CRR Analyzes How the Effects of Inflation Differ by Household Income

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CRR Analyzes How the Effects of Inflation Differ by Household Income

On September 27, 2022, the Center for Retirement Research (CRR) at Boston College released its issue brief, How Much Does Inflation Vary by Income? Depends on How It’s Measured. In June 2022, the U.S. Bureau of Labor Statistics (BLS) reported that the increase in the Consumer Price Index for All Urban Consumers (CPI-U) reached 9.1%, marking the largest 12-month increase since 1981. CRR analyzed the extent of the effects of inflation that varied for households with different income levels. 

Some key findings include:

  • The results indicate that low-income and high-income households encounter similar inflation rates for items included in the CPI.
  • Generally, high-income households can afford to save more, so a considerable share of their income is less affected by current high inflation than low-income households.
  • Although high-income households will eventually spend their savings, typically they will have time to shift their consumption patterns to prepare for the subsequent impacts of inflation.

The CRR analysis was based on combined data from the Consumer Price Index (CPI) and the Consumer Expenditure Survey.

The brief is available here.

International Foundation Releases Health Care Costs 2022 Survey Results

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International Foundation Releases Health Care Costs 2022 Survey Results

On September 20, 2022, the International Foundation of Employee Benefit Plans (IFEBP) released its report, Health Care Costs Pulse Survey: 2023 Cost Trend. The report was based on the 2022 survey of U.S. employers which projects an increase of 7.5% in health care costs for 2023.

According to the survey responses from corporate/single employers (70%), public employers/governmental entities (15%) and multiemployer benefit funds (15%), the primary reasons contributing to an increase in health care costs include:

  • Catastrophic claims (17%);
  • Medical provider costs (14%);
  • Utilization due to chronic health conditions (13%);
  • Utilization due to delayed preventive/elective care during the pandemic (12%); and
  • Specialty/costly prescription drugs (10%).

The respondents also indicated that the most effective initiatives to manage costs in 2023 would include:

  • Purchasing/provider initiatives (e.g., telemedicine, price transparency tools, and quality initiatives) (24%);
  • Cost-sharing initiatives (e.g., deductibles, coinsurance and copays) (21%);
  • Utilization control initiatives (e.g., prior authorization, case management and disease management) (13%); and
  • Plan design initiatives (e.g., dependent eligibility audits, high-deductible health plans and wellness initiatives) (11%).

The report is available here.

CRS Updates Report on Windfall Elimination Provision (WEP)

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CRS Updates Report on Windfall Elimination Provision (WEP)

On September 19, 2022, the Congressional Research Service (CRS) published its updated report, Social Security: The Windfall Elimination Provision (WEP). 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 2022, the PIA formula is:

  • ​90% for the first $1,024 of AIME; plus
  • 32% of AIME over $1,024 and through $6,172 (if any); plus
  • 15% of AIME over $6,172 (if any).  

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 2021, the Social Security Administration data indicated that about 2.0 million individuals (or 3% of all Social Security beneficiaries) were affected by the WEP, most individuals (95%) were retired workers. In December 2021, about 3% of all Social Security beneficiaries (including disabled workers and dependent beneficiaries) and 4% of all retired-worker beneficiaries were affected by the WEP.

Recently, legislation has generally been proposed to either: 1) eliminate the provision for all or some affected beneficiaries; or 2) replace the current law provision with a new proportional formula based on past earnings from both covered and noncovered employment. 

The report is available here.

American Academy of Actuaries Publishes Brief on Social Security Reform Benefit Formula Options

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American Academy of Actuaries Publishes Brief on Social Security Reform Benefit Formula Options

Recently, the American Academy of Actuaries published its issue brief, Social Security Reform: Benefit Formula Options. According to the brief, the Social Security Program’s long-term solvency is threatened by the growing number of retirees which has outpaced the number of workers supporting the program. As stated in the 2021 Social Security Trustee Report, accumulated assets are projected to be depleted by 2034 and income to the system afterward is expected to be insufficient to pay all scheduled benefits when due.

According to the brief, the shortfall may be completely or partially averted by:

  • Changing the primary formula for retired worker benefits;
  • Changing the formulas for determining the benefits of eligible spouses and other dependents; and/or
  • Changing the formula for computing annual cost-of-living increases.

The brief provides an overview of the current Social Security benefit calculation formulas for both workers and spouses. In addition, it discusses various reform proposals for changing the formulas for determining benefits that have been made by members of Congress, government-appointed panels and commissions, and outside experts over the years. It also focuses on the possible effects of the proposed changes on the balance between individual equity and social adequacy.

The brief is available here.

CRR Analyzes How the Effects of Inflation Differ by Household Income

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CRR Analyzes How the Effects of Inflation Differ by Household Income

Recently, the Center for Retirement Research (CRR) at Boston College released its issue brief, How Much Do Retirees Spend on Uncertain Health Costs? CRR indicates that retirees will face uncertain out-of-pocket health costs beyond predictable insurance premiums. The analysis shows that total spending on retirees’ health care is high including long-term care and excluding premiums.

Health care insurers such as Medicare and Medicaid cover about 80% of health costs. Medicare and Medicaid help to reduce the financial risk that older Americans face with high health care expenses. However, Medicare does not cover all expenses and Medicaid only covers households with very low assets and income. Consequently, better under­standing for policymakers and retirees is a vital issue regarding the extent of this coverage and the remain­ing financial burden on individuals.

According to CRR, on average, 65-year-old households are estimated to pay about $67,000 for out-of-pocket health costs over their remaining lifetime.

The brief is available here.