.

Social insurance programs also have a lot of positive impacts as we listed in different matters
previously. One of them being, a healthy and secure population can be more productive and
contribute more to the economy
Overall, the decision to implement social insurance programs requires careful consideration
of the challenges and costs alongside the potential benefits.
 7. Conclusion
Social insurance systems provide citizens with a crucial safety net, protecting them from
lifelong financial difficulties. These initiatives support social stability and a more equitable
distribution of income by combining resources and sharing risks. Social insurance can be
very helpful in Kosovo and other developing countries in promoting economic progress and
enhancing the quality of life for its people.

The sense of security that social insurance schemes offer is one of their main advantages.
Benefits like pensions and unemployment insurance provide a layer of protection against
losing money from a job, retiring, or being disabled. People are able to make better
decisions in life, such as pursuing education, opening a business, due to the fact that they
are not worried about being bankrupt. Furthermore, by guaranteeing that a larger
proportion of the population has access to basic necessities, social insurance schemes foster
solidarity among individuals. A society that is more stable and productive may result from
this.

However implementing social insurance plans onto practice has its own set of difficulties.
The biggest expense is the money required to keep these services running. Payroll taxes,
which tend to be used to finance social insurance, may be considered to be limiting the
expansion of businesses, particularly small and medium-sized businesses (SMEs), which are
the foundation of Kosovo's economy. Furthermore, administering these initiatives can come
with significant administrative costs, requiring effective government systems. Moreover,
social insurance policies must be carefully crafted to prevent work disincentives, especially
with regard to early retirement plans.

A sophisticated strategy is needed for the planning and execution of social insurance
schemes in emerging countries such as Kosovo. One benefit of Kosovo's relatively young
population is that the initial cost of programs such as pensions is lower. As the population
ages, however, great thought must be given to the potential sustainability of these
initiatives. In order to guarantee that the programs are effective and equitable, Kosovo can
take best practices and learn from the experiences of more developed countries like the
case of Switzerland. It can also be profitable to concentrate on social insurance initiatives
that encourage employment, such as child care assistance and skill development.

To sum up, social insurance schemes are a useful instrument for advancing both economic
prosperity and social stability. Although there are obstacles, especially for emerging
countries like Kosovo, a well-thought-out system can protect individuals and promote
sustainable economic growth. By carefully considering the benefits and costs, and taking
inspiration from other countries, Kosovo may use social insurance systems to empower its
people and create a better future.
References
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Social Security Administration
https://www.google.com/url?
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Rachel Murphy, December 2023
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Forbes Magazine
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World Bank
March, 2019
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2010
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Platforma e Konsultimeve Politike
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