Pension Matters

State Employees Retirement Fund
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March 2014

Governor’s Proposal for Detroit Pensions Getting it from Both Sides

Fitch Ratings agency on Monday said Snyder’s proposal to contribute $350 million in state aid toward Detroit’s unfunded pension liability “ could establish a troubling precedent” as it places pensioners ahead of bondholders. However, in a statement issued last week, the National Public Pension Coalition said it appreciates the gesture but that it “ is far too little to avoid unconstitutional cuts in benefits for retirees who, on average, earn less than $30,000 per year.” www.governing.com/topics/finance/gov-fitch-detroit-plan-bad-for-business.html

According to an article from Reuters — “Foundations seeking to protect Detroit’s public pensions and its art museum in the city’s bankruptcy process raised their pledge total to $370 million on Tuesday with the addition of a $40 million commitment from the W.K. Kellogg Foundation.” www.wtaq.com/news/articles/2014/jan/28/foundation-pledges-for-detroit-pensions-art-rise-to-370-million

Favorite Quote

So when it comes to public pensions, elected officials have arrived at a formula that suits them well: Never do today what you can do tomorrow. And don’t do it then, either.”
Steve Chapman, a member of the Tribune Editorial Board

The National Institute on Retirement Security (NIRS) today issued the following statement by Diane Oakley, executive director of the National Institute on Retirement Security.

Introduction of the USA Retirement Fund Act today by Senate Health, Education, Labor and Pension Committee Chairman Tom Harkin represents a significant leap forward to improve the nation’s retirement security for generations.  The current retirement infrastructure does not work for nearly half of the workforce, which has no access to a retirement plan through their employer.  A wide body of research indicates that saving automatically via a payroll deduction enables more working Americans to prepare for retirement.

This new proposal could go a long way to put Americans on a solid financial track for their future.  USA Retirement Funds are structured to provide access for all working Americans to a pension plan via a payroll deduction in a way that is portable, less costly, and flexible without creating administrative burdens for employers.  Another key feature is that the proposal provides a lifetime benefit that won’t run out while also providing risk sharing.

Governor Not Interested In Getting Rid Of Pension Tax

Michigan’s large budget surplus won’t be used to reduce or eliminate the pension tax. Governor Snyder still claims “it’s an issue of fairness” that retirees have their pension taxed. He is considering increasing the personal tax exemption on the first $4000 of income. Let’s see how much trickles down to us.

Again the Feds Step in to Pay Corporate Pensions

Pension Benefit Guaranty Corporation (PBGC) will pay retirement benefits for more than 4,400 current and future retirees of Constar Inc., a plastic container manufacturer based in Trevose, Pa. just outside Philadelphia. The agency stepped in because the company is selling the majority of its assets in bankruptcy proceedings and the buyer isn’t assuming responsibility for the pension plan.

PBGC will pay all pension benefits earned by Constar’s retirees up to the legal limit of about $59,320 for a 65-year-old. Retirees will continue to get benefits without interruption, and future retirees can apply for benefits as soon as they are eligible.

Good News for Social Security

According to the Economic Policy Institute (EPI) President Obama removed the “ chained” consumer price index (CPI) cost of living adjustment (COLA) from his latest budget.

Society of Actuaries (SOA) Blue Ribbon Panel Findings

“Public retirement systems should use a forward-looking rate to discount pension liabilities rather than actual plan returns”, according to a report issued by an independent panel commissioned by the Society of Actuaries. The Panel recommends that, “actuarial opinions be included in the determination of the reasonableness of all funding assumptions and methods”.

It is also recommended that a “new rate replace the actual long-term rate of return on plan assets generally used now to discount liabilities and set contribution levels”, according to the report, which outlined actions recommended by the SOA to strengthen funding of public defined benefit plans. You can find a link to the report at www.soa.org/

Retirement Calculators

Take a look at this list of calculators to help with retirement planning. www.bankrate.com/calculators/index-of-retirement-calculators.aspx

How are the top 1% Doing in Michigan

The Economic Policy Institute (EPI) has put together a new feature to see income growth trends of the top 1 percent versus the other 99 percent in each of the states. Check out Michigan http://tiny.cc/m7l7bx . Just type Michigan in the box.

Minimum Wage

Governing obtained new 2013 estimates from the Labor Department showing how many workers in each state earn wages at or below the federal rate. Below is the data for Michigan

Michigan 3.8% of hourly workers earned wages at or below $7.25. Under minimum wage: 79,000 At minimum wage: 17,000 At or below minimum wage: 96,000 Total hourly employment:2,531,000

Read the whole article at www.governing.com/news/headlines/gov-states-with-lowest-paid-workers.html

(I am taking the liberty of exploring an issue many of us may not be aware of when it comes to hospitalization under our Medicare coverage. “Observation services” is becoming a new treatment option that costs us by not being an “inpatient”. Read on.

Being Hospitalized Does not Necessarily Mean you are an Inpatient for Payment Purposes

According to Medicare, “Your doctor may order ‘observation services’ (OS) to help decide whether you need to be admitted to the hospital as an inpatient or can be discharged. During the time you’re getting observation services in the hospital, you’re considered an outpatient.” Thus are not covered under Part A of Medicare. Your coverage would be under Part B.

What determines whether a patient is classified as an inpatient or placed under observation? Usually the call is made by the hospital, which, in many cases, may overrule the patient’s own physician. But Medicare’s guidelines are not clear, and many experts suggest that hospitals are placing more and more patients under observation to protect themselves against new policies that penalize hospitals for unnecessary admissions and frequent readmissions of the same patient.

While the reasons for these increases in OS use are not entirely clear, a number of factors appear to have contributed to its growth including: (1) Medicare payment policy changes; (2) increased scrutiny by both public and private payers of short inpatient stays; (3) efficiency advantages for hospitals of OS over inpatient admission; (4) increased reporting; and (5) incentives to reduce hospital admissions by increasing OS use to avoid readmission penalties. Since readmission penalties took effect in 2012, incentives to avoid them appear likely to drive up the use of OS even more.

In an effort to rein in spiraling costs, Medicare is now taking a tougher line with hospitals, sending auditors to investigate not only fraud but also cases in which the agency thinks that “medically unnecessary” hospitalizations have occurred. Also, to improve the quality of care, Medicare will soon start penalizing hospitals that readmit patients in less than 30 days  — raising the question of whether hospitals might label people as observation patients so that they cannot be counted as readmissions if they happen to return. Cost-control measures are “perfectly understandable,” says Zhanlian Feng, the Brown University study’s lead author. “On the other hand, those policies may have unintended consequences” that affect patients adversely.

The American Hospital Association says that hospitals are placed in an untenable position. On the one hand, they risk penalties if they admit patients for short stays. Yet they anger patients who are put under observation. www.aarp.org/health/medicare-insurance/info-08-2012/medicare-inpatient-vs-outpatient-under-observation.2.html

 Between 2001 and 2009, Medicare claims for observation services grew by more than 100%.  The duration of observation service visits has also increased.  Observation service lasting 48 hours or longer had the greatest increase — over 250%.  So what does this mean?

The magnitude of these changes raises concerns that observation is becoming a substitute for inpatient admission.  Unlike inpatient coverage, there is no limit on what a Medicare beneficiary may have to pay for observation services in a hospital.  Beneficiaries could also be stuck with huge bills for skilled follow up care.  Some patients may even forego needed skilled care because of the associated cost.

The good news is that bipartisan legislation has been introduced in both the House and Senate to count the time spent in observation toward the three-day hospital stay requirement. The legislation, the Improving Access to Medicare Coverage Act of 2013 (H.R. 1179/S. 569), has been endorsed by AARP. - See more at AARP web sites http://tiny.cc/pvm7bx, and http://tiny.cc/3wm7bx

According to a suit filed against CMS by the American Hospital Association, “In recent years, however, some federal contractors, Department of Justice lawyers and qui tam relators’ (whistleblower suits) have lost sight of the central role of the treating physician.”

Recovery Audit Contractors (“ RACs” ) and similar entities — which are charged with auditing Medicare claims and paid on a contingency fee basis — have started denying large numbers of claims for short inpatient stays. The contractors’ view, unlike the treating physician’s, is always in hindsight and therefore can focus on the patient’s length of stay rather than his or her presenting condition.

Thus, it is not surprising that Medicare contractors conclude that many patients who were admitted as inpatients could instead have been placed in observation status. Hospitals must incur substantial costs appealing those decisions (the great majority of which are ultimately reversed in favor of the treating physician’s judgment) or forgo payment for the claims in question. www.aha.org/content/12/120427-aha-amici-brief.pdf

Make sure you understand under what circumstances you are being kept in the hospital. Medicare will only pay for your hospitalization as an “inpatient” not “observation status”.

Editor’s note: June Morse may be contacted at jmorse10@comcast.net or 517-886-9323.

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