Benefits November 9, 2011

Cuts in Social Security Benefits May Not Harm Younger Workers

November 9, 2011 (PLANSPONSOR.com) – Despite the fact that most Social Security reform proposals would result in fewer benefits for future retirees, an offsetting gain would be the decrease in payroll taxes needed from younger workers to support the program. 
 
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According to a study from The National Center for Policy Analysis (NCPA), in some cases, workers would come out ahead with the tax reductions exceeding the Social Security benefit cuts.

The average lifetime single-male income level is calculated in 2011 dollars at $42,886 for a 41-year old and at $51,560 for a 26-year old. The study found that raising a 41-year old middle-income man’s retirement age to 70 would reduce his lifetime benefits by about $60,000. But since his taxes would fall by about $40,000, compared to the taxes necessary to fully fund benefits under the current program, the lower tax burden would offset two-thirds of the benefit loss.

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Raising the retirement age for the 41-year old earning a poverty-level wage would reduce his lifetime benefits by about $26,000, but his lower tax burden offsets about 40% of the benefit loss. For a very high-income worker (16 times the poverty level), the lower tax burden would offset 90% of the benefit loss. Changing the benefit formula to make it less generous actually causes the 41-year old middle-income worker’s taxes to drop by more than the loss of benefits. Under progressive price indexing, his lower taxes exceed his benefit loss by $30,000.

Among 26-year olds, raising the retirement age would reduce a very high-income worker’s taxes by more than the reduction in benefits. For a medium-income earner, the tax reduction would make up for 95% of his benefit loss. The fall in taxes for a poverty-level worker would offset about half of his lost benefits. Progressive price indexing would reduce the tax burden for today’s 26-year olds in every income group by more than their benefit loss, when compared to a fully funded current program.

Changing the benefit formula would reduce the taxes of the highest-income earner by more than the reduction in his benefits. The benefit loss of a medium-wage worker would be almost entirely offset by tax reductions. The poverty-level worker's benefit loss would be offset 85% by lower taxes.

“You can't just focus on the change in benefits,” said co-author Andrew J. Rettenmaier, an NCPA Senior Fellow and Executive Associate Director at the Private Enterprise Research Center at Texas A&M University. "You have to compare the taxes necessary to fully fund any reform."

The study also states that raising the taxable maximum would increase the taxes of very high income workers, but for today's 26-year olds half of the tax increase would be offset by increased benefits the government would have to pay to those same workers. 

"The biggest problem with raising the maximum taxable wage is that it commits the government to a larger program," said Rettenmaier.  "Instead of increasing taxes on higher income workers, the progressive price indexing reform lowers their benefits and reduces the program's size. Progressive price indexing produces similar progressivity as does increasing the taxable maximum, but it is more fiscally responsible in the long-run.”

To view the full study, visit http://www.ncpa.org/pdfs/st337.pdf 

Opinions November 9, 2011

Proposed Regulation on Exchange Eligibility (Part II)

 

On August 17, 2011, the Department of Health and Human Services (HHS) published a proposed regulation (the "Proposed Regulation") that clarifies the duties of Exchanges with respect to determining individual eligibility for qualified health plan (QHP) enrollment, federal premium tax credits and cost-sharing subsidies to help pay for QHP coverage, and certain government-sponsored health programs.

 

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As noted in previous columns, the PPACA employer mandate penalty depends in part on whether an employer’s employees receive a premium tax credit for QHP coverage through an Exchange.   

We answered certain frequently asked questions last week and continue with more questions this week.

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 How is the advance premium tax credit administered?   

Advance payments of premium tax credits are made monthly to the issuer of the QHP in which the individual enrolls.  An Exchange is responsible for providing several notifications that are critical to the administration of the advance premium tax credits and cost-sharing subsidies.  Among other things, an Exchange will notify the health insurer issuing the applicable qualified health plan (QHP) of the applicant’s eligibility for federal premium tax credits or cost-sharing subsidies or a change in the level of payments for which the enrollee is eligible.  An Exchange also will send eligibility and enrollment information to HHS so that it can begin, end or change the individual’s advance payments of premium tax credits or cost sharing subsidy level.   

 

 Will an exchange notify anemployer that one of its employees has qualified to receive an advance premium tax credit payment? 

If the Exchange determines an individual is eligible for advance premium tax credits because the individual’s employer-sponsored coverage is not minimum essential coverage, is unaffordable or does not provide minimum value, the Exchange must notify the employer and identify the employee.  The preamble states that future regulations will contain additional information regarding notices, including notices that an Exchange will send to an employer notifying it that an individual is eligible for advance payments of the premium tax credit or cost-sharing subsidies.

 

 May an individual become ineligible for advance premium tax credits during a year if changes in status occur during the year?  

Yes, the Proposed Regulationincludes rules regarding eligibility redeterminations during a year.  In general, an Exchange must redetermine eligibility of an applicant if it receives and verifies new information reported by the applicant or through other means.  Individuals generally are required to update certain information throughout the year.  Exchanges must notify enrollees of any redetermination changes, and changes resulting from a redetermination generally are effective on the first day of the month following the date of the notice.  Exchanges generally must require an enrollee to report certain changes within 30 days.  AnExchange also must redetermine annually whether an individual is eligible to enroll in a QHP through the Exchange.  Enrollment in a QHP generally will continue (provided the individual continues to be eligible) unless the enrollee takes action to change plans or terminate coverage.

 

Have the agencies issued guidance for small employers that want to offer employees health coverage through a small business health exchange beginning in 2014?   

The Proposed Regulation and a proposed regulation on the establishment of Exchanges and QHPs published by HHS in July include general standards applicable to employers participating in the Small Business Health Options Program ("SHOP").  Among other things, the proposed regulations provide that – 

  • An employer with employees in more than one state may choose to enroll its employees in one or more plans through the SHOP serving the principal place of business or the SHOP serving the employee's worksite;
  • A qualified employer will be responsible for informing employees about selecting and enrolling in a QHP through an Exchange;
  • Qualified employers will submit premium payments to the Exchange;
  • Qualified employers retain all notice responsibilities (e.g, COBRA notices) under state and federal law; and
  • Qualified employers will continue to offer the same plan or plans or level of coverage selected for the previous year unless the employer takes action to change coverage or the previous options are no longer available.

    Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions    

    You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html. 

    Contributors:  

    Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.  

    Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.  

     

    PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

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