The erosion of retiree health benefits and retirement behavior: implications for the disability insurance program

The effects of retiree health insurance on the decision to retire have not been examined until recently. It is an area of increasing significance because of rising health care costs for retirees, the uncertain future of Medicare, and increased life expectancy. In general, studies suggest that individual retirement decisions are strongly responsive to the availability of retiree health insurance. Early retiree benefits and retirement behavior are also important because they may affect the Social Security Disability Insurance (DI) program. It is not apparent that if a person loses retiree health benefits, or if fewer people are eligible for retiree health benefits in general, claims for DI will increase. The potential 2-year loss of health benefits may be a deterrent to leaving the labor force and claiming DI, although persons who are unable to work would leave the labor force even without health benefits. In order to understand how the decline in retiree health benefits may affect enrollment in DI, analysts must at least incorporate the role of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). That act provides many people with access to health insurance during the 2-year gap between eligibility for DI and Medicare. In fact, persons with sufficient means to retire early could use the income from Disability Insurance to buy COBRA coverage during the first 2 years of DI coverage. Determining the effect of the erosion of retiree health benefits on DI must account properly for the role of other factors that affect DI eligibility and participation. The financial incentives of Social Security, pension plans, retirement savings programs, health status, the availability of health insurance, and other factors influencing retirement decisions must be taken fully into account in order to isolate the precise effect of retiree health benefits.     

Potential State Government Practices Impact of the New GASB Accounting Standard for Retiree Health Benefits

The Governmental Accounting Standards Board (GASB) has adopted a new accounting standard for state and local government retiree healthcare benefits that, for many states, will require accrual accounting for such benefits for the first time. The purpose of this paper is to examine the recent reporting practices of state governments with respect to retiree health insurance programs sponsored by the states in order to determine the dimensions of potential state employer practices likely to be changed by the new Other Postemployment Benefits (OPEB) standard with respect to accounting for such state plans, as well as financing and offering such state plans.     

How Weak Recognition and Measurement in the Federal Budget Encouraged Costly Policy: The Case of "Supervisory Goodwill"

The budget process is the primary means by which federal policymakers allocate resources. The failure of the budget to recognize and measure the full cost of federal programs encourages the Congress and president to skew resource allocation toward policies whose budgetary costs are underestimated. These "low-cost" policies often increase costs to taxpayers without providing taxpayers with benefits. Recent examples of this phenomenon are found in the "supervisory goodwill" cases. This article reviews these cases, the budgetary weaknesses they identify, the influence these weaknesses had on legislators, and the unnecessary costs for taxpayers that result from the supervisory goodwill policy. Specifically, the federal budget did not recognize the cost that would result from encouraging financial institutions to assume the assets and liabilities of insolvent savings and loans. The budget's recognition of costs failed a second time by not recording expenditures when the government abrogated its contracts with acquirers. Both actions raised costs to taxpayers unnecessarily. In addition to analyzing budgetary weaknesses and their potential costs, this article also reviews two proposed budgetary reforms that could address the budgetary failures highlighted by the supervisory goodwill cases.     

Trouble Keeping Promises? An Analysis of Underfunding in State Retiree Benefits

This article examines the funding of two key components of state government total compensation: pensions and other postemployment benefits (OPEB), the latter consisting primarily of retiree health care. A brief overview of the economic, political, and legal environments of state pensions and OPEB is followed by an analysis of the unfunded liabilities for these respective benefits. Regression results suggest the importance of state management capacity, per capita income, and public employee density in understanding differences in the states' pension and OPEB funding performance. Additionally, employers' level of pension contributions, legislative professionalism, and fiscal constraint are significantly related to pension funding, while political ideology and levels of state pension funding are significantly related to OPEB funding. The article concludes by discussing the tensions that states face in attempting to balance the fiscal imperative of funding retiree benefits liabilities with the human capital challenge of attracting and retaining a professional workforce. Failure on either could be costly to state government.     

Promise and peril

The size of the federal budget tells only one part of the tale of government's presence in the market economy. The enormous amounts of non-tax dollars government requires to be spent on regulation – estimated at $647 billion per year – powerfully argue for some sort of regulatory scorekeeping. Regulatory costs are equivalent to over one-third of the level of government spending. A regulatory budget can be an effective tool both for spurring reform and monitoring regulatory activity.At bottom, today's rulemaking process is plagued by the fact that agency bureaucrats are not accountable to voters. And Congress – though responsible for the underlying statutes that usually propel those unanswerable agencies – nevertheless can conveniently blame agencies for regulatory excesses. Indeed, Americans live under a regime of Regulation Without Representation.A regulatory budget could promote greater accountability by limiting the regulatory costs agencies could impose on the private sector. Congress could either specify a limit on compliance costs for each newly enacted law or reauthorization of existing law, or Congress could enact a more ambitious full-scale budget paralleling the fiscal budget, a riskier approach. A comprehensive budget would require Congress to divide to a total budget among agencies. Agencies' responsibility would be to rank hazards serially, from most to least severe, and address them within their budget constraint. In either version of a regulatory budget, any agency desiring to exceed its budget would need to seek congressional approval.Regulatory costs imposed on the private sector by federal agencies can never be precisely measured, and a budget cannot achieve absolute precision. Nonetheless, a regulatory budget is a valuable tool. The real innovation of regulatory budgeting is its potential to impose the consequences of regulatory decisionmaking on agencies rather than on the regulated parties alone. Agencies that today rarely admit a rule provides negligible benefit would be forced to compete for the right to regulate. While agencies would be free to regulate as unwisely as they do now, the consequences could be transfer of the squandered budgetary allocation to a rival agency that saves more lives.Budgeting could fundamentally change incentives. Under a budget, adopting a costly, but marginally beneficial, regulation will suddenly be irrational. Congress would weigh an agency's claimed benefits against alternative means of protecting public health and safety, giving agencies incentives to compete and expose one another's bogus benefits. Budgeting could encourage greater recognition of the fact that some risks are far more remote than those we undertake daily. In the long run, a regulatory budget would force agencies to compete with one another on the most important bottom line of all: that their least-effective rules save more lives per dollar spent (or correct some alleged market imperfection better) than those of other agencies.There are clear benefits to regulatory budgeting, but there are also pitfalls. For instance, under a budget, agencies have incentives to underestimate compliance costs while regulated parties have the opposite incentive. Self-correcting techniques that may force opposing cost calculations to converge are only at the thought- experiment stage. However, limitations on the delegation of regulatory power and enhancing congressional accountability can help.Certain principles and antecedents can help ensure that a regulatory budgeting effort succeeds. Explicitly recognizing that an agency's basic impulse is to overstate the benefits of its activities, a budget would relieve agencies of benefit calculation responsibilities altogether. Agencies would concentrate on properly assessing only the costs of their initiatives. Since an agency must try to maximize benefits within its budget constraint or risk losing its budget allocation, it would be rational for agencies to monitor benefits, but Congress need not require it.Other ways to promote the success of a budget are to: establish an incremental rather than total budget; collect and summarize annual report card data on the numbers of regulations in each agency; establish a regulatory cost freeze; implement a Regulatory Reduction Commission; employ separate budgets for economic and environmental/social regulation; and control indirect costs by limiting the regulatory methods that most often generate them.A regulatory budget is not a magic device alone capable of reducing the current $647 billion regulatory burden. Yet a cautious one deserve consideration. Having good information is an aid in grappling with the regulatory state just as compiling the federal fiscal budget is indispensable to any effort to plan and control government spending.     

Toward a Regulatory Budget

A regulatory budget would require the federal government to treat compliance costs incurred by the private sector as if they were incurred by the government, without requiring the government to actually assume those costs. For example, EPA could be given a regulatory compliance budget of say $80 billion in FY98. A regulatory budget would provoke an annual debate in Congress on the size of EPA's or OSHA's budget. Such a debate would force the proponents to weigh the benefits and costs of various regulatory programs, something now lacking in the political process.
Interest in a regulatory budget reflects the slight gains in the quality of regulatory decision making resulting from mandatory regulatory review. It is now apparent that better information about the costs, benefits, and distributional consequences of regulation will not automatically improve regulatory decision making-although it would not hurt.     

Do Deferred Retirement Benefits Retain Government Employees?

This study explores how deferred retirement benefits affect employee retention in the U.S. public sector. State government employees in Michigan transitioned from a defined-benefit pension with 10-year vesting to a defined-contribution plan with immediate vesting and less generous retiree health insurance benefits. Participation in either plan depends on date of hire, permitting a regression discontinuity research design. The shift away from generous deferred benefits caused a 5 percentage point decrease in the probability of remaining in state employment for at least a decade. The probability of leaving with four to nine years of tenure increased commensurately. Older professional workers were quite responsive to the design of their retirement benefits, whereas younger workers did not adjust their labor supply.     

The Bush Administration's Proposal for Credit Reform: Background, Analysis, and Policy Issues

Large recent and forecasted federal outlays to cover losses on deposit insurance and federally-assisted credit have increased concern in the executive and legislative branches about potential future liabilities of the federal government. These potential liabilities include federal credit; consequently, this renewed interest in federal credit reform. Credit reform would have to change the budgetary treatment of federal direct loans and federal guaranteed loans. Currently, the unified budget measures the cost of federal credit on a cash flow basis. Critics (including the Bush Administration) maintain that the appropriate budgetary measure of the costs of federal credit is the present value of the subsidies to credit recipients in the fiscal year that the credit is advanced. The Bush Administration's proposal for credit reform is presented in most detail in the Federal Credit Reform Act of 1989 (the Act), which was proposed but not enacted. The Act would have had federal officials estimate credit subsidies based on the equivalent interest rates in private credit markets. These subsidies would have been used to measure the budgetary cost of federal credit and would have required annual appropriations. Two credit revolving funds would have been established in the Treasury to finance credit flows. Many of these credit reform practices were included in the Omnibus Budget Reconciliation Act of 1990 though.     

EC Credit Assistance Programs in the Light of the US Experience: Budgetary, Financial and Political Aspects

The bulk of the subsidy cost of European Communities (EC) credit programs is not represented in the EC budget. The cost of EC loans and guarantees are not shown, and only token entries are included for the possible activation of guarantees connected to borrowing and lending. Only in the case of credit programs which entail an interest-rate subsidy, does the budget show an amount corresponding to the subsidy cost. EC budgeting and accounting methods, like those in most member states, hide the full cost of the EC credit programs. The lack of subsidy disclosure has political implications in terms of budget decision-making and control; budget authorities have neither adequate information to compare the trade-offs among the various credit assistance programs and other expenditure programs, nor to evaluate or measure the efficiency and effectiveness of credit operations. Moreover, the citizens of Europe, who are taxpayers both in their states and, to a lesser extent, in the Community, do not have a clear understanding of the costs and benefits of credit programs, either at the state or the EC level. The article refers to the US experience of federal credit reform, especially with regard to the disclosure of the cost of credit programs, as a good example of budget transparency and investigates to what extent this experience could be applied to the European Communities.     

Budget Deficits in the States: Illinois

During FY 2009 and FY 2010, the State of Illinois was faced with significant fiscal challenges. The national recession was adversely impacting the state's economy, while the state had been struggling since the last recession with operating budget deficits and large unfunded pension liabilities. In the spring of 2009, the Governor's Office of Budget and Management estimated that in the absence of any intervention, there would be a $4.3 billion budget deficit in FY 2009 and a $7.3 billion budget shortfall in FY 2010. This paper discusses the magnitude and nature of Illinois' fiscal problems and the factors that have contributed to this situation. It also discusses Governor Quinn's proposed budget for FY 2010, as well as the legislative response. Although the state passed a capital budget and an operating budget, the outlook for the future remains uncertain. The operating budget significantly relies on one-time revenue and funding sources (including $3.4 billion in debt) and the state has approximately $100 billion in unfunded accrued liabilities for pensions and other postemployment benefits.     

Regulatory budgeting: A bad idea whose time has come?

Advocates of regulatory relief propose a budget that would annually cap regulatory costs. But emulating fiscal budgeting would be much more difficult than they envision. An arbitrary macrobudgetary constraint would have to be selected, and the potential scope of the regulatory budget would be vast. The process of regulatory budgeting would be very-time consuming, and could increase micromanagement by the Congress. Estimating regulatory costs would be challenging, and ignoring regulatory benefits would be unfair and inefficient. A preferable alternative to regulatory budgeting would be to expand the Government Performance and Results Act to include cost-effectiveness reviews for regulations.     

Assigning priority to environmental policy interventions in a heterogeneous world

Failure to consider costs as well as benefits is common in many policy initiatives and analyses, particularly in the environmental arena. Economists and other policy scientists have demonstrated that integrating both cost and benefit information explicitly into the policy process can be vital to ensuring that scarce funds go as far as they can toward achieving policy objectives. The costs of acquiring and analyzing such information, however, can be substantial. The objective of this paper is to help policy analysts and practitioners identify the conditions under which integrating cost and benefit information is likely to be vital to effective decisionmaking, and the conditions under which failing to use both cost and benefit data would result in little, if any, loss in efficiency. These points are illustrated through a conceptual discussion and an empirical analysis of a conservation initiative in the United States. © 2003 by the Association for Public Policy Analysis and Management.     

Early retirees under Social Security: health status and economic resources

Some proposals to change the Social Security program to ensure long-run solvency would reduce or eliminate benefits for early retirees. This article documents the health and financial resources of Old-Age and Survivors Insurance (OASI) beneficiaries aged 62-64. It identifies a substantial minority of early retirees who might be economically vulnerable if either the early eligibility age or normal retirement age was raised. Attention is directed at the extent to which poor health limits work in this age group and the extent to which curtailment of early OASI benefits might lead to increases in the Disability Insurance (DI) program rolls. Using a set of comprehensive health measures, we estimate that over 20 percent of OASI beneficiaries aged 62-64 have health problems that substantially impair their ability to work. This finding implies that in this age range, as many severely disabled persons receive OASI benefits as disability benefits. In fact, 12 percent of early beneficiaries would meet a more stringent criterion for being classified "disabled"--SSA's medical standard for disability benefits. The evidence therefore indicates that OASI functions as a substantial, albeit unofficial, disability program for early retirees. Compared with those who have no health problems or are less severely impaired, early OASI beneficiaries who meet the medical criteria for disability benefits are more likely to be living alone and more likely to be poor or "near poor." The great majority of the group--almost 80 percent--are women. Analysis of their earnings histories suggests that most of these beneficiaries do not satisfy the insured-status requirements for Disability Insurance benefits. The article considers the different roles of the OASI program and the DI program for health-impaired individuals aged 62-64. Disability modelers sometimes overlook an important aspect of program administration. Under customary screening procedures implemented in Social Security field offices, applicants for early OASI benefits who appear to be severely impaired simultaneously apply for DI benefits if they are disability insured. If they are found eligible for DI benefits, those applicants become DI beneficiaries. The implication is that raising the earliest entitlement age would have little impact on the DI rolls. Unless there are changes in eligibility criteria, the DI program would not serve as a safety net for many of the most severely disabled early retirees.     

The widow(er)'s limit provision of Social Security

Widow benefits have been a part of the Social Security program since the 1939 amendments to the Social Security Act (widower benefits were added later). For many years, the Social Security law called for paying a widow(er) a fraction of the deceased worker's primary insurance amount (PIA). However, the worker--while alive--may have received the full PIA as his or her retirement benefit. Over time, arguments were made that a widow(er) should be treated as generously as his or her spouse was. The 1972 amendments to the Social Security Act allowed for a widow(er) to receive a full PIA, subject to actuarial reductions if the widow(er) benefit was claimed before the normal retirement age (NRA) and subject to a new provision of the law commonly referred to as the widow(er)'s limit. Generally, the widow(er)'s limit specifies that if a worker received reduced retirement benefits (because the worker claimed benefits before the NRA), then the worker's widow(er) cannot receive a monthly benefit equal to the full PIA. Rather, the widow(er)'s benefit is generally limited to the amount the worker would receive if he or she was still alive. The limit provision appears to be motivated by the overall intent of the 1972 Congress to pay a benefit to a widow(er) that was comparable with what the worker received. A number of changes to the limit provision have been discussed. This article looks at the following options: Abolishing the limit, Raising the limit by requiring that it never be set below the average PIA among all retired-worker beneficiaries. Adjusting the limit for some widow(er)s--that is, only persons who are widowed before the NRA (the ARLA option), Making a simpler adjustment to the limit by abolishing it for persons who are widowed before age 62 (the SARLA option), and A proposal by Robert J. Myers that would make modest adjustments to the limit for cases in which the worker died before the NRA. The most fundamental change--abolishing the limit--would increase benefits for about 2.8 million widow(er)s and would cost about $3.1 billion a year. Most of the additional government expenditures would not go to the poor and the near poor. Another change would be more successful in aiding low-income widow(er)s: requiring that the limit amount never be set below the average PIA among all retired-worker beneficiaries. About 58 percent of the government expenditures from that option would be received by the poor and the near poor. Overall, 1.2 million widow(er)s would be helped, and the cost would be about $816 million a year. Although the limit provision is consistent with the overall intent of the 1972 Congress, it can have effects that may have been unintended and that some policymakers might consider unusual. Persons who delay receipt of Social Security benefits usually receive higher monthly benefit amounts, but a widow(er) who faces a limit cannot increase his or her monthly benefit through delayed receipt of benefits. Thus, many persons who are widowed before the NRA face strong incentives to claim benefits early. That is somewhat unusual because the actuarial adjustments under Social Security are approximately fair, so there are no cost savings to the Social Security program from "forcing" a widow(er) to claim early benefits as opposed to allowing him or her to delay receipt of benefits in exchange for a higher monthly amount. And many widow(er)s would be better off if they could use the Social Security program to, in effect, save (that is, delay receipt of benefits in exchange for a higher amount later). This article analyzes two other options that would provide widow(er)s with additional filing options under Social Security. The ARLA option would ultimately help about 229,000 widow(er)s, and the cost would be small (about $69 million a year). The SARLA option would help about 117,000 widow(er)s, and the cost would be about $41 million a year. Robert J. Myers, a former Chief Actuary of Social Security, has offered a proposal that would provide relief from the widow(er)'s limit in cases in which the worker dies shortly after retirement. That proposal would help about 115,000 widow(er)s, and the cost would be low (about $57 million a year).     

The contractual nature of budgeting: A transaction cost perspective on the design of budgeting institutions

Viewing budgets as contracts, transaction cost theory focuses on the costs of negotiating and enforcing the myriad political agreements by which policymakers allocate the government's resources. This essay provides an overview of transaction cost theory and its implications for the design of budgeting institutions. It contrasts the behavioral premises (bounded rationality and opportunism) of the transaction cost approach with those of more traditional budgetary theories, and examines whether commitment and agency costs have structured budget actors' institutional choices. Investigation of the usage of key budget instruments- entitlements, multi-year appropriations, and tax expenditures - suggests that Congress has been more discriminating in its institutional choices than is commonly supposed. Sensitivity to the importance of transaction costs would increase the effectiveness of budget reforms.     

Social Security cost-of-living adjustments and the Consumer Price Index

OASDI benefits are indexed for inflation to protect beneficiaries from the loss of purchasing power implied by inflation. In the absence of such indexing, the purchasing power of Social Security benefits would be eroded as rising prices raise the cost of living. By statute, cost-of-living adjustments (COLAs) for Social Security benefits are calculated using the Bureau of Labor Statistics (BLS) Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Some argue that this index does not accurately reflect the inflation experienced by the elderly population and should be changed to an elderly-specific price index such as the Experimental Consumer Price Index for Americans 62 Years of Age and Older, often referred to as the Consumer Price Index for the Elderly (CPI-E). Others argue that the measure of inflation underlying the COLA is technically biased, causing it to overestimate changes in the cost of living. This argument implies that current COLAs tend to increase, rather than merely maintain, the purchasing power of benefits over time. Potential bias in the CPI as a cost-of-living index arises from a number of sources, including incomplete accounting for the ability of consumers to substitute goods or change purchasing outlets in response to relative price changes. The BLS has constructed a new index called the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) that better accounts for those consumer adjustments. Price indexes are not true cost-of-living indexes, but approximations of cost-of-living indexes (COLI). The Bureau of Labor Statistics (2006a) explains the difference between the two: As it pertains to the CPI, the COLI for the current month is based on the answer to the following question: "What is the cost, at this month ' market prices, of achieving the standard of living actually attained in the base period?" This cost is a hypothetical expenditure-the lowest expenditure level necessary at this month's prices to achieve the base-period's living standard.... Unfortunately, because the cost of achieving a living standard cannot be observed directly, in operational terms, a COLI can only be approximated. Although the CPI cannot be said to equal a cost-of-living index, the concept of the COLI provides the CPI's measurement objective and the standard by which we define any bias in the CPI. While all versions of the CPI only approximate the actual changes in the cost of living, the CPI-E has several additional technical limitations. First, the CPI-E may better account for the goods and services typically purchased by the elderly, but the expenditure weights for the elderly are the only difference between the CPI-E and CPI-W. These weights are based on a much smaller sample than the other two indices, making it less precise. Second, the CPI-E does not account for differences in retail outlets frequented by the aged population or the prices they pay. Finally, the purchasing population measured in the CPI-E is not necessarily identical to the Social Security beneficiary population, where more than one-fifth of OASDI beneficiaries are under age 62. Likewise, over one-fifth of persons aged 62 or older are not beneficiaries, but they are included in the CPI-E population. Finally, changes in the index used to calculate COLAs directly affect the amount of benefits paid, and as a result, projected solvency of the Social Security program. A switch to the CPI-E for the December 2006 COLA (received in January 2007) would have resulted in an average monthly benefit OASDI benefits are indexed for inflation to protect beneficiaries from the loss of purchasing power implied by inflation. In the absence of such indexing, the purchasing power of Social Security benefits would be eroded as rising prices raise the cost of living. By statute, cost-of-living adjustments (COLAs) for Social Security benefits are calculated using the Bureau of Labor Statistics (BLS) Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Some argue that this index does not accurately reflect the inflation experienced by the elderly population and should be changed to an elderly-specific price index such as the Experimental Consumer Price Index for Americans 62 Years of Age and Older, often referred to as the Consumer Price Index for the Elderly (CPI-E). Others argue that the measure of inflation underlying the COLA is technically biased, causing it to overestimate changes in the cost of living. This argument implies that current COLAs tend to increase, rather than merely maintain, the purchasing power of benefits over time. Potential bias in the CPI as a cost-of-living index arises from a number of sources, including incomplete accounting for the ability of consumers to substitute goods or change purchasing outlets in response to relative price changes. The BLS has constructed a new index called the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) that better accounts for those consumer adjustments. Price indexes are not true cost-of-living indexes, but approximations of cost-of-living indexes (COLI). The Bureau of Labor Statistics (2006a) explains the difference between the two: As it pertains to the CPI, the COLI for the current month is based on the answer to the following question: "What is the cost, at this month ' market prices, of achieving the standard of living actually attained in the base period?" This cost is a hypothetical expenditure-the lowest expenditure level necessary at this month's prices to achieve the base-period's living standard.... Unfortunately, because the cost of achieving a living standard cannot be observed directly, in operational terms, a COLI can only be approximated. Although the CPI cannot be said to equal a cost-of-living index, the concept of the COLI provides the CPI's measurement objective and the standard by which we define any bias in the CPI. While all versions of the CPI only approximate the actual changes in the cost of living, the CPI-E has several additional technical limitations. First, the CPI-E may better account for the goods and services typically purchased by the elderly, but the expenditure weights for the elderly are the only difference between the CPI-E and CPI-W. These weights are based on a much smaller sample than the other two indices, making it less precise. Second, the CPI-E does not account for differences in retail outlets frequented by the aged population or the prices they pay. Finally, the purchasing population measured in the CPI-E is not necessarily identical to the Social Security beneficiary population, where more than one-fifth of OASDI beneficiaries are under age 62. Likewise, over one-fifth of persons aged 62 or older are not beneficiaries, but they are included in the CPI-E population. Finally, changes in the index used to calculate COLAs directly affect the amount of benefits paid, and as a result, projected solvency of the Social Security program. A switch to the CPI-E for the December 2006 COLA (received in January 2007) would have resulted in an average monthly benefit $0.90 higher than that received. If the December 2006 COLA had been adjusted by the Chained CPI-U instead, the average monthly benefit would have been $4.70 less than with current indexing. Any changes to the COLA that would cause faster growth in individual benefits would make the projected date of insolvency sooner, while slower growth would delay insolvency. Hobijn and Lagakos (2003) estimated that switching to the CPI-E for COLAs would move projected insolvency sooner by 3-5 years. A projection by SSA's Office of the Chief Actuary estimated that annual COLAs based on the Chained C-CPI-U beginning in 2006 would delay the date of OASDI insolvency by 4 years.     

SSI eligibility and participation among the oldest old: evidence from the AHEAD

The proportion of elderly SSI recipients aged 70 or older has been growing in recent years, perhaps because of rising life expectancies overall and a higher incidence of poverty among the oldest old. In 1999, 84 percent of all elderly SSI recipients were 70 or older. This article examines Supplemental Security Income (SSI) eligibility and participation among the oldest old. The analysis was based on 1993 data from the Study of Assets and Health Dynamics Among the Oldest Old that were used to build a detailed SSI eligibility model to identify individuals who meet the federal criteria for SSI income and resource eligibility. The participation rate among those eligible for federal SSI benefits is 53.9 percent, which is generally consistent with the findings of other studies. Furthermore, eligible participants would receive a significantly higher federal SSI benefit than eligible nonparticipants. Correspondingly, eligible participants have significantly lower incomes and assets than eligible nonparticipants. An econometric model is used to estimate the influence of various demographic, financial, and health care use characteristics on the probability of SSI participation among eligible individuals and couples. The model corrects for measurement error in calculated benefits and for misclassifying someone as ineligible. The empirical results show that the effect of higher SSI benefits on the probability of participation is substantial--a $100 increase in benefits would increase the probability of participating for an average eligible unit by 15 percentage points. Many of the demographic, financial, and health care use variables also are important predictors of SSI participation among the oldest old. The eligibility and participation models are also used to simulate the effect of increasing the SSI unearned income disregard from $20 to $125. Those made eligible by this policy change would receive a very low federal SSI benefit on average, suggesting that they are on the margin of eligibility under the original program rules. The simulated participation rate is 48.8 percent--5 percentage points lower than under the original program rules--reflecting the low benefit that new eligibles would receive. Only 36 percent of those made eligible by the new program rules are predicted to participate. These SSI eligibility and participation models are potentially useful tools for policy analysis. It is fairly straightforward to use these models to change a feature of SSI eligibility, reestimate the group of eligible individuals and couples, and predict participation among those who are eligible under the simulated program rules. New eligibles can be compared with those eligible under original program rules. New participants can be compared with old participants. Although these models focus only on individuals aged 70 or older, this type of analysis can be helpful in estimating the potential distributional effects of proposed SSI policy changes.     

State and Local Fiscal Sustainability: The Challenges

At the state and local level, fiscal sustainability is the long‐run capability of a government to consistently meet its financial responsibilities. It reflects the adequacy of available revenues to ensure the continued provision of the service and capital levels that the public demands. After examining separate revenue and expenditure trends for state and local governments, this article identifies three specific sets of pressures that affect subnational fiscal sustainability—cyclical, structural, and intergovernmental. It then presents three specific examples of these pressures: Medicaid, pensions and retiree health benefits, and infrastructure. The author asserts that without changes in the fiscal system—in both revenues and expenditures—state and local fiscal sustainability will disappear. It concludes with some potential solutions but argues that the most difficult reform is to ensure that the public understands that there is no such thing as a free lunch.     

Reforming Credit Reform

The Federal Credit Reform Act (FCRA) improved the treatment of credit in the federal budget, but failed to make the budget cost of credit and noncredit programs fully comparable. Inconsistencies and downwardly biased credit costs arise from the restriction under FCRA that cash flows be discounted at Treasury rates, and from the omission of certain administrative costs. We describe the shortcomings of FCRA and policy distortions that may occur, and propose modifications to the Act that would more closely align budget costs of credit and noncredit programs.     

Longitudinal outcomes of an early cohort of Ticket to Work participants

Using 2004-2006 National Beneficiary Survey data matched to Social Security administrative data, we follow a cohort of disability beneficiaries participating in the Ticket to Work (TTW) program for several years to assess changes in their service use, health status, employment, and income. About 20 percent of TTW participants achieved employment at levels that would significantly reduce their disability benefits. Another 40 percent achieved some employment success, but the remaining 40 percent reported no earnings during 2003-2005. Use of TTW support services during 2003-2005 was modest. Many participants experienced significant changes in their health status across survey rounds, which might have affected their ability to actively participate in TTW and to become employed. Many also experienced significant employment and income instability. The findings suggest that employment among TTW participants was associated with reduced poverty.