MATH 3620- Chapter 19: Social Security and Medicare

What is likely to happen with Medicare and Social Security in the future?

- Cuts to Medicare reimbursements which can lead doctors to quit or stop treating Medicare patients - Cuts to SS and Medicare benefits - Other budget spending cuts/ or increased taxes will be needed in the future to maintain the financial stability of these programs

What does PIA depend on and how are they adusted?

- Depends on worker's earnings history - The worker's historical wages are adjusted using the workers average indexed monthly earnings (AIME)

What are the projections of social security?

- Indicate large deficits - A significant increase to those entitled to benefits and a smaller workforce paying taxes to fund the benefits

What are the broad components of the social security program?

- OASDI (Old Age, Survivors, and Disability Insurance) - Medicare

What are retirement benefits?

- Paid to retired workers (age 62 and older) - Benefits at Normal (full) Retirement Age (67) are 100% of PIA and to spouses and unmarried dependent children at 50% of the workers' PIA

What are the major parts of Medicare?

- Part A: hospital insurance - Part B: supplementary medical insurance - Part C: medicare advantage (where coverage is through insurance companies and is really a substitute for traditional Parts A and B) - Part D: prescription drug coverage

What is the unit of measure for coverage under OASDI?

- Quarter of coverage - A worker is credited with one quarter of coverage for each $XX in annual earnings (up to a maximum of 4 per year) - The amount of earnings required for a quarter of coverage is increased each year to reflect growth in national average wages - Workers with 40 quarters of coverage are considered fully insured

What is covered under OASDI?

- Work-related: people become eligible for coverage by working and paying social security payroll tax - Coverage is compulsory for most workers

How are OASDI benefits financed?

1. Payroll taxes paid by employees, up to the maximum taxable wage and the employer matches this amount 2. Interest on the OASDI trust funds 3. Income taxes paid by high income beneficiaries

When was the US social security program enacted?

1935

When is the HI Trust Fund expected to be fully depleted?

Before 2030, unless fundamental changes are made

What is a "means test"?

Benefits becoming meaningless

What is a cost of living adjustment (COLA)?

Higher income individuals pay tax on a portion of their benefits

How is Medicare Part B Supplementary Medical Insurance (SMI) financed?

Monthly premiums from covered insureds and general tax revenues

What are disability benefits?

Paid to the disabled workers, at 100% of the worker's PIA and to dependents (similar to retirement benefits)

What survivor benefits?

Paid, at differing %'s of the worker's PIA to the spouse, unmarried dependent children, and deceased worker dependent parents

How is social security funded?

Pay as you go basis

What is Medicare?

Provides limited coverage for hospitalization and other specified medical expenses for persons aged 65 and older and for certain disabled persons under age 65

What is an earnings test?

Retirement benefits are reduced if wages exceed certain thresholds

What is the primary insurance amount (PIA)?

The basic monthly benefit payable to a worker who retires at normal retirement age

How is Medicare Part A Hospital Insurance financed?

The employee and employer each pay a percentage of the employee's entire wage