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Government-Mandated Social Security and Workers’ Compensation Programs McGraw-Hill/Irwin Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7

7-3 LEARNING OBJECTIVES Basic Social Security programs affecting employment: OASDI, Medicare, and unemployment insurance Administration and funding of Social Security programs Structure of Social Security program benefits Reasoning behind workers' compensation insurance Types of workers' compensation claims

7-4 SOCIAL SECURITY PROGRAMS Old - Age, Survivor, and Disability Insurance (OASDI) Medicare Unemployment Insurance Supplemental Security Income Benefits

7-5 OASDI Amended Social Security in 1965 Provides –Retirement Income –Survivors of Deceased Workers –Disability Income

7-6 OASDI & MEDICARE EXEMPT CLASSES Employees of Federal Government –Government (OASDI only) –10 Year Railroad Workers (OASDI) Employees of State & Local Governments with Another Plan 20 Year Old Children Working for Parents

7-7 FUTA CRITERIA 1 - in - 20 Test –Employs at Least 1 in 20 Weeks –Seasonal Employees Exempt Wage Test –Payroll $1500+ in any Quarter –Covers Seasonal Employees

7-8 UNEMPLOYMENT INSURANCE Titles III & IV of Social Security Act FUTA from Federal & State Payroll Taxes Federal Taxes for Administration State Taxes for Benefits Federal Employment and Training Administration Oversees Program

7-9 UNEMPLOYMENT EXEMPTIONS Self - Employed Military Service Farmers, Growers, & Crew Leaders Household Workers

7-10 DETERMINING OASDI BENEFITS Average Indexed Monthly Earnings (AIME) Sets Primary Insurance Amount (PIA) Cost of Living Adjustments (COLAs), Guards Against Inflation Based on Consumer Price Index (CPI), from Department of Labor

7-11 OASDI ELIGIBILITY CREDITS Number Needed to Participate Year of BirthCredits Needed on40

7-12 RETIREMENT AGE AND BENEFITS Early Retirement Age 62, Partial Benefits Full Benefits at Age 65, in 2000 Retirement Age Increases Incrementally Full Benefits at Age 67, in 2022

7-13 OASDI BENEFITS FOR FAMILY MEMBERS Widow(er), Retirement Age Disabled Widow(er), Age 50 Spouse, with Dependent Children Under 16, or Disabled Divorced Spouse, Age 60 Children Under 18, Under 20 if in College, if Disabled Dependent Parent, Age 62

7-14 DISABILITY BENEFITS ELIGIBILITY Mental or Physical Impairment Lasting 12 Months Must Have 40 Credits, 20 Credits in Last 40 Quarters 6 Month Waiting Period Blinded Workers Need only 40 Credits Workers Age 23, 6 Credits in 3 Years Workers , Work Half of Period

7-15 MEDICARE Part A - Hospitalization Insurance Part B - Supplemental Health Insurance Medigap - Supplements Parts A & B Medicare Advantage: Part C Medicare Prescription Drug Benefit: Part D

7-16 MEDICARE ELIGIBILITY Age 65 with 40 credits Extends to Spouse Family Members with Disabilities Younger Adults with Kidney Failure

7-17 MEDICARE PART A COVERAGE Inpatient hospital care in a semiprivate room, meals, general nursing, and other hospital supplies and services Home health services Hospice care Skilled nursing facility care

7-18 MEDICARE PART B COVERAGE 80% of Services & Supplies, $100 Deductible Diagnosis, Therapy, & Surgery Consultation Medical Services & Supplies Medication, not Self - Administered Outpatient Hospital Services

7-19 MEDIGAP COVERAGE Supplements Parts A & B Offered by Private Insurers 10 Choices in Level of Protection Medicare Select Offers Protection with Lower Premiums, Less Choice Available in 47 States

7-20 MEDICARE ADVANTAGE: PART C Established in 1997 Protection from Private Plans –Fee - for - Services –Managed Care –Medical Savings Accounts November Enrollment Period Extended Benefits in 2006

7-21 MEDICARE PRESCRIPTION DRUG BENEFIT Medicare Part D Begins 2006 Covers 75% of Drug Costs Annual $250 Deductible Maximum Out - of- Pocket of $1,500 Total Out - of - Pocket of $3,600 –Medicare then Pays 95%

7-22 MEDICARE AS PRIMARY PAYER Individual Has Coverage From –Former Employer –Employer’s Group Plan –Spouse’s Employer Group Plan (if Employer has up to 20 Employees) –COBRA

7-23 MEDICARE AS SECONDARY PAYER Individual has Coverage from –Employer’s Group Plan –Spouse’s Employer Group Plan (if Employer has up to 20 Employees) –Workers’ Compensation –Employer, but has End-Stage Renal Failure (for first 30 months) –No Fault Insurance

7-24 FINANCING OASDI & MEDICARE PROGRAMS FICA Requires Equal Employer & Employee Contributions –At 7.6% in 2007 –6.20% for OASDI –1.45% for Medicare SECA Requires Self - Employed Pay 15.3% in 2002 –15.3 % for OASDI –2.90 % for Medicare

7-25 UNEMPLOYMENT DISQUALIFYING EVENTS Refusal of Suitable Work Misconduct Participation in a Labor Dispute Regular Breaks During School Deliberate Misrepresentation to Receive Benefits

7-26 UNEMPLOYMENT BENEFIT AMOUNTS Varies by State - No Federal Rules Generally –50% - 67% of Earnings, Based on Highest Base Period Quarter –Maximum of 26 Weeks –Extended Benefits for Additional 13 Weeks

7-27 WORKERS’ COMPENSATION OBJECTIVES To provide sure, prompt, and reasonable income and medical benefits to work-accident victims, or income benefits to their dependents, regardless of fault. To provide a single remedy and reduce court delays, costs, and workloads arising out of personal injury litigation. To relieve public and private charities of financial drains. To eliminate payment of fees to lawyers and witnesses as well as time-consuming trials and appeals. To encourage maximum employer interest in safety and rehabilitation through appropriate experience-rating mechanisms. To promote frank study of causes of accidents (rather than concealment of fault), reducing preventable accidents and human suffering

7-28 WORKERS’ COMPENSATION COST In September 2006 employers generally paid $0.48 per civilian employee for each hour worked to provide workers’ compensation protection The hourly amount was substantially higher for workers in goods-producing industries at $0.89, and substantially lower for employees in service-providing industries at $0.39 Although these amounts represent no more than 3 percent of the total compensation costs (that is, the total cost of wages, salary, and all employer-sponsored benefits), the annual costs for employees in goods- producing industries is quite high There is wide variation in the cost of workers’ compensation from state to state