Saturday, August 25, 2012

Benefits (and Benefit Taxes): Social Security, Medicare, the ACA, the GoP, the Dems and Colorado's Civil Unions Proposal

This is the second of three pages I plan to create looking at, in series: (a) the taxes, (b) benefits and (c) family leave structures that help or impede peer unions or marriages.  At the bottom of each page, I list a summary recommendation for questions to ask politicians for people wanting to address these issues.  Later, with regard to the private marketplace of employers and employees, I'll create a page with suggestions for employers and employees on the issues of benefits and leave, which are topics that seem to cause both parties anxiety but I think can be resolved.

This page will focus on government benefits programs, like Social Security and Medicare, and on benefits programs that are regulated by the government, such as health care, which is now regulated by the Affordable Care Act (ACA).  I am not looking at other benefits issues, such as military widow/er's benefit issues, private life insurance beneficiary issues and other issues that may affect particular situations, which you would want to consider as well if they apply to you. 

First, I think it helps to consider the purpose of these programs.  There is consensus I believe that the first two programs, Social Security and Medicare, are a type of collective retirement insurance.  There is a segment of the population that also sees them as a type of minimum entitlement that everyone in society should receive in retirement, regardless of whether they paid in premiums to be insured or not. There is another segment of the population that objects to this purpose. There is a lot of conflict between these two segments.

For the analysis here, I am going to assume that the first purpose, a collective national retirement insurance program, is the intention.  As the analysis shows, if the system were constructed so that it did not discriminate against peer marrieds, this might provide a means for resolving a good portion of the conflict between those who seek a minimum entitlement and those who object to it.  If there is an additional need to provide a minimum entitlement, it may also make more sense to do that as a separate welfare program and payment than to blur it into the collective retirement insurance model.

The ACA is not a collective insurance program but more a requirement that everyone pay to participate in the private marketplace of insurance, with regulations on what those insurers must cover, and with some welfare-type payments to those who cannot afford the premiums.  There is a segment of the population that believes that leaving the system in the private sector, even with heavy regulation, is not a productive or cost-effective way to administer a health care system.  There is another segment of the population that objects to any government involvement at all, and thinks health care can be adequately provided by a completely free market. The peer marriage model doesn't provide a mechanism for avoiding this conflict, but it does ameliorate some issues, as I'll discuss below.  Looking at the ACA from the perspective of a peer union also illustrates both some helpful aspects of the ACA and  some problems that I think have received little attention.

Social Security

Social Security taxes on peer marrieds require them to subsidize sole breadwinners quite heavily.  Every sole breadwinner who has had a spouse for more than 10 years (or if he has had multiple such spouses) is guaranteed to receive a 150% benefit (with an additional 50% benefit for each additional 10-year spouse) during each year of his/her retirement.  Each peer married receives 100% of his/her own benefit (unless one person earned less than 50% of the other, in which case the peer married is still probably getting mostly his/her own benefit plus a small margin to reach the 50%).  Here's a discussion of this problem.  http://www.ssa.gov/policy/docs/ssb/v69n1/v69n1p1.html  Peer marrieds also do not receive widow's /widower's benefits unless that benefit offers more than their own benefit.  Every nonworking 10-year spouse of a deceased sole breadwinner receives a widows/widowers benefit.  Here's a discussion of this problem.  http://www.washingtonpost.com/wp-srv/politics/special/security/stories/oss091198.htm

Social Security benefits are also progressive, meaning that the lower your income (and the amount of Social Security taxes you paid) the greater your benefit received.  There is no capital/property-earner tax in Social Security so all of the progressivity is paid for with subsidies by workers who earn about $40,000 or more per year (the average income in the US in 2012 was $44,000, so this means most wage workers are subsidizing low wage workers).  A two-wage worker marriage is especially burdened with carrying the weight of the progressivity in benefits.

Has the The GoP Offered Any Solution to this Problem?

The GoP proposals on Social Security mostly involve (a) abolishing it (Rand Paul's proposal) or (b) privatizing it.  Neither of these deals with the problem of the subsidy from peer marrieds to sole breadwinners/nonworking spouses.

The Romney campaign has not addressed this issue of the subsidy, to my knowledge.  If you hear of anything, please let us know.

Have the Democrats Offered Any Solution to this Problem?  

The Obama Administration analyzed the subsidy and a partial solution, by looking at a shared earnings model, which would eliminate the subsidy issue during non-widowed years of retirement and thus making Social Security neutral as to family structure in this sense. http://www.ssa.gov/policy/docs/ssb/v69n1/v69n1p1.html   This analysis looks at how the shared earnings model would affect future retirees who are currently 46 years old or younger (Gen-X'ers and younger people), assuming they follow a trajectory like that of previous generations.  I think the assumption of this trajectory is less likely because more divorced women of Gen-X and younger likely have or develop better earnings (and their own earnings records) than those of earlier generations, and many Gen-X and younger divorced men may not have earnings as high since many seek at least partial custody of children and they are devoting more time and energy to child-rearing and other unpaid work.

This shared earnings model has not received attention in the Obama campaign beyond this posting on the Social Security Administration website. If you hear of more discussion of it, please let us know.

The shared earnings model does not resolve the issue of the subsidy from peer marrieds to sole breadwinners in widow/widower's benefits. What might help this problem is to require a sole breadwinner married to a nonearning spouse to pay a double rate of Social Security taxes (or to require each of the peer marrieds to pay half rate of Social Security taxes) to reflect the fact that the sole breadwinner needs to be paying two Social Security premiums, not just one.

Will Colorado's Civil Unions Law Help With This Problem?

No, unfortunately.

As I noted in the previous post I wrote on taxes, it is unclear how heterosexuals in a civil union will be regarded by federal tax and benefits authorities.  The Defense of Marriage Act, for so long as it exists (and if it is not found unconstitutional, which seems very likely), would mean that same-sex couples in a civil union would be treated as single people for Social Security purposes.  Given the unique posture of Colorado's civil unions law, it is possible that hetero couples in a civil union will be as well.

Being treated as single people will not get rid of the subsidy problems.  It may actually cost couples a bit, because if one of the partners has a benefit less than 50% of the other, that partner won't get the makeup amount to 50% during retirement years that they would if they were married.  During widow/widower years, you would also lose any marked-up benefit you might be entitled to if your spouse's income was higher than yours.  In peer marrieds the likelihood of one partner having a benefit of less than 50% of the other (or even significantly less than 100% of the other for widow/er's benefits purposes) is somewhat low, though, and the benefits of income tax savings (if they apply) that I noted in the previous post may mean a civil union is still desirable.


Medicare

Medicare has the same problem of subsidy from peer marrieds to sole breadwinners with the caveat that Medicare is not capped at a certain income, so the subsidy effect that exists in Social Security may be ameliorated somewhat, if you assume that a sole breadwinner is earning a higher salary than either partner in a peer married.  Studies by economists have estimated that, on average, the sole breadwinner actually usually earns only 30% more than each of the peer partners over a lifetime.  So, in most cases, the subsidy is still occurring, although very high earners, regardless of their family structure are also subsidizing the system in a manner that does not occur in Social Security.

Because Medicare is a defined benefit plan expressed not in dollars but in services (medical care), a shared earnings model does not work to solve the subsidy problem.  What might help the problem is to require a sole breadwinner married to a nonearning spouse to pay a double rate of Medicare taxes (or to require each of the peer marrieds to pay half rate of Medicare taxes) to reflect the fact that the sole breadwinner needs to be paying two Medicare premiums, not just one.

Has the The GoP Offered Any Solution to this Problem?

I am not aware of any GoP proposal to deal with the subsidy problem.  If you hear of one, please let us know.

Vice Presidential Candidate Paul Ryan's Medicare proposal has focused on converting Medicare from a defined services plan to a defined dollar benefit plan.  Unlike Social Security benefits, in this reform, it looks as though the defined dollar benefit would be the same for everyone, no matter your tax contributions, so this would not help with the subsidy problem, unless perhaps taxes were doubled for sole breadwinners to cover the fact they are buying two premiums (or halved for 2-earner married couples). 

Have the Democrats Offered Any Solution to this Problem?

I am not aware of any Democrat proposal to deal with the subsidy problem.  If you hear of one, please let us know.

Will Colorado's Civil Unions Law Help With This Problem?


Possibly.

If the federal government treats parties to a civil union as single people, this will not get rid of the subsidy problem.  There would not likely be any extra cost for civil union participants, though, and it may actually make individual Medicare premiums lower in retirement for those who buy additional coverage, because they would be measured on their individual income in retirement not joint income.   So, when you balance this issue with the tax and Social Security issues, it may mean a civil union is desirable over a marriage.

The Affordable Care Act

The Affordable Care Act is still very new and many of its provisions have yet to go into effect so it is not clear how it will affect the marketplace for private insurance.  One problem that peer marrieds run into is that they sometimes both seek less than full-time jobs, particularly when children are small.  At many companies, working part-time means a reduced benefits package; sometimes this means the benefits are still available but you pay more of the premium, sometimes they are not available at all.  Because employer plans are typically much less expensive than privately purchased plans, it can be advantageous to qualify for the employers' plan, even if you have to pay more of the premium because you are part-time.  One item here I would note; because there is typically family coverage available in these plans, peer marrieds can also run into redundancy, where they both qualify for employer-subsidized plans, but only use one of the employers' plans.  If this is the case, they may want to ask one employer if they can have the premium subsidy that employer would otherwise pay for them in extra pay.

ACA Premiums.  The ACA includes an individual mandate, famously upheld by Justice Roberts, husband in a shared earning marriage (which is possibly a shared parenting marriage if the information in this article is correct).  http://www.usatoday.com/news/washington/2006-06-25-roberts_x.htm  The individual mandate may mean that (a) a market for insurance purchased separately from an employer plan becomes more affordable and more readily available and (b) employers drop spousal coverage.  In either case, peer marrieds stand to benefit as (a) it will be easier to do reduced-time work if loss of health insurance is not a risk and (b) they will no longer have to subsidize sole breadwinners' health insurance (if they aren't getting the redundant benefit in cash as suggested in the previous paragraph).

ACA Benefits.  The ACA has coverage protections for both men and women, but there is a noticeable gap in that "well woman" visits (one per year) are free while there is no concept of a "well man" visit.  As Will Courtenay notes in his book, Dying to Be Men, while the U.S. does spend a great deal on men's health care, particularly later in life, this tends to be on very expensive chronic or life-threatening illnesses, some of which could be prevented (and reduced in cost) if men's preventive care were better.  http://dyingtobemen.com/   He finds that there is a twofold problem of (a) the health care system discriminating against men in preventive care and (b) men not taking responsibility for preventive care.  He also suggests that at least some, if not all of, the 5-year earlier death of men, on average, could be prevented, by addressing these issues.

I would suggest that improving the preventive care coverage for men in the ACA would be a needed change to help peer marrieds (and everyone, really).

Has the The GoP Offered Any Solution to this Problem?

The GoP is seeking to repeal the ACA.  Because of the help the ACA offers, especially with how the individual mandate is likely to reform the insurance market to make reduced-time work more accessible, repeal of the ACA is probably not in peer married's interest, unless overriding issues that don't relate to family structure (such as a concern that the ACA is an expensive, inefficient or unproductive way to reform health care) mean that you wish to object to it.

I am not aware of a GoP politician noting the need to add men's preventive care.  If you find one who has, please let us know.

Have the Dems Offered Any Solution to this Problem.

The Democrats would keep the ACA, so the improvements it offers to make health insurance neutral as to family structure would be kept.

I am not aware of a Democratic politician noting the need to add men's preventive care.  If you find one who has, please let us know.

Will Colorado's Civil Unions Law Help With This Problem?

It is unclear whether partners to a civil union will likely be considered individuals or "married" for purposes of an employer's health insurance plan.  If there is a risk you would be considered individuals and married status is desirable, you would not want to be in a civil union.  I think that the way the ACA is likely to reform the market may mean that you don't suffer a penalty for not using spousal coverage in health insurance, and the other costs and benefits of a civil union noted above, on the tax page, and in other research you do about your particular situation, are likely to have more net effect on your personal family economics.
 
What to Ask A Politician

Here are my suggestions.  If readers have other suggestions, please tell us in the comments:

1.  Do you have a proposal to make Social Security neutral as to family structure and to get rid of the subsidy from two-earner couples to sole breadwinners and their spousesDo you support a shared earnings model in Social Security benefits?  Would you support making Social Security taxes single or double based upon whether a spouse is paying Social Security taxes or not?   What solution do you have to the problem of average wage earners and higher wage earners having to carry all the burden of the progressivity in Social Security benefits?  Do you support adding a capital-property-earner tax to support the progressivty or do you support making Social Security a more conventional insurance program without the progressivity in benefits?

2.  Do you have a proposal to make Medicare taxes neutral as to family structure and to get rid of the subsidy from two-earner couples to sole breadwinners and their spouses?  Would you support making taxes single or double based on whether a spouse is paying Medicare taxes or not?

3.  What do you think of adding a "well man" visit and male preventive care to the ACA analogous to that offered to women?


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