Retiree Benefits: Tale of 2 Cities (States)

Some of the workers and retirees around the country who count on having a government pension surely get nervous when they see headlines about the most troubled state and local plans – in places like Illinois, New Jersey, Connecticut, Chicago, and Detroit.

A broader perspective on retirement benefits, however, shows that the results are more mixed.  A study by the Center for Retirement Research, which sponsors this blog, estimated long-term costs for pensions, retiree health benefits, and general debt service as a share of revenues for the 50 states, 178 counties, and 173 cities.

The findings are summarized below:

States:

  • Many states’ combined costs – pensions, other post-employment benefits (OPEBS) such as health insurance, and payments on all government bonds – appear manageable.
  • More worrisome are the eight states with the highest combined costs: Illinois, New Jersey, Connecticut, Hawaii, Kentucky, Massachusetts, Rhode Island, and Delaware. [States with high pension burdens also tend to have high costs for retiree health benefits].

               Figure 5

Counties:Learn More

hands holding a picture of a family

Good Health Insurance is What Counts

Having health insurance is no guarantee that medical care is affordable.

Some families, despite being covered by the Affordable Care Act (ACA) or employer policies, say that high premiums and deductibles mean they can’t afford to see a doctor. This distinction – between having insurance and receiving care – will be crucial as Congress considers proposals for ACA’s replacement.

One comprehensive 2003 study demonstrates how individual medical decisions change when they receive one longstanding, and what the researchers called “generous,” type of insurance: Medicare. Their study focused on changes in the use of the health care system – more so than improved health – by comparing people who’ve recently gone on Medicare with people a couple years away from turning 65 and becoming eligible. The analysis adjusts for the fact that some, though not all, people under 65 have employer coverage and that many people also retire around this age, sometimes receiving special retiree health benefits.

Once people turn 65 and are on Medicare, the researchers found that:

  • The probability of seeing a doctor at least once a year increased, based on data from the National Health Interview Surveys, which track the frequency of routine medical care.
  • Medicare eligibility led to a “surprisingly large” 5-10 percent increase in hospitalizations in California and Florida, particularly among white Americans. The increase was driven by elective surgeries such as joint replacements and heart bypass surgeries.
  • There were large increases in preventive care for less-educated whites, such as getting flu shots and cholesterol tests, based on analyses of the Behavioral Risk Factor Surveillance System, which tracks preventive care use.
  • Minorities, who are at much higher risk of untreated high blood pressure, were more likely to receive this diagnosis after going on Medicare. …
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Illustration of a scale

Retirement Isn’t Always Fair

Chart of SESMore than half of older Americans with the lowest socioeconomic status can expect to face an income gap if they retire when they’re planning to.

That finding is from a study by the Center for Retirement Research, which supports this blog. The researchers quantified and compared the gaps in the retirement preparedness of more than 3,000 older U.S. households, grouped by four levels of educational attainment.

First, the researchers estimated the target income that each working household will need in retirement to maintain its current standard of living.  That target income will be less than its current income from working, because retirees no longer need to save money, and they pay less in taxes.  Then, the researchers projected the income each household will actually have – at each different retirement age – from their Social Security, employer retirement plans, regular savings, and home equity.

When a household’s projected income reaches the target, that’s the age at which they can expect to retire comfortably. But people don’t necessarily make decisions that are in their best financial interest. …
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Map

The Needs of Working Folks

“The economy” was the top priority for the vast majority of American people in one poll last summer. Surely, what they were talking about was quality jobs and economic and financial security for themselves and their children.

Or as my brother, a father of three and service manager at an auto dealership outside Chicago, put it in a recent text message, “No one can afford anything anymore.”

This simple idea seemed to resound throughout the primaries and long presidential campaign. With the election over, I compiled the following wish list for working people based on what the polls and research studies reveal about what they are hoping for.

Good jobs. The disruption created by the transition from an industrial to a service economy has hollowed out the middle over three decades. Despite a remarkably low unemployment rate of 4.9 percent, middle-skill workers face a dilemma: there are a lot of jobs, but most aren’t the right jobs for them.

Consider this detail in the October jobs report. Retail employment increased by a total of 38,000 in August, September, and October. These jobs pay, on average, $553 per week. Meanwhile, 12,000 goods-producing jobs were lost during the same three months, meaning that fewer people are earning industry’s average weekly wage of $1,100. The urgent question is, what are the potential jobs that will bolster the middle class?  Healthcare and telecommunications technicians for the New Economy?  A related question is, what are the vocational and policy paths to securing better-paying jobs?

Cash on hand. Working Americans are severely strapped for cash. One in three surveyed by the FINRA Investor Education Foundation said they probably could not come up with $2,000 to cover an unexpected expense in the next month, and nearly half said they can’t pay off their full credit card balances every month. While working people are benefiting from the stronger economy, Finra concluded, “large segments of society continue to face financial difficulties, particularly minority populations and those without a college education.” …Learn More

On-the-Job Healthcare Costs More

We’ve passed a milestone: workers typically spend more than 10 percent of their incomes for their employer health coverage.

A decade ago, they spent 6.5 percent on health costs.

One reason for the rising cost burden is the growing prevalence of high-deductible insurance plans, and, within these plans, the deductibles themselves are increasing. Although premium hikes in employer plans have slowed in the past five years, they are also still going up. The nation’s aging work force could be another indirect pressure on costs.

Workers’ incomes have also been going up, but growth remained sluggish over the past decade and “have not kept pace” with employer health costs, the Commonwealth Fund reported.

Healthcare news in recent weeks has focused on the 2017 premium hikes hitting people who buy coverage on the state exchanges created under the Affordable Care Act. But 154 million Americans – more than half of U.S. workers – obtain health insurance through their jobs, compared with about 10 million who go through the exchanges, points out the study by the Commonwealth Fund, a healthcare research organization.

When premiums and deductibles are combined, health costs are really starting to bite: the typical family shelled out about $6,422 in 2015 for premiums and copayments, compared with $3,531 in 2006 – that’s increasing much faster than the pace of inflation – the report estimated. No wonder one recent survey found only a minority of Americans satisfied with the cost of their health insurance plans.

In the Commonwealth Fund’s state-by-state analysis, the level of incomes in a state seem to play a role in the weight of workers’ healthcare burdens. For example, premiums and deductibles, as a share of workers’ incomes, currently exceed 12 percent in low-wage states like Arizona, Florida, New Mexico, Oklahoma, and Tennessee – Mississippi’s, the highest, is close to 15 percent of incomes. Workers in relatively well-off states such as Maryland, Massachusetts, and Washington, however, pay 7.9 percent, 7.3 percent and 8.5 percent of their higher incomes, respectively.

To examine the study’s state-by-state analysis, click here.Learn More

Prescription pills

Fewer, Clearer Medicare Part D Choices

medicare part d chartA decade ago, the nation’s Medicare enrollees had more than 1,800 different prescription drug plans to choose from. In the 2017 open enrollment that started on Oct. 15, that number dropped to just 746.

News of higher Part D drug plan premiums and out-of-pocket costs in 2017, estimated in a new report by the Henry J. Kaiser Family Foundation, will not be welcome by the nation’s older population.  But Squared Away also wanted to know whether fewer plan options are good or bad for consumers.

“It’s good in the sense [federal] efforts are bearing fruit in giving people options that are more distinct from each other than in the past,” said Juliette Cubanski, Kaiser’s associate director of Medicare policy. At the same, she said, retirees “still have a lot of choice in this marketplace.”

The number of plans has shrunk steadily for a variety of reasons since the 2006 inception of the prescription component of Medicare, known as Part D. In the early years of the program, plans started disappearing amid consolidation among insurers and pharmacy benefits managers, she said. More recently, a few Part D plan providers have pulled out of the market.

But Cubanski said recent reductions in the number of plans were primarily by federal design. In 2011, the Centers for Medicare and Medicaid (CMS) stepped in and began requiring insurers that offered more than one Part D plan in a region to make sure the differences among their plans were clear and distinct to Medicare beneficiaries. …Learn More

Social Security Replaces Less for Couples

Source: U.S. Social Security Administration poster, 1954.

When Social Security was created in the 1930s, wives were mainly full-time homemakers, with their pension benefits based on their breadwinner husbands’ earnings.

But wives went to work in droves after Social Security’s passage. Today, women make up nearly half of the U.S. labor force.  Yet the program’s design remains the same, with the result being a steady decline in married couples’ replacement rates – the percentage of the combined earnings of two working spouses that Social Security replaces when both retire.

A study by the Center for Retirement Research found that the replacement rate for couples has declined from 50 percent for married couples born in the early 1930s to around 45 percent for the oldest baby boomer couples, and it will fall to just 39 percent for Generation X couples when they eventually retire.

A declining replacement rate is an important consideration for working couples as they plan for retirement.

The simple explanation for the declining replacement rate is that household earnings are much higher when both spouses are working, but their Social Security pension benefits do not increase proportionally. The reason is that even if a wife doesn’t work, she still receives a spousal benefit equal to half of her husband’s benefit.  The more a working wife earns, the lower the couple’s replacement rate. …Learn More

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