The Old-Age, Survivors, and Disability Insurance (OASDI) program provides monthly benefits to qualified retired and disabled workers and their dependents, and to survivors of insured workers. Eligibility and benefit amounts are determined by the worker's contributions to Social Security. Benefits are paid as an earned right to workers, their families, and their survivors. There is no means test to qualify for benefits.
At the end of December 2002, 46.4 million people were receiving benefits at a rate exceeding $37 billion each month (over $454 billion annually). According to the latest Social Security Trustees Report, these cash benefits comprised 4.4 percent of the nation's gross domestic product. During the same year, approximately 153 million employees and self-employed workers, along with employers, contributed $532.5 billion to the OASDI trust funds—through which contributions are credited and benefits are paid.
Social Security benefits are essential to the economic well-being of millions of individuals. Social Security pays benefits to more than 90 percent of those 65 or older. It is the major source of income (providing 50 percent or more of total income) for 65 percent of the beneficiaries. It contributes 90 percent or more of income for one-third of the beneficiaries and is the only source of income for 20 percent of them.
A person contributes to Social Security either through payroll taxes or self-employment taxes under the Federal Insurance Contributions Act (FICA) or the Self-Employed Contributions Act (SECA). Employers match the employee contribution, while self-employed workers pay an amount equal to the combined employer-employee contributions. (Self-employed workers receive a special tax deduction to ease the impact of paying the higher rate.) There is a maximum yearly amount of earnings subject to OASDI taxes, $87,000 in 2003. There is no upper limit on taxable earnings for Medicare Hospital Insurance. Employees whose contributions exceed the maximum taxable amount because they worked for more than one employer can receive refunds of excess FICA payments when they file their tax returns.
Taxes are allocated to the Old-Age (Retirement) and Survivors Insurance (OASI), the Disability Insurance (DI), and the Hospital Insurance (HI) Trust Funds. In addition to the taxes on covered earnings, OASI and DI trust fund revenues include interest on trust fund securities, income from taxation of OASI and DI benefits, certain technical transfers, and gifts or bequests. By law, the OASI and DI trust funds may only be disbursed for:
Revenue received from FICA payments is transferred to the U.S. Treasury. FICA revenue in excess of outlays is used to purchase special interest-bearing Treasury bonds. These securities remain assets of the trust funds until needed to cover Social Security costs.
The OASDI program is administered by the Social Security Administration (SSA), which became an independent agency in 1995. The Commissioner of Social Security serves a
The Social Security Administration is headquartered in Baltimore, Maryland. Major headquarter components include the National Computer Center that contains SSA's mainframe computers that drive our systems, much of the executive staff for policy, programs, and systems, as well as field support components. SSA's field structure is divided into 10 geographic regions containing over 1,300 field installations in communities throughout the country. Office sizes range from large urban offices with 50 or more employees to remote resident stations staffed by one or two individuals. Each region is headed by a Regional Commissioner and staffed with specialists to handle regional administrative tasks and to assist field offices with operational issues. In addition, there are teleservice centers servicing all regions. While physically located within the various regions, each teleservice center manages the public's Social Security business from throughout the nation using state-of-the-art communications systems. Seven program service centers provide service and support for the field offices in some aspects of Social Security's workloads.
Program changes occur through legislation or (in areas where authority is delegated to the Commissioner) through regulation.
Changes are often implemented in phases and often entail recurring annual changes beyond the initial enactment date or year of first implementation. Rather recent changes with a significant and recurring impact are discussed below.
Public Law
The earnings limit that applies in the year of attainment of FRA is based on the limits previously established for persons at FRA through age 69—$30,000 in 2002, and $30,720 in 2003. Benefits are withheld at the rate of $1 for every $3 of earnings above these exempt amounts. In determining earnings for purposes of the annual earnings test under this legislation, only earnings before the month of attainment of FRA will be considered. The legislation also permits retired workers to earn delayed retirement credits for any months between the attainment of full retirement age and age 70 for which the worker requests that benefits not be paid.
Public Law
The Ticket to Work and Work Incentives Improvement Act, Public Law
The Ticket to Work provisions of this legislation are being phased in over a
Effective July 1, 1999, the Social Security Administration raised from $500 to $700 the amount of monthly earnings for a nonblind disabled individual to be considered engaging in substantial gainful activity (SGA). Effective January 1, 2001, the top SGA level was raised to $740 per month, with the provision that ongoing SGA levels will be automatically adjusted annually based on increases in the national average wage index. Effective January 1, 2003, the level is $800 per month.
The SGA threshold is part of the definition of disability that requires an individual to be unable to engage in substantial gainful activity to be eligible for benefits. Earnings of more than the top SGA level will ordinarily demonstrate that an individual is engaged in SGA. Earnings of less than $800 per month will ordinarily demonstrate that an individual is not engaged in SGA.
A different definition of SGA applies to blind persons receiving Social Security disability benefits. Increases in the SGA amount for blind individuals have long been pegged to increases in the national average wage index and thus were not affected by the 1999 or subsequent rule changes. The level for blind individuals increased from $1,300 in 2002 to $1,330 in 2003.
New rules also affect the trial work period (TWP). The TWP allows disability beneficiaries to test their ability to work for at least 9 months. During the TWP, beneficiaries may earn any amount and still receive full benefits. The monthly level at which earnings count toward the
In 2003, about 153 million persons will work in employment or self-employment covered under the OASDI program. In recent years, coverage has become nearly universal for work performed in the United States, including American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands. Approximately 96 percent of the American workforce are covered by OASDI. Workers excluded from coverage fall into five major categories:
For most employees, taxes are withheld from wages beginning with the first dollar earned. The exceptions are domestic employees, election workers, and agricultural workers. In 2003, a domestic employee must earn $1,400 from any single employer in a calendar year before FICA is withheld. Most election workers must earn $1,200 in 2003 before FICA is withheld. Most agricultural workers wages are covered if the employer pays more than $2,500 in total wages in a year or if the individual worker earns over $150 in a year from a single employer.
Employees, their employers, and the self-employed each pay taxes on earnings in covered employment and self-employment up to an annual maximum taxable amount for OASDI. There is no upper limit on taxable earnings for Medicare Hospital Insurance (HI). The OASDI maximum taxable amount—$87,000 in 2003—is updated automatically each year in relation to increases in the national average annual wage. The current FICA tax rate applicable to both employees and employers is 6.2 percent for OASDI (5.30 percent for OASI and 0.9 percent for DI) and 1.45 percent for HI.
A self-employed person pays the combined employee-employer rate of 12.4 percent for OASDI and 2.9 for HI under the Self-Employment Contributions Act (SECA). Two deduction provisions reduce the SECA and income tax liability of self-employed persons. The intent of these provisions is to treat the self-employed in much the same manner as employees and employers are treated for purposes of FICA and income taxes. The first provision allows a deduction from net earnings from self-employment equal to the amount of net earnings before the deduction, times one-half the SECA tax rate. The effect of this deduction is intended to be analogous to the treatment of the FICA tax paid by the employer, which is disregarded as remuneration to the employee for FICA and income tax purposes. The second provision allows an income tax deduction, equal to one-half of the amount of the SECA tax paid, which is designed to reflect the income tax deductibility of the employer's share of the FICA tax.
To become eligible for his or her benefit and benefits for family members or survivors, a worker must earn a minimum number of credits based on work in covered employment or self-employment. These credits are described as quarters of coverage. In 2003, a quarter of coverage (QC) is credited for each $890 in annual covered earnings, up to a maximum of four QCs for the year. Earnings of $3,560 or more in 2003 will give the worker four QCs regardless of when the money is actually earned or paid during the year. The amount of earnings required for a QC is adjusted automatically each year in proportion to increases in the average wage level.
Eligibility for most types of benefits requires that the worker be fully insured. To be fully insured a worker must have a number of QCs at least EQUAL to the number of calendar years elapsing between age 21 (or 1950 if later) and the year in which he or she reaches age 62, becomes disabled, or dies—whichever occurs first. Under this requirement, workers who reach age 62 in 1991 or later need the maximum number of 40 QCs to be fully insured. For workers who become disabled or die before age 62, the number of QCs needed for fully insured status depends on their age at the time the worker becomes disabled or dies. A minimum of 6 QCs is required regardless of age.
If a worker dies before achieving fully insured status, benefits can still be paid to qualified survivors if the worker was "currently insured" at the time of death. Survivors benefits are potentially payable to a worker's children and to a
To qualify for disability benefits, a nonblind worker must have recent work activity as well as being fully insured. Under the test involving recent work experience, a nonblind worker who becomes age 31 or later must have earned at least 20 QCs among the 40 calendar quarters ending with the quarter in which the disability began. In general, workers disabled at ages 24 through 30 must have earned QCs in one-half of the calendar quarters elapsing between age 21 and the calendar quarter in which the disability began. Workers under age 24 need 6 QCs in the
The President is authorized to enter into international Social Security agreements (also called "totalization" agreements) to coordinate the U.S. Old-Age, Survivors, and Disability Insurance (OASDI) program with comparable programs of other countries. The United States currently has Social Security agreements in effect with 20 countries.
Country | Effective dates |
---|---|
Australia | 2002 |
Austria | 1991, 1997 |
Belgium | 1984 |
Canada | 1984, 1997 |
Chile | 2001 |
Finland | 1992 |
France | 1988 |
Germany | 1979, 1988, 1996 |
Greece | 1994 |
Ireland | 1993 |
Italy | 1978, 1986 |
Korea | 2001 |
Luxembourg | 1993 |
Netherlands | 1990, 2003 |
Norway | 1984, 2003 |
Portugal | 1989 |
Spain | 1988 |
Sweden | 1987 |
Switzerland | 1980, 1989 |
United Kingdom | 1985, 1997 |
International Social Security agreements have two main purposes. First, they eliminate dual Social Security coverage, the situation that occurs when a person from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Each agreement includes rules that assign a worker's coverage to only one country.
The second goal of the agreement is to help fill gaps in benefit protection for workers who have divided their careers between the United States and another country. Such workers may fail to qualify for Social Security benefits from one or both countries because they have not worked long enough to meet minimum eligibility requirements. Under an agreement, these workers and their family members may qualify for a partial U.S. benefit based on "totalized" (that is, combined) credits from both countries. Similarly, workers may qualify for partial benefits from the foreign country based on totalized credits.
The primary insurance amount (PIA) is the monthly benefit amount payable to the worker upon retirement at full retirement age or upon entitlement to disability benefits. The PIA is also the base figure from which monthly benefit amounts payable to the worker's family members or survivors are determined. The PIA is derived from the worker's annual taxable earnings, averaged over a period that encompasses most of the worker's adult years. Until the late 1970s, the average monthly wage (AMW) was the earnings measure generally used. For workers first eligible for benefits after 1978, average indexed monthly earnings (AIME) have replaced the AMW as the usually applicable earnings measure. The PIA computation based on AIME currently involves the following three steps:
Indexing of earnings. The worker's annual taxable earnings after 1950 are updated, or indexed, to reflect the general earnings level in the indexing year--the second calendar year before the year in which the worker is first eligible; that is, first reaches age 62, becomes disabled, or dies. Earnings in years after the indexing year are not indexed but instead are counted at their actual value. A worker's earnings for a given year are indexed by multiplying them by the following ratio (indexing factor): The average wage in the national economy for the indexing year, divided by the corresponding average wage figure for the year to be indexed.
Determining AIME. The period used to calculate AIME equals the number of full calendar years elapsing between age 21 (or 1950, if later) and the year of first eligibility, usually excluding the lowest 5 years. Workers disabled before age 47 have from zero to 4 excluded years from the computation. At an absolute minimum, 2 years are used to compute AIME. The actual years used in the computation (the "computation years") are the years of highest indexed earnings after 1950, including any years before age 22 or after age 61 as well as the year of disability or death. AIME is calculated as the sum of indexed earnings in the computation period, divided by the number of months in that period.
Computing the PIA. The formula used to compute the PIA from AIME is weighted to provide a higher PIA-to-AIME ratio for workers with comparatively low earnings. The formula applies declining percentage conversion rates to three AIME brackets. For workers who reach age 62, become disabled, or die in 2003, the formula provides a PIA equal to the sum of:
The dollar amounts defining the AIME brackets are referred to as "bend points." These bend points (as described in Table 2.A11) are updated automatically each year in proportion to increases in the national average wage level. This automatic adjustment ensures that benefit levels for successive generations of eligible workers will keep up with rising earnings levels, thereby assuring consistent rates of earnings replacement from one generation of beneficiaries to the next.
The benefit formula applicable to a worker depends on the year of eligibility (or death) rather than on the year benefits are first received. Thus the PIA of a worker retiring at FRA in 2003 is calculated using the benefit formula that applies to all workers first eligible in 2000 (the "year of attainment" of age 62). The PIA derived from that formula is then increased by the COLAs effective for December, 2000, 2001 and 2002 to obtain the PIA effective at FRA. Subsequent recomputations of the worker's benefit, including additional earnings not originally considered, delayed retirement credits or additional COLA increases, all refer to the basic computation that originally applied, based on the year of attainment.
Beginning in 1981, benefits have been rounded to the next lower ten cents at each step in the computation. The final benefit payment is rounded to the next lower dollar amount (if not already an even dollar). Prior to 1981, benefits were paid in ten-cent increments after rounding up to the next dime in each computation step.
A cost-of-living increase in benefits generally is established each year if the consumer price index for urban wage earners and clerical workers (
Under certain conditions, depending on the size of the combined OASDI trust funds relative to estimated disbursements, the applicability and size of a cost-of-living adjustment may be determined under an alternative method, called the "stabilizer provision." In no case, however, are benefits reduced below the level of benefits in the year of determination. Historically, this provision has never been triggered.
Special minimum PIA. Workers with low earnings but steady attachment to the workforce over most of their adult years may qualify for monthly benefits based on the special minimum PIA computation. This computation does not depend on the worker's average earnings, but on the number of coverage years—years in which the worker had earnings equal to or above a specified amount. The level of the special minimum PIA is the same for workers having the same number of coverage years, regardless of age or year of first eligibility. Increases in the special minimum PIA are linked to cost-of-living adjustments (COLAs).
Windfall Elimination Provision (WEP). The WEP affects persons who receive a pension based on noncovered work after 1956 and Social Security benefits. First eligibility for the noncovered pension and Social Security benefits must be after December 31, 1985 for WEP to apply. WEP reduces the Social Security PIA upon which OASDI benefits are based and affects all benefits paid on that record, except survivors. The WEP reduction ceases when entitlement to the pension payment ends, the wage earner dies, or the wage earner earns a total of 30 years of substantial Social Security earnings. The WEP reduction amount is never more than one-half of the noncovered pension.
A WEP PIA is generally based on 40 percent of the first bend point instead of 90 percent as with the regular PIA:
If a worker has more than 20 years of substantial covered earnings, the WEP PIA begins to increase. With the 21st year of substantial covered earnings, the first bend point percentage is increased by 5 percentage points. This rate of increase applies for each additional year of substantial covered earnings, through the 30th year of substantial earnings at which point WEP no longer applies. After 23 years of substantial coverage, for example, the first bend point percentage would be 55 percent. Thirty years of substantial earnings would yield a first bend point percentage of 90 percent (the normal percentage of the first bend point).
Examples of pensions subject to WEP are U.S. Civil Service Retirement System annuities, retirement benefits based on foreign earnings, and state and local pensions based on noncovered earnings.
Family maximum provisions. Monthly benefits payable to the worker and family members or to the worker's survivors are subject to a maximum family benefit amount. The family maximum level for retired-worker families or survivor families usually ranges from 150 percent to 188 percent of the worker's PIA. The maximum benefit for disabled-worker families is the smaller of (1) 85 percent of AIME (or 100 percent of PIA, if larger) or (2) 150 percent of the PIA.
Like the formula for determining the PIA, the maximum family benefit formula applicable to a worker depends on the year of first eligibility (that is, the year of attainment of age 62, onset of disability, or death). Once the worker's maximum family benefit amount for the year of first eligibility is determined, it is updated in line with the COLAs.
The full retirement age (FRA) is the earliest age at which an unreduced retirement benefit is payable (sometimes referred to as the "normal retirement age"). The age for full retirement benefits is scheduled to rise gradually from age 65 to age 67, with the first incremental increase affecting workers who reached age 62 in the year 2000. Workers over age 62 who retire before FRA can receive reduced benefits. The monthly rate of reduction from the full retirement benefit (that is, the PIA) is 5/9 of 1 percent a month for the first 36 months immediately preceding FRA. The reduction rate is 5/12 of 1 percent a month for any additional months. The maximum overall reduction for early retirement will have risen from 20 percent to 30 percent by 2022, when age 67 becomes the full retirement age.
If a disabled worker receives a reduced retirement benefit for months before disability entitlement, the disability benefit is reduced by the number of months for which he or she received the reduced benefit.
For workers who postpone their retirement beyond the full retirement age, benefits are increased for each month of nonpayment beyond that age and age 70. This increase is called a "delayed retirement credit," and is potentially available for any or all months following attainment of the full retirement age (maximum of 60 months for persons who attained age 65 prior to 2003). The annual rate of increase for delayed retirement credits is 7 percent for workers who reach age 62 in 2002, and 7½ percent for workers who reach age 62 in 2003 and 2004. The rate will rise to 8 percent for workers reaching age 62 in 2005 or later.
Spouses receive 50 percent of the worker's PIA (regardless of the worker's actual benefit amount), if the spouse has attained the full retirement age at entitlement to spousal benefits. The spouse of a retired or disabled worker can elect monthly benefits as early as age 62. These benefits are reduced at the rate of 25/36 of 1 percent a month for the first 36 months immediately preceding FRA and 5/12 of 1 percent for each additional month. The maximum overall reduction for early retirement will have risen from 25 percent to 35 percent by 2022, when age 67 becomes the full retirement age (FRA) for spouses attaining age 62 in that year.
Children of retired or disabled workers are also eligible to receive monthly benefits. The term "child" refers to a child under the age of 18, a child aged
Benefits are payable to unmarried divorced spouses of retirement age who were married at least 10 years to the worker. A divorced spouse benefit is excluded from family maximum provisions. Divorced spouses age 62 or older and divorced for 2 or more years (after marriage of 10 or more years) may be independently entitled on the record of the ex-spouse if the ex-spouse could be entitled if he or she applied.
Widows and widowers of fully insured workers are eligible for unreduced benefits at full retirement age (FRA). As with retired workers and spouses,
For survivors whose full benefit retirement age is 65, the monthly rate of reduction for the first 60 months immediately preceding FRA is 19/40 of 1 percent of the worker's PIA, with a maximum reduction of 28.5 percent at age 60. For survivors whose full benefit retirement age is over 65, the amount of reduction for each month prior to FRA is adjusted accordingly to ensure that the maximum reduction at age 60 remains 28.5 percent of the worker's PIA.
Benefits for widows and widowers are increased if the deceased worker delayed retirement beyond the FRA. In these cases, the survivor benefits include any delayed retirement credits the deceased worker had earned. Conversely, if the worker had elected early retirement,
Children of deceased workers and mothers and fathers under FRA are eligible to receive monthly benefits up to 75 percent of the worker's PIA if the worker died either fully or currently insured. Mothers and fathers must be caring for the worker's entitled child who is either under age 16 or disabled. A dependent parent aged 62 or older is eligible for monthly benefits equal to 82.5 percent of the worker's PIA. Each of two dependent parents can qualify for benefits equal to 75 percent of the deceased worker's PIA. Monthly benefits payable to survivors are reduced to conform to the family maximum benefit payable on the deceased worker's account. Benefits for a surviving divorced spouse, however, are disregarded when computing the maximum family benefit.
The OASDI tables do not include a number of persons receiving Railroad Retirement benefits who would be eligible for Social Security benefits had they applied. The reason they have not applied is that receipt of a Social Security benefit would reduce their Railroad Retirement benefit by a like amount. The number of persons is not available but is estimated to be less than 100,000.
The Railroad Retirement Act of 1974, effective January 1, 1975, provided that the regular annuity for employees with 10 or more years of railroad service who retired after December 31, 1974, will consist of two components.
Public Law
Beneficiaries under the full retirement age (FRA) with earnings in excess of certain exempt amounts may have all or part of their benefits withheld as a result of the annual earnings test (AET) provisions of the Social Security Act. For those at or above FRA, however, there have been recent changes to AET provisions. Amendments in 1996 eased the impact of AET provisions, while changes in 2000 removed the AET altogether for beneficiaries FRA or older. Public Law
Public Laws
Individuals have the option to receive reduced benefits under a monthly earnings test if it is to their advantage to do so. This option is usually exercised in the first year of retirement, because in that year the monthly test permits payment for some months even if the annual earnings limit is greatly exceeded. Under the monthly test, beneficiaries receive a full monthly benefit for months in which they do not earn over an amount equal to 1/12 of the annual earnings limit. The monthly earnings test is applied to the self-employed based on hours they work instead of monthly earnings. Generally, beneficiaries are eligible for the monthly earnings test in only one year.
Beneficiaries entitled on the basis of their own disability—disabled workers, disabled adult children, and disabled
Up to 85 percent of Social Security benefits may be subject to federal income tax depending on the beneficiary's income, marital status, and filing status. The definition of income for this provision is as follows: Adjusted gross income (before Social Security or Railroad Retirement benefits are considered), plus tax-exempt interest income, with further modification of adjusted gross income in some cases involving certain tax provisions of limited applicability among the beneficiary population, plus one-half of Social Security and Tier 1 Railroad Retirement benefits.
For married beneficiaries filing jointly with adjusted gross income under $32,000 a year, no Social Security benefits are subject to taxation. If adjusted gross income exceeds $32,000 but is under $44,000, the amount of benefits included in gross income is the lesser of one-half of income over $32,000. If a couple's adjusted gross income exceeds $44,000, the amount of benefits included in gross income is 85 percent of income over $44,000 plus the lesser of $6,000 or one-half of benefits. However, no more than 85 percent of benefits are subject to income tax. The income thresholds for single beneficiaries are $25,000 and $32,000.
If members of a married couple are filing separately, they do not have a minimum threshold if they lived together any time during the tax year. The amount of benefits included in gross income is the lesser of 85 percent of Social Security or Tier 1 Railroad Retirement benefits, or 85 percent of all income as defined above. Like all matters dealing with tax liability, taxation of Social Security benefits fall under the jurisdiction of the Internal Revenue Service.
CONTACT: Curt Pauzenga
The Supplemental Security Income (SSI) program provides income support to persons aged 65 or older, blind or disabled adults, and blind or disabled children. Eligibility requirements and federal payment standards are nationally uniform. The 2003 federal SSI benefit rate for an individual living in his or her own household and with no other countable income is $552 monthly; for a couple (with both husband and wife eligible), the SSI benefit rate is $829 monthly.
Payments under SSI began in January 1974. It replaced the former federal-state adult assistance programs in the 50 states and the District of Columbia. Under SSI each eligible person is provided a monthly cash payment based on a statutory federal benefit rate. Since 1975, these rates have been increased by the same percentage, as the cost-of-living increases in OASDI benefits. If an individual or couple is living in another person's household and is receiving both food and shelter from the person in whose household they are living, the federal benefit rate is reduced by one-third. This is done instead of determining the actual dollar value of the in-kind support and maintenance.
For institutionalized persons, the eligibility requirements and payment standards depend on the type of institution. With some exceptions, inmates of public institutions are ineligible for SSI. For persons institutionalized for a complete calendar month, a maximum federal SSI payment of $30 per month applies where (1) the institution receives a substantial part of the cost of the person's care from the Medicaid program, or (2) the institution receives payments from private health insurance on behalf of a recipient under age 18. Other eligible persons in institutions may receive up to the full federal benefit rate.
The federal payment is based on the individual's countable income. The first $20 monthly in OASDI benefits or other earned or unearned income is not counted. Also excluded is $65 monthly of earnings plus one-half of any earnings above $65. For example, a person living in his or her own household, whose sole income is a $200 monthly OASDI benefit, would receive $372 in federal SSI payments:
A person whose income consists of $500 in gross monthly earnings would receive $344.50 in federal SSI payments:
Individuals generally are not eligible for SSI if they have resources in excess of $2,000 (or $3,000 for a couple). Certain resources are excluded, most commonly a home, an automobile, and household goods and personal effects of reasonable value. States have the option to supplement the federal SSI payment for all or selected categories of persons, regardless of previous state program eligibility.
CONTACT: Paul S. Davies
1972 (Public Law
Aged: Any person aged 65 or older.
Blind: Any person with 20/200 or less vision in the better eye with the use of correcting lenses, or with tunnel vision of 20 degrees or less. An individual transferred from a state Aid to the Blind (AB) program is eligible if he/she received such state aid in December 1973 and continues to meet the October 1972 state definition of blindness.
Disabled: Any person unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or that has lasted or can be expected to last for a continuous period of at least 12 months. For a child under age 18, eligibility is based on disability of severity comparable with that of an adult. An individual transferred from a state Aid to the Permanently and Totally Disabled (APTD) program to SSI is also eligible if he/she received such state aid in December 1973 and continues to meet the October 1972 state definition of disability.
1973 (Public Law
1980 (Public Law
This provision of the law was in effect from January 1, 1981, through December 31, 1983. Beginning in January 1984, under a
1984 (Public Law
1986 (Public Law
1996 (Public Law
SSI eligibility is prohibited for an individual in any month during which such an individual is a fugitive felon, fleeing prosecution, or violating state or federal conditions of probation or parole. In addition, SSI eligibility is prohibited for 10 years for those convicted of fraudulently claiming residence to obtain benefits simultaneously in two or more states.1
1972 (Public Law
1976 (Public Law
1980 (Public Law
1989 (Public Law
1993 (Public Law
1996 (Public Law
(Public Law
1997 (Public Law
(Public Law
Certain noncitizen American Indians are excepted from the alien nonpayment provisions of Public Law
Extends eligibility for "nonqualified aliens" receiving SSI as of August 22, 1996, until September 30, 1998.
1998 (Public Law
2000 (Public Law
1980 (Public Law
1972 (Public Law
SSI payments are required to be made through a representative payee—another person or public or private agency designated by SSA to manage the recipient's benefit on his/her behalf.
1994 (Public Law
SSI disability payments based on DA&A are also limited to a total of 36 benefit months (beginning March 1995) regardless of whether appropriate treatment is available. Months for which benefits are not due and received do not count towards the
Payments based on DA&A must be made to a representative payee. Preference is required to be given to community based nonprofit social service agencies and federal, state, or local government agencies in representative payee selection. These agencies when serving as payees for individuals receiving payments based on DA&A may retain the lesser of 10 percent of the monthly benefit or $58 (indexed to the consumer price index (CPI)) as compensation for their services.
Establishment of one or more referral and monitoring agencies for each state is required.
1996 (Public Law
Applies DA&A representative payee requirements enacted under Public Law
1972 (Public Law
1976 (Public Law
1983 (Public Law
1986 (Public Law
1987 (Public Law
Effective July 1, 1988, continued payment of SSI benefits for up to 3 months is permitted, at the rate that was applicable in the month prior to the first full month of institutionalization, for individuals whose expected institutional stay on admission is not likely to exceed 3 months, as certified by a physician, and for whom the receipt of benefits is necessary to maintain living arrangements to which they may return.
1996 (Public Law
1972 (Public Law
1976 (Public Law
Of funds provided for these services, at least 90 percent must be used for children under age 6 or for those who have never attended public schools.
1980 (Public Law
1981 (Public Law
Reimbursement for the cost of rehabilitation services will only be made if the services result in the recipient's return to work for a continuous period of 9 months. The work must be at the substantial gainful activity earnings level.
1984 (Public Law
1987 (Public Law
1990 (Public Law
1999 (Public Law
An EN chooses one of the two EN payment options at the time it submits an application to SSA to become an EN. The chosen payment system will apply to all beneficiaries served. An EN can elect to receive payment under the:
1994 (Public Law
1996 (Public Law
Requires a CDR:
Requires eligibility redetermination for all child SSI recipients eligible for the month before the month in which they attain age 18.
Requires redetermination of eligibility for children considered disabled based on an individual functional assessment and/or consideration of maladaptive behavior.
Requires the representative payee of a child SSI recipient whose continuing eligibility is being reviewed to present evidence that the recipient is receiving treatment that is considered medically necessary and available for the condition which was the basis for providing SSI benefits.
1997 (Public Law
Modifies provision of Public Law
Modifies provision of Public Law
1999 (Public Law
1972 (Public Law
After deduction of personal allocations for the spouse (or parents) and for ineligible children in the home, and after application of income exclusions, any remaining income of the spouse (or parents) is added to the income of the eligible person.
1980 (Public Law
Sponsor's income and resources deemed to an alien for 3 years.
1989 (Public Law
1993 (Public Law
Considers an ineligible spouse or parent who is absent from the household due to active military service to be a member of the household for deeming purposes.
1996 (Public Law
(Public Law
1997 (Public Law
Basic benefit standards are used in computing the amount of federal SSI payments. Benefit levels differ for individuals and couples living in households and for persons in Medicaid institutions. Individuals or couples living in their own households receive the full federal benefit. If an individual or couple is living in another person's household and receiving support and maintenance there, the federal benefit is reduced by one-third. The federal benefit rates for persons in households are increased annually to reflect increases in the cost of living. Legislation affecting the level of federal benefit rates since the inception of the SSI program are summarized in Table 2.B1.
1980 (Public Law
1984 (Public Law
1982 (Public Law
1996 (Public Law
1981 (Public Law
1984 (Public Law
1987 (Public Law
1993 (Public Law
1981 (Public Law
1987 (Public Law
1982 (Public Law
1999 (Public Law
1972 (Public Law
1981 (Public Law
2000 (Public Law
1972 (Public Law
Grants, scholarships, and fellowships used to pay tuition and fees at an educational institution.
Income required for achieving an approved self-support plan for blind or disabled persons.
Work expenses of blind persons.
For blind persons transferred from state programs to SSI, income exclusions equal to the maximum amount permitted as of October 1972 under the state programs.
Irregularly or infrequently received income totaling $60 or less of unearned income and $30 of earned income in a calendar quarter.
Payment for foster care of ineligible child residing in recipient's home through placement by a public or private nonprofit child care agency.
One-third of any payment received from an absent parent for the support of a child eligible for SSI.
Certain earnings of a blind or disabled child under age 22 regularly attending an educational institution.
State or local government cash payments based on need and designed to supplement SSI payments.
1976 (Public Law
(Public Law
The value of assistance provided under certain federal housing programs.
1977 (Public Law
(Public Law
1980 (Public Law
(Public Law
Impairment-related work expenses paid by the individual (including cost for attendant care, medical equipment, drugs, and services necessary to control an impairment) are deducted from earnings when determining if an individual is engaging in substantial gainful activity. Impairment-related work expenses are excluded in calculating income for benefit purposes if initial eligibility for benefits exists on the basis of countable income without applying this exclusion.
1981 (Public Law
1982 (Public Law
1983 (Public Law
Certain home energy assistance payments are excluded if a state agency certified that the assistance is based on need. Provision is applicable through June 1985.
1984 (Public Law
1986 (Public Law
1987 (Public Law
Excludes death payments (for example, proceeds from life insurance) from SSI income determinations to the extent they were spent on last illness and burial.
Modifies the 1982 resource exclusion for burial funds to extend the exclusion to any burial fund of $1,500 or less maintained separately from all other assets, thereby allowing interest to be excluded from income if retained in the fund.
1988 (Public Law
1989 (Public Law
Payments from the Agent Orange Settlement.
Value of a ticket for domestic travel received as a gift and not cashed.
1990 (Public Law
Payments received from a state-administered fund established to aid victims of crime.
Impairment-related work expenses excluded from income in determining initial eligibility for benefits.
Payments received as state or local government relocation assistance.
Payments received under the Radiation Exposure Compensation Act.
Redefines as earned income, royalties earned in connection with any publication of the individual's work and honoraria received for services rendered (previously defined as unearned income).
1993 (Public Law
Payments received as state or local government relocation assistance made permanent.
1994 (Public Law
1998 (Public Law
(Public Law
The first $2,000 annually of cash gifts by tax-exempt organizations to, or for the benefit of, individuals under age 18 with life-threatening conditions.
(Public Law
2000 (Public Law
Any adjustments made to prior payments from other federal programs to account for the error in the computation of the consumer price index during 1999.
2001 (Public Law
1972 (Public Law
1984 (Public Law
1999 (Public Law
1972 (Public Law
Personal effects and household goods of reasonable value established by regulation as not exceeding a total market value of $1,500.
An automobile of reasonable value—established by regulation as not exceeding a market value of $1,200.
An automobile may be excluded, regardless of value, if the individual's household uses it for employment or medical treatment or if it is modified to be operated by or for transportation of a handicapped person.
Life insurance with face value of $1,500 or less.
1976 (Public Law
1977 (Public Law
1979. Reasonable value for an automobile increased by regulation to $4,500 of current-market value; personal goods and household effects increased to $2,000 of equity value.
1982 (Public Law
1984 (Public Law
1985. Regulations permit exclusion, regardless of value, of an automobile needed for essential transportation or modified for a handicapped person. The $4,500 current market value limit applies only if no automobile could be excluded based on the nature of its use.
1987 (Public Law
Real property that cannot be sold for the following reasons: it is jointly owned; its sale would cause the other
Temporarily extends the 1984 exclusion of retroactive Title II and Title XVI benefits from 6 months to 9 months (the longer exclusion applies to benefits paid in fiscal years 1988 and 1989).
1988 (Public Law
1972 (Public Law
Tools and other property essential to self-support (PESS), within reasonable limits. Shares of nonnegotiable stock in regional or village corporations held by natives of Alaska.
For persons transferred from state programs to SSI, resource exclusions equal to the maximum amount permitted as of October 1972 under the state program.
1988 (Public Law
1989 (Public Law
Payments from the Agent Orange Settlement.
1990 (Public Law
Payments received from a state-administered fund established to aid victims of crime excluded for a
Payments received as state or local government relocation assistance excluded for a
Payments received under the Radiation Exposure Compensation Act.
1993 (Public Law
1994 (Public Law
1996 (Public Law
1998 (Public Law
(Public Law
The first $2,000 annually of cash gifts by tax-exempt organizations to, or for the benefit of, individuals under age 18 with life-threatening conditions.
(Public Law
2000 (Public Law
2001 (Public Law
1980 (Public Law
1988 (Public Law
1999 (Public Law
1972 (Public Law
1976 (Public Law
1990 (Public Law
1972 (Public Law
1987 (Public Law
1996 (Public Law
1974 (Public Law
1976 (Public Law
1987 (Public Law
1972 (Public Law
States can accept SSA determination of eligibility or make their own determination.
1976 (Public Law
1980 (Public Law
In states that do not provide Medicaid coverage categorically to all SSI recipients, qualification for Medicaid benefits depends on the state's specific eligibility and program requirements.
The Medicaid provision of the 1980 legislation was in effect from January 1, 1981, through December 31, 1983. Under a
1984 (Public Law
1986 (Public Law
1986 (Public Law
Effective July 1, 1987, certain expenses are excluded from earnings when determining sufficiency of earnings to establish SSI recipient status eligibility for Medicaid purposes:
Effective July 1, 1987, preserves the Medicaid eligibility of recipients who become ineligible for SSI payments because of entitlement to, or an increase in, Social Security disabled adult child benefits on or after the effective date.
Effective July 1, 1987, requires all states to provide Medicaid coverage for recipients in special SSI status (either receiving special SSI payments or in the special recipient status described for 1980) if they received Medicaid coverage the month before special SSI status.
1987 (Public Law
1990 (Public Law
Preserves the Medicaid eligibility of SSI recipients who become ineligible for payments when they become entitled to Social Security disabled
1997 (Public Law
1972 (Public Law
States may either administer the payments themselves or have the Social Security Administration make payments on their behalf. When state supplementary payments are federally administered, the Social Security Administration makes eligibility and payment determinations for the state and assumes administrative costs.
"Hold harmless" protection, which limits a state's fiscal liability to its share of OAA, AB, and APTD expenditures for calendar year 1972, is provided to states electing federal administration of their supplementary plans. This provision applies only to supplementary payments that do not, on the average, exceed a state's "adjusted payment level." (The adjusted payment level is the average of the payments that individuals with no other income received in January 1972; it may include the bonus value of food stamps. Adjustments are provided for payments that had been below state standards.)
1973 (Public Law
1976 (Public Law
Requires states to maintain state supplementation payments at the level of December 1976 ("maintenance of payments") or to continue to pay in supplements the same total annual amounts ("maintenance of expenditures") when the federal SSI payment level is increased and thereby pass through any increases in federal benefits without reducing state supplements.
1982 (Public Law
1983 (Public Law
1987 (Public Law
Provides for required pass through of $5 increase in federal rate for persons whose care in institutions is paid in substantial part by Medicaid.
1993 (Public Law
1997 (Public Law
1999 (Public Law
2000 (Public Law
1984 (Public Law
Waives recovery of certain overpayments due to amount of excess resources of $50 or less.
Provides temporary authority for the recovery of overpayments from tax refunds.
1988 (Public Law
1998 (Public Law
1999 (Public Law
Requires SSA to recover SSI overpayments from SSI lump-sum amounts by withholding at least 50 percent of the lump-sum payment or the amount of the overpayment, whichever is less.
Extends all of the debt collection authorities currently available for the collection of overpayments under the OASDI program to the SSI program.
2001 (Public Law
CONTACT: Paul S. Davies
The following are brief summaries of complex subjects. They should be used only as overviews and general guides to the Medicare and Medicaid programs. The views expressed herein do not necessarily reflect the policies or legal positions of the Centers for Medicare & Medicaid Services or the Department of Health and Human Services (DHHS). These summaries do not render any legal, accounting, or other professional advice, nor are they intended to explain fully all of the provisions or exclusions of the relevant laws, regulations, and rulings of the Medicare and Medicaid programs. Original sources of authority should be researched and utilized.3
Title XVIII of the Social Security Act, designated "Health Insurance for the Aged and Disabled," is commonly known as Medicare. As part of the Social Security Amendments of 1965, the Medicare legislation established a health insurance program for aged persons to complement the retirement, survivors, and disability insurance benefits under Title II of the Social Security Act.
When first implemented in 1966, Medicare covered most persons age 65 or over. In 1973, the following groups also became eligible for Medicare benefits: persons entitled to Social Security or Railroad Retirement disability cash benefits for at least 24 months, most persons with end-stage renal disease (ESRD), and certain otherwise non-covered aged persons who elect to pay a premium for Medicare coverage. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Public Law
Medicare has traditionally consisted of two parts: Hospital Insurance (HI), also known as Part A, and Supplementary Medical Insurance (SMI), also known as Part B. A new, third part of Medicare, sometimes known as Part C, is the Medicare+Choice program, which was established by the Balanced Budget Act (BBA) of 1997 (Public Law
Hospital Insurance (HI) is generally provided automatically, and free of premiums, to persons age 65 or over who are eligible for Social Security or Railroad Retirement benefits, whether they have claimed these monthly cash benefits or not. Also, workers and their spouses with a sufficient period of Medicare-only coverage in federal, state, or local government employment are eligible beginning at age 65. Similarly, individuals who have been entitled to Social Security or Railroad Retirement disability benefits for at least 24 months, and government employees with Medicare-only coverage who have been disabled for more than 29 months, are entitled to HI benefits. HI coverage is also provided to insured workers with end-stage renal disease (ESRD) (and to insured workers' spouses and children with ESRD), as well as to some otherwise ineligible aged and disabled beneficiaries who voluntarily pay a monthly premium for their coverage. In 2002, the HI program provided protection against the costs of hospital and specific other medical care to about 40 million people (34 million aged and 6 million disabled enrollees). HI benefit payments totaled $149.9 billion in 2002.
The following health care services are covered under Medicare's HI program:
Skilled nursing facility (SNF) care is covered by HI only if it follows within 30 days (generally) of a hospitalization of 3 days or more and is certified as medically necessary. Covered services are similar to those for inpatient hospital but also include rehabilitation services and appliances. The number of SNF days provided under Medicare is limited to 100 days per benefit period (described later), with a copayment required for days
HHA care, including care provided by a home health aide, may be furnished part-time by a HHA in the residence of a home-bound beneficiary if intermittent or part-time skilled nursing or certain other therapy or rehabilitation care is necessary. Certain medical supplies and durable medical equipment (DME) may also be provided, though beneficiaries must pay a 20 percent coinsurance for DME, as required under SMI of Medicare. There must be a plan of treatment and periodical review by a physician. Full-time nursing care, food, blood, and drugs are not provided as HHA services.
An important HI component is the benefit period, which starts when the beneficiary first enters a hospital and ends when there has been a break of at least 60 consecutive days since inpatient hospital or skilled nursing care was provided. There is no limit to the number of benefit periods covered by HI during a beneficiary's lifetime; however, inpatient hospital care is normally limited to 90 days during a benefit period, and copayment requirements (detailed later) apply for days
All citizens (and certain legal aliens) age 65 or over, and all disabled persons entitled to coverage under HI, are eligible to enroll in the SMI program on a voluntary basis by payment of a monthly premium. Almost all persons entitled to HI choose to enroll in SMI. In 2002, the SMI program provided protection against the costs of physician and other medical services to about 38 million people (33 million aged and 5 million disabled). SMI benefits totaled $111.0 billion in 2002.
The SMI program covers the following services and supplies:
To be covered, all services must be either medically necessary or one of several prescribed preventive benefits. SMI services are generally subject to a deductible and coinsurance (see next section). Certain medical services and related care are subject to special payment rules, including deductibles (for blood), maximum approved amounts (for Medicare-approved physical, speech, or occupational therapy services performed in settings other than hospitals), and higher cost-sharing requirements (such as those for outpatient treatments for mental illness).
It should be noted that some health care services are not covered by Medicare. Noncovered services include long-term nursing care, custodial care, and certain other health care needs, such as dentures and dental care, eyeglasses, hearing aids, and most prescription drugs. These services are not a part of the Medicare program unless they are a part of a private health plan under the Medicare+Choice program.
Medicare+Choice (Part C) is an expanded set of options for the delivery of health care under Medicare. While all Medicare beneficiaries can receive their benefits through the original fee-for-service (FFS) program, most beneficiaries enrolled in both HI and SMI can choose to participate in a Medicare+Choice plan instead. Organizations that seek to contract as Medicare+Choice plans must meet specific organizational, financial, and other requirements. Following are the primary Medicare+Choice plans:
These Medicare+Choice plans are required to provide at least the current Medicare benefit package, excluding hospice services. Plans may offer additional covered services and are required to do so (or return excess payments) if plan costs are lower than the Medicare payments received by the plan.
All financial operations for Medicare are handled through two trust funds, one for the Hospital Insurance (HI) program and one for the Supplementary Medical Insurance (SMI) program. These trust funds, which are special accounts in the U.S. Treasury, are credited with all receipts and charged with all expenditures for benefits and administrative costs. The trust funds cannot be used for any other purpose. Assets not needed for the payment of costs are invested in special Treasury securities. The following sections describe Medicare's financing provisions, beneficiary cost-sharing requirements, and the basis for determining Medicare reimbursements to health care providers.
The HI program is financed primarily through a mandatory payroll tax. Almost all employees and self-employed workers in the United States work in employment covered by the HI program and pay taxes to support the cost of benefits for aged and disabled beneficiaries. The HI tax rate is 1.45 percent of earnings, to be paid by each employee and a matching amount by the employer for each employee, and 2.90 percent for self-employed persons. Beginning in 1994, this tax is paid on all covered wages and self-employment income without limit. (Prior to 1994, the tax applied only up to a specified maximum amount of earnings.) The HI tax rate is specified in the Social Security Act and cannot be changed without legislation.
The HI trust fund also receives income from the following sources: (1) a portion of the income taxes levied on Social Security benefits paid to high-income beneficiaries; (2) premiums from certain persons who are not otherwise eligible and choose to enroll voluntarily; (3) reimbursements from the general fund of the U.S. Treasury for the cost of providing HI coverage to certain aged persons who retired when the HI program began and thus were unable to earn sufficient quarters of coverage (and those federal retirees similarly unable to earn sufficient quarters of Medicare-qualified federal employment); (4) interest earnings on its invested assets; and (5) other small miscellaneous income sources. The taxes paid each year are used mainly to pay benefits for current beneficiaries.
The SMI program is financed through premium payments ($66.60 per beneficiary per month in 2004) and contributions from the general fund of the U.S. Treasury. Beneficiary premiums are generally set at a level that covers 25 percent of the average expenditures for aged beneficiaries. Therefore, the contributions from the general fund of the U.S. Treasury are the largest source of SMI income. The SMI trust fund also receives income from interest earnings on its invested assets, as well as a small amount of miscellaneous income. Beneficiary premiums and general fund payments are redetermined annually, to match estimated program costs for the following year.
Capitation payments to Medicare+Choice plans are financed from the HI and SMI trust funds in proportion to the relative weights of HI and SMI benefits to the total benefits paid by the Medicare program.
Fee-for-service beneficiaries are responsible for charges not covered by the Medicare program and for various cost-sharing aspects of both HI and SMI. These liabilities may be paid (1) by the Medicare beneficiary; (2) by a third party, such as an employer-sponsored retiree health plan or private "Medigap" insurance; or (3) by Medicaid, if the person is eligible. The term "Medigap" is used to mean private health insurance that pays, within limits, most of the health care service charges not covered by Parts A or B of Medicare. These policies, which must meet federally imposed standards, are offered by Blue Cross and Blue Shield (BC/BS) and various commercial health insurance companies.
For beneficiaries enrolled in Medicare+Choice plans, the beneficiary's payment share is based on the cost-sharing structure of the specific plan selected by the beneficiary, since each plan has its own requirements. Most plans have lower deductibles and coinsurance than are required of fee-for-service beneficiaries. Such beneficiaries pay the monthly Part B premium and may, depending on the plan, pay an additional plan premium.
For hospital care covered under HI, a fee-for-service beneficiary's payment share includes a one-time deductible amount at the beginning of each benefit period ($876 in 2004). This deductible covers the beneficiary's part of the first 60 days of each spell of inpatient hospital care. If continued inpatient care is needed beyond the 60 days, additional coinsurance payments ($219 per day in 2004) are required through the 90th day of a benefit period. Each HI beneficiary also has a "lifetime reserve" of 60 additional hospital days that may be used when the covered days within a benefit period have been exhausted. Lifetime reserve days may be used only once, and coinsurance payments ($438 per day in 2004) are required.
For skilled nursing care covered under HI, Medicare fully covers the first 20 days of SNF care in a benefit period. But for days
There are no premiums for most people covered by the HI program. Eligibility is generally earned through the work experience of the beneficiary or of his or her spouse. However, most aged people who are otherwise ineligible for premium-free HI coverage can enroll voluntarily by paying a monthly premium, if they also enroll in SMI. For people with fewer than 30 quarters of coverage as defined by SSA, the 2004 HI monthly premium rate is $343; for those with 30 to 39 quarters of coverage, the rate is reduced to $189. Voluntary coverage upon payment of the HI premium, with or without enrolling in SMI, is also available to disabled individuals for whom cash benefits have ceased due to earnings in excess of those allowed for receiving cash benefits.
For SMI, the beneficiary's payment share includes the following: one annual deductible (currently $100); the monthly premiums; the coinsurance payments for SMI services (usually 20 percent of the medically allowed charges); a deductible for blood; certain charges above the Medicare-allowed charge (for claims not on assignment); and payment for any services that are not covered by Medicare. For outpatient mental health treatment services, the beneficiary is liable for 50 percent of the approved charges.
For HI, before 1983, payments to providers were made on a reasonable cost basis. Medicare payments for most inpatient hospital services are now made under a reimbursement mechanism known as the prospective payment system (PPS). Under PPS, a specific predetermined amount is paid for each inpatient hospital stay, based on each stay's diagnosis-related group (DRG) classification. In some cases the payment the hospital receives is less than the hospital's actual cost for providing the HI-covered inpatient hospital services for the stay; in other cases it is more. The hospital absorbs the loss or makes a profit. Certain payment adjustments exist for extraordinarily costly inpatient hospital stays. Payments for skilled nursing care, home health care, inpatient rehabilitation, and long-term hospital care are made under separate prospective payment systems. Payments for psychiatric hospital care are currently reimbursed on a reasonable cost basis, but a prospective payment system is expected to be implemented in the near future, as required by the Balanced Budget Act (BBA).
For SMI, before 1992, physicians were paid on the basis of reasonable charge. This amount was initially defined as the lowest of (1) the physician's actual charge; (2) the physician's customary charge; or (3) the prevailing charge for similar services in that locality. Beginning January 1992, allowed charges were defined as the lesser of (1) the submitted charges, or (2) the amount determined by a fee schedule based on a relative value scale (RVS). Payments for DME and clinical laboratory services are also based on a fee schedule. Most hospital outpatient services are reimbursed on a prospective payment system, and home health care is reimbursed under the same prospective payment system as HI.
If a doctor or supplier agrees to accept the Medicare-approved rate as payment in full ("takes assignment"), then payments provided must be considered as payments in full for that service. The provider may not request any added payments (beyond the initial annual deductible and coinsurance) from the beneficiary or insurer. If the provider does not take assignment, the beneficiary will be charged for the excess (which may be paid by Medigap insurance). Limits now exist on the excess that doctors or suppliers can charge. Physicians are "participating physicians" if they agree before the beginning of the year to accept assignment for all Medicare services they furnish during the year. Since Medicare beneficiaries may select their doctors, they have the option to choose those who participate.
Medicare payments to Medicare+Choice plans are based on a blend of local and national capitated rates, generally determined by the capitation payment methodology described in section 1853 of the Social Security Act. Actual payments to plans vary based on demographic characteristics of the enrolled population. New "risk adjusters" based on demographics and health status are currently being phased in to better match Medicare capitation payments to the expected costs of individual beneficiaries.
Medicare's HI and SMI fee-for-service claims are processed by non-government organizations or agencies that contract to serve as the fiscal agent between providers and the federal government. These claims processors are known as intermediaries and carriers. They apply the Medicare coverage rules to determine the appropriateness of claims.
Medicare intermediaries process HI claims for institutional services, including inpatient hospital claims, SNFs, HHAs, and hospice services. They also process outpatient hospital claims for SMI. Examples of intermediaries are BC/BS (which utilize their plans in various states) and other commercial insurance companies. Intermediaries' responsibilities include the following:
Medicare carriers handle SMI claims for services by physicians and medical suppliers. Examples of carriers are the BS plans in a state, and various commercial insurance companies. Carriers' responsibilities include the following:
Quality improvement organizations (QIOs; formerly called peer review organizations, or PROs) are groups of practicing health care professionals who are paid by the federal government to generally oversee the care provided to Medicare beneficiaries in each state and to improve the quality of services. QIOs educate other health care professionals and assist in the effective, efficient, and economical delivery of health care services to the Medicare population. The ongoing effort to combat monetary fraud and abuse in the Medicare program was intensified after enactment of the Health Insurance Portability and Accountability Act of 1996 (Public Law
The Department of Health and Human Services (HHS) has the overall responsibility for administration of the Medicare program. Within HHS, responsibility for administering Medicare rests with CMS. SSA assists, however, by initially determining an individual's Medicare entitlement, by withholding Part B premiums from the Social Security benefit checks of beneficiaries, and by maintaining Medicare data on the master beneficiary record, which is SSA's primary record of beneficiaries. The Internal Revenue Service in the Department of the Treasury collects the HI payroll taxes from workers and their employers.
A Board of Trustees, composed of two appointed members of the public and four members who serve by virtue of their positions in the federal government, oversees the financial operations of the HI and SMI trust funds. The Secretary of the Treasury is the managing trustee. The Board of Trustees reports to Congress on the financial and actuarial status of the Medicare trust funds on or about the first day of April each year.
State agencies (usually state Health Departments under agreements with CMS) identify, survey, and inspect provider and supplier facilities and institutions wishing to participate in the Medicare program. In consultation with CMS, these agencies then certify the facilities that are qualified.
The Medicare program covers 95 percent of our nation's aged population, as well as many people who are on Social Security because of disability. In 2002, HI covered about 40 million enrollees with benefit payments of $149.9 billion, and SMI covered about 38 million enrollees with benefit payments of $111.0 billion. Administrative costs were under 2 percent of HI and under 2 percent of SMI disbursements for 2002. Total disbursements for Medicare in 2002 were $265.7 billion.
Note: Medicare enrollment data are based on estimates prepared for the 2003 annual report of the Medicare Board of Trustees to Congress. Medicare benefits, administrative costs, and total disbursements for 2002 are actual amounts for the calendar year, as reported by the Department of the Treasury.
CONTACT: Clare McFarland
1965. Individual aged 65 or older entitled to monthly benefits under the Social Security or Railroad Retirement program, or aged 65 before 1968, or 3 quarters of coverage (QC) after 1965 and before attainment of age 65.
1967. 3 QC for each year after 1966 and before attainment of age 65.
1972. Disabled individual, under age 65, entitled to disability benefits for 24 consecutive months under the Social Security or Railroad Retirement program (excludes spouses and children of disabled individuals). Individual under age 65 who has end stage renal disease (ESRD) and who is either fully or currently insured, or is entitled to monthly benefits under the Social Security or Railroad Retirement program or is the spouse or dependent child of such an insured individual or beneficiary. Entitlement begins on the first day of the third month following the initiation of a course of renal dialysis and ends with the 12th month following the month in which either the dialysis terminates or the individual has a renal transplant.
Individual aged 65 or older enrolled in the SMI program who is not otherwise entitled to HI benefits, upon voluntary participation with payment of Hospital Insurance premium.
1980. Individual who would be entitled to monthly benefits under the Social Security or Railroad Retirement program if application were made.
Disabled individual under age 65 entitled to disability benefits for at least 24 months, not necessarily consecutive, under the Social Security or Railroad Retirement program.
Medicare coverage extended for up to 36 months for disabled individuals whose disability continues, but whose monthly benefit ceased because they engaged in substantial gainful activity.
Second waiting period eliminated if a former disabled-worker beneficiary becomes entitled again within 5 years (7 years for disabled widows and widowers and disabled children aged 18 or older).
1982. Federal employees covered under HI based on QC for earnings as federal employees and/or based on deemed QC for earnings as federal employees before 1983.
1983. Employees of nonprofit organizations, effective January 1, 1984.
1986. Mandatory coverage for state and local government employees not covered under Social Security and hired after March 31, 1986.
1987. Second waiting period eliminated if a former disabled beneficiary becomes entitled again (no time limit).
1989. Disabled individuals under age 65 who are no longer entitled to Social Security disability benefits because their earnings exceeded the substantial gainful activity level have the option to purchase Medicare coverage by paying the HI and SMI premiums.
2000. The
1965. U.S. resident (citizen or lawfully admitted alien with 5 years continuous residence) aged 65 or older or any individual entitled to HI benefits, upon voluntary participation with payment of SMI premium.
1972. Individual under age 65 entitled to HI benefits, upon voluntary participation with payment of SMI premium.
1965. Requires that Medicare be secondary payer to benefits provided by liability insurance policies or under no-fault insurance.
1981. Requires that Medicare be secondary payer to employer-based group health plans for beneficiaries entitled to Medicare solely due to end stage renal disease (ESRD) for up to 12 months.
1982. For workers and their spouses aged
Health maintenance organizations (HMOs) will be authorized as providers of benefits. The Secretary of Health and Human Services must certify the prospective payment mechanism for HMOs before implementation.
1984. Medicare secondary payer provisions are extended to spouses aged
For HMOs, includes medical and other health services furnished by clinical psychologists.
1985. Provides payment for liver transplant services.
1986. Extends the working age secondary payer provision to cover workers and their spouses beyond age 69.
For HMOs that offered organ transplants as a basic health service on April 15, 1985, such services may be offered from October 1, 1985, through April 1, 1988.
For disabled individuals who are covered by employer-based health plans (with at least 100 employees), Medicare is the secondary payer, effective for 1987–1991.
1987. Requires HMOs/competitive medical plans that cease to contract with Medicare to provide or arrange supplemental coverage of benefits related to preexisting conditions for the lesser of 6 months or the duration of an exclusion period.
Specifies in law that in order to be eligible for home health care, a Medicare beneficiary must have a restricted ability to leave the home, requiring the assistance of another or the aid of a supportive device (such as crutches, a cane, a wheelchair, or a walker).
Clarifies that the secondary payer provision for disabled individuals covered under employer-based health plans for employers with at least 500 employees applies to employers who are government entities.
1990. Requires that Medicare be the secondary payer to employer-based group health plans for beneficiaries entitled to Medicare solely due to ESRD for up to 18 months (extended from 12 months), effective February 1, 1991, to January 1, 1996.
The secondary payer provision for disabled beneficiaries covered under large employer plans (see 1986); effective through September 30, 1995.
1993. The secondary payer provision for disabled beneficiaries covered under large employer plans is effective through September 30, 1998.
The secondary payer provision for beneficiaries with ESRD applies to all beneficiaries with end stage renal disease, not only those entitled to Medicare solely on the basis of it. The extension to include the first 18 months of an individual's entitlement on the basis of ESRD is effective through September 30, 1998.
1997. Established an expanded set of options for the delivery of health care under Medicare, referred to as Medicare+Choice. All Medicare beneficiaries can receive their Medicare benefits through the original fee-for-service program. In addition, most beneficiaries can choose instead to receive their Medicare benefits through one of the following Medicare+Choice plans: (1) coordinated care plans (such as HMOs, provider-sponsored organizations, and preferred provider organizations); (2) Medical Savings Account (MSA)/High Deductible plans (through a demonstration available for up to 390,000 beneficiaries); or (3) private fee-for-service plans. Except for MSA plans, all Medicare+Choice plans are required to provide the current Medicare benefit package (excluding hospice services) and any additional health services required under the adjusted community rate (ACR) process. MSA plans provide Medicare benefits after a single high deductible is met, and enrollees receive an annual deposit in their Medical Savings Account. Transition rules for current Medicare HMO program also provided.
The provision making Medicare the secondary payer for disabled beneficiaries covered under large employer plans, previously scheduled to expire September 30, 1998, made permanent.
The provision making Medicare secondary payer for the first 12 months of entitlement due to ESRD, which had been extended on a temporary basis (through September 30, 1998) to include the first 18 months of entitlement, has been extended, permanently, to include the first 30 months of entitlement on the basis of ESRD.
1965. In each benefit period, inpatient hospital services, 90 days. Includes semiprivate accommodations, operating room, hospital equipment (including renal dialysis), laboratory tests and X-ray, drugs, dressings, general nursing services, and services of interns and residents in medical osteopathic or dentistry training. Inpatient psychiatric hospital care limited to
1967. Lifetime reserve of 60 additional days of inpatient hospital services. Outpatient hospital diagnostic services transferred to SMI.
1972. Services of interns and residents in podiatry training.
1980. Unlimited home health visits in a year. Requirement for prior hospitalization eliminated. Home health services provided for up to 4 days a week and up to 21 consecutive days.
Alcohol detoxification facility services.
1981. Part A coinsurance is based on the deductible for the calendar year in which services are received rather than the deductible in effect at the time the beneficiary's spell of illness began, starting in 1982.
Alcohol detoxification facility services eliminated.
1982. Beneficiaries expected to live 6 months or less may elect to receive hospice care benefits instead of other Medicare benefits. May elect maximum of two
1984. For durable medical equipment provided by home health agencies, the payment amount is reduced from 100 percent of costs to 80 percent of reasonable charges.
1986. Set the Part A deductible for 1987 at $520 with resulting increases in cost sharing. Increased the Part A deductible annually by the applicable percentage increase in the hospital prospective payment rates.
Hospice care benefit (enacted in 1982) made permanent.
1987. Specifies in law that in order to be eligible for home health care, a Medicare beneficiary must have a restricted ability to leave the home, requiring the assistance of another or the aid of a supportive device (such as crutches, a cane, a wheelchair, or a walker).
1988. Enrollee pays annual hospital deductible (set at $560 for 1989) and Medicare pays balance of covered charges, regardless of the number of days of hospitalization (except for psychiatric hospital care, which is still limited by
The number of days in a skilled nursing facility changed to 150 per year. Deletes the requirement for a prior hospital stay of 3 or more consecutive days.
Expands home health care to provide care for less than 7 days per week and up to 38 consecutive days.
Hospice care extended beyond 210 days when beneficiary is certified as terminally ill.
All 1988 provisions became effective January 1, 1989.
1989. The spell of illness and benefit period coverage of laws prior to 1988 return to the determination of inpatient hospital benefits in 1990 and later. After the deductible is paid in benefit period, Medicare pays 100 percent of covered costs for the first 60 days of inpatient hospital care. Coinsurance applies for the next 30 days in a benefit period.
The requirement for a prior hospital stay of 3 or more consecutive days is reinstated for skilled nursing facility services. Coverage returns to 100 days post-hospital care per spell of illness with a daily coinsurance rate in effect for days 21 through 100.
Home health services return to a limit of 21 consecutive days of care. Provision providing for home health care for fewer than 7 days per week continued due to a court decision.
Hospice care is returned to a lifetime limit of 210 days.
1990. Hospice care is extended beyond 210 days when beneficiary is certified as terminally ill.
1997. Home health services not associated with a hospital or skilled nursing facility stay for individuals enrolled in both HI and SMI are transferred from the HI program to the SMI program, effective January 1998. The HI program will continue to cover the first 100 visits following a hospital stay of at least 3 consecutive days or a skilled-nursing facility stay. The cost to the SMI trust fund of the transferred services will phase in over a
Limits on the number of hours and days that home health care can be provided have been clarified. "Part time" now defined as skilled nursing and home health aide services (combined) furnished any number of days per week, for less than 8 hours per day and 28 or fewer hours per week. "Intermittent" now defined as skilled nursing care provided for fewer than 7 days each week, or less than 8 hours each day (combined) for 21 days or less.
Hospice benefit periods are restructured to include two
Medicare coverage provided for a number of prevention initiatives, most of which covered under SMI program. HI program affected mainly by two of the initiatives: (1) annual prostate cancer screening for male beneficiaries aged 50 or older, effective January 1, 2000; and (2) colorectal screening procedures, including fecal-occult blood tests and flexible sigmoidoscopies, for beneficiaries age 50 or older, colonoscopy for beneficiaries at high risk for colorectal cancer, and other procedures, including screening barium enemas under certain circumstances.
2000. The homebound benefit is clarified to specify that beneficiaries who require home health services may attend adult day-care for therapeutic, psychosocial, or medical treatment and still remain eligible for the home health benefit. Homebound beneficiaries may also attend religious services without being disqualified from receiving home health benefits.
Effective July 1, 2001, the
There were no changes in 2001 affecting beneficiaries.
1965. Physician and surgeon services. In-hospital services of anesthesiologists, pathologists, radiologists, and psychiatrists. Limited dental services. Home health services, 100 visits in calendar year. Other medical services including various diagnostic tests, limited ambulance services, prosthetic devices, rental of durable medical equipment used at home (including equipment for dialysis), and supplies used for fractures. For deductible and coinsurance provisions, see Table 2.C1.
Beginning in 1966, the beneficiary pays a $50 deductible, with a
1967. Outpatient hospital diagnostic services transferred from HI. Includes physical therapy services in a facility. Purchase of durable medical equipment.
1972. Physical therapy services furnished by a therapist in his or her office or individual's home (calendar year limit of $100). Chiropractor services (limited to manual manipulation of the spine). Outpatient services include speech pathology services furnished in, or under arrangements with, a facility or agency. Services of a doctor of optometry in furnishing prosthetic lenses.
Beginning in 1973, the beneficiary pays a $60 deductible.
1977. Services in rural health clinics.
1980. Home health services. Deductible applicable to home health services is eliminated, effective July 1, 1981.
Facility costs of certain surgical procedures performed in freestanding ambulatory surgical centers.
Increase in annual limit for outpatient therapy from $100 to $500.
Recognizes comprehensive outpatient rehabilitation facilities as Medicare providers.
1981. Beginning in 1982, the beneficiary pays a $75 deductible, with the carryover provision eliminated.
1984. Hepatitis B and pneumococcal vaccines and blood clotting factors and necessary supplies are included as Part B benefits. Debridement of mycotic toenails is limited.
For outpatient physical therapy services, includes services of a podiatrist. For outpatient ambulatory surgery, includes services of a dentist and podiatrist furnished in his or her office.
1986. Includes vision care services furnished by an optometrist.
For occupational therapy services, includes services furnished in a skilled nursing facility (when Part A coverage has been exhausted), in a clinic, rehabilitation agency, public health agency, or by an independently practicing therapist.
Includes outpatient (in addition to previously covered inpatient) immunosuppressive drugs for 1 year after covered transplant.
Includes occupational therapy services provided in certain delivery settings.
For ambulatory surgical procedures performed in ambulatory surgical centers, hospital outpatient departments, and certain physician offices, the Part B coinsurance and deductible are no longer waived.
1987. Increases the maximum payment for mental health services and includes outpatient mental health services provided by ambulatory hospital-based or hospital- affiliated programs under the supervision of a physician.
Services provided by clinical social workers when furnished by risk-sharing health maintenance organizations/competitive medical plans, physician assistants in rural health manpower shortage areas, clinical psychologists in rural health clinics and community mental health centers, and certified nurse-midwives.
Coverage of outpatient immunosuppressive drugs (see 1986) is broadened/clarified to include prescription drugs used in immunosuppressive therapy.
Specifies in law that in order to be eligible for home health care, a Medicare beneficiary must have a restricted ability to leave the home, requiring the assistance of another or the aid of a supportive device (such as crutches, a cane, a wheelchair, or a walker).
1988. Beginning January 1, 1990, the beneficiary pays a $75 deductible and
Beginning in 1991, Medicare pays 50 percent of the cost of outpatient prescription drugs above $600. When fully implemented in 1993, Medicare will pay 80 percent of prescription drug costs above a deductible that assumes that 16.8 percent of Part B enrollees will exceed the deductible.
Certain prescription drugs administered in an outpatient or home setting, including immunosuppressive drugs (previously covered for 1 year after a covered transplant), home intravenous drugs, and certain others, will be covered in 1990 under a new prescription drug provision.
1989. Provisions enacted in 1988 and to begin in 1990 and 1991 are repealed and benefits are restored to levels in effect prior to January 1, 1989.
Limits on mental health benefits eliminated in 1990. Coverage extended to services of clinical psychologists and social workers.
The annual payment limits of $500 per beneficiary for outpatient physical therapy services and outpatient occupational therapy services, each, are raised to $750, for 1990 and later. (See 1980.)
1990. Beginning in 1991, routine mammography screenings are covered.
The Part B deductible is set at $100 in 1991 and subsequent years.
Beginning in 1992, physicians' services are reimbursed on a fee-schedule basis.
1993. Includes coverage of oral, self-administered anticancer drugs.
Lengthens the coverage period for immunosuppressive drugs after a transplant to 18 months in 1995, 24 months in 1996, 30 months in 1997, and 36 months thereafter. (See 1986.)
The annual payment limits of $750 per beneficiary for outpatient physical therapy services and outpatient occupational therapy services, each, are raised to $900 for 1994 and later. (See 1989.)
1997. Home health services not associated with a hospital or skilled nursing facility stay for individuals enrolled in both HI and SMI are transferred from the HI program to the SMI program, effective January 1998. The HI program will continue to cover the first 100 visits following a hospital stay of at least 3 consecutive days or a skilled nursing facility stay. The cost to the SMI trust fund of the transferred services will phase in over a
Coverage provided for a number of prevention initiatives, including (1) annual screening mammograms for female beneficiaries age 40 or older, with SMI deductive waived; (2) screening pap smear and pelvic exam (including clinical breast exam) every 3 years or annually for beneficiaries at higher risk, with SMI deductible waived; (3) annual prostate cancer screening for male beneficiaries aged 50 or older, effective January 1, 2000; (4) colorectal screening procedures, including fecal-occult blood tests and flexible sigmoidoscopies, for beneficiaries aged 50 or older, colonoscopy for beneficiaries at high risk for colorectal cancer, and other procedures, including screening barium enemas under certain circumstances; (5) diabetes outpatient self-management training in nonhospital-based programs (previously covered in hospital-based programs only) and blood glucose monitors and testing strips for all diabetics (previously provided for insulin-dependent diabetics only), effective July 1, 1998; (6) procedures to identify bone mass, detect bone loss, or determine bone quality for certain qualified beneficiaries, at frequencies determined by the Secretary of HHS, effective July 1, 1998.
Beginning January 1999, an annual beneficiary limit of $1,500 will apply to all outpatient physical therapy services, except for services furnished by a hospital outpatient department. A separate $1,500 limit will also apply to outpatient occupational therapy services, except for services furnished by hospital outpatient departments. Beginning with 2002, these caps will be increased by the percentage increase in the Medical Economic Index. (See 1993.)
1999. The coverage period for immunosuppressive drugs after a transplant is lengthened to 44 months, for individuals who exhaust their 36 months of coverage in 2000. For those exhausting their 36 months of coverage in 2001, at least 8 more months will be covered. (The Secretary of HHS will specify the increase, if any, beyond 8 months.) For those exhausting their 36 months of coverage in 2002, 2003, or 2004, the number of additional months may be more or less than 8. (The Secretary will specify the increase for each of these years.) (See 1993.)
The annual payment limits of $1,500 per beneficiary for outpatient physical services and outpatient occupational therapy services, each, for services furnished by independent practitioners (that is, not by a hospital outpatient department), are suspended for 2000 and 2001. (See 1997.)
2000. Coverage for screening pap smears and pelvic exams (including a clinical breast exam) is provided every 2 years (increased from every 3 years) beginning July 1, 2001. (Annual coverage continues for beneficiaries at higher risk, and SMI deductible continues to be waived.) (See 1997.)
Annual coverage of glaucoma screenings is provided for certain high-risk beneficiaries, effective January 1, 2002.
Screening colonoscopies are covered for all beneficiaries, not just those at high risk, beginning July 1, 2001. For persons not at high risk, a screening colonoscopy is covered 10 years after a previous one, or 4 years after a screening flexible sigmoidoscopy. (See 1997.)
Coverage is provided for medical nutrition therapy services under certain circumstances for beneficiaries who have diabetes or a renal disease, effective January 1, 2002.
The amount of a beneficiary's copayment for a procedure in a hospital outpatient department is limited, beginning April 1, 2001, to the hospital inpatient deductible applicable for that year. Also, the Secretary of HHS must reduce the effective copayment rate for outpatient services to a maximum rate of 57 percent in 2001 (for services received after April 1); 55 percent in 2002 and 2003; 50 percent in 2004; 45 percent in 2005; and 40 percent in 2006 and later.
Time and budget limitations are removed on the coverage of immunosuppressive drugs, making coverage of these drugs a permanent benefits for beneficiaries who have received a covered organ transplant. (See 1999.)
The annual payment limits of $1,500 per beneficiary for outpatient physical therapy services and outpatient occupational therapy services, each, for services provided by independent practitioners (that is, not by a hospital outpatient department), which were suspended for 2000 and 2001, are also suspended for 2002. (See 1999.)
The homebound benefit is clarified to specify that beneficiaries who require home health services may attend adult day-care for therapeutic, psychosocial, or medical treatment and still remain eligible for the home health benefit. Homebound beneficiaries may also attend religious services without being disqualified from receiving home health benefits.
Effective July 1, 2001, the
There were no changes in 2001 affecting beneficiaries.
See Table 2.A3.
1965. For HI costs attributable to transitionally insured beneficiaries.
For HI costs attributable to noncontributory wage credits granted for military service prior to 1957 (see Table 2.A2).
For the SMI program, an amount equal to participant premiums.
1972. For cost of SMI not met by enrollee premiums.
1982. For HI costs attributable to beneficiaries having transitional entitlement based on Medicare-qualified federal employment.
1983. For HI taxes on noncontributory wage credits granted for military service (a) from the inception of HI program through 1983 and (b) on a current basis, annually, beginning in 1984 (see Table 2.A2).
See also Table 2.C1.
1965. SMI enrollee premium rate (originally $3 per month) to be established annually such as to pay one-half of program costs.
1972. SMI enrollee premium rate increase limited to rate of increase in OASDI cash benefits.
HI premium (originally $33 per month) to be established annually. Only individuals not otherwise entitled to HI but desiring voluntary participation need to pay the HI premium.
1983. SMI enrollee premiums for July 1983 to December 31, 1983, frozen at premium level of June 30, 1983. Premiums for January 1, 1984, to December 31, 1985, set to cover 25 percent of aged program costs.
1984. SMI enrollee premiums for January 1, 1986, to December 31, 1987, will be set to cover 25 percent of aged program costs. Increases in the SMI premium may not exceed the dollar amount of the Social Security cost-of-living adjustment.
For calculating the amount of SMI premium surcharge for individuals from age 65 up to age 70 not previously enrolled in SMI, the number of years an individual did not enroll because of coverage by employer group health insurance will not be taken into account.
1985. Extends through calendar year 1988 the requirement that SMI premiums be set to cover 25 percent of aged program costs and that increases in the SMI premium may not exceed the dollar amount of the Social Security cost-of-living adjustment.
Premium-paying individuals who do not purchase Part A coverage within a specific time after becoming eligible because of age are subject to a
1987. Extends through calendar year 1989 the provisions requiring that the SMI premium be set to cover 25 percent of aged program costs, prohibiting any increase in the premium if there is no Social Security cost-of-living adjustment, and continuing to hold beneficiaries harmless from Social Security check reductions as a result of a premium increase.
1988. Increases in the SMI premium may not exceed the dollar amount of the Social Security cost-of-living adjustments for 1989 and beyond.
1989. Extends through calendar year 1990 the requirement that SMI premiums be set to cover 25 percent of aged program costs.
1990. The SMI premium are $29.90 in 1991; $31.80 in 1992; $36.60 in 1993; $41.10 in 1994; and $46.10 in 1995.
1993. SMI enrollee premiums for January 1, 1996, to December 31, 1998, will be set to cover 25 percent of aged program costs.
1997. The SMI premium is permanently set at 25 percent of program costs.
1993. The additional income tax revenues resulting from the increase in the taxable percentage applicable to OASDI benefits (an increase from 50 percent to 85 percent, see Table 2.A31) are transferred to the HI trust fund.
1981. See Table 2.A6.
1983. See Table 2.A6.
CONTACT: Clare McFarland
The following are brief summaries of complex subjects. They should be used only as overviews and general guides to the Medicare and Medicaid programs. The views expressed herein do not necessarily reflect the policies or legal positions of the Centers for Medicare & Medicaid Services or the Department of Health and Human Services (DHHS). These summaries do not render any legal, accounting, or other professional advice, nor are they intended to explain fully all of the provisions or exclusions of the relevant laws, regulations, and rulings of the Medicare and Medicaid programs. Original sources of authority should be researched and utilized.
Title XIX of the Social Security Act is a federal/state entitlement program that pays for medical assistance for certain individuals and families with low incomes and resources. This program, known as Medicaid, became law in 1965 as a cooperative venture jointly funded by the federal and state governments (including the District of Columbia and the Territories) to assist states in furnishing medical assistance to eligible needy persons. Medicaid is the largest source of funding for medical and health-related services for America's poorest people.
Within broad national guidelines established by federal statutes, regulations, and policies, each state (1) establishes its own eligibility standards; (2) determines the type, amount, duration, and scope of services; (3) sets the rate of payment for services; and (4) administers its own program. Medicaid policies for eligibility, services, and payment are complex and vary considerably, even among states of similar size or geographic proximity. Thus, a person who is eligible for Medicaid in one state may not be eligible in another state, and the services provided by one state may differ considerably in amount, duration, or scope from services provided in a similar or neighboring state. In addition, state legislatures may change Medicaid eligibility, services, or reimbursement during the year.
Medicaid does not provide medical assistance for all poor persons. Under the broadest provisions of the federal statute, Medicaid does not provide health care services even for very poor persons unless they are in one of the groups designated below. Low income is only one test for Medicaid eligibility for those within these groups; their resources also are tested against threshold levels (as determined by each state within federal guidelines).
States generally have broad discretion in determining which groups their Medicaid programs will cover and the financial criteria for Medicaid eligibility. To be eligible for federal funds, however, states are required to provide Medicaid coverage for certain individuals who receive federally assisted income-maintenance payments, as well as for related groups not receiving cash payments. In addition to their Medicaid programs, most states have additional "state-only" programs to provide medical assistance for specified poor persons who do not qualify for Medicaid. Federal funds are not provided for state-only programs. The following enumerates the mandatory Medicaid "categorically needy" eligibility groups for which federal matching funds are provided:
States also have the option of providing Medicaid coverage for other "categorically related" groups. These optional groups share characteristics of the mandatory groups (that is, they fall within defined categories), but the eligibility criteria are somewhat more liberally defined. The broadest optional groups for which states will receive federal matching funds for coverage under the Medicaid program include the following:
The medically needy (MN) option allows states to extend Medicaid eligibility to additional persons. These persons would be eligible for Medicaid under one of the mandatory or optional groups, except that their income and/or resources are above the eligibility level set by their state. Persons may qualify immediately or may "spend down" by incurring medical expenses that reduce their income to or below their state's MN income level.
Medicaid eligibility and benefit provisions for the medically needy do not have to be as extensive as for the categorically needy, and may be quite restrictive. Federal matching funds are available for MN programs. However, if a state elects to have a MN program, there are federal requirements that certain groups and certain services must be included; that is, children under age 19 and pregnant women who are medically needy must be covered, and prenatal and delivery care for pregnant women, as well as ambulatory care for children, must be provided. A state may elect to provide MN eligibility to certain additional groups and may elect to provide certain additional services within its MN program. As of August 2002, 36 states have elected to have a MN program and are providing at least some MN services to at least some MN beneficiaries. All remaining states utilize the "special income level" option to extend Medicaid to the "near poor" in medical institutional settings.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Public Law
In addition, welfare reform repealed the open-ended federal entitlement program known as Aid to Families with Dependent Children (AFDC) and replaced it with Temporary Assistance for Needy Families (TANF), which provides states with grants to be spent on time-limited cash assistance. TANF generally limits a family's lifetime cash welfare benefits to a maximum of 5 years and permits states to impose a wide range of other requirements as well—in particular, those related to employment. However, the impact on Medicaid eligibility is not expected to be significant. Under welfare reform, persons who would have been eligible for AFDC under the AFDC requirements in effect on July 16, 1996 generally will still be eligible for Medicaid. Although most persons covered by TANF will receive Medicaid, it is not required by law.
Title XXI of the Social Security Act, known as the State Children's Health Insurance Program (SCHIP), is a new program initiated by the BBA. In addition to allowing states to craft or expand an existing state insurance program, SCHIP provides more federal funds for states to expand Medicaid eligibility to include a greater number of children who are currently uninsured. With certain exceptions, these are low-income children who would not qualify for Medicaid based on the plan that was in effect on April 15, 1997. Funds from SCHIP also may be used to provide medical assistance to children during a presumptive eligibility period for Medicaid. This is one of several options from which states may select to provide health care coverage for more children, as prescribed within the BBA's Title XXI program.
Medicaid coverage may begin as early as the third month prior to application—if the person would have been eligible for Medicaid had he or she applied during that time. Medicaid coverage generally stops at the end of the month in which a person no longer meets the criteria of any Medicaid eligibility group. The BBA allows states to provide 12 months of continuous Medicaid coverage (without reevaluation) for eligible children under the age of 19.
The Ticket to Work and Work Incentives Improvement Act of 1999 (Public Law
Title XIX of the Social Security Act allows considerable flexibility within the states' Medicaid plans. However, some federal requirements are mandatory if federal matching funds are to be received. A state's Medicaid program must offer medical assistance for certain basic services to most categorically needy populations. These services generally include the following:
States may also receive federal matching funds to provide certain optional services. Following are the most common of the 34 currently approved optional Medicaid services:
The BBA included a state option known as Programs of All-inclusive Care for the Elderly (PACE). PACE provides an alternative to institutional care for persons aged 55 or older who require a nursing facility level of care. The PACE team offers and manages all health, medical, and social services and mobilizes other services as needed to provide preventive, rehabilitative, curative, and supportive care. This care, provided in day health centers, homes, hospitals, and nursing homes, helps the person maintain independence, dignity, and quality of life. PACE functions within the Medicare program as well. Regardless of source of payment, PACE providers receive payment only through the PACE agreement and must make available all items and services covered under both Titles XVIII and XIX, without amount, duration, or scope limitations and without application of any deductibles, copayments, or other cost sharing. The individuals enrolled in PACE receive benefits solely through the PACE program.
Within broad federal guidelines and certain limitations, states determine the amount and duration of services offered under their Medicaid programs. States may limit, for example, the number of days of hospital care or the number of physician visits covered. Two restrictions apply: (1) limits must result in a sufficient level of services to reasonably achieve the purpose of the benefits; and (2) limits on benefits may not discriminate among beneficiaries based on medical diagnosis or condition.
In general, states are required to provide comparable amounts, duration, and scope of services to all categorically needy and categorically related eligible persons. There are two important exceptions: (1) Medically necessary health care services that are identified under the EPSDT program for eligible children, and that are within the scope of mandatory or optional services under federal law, must be covered even if those services are not included as part of the covered services in that state's Plan; and (2) states may request "waivers" to pay for otherwise uncovered home and community-based services (HCBS) for Medicaid-eligible persons who might otherwise be institutionalized. As long as the services are cost effective, states have few limitations on the services that may be covered under these waivers (except that, other than as a part of respite care, states may not provide room and board for the beneficiaries). With certain exceptions, a state's Medicaid program must allow beneficiaries to have some informed choices among participating providers of health care and to receive quality care that is appropriate and timely.
Medicaid operates as a vendor payment program. States may pay health care providers directly on a fee-for-service basis, or states may pay for Medicaid services through various prepayment arrangements, such as health maintenance organizations (HMOs). Within federally imposed upper limits and specific restrictions, each state for the most part has broad discretion in determining the payment methodology and payment rate for services. Generally, payment rates must be sufficient to enlist enough providers so that covered services are available at least to the extent that comparable care and services are available to the general population within that geographic area. Providers participating in Medicaid must accept Medicaid payment rates as payment in full. States must make additional payments to qualified hospitals that provide inpatient services to a disproportionate number of Medicaid beneficiaries and/or to other low-income or uninsured persons under what is known as the "disproportionate share hospital" (DSH) adjustment. During 1988–1991, excessive and inappropriate use of the DSH adjustment resulted in rapidly increasing federal expenditures for Medicaid. Under legislation passed in 1991, 1993, and again within the BBA of 1997, the federal share of payments to DSH hospitals was somewhat limited. However, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Public Law
States may impose nominal deductibles, coinsurance, or copayments on some Medicaid beneficiaries for certain services. The following Medicaid beneficiaries, however, must be excluded from cost sharing: pregnant women, children under age 18, and hospital or nursing home patients who are expected to contribute most of their income to institutional care. In addition, all Medicaid beneficiaries must be exempt from copayments for emergency services and family planning services.
The federal government pays a share of the medical assistance expenditures under each state's Medicaid program. That share, known as the Federal Medical Assistance Percentage (FMAP), is determined annually by a formula that compares the state's average per capita income level with the national income average. States with a higher per capita income level are reimbursed a smaller share of their costs. By law, the FMAP cannot be lower than 50 percent or higher than 83 percent. In fiscal year (FY) 2003, the FMAPs varied from 50 percent in twelve states to 76.62 percent in Mississippi, and averaged 56.6 percent overall. The BBA also permanently raised the FMAP for the District of Columbia from 50 percent to 70 percent and raised the FMAP for Alaska from 50 percent to 59.8 percent through 2000. The BIPA of 2000 further adjusted Alaska's FMAP to a higher level for FY 2001–2005. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (Public Law
The federal government also reimburses states for 100 percent of the cost of services provided through facilities of the Indian Health Service, provides financial help to the twelve states that furnish the highest number of emergency services to undocumented aliens, and shares in each state's expenditures for the administration of the Medicaid program. Most administrative costs are matched at 50 percent, although higher percentages are paid for certain activities and functions, such as development of mechanized claims processing systems.
Except for the SCHIP program, the Qualifying Individuals (QI) program (described later), and DSH payments, federal payments to states for medical assistance have no set limit (cap). Rather, the federal government matches (at FMAP rates) state expenditures for the mandatory services, as well as for the optional services that the individual state decides to cover for eligible beneficiaries, and matches (at the appropriate administrative rate) all necessary and proper administrative costs. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (as incorporated into Public Law
Medicaid was initially formulated as a medical care extension of federally funded programs providing cash income assistance for the poor, with an emphasis on dependent children and their mothers, the disabled, and the elderly. Over the years, however, Medicaid eligibility has been incrementally expanded beyond its original ties with eligibility for cash programs. Legislation in the late 1980s assured Medicaid coverage to an expanded number of low-income pregnant women, poor children, and to some Medicare beneficiaries who are not eligible for any cash assistance program. Legislative changes also focused on increased access, better quality of care, specific benefits, enhanced outreach programs, and fewer limits on services.
In most years since its inception, Medicaid has had very rapid growth in expenditures. This rapid growth has been due primarily to the following factors:
As with all health insurance programs, most Medicaid beneficiaries incur relatively small average expenditures per person each year, and a relatively small proportion incurs very large costs. Moreover, the average cost varies substantially by type of beneficiary. National data for 2000, for example, indicate that Medicaid payments for services for 21.6 million children, who constitute 50 percent of all Medicaid beneficiaries, average about $1,290 per child (a relatively small average expenditure per person). Similarly, for 9.6 million adults, who comprise 22 percent of beneficiaries, payments average about $1,930 per person. However, certain other specific groups have much larger per-person expenditures. Medicaid payments for services for 4.1 million aged, constituting 10 percent of all Medicaid beneficiaries, average about $11,345 per person; for 7.5 million disabled, who comprise 18 percent of beneficiaries, payments average about $10,040 per person. When expenditures for these high- and lower-cost beneficiaries are combined, the 2000 payments to health care vendors for 42.8 million Medicaid beneficiaries average $3,935 per person.
Long-term care is an important provision of Medicaid that will be increasingly utilized as our nation's population ages. The Medicaid program paid for over 41 percent of the total cost of care for persons using nursing facility or home health services in 2001. National data for 2000 show that Medicaid payments for nursing facility services (excluding ICFs/MR) totaled $34.4 billion for more than 1.7 million beneficiaries of these services—an average expenditure of $20,220 per nursing home beneficiary. The national data also show that Medicaid payments for home health services totaled $3.1 billion for more than 995,000 beneficiaries—an average expenditure of $3,135 per home health care beneficiary. With the percentage of our population who are elderly or disabled increasing faster than that of the younger groups, the need for long-term care is expected to increase.
Another significant development in Medicaid is the growth in managed care as an alternative service delivery concept different from the traditional fee-for-service system. Under managed care systems, HMOs, prepaid health plans (PHPs), or comparable entities agree to provide a specific set of services to Medicaid enrollees, usually in return for a predetermined periodic payment per enrollee. Managed care programs seek to enhance access to quality care in a cost-effective manner. Waivers may provide the states with greater flexibility in the design and implementation of their Medicaid managed care programs. Waiver authority under sections
More than 42.8 million persons received health care services through the Medicaid program in FY 2000 (the last year for which beneficiary data are available). In FY 2002, total outlays for the Medicaid program (federal and state) were $258.2 billion, including direct payment to providers of $185.8 billion, payments for various premiums (for HMOs, Medicare, etc.) of $45.1 billion, payments to disproportionate share hospitals of $15.4 billion, and administrative costs of $11.9 billion. Outlays under the SCHIP program in FY 2002 were $5.4 billion. With no changes to either program, expenditures under Medicaid and SCHIP are projected to reach $425 billion and $7.5 billion, respectively, by FY 2008.
Medicare beneficiaries who have low incomes and limited resources may also receive help from the Medicaid program. For such persons who are eligible for full Medicaid coverage, the Medicare health care coverage is supplemented by services that are available under their state's Medicaid program, according to eligibility category. These additional services may include, for example, nursing facility care beyond the
Certain other Medicare beneficiaries may receive help with Medicare premium and cost-sharing payments through their state Medicaid program. Qualified Medicare Beneficiaries (QMBs) and Specified Low-Income Medicare Beneficiaries (SLMBs) are the best-known categories and the largest in numbers. QMBs are those Medicare beneficiaries who have resources at or below twice the standard allowed under the SSI program, and incomes at or below 100 percent of the FPL. For QMBs, Medicaid pays the Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) premiums and the Medicare coinsurance and deductibles, subject to limits that states may impose on payment rates. SLMBs are Medicare beneficiaries with resources like the QMBs, but with incomes that are higher, though still less than 120 percent of the FPL. For SLMBs, the Medicaid program pays only the SMI premiums. A third category of Medicare beneficiaries who may receive help consists of disabled and working individuals. According to the Medicare law, disabled and working individuals who previously qualified for Medicare because of disability, but who lost entitlement because of their return to work (despite the disability), are allowed to purchase Medicare HI and SMI coverage. If these persons have incomes below 200 percent of the FPL but do not meet any other Medicaid assistance category, they may qualify to have Medicaid pay their HI premiums as Qualified Disabled and Working Individuals (QDWIs).
For Medicare beneficiaries with incomes that are above 120 percent and less than 175 percent of the FPL, the BBA establishes a capped allocation to states, for each of the 5 years beginning January 1998, for payment of all or some of the Medicare SMI premiums. These beneficiaries are known as Qualifying Individuals (QIs). Unlike QMBs and SLMBs, who may be eligible for other Medicaid benefits in addition to their QMB/SLMB benefits, the QIs cannot be otherwise eligible for medical assistance under a state plan. The payment of this QI benefit is 100 percent federally funded, up to the state's allocation.
CMS estimates that Medicaid currently provides some level of supplemental health coverage for about 6.5 million Medicare beneficiaries.
Note: Medicaid data are based on the projections of the Mid-Session Review of the President's Fiscal Year 2004 Budget and are consistent with data received from the states on the Forms
CONTACT: Earl Dirk Hoffman, Jr.
Through federal and state cooperation, unemployment insurance programs are designed to provide benefits to regularly employed members of the labor force who become involuntarily unemployed and who are able and willing to accept suitable employment. Workers in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands are covered under unemployment insurance programs.
To induce states to enact unemployment insurance laws, the Social Security Act of 1935 provided a tax offset incentive. A uniform national tax was imposed on payrolls of industrial and commercial employers who employed eight or more workers in 20 or more weeks in a calendar year. Employers who paid taxes to a state with an approved unemployment insurance law could credit (offset) up to 90 percent of the state tax against the federal tax. This insured that employers in states without an unemployment insurance law would not have an advantage competing with similar businesses in states with such a law because they would still be subject to the federal payroll tax, and their employees would not be eligible for benefits.
In addition, the Social Security Act authorized grants to states to meet the costs of administering the state systems. By July 1937, all 48 states, the then territories of Alaska and Hawaii, and the District of Columbia had passed unemployment insurance laws. Later, Puerto Rico adopted its own program, which was incorporated in 1961 into the federal-state system. A similar program for workers in the Virgin Islands was added in 1978.
If employers are to receive an offset against federal taxes and if states are to receive federal grants for administration, federal law requires state unemployment insurance programs to meet certain requirements. These requirements are intended to assure that a state participating in the program has an unemployment insurance system that is fairly administered and financially secure.
One requirement is that all contributions collected under state laws be deposited in the unemployment trust fund of the U.S. Treasury Department. The fund is invested as a whole, but each state has a separate account to which its deposits and its share of interest on investments are credited. At any time, a state may withdraw money from its account in the trust fund, but only to pay benefits. Thus, unlike the situation in the majority of states having workers' compensation and temporary disability insurance laws, unemployment insurance benefits are paid exclusively through a public fund. Private plans cannot be substituted for the state plan.
Aside from federal standards, each state has major responsibility for the content and development of its unemployment insurance law. The state itself decides the amount and duration of benefits (except for certain federal requirements concerning federal-state Extended Benefits), the contribution rates (with limitations), and, in general, the eligibility requirements and disqualification provisions. The states also directly administer the programs collecting contributions, maintaining wage records (where applicable), taking claims, determining eligibility, and paying benefits to unemployed workers.
Originally, coverage had been limited to employment covered by the Federal Unemployment Tax Act (FUTA), which relates primarily to industrial and commercial workers in private industry. However, several federal laws added substantially to the number and types of workers protected under the state programs, such as the Employment Security Amendments of 1970 and the Unemployment Compensation Amendments of 1976.
Private employers in industry and commerce are subject to the law if they have one or more individuals employed on 1 day in each of 20 weeks during the current or preceding year, or if they paid wages of $1,500 or more during any calendar quarter in the current or preceding year.
Agricultural workers are covered on farms with a quarterly payroll of at least $20,000 or employing 10 or more employees in 20 weeks of the year. Domestic employees in private households are subject to FUTA if their employer pays wages of $1,000 or more in a calendar quarter. Excluded from coverage are workers employed by their families and the self-employed.
Before 1976, employment in state and local governments and nonprofit organizations were exempt from FUTA. However, as a result of federal legislation enacted in 1976, most employment in these groups must now be covered by state law as a condition for securing federal approval of the state law. Under this form of coverage, local government and nonprofit employers have the option of making contributions as under FUTA or of reimbursing the state for benefit expenditures actually made. Elected officials, legislators, members of the judiciary, and the state National Guard are still excluded, as are employees of nonprofit organizations that employ fewer than four workers in 20 weeks in the current or preceding calendar year. Many states have extended coverage beyond that provided by federal legislation.
Through special federal legislation, federal civilian employees and ex-servicemembers of the armed forces were brought under the unemployment insurance system. Benefits for those persons are financed through federal funds but are administered by the states and paid in accordance with the provisions of the state laws. A separate unemployment insurance law enacted by Congress covers railroad workers.
Amendments to FUTA made in 2000 added Indian tribes to the set of entities for whom coverage is required, although they are not liable for FUTA taxes. As a result, workers performing services for tribes are now potentially eligible to receive Unemployment Insurance benefits. Coverage is required when service is performed for any Indian tribe, band, nation, or other organized group community which is recognized as eligible for federal assistance because of their status as Indians. The same permissible exclusion from coverage that is applicable to other governmental entities also applies to services performed for Indian tribes. If an Indian tribe fails to make payments to states as required, the tribe loses its FUTA exemption and may lose coverage.
Unemployment benefits are available as a matter of right (without a means test) to unemployed workers who have demonstrated their attachment to the labor force by a specified amount of recent work or earnings in covered employment. All workers whose employers contribute to or make payments in lieu of contributions to state unemployment funds, federal civilian employees, and ex-service-members are eligible if they are involuntarily unemployed, able to work, available for work, and actively seeking work. Workers must also meet the eligibility and qualifying requirements of the state law and be free from disqualifications. Workers who meet these eligibility conditions may still be denied benefits if they are found to be responsible for their own unemployment.
A worker's monetary benefit rights are based on his or her employment in covered work over a prior reference period called the "base period," and these benefit rights remain fixed for a "benefit year." In most states, the base period is the first 4 quarters of the last 5 completed calendar quarters preceding the claim for unemployment benefits.
Under all state laws, the weekly benefit amount—that is, the amount payable for a week of total unemployment—varies with the worker's past wages within certain minimum and maximum limits. In most states, the formula is designed to compensate for a fraction of the usual weekly wage, normally about 50 percent, subject to specified dollar maximums.
Three-fourths of the laws use a formula that computes weekly benefits as a fraction of wages in one or more quarters of the base period. Most commonly, the fraction is taken of wages in the quarter during which wages were highest because this quarter most nearly reflects full-time work. In most of these states, the same fraction is used at all benefit levels. The other laws use a weighted schedule that gives a greater proportion of the high-quarter wages to lower paid workers than to those earning more.
Each state establishes a ceiling on the weekly benefit amount, and no worker may receive an amount larger than the ceiling. The maximum may be either a fixed dollar amount or a flexible amount. Under the latter arrangement, which has been adopted in 35 jurisdictions, the maximum is adjusted automatically in accordance with the weekly wages of covered employees.
Twelve states provide additional allowances for certain dependents. They all include children under ages 16, 18, or 19 (and, generally, older if incapacitated); 8 states include a nonworking spouse; and 2 states consider other dependent relatives. The amount allowed per dependent varies considerably by state but generally is $24 or less per week and, in the majority of states, the amount is the same for each dependent.
All but 13 states require a waiting period of 1 week of total unemployment before benefits can begin. Four states pay benefits retroactively for the waiting period if unemployment lasts a certain period or if the employee returns to work within a specified period.
Except for two jurisdictions, states provide a statutory maximum duration of 26 weeks of benefits in a benefit year. However, jurisdictions vary the duration of benefits through various formulas.
In the 1970s, a permanent federal-state program of Extended Benefits (EB) was established for workers who exhaust their entitlement to regular state benefits during periods of high unemployment. The program is financed equally from federal and state funds. Employment conditions in an individual state trigger Extended Benefits. This happens when the unemployment rate among insured workers in a state averages 5 percent or more over a
State law determines most eligibility conditions for Extended Benefits and the weekly benefit payable. However, under federal law a claimant must have had 20 weeks in full-time employment (or the equivalent in insured wages) and must meet special work requirements. A worker who has exhausted his or her regular benefits is eligible for a
Prior to the 1992 legislation, the EB program was based on the insured unemployment rate (IUR)—the number of unemployed workers receiving benefits in a state as a percentage of the number of persons in unemployment—insurance covered employment in that state. By definition, the IUR does not include workers who have exhausted their benefits but are still unemployed.
The 1992 legislation (P.L.
States triggering on to the Extended Benefits program under other triggers would provide the regular 26 weeks of unemployment benefits in addition to 13 weeks of Extended Benefits, (which is the same number of weeks of benefits provided previously). In addition, states that have chosen the total unemployment rate option will also amend their state laws to add an additional 7 weeks of Extended Benefits (for a total of 20 weeks) where the total unemployment rate is at least 8 percent and is 110 percent of the state's total unemployment rate for the same 3 months in either of the 2 preceding years. As of April 20, 2003, Extended Benefits were payable for 13 weeks in Alaska, Oregon, and Washington.
CONTACT: Rita L. DiSimone
Workers' compensation was the first form of social insurance to develop widely in the United States. It is designed to provide cash benefits and medical care when employees suffer work-related injuries or illnesses, and survivor benefits to the dependents of workers whose deaths result from a work-related incident. In exchange for receiving benefits, workers who receive workers' compensation are generally not allowed to bring a tort suit against their employers for damages of any kind.
The federal government was the first to establish a workers' compensation program, covering its civilian employees with an act that was passed in 1908 to provide benefits for workers engaged in hazardous work. The remaining federal workforce was covered in 1916. Nine states enacted workers' compensation laws in 1911. By 1920, all but 7 states and the District of Columbia had workers' compensation laws.
Today each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands has its own program. The federal government covers its employees through its own program. It also administers the Longshore and Harbor Workers' Compensation Act, enacted in 1927, which covers longshore and harbor workers throughout the United States.
Coal miners suffering from pneumoconiosis, or "black lung" disease, are covered by the Black Lung Benefits Act of 1972, with the initial benefits enacted as part of the Coal Mine Health and Safety Act of 1969. Under this program, monthly cash benefits are payable to miners disabled by black lung disease and to their dependents or survivors. Medical benefits are also payable on the basis of a diagnosis of pneumoconiosis.
The Energy Employees Occupational Illness Compensation Program Act of 2000 instituted a new program that covers employees, contractors, and subcontractors of the Department of Energy (DOE) for exposure to beryllium and the contraction of chronic beryllium disease. In addition, employees of private companies providing beryllium to DOE are covered. Employees' survivors also receive cash benefits.
This same act also covers employees disabled or killed by cancers that developed after beginning employment at a DOE or an atomic weapons facility, as long as the cancer was at least "as likely as not" related to this employment, subject to a number of guidelines relating to radiation exposure, type of cancer, and other relevant factors. It also provides benefits for silica-related diseases and to uranium miners and their survivors who have received lump sum payments under the Radiation Exposure Compensation Act, and establishes an Office of Worker Advocacy in the U.S. Department of Energy to deal with other claims of work-related occupational disease.
In 2001, state and federal workers' compensation laws covered about 127.0 million employees. Covered payroll in 2001—that is, total wages paid to covered workers—was $4.6 trillion.
Common exemptions from coverage are domestic service, agricultural employment, small employers, and casual labor. However, 39 programs have some coverage for agricultural workers, and 25 programs have some coverage for domestic workers.
Many programs exempt employees of nonprofit, charitable, or religious institutions. The coverage of state and local public employees differs widely from one state program to another.
Two other major groups outside the coverage of workers' compensation laws are railroad employees engaged in interstate commerce and seamen in the U.S. Merchant Marine. These workers have health insurance and short-term and long-term cash benefit plans that cover disabilities whether or not the conditions are work-related. In addition, under federal laws these workers retain the right to bring tort suits against their employers for negligence in the case of work-related injuries or illness.
The programs are compulsory for most private employment, except in Texas, where it is elective. That is, in Texas employers may accept or reject coverage under the law. If they reject it, they lose the customary common-law defenses against suits by employees in private industry.
The benefits provided under workers' compensation include periodic cash payments and medical services to the worker during the period of disablement for the disabling condition. They also include death and funeral benefits to the workers' survivors. Lump-sum settlements are permitted under most programs.
Approximately three-fourths of all workers' compensation cases involve only medical benefits. Cash wage replacement benefits are categorized according to the duration and severity of the worker's disability.
A large majority of compensation cases involving cash payments involve temporary total disability. That is, the employee is unable to work at all while he or she is recovering from the injury but the worker is expected to recover. When workers' lost time exceeds the waiting period (3 to 7 days, depending on the state) they receive a percentage of their weekly wages—typically two-thirds—up to a maximum weekly amount. The maximum generally being set at some percentage of the states average weekly wage, ranging from 66 2/3 percent to 200 percent but typically 100 percent.
In some cases, workers return to work prior to the date they reach maximum medical improvement and thus have reduced responsibilities and an accompanying lower salary. In those cases they receive temporary partial disability benefits.
After the date of maximum medical improvement, if a disability is severe enough, the worker receives permanent total disability benefits. Very few workers compensation cases are found to have permanent total disabilities.
If the permanent disability of a worker is only partial and may or may not lessen work ability, permanent partial disability benefits are payable. The system for determining benefits in these cases is very complex and varies significantly across jurisdictions. Some states provide benefits based on an impairment rating scheme. The level of impairment, often expressed as a percentage of total disability, is used to determine the benefit amount. Some states provide benefits based on the loss of earning capacity. They use impairment ratings with modifications based on vocational factors, such as the worker's education, job experience, and age. Other states use systems that attempt to compensate workers for actual lost wages.
Generally, compensation is related to earnings and to the number of dependents payable to the survivors of workers who die from a work-related illness or injury. Benefits are capped in 26 states.
All compensation acts require that medical aid be furnished to workers suffering from a work-related injury or illness without delay, whether or not the condition entails work interruption. This care includes first-aid treatment, physician services, surgical and hospital services, nursing, medical drugs and supplies, appliances, and prosthetic devices. Care is typically provided with no co-payment from the worker.
A few state laws contain provisions for nominal contributions by the covered employee for hospital and medical benefits.
Workers' compensation programs are financed almost exclusively by employers and are based on the principle that the cost of work-related accidents is a business expense. Depending on state laws, employers can purchase insurance from a private carrier or state fund, or they can self-insure. No program relies on general taxing power to finance workers' compensation. Employers in most programs are permitted to carry insurance against work accidents with commercial insurance companies or to qualify as self-insurers by giving proof of financial ability to carry their own risk. In 7 jurisdictions, however, commercial insurance is not allowed. In four of these areas, including Puerto Rico and the Virgin Islands, employers must insure with an exclusive state fund, and in three others, they must either insure with an exclusive state insurance fund or self-insure. In 19 jurisdictions, state funds have been established that compete with private insurance carriers. Federal employees are provided protection through a federally financed and operated system.
Benefit payments under workers' compensation programs increased 3.5 percent in 2001 to $49.4 billion, from the 2000 figure of $47.7 billion. When compared to covered wages, benefits grew by just 1.0 percent from $1.06 to $1.07 per $100 of covered wages.
In 2001, medical benefits accounted for $22.0 billion, and wage loss compensation for $27.4 billion. The latter amount includes payments to disabled workers and the survivors of deceased workers.
The $49.4 billion for workers' compensation benefit payments in 2001 includes over $870 million in benefits for the Black Lung program. This program is described separately (see Tables 9.D1–9.D3).
The employers' cost of providing workers' compensation coverage generally varies according to risk, industrial classification, and experience rating. Nationally, in 2001, such costs were approximately $1.39 per $100 of covered wages, or about $504 for each of the 127.0 billion protected employees.
The year 2001 is the first year since 1992 that benefits grew faster than wages. It is the first year since 1993 that employer costs increased relative to covered wages.
CONTACT: Virginia Reno
Five states, Puerto Rico, and the railroad industry have social insurance programs that partially compensate for the loss of wages caused by temporary nonoccupational disability or maternity. Those programs are known as temporary disability insurance (TDI) because the duration of the payments is limited.
Federal law does not provide for a federal-state system of short-term disability comparable to the federal-state system of unemployment insurance. However, the Federal Unemployment Tax Act (FUTA) was amended in 1946 to permit states where employees made contributions under the unemployment insurance program to use some or all of these contributions for the payment of disability benefits (but not for administration). Three of the nine states that could have benefited by this provision for initial funding for TDI took advantage of it: California, New Jersey, and Rhode Island. The first state law was enacted by Rhode Island in 1942, followed by legislation in California and the railroad industry in 1946, New Jersey in 1948, and New York in 1949. Then came a hiatus of two decades before Puerto Rico and Hawaii passed laws in 1968 and 1969, respectively.
The five state temporary disability insurance laws and the Puerto Rico law cover most commercial and industrial wage and salary workers in private employment if the employer has at least one worker. In no state is coverage under TDI identical with that of the unemployment insurance program. Principal occupational groups excluded are domestic workers, family workers (parent, child, or spouse of the employer), government employees, and the self-employed. State and local government employees are included in Hawaii, and the other state programs generally provide elective coverage for some or all public employees.
Agricultural workers are covered to varying degrees in California, Hawaii, New Jersey, and Puerto Rico, but they are not covered in other jurisdictions. The California law permits self-employed individuals to elect coverage on a voluntary basis. Workers employed by railroads, railroad associations, and railroad unions are covered by TDI under the national system included in the Railroad Unemployment Insurance Act.
The methods used for providing this protection vary. In Rhode Island, the coverage is provided through an exclusive, state-operated fund into which all contributions are paid and from which all benefits are disbursed. In addition, covered employers may provide supplemental benefits in any manner they choose. The railroad program is also exclusively publicly operated in conjunction with its unemployment insurance provisions.
In California, New Jersey, and Puerto Rico, coverage is provided through a state-operated fund, but employers are permitted to "contract out" of the state fund by purchasing group insurance from commercial insurance companies, by self-insuring, or by negotiating an agreement with a union or employees' association. Coverage by the state fund is automatic unless or until an employer or the employees take positive action by substituting a private plan that meets the standards prescribed in the law and is approved by the administering agency. Premiums (in lieu of contributions) are then paid directly to the private plan, and benefits are paid to the workers affected.
The Hawaii and New York laws require employers to provide their own disability insurance plans for their workers by setting up an approved self-insurance plan, by reaching an agreement with employees or a union establishing a labor-management benefit plan, or by purchasing group insurance from a commercial carrier. In New York, the employer may also provide protection through the State Insurance Fund, which is a state-operated competitive carrier. Both Hawaii and New York operate special funds to pay benefits to workers who become disabled while unemployed or whose employers have failed to provide the required protection. In other jurisdictions, benefit payments for the disabled unemployed are made from the regular state-operated funds.
To qualify for benefits, a worker must fulfill certain requirements regarding past earnings or employment and must be disabled as defined in the law. In addition, claimants may be disqualified if they received certain types of income during the period of disability.
A claimant must have a specified amount of past employment or earnings to qualify for benefits. However, in most jurisdictions with private plans, the plans either insure workers immediately upon their employment or, in some cases, require a short probationary period of employment, usually from 1 to 3 months. Upon cessation of employment after a specified period, workers generally lose their private plan coverage and must look to a state-created fund for such protection.
The laws generally define disability as inability to perform regular or customary work because of a physical or mental condition. Stricter requirements are imposed for disability during unemployment in New Jersey and New York. All the laws pay full benefits for disability due to pregnancy.
All the laws restrict payment of disability benefits when the claimant is also receiving workers' compensation payments. However, the statutes usually contain some exceptions to this rule (for example, if the workers' compensation is for partial disability or for previously incurred work disabilities).
The laws differ with respect to the treatment of sick leave payments. Rhode Island pays disability benefits in full even though the claimant draws wage continuation payments. New York deducts from the benefits any payment from the employer or from a fund contributed to by the employer, except for benefits paid pursuant to a collective bargaining agreement. In California, New Jersey, and Puerto Rico, benefits plus paid sick leave for any week during disability may not exceed the individual's weekly earnings before their disablement. Railroad workers are not eligible for TDI benefits while they receive sick leave pay.
In all seven TDI systems, as with unemployment insurance, weekly benefit amounts are related to a claimant's previous earnings in covered employment. In general, the benefit amount for a week is intended to replace at least one-half the weekly wage loss for a limited time. All the laws, however, specify minimum and maximum amounts payable for a week. The maximum duration of benefits varies from 26 to 52 weeks. Hawaii, New York, and Puerto Rico provide for benefits of a uniform duration of 26 weeks for all claimants; California and the railroad program have maximum benefit periods of 52 weeks; New Jersey, 26 weeks; and Rhode Island, 30 weeks. Under the railroad program, duration of benefits varies from 26 weeks to 52 weeks, based on the total number of years of employment in the industry. In the other jurisdictions, limited pre-disability "base period" wages reduce benefit duration. A noncompensable waiting period of a week or 7 consecutive days of disability (4 days for railroad workers) is generally required before the payment of benefits for subsequent weeks.
The statutory provisions described above govern the benefits payable to employees covered by the state-operated plans. In those states where private plans are permitted to participate, those provisions represent standards against which the private plan can be measured (in accordance with provisions in the state law).
Under each of the laws, except for that governing the railroad program, employees may be required to contribute to the cost of the temporary disability benefit. In five of the jurisdictions (all but California and Rhode Island), employers are also required to contribute. In general, the government does not contribute.
Five of the seven TDI programs are administered by the same agency that administers unemployment insurance. Under those five programs, the unemployment insurance administrative machinery is used to collect contributions, to maintain wage records, to determine eligibility, and to pay benefits to workers under the state-operated funds. The New York law is administered by the state Workers' Compensation Board, and the Hawaii law is administered separately in the Department of Labor and Industrial Relations.
By way of contrast, claims in New York and Hawaii are filed with and paid by the employer, the insurance carrier, or the union health and welfare fund that is operating the private plan. The state agency limits its functions with respect to employed workers to exercising general supervision over private plans, to setting standards of performance, and to adjudicating disputed claims arising between claimants and carriers. A similar situation applies to claimants under private plans in California, New Jersey, and Puerto Rico.
CONTACT: Rita L. DiSimone
The Black Lung benefit program established by the Federal Coal Mine Health and Safety Act of 1969 provides monthly benefit payments to coal miners totally disabled as a result of pneumoconiosis, to the widows of coal miners who died as a result of pneumoconiosis, and to their dependents. The Social Security Administration (SSA) was responsible for the payment and administration of these Part B benefits (miner, survivor, and dependent) with respect to claims filed through June 30, 1973 (and certain survivor cases, before December 31, 1973).
On October 1, 1997, responsibility for maintenance and payment of Part B was transferred from SSA to the Department of Labor (DOL); SSA, however, maintains responsibility for conducting formal hearings necessary to resolve contested issues with respect to Part B claims. Only data on these Part B claims are reported on in this Supplement. Part C claims are reported in the OWCP Annual Report to Congress, U.S. Department of Labor, Office of Workers' Compensation Programs.
Under the Black Lung Benefits Act of 1972, DOL was assigned jurisdiction over Part C benefits, generally claims filed July 1, 1973, and later. Different financing provisions are applicable to these claims.
Legislation enacted on November 2, 2002 (P.L.
The basic Black Lung benefit rate is set by law at 37 1/2 percent of the monthly pay rate for federal employees in the first step of grade
Since Black Lung payments are tied directly to federal employee salary scales, increases are automatically payable when federal salaries are increased. Reflecting a 3.1 percent adjustment, monthly benefit rates effective January 1, 2003, are:
If a miner or surviving spouse is receiving workers' compensation, unemployment compensation, or disability insurance payments under state law, the Black Lung benefit is offset by the amount being paid under these other programs.
The 1972 amendments extended benefit payments to full orphans, parents, brothers, and sisters of deceased miners. Under earlier law, survivor payments were limited to widows and their dependent children (if the miner and spouse were both deceased, no benefits were payable to surviving children). The 1972 amendments also expanded coverage to include surface as well as underground coal miners.
CONTACTS: Wayne Tacy
A variety of programs and benefits are available to servicemembers and veterans of military service: disability payments, educational assistance, health care, vocational rehabilitation, survivor and dependents benefits, life insurance, burial benefits, special loan programs, and hiring preference for certain jobs. Most of the veterans programs are administered by the Department of Veterans Affairs (VA).
Two major cash benefit programs are available for veterans. The first program provides benefits to veterans with service-connected disabilities and, on the veteran's death, benefits are available for eligible surviving spouses, children, and dependent parents. These benefits are payable regardless of other income or resources. The second program provides benefits to needy veterans who have non-service-connected disabilities. These benefits are means tested.
Disability compensation is a monetary benefit paid to veterans who are disabled by injury or disease incurred in or aggravated during active military service. Individuals discharged or separated from military service under dishonorable conditions are generally not eligible for compensation payments. The amount of monthly compensation depends on the degree of disability, rated as the percentage of normal function lost. Payments in 2003 range from $104 a month for a
Monthly benefits are provided to wartime veterans with limited income and resources who are totally and permanently disabled because of a condition not attributable to their military service. To qualify for these pensions, a veteran must have served in one or more of the following designated war periods: The Mexican Border Period, World War I, World War II, the Korean Conflict, the Vietnam Era, or the Gulf War. The period of service must have lasted at least 90 days, and the discharge or separation cannot have been dishonorable. Service less than 90 days is acceptable if the veteran was discharged with a service-connected disability.
Pension payments are reduced by countable income. Some medical and other expenses are allowed as deductions from countable income. Veterans aged 65 years or older who meet service, net worth, and income requirements are eligible for pension, regardless of current physical condition.
Effective December 1, 2002, maximum benefit amounts for non-service-connected disabilities range from $807 per month for a veteran without a dependent spouse or child to $1,597 per month for a veteran who is in need of regular aid and attendance and who has one dependent. For each additional dependent child, the pension is raised by $136 per month.
The dependency and indemnity compensation (DIC) program provides monthly benefits to the surviving spouse, children (under age 18, disabled, or students), and certain parents of service persons or veterans who die as the result of an injury or disease incurred while in or aggravated by active duty or training, or from a disability otherwise compensable under laws administered by the Department of Veterans Affairs.
DIC payments may also be authorized for survivors of veterans who were totally disabled by service-connected conditions at the time of death, even though their service-connected disabilities did not cause their deaths.
Eligibility for survivor benefits based on a non-service-connected death of a veteran with a service-connected disability requires a marriage of at least a
The monthly benefit amount payable to surviving spouses of veterans, who died before January 1, 1993, depends on the last pay rate of the deceased service person or veteran. In 2003, for pay grades
Pensions are paid based on need to surviving spouses and dependent children (under age 18, disabled or students) of deceased veterans of the wartime periods specified in the disability pension program. For a pension to be payable, the veteran generally must have met the same service requirements established for the non-service-connected disability pension program, and the surviving spouse must meet the same marriage requirements as under the dependency and indemnity compensation program.
The pension amount depends on the composition of the surviving family and the physical condition of the surviving spouse. In 2002, pensions range from $541 a month for a surviving spouse without dependent children to $1,032 a month for a spouse who is in need of regular aid and attendance and who has a dependent child. The pension is raised by $137 a month for each additional dependent child. Pension payments are reduced by countable income. Some medical and other expenses are allowed as deductions from countable income.
The Department of Veterans Affairs (VA) provides a nationwide system of health care through a system of hospitals and community-based outpatient clinics to eligible veterans.
To receive health care, veterans generally must be enrolled with the VA and may apply for enrollment at any time. Veterans do not have to be enrolled if they (1) have a service-connected disability of 50 percent or more; (2) want care for a disability that the military determined was incurred or aggravated in the line of duty but that the VA has not yet rated during the
Enrolled veterans and those not subject to enrollment are eligible to receive comprehensive medical benefits, which includes basic and preventive care.
Basic eligibility for hospital care and outpatient medical services are based on a veteran's character of discharge from active military service. Veterans discharged prior to September 7, 1980, for other than dishonorable conditions have basic eligibility for care. However, veterans discharged after September 7, 1980, must have completed 24 consecutive months of active duty service. Reservists who were called or ordered to active duty may also be eligible for care as a veteran if they complete the full period for which they were called or ordered to active duty. The
The dependents and survivors of certain veterans may be eligible for medical care under the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA) if not eligible for medical care under Tricare or Medicare. Tricare (formerly known as CHAMPUS) is the health program administered by the Department of Defense for dependents of active duty personnel and military retirees and their dependents.
Beneficiaries covered by CHAMPVA may be treated at Department facilities when space is available. Usually, however, the person with CHAMPVA coverage is treated at a community hospital of his or her choice. The Department of Veterans Affairs pays for a part of the bill and the beneficiary is responsible for any required co-payment.
A veteran seeking nursing home care must meet the established eligibility requirements for admission to a Department of Veterans Affairs nursing home. The Veterans Millennium Health Care and Benefits Act (Public Law
Other Department of Veterans Affairs programs and medical benefits are available to certain veterans. Veterans do not need to be enrolled in the VA health care system to be eligible for any of the following benefits, although there may be restrictions: domiciliary care, alcohol and drug dependency treatment; prosthetic appliances; modification in certain veterans' homes when so ordered by his or her physician, subject to cost limitations; compensation and pension examinations; care as part of a
The post-Vietnam Veterans' Educational Assistance Program (VEAP) is a voluntary contributory matching program for persons entering service after December 31, 1976. To be eligible, the servicemember must have initially contributed to VEAP before April 1, 1987. The Montgomery GI Bill-Active Duty program provides education benefits for individuals entering military service on or after July 1, 1985, and for certain other individuals. Service members entering active duty have their basic pay reduced $100 a month for the first 12 months of their service unless they specifically elect not to participate. An educational assistance program is also available for individuals who enter the Selected Reserve on or after July 1, 1985.
The Department of Veterans Affairs also pays educational assistance for dependents if a veteran is permanently and totally disabled from a service-related cause, or dies as a result of service, or while completely disabled from service-related causes.
CONTACT: Gloria Bennett
On August 22, 1996, The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 became law. This comprehensive, bipartisan legislation changed the nation's welfare system into one requiring work in exchange for time-limited assistance. It created the Temporary Assistance for Needy Families (TANF) program, which replaced the Aid to Families with Dependent Children (AFDC), Emergency Assistance (EA), and Job Opportunities and Basic Skills Training (JOBS) programs. The law marks the end of federal entitlement to assistance. In TANF, states and territories operate programs, and Indian tribes have the option to run their own programs. States, territories, and tribes each receive a block grant allocation, and states must maintain a historical level of state spending known as maintenance of effort. The basic block grant provides states and tribes $16.5 billion in federal funds each year, through 2002. This amount covers benefits, administrative expenses, and services targeted to needy families.
The 1996 law offers states great flexibility in designing individual state TANF programs. Unless expressly provided under the statute, the federal government may not regulate the conduct of states.
States may use TANF funds in any manner "reasonably calculated to accomplish the purposes of TANF." The purposes are assisting needy families so that children can be cared for in their own homes; reducing dependency of needy parents by promoting job preparation, work, and marriage; preventing out-of-wedlock pregnancies, and encouraging the formation and maintenance of two-parent families.
With few exceptions, recipients must work as soon as job ready, or no later than 2 years after coming on assistance. In fiscal year 1997, each state had to ensure that 25 percent of all families in the state were engaged in work activities. This percentage increased to 50 percent in FY 2002. Minimum participation rates for two-parent families started at 75 percent in FY 1997 and increased to 90 percent. (If a state reduces its caseload, without restricting eligibility, it can receive a caseload reduction credit. This credit reduces the minimum participation rates the state must achieve.) During 1997 and 1998, single parents had to participate in work activities for at least 20 hours per week; by FY 2000, they had to participate at least 30 hours per week. Two-parent families had to participate in work activities for at least 35 or 55 hours per week, depending upon the circumstances. Failure to participate in work requirements can result in a reduction or a termination of benefits to the family. However, states cannot penalize single parents with a child under 6 for failing to meet work requirements if they cannot obtain child care. A state may exempt single parents with children under the age of 1 from the work requirements and disregard these individuals in the calculation of participation rates for up to 12 months.
Activities that count towards a state's participation rates are unsubsidized or subsidized employment, on-the-job training, work experience, community service, job search, vocational training, job skills training related to work, or education directly related to work; satisfactory secondary school attendance; and providing child care services to individuals who are participating in community service. However, no more than 12 months of vocational training, no more than 6 total weeks of job search, and no more than 4 consecutive weeks of job search may count. Further, effective in FY 2000, no more than 30 percent of those meeting the participation rates may count toward the work requirement on the basis of participation in vocational training or by being a teen parent in secondary school.
Families with an adult who has received federally funded assistance for a total of 5 years (or less at state option) are not eligible for cash aid under the TANF program. States may extend assistance beyond 60 months to up to 20 percent of their caseload. They may also elect to provide assistance to families beyond 60 months using state-only funds, or they may provide services to families that reach the time limit using Social Services Block Grants.
The TANF block grant program has an annual cost-sharing requirement, referred to as "maintenance of effort," or MOE. Every fiscal year each state must spend a certain minimum amount of its own money to help eligible families in ways that are consistent with the purposes of the TANF program. The required MOE amount is based on an "applicable percentage" of the state's (non-federal) expenditures on AFDC and the AFDC-related programs in 1994. The applicable percentage depends on whether the state meets its minimum work participation rate requirements for that fiscal year. A state that does not meet the required minimum work participation rate requirements must spend at least 80 percent of the amount it spent in 1994. A state that meets its minimum work participation rate requirements must spend at least 75 percent of the amount it spent in 1994.
In addition to the federal TANF block grant funding, needy states with economic problems may request federal funds from the Contingency Fund. The Contingency Fund has a more rigorous MOE requirement.
Bonuses to reward high performance and reduce out-of-wedlock births. Through FY 2003, $1 billion is available to states for high performance bonuses for achieving program goals, such as moving welfare recipients into jobs. There is a separate $100 million annual appropriation for bonuses to the 5 states that have the greatest success in reducing their of out-of-wedlock birth rates, while also reducing their abortion rates.
Contingency fund, supplemental grants, and loans. There is a contingency fund of $2 billion available over 5 years to states experiencing economic downturns. There are two additional funds: a $800 million fund available over 4 years to provide supplemental grants for states with high population growth and historically low welfare spending and a $1.7 billion federal loan fund.
The Department of Health and Human Services (HHS) may reduce a state's block grant if it fails to do any of the following:
The total penalty assessed against a state in a given year may not exceed 25 percent of a state's block grant allotment. In some situations, states may avoid penalties (1) if they demonstrate that they had reasonable cause for failing to meet the program requirements or (2) if they develop a corrective compliance plan, receive approval of their plan, and correct or discontinue the violation.
States must make an initial assessment of a recipient's skills. States may develop personal responsibility plans for each recipient to identify the education, training, and job placement services needed to move into the workforce.
Unmarried minor parents must participate in educational and training activities and live with a responsible adult or in an adult-supervised setting in order to receive assistance. States are responsible for assisting in locating adult-supervised settings for teens who cannot live at home.
The Department of Health and Human Services (HHS) reviews state plans for completeness only. States must allow for a
The law allows states to create jobs by taking money that is now used for welfare checks and using it to create community service jobs, provide income subsidies, or provide hiring incentives for potential employers.
States that received approval for welfare reform waivers before January 1, 1997, have the option to operate their cash assistance program under some or all of these waivers, until the waivers expire.
States had until July 1, 1997, to submit state plans and begin implementing TANF, although they had the option to implement earlier.
HHS published final regulations covering the state TANF programs on April 12, 1999. These regulations took effect October 1, 2000.
Federally recognized Indian tribes may apply directly to HHS to operate a TANF block grant program. Eligible tribes include the federally recognized tribes in the lower 48 states and 13 designated entities in Alaska (that is, the 12 Alaska Native regional nonprofit associations and Matlakatla). TANF allotments for Indian tribes are based upon previous state expenditures of federal dollars in AFDC,
Emergency Assistance (EA), and JOBS on tribal members in fiscal year 1994. Tribal TANF programs could be implemented as early as July 1, 1997. Like states, Indian tribes can use their TANF funding in any manner reasonably calculated to accomplish the purposes of TANF. They have broad flexibility to determine eligibility, method of assistance, and benefit levels. Unlike state plans, the federal government approves tribal plans. Tribes and HHS must reach agreement on time limits, work requirements, and minimum participation rates.
In addition to authorizing tribes to administer TANF, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 replaced the former tribal JOBS program with the Native Employment Works (NEW) program. The NEW program provides funding for tribes and intertribal consortia to design and administer tribal work activities that meet the unique employment and training needs of their populations while allowing tribes and states to provide other TANF services.
HHS published final regulations for the tribal TANF and NEW programs on February 18, 2000.
CONTACT: Bettie McClure
The Food Stamp program provides a means for persons with no or little income to obtain a nutritionally adequate diet. The program issues monthly allotments of coupons that are redeemable at retail food stores, or provides benefits through electronic benefit transfer (EBT). Eligibility and allotments are based on household size, income, assets, and other factors.
Households without income receive an amount equal to 100 percent of the June monthly cost of the Thrifty Food Plan (TFP—a nutritionally adequate diet) for a reference family of four adjusted for household size and economies of scale. This amount is updated every October for the new fiscal year to account for food price increases.
As of October 2003, an eligible four-person household in the continental United States with no income receives $471 per month in food stamps. Households with income receive food stamps valued at the difference between the maximum allotment and 30 percent of their income, after certain allowable deductions.
To qualify for food stamps, a household must have:
Households with a person aged 60 or older or a disabled person receiving either Supplemental Security Income (SSI), Social Security (OASDI), state general assistance, or veterans' disability benefits (or interim disability assistance pending approval of any of the above programs) may have gross income exceeding 130 percent of the poverty guidelines if the income is lower than 100 percent of the poverty guidelines allowable deductions.
One- and two-person households that meet the applicable standard receive at least $10 a month in food stamps.
All households in which all members receive Temporary Assistance for Needy Families (TANF) or SSI are categorically eligible for food stamps.
Net income is computed by subtracting the following deductions from monthly gross income:
Households are certified to receive food stamps for varying lengths of time, depending on their income sources and individual circumstances. Recertification is required at least annually. Households whose sole income is from SSI payments or Social Security benefits are certified for a
Families with income or food loss resulting from disaster situations such as tornadoes or floods may be eligible for food stamps for up to 1 month if they meet the special disaster income and asset limits.
Special provisions allow the homeless, drug addicts, alcoholics, blind, or disabled residents in certain group living arrangements, residents of shelters for battered spouses and children, and persons aged 60 or older to use their coupons for meals prepared at a nonprofit facility. The elderly and homeless may also use their coupons to purchase concession-priced meals from authorized restaurants.
Households with members who are elderly (aged 60 or older), disabled, or lack transportation to the food stamp office may be certified for food stamps through a telephone interview or a home visit.
Initiated on a pilot basis in 1961, the Food Stamp program was formally established by the Food Stamp Act of 1964, with 22 states operating 43 projects, serving 350,000 people. The Food Stamp Act of 1977, as amended (P.L.
The Food Stamp program is administered nationally by the Food and Nutrition Service of the Department of Agriculture (USDA) and operates through local welfare offices and the nation's food marketing and banking systems. Since August 1, 1980, persons receiving or applying for SSI payments have been permitted to apply for food stamps through local Social Security district offices. The federal government, through general revenues, pays the entire cost of the food stamp benefits, but federal and state agencies share administrative costs.
An average of 18.9 million persons per month participated in the Food Stamp program each month during the first eight months of fiscal year 2002 (the period from October 2001 through May 2002). The average monthly value of food stamps per person was about $79.75, and the total value of benefits issued during the first eight months of the year was $12.1 billion. Total federal government costs for this program were $13.1 billion.
The Food Stamp Act of 1984 (P.L.
Amendments to the 1964 Act, enacted in 1971 (P.L.
The Agriculture and Consumer Protection Act of 1973 (P.L.
The Food and Agricultural Act of 1977 (P.L.
The Food Stamp Act Amendments of 1979 (P.L.
Legislation enacted in 1980 provided for an annual, rather than semi-annual, adjustment to benefit levels and the amount of the standard deduction. This legislation also restricted student eligibility.
The Omnibus Budget Reconciliation Act (P.L.
The program in Puerto Rico was replaced by a block grant. Monthly reporting and retrospective accounting systems were made mandatory for all states effective October 1983. Households composed solely of all aged or disabled persons, as defined above, were exempted from the monthly reporting requirements, and migrant households were exempted from both requirements.
Further revisions were made by the Food Stamp Amendments of 1982 (P.L.
The Food Stamp program authorization was extended for 5 years by the Food Security Act of 1985 (P.L.
Households in which all members receive AFDC or SSI were made categorically eligible for food stamps. The earned income, child care, excess shelter cost deductions, and asset limits were increased as of May 1986. Portions of the income received under the Job Training Partnership Act were now considered countable income. Further, all states were required to implement an employment and training program for food stamp recipients by April 1987.
The Hunger Prevention Act of 1988 (P.L.
Other provisions of the 1988 legislation required states to institute prospective budgeting for households not required to report monthly and retrospective budgeting for households reporting monthly. It extended disability status to individuals who receive interim assistance pending the receipt of Supplemental Security Income, Social Security, or state disability payments, and allowed the elderly, disabled, and those without transportation to apply for food stamps via telephone interviews. It required states to process Food Stamp applications jointly with AFDC and general assistance applications. It raised the dependent-care deduction from $160 per household to $160 per dependent. It made permanent an amendment in the Homeless Eligibility Clarification Act that exempts residents of shelters from ineligibility as residents of institutions.
Several provisions of the 1988 legislation also affect persons in farming. Households with farm income and expenses were given the option of averaging irregular farm-related expenses and farm income over 12 months and excluding as resources the value of farm land, equipment, and supplies for a period of 1 year after a household member ceases to be self-employed in farming.
The Mickey Leland Memorial Domestic Hunger Relief Act of 1990 (P.L.
Legislation enacted in 1992 prevented a one-time decrease of food stamp allotments for the year beginning October 1, 1992, even though the cost of the TFP had declined slightly.
The Omnibus Budget Reconciliation Act of 1993 (Mickey Leland Childhood Hunger Relief Act, P.L.
Legislation enacted in 1994 primarily provided means to combat fraud in the coupon redemption process.
Legislation enacted in 1995 prevented a one-time decrease of food stamp allotments in Alaska for the year beginning October 1, 1994, even though the cost of the TFP for Alaska had declined slightly.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L.
Other key provisions included the following:
The Balanced Budget Act of 1997 (P.L.
The Agricultural Research, Extension, and Education Reform Act of 1998 (P.L.
The Electronic Benefit Transfer (EBT) Interoperability and Portability Act of 2000 (P.L.
The Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriation Act, 2001 (P.L.
The Farm Security and Rural Investment of 2002, H.R.
This legislation also provided states with a number of options:
CONTACT: Jenny Genser
The Omnibus Budget Reconciliation Act of 1981 (P.L.
Under LIHEAP, grants are provided to grantees to assist eligible households to meet the costs of home energy. In addition to the 50 states and the District of Columbia, grants were provided in fiscal year 2001 to 128 Indian tribes or tribal organizations and 5 insular areas.
In accordance with the Act, the Secretary of HHS has left maximum policy discretion to the grantees. The federal information collection and reporting requirements for grantees were substantially reduced to require only information essential to federal administration and congressional oversight. Grantee decisions, directed by public participation in the development of grant applications, largely replaced federal regulations in shaping the program for fiscal years 1982–2001.
In addition to appropriating LIHEAP funds for FY 2000, the FY 2000 Consolidated Appropriations Act (Public Law
LIHEAP emergency contingency funds were available in FY 2001. Under the terms of the contingency fund provision, the President could request all, part, or none of the emergency contingency funds for FY 2001; could distribute any amount so requested to all LIHEAP grantees or to just a portion of them; and could use the regular block grant formula or a different formula. As described below, there were three sources of emergency contingency funds available for FY 2001. The first two funds were released to assist low income households facing significant price increases in heating oil, natural gas, and propane prices in the winter.
Fiscal year 2001 LIHEAP funds were distributed approximately as follows:
The funds appropriated for LIHEAP provide payments to eligible households for heating or cooling costs and for home energy crises. Up to 15 percent of the available funds may be used for low-cost residential weatherization or other energy-related home repairs. Grantees can request from HHS a waiver to allow up to 25 percent of available funds to be spent for low cost residential weatherization or other energy-related home repairs.
To receive grants in each of the three fiscal years, each grantee had to submit an application consisting of signed assurances by its chief executive officer and a plan describing how the grantee would carry out those assurances. In the assurances, the grantee agreed to:
The unit of eligibility for energy assistance is the household, defined as any individual or group of individuals who are living together as one economic unit for which residential energy is customarily purchased in common, either directly or through rent. The Act limits payments to those households with incomes under the greater of 150 percent of the income guidelines or 60 percent of the state's median income or to those households with members receiving benefits from the Temporary Assistance for Needy Families (TANF) program, SSI, Food Stamps, or needs-tested veterans' benefits. No household may be excluded from eligibility on the basis of income alone if household income is less than 110 percent of the poverty guidelines. Grantees are permitted to set more restrictive criteria as well.
Grantees make fuel assistance payments directly to eligible households or to home energy suppliers on behalf of eligible households. Payments can be provided in cash, fuel, prepaid utility bills, or as vouchers, stamps, or coupons that can be used in exchange for energy supplies. Payments are to vary in such a way that the highest level of assistance is furnished to households with the lowest incomes and highest energy costs in relation to income, taking into account family size.
CONTACT: Leon Litow