Wednesday, March 30, 2011

More on "the pro-Social Security case for reform"

On March 29, Ezra Klein wrote a column for The Washington Post, “The pro-Social Security Case for Social Security Reform”, and he added “Further Thoughts”, all of it findable here.  

He mentions a number of ideas. A 3% surcharge on incomes over $200000 would wipe out the shortfall. Or one could uncap the payroll FICA tax (now at $106000) completely.  Some of this comes from Gene Sperling, the head of President Obama’s National  Economics Council. Included is a partial privatization, a layered plan with some of it a highly regulated 401(k) but owned by the individual and forever protected from “means testing.”  Some of the neocon Bushie ideas are back already.

But there’s not much question that means testing and the questioning of payments to people who, whatever their FICA tax “annuity premium” contributions when working, have other means today, could come sooner rather than later.

Tuesday, March 29, 2011

Surviving spouses can lose homes on reverse mortgages after HUD change; AARP sues

Washington DC ABC affiliate WJLA reports a problem with reverse mortgages (HUD link here).

Both spouses (when legally married) should always be on the document. If one passes away, and the other isn’t on the document, and the home becomes delinquent, loses value, and subject to foreclosure, HUD will no longer “protect” the other resident. It’s not clear how this could affect gay spouses in states with same-sex marriage.

AARP has sued HUD over the change.  Tina Johnson-Marcel has the story on the AARP site here

Monday, March 28, 2011

Medicaid cuts could hit many nursing homes and patients hard

The federal government is eliminating the additional funding for Medicaid that had been applied with the 2009 economic stimulus, in two stages, so that all additional funding is gone by July 1, 2009.

That means that in some states, like Texas, nursing home patients on Medicaid could be kicked out, and could become direct responsibilities for families.

States, at least 28 of them, could have new incentives to balance budgets by enforcing “filial responsibility laws” on adult children.

CNN Money this morning has a story “Shrinking Medicaid funds pummel states”, link here

CNN also has a video here about a senior day center in South Carolina that is in jeopardy because of loss of funding (“Project Find”).

The “My San Antonio” paper has a story by Melissa Fletcher Stoeljte “Medicaid cuts frighten nursing home operators”, with link here

Wednesday, March 23, 2011

The "liberal" case for social security reform

Robert Pozen has an interesting missive on p A19 of the Wednesday Washington Post, “Why liberals should back Social Security reform”, link (website url) here

He argues first that lower wage workers live shorter lives than the more affluent, so they would benefit less from even a proportional system.  He also argues that the historical benchmark, of 90% of wages, would be met by raising the wage base subject the FICA tax to $170000.

He makes another subtle point. Federal tax policy favors matching 401K contributions from employers, and this benefits high wage earners more than those forming the subsistence base of the system.  This seems to comport with the arguments written about the effect of low wages by Barbara Ehrenreich, Lisa Dodson, Patrician Warren, and others. 

Sunday, March 20, 2011

Costa Mesa CA must lay off almost half of workforce to meet pension obligations

A town in California, Costa Mesa, has laid off almost half its workforce because of pension costs for retirees made by past promises during the false “boom” a few years ago (before 2008). Peter Whoriskey has the story in The Washington Post, front page, Sunday March 20,  (website url) here

This does sound like the worst case of a municipal layoff due to the “pension tsunami” yet. 

Friday, March 11, 2011

Krauthammer: The Social Security trust fund mimics Madoff

Ezra Klein has a voices op-ed in The Washington Post Friday, “What the social security trust fund is worth”, link here. That’s in partial reply to a stinging column by Charles Krauthammer, “Et tu, Jack Lew”, p. A17.

Krauthammer argues that the “trust fund” is worthless, because it consists of IOUS’s issued when government spent part of the FICA tax on other items, not on saving the money for retirees in the way an insurance company must with an annuity.  The other part is the “pay as you go”, for current retirees, who at the beginning had contributed nothing. So in a sense Krauthammer makes the SSA look like Bernie Madoff.

It seems that Krauthammer is saying, means test now. Klein talks about future deficits, which are not current deficits, as the reason we have gotten by this way so long.


Monday, March 07, 2011

Samuelson argues that social security is "welfare": here's why it (still) isn't

Okay, Robert Samuelson has a biting column on p A13 of the Monday, March 7 Washington Post, “Why Social Security Is Welfare,” here

He mentions a disturbing Supreme Court opinion from 1960 in Flemming v. Nestor (SSA link)  which apparently rejects the idea that people have a “contractural right” to social security benefits, even if they have paid FICA taxes (a much less relevant point in practice back in 1960).

It is true that, if social security benefits are viewed as a quasi-annuity, there are some (legal) differences between this and a formal annuity contract with a life insurance company. Congress indeed does have the power to change the benefit schedule and amounts. However, there is a reasonable reliable relationship (even statistically speaking) between the total amount and duration of FICA tax contributions over a lifetime’s work history and the benefits that will be collected, just as there normally is with an annuity contract (but it isn’t quite as absolute).

Samuelson is right in that there are troubling aspects to the way the accounting for the trust fund is reported. It holds treasury bonds, which will force the federal government to borrow more money to redeem them.  So it gets legitimate to talk about the nature of “shared sacrifice” given uncontrollable debt.

But if social security were really a welfare program, there should have been no FICA tax capped at max levels. Instead, it should have been rolled into a much more progressive income tax system and be strictly means tested always, which would mean some seniors would never need benefits at all. If that sounds like socialism, it is; the alternative is an “ownership” vehicle where it really is structured as an annuity contract, probably managed by private companies but carefully regulated to protect principal. That is what the “libertarian” world wants (and what the Bush administration wanted).

Samuelson writes, the elderly are often not poor, and that should share in the sacrifices common to all, to protect the future.  I find it interesting to ponder what that would have meant in my situation.

I did start social security at age 62 (which means less benefit if I live past 77, and I am 67 now). One of the reasons was, besides a domestic and curious employment situation, that my last “major” employer pegged its social security bridge to the idea that retirees should start taking it at 62. This is a legacy from the past, to be sure. And it gets into the nettlesome “social security offset” issue with defined benefit pension plans that commentators usually forget to look at. (By the way, the employer's pension documentation characterized the pension and severance policies as "welfare" programs.)

I worked for twelve years (1990-2001) in I.T. in the life insurance business, and a fair question is, why can’t I be expected to make a living by “selling” what I did in interpersonal relations?  (Isn’t that what people do when they “retire”?)  In fact, in 2005 I was approached by two different life companies, without solicitation, to become agents.  I am forced to wonder, why would families want to listen to my peddling, or “trust” me to “take care” of them personally.  I just don’t engage the social world that way. I find a life based on compiling “leads” (you were supposed to get 200 in the first week) and pandering yourself on social media (in a world where you now have only one “identity” again) rather appalling.  I couldn’t continue toward my “second career” as a filmmaker and writer. In the mean time, that social security check (which is substantial) comes in handy and gives me the right to say “No” to motives that I don’t embrace.

You can extend some of this analysis to Medicare. Yes, we paid a Medicare Tax too (smaller than FICA) when working and expect some coverage for it. 

Friday, March 04, 2011

Retirees with bond portfolios should prepare for a higher interest rate environment

I received an email with an attached PDF written by Wells Fargo about strategies for “fixed income” investors with heavy bond portfolios in rising interest rate environments.

Although the article is probably private and copyrighted, here’s a similar article from Thornburg (by several authors, such as George Strickland) that talks about the “Laddered Bond Porfolio” in conjunction with “duration” and “call provisions”. The link is here

Actually, Wells Fargo has a similar, but shorter PDF paper online (website url) here
Retirees with heavy bond exposure could face considerable loss of principal in a rising interest rate environment. On the other hand, rising interest rates can make typical CD’s and other principal-safe investments pay more.
Motley Fool has an article about this, about 10 years old, that I think I recall seeing a coworker show me when I was working for ING in Minneapolis, link here

Wednesday, March 02, 2011

Overtime pay for caregivers likely to become big issue as eldercare and health care demands increase

The need for hands-on custodial care of usually elderly family members is constantly increasing, because people (females more than males) can live longer than they could have in previous generations, with great levels of disability from various reasons, such as heart failure, strokes, respiratory disease, and Alzheimer’s.  The situation is a mixed bag:  aggressive treatment such as coronary bypass surgery at advanced age (the latest I’ve ever  heard of is 91, and one pacemaker was implanted at 99) can give more years of good quality, but then is likely to be followed by a longer decline. This was the case with my own mother, who got the bypass graft at 85 and who passed away in late 2010 at age 97. At the time of the operation (1999), it was novel for her age, but would not be now. Other aggressive treatments are possible, such as a pump for Vice President Dick Cheney while he awaits a possible heart transplant.

This certainly implies a greater demand for future nursing home or assisted living space, which will be difficult to accommodate in the current economic climate. As I’ve noted before, the real estate market might favor building more CCRC’s, however.

All of this leads back to the question of in-home care. Typically, this means that the aging (grand) parents move in with “sandwich generation” adult children, or the reverse happens, which might mean considerable social or even legal pressure (in states with filial responsibiliry laws) for childless adults to move in with aging parents to care for them.

This also means greater use of in-home care agencies, which screen workers and provider HR and payroll services.  Such workers typically don’t make very much (the agencies tend to charge $18 to $21 an hour, but take a lot of this for business profit). Demand for their services is considerable, but many families don’t have the resources to pay for them, and state and federal programs, while proposed and sometimes in force, are limited by economic crisis and budgets.  That can mean that work for caregivers, many of whom come from overseas, can be unsteady despite the demand.

There is more pressure that caregivers be able to earn overtime and benefits, and the new health care law (so called “ObamaCare”), however contested right now by the GOP, could eventually mean that many home health agencies would have to come up with ways to provide health insurance coverage, which will increase the cost even more for families.

There is also the situation of live-ins. In 2007, the Supreme Court ruled that live-ins would be generally “exempt” from overtime laws. The case is Long Island Care Care At Home LTD., et al, Petitioners, v. Evelyn Coke, resolved June 11, 2007, with the Cornell University Law School link here.

The Supreme Court reversed a Second Circuit ruling, with the effect of saying that Department of Labor interpretations of the Fair Labor Standards Act do not require that companionship workers paid by third party companies be eligible for time-and-a-half. The New York Times had a stinging editorial (“Congress and the Caregivers”) on the decision June 15, 2007, here.  Another blog called “Aging Maven” weighed in here

The Direct Care Alliance has a statement dated April 27, 2010 “Statement of Leonila Vega on the Department of Labor 2010 Regulatory Agenda and the Clarification of FSLA for Domestic Service Employees, pdf file here.  There is a “statement of Leonila Vega on the Department of Labor 2010 Agenda and the clarification of FLSA (Fair Labor Standards Act) for domestic service employees”.

The “best” explanation that I can find of what all this means is a May 28, 2009 posting on “Caregiver list”, “Home Care Workers Exempt from Overtime for Live-In Caregiving”, link here. Note this key paragraph “The basic rule you can follow is that “companionship services” are exempt from overtime when the care is not hourly. Companionship services include household work for aged or infirm persons, meal preparation, bed making, laundry and other similar personal services. General household work is also included, as long as it does not exceed 20 percent of the total weekly hours worked by the companion. “.   Note the last sentences here “most senior home care agencies do pay for overtime hours at time-and-a-half for hourly caregivers who go past the 40 hour work week, even though depending on the state and the type of care assignment, they may not be required to do so.”

To complicate things, I found another piece in ElderLaw by Miraim Davidson, discussing the Coke case, which explains in some detail that normal household work is not covered by the decision (should not be more than 20% of duties), and moreover claims that the overtime rules still could apply if the caregivers come from an agency rather than a direct here. The article, dated April 2010, predicts that in general families should expect to pay overtime in the future (the article title “Court decisions apply minimum wage and overtime rules to caregivers” implies that), with link here.

It’s typical for some agencies to have rules regarding live-ins; that the patient should not need more than two incidents of assistance during the night time period, otherwise an hourly rate could apply. Agencies may require a separate private room and Internet access; the homeowner could be responsible (to the ISP or the law) should the caregiver somehow abuse the broadband access, so there could be risk there and a need for household rules.

Agencies may sometimes require workers to sign on as independent contractors, and in many states may then be exempted from overtime requirements. Some may pay for holidays (or night differential) but still not overtime per se.

The question could come up, if a family knows that a particular caregiver from an agency has worked more than 40 hours in some weeks, could it be held responsible for the extra half-time differential?  If so, how would it pay withholding tax and social security tax if not set up to do so because the agency does that?  (Tax advisors like HR Block might provide assistance in doing so.) It’s easy to imagine the legal and moral quagmire. 

The whole scenario is changing. In the past, extended families were more cohesive, but the elderly could not live as long with extreme disability. Today, there is diaspora, and increasing demands from the elderly (because of the way medicine is practiced, partly) pulling them back. Sustainability and generativity arguments come into play.

Also, see Mickey Rooney's testimony on elder abuse and the difficult jobs of Adult Protective Services units: