CRS Updates Medicare Primer

Industry News

Print

CRS Updates Medicare Primer

On May 20, 2019, the Congressional Research Service (CRS) published its updated report, Medicare Primer. The report provides a general overview of the Medicare program. In 2019, CRS reports that the Medicare program is expected to cover about 61 million individuals, with 52 million (85%) being age 65 and older and 9 million (15%) being disabled. The Congressional Budget Office (CBO) estimates that total Medicare spending will be approximately $772 billion, with about $749 billion being spent on benefits in 2019.

The report also includes information regarding: 1) history of the Medicare program; 2) eligibility criteria; 3) covered services; 4) provider payment systems; and 5) program administration and financing. The appendices also include commonly used acronyms and information on beneficiary cost sharing.

The report is available here.

CRS Updates Report on Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)

Industry News

Print

CRS Updates Report on Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)

On May 14, 2019, the Congressional Research Service (CRS) published its updated report, Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The WEP and the GPO are two separate provisions that reduce regular Social Security benefits for workers and their eligible family members if the worker receives (or is entitled to) a pension based on earnings from employment not covered by Social Security.

The WEP affects Social Security benefits paid to individuals who earn Social Security benefits from Social Security covered employment, but who also earn pension benefits from state or local government employment not covered by Social Security. In these cases, Social Security benefits are lowered by the WEP.

Social Security benefits are designed to replace a larger percent of pre-retirement income for lower-paid workers than for higher-paid workers. This is done by: 1) calculating an employee’s average indexed monthly earnings (AIME) from employment covered by Social Security; and 2) calculating the employee’s primary insurance amount (PIA) using a formula that applies a higher replacement percentage to lower earnings than to higher earnings. In 2019, the PIA formula is:

  • 90% for the first $926 of AIME, plus
  • 32% of AIME over $926 and through $5,583, plus
  • 15% of AIME over $5,583.

Before the WEP was established, for those who split their careers between covered and non-covered Social Security employment, the PIA formula resulted in a higher proportion of covered earnings being subject to the 90% rate. This resulted in what some perceived as a “windfall.” In 1983, Congress passed the WEP to eliminate this perceived advantage by lowering the 90% rate to 40% for those subject to the WEP. As of December 2018, Social Security Administration data indicates that about 1.9 million individuals (of 3% of all Social Security beneficiaries) were affected by the WEP, most of whom (89%) were retired workers.

Under the GPO, an individual’s Social Security spousal or survivor’s benefit is reduced (“offset”) by two-thirds of the pension benefits received from federal, state, or local government employment that is not covered by Social Security. According to the report, about 695,000 Social Security beneficiaries (or about 1% of all beneficiaries) had spousal or survivor benefits reduced by the GPO as of December 2018. Of those, 54% were spouses and 46% were widows and widowers, with about 72% of all GPO-affected beneficiaries had their benefits fully offset and about 28% had their benefits partially offset.

The report is available here.

CMS Publishes Final Regulation Requiring Drug Pricing Transparency for Medicare and Medicaid Programs

Industry News

Print

CMS Publishes Final Regulation Requiring Drug Pricing Transparency for Medicare and Medicaid Programs

On May 10, 2019, the Centers for Medicare & Medicaid Services (CMS) published a final regulation, Medicare and Medicaid Programs; Regulation to Require Drug Pricing Transparency. The rule is related to drug pricing transparency for prescription drugs and biological products. Over the past decade, these costs have increased significantly and are projected to continue to rise faster than overall health care spending. In 2015, U.S. prescription drug spending was estimated to be $457 billion (16.7% of overall personal health care services). Of that, $328 billion (71.9%) was for retail drugs and $128 billion (28.1%) was for non-retail drugs.

According to the final rule, it “revises the Federal Health Insurance Programs for the Aged and Disabled by amending regulations for the Medicare Parts A, B, C and D programs, as well as the Medicaid program, to require direct-to-consumer (DTC) television advertisements of prescription drugs and biological products for which payment is available through or under Medicare or Medicaid to include the Wholesale Acquisition Cost (WAC or list price) of that drug or biological product. This rule is intended to improve the efficient administration of the Medicare and Medicaid programs by ensuring that beneficiaries are provided with relevant information about the costs of prescription drugs and biological products so they can make informed decisions that minimize their out-of-pocket (OOP) costs and expenditures borne by Medicare and Medicaid, both of which are significant problems.”

The final regulation is effective on July 9, 2019 and is available here.

The CMS Drug Pricing Transparency Fact Sheet is available here.

CRS Updates Social Security Primer

Industry News

Print

CRS Updates Social Security Primer

On May 7, 2019, the Congressional Research Service (CRS) published its updated report, Social Security Primer. The CRS report provides an overview of Social Security financing and benefits under current law. According to CRS, there were about 63.3 million Social Security beneficiaries. Of those, 47.2 million (75%) were retired workers and family members, 10.1 million (16%) were disabled workers and family members, and 6.0 million (9%) were survivors of deceased workers as of March 2019.

The report also includes information regarding: 1) the origins and a brief history of the program; 2) Social Security financing and the taxation of benefits; 3) status of the trust funds; 4) Social Security reform debate; 5) Social Security benefit rules and how benefits are computed; and 6) information about Social Security beneficiaries.

The report is available here.

CRR Releases Social Security’s Financial Outlook for 2019

Industry News

Print

CRR Releases Social Security’s Financial Outlook for 2019

On May 7, 2019, the Center for Retirement Research at Boston College (CRR) issued its brief, Social Security’s Financial Outlook: The 2019 Update in Perspective. As presented in the issue brief, CRR analyzed the 75-year deficit in Social Security benefits projected in the recently released 2019 Social Security Board of Trustees Report.

  • The 2019 Social Security Board of Trustees Report indicates a change in the 75-year deficit declining from 2.84% of taxable payrolls to 2.78%, or 1.0% of the Gross Domestic Product (GDP).
  • The trust fund exhaustion date was extended from 2034 to 2035 when payroll taxes will cover about 75% of promised benefits.
  • The improvement was primarily due to a more favorable financial outlook for the Disability Insurance program.
  • Social Security’s financing shortfall is manageable, but needs to be addressed to equitably share the burden among cohorts, help restore confidence in the Social Security program, and allow sufficient time for individuals to adjust to changes.

The brief concludes, “Stabilizing the system’s finances should be a high priority to restore confidence in our ability to manage our fiscal policy and to assure working Americans that they will receive the income they need in retirement. The long-run deficit can be eliminated only by putting more money into the system or by cutting benefits.”

The report is available here.

Fitch Ratings Reports on Public Pension Fund Portfolios

Industry News

Print

Fitch Ratings Reports on Public Pension Fund Portfolios

On May 6, 2019, Fitch Ratings released its special report, U.S. State and Local Pension Investments: Concerns Grow with Riskier Allocations, Lower Returns. The research report reviews the portfolio allocations and asset performance trends of public defined benefit pensions from 2001 to 2017. Fitch’s analysis is based on asset data provided by the Center for Retirement Research at Boston College (CRR), which surveyed asset allocations and performance for 180 state and local pension systems in 50 states.

Over the last two economic cycles, state and local pension asset allocations have become riskier. As a result, potential volatility increases and participating governments become exposed to higher funding risks and possibly higher contributions. From 2001 to 2017, average asset allocations to higher-risk equities and alternatives rose to 77% from 67% while cash and lower-risk fixed income decreased to 23% from 33%.

According to Fitch, “Given the importance of investment returns to meeting long-term funding goals, the adequacy and volatility of actual returns are a key risk to the long-term health of state and local pensions. Investment gains for pension plans were fairly volatile between 2001 and 2017, averaging approximately 6.5%, a figure that incorporates 10 years of above-average positive returns, three years of below-average positive returns and four years of negative returns… This underscores the need to evaluate the investment risks inherent in these plans and the potential impact of volatility on the budgets and liability burdens of participating governments.”

The report is available here.

Society of Actuaries Releases Report on Pri-2012 Private Retirement Plans Mortality Tables

Industry News

Print

Society of Actuaries Releases Report on Pri-2012 Private Retirement Plans Mortality Tables

On May 22, 2019, the Society of Actuaries’ (SOA) Retirement Plans Experience Committee (RPEC) released an exposure draft of the Pri-2012 Private Retirement Plans Mortality Tables for U.S. private-sector retirement plans. The report provides an update to the RP-2014 Mortality Tables Report and the accompanying RP-2006 Mortality Tables. According to the SOA, the report includes observations into various participant and plan specific factors, which may be correlated with significant differences in mortality.

The Pri-2012 Private Retirement Plans Mortality Tables were developed from data collected from 2010 to 2014, including 16 million life-years of exposure data and 343,000 deaths from 18 different entities that submitted information for 402 plans. The new tables are intended to be adjusted with a mortality improvement scale for applications in years other than 2012. When the total dataset tables for RP-2006 are compared to those of Pri-2012, the life expectancy as of 2019 for an age-65 female remained roughly constant at 87.4 years, but for an age-65 male, it declined slightly from 85.0 years to 84.7 years. Comments on the exposure draft are due by July 31, 2019 and further information is available here.

NCPERS Releases Report Analyzing Pension Accounting Standards

Industry News

Print

NCPERS Releases Report Analyzing Pension Accounting Standards

On May 3, 2019, the National Conference on Public Employee Retirement Systems (NCPERS) released a report, The Case for New Pension Accounting Standards. Written by Tom Sgouros, Research Associate in the Computer Science Department at Brown University, the report is part of a research project sponsored by NCPERS. It presents an analysis of the existing Governmental Accounting Standards Board (GASB) accounting standards for public pension funds, and suggests possible alternatives for changing the accounting rules which are intended to help keep pension plans sustainable. Some of the potential reforms of the accounting rules presented include:

  • Reform of costing to include a standard cost along with the normal cost;
  • Use of depletion date calculations rather than a funding ratio for planning purposes;
  • Risk weighting of pension fund assets to indicate the level of risk in a portfolio; and
  • Creation of standards for valuation of the economy, which ultimately secures a public pension system.

The report is available here.

American Academy of Actuaries Publishes Brief on the 2019 Social Security Trustees Report

Industry News

Print

American Academy of Actuaries Publishes Brief on the 2019 Social Security Trustees Report

On May 22, 2019, the American Academy of Actuaries (AAA) released its issue brief, An Actuarial Perspective on the 2019 Social Security Trustees Report. The brief was developed by the AAA’s Social Security Committee and presents the Committee’s perspective regarding the 2019 Trustees Report, which examines the Social Security program’s long-term solvency issues. In addition, it recommends that Congress should take action to ensure the sustainable solvency of the program. The Trustees Report projects that the Social Security trust fund exhaustion date is extended to 2035 when payroll taxes will cover about 75% of promised benefits.

The report provides separate solvency measures and tests in the short-range (2019-2028) and long-range (2019-2093) time periods. According to the report, “Social Security’s short-range OASDI financial projection is about the same as the projection made a year ago… Moving the short-range estimate period one year forward alone caused a decline of 17 percentage points…The actuarial balance improved from a negative 2.84 percent in the 2018 report to a negative 2.78 percent in the 2019 Trustees Report.”

The report states, “In order to achieve viability of Social Security in the foreseeable future, any modifications to the system should include sustainable solvency as a primary goal. Sustainable solvency means that not only will the program be solvent for the next 75 years under the reform methods adopted, but also that the trust fund reserves at the end of the 75-year period will be stable or increasing as a percentage of the annual program cost…Providing for solvency beyond the next 75 years will require changes to address micro-aging, as beneficiaries will likely be receiving benefits for ever-longer periods of retirement.”

The brief is available here.

Health Affairs Finds Many Middle-Income Seniors Will Have Insufficient Resources for Housing and Health Care

Industry News

Print

Health Affairs Finds Many Middle-Income Seniors Will Have Insufficient Resources for Housing and Health Care

On May 1, 2019, the online journal Health Affairs published a web article titled, “The Forgotten Middle: Many Middle-Income Seniors Will Have Insufficient Resources for Housing and Health Care.” According to the article, there will be an estimated 14.4 million middle-income seniors by 2029. Of those, 60% will have mobility limitations and 20% will have high health care and functional needs. Likely many of these seniors will need the level of care provided in senior housing, but an estimated 54% will not have sufficient financial resources to pay for it.

Health Affairs suggests that to meet the future long-term care and housing needs for middle-income seniors, public policy and the private sector should recognize the full range of services that seniors may need as they age. The article concludes, “Innovations from policy makers and private-sector housing operators and their investors will be required to serve this middle-income cohort.”

The article is available here.