Government

Programs

Creation Of Congress A Supplemental Program

Our government has enacted social programs to help Americans have a base upon which to build their retirement. Social Security benefits are an example of a program enacted by Congress in 1935. In 1939 Social Security was amended to include not only the worker, but also his family. In 1956, Social Security was again amended to include disability benefits. When Social Security was enacted, the average life expectancy of a worker was age 63. Obviously, Congress did not expect to pay out the billions of dollars that we do today. They assumed that a few people would receive benefits for a few years.  Medicare was created in 1965 in the middle of much controversy. The original intent was to insure the entire nation, not merely those in retirement. During this great debate the words social insurance took on a connotation with the American people. Doctors, led by the American Medical Association, launched a blitz of anti-socialized medicine advertisements. The American people, worried that free medical choice would disappear, responded. In the end, only those age 65 plus were covered by Medicare. Even when individuals take their Social Security benefits at age 62, Medicare still does not activate until age 65. It is possible to obtain Medicare prior to the age of 65 if certain conditions are met. Those conditions include a permanent disability, and those with permanent kidney failure. Medicares sister program, Medicaid (Medi-Cal in California), is designed for people of all ages. Despite this fact, it is the retired population that uses the majority of the funds. In fact, Social Security and Medicare eat up approximately 35 percent of our national budget. That is more than the amount we spend on defense. It is ironic that the very system the medical groups opposed now guarantee huge incomes for many in the medical profession. It is important to realize that neither Medicare nor Social Security benefits were ever intended to provide for an individual adequately. They have always been intended to be a supplemental program. What do they supplement? They supplement what our citizens must do for themselves.

Will Social Security Survive?	As the Baby Boomer population approaches Social Security age and begins to collect benefits starting in 2010, we can expect to see some necessary changes in how benefits are received from the government. In 1950, there were 17 workers paying taxes for each retired person collecting Social Security benefits. Currently, there are three taxpayers for every one person on Social Security. Soon, as the Baby Boomers begin to collect benefits, that will drop to only two taxpayers for every one retiree. There are some who estimate that those who pay into the system at this point will be paying much more in than they will ever collect back in benefits. There is no doubt that people are living longer than ever before. Each of us can expect to live past eighty. The average man will live to age 83 and the average woman will live to age 86. Assuming we retire at age 65, that means we will need enough retirement income to live between 20 and 30 years. If our current standard of living requires $40,000 per year, that means we will need to set aside $800,000 for twenty years or $1,200,000 if we live 30 years longer. This does not factor in the effects of inflation, but it also does not factor in the interest earnings on the money already set aside. Most planners say to expect to need 70 percent or more of ones pre-retirement earnings. For those with average earnings, Social Security will replace only about 40 percent. Obviously, we must set aside additional funds for ourselves.
Pay As We Go	Social Security has always be a pay as we go system. In other words, the money that each individual pays in is not set aside for them. Rather it is used to pay the benefits to currently retired Americans. Current workers are paying for past workers. Presently, Social Security is taking in more money than it pays out. The extra is being put aside in U.S. Treasury Bonds to offset the tremendous explosion they expect in benefits when the Baby Boomer population hits retirement. While estimates vary depending upon the source, it is expected that our government can pay Social Security benefits through the year 2012 at present employer/employee taxing rates. Past that point, it will have to start using the interest earned from its special treasuries. That money is expected to last until the year 2015. At that point, our government will need to begin redeeming the bonds in the trust fund to supplement the intake of payroll taxes. The U.S. Treasury Bonds are expected to last until 2037 by current estimates, according to the Social Security Retirement Planner, produced by the Social Security Administration. After this point, based on current taxation levels, only about 72 percent of the funds needed to pay benefits will be collected from payroll taxes. In the year 2015, when the government will need to start using the money it has been setting aside, we will start paying out more in benefits than we collect in taxes. Thus, the need to start using the funds set aside in U.S. Treasury Bonds.
Good Until The Year 2037	Obviously, Congress will do something to bring in funds so that the Social Security program will continue. What we cant be sure of are the changes themselves. Will benefits begin later than age 65? Age 67 has already been proposed. Since we have less than thirty years to consider solutions, it might not seem like such a pressing problem. However, the taxpayers of 1929 and later may not feel that way since it will be they who will bear the brunt of the solutions.
Not Welfare	It is important to note that Social Security and Medicare benefits are not welfare. Both programs are earned, based upon ones work record or the record of their spouse. In the case of Medicare, Part A is only free if sufficient quarters have been paid into Social Security during the working years of the beneficiary or their spouse. In the case of Social Security, the more one works and earns, the larger benefits will be in retirement. If benefits for medical insurance are related to the working spouse, there is one very important point: just because the working spouse goes on Medicare does not grant his or her spouse access at the same time. Every individual receiving Medicare benefits must be 65 years old (unless qualifying under some circumstance other than retirement). That means that the husband may be loosing his medical benefits from his workplace and going on Medicare. It does not mean that his wife will automatically receive Medicare benefits as well. If she is not yet 65 years old, private insurance will have to be purchased.

No Free Lunch	Neither Medicare nor Social Security is free. Both must be earned. This is accomplished by working and paying into the Social Security system. As an individual works, his employer withholds taxes and forwards them to the various government agencies. Among these agencies is the Social Security Administration. Social Security uses credits that count towards eligibility in future Social Security benefits. An individual can earn a maximum of four credits each year. The amount of money needed to make up one credit usually changes each year.
Social Security Qualification	Most people will need 40 credits to qualify for Social Security benefits. Forty credits amounts to ten years worth of work. Fewer credits are required to be eligible for disability benefits or survivors benefits under Social Security. Most people will earn more credits during their working life than will be required. After all, most of us work longer than ten years. The extra credits earned do not increase the benefits earned. The income earned, however, may increase the benefits. The higher ones earnings, the higher the Social Security benefit will be. The FICA on pay stubs stands for Federal Insurance Contributions Act. That is the law that authorized Social Security. Employers match the amount paid by their workers into Social Security. We also pay during our working years for Medicare benefits. While Social Security does have a cap on the amount each person pays yearly, there is no such cap on Medicare contributions. Medicare is having a very difficult time keeping up with the costs of our retired population. It is not likely that a cap will ever exist on Medicare taxation. Luckily, Medicare taxation is relatively small compared to Social Security deductions. For someone who earns millions of dollars per year, however, they would pay out far more to Medicare than they would to Social Security. Why? There is no cap on Medicare contributions.
Self-Employed Pay, Too	Being self-employed does not prevent payment into Social Security. Besides, it would be foolish not to do so, since Medicare is a vital part of that program once an individual retires. Self-employed people pay the entire amount: the amount that others pay plus the amount matched by the employer.
Identifying Number 000-00-0000	Each of us has a number assigned called a Social Security number. This number identifies us in virtually every financial transaction we make. At one time, many people did not bother acquiring this number until they went to work. Today, since children are tax deductions, hospitals supply the necessary forms for the newborn to acquire their Social Security number at birth. Social Security numbers are issued according to specific digits. The first three digits indicate the geographical area that issued the number. Obviously, a person would obtain their number based on where they were living at the time. Primarily, the numbers were assigned from low to high, Northeast to West. The remaining Social Security numbers are assigned to facilitate bookkeeping procedures. There are some early inconsistencies in the numbers assigned.

Getting Proper Credit		It is very important that individuals always use the correct Social Security number. In addition, names must always be correct, never using nicknames. Otherwise, it is possible that someone else may get credit for working contributions. Professionals recommend that each of us check our Social Security records yearly. There are time limits on reporting and correcting misapplied credit earnings. Most Social Security analysts recommend keeping W-2s longer than tax returns, since W-2s are often the only proof an individual has of where they worked and what they contributed. Employers are only held accountable for reporting correct information for four years. Past that point, even if wrong information was supplied by the employer, the employer is not responsible for correcting the mistake.
Payment Formula		Social Security benefits are based on lifetime earnings, with emphasis on the final full ten years. The formula used is relatively simple: Number of years worked (used as a base). An adjustment for wage inflation. The average adjusted monthly earnings based on the number of years in Step 1. The average adjusted earnings multiplied by a percentage in a specific formula.
An Easier Way		While each worker could do the mathematics required to arrive at their Social Security benefit, the Social Security Administration will supply that information free of charge. Call Social Security and request a Personal Earnings and Benefit Estimate Statement. This may be referred to as a PEBES form or SSA-7004 form. The form will request basic information (name, address, SS number) along with a request for an estimate of future earnings. Once the administration receives the form back, they will mail out an estimate of future Social Security benefits and an earning history.
SS Benefits		Americans pay taxes through Social Security and, in return, receive five types of benefits: 1. Retirement 2. Family benefits 3. Disability 4. Survivor 5. Medicare
		RETIREMENT: This is probably the best known benefit received under Social Security Social Security retirement income. As previously stated, the normal age for receiving retirement benefits through Social Security is age 65, but many people elect to take a reduced benefit at the age of 62. Of course, the individual must have at least 10 credits earned in order to take early benefits at age 62. The reduction taken at age 62 is a permanent reduction. It will not restore when age 65 is reached. Age 62 and 65 are not the only options. Benefits, if earned, may begin at any time between the ages of 62 and 65. The benefit reduction is directly tied to the age retirement benefits are applied for. Many professionals advise their clients to begin collecting benefits at age 62. It is felt that receiving even a reduced benefit that much earlier is better because the money can be put to work for the retiree sooner. Those who wait to collect benefits until the age of 65 will take eleven years to catch up with the earnings of an individual who took retirement at age 62. Of course, what is not calculated into this are the earnings the individual received form his or her employer during that time. If they were also contributing to a 401(k) plan during those additional working years, this then becomes an unfair comparison. This would especially be true for employer matches into the plan. Furthermore, past the age of 76 the individual who waited to retire will be receiving higher Social Security income payments for the rest of their life. Full benefits are not actually received at age 65. The year of birth determines at what age full benefits will be received. Year of Birth Full Retirement Age
		1937 or earlier 65 1938 65 and 2 months 1939 65 and 4 months 1940 65 and 6 months 1941 65 and 8 months 1942 65 and 10 months 1943-1954 66 1955 66 and 2 months 1956 66 and 4 months 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960 and later 67 Those born in 1962 would face a 30 percent reduction in benefits if they retire at age 62. It is possible to delay collecting Social Security benefits later than age 65. There will be increased benefits by doing so, but only up to the age of 70. Past that point, there is no reason to wait since benefits will not increase. The increases between the ages of 65 and 70 are not great, and most would recommend that benefits be collected at age 65. For those born in 1943 or later, the increase by waiting is 8 percent per year. The increase is smaller for those born prior to this age.
		Many people will have no choice regarding their retirement age. Some will be downsized in their job. The prospect of seeking a job at age 62 is seldom appealing. For many, the choice will be one of health. When health problems play a role, there may be little choice about retiring.
Family Benefits		FAMILY BENEFITS: Family benefits are an important part of Social Security. When a participant is eligible for retirement benefits or disability benefits, other members of the family might also receive benefits. They may be able to: Receive benefits as a spouse, if he or she is at least age 62. Receive benefits as a spouse even if he or she is not yet age 62 if they are caring for a child who is under the age of 16. Receive benefits as a spouse even if the marriage has ended, if they are age 62 and the marriage lasted no less than 10 years. Receive benefits as a child, if they are unmarried and under age 18 (age 19 if still in school). Receive benefits as a child over the age of 18 if he or she is disabled. For the divorced spouse, it is important to point out that, as long as the marriage lasted at least 10 years, he or she is eligible for benefits. No permission from the divorced spouse is necessary or required. It is the individuals right under the Social Security rules. It is necessary to have the correct Social Security number of the divorced spouse. The amount of Social Security benefits that a spouse (current or past) is tied to the age at which they retire. The non-working spouse is entitled to one-half of the benefits earned by the working party. This does not mean that the worker gives up any of the income they would receive. That does NOT happen. It simply means that the mathematics is based on a percentage of their income under Social Security. Income is always affected by the age at which Social Security benefits are requested. The non-working spouse will receive a lesser percentage (less than 50%) if they retire prior to the age of 65. Of course, they must be at least age 62 to claim benefits at all.
Disability		DISABILITY: Because Social Security is multi-functional, disability benefits exist under the program. The disability benefits are valued at $200,000 by the Social Security Administration. To purchase such benefits privately could be very expensive. Even though this is a benefit for disability, the recipient must still have qualified by working enough prior to the condition. Benefits are payable to a person of any age (who has earned enough credits) if their disability prevents substantial work for a year or more. They are also eligible if their condition is expected to result in their death. While the term substantial work may change from year to year, it generally means the inability to earn more than $500 per month. No one will get rich off of Social Security disability payments. They are considered to be far less than most would require to live a decent lifestyle. Even so, these payments often mean the difference between having a roof over their head and being homeless. As agents, we know that most government programs aim to supplement other money, not to totally support the individual. Therefore, it is highly recommended that individuals also carry their own disability insurance policy. Disability is far more likely for a young person than is death. Despite this fact, young adults are far more likely to carry life insurance and ignore the possibility of disability. The real hope of Social Security is a transition back into the workforce in some capacity.
Survivor Benefits		SURVIVOR BENEFITS: When a worker dies, some members of their family are considered legal survivors. As is always true with Social Security benefits, the worker must have become eligible by paying sufficiently into the Social Security system prior to their death. Eligible family members include: A spouse who is 60 years old or older. A spouse who is 50 year old or older if disabled. A spouse of any age if caring for a child who is under age 16. Children if they are not married and under age 18 (age 19 if still in school). Children of any age if they are disabled. Parents who are dependent upon their child for at least half of their support. This must be documented in order for eligibility. There is a special, one-time payment of $255, which is made to the spouse or minor children of the eligible worker who died. This has usually been called a burial benefit, although that is not necessarily its intention. It would be very difficult to pay for a funeral for $255. Again, it must be stressed that even this payment is made only if the deceased paid adequately into the Social Security system prior to death. When an eligible person dies, both current and past spouses may make claims on their Social Security benefits. What an ex-spouse receives will not affect any amount granted to a current spouse. There is no limit on the number of ex-spouses who may apply for benefits.
Medicare		MEDICARE: Medicare uses up a huge amount of Americas financial resources. As our elderly population grows, due to longer life and better health care options, the cost of running the program scares even the most seasoned politicians. It is literally true that the Medicare program is going broke. Although dates of this dire prediction keep pushing ahead, the only reason it has not bankrupted is due to the continual cost cutting measures taken by Congress and the individual states. When it comes to Medicare the saying The only constant in life is change itself truly applies.
		Medicare is health insurance for the retired. A health insurance program for: Those who are at least 65 years old. Some people under 65 with a qualified disability Individuals with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant.
		Medicares 2 Parts: A & B Hospital Insurance, Part A Medical Insurance, Part B
		Medicare Part A: Hospital Insurance The first part of Medicare, Part A, is designed for care in an institution. Part A of Medicare helps to pay for care as an inpatient, critical access hospitals, skilled nursing facilities, hospice care, and some home health care. If sufficient quarters were paid into Social Security, Part A of Medicare is free. Either the beneficiary or their spouse may have paid into the system. As long as one or the other did so, Part A will be free. If the individual did not pay into Social Security, Part A may still be purchased. Medicare Part B: Medical Insurance Medicare Part B helps pay for Doctors services, outpatient hospital care, and some other medical services that Part A does not cover, such as doctor fees, occupational therapists, and some home health care. While Part A is free, assuming sufficient quarters have been paid into Social Security, Part B is purchased. Because it is purchased, it is also optional, but an individual would be foolish not to pay the premium for this service. If the individual delays purchasing Part B (past the age of 65), the cost may go up 10 percent for each 12-month period. Except in rare cases, this additional 10 percent will be paid for the rest of the beneficiarys life.
		Age 65 Health Care Choices: The Original Medicare Plan (Which is Medicare itself) Medicare Managed Care Plans (such as HMOs) Medicare Private Fee-For-Service Plans Medicare does not pay for every cost associated with health care services. There are deductibles and co-payments. Some types of treatment are not covered at all. Among items not covered by Medicare is acupuncture, dental care including dentures, cosmetic surgery, prescriptions unless administered in a hospital or other inpatient setting, health care outside of the United States, hearing aids, orthopedic shoes and routine foot care, routine eye care, some types of screenings tests, some types of vaccinations, and custodial and intermediate nursing care. For help with the deductibles and co-payments most people purchase additional private insurance called Medigap policies. These insurance contracts supplement the benefits provided by Medicare. Because they are a supplemental insurance, they follow the guidelines of Medicare. Therefore, Medicare must approve some portion of the bill before the Medigap policy will pay anything at all. If Medicare totally denies the claim, the traditional Medigap policy will deny the claim also.
		Individuals do have choices when it comes to supplementing their Medicare benefits. When choosing a Medicare supplemental coverage, there are some things the individual may want to consider. These considerations include: What will the premium cost be? Will I be able to see doctors of my choice (versus the plans choice)? Will I need additional coverage, such as long-term care? Will the plan I am considering be convenient for me (how far away are the doctors and hospitals)? Am I confident that the plan I am choosing will provide quality care? Some individuals nearing Medicare age will have limited income and assets. For these individuals there may be other options not available to those with higher income and assets. To see if a particular person might qualify, a call should be made to the local state medical assistance office. Those with a military background may find some limited amount of help from the Veterans Administration as well. No matter what plan the individual chooses to supplement their Medicare benefits, they will still be enrolled in Medicare. Some types of plans will bypass the Medicare procedures, however.
		The Original Medicare Plan The Original Medicare Plan is Medicare itself. This term does tend to confuse many consumers. After all, they call it Medicare, not the Original Medicare Plan. The Original Medicare Plan is also known as fee-for-service plans. As the name implies, the coverage pays for the fees charged by those who provide the services. Medicare must first have approved the charges. If Medicare denies the charges, no payment is made. The Health Care Financing Administration says this plan is offered by the federal government and that is true in a technical sense. The federal government does provide the legal guidelines and does administer the program. Beneficiaries under Medicare may go to any doctor who is licensed with Medicare (most are) and to any hospital that meets state and federal standards (most do). Both Parts A and B have deductibles and coinsurance which the beneficiary must cover, unless they have additional private insurance to pick up these balances.
		Medigap Insurance Most people with Medicare elect to purchase some type of supplemental private health care to fill in the gaps left by Medicare. These private policies are called Medigap policies. All Medigap insurance contracts must follow the federal and state laws, which were enacted to protect the consumer. Each Medigap plan will be clearly marked Medicare Supplement Insurance as required by law. There are some variances from state to state, except on specific requirements that are universal under federal law. In all states, except Massachusetts, Minnesota, and Wisconsin, a Medigap policy must be one of the approved standardized plans. This was designed to help consumers make price comparisons between competing companies. Each of the standardized plans has a different set of benefits.
		Managed Care Plans Private Fee-For-Service Plans Managed Care and Private Fee-for-Service plans are not available in all areas. Individuals who choose these types of plans must continue to pay the premium for Medicare Part B services since these plans still work in conjunction with Medicare. There may be an additional monthly fee for the plan. Health Maintenance Organizations (HMO) are an example of a managed care plan. Under Managed Care and Private Fee-for-Service plans, Medicare pays a set amount of money every month to the organization. Generally, these plans require that the participants go to specifically named doctors and hospitals. Since there may be many doctors and hospitals from which to choose, beneficiaries may not find this to be restricting. Even so, it is important that beneficiaries investigate what choices they will have prior to committing themselves to the plan. Most of these plans match the participants to a primary care doctor. This doctor determines if and when their patient may see a specialist, such as a cardiologist or other doctor who specializes in a particular type of condition. When the primary care doctor does feel a specialist is necessary, they give their patient a referral. Some plans do allow their participants to go to doctors outside of the plan, but this usually costs the beneficiary additional fees. Private Fee-for-Service plans are different than Managed Care plans. Again, it may not be offered in all areas. Private Fee-for-Service plans are offered by private insurance companies. The insurance company provides health care benefits to people with Medicare who join the plan. Under this program, the insurance company (not Medicare) decides how much it pays and how much the beneficiary pays for each service. The amount of doctor and hospital choices tend to be greater than those with Managed Care plans. Patients have many more to choose from under Private Fee-for-Service plans. Anyone enrolled in Medicare may choose either one of these two plans. The enrollee must have both parts of Medicare: A and B. Joining one of these plans does not eliminate Medicares role. It is still necessary to pay the Medicare premium for Part B. The enrollees rights under Medicare also still exist. What the enrollee pays out-of-pocket will vary from plan to plan. There may be a monthly fee to participate in the plan. The amount of co-payment the enrollee pays each time they require a medical service will vary depending upon the plan they join. During the month of November, Medicare health plans must accept new members. Generally, even though the participant joins in November, their benefits begin the following January. Most plans will accept new members anytime during the year, not just in the month mandated (November). Even plans that normally accept new members at any time, however, may close new membership occasionally. It is NOT possible to join more than one managed care or Private Fee-for-Service plan. Besides being a waste of premium dollars, the plans themselves would not allow this. It is possible to join one of these plans and also have a Medigap policy. This would be a waste of premium dollars since the plans would not duplicate payment in most cases. Beginning in 2002, participants may be limited as to when they may change plans.
The Role of the 401(k) Plan In Health Care		While our grandparents may still remember the Great Depression, most of those who have a 401(k) Plan today have no first-hand knowledge of it. It would have been great preparation for retirement. Many of us remember our grandparents reluctance to spend their savings, even when it seemed prudent to do so. As many as ten years ago, surveys indicated that nearly eight out of ten Americans will have less than half the income they need to retire comfortably. The declining number of workers supporting our Social Security system may add to changing the burden of supporting retirees from the government to the individual. Everyone is surely aware of the looming problem that future Social Security and Medicare beneficiaries face. There was no way to predict 60-some years ago that we would be facing such a financial crisis. Had they known, it is doubtful that much could have been done to prevent the financial problem anyway. It is possible that they could have collected more funds early on, but would the taxpayers have gone along? Perhaps the government could have done more to limit Medicare benefits. Perhaps the government could have pursued fraud and abuse more efficiently. As with most problems, there is no point in dwelling on they should haves. At this point, solutions are more pressing. Most of us realize that health care is a major issue in our last years of life. Most of us realize that this care must be funded. Most of us realize that we need to plan on this expense while we are still working and earning a living. Planning for retirement must include planning to fund our health care needs. Funds from our 401(k) plans are likely to be part of this future need.
	A Review True or False True or False True or False True or False True or False		Social Security benefits are an example of a program enacted by Congress in 1935. Medicare was created in 1935. In 1950, there were 17 workers paying taxes for each retired person collecting Social Security benefits. Every individual receiving Medicare benefits must be 55 years old. Medicare Part B is hospital insurance.