Introduction to Risk Management and Insurance, 10e (Dorfman/Cather)
Chapter 20 Social Security
1) The “earnings test” ________.
A) reduces Social Security survivor benefits if wage income exceeds an annually indexed
amount
B) reduces Medicare benefits if Social Security benefits exceed an annually indexed amount
C) requires retired people to show a financial need before benefits are paid
D) reduces Social Security benefits if earned wages exceed an annually-indexed amount
2) Social Security’s definition of “disability” is:
A) losing at least an arm, a leg, sight in one eye, or any combination of these
B) inability to engage in any gainful employment due to a work-related accident, and that
inability must be expected to last for a continuous period of not less than twelve months
C) the inability to engage in one’s own occupation for a continuous period of not less than twelve
months
D) the inability to engage in any substantial gainful activity by reasons of any medically
determinable physical or mental impairment which can be expected to last for a continuous
period of not less than twelve months
3) Which one of the following is not a characteristic of Social Security?
A) Benefits are individually selectable by the covered individual.
B) Participation is compulsory.
C) It can operate on a pay-as-you-go basis with no prefunding.
D) Legislative activity may change the benefits.
4) Social Security is financed by a tax on:
A) employees and employers
B) only on employees
C) only on employers
D) all residents of the United States
5) Each of the following is a Social Security benefit except:
A) retirement
B) unemployment
C) survivor
D) disability
6) To receive Social Security retirement benefits one must be:
A) fully insured and of retirement age
B) currently insured and of retirement age
C) fully insured and meet the definition of disability
D) in financial need
7) Which of the following benefits is not provided under the Social Security program?
A) Survivor benefits
B) Disability benefits
C) Retirement benefits
D) Welfare payments to poor people
8) Which of the following does not influence the amount of a retiree’s Social Security retirement
benefits?
A) Amount of covered earnings for each year of included work
B) Number of years after a person’s 21st birthday until the year before a death, disability, or
retirement
C) Annual amount of non-wage income over the years calculated in the AIME
D) Maximum earnings amount subject to the tax
9) Which of the following is false concerning the operation of the Social Security system?
A) The program is operated on a pay-as-you-go basis.
B) Employees and employers share the burden of funding the system.
C) Self-employed individuals pay approximately 15.3 percent on their own payroll.
D) There are no investment earnings since the program is operated on a pay-as-you-go basis.
10) Social Security became law in:
A) 1920
B) 1929
C) 1935
D) 1945
11) Which of the following is not a characteristic of a public assistance program benefits?
A) Based on demonstrated need
B) Subject to change
C) Fully funded
D) Funded by general taxes
12) Social Security survivor benefits cannot be paid to:
A) husbands of deceased workers
B) wives of deceased workers
C) children of deceased workers
D) nonprofit charities
13) Medicare covers all the following except:
A) 95% of the cost of all outpatient prescriptions
B) operating room costs
C) payment for doctor bills
D) outpatient therapy
14) Which of the following groups would not be covered by Social Security?
A) Doctors in private practice
B) Professional athletes
C) Coal miners
D) Certain exempt state employees
15) The Primary Insurance Amount (PIA) in Social Security:
A) determines your hospital benefits
B) determines your supplementary medical benefits
C) is based on an average indexed monthly earnings calculation
D) determines your eligibility for benefits
16) To have one quarter of coverage in the Social Security program, you must have:
A) worked 3 months
B) worked 4 months
C) earned a certain amount of covered income
D) been retired at least 3 months
17) Social security tax applies only until an annual covered maximum wage is reached. What
was that wage in 2012?
A) $84,600
B) $90,400
C) $110,100
D) $119,000
18) Social security benefits are:
A) provided on a current-income basis
B) actuarially reserved
C) welfare assistance
D) not funded by general tax revenues
19) The Social Security “black-out” period occurs between the time:
A) the insured worker retires and the time retirement benefits begin
B) survivor benefits end and the time retirement benefits begin
C) the insured worker becomes disabled and the time disability benefits begin
D) a disabled worker recovers from disability and the time he/she is able to earn 100% of his/her
pre-disability wages
20) Alice dies and is survived by her husband, Steve, and their child, Dawn. Steve and Dawn are
each then eligible to receive a monthly Social Security survivor benefit of $1,700. If Steve goes
to work and earns $100 more than the maximum monthly earnings limit, what will happen?
A) Steve’s $1,700 benefit payment will cease.
B) Both Steve’s and Dawn’s $1,700 benefit payment will cease.
C) Steve’s benefit payment will be reduced to $1,650.
D) Both Steve’s and Dawn’s monthly benefits will be reduced to $1,650 each.
21) Self-employed people:
A) are exempt from Social Security
B) must pay in 15.3% of their earnings in Social Security taxes
C) are not eligible for Social Security
D) must pay in 7.65% of their earnings in Social Security taxes
22) Social Security eligibility is based on how many ________ are earned.
A) years of full-time employment
B) total dollars
C) quarters of coverage
D) units of insurance
23) Suppose that Social Security measures a quarter of coverage earned as $900. Mario works
during the June and July only and earns $9,000 of covered wages. How many quarters of
coverage does he receive for that year?
A) 1
B) 4
C) 10
D) Up to 10, depending upon whether or not he is self-employed
24) Managed care options available through Medicare:
A) are mandated for all Medicare participants
B) result in lower out-of-pocket costs for participants
C) are prohibitively expensive for many participants
D) both A and B
25) Many HMOs have not enjoyed providing managed care for Medicare because:
A) the reimbursement schedule is inadequate or unattractive
B) they object to being forced to participate in the program
C) older patients are typically unprofitable for all insurers and health care providers
D) both A and B
26) The 2011 report from the trustees of Social Security indicates that:
A) Social Security will be bankrupt by the year 2024
B) with no changes to the program, the Medicare Hospital Insurance trust fund will be exhausted
in 2024
C) Baby Boomers are specifically responsible for bankrupting the system
D) with no changes to the program, all benefits will be fully-funded through the year 2018
27) Medicare’s prescription drug plan:
A) has a $50 deductible
B) may negotiate with pharmaceutical companies to get lower medication prices
C) must, by law, negotiate with pharmaceutical companies to get lower medication prices
D) has a corridor deductible besides a regular deductible
28) Mr. Smalley is a retiree on the Medicare prescription drug plan. This year his drug
expenditures are $5,100. What percentage will Medicare pay of the medications that cost
between $2,930 and $5,100?
A) 0
B) 75
C) 95
D) None of the above
29) Mr. Smalley is a retiree on the Medicare prescription drug plan. This year his drug
expenditures are $15,100. What percentage will Medicare pay of the medications that cost
between $6,657.50 and $15,100?
A) 0
B) 75
C) 95
D) None of the above
30) Mr. Smalley is a retiree on the Medicare prescription drug plan. This year his drug
expenditures are $250. What percentage will Medicare pay of the $250?
A) 0
B) 75
C) 95
D) None of the above
31) The decision to enroll in the Medicare prescription drug plan requires:
A) very little information, because it’s best for 75% of all Americans
B) a lot of information about the income tax bracket of the individual participant
C) an analysis of the individual’s prescriptions and their costs
D) a brain surgeon
32) Members of the U.S. Army are covered by the Social Security program.
33) Only “currently insured” workers are entitled to a Social Security retirement benefit.
34) After 40 quarters in covered employment a person achieves “fully insured” status, and may
receive Social Security benefits even if he or she never works again.
35) The “retirement test” reduces Social Security benefits if there is non-wage (for example,
dividend or interest) income in excess of about $6,000.
36) Survivor benefits may be paid to both the widow and dependent children of a deceased
worker.
37) A surviving wife’s Social Security benefit ends when her youngest child reaches age 16.
38) Both Parts A and D of the Medicare program are compulsory.
39) There is no provision to coordinate benefits received under Social Security and Workers’
Compensation.
40) The Social Security normal retirement age for a person born in 1970 is 65.
41) Medicare has three coverage parts; one part is mandatory, the other two are optional.
42) There will soon be a drastic decline in the number of persons receiving Social Security
disability benefits.
43) The eligibility test for Social Security is known as the “needs” test.
44) The private insurance system and the Social Security system are both “fully-funded.”
45) Social Security operates on the basis of pooling exposures and predicting losses in advance.
46) Self-employed people must participate in the Social Security program.
47) Explain what the dramatic shift was in political philosophy leading to the Social Security Act
of 1935.
48) Describe the characteristics of a government insurance program.
49) What are the requirements for receiving Social Security disability benefits?
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50) Explain what is meant by a “blackout period” as it applies to Social Security benefits.