injury on the job.

• Retirement insurance: All workers pay a percentage of their income into Social Security and into Medicare,

which then provides income and health care benefits to the elderly. Social Security and Medicare are not
396 16 • Information, Risk, and Insurance

literally “insurance” in the sense that those currently contributing to the fund are not eligible for benefits.

They function like insurance, however, in the sense that individuals make regular payments into the

programs today in exchange for benefits they will receive in the case of a later event—either becoming old

or becoming sick when old. A name for such programs is “social insurance.”

The major additional costs to insurance companies, other than the payment of claims, are the costs of running

a business: the administrative costs of hiring workers, administering accounts, and processing insurance

claims. For most insurance companies, the insurance premiums coming in and the claims payments going out
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