August 8, 2017
401k Saving Harder at Lower Incomes
Our 401(k) retirement system doesn’t work as well for lower- and middle-income workers as it does for those at the top.
That’s because they face more severe headwinds in pursuit of their retirement goals, concludes a new study.
Consider what happens when a worker’s earnings drop 10 percent or he experiences a bout of unemployment. These episodes are more common among lower-paid workers, and when they hit, they hit their 401(k)s harder than the 401(k)s of people who earn more, according to the study, “Defined Contribution Wealth Inequality.”
In theory, 401(k)s could work for everyone – if everyone had access to an employer savings plan (which they don’t). And while people who earn more money obviously have more to sock away in their retirement plans at work, smaller paychecks aren’t necessarily a problem either.
The key to retirement for any worker is whether he or she has saved enough, along with Social Security, to cover about 75 percent of what they earned at work during the years leading up to their retirement. It’s true that lower-paid workers can’t save as much, but less could still be enough to reach their more modest retirement goals.
But earnings declines, unemployment, smaller employer contributions, and unwise investment choices – these “barely affect earners in the top 10 percent of the earnings distribution but are associated with less DC [defined contribution] wealth accumulation for those at the bottom,” concluded the researchers, Joelle Saad-Lessler at the Stevens Institute of Technology and Teresa Ghilarducci and Gayle Reznik at the New School for Social Research.
This disparity, they argue, has increased the retirement wealth gap in this country. In the post-recession period 2009-2011, for example, more high-income workers saw their DC account balances increase than did workers in the bottom half.
The researchers tracked the same people over time in two groups – the bottom 55 percent of the earnings ladder and the top 10 percent. They were able to more precisely compare each group’s ability to save for retirement by using the actual earnings and employer contributions to individual workers’ retirement plans. Here are their other findings: …Learn More
February 23, 2017
Some Insured Workers Delay Healthcare
Stark differences are emerging in the ways that workers, depending on how much they earn, are using the medical services covered by their employer health plans.
While higher-income workers gravitate toward preventive and maintenance care, lower-wage workers visit emergency rooms far more often, according to a study published last month in Health Affairs. The researchers pointed to one major culprit: a 67 percent increase in average deductibles for employer health plans since 2010.
Employers usually offer the same health plans to all their employees. But the growing prevalence of high-deductible plans could be making making some low-wage workers think twice before seeing a doctor if they’ll have to pay the entire bill because they haven’t hit their yearly deductibles yet. Health insurance premiums and other out-of-pocket medical costs in high-deductible plans together consumed about 21 percent of pretax earnings for the low-wage workers studied.
Many of these workers, apparently trying to contain their out-of-pocket costs, might “avoid or delay health care services, despite having coverage,” said the researchers.
They analyzed four employers that covered some 43,000 workers through a common private health insurance exchange in 2014. The researchers adjusted the data so they could compare the employees, controlling for, among other things, health insurance plan design, deductible levels, employee characteristics, and the size of their households.
An analysis of insurance claims data found that lower-paid workers were more likely to see a doctor after medical problems develop, while higher-paid workers were more diligent about preventing problems.
For example, workers in the top two wage categories ($44,000-$70,000 and over $70,001) received preventive care during visits to the doctor’s office far more often than workers earning under $30,000. Screenings for breast, cervical and colon cancer were also more frequent among high-paid employees, who also adhered more closely to the drug regimens prescribed by their doctors.
Not surprisingly, hospital admission rates for lower-wage workers were nearly double the rates of the highest-paid workers – and four times higher for avoidable medical problems that landed them in the hospital. Low-paid workers visited emergency rooms about three times more often.
There are many potential reasons for these differences, including low-paid workers’ generally lower education levels and less access to paid time off from work to see a doctor. But the researchers said financial constraints certainly played a role: …Learn More
February 16, 2017
Rights of Low-income Medicare Users
A 2014 report from the Consumer Financial Protection Bureau (CFPB) said that the largest category of financial complaints by seniors was debt collection, with nearly half of their complaints involving “continued attempts to collect debt not owed.”
The CFPB just followed up with a missive directed at some 7 million older Americans enrolled in the Qualified Medicare Beneficiary Program (QMB). People who qualify for this Medicare designation receive such small Social Security checks – less than $1,010 per month for individuals and $1,355 for couples – that doctors, hospitals and other medical providers are barred from billing them directly for services rendered. The CFPB said that it, as well as the Centers for Medicare & Medicaid Services, continue to hear from QMB participants who report they are receiving unjustified medical bills.
Here’s how the CFPB suggests that QMBs or family members deal with improper medical billing:
- Prevent the problem by repeatedly reminding your doctor or medical service provider that you are a Qualified Medicare Beneficiary. QMB cards aren’t required federally but the District of Columbia and at least one state, Texas, provide members with a card to prove it.
- If you are billed, tell the medical provider or debt collector they are barred from charging you for Medicare deductibles, coinsurance and copayments, because you are enrolled in QMB.
- You have a right to a refund for a bill paid in error.
- If the medical provider will not stop billing you or refuses to issue a refund, call 1-800-Medicare (1-800-633-4227).
- Submit online complaints about debt collection practices by clicking here. …
February 14, 2017
Unpaid Water Bills Open Door to Advice
Nearly half of the low-income residents in some sections of Louisville are delinquent on their city water bills. In Newark, water customers’ unpaid balances have been known to reach $4,000.
The shutoff and reactivation fees that some cities charge when they stop a customer’s water service create another problem in places like Houston: they add to the unpaid balances of customers who are already struggling financially. Cities are also becoming more aggressive about collecting on their debts, hiring third-party collection firms.
Researchers and the National League of Cities tried an alternative in the form of an ambitious pilot program involving five city water departments: Houston; Louisville, Kentucky; Newark, New Jersey; Savannah, Georgia; and St. Petersburg, Florida. Driving the program was the recognition that unpaid water bills are an indication of deep financial distress. So the cities, which are loathe to turn off this essential service, embraced a broader vision: providing financial counseling to empower families with delinquent water bills to better manage their situations.
While every city’s pilot program was slightly different, Ohio State researcher Stephanie Moulton said they had two things in common: an agreement to restructure residents’ unpaid water bills to make them affordable, and at least one private session with a financial counselor or coach already working for the city or a local non-profit. Some cities added other services, such as screening for public benefits if a job loss had caused a resident to fall behind on the water bill.
Houston, for example, trained and certified six customer service representatives in its Department of Public Works to act as financial coaches, said Bonnie Ashcroft, a departmental section chief. The counselors who coached clients on their household finances also advised them on how to reduce their water bills.
It’s not possible to do a rigorous analysis of the pilot’s overall effectiveness, because each city’s water department is unique. But individual analyses of each city found three that showed marked improvements in their water payments, Moulton said. These successes were presented in a recent webinar. …
In Houston, customers’ unpaid account balances declined, on average, from $544 to $374. Unpaid account balances in Newark went from $969 to $605. The frequency of payments in these cities also increased, Moulton said. Learn More
September 20, 2016
Lift SNAP’s Asset Test and People Save
When a low-wage worker has a dental emergency or the car breaks down, it can set off a chain reaction of financial problems. Losing a job due to that car problem is a catastrophe. It’s not an exaggeration to say that having just a little money in a bank account is a lifesaver.
But low-income Americans are discouraged from saving due to the asset limits in joint federal-state assistance programs such as food stamps, Medicaid, and Temporary Assistance to Needy Families. These asset limits create a Catch-22: if the recipient builds up the savings crucial to their financial well-being, they lose their assistance, which is also critical to their well-being.
This illustrates just how difficult it is to design programs to help the poor and low-wage workers. Without asset limits, a relatively well-off person who earns very little would qualify for food stamps. But using asset limits to restrict who qualifies can harm our most financially fragile populations.
New research looking into the impact of asset limits among recipients under the Supplemental Nutrition Assistance Program (SNAP) – once known as food stamps – confirms that asset limits inhibit saving.
“Having a policy where people don’t save or draw down their assets before they apply for benefits can really harm long-term economic success for these families,” said Caroline Ratcliffe, a senior fellow at the Urban Institute who conducted the study. …Learn More
June 2, 2016
Medicaid Expansion: Winners vs Losers
Low-income residents are in better financial shape in the 31 states that have expanded their Medicaid health coverage under the Affordable Care Act (ACA).
That’s the bottom line in a new study finding that they have fewer unpaid bills being sent to collection agencies and their collection balances are $600 to $1,000 lower than their counterparts in non-expansion states. This contrasts with the years prior to the 2014 Medicaid reform, when residents of would-be expansion and non-expansion states had very similar financial profiles.
State decisions about whether or not to expand their Medicaid rolls are having “unambiguous” and “important financial impacts,” concluded researchers at the University of Michigan, the University of Illinois, and the Federal Reserve Bank of Chicago.
Medical crises are expensive for most workers but are virtually insurmountable for low-income Americans. The annual cost of care for someone hospitalized at some time during 2012, for example, was $25,000 – more than many low-wage workers earn in a year.
To address this risk, the ACA expanded Medicaid health coverage to more people and established a new income threshold to qualify at 138 percent of the federal poverty level – or about $16,000 for an individual. A U.S. Supreme Court decision later gave states the option of expanding their Medicaid programs.
The researchers’ findings were based on credit reporting data on 1.8 million individuals between 19 and 64 years old who are living below 138 percent of the federal poverty. They analyzed the impact of Medicaid availability on non-medical debt, such as credit cards, in zip codes with the highest percentage of people under the threshold during 2014 and 2015. [Mortgage debt was excluded.]
The purpose of health insurance is to provide a financial cushion by limiting the spike in out-of-pocket expenditures when a medical crisis strikes. For low-wage workers, this cushion takes the form of Medicaid.Learn More
April 14, 2016
Why Most Elderly Pay No Federal Tax
A March blog post pointing out that a large majority of America’s older population pay no federal income tax seemed to surprise some readers – particularly retirees who must send checks to the IRS at this time of year.
“[M]y annual tax liability is and will continue to be greater than when I was employed,” said one such retiree.
Readers’ comments are always welcome, and this time they’ve thrown a spotlight on a shortcoming of the article. It did not fully explore why most retirees – roughly two-thirds of 70 year olds – pay no federal income tax.
According to a Tax Policy Center report, “Why Some Tax Units Pay No Income Tax,” tax filers over age 65 are the largest single group to benefit from special provisions of the tax code designed to help various types of people. The elderly receiving tax preferences make up 44 percent of filers of all ages who are moved off the tax rolls by these tax breaks, said the Center, a joint effort of the Urban Institute and the Brookings Institution.
Of course, retirees pay all sorts of other taxes, including property tax and state sales and income taxes. But it’s essential for baby boomers to understand this federal income tax issue as they plan for retirement. …Learn More