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Social Insurance 1

SOCIAL INSURANCE 1. Purpose and meaning of social insurance. 4 2. Increasing need of social insurance. 3. The new era of social insurance. § 4. tures of social insurance. I 5. Historical roots of accident insurance.

6 Development of compensation for accidents. f 7. The compen sation plan in America. § 8. Standards for a compensation law. § 9. Old-age and invalidity pensions. § 10. Life insurance for wage-earners. f 11. Historical roots of health insurance. I 12. Need of health in surance in America. § 13. Unemployment insurance. 4 14. Need of ideals in social insurance. 4 15. Insurance rather than penalty. 4 16. The compulsory principle. § 17. State insurance and a unified system.

18. The contributory principle.

§ 1. Purpose and meaning of social insurance.

In im portance surpassing at present any one of the various meas ures on behalf of the wage-earning class that have thus far been considered is the remarkable development now under way of plans and agencies to provide insurance for the "com mon man." Insurance means making some kind of provision out of present means, so as to reduce the injury and suffering that would result from a future mishap. Usually, likewise, it implies uniting with others to distribute the expense fairly over all in the group. Social insurance is the term most frequently applied to the various institutions and plans provided, more or less under the regulation of law, for the protection of the lower paid workers in most modern countries. The terms in dustrial insurance and workingmen's insurance are likewise used. The principal types of events for which social insurance in its various branches provides are (1) accident ; (2) in capacitation (either by old age or by permanent failure of health within the normal working years) ; (3) death ; (4) sickness; and (5) unemployment. The five types of insurance to provide indemnity in these cases are usually known as (1) accident insurance, (2) old-age and invalidity pensions, (3) life insurance, (4) health insurance, and (5) unemploy ment insurance or out-of-work benefits.

The direct aim of social insurance is not to prevent these mishaps (though that may be an indirect result), but it is to provide some financial indemnity for the economic loss and ex pense involved in the mishap. The principal kinds of losses are two : first, medical expense, occasioned directly in caring for the sick or injured person, the expense of medical atten tion, nursing, hospital care, drugs, and special apparatus such as crutches and glasses, and burial expenses; second, wages, the loss of income because of inability to work as a result of injury, of illness, or of permanent disability, or (in the case of life insurance) of the death of the bread-winner, or of want of employment.

§ 2. Increasing need of social insurance. In various con nections we have observed how the changes that have been oc curring in modern times have increased the uncertainties of the industrial life and of the earning power of the mass of the It should be further observed that in city condi tions a working family does not have, as in agricultural con ditions, the supplementary sources of income from garden, field, forest, and stream, and it is not so possible to use the earning power of children, of old people, and of the partially disabled. The faster working pace of factories, the increase of power-driven machinery, the rapid fluctuations of employment with changing fashions, inventions, shifts of population, and waves of industrial prosperity and depression, all have introduced new risks and problems into the worker's life. The increasing payment of wages in money, and the more temporary nature of employipent of men in many kinds of factory work, have added to the problem. With these changes have come belatedly a growing interest in 1 See ch. 10, I 7; ch. 21, I 1; ch. 23, § 10-19; and ch. 33, 14.

the welfare of the mass of the workers and a growing sense of responsibility on the part of the public.

There is an appalling mass of misfortune in the United States requiring social insurance for its relief, although satis factory statistics of the various types of misfortune are still lacking. On the basis of the experience of private industrial insurance companies, it appears that there are not less than 25,000 fatal industrial accidents yearly, and 700,006 injuries causing disability for more than four weeks, besides an enor mous number of slighter injuries, many of them very pain ful, disabling for a period from one day to four weeks. This means that the loss in life and bodily injuries in industry in the United States while the country was at war in 1917 and 1918 was about equal to the like losses of our soldiers on the battle-field.

As to loss of time due to illness, the experience of Ger many shows an average of eight or nine days a year per worker, and investigations in America point to a very simi lar figure. This, applied to those gainfully employed in America, would mean nearly 300,000,000 days of illness, or 1,000,000 one-man working years, causing a loss estimated at $750,000,000 annually (but at present wage rates fully $1,000,000,000).

It is estimated that one in eighteen of American wage work ers attains the age of sixty-five with no financial provision for old age, and that about 1,250,000 persons above the age of sixty-five are dependent on their families or on charity, public or private, receiving $250,000,000 yearly. The losses and suffering to dependents due to the death of the bread-win ner are partially accounted for by accidents, but no estimate of much value can now be made of the other cases. Some notion of the losses from unemployment has been given in discussing that subject in the preceding chapter.

§ 3. The new era of social insurance. Some not insignifi cant attempts to deal with these problems were made in the nineteenth century, but the new era of social insurance may be said to date from the message of the Emperor William to the German Reichstag in 1881, in which he said: We consider it our imperial duty to impress upon the Reichstag the necessity of furthering the welfare of the working-people. . . . In order to realize these views, a bill for the insurance of workmen against industrial accidents will first of all be laid before you; after which a supplementary measure will be submitted, providing for a general or ganization of industrial sick-relief insurance. Likewise, those who are disabled in consequence of old age or invalidity possess a well-founded claim to more relief on the part of the state than they have hitherto enjoyed.

The program here outlined was carried out by the enact ment between 1883 and 1889 of a series of laws which, taken together, constituted a pretty effective system of social insur ance for the mass of wage workers in the German Empire. Later amendments extended and improved the various features of the plan, which served as an example to other countries. America has been the tardiest among all the industrial nations to undertake this kind of social ref orm.

§ 4.

Features of social insurance. The plans of social in surance, in force in various countries, present a great variety of features combined in many ways. The main characteristics in which they may differ relate to (1) the element of com pulsion, (2) contributions by the insured, (3) the nature of the insurance organization.

Insurance may be voluntary or compulsory. It is voluntary when the state simply encourages the formation of insurance agencies, and perhaps contributes something to them, leaving it to the individuals to insure themselves as they choose, in mutual societies or in privately managed companies. In the case of accident insurance, however, there is often a semi compulsion by which the employer is required to pay indem nity to his workers according to fixed scales of compensation, but is left free to insure himself against this risk or not as he pleases, in which case it is still called voluntary insurance. Compulsory insurance is that which the state requires to be provided by means of some mutual organization of the insured, or of the employers, or by the state.

Insurance may be contributory or non-contributory. It is on the contributory plan when the insured workers contribute something toward the premiums that provide the funds for eventual payment. It is non-contributory when the funds are provided either by the employers or by the state without any payments from the insured.

Insurance may be (a) in private companies, carrying on the business for profit; or (b) in mutual companies of work ing men, or of employers insuring themselves against the cost of compensation in case of accident to their employees; or (c) in a state bureau, or fund, organized and conducted by gov ernment. The state insurance is said to be competitive when private companies are permitted to sell insurance to em ployers, and exclusive when all the policies are issued by the state bureau.

§ 5. Historical roots of accident insurance. The different kinds of social insurance had different origins, some knowledge of which is necessary to an understanding of the present situa tion. These origins still affect the nature of social insurance to-day, and have prevented the development of a truly unified and logical system in accord with present conceptions of needs and of justice.

Accident insurance had its beginnings in the liability of employers for accidents that happened as a result of the em ployer's negligence, a principle found to some degree in the law of all countries. Thus the earlier payments to work

ers in cases of accidents were not insurance indemnity, but merely damages collected in court for the fault of the em ployer. In Great Britain and the United States, indeed, by judicial interpretation the law grew more strict as against the claims of the workers, until about 1880 in Great Britain and 1910 in the United States. To collect damages it was not enough for the workman to prove the employer's negli gence, for collection was made more difficult by (1) the doc trine of contributory negligence, (2) the doctrine of the as sumption of risk, and (3) the fellow-servant doctrine.

By the doctrine of contributory negligence, the workman's claim could be defeated by showing that he had by his care lessness contributed to the accident even when the employer had been negligent. By the doctrine of assumption of risk the workman was presumed, in entering upon employment, to have taken upon himself the risks usually incident to the employment, including the chance of imperfections in the ma chinery, of which he might by some care have known. By the fellow-servant doctrine the employer was freed from re sponsibility for accidents due to the negligence of other em ployees, "fellow servants," even when it was impossible for him to know their character and reputation, as in the ease of a large factory or of a great railroad.

§ 6.

Development of compensation for accidents. In some countries of continental Europe, notably Germany and France, the law of employers' liability was altered in favor of the worker early in the nineteenth century, so as to make compensation more usual and adequate. Since 1885, espe cially, this liability has been much further extended in many countries and in various directions, and yet the laws of acci dent compensation still retain many features of the old lia bility laws and remain in their legal character somewhat apart from the other branches of social insurance. Even in the newer type of "compensation" laws the indemnity paid by employers on account of accident is looked upon as commuted damages, but the old employers' defenses, just named, are abolished or made more difficult to plead. The new plan has the advantages of granting compensation by a schedule fixed in the law, insuring greater certainty, more adequate pay ments, greater ease of securing redress,. and abolishing the cost of law-suits. Still, in most countries and in most states in America, the worker has the option of suing under the old law. In some forty countries the principle of compensation by a prearranged schedule of rates has to some , degree re placed that of litigation and determination by the jury of the damages in each separate case. The insurance spoken of in relation to accidents is technically that which the employers may or must take to protect themselves against loss, not that which the workman has. • The situation as to compensation in a few leading countries is as follows, the dates given being those of important legisla tion. S Accident Insurance Voluntary (as to employers insuring, but compulsory compensation).

Great Britain, 1897, 1906, 1907.

France, 1898, 1907, (compulsory for seamen, 1898, 1905). Denmark, 1898, 1908.

Belgium, 1903 (voluntary except for miners).

Compulsory insurance of their risks, by employers.

Belgium, for miners, 1868.

Germany, 1884 (in employers' associations). 1887, 1900, 1911 (voluntary for some classes).

Austria, 1887 (as in Germany), 1894 (voluntary for some classes). Norway, 1894 (in a state central insurance office), 1896.

Italy, 1898, 1904.

Holland, 1901 (in the Royal Bank or in private companies). Sweden, 1901 (as in Norway).

§ 7. The compensation plan in America. Under the practical operation of the law of employers' liability in force in any American state until 1911, a very small proportion of the workers injured while at work were legally entitled to any indemnity, and a still smaller proportion could succeed in recovering any substantial amount. Employers, and the accident companies with which employers insured, either com promised the claims for small amounts or fought in the courts the claims of those who refused to compromise. If the court awarded damages, large or small, a large part of the proceeds went for legal expenses. Only a small pro portion of the total costs to employers went as benefits to the victims of accidents. It appeared, in an extensive investi gation of the business of the large industrial insurance cow ponies, that but 28 per cent of the premiums paid by em ployers were paid to workmen as indemnity.

Between 1911 and 1921 the laws have been changed to some extent in their application to selected occupations in at least forty-three states and territories of continental United States, (covering all but five of the southeastern states, which are distinctly agricultural). Seventeen states had, in 1921, state Fig. 1, Chapter 24.—Workmen's compensation laws in U. S. and Canada, 1921. Adapted from the map published by the American Association for Labor Legislation.

insurance funds, and in six states (Nevada, Ohio, Oregon, Washington, West Virginia, and Wyoming) they were the only insurance agencies allowed. This remarkable develop ment has been largely actuated and guided by a compara tively small group of socially minded non-working-class citizens rather than by either employees or organized workers. It is an encouraging example of what can be done by skil ful methods, when conditions are ripe, in furthering righteous social legislation without the use of money or of corrupting influences. • § 8. Standards for a compensation law. The standards which, in detail, in one jurisdiction or another, have already been attained, and which are the provisional ideals now sought by reformers, may be briefly stated as follows. All employ ments should be included, although as yet there are various exceptions, such as farm labor and domestic service, employers, with but few employees (the number excepted being from one to five), and non-hazardous employments. Compensation should be granted for all injuries, suffered in the course of employment, that cause disability beyond a definite waiting period of from three to seven days. Compensation should in clude medical attendance for a limited period, and two thirds of the estimated loss of wages for disability, either total or partial, during its continuance ; and, in case of death, funeral expenses, and from one to two thirds of the estimated wages to the widow (or dependent widower) and children, or to other dependent relatives. To secure the full benefit of the plan it must be made the exclusive remedy, replacing entirely the old remedy of suits for negligence. The employer should be required to insure his risk, and general sentiment is mov ing rapidly toward the plan of a state insurance bureau as the exclusive agency. For the administration of the system, an accident and insurance board should be created in each juris diction. Experience shows the importance of careful atten tion to numerous other details, and many amendments will be made as the needs become manifest in practice.

§ 9. Old-age and invalidity pensions. Insurance to pro vide pensions for old-age and permanent (partial or total) disability is in nature but an extension of the insurance against accident and sickness. In a relatively small num ber of cases accidents result in permanent disability, and it is both illogical and inhumane to limit, arbitrarily, the com pensation in such cases to a certain period, as two or three years, as is done in many compensation laws. The disability due to advancing years is in nature a chronic illness, in evitable, sooner or later, to all who survive. The movement to provide some indemnity in such cases has been rapid in European countries, doubtless because the problem was a very pressing one where the average earnings are low. In Ger many and Austria this development has been more in con nection with other forms of insurance; in Denmark, Great Britain, and France it has had more the aspect of an exten sion of poor relief. In the United States little has been done to provide for these great needs. Massachusetts in 1907 au thorized savings banks to sell insurance and old-age pensions to those who applied. An increasing number of corporations, especially railroads, are adopting a pension system for men growing old in their service; but nothing had been done of a general public nature toward compulsory and universal pro tection against these misfortunes until the enactment of the federal law, in 1920, establishing compulsory contributory old-age and invalidity insurance for the employees in the classified civil service, now half a million in number.

The following table shows the situation in some of the leading countries:

compensation, employers, accident, countries and accidents