Reforming Social Security with Child Caregiver Credits

The Center for Retirement Research at Boston College has released an issue brief entitled, "Modernizing Social Security: Caregiver Credits."  The brief opens with the following statement of the challenge presented by recent demographic changes:

Women still tend to work fewer years and earn less than men, which leads to less income in retirement. One reason is that women are often still the main family caregiver. Traditionally, Social Security has recognized this role by providing spousal and widow benefits for married women. Today, however, many women are not eligible for these benefits because they never married or they divorced prior to the 10-year threshold needed to qualify. Even those who are married are less likely to receive a spousal benefit, as their worker benefit is larger. Thus, many mothers receive little to no support to offset lost earnings due to childrearing.

Of course, the population for whom Social Security was designed looks much different than the population for whom Social Security must provide benefits.  Social Security was designed in the 1930s when, typically, the husband was the sole breadwinner and the wife a homemaker. The program included spousal and widow benefits designed for this standard one-earner household. Although these family benefits are not gender based, they typically worked to benefit women because women generally work fewer years and earn less than men. The ability of women to receive family benefits, however. has declined sharply in recent decades as their employment patterns and the nature of the family unit have changed dramatically. 

On the employment front, the labor force activity of married women has increased significantly, which means that women increasingly receive benefits based on their own earnings record, and are much less likely to receive spousal or widow benefits.  Despite their increased workforce activity, though, research suggests that women continue to be at a disadvantage in the labor market compared to men. Research suggests that part of the reason is caregiving duties, which can reduce work hours and affect access to better-paying jobs.   For example, women ages 25-44 – those most likely to have young children – work part time more often than men. Even when working full time, women earn only about 80 percent as much as men.

Contributing to the challenge of providing a fair benefit for women is that fewer women are eligible for Social Security family benefits due to patterns of marriage and divorce. The increasing divorce rate has resulted in about 25 percent of first marriages ending within 10 years, the eligibility threshold needed for access to family benefits.  These short-lived marriages, which comprise a greater number of total marriages, unfortunately, are excluded from access to family benefits under Social Security, despite the continuing financial burdens the marriages place upon the individuals involved.      

Childbearing among unmarried women has also increased sharply – from 18 percent of all births in 1980 to 40 percent today. These trends have sharply increased the percentage of households headed by single mothers, leaving a wide swath of women with no access to family benefits.  Compared with married mothers, single mothers face even more labor market constraints from their childcare responsibilities, further impeding their job prospects and reducing their ability to earn an adequate Social Security benefit.

Overall, the changes in labor market and marital patterns mean that large numbers of women are going to move through retirement with more disadvantages than their earlier counterparts. Not surprisingly, among those ages 65 and over, poverty rates for unmarried women exceed those of unmarried men,  and unmarried women account for one-third of all households ages 65-69 and two-thirds of households ages 85 and over. Childcare responsibilities are a major contributor to low income in retirement. One study found that women ages 65-74 who spent at least 10 years as a single mother were 55 percent more likely to be poor than continuously married mothers of similar education and ethnicity. 

Because of the poor outlook for retirement income among single women and a growing sense that the economic value of caregiving should be recognized, many policy experts have advocated caregiver credits.  The 10 page brief looks at how the topic is handled in other countries and discusses two avenues for resolution in the U.S.: (1) "[i]ncrease the number of work years that are excluded from benefit calculations ... [and] (2) [p]rovide earnings credits to parents with a child under age six for up to five years."  The brief argues for earnings credits for child rearing.

The brief concludes in part:

"It is easy to understand the appeal of crediting Social Security records to reflect lost earnings due to caring for a child. In the past, this activity was usually compensated for by the spousal benefit, but changes in women’s work and marriage patterns have left fewer eligible for it. A credit is also more appealing than a spousal benefit if the goal is to compensate for the costs of child rearing, independent of marital status."

Regardless to which cause or causes you attribute these changes, there is little question that the disparity, at least in outcomes among single women, is real.  Moreover, our society is evolving to value more "caregiving," whether or not familial, and regardless of the age or needs of the person requiring care.  Nothing could better underscore the real value of caregiving, especially for children, than the government recognizing a financial value for the effort in order to provide a more effective safety net for seniors. 

Particularly as the government struggles to find effective solutions for care and support, and individuals, families, and communities design and construct their own, often non-governmental solutions, these efforts should find encouragement and support.  In other words, the decision to value caregiving will not only impact retirement income for a vulnerable group of retirees, but will suggest promise in addressing the caregiving needs , demands, and realities, of both the elderly, and the someday-to-be-elderly family caregivers.  

The Importance of a "Lapse Designee" on Long Term Care Insurance

A U.S. district court has ruled that the purchaser of a long-term care insurance policy may sue for breach of contract the insurance company that failed to notify the purchaser's son, as required in the contract, that the policy was in danger of lapsing. Waskul v. Metropolitan Life Insurance Company, (U.S. Dist. Ct., E.D. Mich., No. 17-13932, July 31, 2018).

Long term care insurance is a valuable tool in planning for long term care costs.  Policy lapse is a serious problem, though, given that an insured may experience periods of poor health or disability during which s/he may be unable to pay premiums.   If premiums are not paid timely, and the policy lapses, the financial investment in the policy is lost, and more importantly, the protection afforded by the insurance benefit is surrendered.  

Tools to prevent lapse include automatic payment, prepayment, and the appointment of a loss designee.  Automatic payment and prepayment work well to prevent policy lapse so long as funds are available and sufficient opportunity is afforded the family to recognize and fulfill the need to pay the premium.  This is uncertain, at best, especially over protracted periods of illness or disability.  A "loss designee" is an appointed person other than the insured who is notified of policy lapse, thereby helping to ensure that the premium is paid. 

Carl Waskul purchased a long-term care insurance policy from Metropolitan Life Insurance Company in 1996. The policy was guaranteed renewable, which meant that as long as Mr. Waskul paid the premiums, the company could not cancel the policy. In 2003, Mr. Waskul designated his son as "lapse designee" to receive notice if Mr. Waskul's policy was about to lapse for non-payment. In 2015, Mr. Waskul was diagnosed as cognitively impaired and failed to pay his premium in February 2016. The long-term care insurance company did not notify Mr. Waskul's son that the premium had not been paid.

When Mr. Waskul's children contacted the insurance company in 2017 for a coverage determination, they were told his policy had been cancelled. Mr. Waskul sued the insurance company for breach of contract and fraudulent misrepresentation. The insurance company filed a motion to dismiss.

The U.S. District Court for the Eastern District of Michigan, Southern Division, denied the motion to dismiss the breach of contract claim, but granted the motion to dismiss the fraudulent misrepresentation claim. The court ruled that Mr. Waskul successfully stated a claim that the insurance company did not meet its obligation under the contract "when it neglected to inform his son that [Mr. Waskul] had failed to pay his policy premium in February 2016." However, the court ruled that Mr. Waskul does not state a claim for fraudulent misrepresentation because the company did designate his son as lapse designee. According to the court, failure to follow through "does not show that [the insurance company] knowingly made the false representation that [Mr. Waskul] could appoint a lapse designee.

Although it is little consolation that an insured has a right to sue for the lapse if a policy lapses, the reality is that legal action may return to an insured and his or her family some of the investment in the policy.  Regardless, the case demonstrates why an insured should designate a lapse designee, whether or not such a designation is permitted by the terms of the policy.  Without a "lapse designee," there is no protection for the insured or the insured's family when illness or disability prevents payment of the premium. 

New Law Helps Seniors Prevent Identity Theft

The National Center for Law & Elder Rights (NCLER) has released a fact sheet explaining a new law that allows consumers to place freezes on their credit information for free. The fact sheet, entitled "New Law Provides Free Security Freezes and Increased Fraud Alert Protection," explains that "[o]n May 24, 2018, the President signed Public Law 115-174 into law. Section 301 of Public Law 115-174 amends the Fair Credit Reporting Act, to establish a new federal right for consumers to implement a security freeze of their credit file." (citations omitted).  

The NCLER fact sheet explains:

A security freeze is the single most effective tool to minimize the risk of identity theft. Identity thieves often target unsuspecting older adults, luring them into giving out personal information. The scammers then use this information to steal the older adults’ identity and ruin a lifetime of positive credit.  As a general rule, security freezes allow a consumer to prohibit the release of their credit report. When a thief applies for credit in the victim’s name, often the intended creditor will attempt to obtain the victim’s credit report or score. The idea behind a security freeze is that, when the credit reporting agency returns no information or a notice that the consumer has frozen the file, the creditor will deny the thief’s application, thereby thwarting the thief and protecting the consumer’s credit reputation as well as the business interests of the creditor.

The new law permits the creation, temporary lifting (or “thaw)” and permanent removal of security freezes from the nationwide consumer reporting agencies. The security freezes are limited to parties seeking the consumer’s information for credit purposes, and do not apply to parties who seek the report for employment, insurance, or tenant-screening purposes. Freezes also do not apply to existing creditors or their agents conducting an account review, collecting on a financial obligation owed them, or seeking to extend a “firm offer of credit” (i.e.,pre-screening). 

The new law also extends the length of  fraud alerts from three (3) months to a full year.  A fraud alert notifies users that the consumer has been or may become a victim of fraud or identity theft. Extending the fraud alert better protects the consumer,

In addition, the new law federalizes or preempts state credit freeze laws.  "The legislation’s preemption extends to any state requirement or prohibition with respect to subject matter regulated by the statute’s provisions relating to security freezes. For example, some state statutes are stronger than the new federal standards by allowing consumers to freeze access to credit reports for employment or insurance purposes." There is also a provision covering when a fiduciary needs to secure a freeze for an individual who is incapacitated.

The new legislation should help seniors avoid identity theft. 

Study Shows Some Hospitals Steering Patients Away from Nursing Homes

Put YOU back in your plan!

Good news is on the horizon for seniors and their families hoping to Age in Place, i.e., avoid unnecessary institutional care.  There is evidence the underlying health care system is reforming to embrace Aging in Place preference for non-institutional care.  According to an article  published in McKnights Long Term Care News, hospitals participating in bundled payment efforts are actively reducing the use of skilled nursing care! The evidence comes in the form of a new study out of the University of Pennsylvania, published Monday in Health Affairs.

Skilled care is a big driver of cost growth and variation in Medicare, the authors note. In 2015 alone, about twenty percent (20%) of Medicare fee-for-service hospital admissions went to a Skilled Nursing Facility (SNF), despite scant evidence that this is the optimal post-acute setting, or that a nursing home helps improve quality, Penn researchers wrote.  Of course, that is no surprise to those of us in the "Aging in Place: community.  Long have advocates decried the obvious negative physical, mental, and  and emotional health outcomes so often incident to and consequence of institutional care, and particularly unnecessary or avoidable institutionalization.   

Motivated primarily by concerns for cost growth and variation, however, the Centers for Medicare & Medicaid Services (CMS) has finally arrived at the same destination.  CMS has undertaken both the Bundled Payments for Care Improvement initiative and the Comprehensive Care for Joint Replacement model in an effort to eradicate some of that cost variation. Wanting to better understand how hospitals are navigating these waters, researchers interviewed leaders at twenty-two (22) institutions taking part in those two CMS bundled pay efforts.

"It's clear from the results that hospitals are looking to reduce SNF use," said Jane Zhu, lead author and a national clinician scholar and fellow in the Division of General Internal Medicine at Penn's Perelman School of Medicine.  She explained:   

“For the past couple of decades, we've had a persistent increase in SNF utilization across the country, but it's still very unclear what the benefit ultimately is for patients, and what the optimal post-acute setting is,” she told McKnight's. “As bundled payment incentives force hospitals to think along the lines of total cost of care, they're starting to see that, for certain patients, skilled nursing facilities offer no greater benefit and are more expensive than other venues.”

Often, hospitals are reducing SNF referrals by using risk-stratification tools, better educating patients, providing care support at home, and better linking up with home health agencies to smooth out any discharge hiccups.  Of course, patient choice and directive, not mentioned by the researchers or McKnights may also be contributing to reduced SNF utilization.

Other hospitals, meanwhile, are strengthening bonds with nursing homes, researchers found. Fifteen institutions formed networks of preferred SNFs, aiming to exert influence over cost and quality. Typical tactics found included linking electronic medical records, embedding a hospital provider in the nursing home and hiring dedicated care coordination staffers.  Most often, hospitals are partnering with SNFs with which they are familiar and have trust, rather than reaching out to new partners, authors added.

Zhu's three key takeaways for skilled nursing operators:

Payment really matters. Hospitals have been “really conscientiously and in a very collective manner reorganizing the way that they are thinking about post-acute care, and specifically trying to save costs, along those lines.” The payment structure is having a distinct effect on hospitals' behavior.

The extent to which these practices have been disseminated is unclear. Some of the things hospitals are doing have “enormous implications” for skilled nursing facilities. Hospitals are really trying to move away from SNF use, particularly for joint replacement patients. They are trying to then integrate and coordinate care with skilled nursing facilities through a variety of different structures.

There's uncertainty over what the ultimate implications are for SNFs. There is a question of what sorts of pressures SNFs will face, given these hospital practices.

“SNFs are not only under heavy pressure to work more closely with hospitals and to compete to be the desired referral partner,” Zhu told McKnights, “but they're also facing downward referral pressures as hospitals try to send their patients, more and more frequently, home.” 

Future research may expand on how nursing homes are responding to this trend.