This column normally focuses on benefits issues,
not politics; but government actions have a large impact on benefits
and the disabled persons who receive them. This month’s article takes a
look at three actions by the federal government that directly affect
people dealing with disability, namely:
Reallocation of funds between Social Security trust funds, which could have a dramatic effect on anyone collecting Social Security Disability;
Accountable Care Organizations (ACOs) under Obamacare which looks to become an effective tool at reducing medical costs; and,
Enactment of ABLE accounts, a recent federal law which could help disabled persons save money tax-free.
Reallocation of Trust Funds
This is the item that could have the quickest and
most severe impact on people collecting Social Security Disability
A little background: The
F.I.C.A. payroll taxes that pay Social Security Retirement and
Disability beneficiaries go into two separate trust funds, the
Retirement Trust Fund and the Disability Trust Fund. They are split by a
formula that has been in effect for many years.
formula does not accurately reflect the payouts from each fund,
periodically, the House of Representatives, which initiates budget
issues, must “reallocate” funds from one trust fund to the other in
order to maintain full payments to both groups of beneficiaries. This
is usually a fairly routine procedure and has been done eleven times
since 1968 with no opposition or problems, regardless of the political
party in control of the House. Due to the age of the allocation formula
and the shifts in types of labor, age of workforce, and advancing the
retirement age to 67, the reallocation of funds usually has been from
the Retirement Fund into the Disability Fund.
If there is no reallocation of
money into the Disability Trust Fund from the much larger Retirement
Fund, before December, 2016, SSDI benefits will be cut 16 – 20% for the
11,000,000 disabled people currently receiving benefits.
On the first day of the new
Congress, the new majority adopted a “rule” about reallocation without
consulting the minority party. Instead of simply approving the
reallocation as in the past, now a reallocation bill can only be
considered if it comes with an accompanying proposal which “improves
the actuarial balance” of both funds. In other words, disabled people’s
SSDI benefits will be cut by up to 1/5 unless there is a plan on the
table to put both Trust Funds into more permanent solvency, i.e., a
major rewrite of the entire Social Security retirement and disability
Note that this is only a “rule”
change, not a law. So it is now in effect; neither the Senate nor the
President can do anything to stop it.
Supporters of this new rule
have frequently tried to portray SSDI as too easy to get and claim
almost anyone can walk in and get it. Any disabled person who has gone
through the application and appeal process will have no problem
appreciating the total inaccuracy of that.
One senator maintains that over
half the recipients are either anxious or have a sore back, saying,
“Join the club. Who doesn’t get up a little anxious for work and their
In 2011, the last year for when numbers are available, all types of mood disorders plus all types
of musculoskeletal issues comprised less than 45% of total worker
beneficiaries, which includes far more conditions than anxiety and a
The reason for the new rule, according to its
supporters, is to push Congress to address the inadequacy of current
revenue and benefits payouts and stop “kicking the can down the road.”
Those opposed to the new rules, which include
virtually all of the disabled community and its advocates, accused the
House of holding the disabled hostage. Who is correct?
While the supporters focused on
anecdotes, the Government Accounting Office (GAO) performed an audit
of improper SSDI payments and issued its report in 2013 (GAO13-635). It
concluded only 0.4% of beneficiaries received overpayments, or
payments for which they were not able–not even 1% of the total benefits
The proposed budget recently
issued by The White House specifically calls for a reallocation into
the Disability Trust Fund, but that is only a proposal at present.
There is a possibility that, if
pushed, the majority in the House may postpone this rule, however,
that risks the rule or something like it being brought up in future
years similar to other issues such as expanding the debt limit or
threatening to cut successful, popular, and necessary programs. At
present the rule is in place, and, if not changed or postponed, SSDI
beneficiaries will see a large cut in their benefits by the end of
Accountable Care Organizations (ACOs)
One of the provisions of
the Affordable Care Act (aka Obamacare) created ACOs in an attempt to
control the rapidly rising medical costs. An ACO is a group of doctors,
hospitals, and other health care providers who come together
voluntarily to give coordinated high quality care to their patients.
This would save costs by avoiding unnecessary duplication of services
and prevent medical errors.
The goal of coordinated care is
to ensure that patients, especially the chronically ill such as those
with HCV and HIV, get the right care at the right time. When an ACO
succeeds both in delivering high quality care AND spending health care
dollars more wisely, it will share in the savings it achieves.
This may sound a little like
the HMO model for health care, and the goals are definitely similar in
that it attempts to move away from paying by the treatment provided
(fee-for-service) and tie payment more to health outcomes. What
separates an ACO from an HMO is the patient is not locked in to any set
of providers or hospitals where they must go for treatment.
Beneficiaries can still go to any doctor or hospital.
Under the terms of Obamacare,
the ACO will be responsible for all the care needs for a group of
patients and will be paid based on those patients’ health outcomes,
satisfaction, and costs.
By having the various medical
providers working together more closely, health outcomes will be
improved, there will be less wasted dollars from duplicate and
unnecessary procedures being performed, fewer and shorter hospital
stays, and greater patient satisfaction. The indications so far are
ABLE Savings Accounts
In December, 2014,
Congress passed and the President signed the Achieving a Better Life
Experience (ABLE) Act. Similar to the tax-sheltered 529 College Savings
Accounts, it allows people with disabilities to establish a
tax-sheltered fund to assist with expenses.
To qualify, a person must have
been diagnosed by age 26 with a disability that results in “marked and
severe functional limitations;” those receiving Social Security
disability benefits would also qualify. Note that there is no age limit
to establishing the fund, but diagnosis of the condition must have
occurred while the disabled beneficiary is age 26 or less. While this
would eliminate anyone diagnosed with HCV after age 26, it could be a
significant tool for those who are eligible.
The beneficiary, family, and
friends could set up and fund a tax-free at financial institutions,
depositing up to $14,000 per year. Funds could be used for housing,
health care expenses, transportation, education, employment training,
personal support services, financial management, and administrative
services. The contributions would be with after-tax dollars but
earnings would grow tax-free.
The maximum amount of the fund
would be the same as each state’s maximum for the 529 Education
Tax-Free Funds. A major advantage is that as long as the fund remains
below $100,000, the beneficiary would still be eligible for Supplemental
Security Income (SSI) benefits. Regardless of the fund size,
eligibility for Medicaid would continue.
The ABLE Fund would have
significant advantages over the Special Needs Trust, currently used to
maintain eligibility for needs-based public programs. They are much
less expensive to set up, and they do not have the significant
limitations on the use of the funds.
For more information contact a
financial planner or a banker. States may also set up funding plans as
they do with the Education Accounts.
Labels: ABLE Accounts, ACOs, Disability & Benefits, Reallocation