Fundamentals of Insurance Planning

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Fundamentals ofInsurance Planning
Social Security, Medicare, and Other Government
Programs Chapter 7
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Chapter 7 Overview I

• Social Security and Medicare
• Social Security
• types of benefits
• benefit amounts
• requesting benefit information

• Medicare
• eligibility
• Part A Hospital
• Part B Medical
• Part C Medicare Advantage
• Part D Prescription Drugs

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Chapter 7 Overview II

• adequacy of financing
• tax treatment

• other social insurance programs
• unemployment insurance
• temporary disability laws
• workers compensation laws
• federal tax treatment

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OASDHI --

• the old age, survivors, disability, and health
  insurance program of the federal government
• consists of Social Security (OASDI) and Medicare
  (HI)

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paying for Social Security and Medicare --

• Social SecurityEmployees and employers each pay
  6.2 percent of earnings up to an annually indexed
  limit. Self-employed persons pay 12.4 percent.
• Medicare Part AEmployees pay 1.45 percent of all
  earnings (no cap). Employers pay the same.
  Self-employed persons pay 2.9 percent of all
  self-employment income.
• Medicare Part BCovered persons pay a monthly
  premium. General revenues of the federal
  government cover the remainder (about 75 percent)
  of the programs cost.

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Social Securityinsured status --

• fully insured
• eligible for retirement benefits and all
  survivors benefits
• currently insured
• eligible for some survivors benefits
• disability insured
• eligible for disability benefits

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credit --

• workers receive up to 4 credits in each calendar
  year

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fully insured status --

• requires one of the following
• 40 credits
• As many credits (minimum 6) as there are years
  elapsing after 1950 (or after the year in which
  age 21 is reached, if later) and before the year
  in which a person dies, becomes disabled, or
  reaches age 62, whichever occurs first

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currently insured status --

• requires credit for at least 6 credits during
  the 13-quarter period ending with the quarter in
  which death occurs

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disability insured status --

• requires both of the following
• that a worker be fully insured
• that a worker have had a minimum amount of work
  under Social Security within a recent period
  this period varies by the age of a disabled
  worker

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full (normal) retirement age --

• the age at which a worker can retire under Social
  Security and receive nonreduced benefits equal to
  his or her primary insurance amount (PIA)
• gradually increasing to 67 based on birth year

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primary insurance amount (PIA) --

• monthly amount a worker will receive under Social
  Security if he or she retires at full retirement
  age or becomes disabled
• also the amount on which all other Social
  Security income benefits are based

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factors affecting retirement benefits --

• reduced monthly benefits for early retirement
  (minimum age 62)
• increased monthly benefits for late retirement
  (until age 70)
• earnings test
• Social Security income for beneficiaries under
  normal retirement age is reduced if wages exceed
  a specified amount

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retirement benefits also to retirees --

• spouse aged 62 or older
• spouse of any age caring for child under 16 or
  disabled
• dependent children under 18 (19 for HS student)
• disabled children

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survivors benefits --

• if currently or fully insured
• dependent single children
• spouse caring for child
• if fully insured
• widow(er) aged 60 or older (reduced before full
  retirement age)
• dependent parent aged 62 or over

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disability benefits --

• disability
• mental or physical impairment that prevents
  worker from engaging in any substantial gainful
  employment
• 12 months duration or expected to result in
  death
• special provisions for the blind
• 6-month (approx) waiting period
• disabled children also eligible

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Social Security Statement --

• issued annually by the Social Security
  Administration
• enables employee to verify his or her
  contributions to the Social Security and Medicare
  programs
• contains estimate of benefits that will be
  available because of retirement, disability, or
  death

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Medicare Part A hospital benefits--

• available at no cost to any person 65 and older
  entitled to Social Security retirement benefits
• includes
• skilled-nursing facility benefits
• home health care benefits
• hospice benefits

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Medicare Part B medical insurance --

• available for a monthly premium to anyone
  eligible for Medicare Part A
• includes
• most medical expenses not covered under Part A

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Medicare Advantage --

• option that allows beneficiaries to select HMOs
  and other alternatives to the original Medicare
  program
• possible advantage broad coverage
• possible disadvantages HMOs, geographic
  availability

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Medicare Part D prescription drug coverage --

• began in 2006
• still somewhat controversial

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Medicare D standard benefit structure --

• applies only to covered drugs (formulary)
• initial deductible
• plan pays 75 of next layer of covered drug costs
• coverage gap (doughnut hole)
• subsequently, plan pays 95 for most Rxs

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Medicare drug plan variables --

• formulary (list of covered drugs)
• deductibles
• tiered copayments
• benefits in coverage gap
• where prescriptions can be filled
• cost

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creditable prescriptiondrug coverage --

• coverage under other plans at least as good as
  Medicares
• individuals not enrolling in Medicare
  prescription plan when initially eligible pay a
  penalty unless they had creditable prescription
  drug coverage

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partial advance funding --

• used by Social Security and Medicare
• taxes are more than sufficient to pay current
  benefits and thus provide some accumulation for
  paying future benefits
• trust funds will eventually be depleted unless
  something changes

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SS and Medicare Tax Treatment

• Contributions
• employer contributions deductible
• employee contributions paid with after-tax
  dollars
• self-employed persons can deduct half as business
  expenses

• Benefits
• monthly SS income is taxable for some recipients
• Medicare benefits and lump-sum SS benefits are
  tax free

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unemployment insurance --

• joint federal and state programs to provide
  income benefits to unemployed workers who meet
  the specific program requirements
• in most states, financed entirely by employer
  contributions

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temporary disability laws --

• programs in a few states that require employers
  to provide short-term disability income benefits
  to employees for non-work-related disabilities
• these laws are often referred to as
  nonoccupational disability laws

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before workers comp, common law defenses for
employers against injured workers --

• contributory negligenceworkers own negligence
  contributed to the injury
• fellow servantnegligence of one of the other
  workers contributed to this workers injury
• assumption of riskworker knew the risks inherent
  in the job but willingly accepted the job anyway

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workers' compensation law --

• laws in all states under which employers are
  required to provide benefits to employees for
  losses that result from work-related accidents or
  diseases
• benefits include medical care, disability income,
  income for survivors, and rehabilitative
  services

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ways of complying with workers compensation laws
--

• depending on the state, options include
• purchase insurance from a private insurance
  company
• purchase insurance from a competitive state fund
• purchase insurance from a monopolistic state fund
• qualify as a self-insurer

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social insurance tax treatment --

• unemployment insurance benefits
• included in recipients gross income
• workers compensation benefits
• income tax-free

• temporary disability benefits
• must be included in gross income
• disabled with low gross incomes may receive
  federal tax credit