SOCIAL SECURITY ACT AMENDMENTS OF 1983 REPORT OF THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES ON H.R. 1900 TOGETHER WITH ADDITIONAL AND DISSENTING VIEWS

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-00003R000200140003-8
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• Document Release Date: October 30, 2008
• Sequence Number: 3
• Publication Date: March 4, 1983
• Content Type: REPORT

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98TH CONGRESS
1st Session
HOUSE OF REPRESENTATIVES REPT. 98-25
1 Part 1
SOCIAL SECURITY ACT AMENDMENTS
OF 1983
REPORT
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
H.R. 1900
together with
ADDITIONAL AND DISSENTING VIEWS
MARCH 4, 1983.-Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
17-3990 WASHINGTON : 1983
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CONTENTS
1. Purpose and scope .................................................................................................
II. Summary of principal provisions .......................................................................
III. General explanation ............................................................ ...........
A. Provisions affecting the financing of the social security system (title
I) .......................................................................................................................
1. General discussion ........................................................................................
a. Coverage .................................................................................................
b. Computation of benefit amounts .......................................................
c. Revenue provisions ...............................................................................
d. Benefits for certain surviving, divorced, and disabled spouses....
e. Mechanisms to assure continued benefit payments in unex-
pectedly adverse conditions .............................................................
f. Other financing amendments .............................................................
2. Section-by-section explanation ...................................................................
B. Additional provisions relating to long-term financing of the social
security system (title II) ...............................................................................
1. General discussion ................................................................................
2. Section-by-section explanation ...........................................................
C. Miscellaneous and technical social security provisions (title III)...........
1. General discussion ........................................................................................
a. Cash management ................................................................................
b. Elimination of gender-based distinctions .........................................
c. Coverage .................................................................................................
d. Other amendments ...............................................................................
2. Section-by-section explanation ...................................................................
D. Supplemental security income provisions (title IV) ..................................
1. Summary ........................................................................................................
2. Comparison with present law ....................................................................
3. Section-by-section explanation ...................................................................
E. Unemployment compensation provisions (title V) ....................................
1. Overview ........................................................................................................
2. Comparison with present law ....................................................................
3. Section-by-section explanation ...................................................................
F. Prospective payments for medicare inpatient hospital services (title
VI) ....................................................................................................................
1. General discussion ........................................................................................
2. Section-by-section explanation ...................................................................
IV. Cost estimates and actuarial analysis ...............................................................
V. Vote of the committee and other matters to be discussed under the
Rules of the House ............................................................................................
VI. Changes in existing law made by the bill as reported ...................................
VII. Additional views ................................................... :................................................
VIII. Dissenting views ....................................................................................................
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98TH CONGRESS I HOUSE OF REPRESENTATIVES ( REir. 98-25
1st Session J Part 1
SOCIAL SECURITY ACT AMENDMENTS OF 1983
MR. ROSTENKOWSKI, from the Committee on Ways and Means,
submitted the following
REPORT
[To accompany H.R. 1900]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means to whom was referred the
bill (H.R. 1900) to assure the solvency of the Social Security Trust
Funds, to reform the medicare reimbursement of hospitals, to
extend the Federal supplemental compensation program, and for
other purposes, having considered the same, report favorably there-
on without amendment and recommend that the bill do pass.
1. PURPOSE AND SCOPE
The Social Security Act Amendments of 1983 include amend-
ments to the social security, medicare, supplemental security
income and unemployment compensation programs. The primary
focus of your Committee's bill is on restoring the financial sound-
ness of the old age and survivors' insurance (OASI) program, which
is facing severe cash shortfalls over the next 7 years. The Congress
took major steps in 1977 to address the financing crisis facing the
social security system at that time, and to reduce the long-term
deficit projected for the next century. However, the performance of
the economy during the period since 1977 has resulted in an even
more severe short-term financing shortfall for the OASI program
than existed in 1977. The reserves of the OASI Trust Fund were
exhausted at the end of 1982, which necessitated borrowing $17.5
billion from the DI and HI funds to assure timely OASI benefit
payments through June 1983. Your Committee's bill resolves that
short-term problem.
In addition, your Committee has been deeply concerned about
the serious decline in public confidence in the social security
system. This lack of confidence is particularly apparent on the part
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of young workers, many of whom apparently are convinced that be-
cause the system is projected to have a long-term financing deficit,
social security benefits will not be available when they retire after
the turn of the century. The 1977 Social Security Amendments re-
duced the long-term deficit then projected of over 8 percent of tax-
able payroll to 1.4 percent of payroll. This deficit has increased
somewhat since 1977 to 2.09 percent of payroll, primarily because
of changes in actuarial assumptions about long-range fertility
rates, which affect the numbers of both workers contributing to
and beneficiaries receiving benefits from the system, and real wage
growth, which affects income to the system and increases in bene-
fits to be paid out.
In your Committee's view the long-term deficit is a problem
which must be addressed in order to restore public confidence in
the social security system. Therefore, the combination of revenue
increases and benefit modifications contained in the bill both as-
sures the trust funds against short-term cash shortfalls, and elimi-
nates the currently projected long-term deficit.
The bill also provides for changes in several other Social Security
Act programs. In Title IV of the bill your Committee has provided
an increase in supplemental security income payments to compen-
sate for delay of the social security cost-of-living increase from July
1983 to January 1984, as well as other minor improvements in SSI
protection. Title V of the bill extends the Federal Supplemental
Compensation program through September 1983, with some modifi-
cations in the current FSC program, and in addition contains cer-
tain other unemployment compensation amendments. Title VI pro-
vides for the implementation of a prospective payments system for
medicare inpatient hospital services.
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II. SUMMARY OF PRINCIPAL PROVISIONS
Consistent with the policy of your Committee and the Congress
to maintain the social security program on a sound financial basis,
your Committee's bill makes provision for assuring both the short-
and long-term financial stability of the program. To accomplish
this purpose, your Committee's bill includes provisions that would
expand coverage to several groups of workers previously excluded
from participation in the program, provide mechanisms to assure
the continued timely payment of social security benefits even
under adverse economic circumstances, increase revenues to the
trust funds, improve benefits for certain surviving, disabled and di-
vorced spouses and make revisions in the benefit computation
methodology for certain groups of beneficiaries.
In addition, your Committee's bill includes provisions relating to
supplementary security income benefits, extension of the Federal
Supplemental Compensation (FSC) program, and the implementa-
tion of a prospective reimbursement system for medicare inpatient
hospital services. A summary of the provisions of your Committee's
bill follows.
TITLE I. PROVISIONS AFFECTING THE FINANCING OF THE
SOCIAL SECURITY SYSTEM
1. FEDERAL EMPLOYEES
Provides for coverage under social security of the following
groups: (1) all Federal employees hired on or after January 1, 1984,
including those with previous periods of Federal service; (2) legisla-
tive branch employees on the same basis, as well as all current em-
ployees of the legislative branch who are not participating in the
Civil Service Retirement System as of December 31, 1983; (3) all
current and future Members of Congress, the President and the
Vice-President effective January 1, 1984; (4) all new employees of
the judicial branch, including judges, on or after January 1, 1984;
(5) all sitting Federal judges, and all executive level and senior ex-
ecutive service political appointees, as of January 1, 1984.
2. EMPLOYEES OF NONPROFIT ORGANIZAITONS
Extends social security coverage on a mandatory basis to all em-
ployees of nonprofit organizations as of January 1, 1984. (A special
insured status requirement would be provided for nonprofit em-
ployees age 55 or older affected by this provision.)
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3. PROHIBIT TERMINATION BY STATE AND LOCAL GOVERNMENTS
Prohibits State and local governments from terminating coverage
for their employees if the termination has not taken effect by the
date legislation is enacted, and allows State and local governments
which have withdrawn from the social security system to voluntar-
ily rejoin.
1. DELAY COST-OF-LIVING ADJUSTMENT
Delays the June 1983 cost-of-living adjustment until December
(January 1984 check), and provides all subsequent cost-of-living ad-
justments in December (January checks). A cost-of-living adjust-
ment would be provided in the January 1984 payment even if the
increase in the CPI is less than 3 percent.
2. STABILIZER
Provides that beginning with 1988, if the fund ratio of the com-
bined OASDI Trust Funds as of the beginning of a year is less than
20 percent, the automatic cost-of-living adjustment (COLA) of
OASDI benefits would be based on the lower of the CPI increase or
the increase in average wages. A "catch up" benefit payment
would be made in a subsequent year whenever trust fund reserves
reach at least 32 percent.
3. WINDFALL BENEFITS
Modifies the social security benefit formula (substituting 61 per-
cent for the 90 percent in the first bracket of the formula) so as to
reduce social security benefits received by workers who are eligible
for a pension from noncovered work but who have worked long
enough in covered employment to be eligible for social security
benefits. This formula would apply only to those reaching age 60
after 1983.
4. DELAYED RETIREMENT CREDIT
Gradually increases the delayed retirement credit from 3 percent
to 8 percent per year between 1990 and 2008.
1. TAXATION OF SOCIAL SECURITY (OASDI) BENEFITS FOR HIGHER-
INCOME PERSONS
Includes in taxable income, beginning in 1984, a portion of social
security benefits and Tier One benefits payable under the Railroad
Retirement Act for taxpayers whose adjusted gross income com-
bined with 50 percent of their benefits exceeds a base amount. The
base amount would be $25,000 for an individual, $32,000 for a mar-
ried couple filing a joint return and zero for married persons filing
separate returns. The amount of benefits that could be included in
taxable income would be the lesser of one-half of benefits or one-
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half of the excess of the taxpayers' combined income (adjusted
gross income plus one-half of benefits) over the base amount.
The proceeds from the taxation of benefits, as estimated by the
Treasury Department, would be transferred to the appropriate
trust funds.
2. FICA TAX RATES (OASDI)
Advances the payroll tax increase scheduled for 1985 to 1984 and
part of the increase scheduled for 1990 to 1988, as indicated below.
(Conforming changes would be made in the Tier One Railroad Re-
tirement Tax rates.)
1984
................................................................................................................................................
5.40
5.70
1985
................................................................................................................................................
5.70
5.70
1986
................................................................................................................................................
5.70
5.70
1987
................................................................................................................................................
5.70
5.70
1988
................................................................................................................................................
5.70
6.06
1989
................................................................................................................................................
5.70
6.06
1990
................................................................................................................................................
6.20
6.20
3. TAX CREDIT FOR 1984 FICA TAXES
Provides for a one time credit of 0.3 percent of wages to be al-
lowed against 1984 employee FICA and Tier One Railroad Retire-
ment taxes. Appropriations to the trust funds would be based on a
5.7 percent rate. Conforming changes would be made in Tier One
Railroad Retirement Tax rates.
Beginning in 1984, the OASDHI rates for self-employed persons
would be equal to the combined employer-employee OASDHI rate.
In addition, self-employed persons would be allowed a SECA tax
credit of 2.1 percent of net self-employment income in 1984, 1.8 per-
cent from 1985 through 1987 and 1.9 percent thereafter.
D. BENEFITS FOR CERTAIN SURVIVING, DIVORCED AND DISABLED
SPOUSES
Includes provisions to continue benefits for a surviving divorced
or disabled spouse who remarries, to increase benefits for disabled
widows and widowers and for widows whose husbands died several
years before the widow is eligible for benefits, and to allow di-
vorced spouses to draw spouses' benefits at age 62 whether or not
the former spouse has retired.
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E. MECHANISMS To ASSURE CONTINUED BENEFIT PAYMENTS IN
ADVERSE CONDITIONS
1. INTERFUND BORROWING
Authorizes interfund borrowing between the OASI, DI and HI
trust funds for calendar years 1983-1987, with provision for repay-
ment of the principal and interest of all such loans (including
amounts borrowed in 1982) at the earliest feasible time but not
later than the end of calendar year 1989.
2. FIXED MONTHLY TAX TRANSFERS
Provides for an acceleration of the tax transfer mechanism under
which the Treasury would credit to the OASDHI Trust Funds, at
the beginning of each month, the amount of payroll tax revenues
that is estimated to be received during the month. These amounts
would be invested by the trust funds as all other assets are invest-
ed, and the trust fund would pay interest to the general fund on
these amounts.
3. MANAGING TRUSTEE REPORT TO THE CONGRESS CONCERNING TRUST
FUND SHORTFALLS
Requires the Board of Trustees to report immediately to Con-
gress whenever the amount in any trust fund is unduly small and
to recommend in that report a specific legislative plan to remedy
the shortfall. Any plan must be enacted by Congress before taking
effect.
F. REIMBURSEMENT TO TRUST FUNDS FOR MILITARY WAGE CREDITS
AND UNCASHED OASDI CHECKS
Provides for a lump-sum payment to the OASDI Trust Funds
from the General Fund of the Treasury for: (i) The present value of
the estimated additional benefits arising from the gratuitous mili-
tary service wage credits for service before 1957; (ii) the amount of
the combined employer-employee OASDHI taxes on the gratuitous
military service wage credits for service after 1956 and before 1983;
and (iii) the amount of all uncashed benefit checks which have
been issued in the past.
TITLE II. ADDITIONAL PROVISIONS RELATING TO LONG-
TERM FINANCING OF THE SOCIAL SECURITY SYSTEM
Reduces initial benefit levels by 5 percent by decreasing the per-
centage factors in the benefit formula by two-thirds of 1 percent
each year for 8 years beginning in the year 2000. Increases the
OASDI tax rate by 0.24 percentage points for employers and em-
ployees each in the year 2015.
TITLE III. MISCELLANEOUS AND TECHNICAL PROVISIONS
Your Committee's bill also includes several miscellaneous and
technical provisions relating to cash management, elimination of
gender-based distinctions under the social security program, cover-
age, and other matters. Among these provisions are the following:
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1. TRUST FUND INVESTMENT PROCEDURES
Several changes would be made in the investment procedures of
the social security trust funds. Most importantly, a new short-term
rate would be added so that the trust funds would be invested at
short or long-term rates in order to maximize return to the funds.
2. SOCIAL SECURITY AS A SEPARATE FUNCTION IN THE UNIFIED
BUDGET
Requires the OASI, DI, HI and SMI trust fund operations to be
displayed as a separate function within the budget. Beginning with
fiscal year 1988, these Trust Fund operations except SMI would be
removed from the unified budget.
3. SSA AS INDEPENDENT AGENCY
Authorizes a feasibility and implementation study with respect
to establishing SSA as an independent agency.
4. PUBLIC PENSION OFFSET
Beginning in July 1983, the amount of a social security beneficia-
ry's public pension offset would be one-third of the public pension.
5. ELECTIVE COMPENSATION
Provides that employer contributions to the following elective
compensation arrangements will be includible in the FICA wage
base: cash or deferred compensation (section 401(k) of the Internal
Revenue Code), cafeteria plans (section 125) and tax-sheltered an-
nuities (section 403(b)).
6. FICA WAGE BASE
Provides that the definition of wages subject to the FICA tax
would be interpreted solely with reference to the FICA statute, not
with reference to income taxes or income tax withholding. An ex-
plicit exclusion from FICA tax would be provided for meals and
lodging excluded from income tax under section 119 of the Internal
Revenue Code.
7. SIMPLIFIED EMPLOYEE PENSIONS
Provides that employer contributions to a simplified employee
pension (SEP) would be exempt from FICA, but employee contribu-
tions would be subject to FICA. Conforming changes would be
made in the Social Security Act definition of covered wages.
TITLE IV. SUPPLEMENTAL SECURITY INCOME BENEFITS
1. SSI BENEFIT INCREASE AND PASS-THROUGH REQUIREMENTS
The Federal SSI benefit payment is increased by $20 per month
for individuals and $30 per month for couples, effective July 1,
1983. The next Federal SSI cost-of-living adjustment would be de-
layed from July 1983 until January 1984, and the current linkage
between the OASDI and the SSI COLA would be maintained.
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2. DISREGARD OF EMERGENCY AND OTHER IN-KIND ASSISTANCE
Until September 30, 1983, emergency and other in-kind assist-
ance provided by a private non-profit organization to an aged, blind
or disabled individual, or to a family with dependent children,
would be disregarded under the SSI and AFDC programs, if the
State determines that such assistance was provided on the basis of
need.
3. PAYMENT OF SSI TO TEMPORARY RESIDENTS OF PUBLIC EMERGENCY
SHELTERS
Aged, blind or disabled individuals who are temporary residents
of public emergency shelters could receive SSI payments for a
period of up to three months during any 12-month period.
TITLE V. UNEMPLOYMENT COMPENSATION PROVISION
1. EXTENSION OF FEDERAL SUPPLEMENTAL COMPENSATION (FSC)
PROGRAM
Extends the FSC program for six months, from April 1, 1983
through September 30, 1983; and provides additional weeks of bene-
fits for individuals who have exhausted basic FSC entitlement.
2. Option for Voluntary Health Insurance Program
Provides States the option of deducting an amount from the un-
employment compensation benefits otherwise payable to an indi-
vidual and using the amount deducted to pay for health insurance,
if the individual elects to have such a deduction made from his
benefits.
3. TREATMENT OF CERTAIN ORGANIZATIONS THAT WERE
RETROACTIVELY GRANTED 501(cX3) STATUS
Allows a nonprofit organization that elects to switch from the
contribution to the reimbursement method of financing unemploy-
ment benefits to apply any accumulated balance in its State unem-
ployment account to costs incurred after it switches to the reim-
bursement method, under certain conditions.
TITLE VI. PROSPECTIVE PAYMENTS FOR MEDICARE
INPATIENT HOSPITAL SERVICES
Payment for inpatient hospital services under the medicare pro-
gram would be made on the basis of prospectively determined
rates. The new prospective payment system would reimburse hospi-
tals on a per-case basis. A single payment amount would be paid
for each type of case, identified by the diagnosis-related group
(DRG) into which each case is classified.
Separate payment rates would apply to urban and rural areas in
each of the nine census divisions of the country (the 50 States and
the District of Columbia). The regional adjustment would no longer
apply (i.e., sunsetted) beginning with payments after the fourth
year of the program. The DRG rates would be adjusted for regional
differences in hospital wage levels so that hospitals in high wage
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areas would receive somewhat larger payments than hospitals in
lower wage areas. The Secretary would be required to provide addi-
tional payment amounts in cases of exceptionally lengthy stays in
hospitals and, as determined by the Secretary, for other extra-ordi-
nary costly cases.
Implementation of the system would be phased-in over a 3-year
period, starting with each hospital's first accounting year begin-
ning on or after October 1, 1983.
Among the more significant features of the new system are the
following:
1. Excludes capital-related costs and direct and indirect expenses
associated with medical education activities from payment determi-
nations under the prospective payment system. Medical education
expenses, such as the salaries of interns and residents under ap-
proved education programs, would continue to be paid on the basis
of reasonable cost. In addition, with respect to indirect medical
education expenses, and adjustment would be provided equal to
twice the amount of the teaching adjustment in the "section 223"
limits of present law.
2. Exempts psychiatric, long-term care, children's and rehabilita-
tion hospitals from the prospective payment system. Hospitals with
rehabilitation units or psychiatric care units could apply to the
Secretary for exemption from the prospective payment system for
care rendered in those units. The Secretary would be authorized to
provide for exceptions and adjustments to take into account the
special needs of sole community providers. Also, the Secretary
would be required to provide, by regulation, for such exceptions
and adjustments as he or she deems appropriate, including those
with respect to public hospitals, teaching hospitals, and hospitals
that are extensively involved in cancer treatment and research. In
addition, the Secretary would be required to provide exceptions and
adjustments for hospitals that serve a disproportionately large
number of low-income persons and medicare beneficiaries.
3. Provides for the same administrative and judicial review pro-
cedures under the new prospective payment system as those availa-
ble to hospitals under present law, except that neither administra-
tive nor judicial review of (1) the adequacy of the amount of pros-
pective payments and (2) the establishment of the diagnosis related
classifications would be permitted.
4. Requires the Secretary to establish an admissions and dis-
charges monitoring system utilizing the Health Care Financing Ad-
ministration, medicare intermediaries, professional standards
review organizations/professional review organizations or such
other medical review authority, to review admission practices and
quality of care. In addition, hospitals would, effective October 1,
1984, be required to contract with a professional review organiza-
tion, or any other review organization authorized to conduct review
for the medicare program in an area, for review of admissions, dis-
charges, and quality of care as a condition of receiving medicare
payments.
5. Authorizes the Secretary to make medicare payments accord-
ing to a State's hospital cost control system, if the State so re-
quests, if the system: (1) applies to substantially all non-Federal
acute care hospitals; (2) applies to at least 75 percent of hospital
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revenues in the State; (3) treats payors, employees, and patients
equitably; (4) will not result in greater medicare expenditures over
a three-year period than would otherwise have been made; and (5)
will not preclude HMOs or CMPs from negotiating directly with
hospitals with respect to payment for inpatient hospital services.
6. Requires the Secretary to analyze the impact of the prospec-
tive payment plan in operation on individual hospitals, classes of
hospitals, and third-party payors, and to report to Congress in each
of four years. In addition, GAO would be required to review the
adequacy of the Secretary's analysis.
7. In the first year of the program, fiscal year 1984, requires the
Secretary to begin to collect data to calculate physician charges for
each DRG. The Secretary would be required to report to the Con-
gress by December 31, 1984, on the advisability and feasibility of
making physician payments under a prospective payment system.
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III. GENERAL EXPLANATION
Introduction
The social security system, both the old-age retirement and survi-
vors and disability cash benefit programs (OASDI) and the Medi-
care program (HI), is facing under current law a major cash short-
fall over the next decade. Under P.L. 97-123, the OASI Fund was
allowed to borrow only sufficient funds from the DI and HI Funds
to pay benefits through June, 1983. If nothing more were done
than to extend interfund borrowing authority, the three combined
funds (OASDHI) would be unable to pay benefits on time beginning
in the spring of 1984. The critical financing shortfall lasts through
about 1990, and the total short-term needs of the system have been
estimated at $150 to $200 billion by the National Commission on
Social Security Reform.
Over the long-run, under intermediate economic and demograph-
ic assumptions, the OASDI system faces a deficit that is projected
to develop in 2015 after a period of surpluses in the 1990's. This
deficit peaks in 2035 at 4.61 percent of taxable payroll, and aver-
ages 2.09 percent over the entire 75-year projection period.
The Medicare system has adequate resources for the immediate
future, but will develop a much deeper deficit toward the end of
this decade. The HI Trust Fund will be unable to meet its obliga-
tions sometime in 1989 under intermediate assumptions, and its
deficits are increasingly severe over the remainder of the 25-year
forecasting period. The HI deficit averaged over the 1982-2010
period is 1.48 percent of payroll, which means that about 34 per-
cent of its obligations are unfunded under current law; this could
be compared with OASDI's .66 percent of payroll surplus over the
same period. The long-run financing problem for the Medicare pro-
gram is primarily to the increasing costs of hospital and medical
care.
The short-term financing crisis for the OASI program is the
result of two factors: (1) five years of recurring cycles of high infla-
tion coupled with low productivity and high unemployment; and (2)
insufficient reserve levels provided by the tax increases and benefit
reforms enacted in 1977 (which did not take full effect until 1981
and later).
Beginning in 1972, when OASDI benefit increases were made
automatic based on increases in inflation, projections of trust fund
experience had to be based on dynamic economic assumptions, that
is, on assumptions about future increases in inflation and wage
levels, in order to more accurately reflect the future rise in benefit
levels and the wage base that would occur automatically. Retaining
the old system of static economic assumptions would probably have
resulted in underestimating program costs and revenues. However,
use of dynamic assumptions in conjunction with a fully indexed
(11)
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benefit structure means that projections of program experience are
much more difficult to make accurately. The benefit levels and
trust fund income, as well as every set of economic assumptions,
are highly sensitive to changing economic conditions particularly
near-term fluctuations, so that no set of projections can be abso-
lutely certain.
Compounding this difficulty in predicting economic patterns was
an unintended effect of the way automatic benefit increases were
applied to existing and new benefits, which caused benefits to in-
crease much more rapidly, in comparison to pre-retirement earn-
ings, than had been anticipated. Thus, from 1972 on, at the same
time as the economy was performing more poorly than had been
predicted, it was realized that benefits would rise with the auto-
matic provisions more rapidly than anticipated.
Beginning with its report of 1973, the Social Security Board of
Trustees repeatedly forecast an adverse financial situation for the
program both in near-term (late 1970's and early 1980's) and the
long-run i.e., until the middle of the next century. The short-term
forecast of the 1977 Trustees' Report showed DI fund reserves fall-
ing to zero in late 1978, and OASI reserves being used up by 1983.
The same report showed a long-term deficit for OASDI (over the 75-
year period) of 8.2 percent of taxable payroll, which represented an
average shortfall in revenues of more than 40 percent of the costs
of the program.
As a result of these projections, the Congress enacted the 1977
Amendments, which improved forecasts of the financial condition
of the program significantly. At the time of enactment, the OASDI
program was projected to be in a surplus position through the next
25-year period. The improved short-run outlook was brought about
by legislated changes to increase short-term revenues and to reduce
benefits.
While the 1977 amendments included major future tax increases
and a 25 percent reduction in future benefits, the full effect of
these changes was delayed until 1981 and later. At the time the
amendments were enacted, it was known that the safety margin
provided in the early years would not be very great, but the system
at that point had reserves of $40 billion, which were thought to be
sufficient to assure benefit payments until the additional revenues
from the major tax increases could be realized. It should also be
noted that the 1977 Amendments reduced the long-term deficit
from 8.2 percent to 1.4 percent of payroll, but did not attempt to
eliminate the long-term deficit.
Economic conditions since 1977 have again proved to be substan-
tially worse than previously predicted, as indicated in the table
below; each percentage point in the CPI increases trust fund costs
by about $1.5 billion, so that the 1980 increase alone cost about $13
billion more than predicted. As a result, benefit increases raised
trust fund outlays beyond expectations at precisely the time real
wages were declining and unemployment was increasing, so that
revenues have not kept pace with outlays. The OASI porgram has
had to use reserves to make up for shorfalls in yearly income every
year since 1977. Consequently, OASI reserves were significantly re-
duced and interfund borrowing authority was authorized by Con-
gress in December 1981, to allow the OASI fund to borrow from DI
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and HI fund reserves in late 1982 to assure benefit payments
through July, 1983.
COMPARISON OF KEY ECONOMIC INDICATORS, 1977 FORECAST AND ACTUAL EXPERIENCE
1977
................................................................................
6.0
6.5
2.4
1.6
7.1 7.0
1978
................................................................................
5.4
7.6
2.7
0.6
6.3 6.0
1979
................................................................................
5.3
11.5
2.5
-2.7
5.7 5.8
1980
................................................................................
4.7
13.5
2.4
-4.9
5.2 7.1
1981
................................................................................
4.1
10.3
2.3
-1.6
5.0 7.6
1982
................................................................................
4.0
6.0
2.0
-0.4
5.0 9.7
Titles I, II, and III of your Committee's bill are therefore intend-
ed to restore the financial soundness of the old age and survivors'
and disability insurance trust funds, both in the short-term and
over the entire seventy-five year forecasting period. In order to ac-
complish this goal your Committee has approved a number of re-
forms, including major extensions of social security coverage,
changes in the types of income subject to social security and
income taxes, acceleration of payments into the trust funds from
general revenues, reductions in benefit levels, and increases in
OASDI tax rates (both the employer-employee rate and the self-em-
ployment rate). The combination of these measures will increase
revenues, and reduce benefit outlays over the short-term for a total
of $165.3 billion. Over the long-run, these reforms will eliminate
the currently projected long-term deficit of 2.09 percent of payroll.
In addition, the bill provides a stabilizing mechanism that will
reduce the sensitivity of the system's financing to economic fluctu-
ations.
A. Provisions Affecting the Financing of the Social Security
System (Title I)
1. GENERAL DIscussION
A. COVERAGE
Section 101. Newly hired and certain current Federal employees
The social security system under present law covers over ninety
percent of jobs in paid employment, over 115 million workers. The
ten percent of workers not now covered by social security includes
most Federal civilian workers (2.4 out of 2.7 million), about 30 per-
cent of State and local employees (approximately 3 million), and
10-15 percent of employees of nonprofit organizations (up to 1 mil-
lion).
The Social Security Act of 1935 excluded from coverage all civil-
ian employment for the Federal government or for an instrumen-
tality of the United States. At that time, the Federal Civil Service
Retirement (CSR) system, which covered most Federal civilian em-
ployment, had been in existence for 15 years and there seemed to
be no need for Federal employees to be covered under two retire-
ment systems.
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The Social Security Amendments of 1950, as part of a major ex-
pansion of the social security program, covered civilian employees
of the Federal Government who were not covered under any Feder-
al retirement system. (These employees were short-term Federal
employees who were considered likely to shift between Federal and
private employment.) The 1950 amendments specifically excluded
from coverage services performed for the Federal Government by
the President, the Vice President, Members of Congress, legislative
employees of the Congress, inmates of Federal penal institutions,
certain student employees of Federal hospitals, and temporary,
emergency employees.
Your Committee has been concerned about this issue for many
years because the exclusion of most civilian employees of the Fed-
eral Government from social security coverage has resulted in two
major problems, related mainly to the large number of workers
who shift between Federal employment and work covered under
social security. The first problem is that there are gaps in protec-
tion of workers who have worked both under the CSR system and
social security; some employees only qualify for benefits under one
system so that their benefits are not based on their lifetime earn-
ings and contributions to both systems, while other employees fail
to get benefits under either system. The second problem is that
many employees who have worked under both systems are able to
qualify for social security benefits by working for relatively short
periods in jobs covered under social security, and to also qualify for
substantial CSR benefits.
A succession of studies, advisory councils and commissions have
recommended repeatedly that social security coverage be extended
to Federal workers. The most recent example of such advice is the
National Commission on Social Security Reform, which recom-
mended that newly hired Federal employees be brought into the
system.
Your Committee's bill provides for coverage under social security
of the following groups: (1) all Federal employees hired on or after
January 1, 1984, including those with previous periods of Federal
service if the break in Federal service lasted at least 365 days; (2)
legislative branch employees on the same basis, as well as all cur-
rent employees of the legislative branch who are not participating
in the Civil Service Retirement System as of December 31, 1983; (3)
all Members of Congress, the President and the Vice-President ef-
fective January 1, 1984; (4) all sitting Federal judges, and all execu-
tive level and senior executive service political appointees, as of
January 1, 1984.
This provision of your Committee's bill does not, and is not in-
tended to, affect in any way the existing civil service retirement
provisions or the applicability of such provisions to the newly cov-
ered employees and Members of Congress. Federal employees af-
fected by the provision, including Members of Congress, who choose
to participate in the civil service retirement program will continue
to contribute the full amount to the Civil Service Retirement Fund
as required by existing provisions of law, until those provisions are
modified by the Congress.
The members of your Committee are firmly committed to the
proposition that Federal employees are entitled to comprehensive
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retirement protection and that a supplemental pension plan should
be enacted for Federal employees which would provide such protec-
tion. Development of such a plan is the responsibility of the Com-
mittee on Post Office and Civil Service, whose Chairman has ex-
pressed a similar commitment to developing a supplemental plan.
Your Committee is convinced that extension of coverage to new
Federal workers will result in improving protection and retirement
benefits for the vast majority of these employees, for several rea-
sons:
(1) Social security provides family and survivor benefits with no
reduction in the benefit of the worker.
(2) Disability protection under social security requires recent cov-
ered employment, so that workers leaving Federal service are with-
out disability protection for several years.
(3) Over half of all workers who enter Federal employment will
eventually leave Federal service with no eligibility for CSRS bene-
fits; if they take their contributions with them, they receive no in-
terest on contributions after the first 5 years, or employer-share
contributions. Thus, their eventual social security benefits may be
lower then if their Federal employment had been covered, and they
will not have received any benefits at all from their contributions
to CSRS.
(4) Federal employees who are low-paid would receive the advan-
tage of the social security weighted benefits formula. The CSR
benefit formula gives a greater advantage to higher-paid long-
career workers.
Section 102. Mandatory coverage of employees of nonprofit organiza-
tions
Under current law, work performed for a nonprofit religious,
charitable, educational or other tax-exempt 'organization of the
type described in section 501(cX3) of the Internal Revenue Code is
covered under social security if the organization files a certificate
(or is presumed to have filed one under the "presumptive waiver"
interpretation) with the Internal Revenue Service waiving its ex-
emption from social security taxation. Work performed for other
nonprofit organizations is covered compulsorily. It is estimated that
about 80 to 90 percent of the roughly 5.3 million employees of 501
(cX3) nonprofit organizations are covered under social security; over
80 percent of employees in nonprofit organizations are involved in
health or education-related activities.
Nonprofit organizations may terminate coverage for their em-
ployees upon giving 2 years' advance notice to the Secretary of
Treasury, but the notice may not be given until the coverage has
been in effect for at least 8 years. Also, the Secretary may termi-
nate coverage if the organization is no longer able to meet the re-
quirements of section 501(cX3) of the Code (in which case the em-
ployees are covered mandatorily), or if it is unable to pay the re-
quired social security contributions. As is the case for State and
local governments, once coverage has been terminated for a non-
profit employer, the employer cannot again provide social security
coverage for his employees. Also, nonprofit employers are under no
legal constraint to notify employees that notice of termination has
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been filed with the Treasury Department, or to hold a referendum
on the matter.
Coverage was extended on an optional basis to employees of
State and local governments and of tax-exempt nonprofit groups
beginning in 1950 for several reasons: (1) Congress had covered
those most in need of social security first, primarily industrial
workers, and since State and local government employees in many
cases had retirement systems already, they had relatively low pri-
ority; (2) most nonprofit groups were covered mandatorily, but reli-
gious and philanthropic groups opposed mandatory coverage origi-
nally because of fears of Federal influence over religious activities;
(3) by 1950, these groups wanted social security coverage but only if
it did not threaten already existing retirement systems and, in the
case of nonprofit groups, separation of church and State.
To avoid these constitutional issues, and the issues with religious
groups that would have been raised by mandatory coverage, Con-
gress covered these groups on an optional basis.
Your Committee has been deeply concerned about the growing
trend toward termination of coverage for nonprofit employees. The
number of organizations filing to terminate coverage for their em-
ployees has dramatically increased over the last three years.
Through December 1984, termination notices are pending for 977
nonprofit organizations, including 424 hospitals employing 322,600
employees.
The major reasons for the recent acceleration in terminations
are first, the desire of some nonprofit employers (primarily non-
profit hospitals) to look to withdrawal from social security as a way
to reduce operating costs, and second, the general perception on
the part of younger workers that the social security system will not
be able to pay benefits when they reach retirement and that they
would thus be better off withdrawing from the system and provid-
ing for their own retirement needs. However, the lack of social se-
curity coverage for these workers means they must forfeit the ad-
vantages of a nearly universal social insurance system. The major
consequences for workers include: the loss of specific features of
social security that are difficult to replace; the creation of gaps in
the worker's earnings record; and the possible loss of some or all
pension protection because of the limited portability and varying
vesting requirements of private plans.
Social security cannot be replaced for these workers through a
private insurance plan or investments. Individual planning can
only protect the worker against those risks he chooses to protect
himself against. An individual deciding on specific insurance cover-
age will know whether he has chosen correctly, only when it is too
late to do anything about it. In contrast, the social insurance
system provides benefits in the event of a very broad variety of cir-
cumstances which may not be predicted in advance, i.e., early
death or disability, or divorce, which is particularly important in
the case of women employees. Social security also provides family
protection which young workers may not anticipate needing but
which may become valuable if, for example, both members of a
married couple do not or cannot work steadily throughout
their careers.
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Moreover, private pension plan coverage is generally not porta-
ble. Because private pensions are funded independently by the spe-
cific employer involved (or group of employers in the case of multi-
employer plans), rights accrued under one plan cannot generally be
transferred, or built upon through work for another employer.
Many plans do provide permanent rights to a pension of some sort
at retirement if the worker stays with the employer long enough to
accrue vested rights. However, deferred compensation plans of this
sort cannot compensate for inflation over the worker's whole work-
ing career. The amount of any deferred pension an employee re-
tains after leaving a job is usually frozen despite subsequent infla-
tion that would have been recognized by increasing the pension
earned for those years if the employee had stayed in the job.
Workers can easily move from one noncovered job to another
throughout a substantial working career and never acquire any
basic pension protection, or social security coverage. The problem
of portability is particularly acute for low and average wage work-
ers who have little or no margin of income for savings that might
compensate for the lack of private pension coverage, and for
women who already may have substantial periods of noncovered
earnings because of childcare responsibilities.
In order to resolve these problems and guarantee social security
protection for all nonprofit employees, your Committee's bill ex-
tends social security coverage on a mandatory basis to all employ-
ees of nonprofit organizations as of January 1, 1984. This coverage
will extend both to employees of organizations that have terminat-
ed coverage as well as to those which have never been covered. Ter-
mination notices now pending would be invalid. In addition, the
bill provides a special provision for older nonprofit employees: non-
profit employees age 55 or older affected by this provision would be
deemed to be fully insured for social security benefits after acquir-
ing a given number of quarters of coverage, according to a sliding
scale set in the law (e.g., 20 quarters would be required for persons
age 55 and 56, ranging down to 6 quarters for those age 60 and
over).
Section 103. Duration of agreements for coverage of State and local
employees
Social security coverage for employees of the States and their po-
litical subdivisions is available only through agreements between
the Secretary of Health and Human Services and the States. Under
the agreements, each State decides which groups of employees (e.g.,
a specific county, city, teachers, etc.) will be covered, subject to pro-
visions in the Federal law (affecting relatively few people) which
mandate referendums of affected members of existing retirement
systems in order to approve extension of coverage to their group.
Under these provisions, about 70 percent-some 9.4 million out of
the approximately 13.2 million State and local employees-are cov-
ered under social security. The major exceptions are the employees
of the State of Alaska, the only State to withdraw from the system,
and of Maine, Massachusetts, Nevada, and Ohio, which never chose
to participate in the system.
The social security law permits termination of coverage for em-
ployees of State and local governments. The action to terminate
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coverage must be taken by the State, rather than by the employees
of the State or local governments involved, and the termination ap-
plies to the whole group of employees covered under a specific
agreement. The State must give 2 years' advance notice to the Sec-
retary of its desire to terminate social security coverage of the em-
ployees of a political subdivision, and such notice cannot be given
until after the coverage has been in effect for at least 5 years. The
law also provides that once coverage has been terminated for a
group of employees it can never again be provided for that group.
There is no requirement in the law that the employees involved be
notified when a notice of termination is filed, or when coverage has
actually been terminated. In addition, the Secretary may terminate
an agreement if, after a hearing, he finds that a State either had
"failed or is no longer legally able to comply with any provision" of
the agreement.
Your Committee has been deeply concerned about the growing
trend toward termination of coverage by State and local govern-
ments. During the first two decades after voluntary participation
was allowed in 1950, coverage of State and local groups expanded
dramatically, and very few took the opportunity to withdraw. By
the early 1960's most States had made coverage agreements and
the percentage of State and local employees covered under social
security reached 70 percent.
Until the mid-1970's, the number of employees leaving the
system was always greatly exceeded by the number of newly-cov-
ered employees-in most years, by 50,000 or more. Moreover, many
terminations were caused by consolidation of local jurisdictions,
rather than by withdrawal from the social security system.
However, 1976 was the last year that newly-covered positions ex-
ceeded the number of terminated positions and in six years since
then, numbers of positions being terminated from coverage have
exceeded the numbers of newly-covered positions. This reversal is
due at least in part to the fact that coverage had finally been ex-
tended by the mid-1970's to those employees most in need of cover-
age, which was of course the original notion underlying voluntary
participation. Coverage of State and local employees has remained
fairly constant at 70-72 percent for over 10 years.
The number of governments filing termination notices did in-
crease in conjunction with widespread concern about the financial
conditions of social security that preceded the 1977 Amendments.
While this rate of filing slowed down after the 1977 amendments,
considerable acceleration in filing for terminations for State and
local governments has occurred since 1980, again in conjunction
with widespread concern about the financial viability of the trust
funds, and about the economy in general.
During the five-year period from 1977 through 1981, when termi-
nation activity was greater than in the previous ten years, cover-
age was terminated for 96,000 State and local government employ-
ees; as of December, 1982 coverage had been terminated for 595
State entities employing 190,000 workers. In contrast, for the two-
year period of 1983-84, terminations are pending for 634 State and
local entities employing 227,000 workers.
Your Committee strongly feels that the ability to terminate cov-
erage for State and local government employees is inequitable both
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for the employees who lose coverage and for the vast majorit of
the nations workforce who continue to pay into the system. Woe
provision of voluntary coverage for some groups of workers directly
affects the function of social security as the Nation's basic social
insurance system. The voluntary coverage provision can be seen as
an anomaly in the context of a basically mandatory system, the
result of congressional desire to extend coverage as quickly and
with as little difficulty as possible to those employees who needed
it most.
As long as the elements of voluntarism had only a marginal
effect on the operation of the system, the provision for optional cov-
erage was seen as a benign opportunity for employees to obtain
coverage when they otherwise would have been excluded. Serious
questions have been raised about voluntary coverage only when
employers have started to file for withdrawal in significant num-
bers and for reasons that appear to have more to do with reducing
operating costs than providing basic, adequate protection for all
employees.
Under current law, the terms of participation in social security
are not determined by the employees according to the kind of bene-
fit protection they want, but by the employer according to the kind
of fringe benefits he wishes to provide to specific employees. The
employer may view the worker who leaves after a relatively short
time as a marginal employee for whom he has little interest in pro-
viding attractive pension benefits. Consistent with this view, most
State government retirement systems are designed to best serve
long-term employees. Yet from the point of view of social policy,
the employee who moves from job to job needs basic social insur-
ance protection as much as a worker who stays at one job his
entire career. The interests of the employer who wishes to retain
career employees with a good benefit package may not be consist-
ent with overall social policy, or with the interests of all his em-
ployees, both present and future.
A second area of general concern is the resentment created by
voluntary withdrawals from the system among workers covered on
a mandatory basis. In particular, the shifting of the tax burden of
social security from those workers who withdraw, but who remain
entitled to future benefits based on their past earnings, to workers
who remain in the system is seen as inequitable. It also appears
inconsistent that society views social insurance as such a basic pro-
gram that participation is mandatory for most, like the rest of the
tax system, yet for some workers participation is optional. Regard-
less of their opinion about the objective merits of social security
coverage, those who must pay the taxes will inevitably view option-
al participation as unfair.
Your Committee's bill, therefore, prohibits State and local goven-
ments from terminating coverage for their employees if the termi-
nation has not taken effect by the date legislation is enacted. Since
those termination notices do not take effect until the end of the
calendar year, notices now pending would be invalid under this
provision. The bill also allows State and local governments which
have withdrawn from the social security system to voluntarily
rejoin. Once having rejoined, the governmental entity would be
precluded from terminating coverage.
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B. COMPUTATION OF BENEFIT AMOUNTS
Section 111. Shift of cost-of-living adjustments to calendar year
basis
Since 1975 social security recipients have received a cost-of-living
adjustment annually in June (July check). Under current law these
adjustments are provided automatically to reflect increases in the
consumer price index. The increases are measured from the first
quarter of the current year over the first quarter of the previous
year in which an increase occurred. No increase is provided in any
year in which this computation is less than three percent.
Your Committee concluded, as did the National Commission on
Social Security Reform that any fair and balanced approach to
eliminating the current deficit in the social security program must
involve an equitable distribution of the overall cost among all seg-
ments of the community, including current beneficiaries. Thus,
your Committee's bill would delay the 1983 cost-of-living adjust-
ment for six months, until Decmeber 1983 (January 1984 check).
The cost-of-living adjustment provided at that time would be based
on the same computation that would have been used for the June
1983 increase (first quarter of 1983 over first quarter of 1982).
Thereafter all automatic cost-of-living increases would be provided
in December (Janaury checks) and the computation would be based
on the third quarter of that year over the third quarter of the pre-
vious year in which a benefit increase was provided.
Your Committee notes that since COLA increases are cumula-
tive, even this one-time delay will result in some permanent reduc-
tion of benefits for affected beneficiaries. This will provide a long-
range savings to the OASDI system.
Your Committee has taken note of the fact that the rate of infla-
tion has been declining. It is conceivable, therefore, (although not
probable) that the CPI could drop below 3 percent for the computa-
tion for the 1983 benefit increase. Since the cost-of-living is already
being delayed six months in this year, your Committee is con-
cerned that precaution be taken to ensure that a COLA will be
paid in December. Therefore, for 1983 only, your Committee's bill
provides for a waiver of the three percent limitation. For 1983
beneficiaries will receive a cost-of-living adjustment even if it is
below three percent. In the future, the three percent limitation
would continue to be applied.
Section 112. Cost-of-living increase to be based on either wages or
prices (whichever is lower) when balance in OASDI trust funds
falls below specified level
Social security benefits are adjusted automatically every year re-
flect increases in the Consumer Price Index. Such adjustments are
made without regard to the status of the trust fund reserves.
Income to the social security system depends on the level of
wages on which social security contributions are made. When in-
creases in prices outrun increases in wages, income to the trust
funds falls behind increases in benefit payments, and cash flow
problems may result, depending on whether accumulated fund re-
serves are sufficient to make up the gap between income and out-
lays.
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There is no mechanism under current law to adjust trust fund
outlays and revenues to take account of economic fluctuations.
Most of the current short-term financing problem is the result of
the recent sustained period of high inflation coupled with low pro-
ductivity that has caused benefit increases to outstrip revenue in-
creases.
To correct this problem, your Committee bill provides that when-
ever OASDI Trust Fund reserves drop below 20 percent at the be-
ginning of any year after 1987 (except that for 1988 the reserves
would be calculated at the end of the year), then the cost-of-living
increase for that year would be based on the increase in the CPI or
in average wages, whichever is lower. When the trust fund reserves
reached 32 percent, a catch-up would be provided to those benefici-
aries who had earlier suffered a reduction in their benefits. During
any period where the reserves were between 20 and 32 percent,
cost-of-living increases would be provided under the normal calcu-
lation.
This provision would protect against a severe and rapid drop in
trust fund reserves in times such as those recently experienced
where for several years inflation outpaced wage growth. Your Com-
mittee recognizes that this formula does not provide protection
against other adverse conditions such as high unemployment,
which reduces income to the trust funds, but feels that this is a suf-
ficiently important safeguard that it should be incorporated into
the law.
Your Committee also wishes to make clear the measure of re-
serve levels to be used for 1988, the first year this provision takes
effect. The provision states that for 1988 only, the reserve level to
be examined is the end-of-year reserve. This reserve level in De-
cember, 1988 should be evaluated in conjunction with the operation
of section 141 of your Committee's bill, which requires crediting
monthly revenues to the trust funds at the beginning of each
month. The 1988 end-of-year reserve should include revenues cred-
ited to the funds in December, 1988 for January, 1989, in order to
obtain a realistic measure of the funds available for benefit pay-
ment in 1989. Similarly, in all subsequent years your Committee
intends that the calculation of the reserve level at the beginning of
each year will take into account the operation of the fixed monthly
tax transfer procedure.
The calculation of average wages will be the same calculation
now used to compute average wage increases for other aspects of
the social security program such as increases in the formula bend
points and the wage base.
Section 113. Elimination of windfall benefits for persons receiving
pensions from noncovered employment
Over the last several years, tour Committee has examined in
depth the problem of windfalls, the term used to describe the ad-
vantage from the benefit formula accuring to those who work
under social security only for a short time, particularly those with
pensions from noncovered employment. This windfall for those
with less than full careers under social security combined with sub-
stantial noncovered work can be seen as an anomalous result of
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workers being able to move between covered and noncovered em-
ployment.
This windfall benefit is a direct result of the social security bene-
fit formula, which does not distinguish well between workers with
lifetime low earnings, and workers with less than a full career in
covered work. The social security benefit formula is weighted
toward low-wage earners, replacing 90 percent of the first bracket
amount of monthly average indexed wages ($254 in 1983). Thus, an
earnings history of 15 years, when spread over the 35-year averag-
ing period for benefits, will result in a heavily weighted benefit,
even if the worker was not a low-wage earner.
The formula works as intended for those who remain in covered
employment throughout their careers. In addition, the formula pro-
vides workers who have periods of unemployment that result in
gaps in their earnings records (such as women who leave the labor
force periodically to raise children, or workers who suffer periodic,
involuntary unemployment) with some compensation in the form of
weighted benefits. However, the formula results in unintended
windfalls in cases where the worker has low covered earnings be-
cause he has a career in noncovered work for which he receives a
pension.
These pensions, particularly Federal and State civil service pen-
sions, are generally designed to take the place both of social secu-
rity and a private pension plan for workers who remain in nonco-
vered employment throughout their careers. Thus, a person eligible
for such a pension will receive retirement income roughly equiva-
lent to what social security and a private pension would give a
worker with similar earnings under social security. If the nonco-
vered worker in addition is eligible for a heavily weighted social se-
curity benefit, through moonlighting or through a relatively short
career under social security, his total retirement pension income
will most likely greatly exceed that of a worker with similar earn-
ings all under social security.
Your Committee emphasizes that these windfalls are not the
result of deliberate actions on the part of workers in noncovered
employment, but rather are the necessary result of the operation of
the social security benefit formula. Therefore, your Committee's
bill resolves the problem through changes in the benefit formula
which will be applicable to workers who are eligible for a pension
from noncovered employment. Under the current formula, benefits
are 90 calculated as follows: percent of the first $254 of average
monthly earnings, 32 percent of earnings from $254 to $1,538, and
15 percent of earnings above $1,538 (1983 dollar amounts). The new
formula applicable to those with pensions from noncovered employ-
ment would substitute 61 percent for the 90 percent factor. In addi-
tion, the new formula provides a guarantee that the resulting re-
duction in the worker's social security benefit cannot be more than
one-half the amount of the noncovered pension. This provision will
be applicable to persons reaching age 60 after December 31, 1983,
to give some time for workers to adjust their retirement plans.
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Section 114. Increase in old age insurance benefit amounts based on
account of delayed retirement
Under present law, for those who turn age 62 before 1979, the
worker's benefit (PIA) is increased one-twelfth of one percent for
each month he delays retirement past age 65 (or one percent per
year). When the benefit formula was changed in 1977 to affect
those who turn age 62 in 1979 and afterward, it was recognized
that under the formula, which relies on wage histories that are in-
dexed through age 60 and unindexed after age 60, some further
offset was needed after age 65 to enable the wage computation to
keep pace with real wage growth in the economy. Congress also at
that time expressed a desire to extend some small reward, in the
form of larger benefits, for those who delayed retirement. Accord-
ingly, under current law, for those who turn age 62 after 1979 (and
are therefore affected by the new formula) the PIA is increased one
quarter of one percent per month (or three percent per year) for
each month the worker delays filing for benefits past age 65.
Your Committee continues to believe that it is desirable to pro-
vide incentives for individuals to remain in employment beyond
normal retirement age. Thus, your Committee bill would gradually
increase the delayed retirement credit from three percent per year
to eight percent per year for those who reach age 62 after 1986.
The increase would be phased-in over an eighteen year period by
increasing the current 3 percent per year delayed retirement credit
to 3' percent per year for those age 62 in 1987 and continuing to
increase the credit by one-half of one percent per year for every
other cohort of eligible retirees. Ultimately for those who turn age
62 in 2005 and beyond (age 65 in 2008 and beyond), benefits would
be increased by two-thirds of one percent per month (or eight per-
cent per year).
This will dramatically increase the amount by which the com-
bined effects of (1) the reduction factors before age 65, (2) use of
earnings after age 61 in the benefit computation and (3) the de-
layed retirement credit can result in higher benefits for workers
who delay retirement. For an average earner who reached age 62
in 1983, for instance, the benefit if retirement is delayed to age 70
is, under current law, projected to be 64 percent higher than his
age 62 benefit. If the eight percent delayed retirement credit were
available to him, his projected benefit at age 70 would be 99 per-
cent higher than it would be at age 62.
The delayed retirement credit (at whatever level) is available for
individuals between the ages of 65 and 70. After age 70 no credit
applies since beginning in 1983 there is no earnings test for
beneficiaries who are age 70 or more.
Section 121. Taxation of social security and railroad retirement
benefits
Under present law, social security benefits are excluded from the
gross income of the recipient. Their exclusion is based upon a
series of administrative rulings issued by the Internal Revenue
Service in 1938 and 1941 (see I.T. 3194, 1938-1 C.B. 114, I.T. 3229,
1938-2 C.B. 136, and I.T. 3447, 1941-1 C.B. 191). Railroad retire-
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ment benefits are excluded from gross income under the Railroad
Retirement Act.
In general, the gross amount of fixed or determinable annual or
periodic income (which is not effectively connected with a U.S.
trade or business) received by a nonresident alien from U.S.
sources is subject to a 30-percent tax (Code sec. 871); this tax is col-
lected by withholding (sec. 1441). A pension for services performed
in the United States would be U.S.-source income and the gross
amount of a U.S.-source pension is subject to the 30-pecent with-
holding tax or a lower rate if so provided by treaty. The U.S. Model
Income Tax Treaty, as well as a number of actual tax treaties to
which the United States is a party, provides reciprocally that pen-
sions received by a resident of one country from sources in the
other country are taxable only by the country of residence. Howev-
er, the United States has reserved the right to tax social security
benefits in the U.S. Model Income Tax Treaty and a number of
actual tax treaties.
Your Committee believes that the present policy of excluding all
social security benefits from a recipient's gross income is inappro-
priate. Your Committee believes that social security benefits are in
the nature of benefits received under other retirement systems,
which are subject to taxation to the extent they exceed a worker's
after-tax contributions and that taxing a portion of social sercurity
benefits will improve tax equity by treating more nearly equally all
forms of retirement and other income that are designed to replace
lost wages (for example, unemployment compensation and sick
pay). Furthermore, by taxing social security revenues and appropri-
ating these benefits to the appropriate trust funds, the financial
solvency of the social security trust funds will be strengthened.
Because Tier 1 benefits provided under the Railroad Retirement
Act are essentially equivalent to social security benefits, your Com-
mittee believes that corresponding changes also should be made in
the tax treatment of these benefits. This is, a portion of railroad
retirement benefits also should be subject to income taxation.
By taxing only a portion of social security and railroad retire-
ment benefits (that is, up to one-half of benefits in excess of a cer-
tain base amount). Your Committee's bill assures that lower-
income individuals, many of whom rely upon their benefits to
afford basic necessities, will not be taxed on their benefits. The
maximum proportion of benefits taxed is one-half in recognition of
the fact that social security benefits are partially financed by after-
tax employee contributions. The bill's method for taxing benefits
assures that only those taxpayers who have substantial taxable
income from other sources will be taxed on a portion of the bene-
fits they receive.
Taxation of social security and railroad retirement benefits
Under your Committee's bill, a portion of social security benefits
will be included in the gross income of recipients whose adjusted
gross income exceeds certain levels. (This provision is not intended
to change the tax treatment of social security benefits paid by for-
eign governments; these benefits have been held by Treasury to be
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25
fully includible in gross income (Rev. Rul. 62-1979, 1962-2, C.B.
20)). The bill defines a "social security benefit" as any amount re-
ceived by the taxpayer by reason of entitlement to either (1) a
monthly benefit under title II of the Social Security Act (Federal
Old-Age, Survivors, and Disability Insurance Benefits (OASDI)), or
(2) Tier 1 benefit under the Railroad Retirement Act of 1974. A
Tier 1 benefit generally is a monthly benefit equal to what an indi-
vidual would receive if the formula for computing social security
benefits were applied to the individual's history of covered wages
under both the social security and railroad retirement systems.
Social Security benefits, to the extent they are taxable, will be
included in the taxable income of the person who has the legal
right to receive the benefits. For example, benefits paid to a child
will be considered to be the child's and will be added to the child's
other income to determine whether they are taxable. The amount
of benefits received refers to benefit payments after reductions
under such provisions as actuarial reductions, family maximum,
and the earnings test, but to include certain amounts that may be
withheld from benefits, such as payments of supplementary medi-
cal insurance premiums, where the amounts withheld are for the
purpose of meeting a financial obligation incurred by the individu-
al entitled to receive such benefit payments. In addition, the
amount of any social security benefits received will include the
total amount of the benefits without any reduction for attorneys'
fees, if any, paid in order to enable an individual to receive those
benefits. The Committee expects the Secretary of the Treasury to
provide guidance on the use and extent to which expenses (such as
attorneys' fees) incurred in perfecting claims to social security
benefits may be deducted, now that some of the social security
benefits may be taxed.
Social security benefits that will be included in the gross income
of a taxpayer for a taxable year will be limited to the lesser of (1)
one-half of the social security benefits received, or (2) one-half of
the excess of the sum of the taxpayer's adjusted gross income plus
one-half of the social security benefits received over the appropri-
ate base amount. Thus, the maximum proportion of social security
benefits that will be included in the gross income of any taxpayer
will be one-half of benefits.
The base amount is $32,000 in the case of a married individual
filing a joint return; zero in the case of a married individual filing
a separate return, unless he or she lived apart from his or her
spouse for the entire taxable year; and $25,000 in the case of all
other individuals.
The base amount is zero for married individuals filing separate
returns because the committee believes that the family should be
treated as an integral unit in determining the amount of social se-
curity benefit that is includible in gross income under this provi-
sion. If the base amount for these individuals were higher, couples
who are otherwise subject to tax on their benefits and whose in-
comes are relatively equally divided would be able to reduce sub-
stantially the amount of benefits subject to tax by filing separate
returns.
For the purpose of determining how much of a taxpayer's social
security benefit will be included in gross income, a taxpayer will be
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26
permited to reduce benefits received during the taxable year by the
amount of benefits, previously received during the current or any
preceding taxable year, that he repays during the taxable year.
This provision is necessary to prevent a taxpayer from being sub-
ject to taxation on his benefits in those situations in which a tax-
payer must repay a portion of those benefits because he has been
overpaid previously. A taxpayer will be permitted an itemized de-
ducation for repayments of social security benefits to the extent
that the repayments exceed social security benefits received by the
taxpayer, and not repaid, during the taxable year. Alternatively, if
such amount repaid exceeds $3,000, the taxpayer has the option
under section 1341 to compute tax for the taxable year without the
deduction and to subtract from that amount the reduction in tax
that would have resulted from excluding the amount repaid from
income for the year of the overpayment.
Your Committee's bill provides that social security benefits po-
tentially subject to tax will include any workmen's compensation
whose receipt caused a reduction in social security disability bene-
fits. For example, if an individual were entitled to $10,000 of social
security disability benefits but received only $6,000 because of the
receipt of $4,000 of workmen's compensation benefits, then, for pur-
poses of the provisions taxing social security benefits, the individu-
al will be considered to have received $10,000 of social security
benefits.
Your Committee's bill provides an elective, special rule for tax-
payers who receive lump-sum payments. This rule was determined
to be necessary because in some situations involving lump-sum pay-
ments of benefits attributable to prior years, the general income-
averaging rules may not provide adequate relief.
If this special rule is elected, the taxpayer will determine the tax
for the taxable year of receipt of the lump-sum payment by includ-
ing in gross income for the current year the sum of the increases in
gross income that result solely from taking into account the appro-
priate portions of the lump-sum payment in the taxable year to
which they are attributable. Your Committee intends that when
lump-sum payments are made, the Social Security Administration
or Railroad Retirement Board will notify the recipients thereof of
the taxable years to which the payments are attributable.
Returns relating to social security benefits
Information reporting will be required with respect to benefit
payments. Specifically, the appropriate Federal official (i.e., the
Secretary of Health and Human Services, in the case of social secu-
rity benefits, and the Railroad Retirement Board, in the case of
railroad retirement benefits) will be required to report to the
Treasury (1) the aggregate amount of benefits paid with respect to
any individual during any calendar year; (2) the aggregate amount
of benefits repaid by the individual during the calendar year; (3)
aggregate reductions in benefits otherwise payable due to the re-
ceipt of workmen's compensation benefits; and (4) the name and ad-
dress of the individual with respect to whom benefits are paid. In
addition, each individual receiving social security or railroad retire-
ment benefits will be furnished with a written statement showing
(1) the name of the agency making the payments, and (2) the aggre-
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gate amount of payments, repayments, and reductions. This state-
ment will be due by January 31 of the year following the year in
which social security benefits are paid.
Treatment of nonresident aliens
Your Committee's bill provides that social security benefits paid
by the United States are U.S.-source income for purposes of the
Code, including the foreign tax credit. In addition, one-half of social
security benefits paid to nonresident aliens will be subject to the
general 30-percent tax which will be collected by withholding. Your
Committees bill is not intended to override the treatment of social
security benefits provided in existing income tax treaties to which
the United States is a party.
Your Committee's bill permits the Secretary of the Treasury to
disclose to the Social Security Administration or the Railroad Re-
tirement Board available return information from the master files
of the Internal Revenue Service with respect to the address and
status of an individual as a nonresident alien or as a resident or
citizen of the United States. This information, which may be dis-
closed upon written request, may be disclosed to the Social Security
Administration and the Railroad Retirement Board only for pur-
poses of carrying out their responsibilities for withholding taxes
from social security benefits of nonresident aliens. Any return in-
formation disclosed under this provision will be subject to the pres-
ent law requirements regarding recordkeeping and safeguarding of
return information.
Transfers to trust funds
Your Committee's bill appropriates to each payor fund the in-
crease in Federal income tax liabilities attributable to taxing social
security benefits. This amount is the difference between total
income tax liabilities for the year and what income tax liabilities
would have been without the application of the Code sections
which provide for the taxation of benefits. A "payor fund" is any
trust fund or account from which payments of social security bene-
fits are made.
The appropriated amounts are to be transferred from time to
time (but no less frequently than quarterly) from the general fund
of the Treasury on the basis of estimates made by the Secretary of
the Treasury. Transfers to the payor funds may be based on the
proportion of each type of benefit as a share of the total benefits
potentially includible in gross income under these provisions. For
example, suppose that after adding OASI benefits, DI benefits and
Tier I railroad retirement benefits the shares of these in the total
are 80 percent, 16 percent, and 4 percent, respectively. These per-
centages of the increase in tax liabilities described above may then
be transferred to the respective funds.
Any quarterly payment to a payor trust fund must be made on
the first day of the quarter and must take into account social secu-
rity benefits estimated to be received during the quarter. Proper
adjustments are to be made in the amounts subsequently trans-
ferred to the extent that prior estimates were in excess of, or less
than, the amounts required to be transferred. A final determina-
tion of the amount required to be transferred for a year may be
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based on an estimate derived from the appropriately weighted
sample of individual income tax returns for that year which is used
as the basis for the Internal Revenue Service's publication of statis-
tics of income for that year under Code section 6108. In making
these estimates, the Secretary of the Treasury need not take ac-
count of certain provisions of the tax law that might affect an indi-
vidual's tax liability (e.g., income averaging, loss carrybacks, etc.) if
these provisions are judged to have an inconsequential effect on
the estimates.
The Secretary of the Treasury will be required to submit annual
reports to the Congress and to the Secretary of Health and Human
Services and the Railroad Retirement Board concerning (1) the
transfers made during the year, and the methodology used in de-
termining the amount of the transfers and the funds or account to
which made, and (2) the anticipated operation of the transfer mech-
anism during the next five years.
Taxation of Tier One railroad retirement benefits
Your Committee's bill provides that railroad retirement "Tier 1"
benefits are subject to taxation to the same extent and in the same
manner as monthly benefits payable under title II of the Social Se-
curity Act. As a result of this change, certain amounts will be
transferred regularly to the Railroad Retirment Account.
Your Committee is aware that, in light of the financial inter-
change that exists between social security and railroad retirement,
the final disposition of the amounts transferred to the railroad ac-
count remains unclear. One view is that since the financial inter-
change has historically netted Tier 1 payroll taxes received by rail-
road retirment system against social security equivalent benefits
paid by the railroad retirement system, the amounts added to the
Account as a result of this change in income tax law would have no
effect on amounts transferred under the interchange. The alternate
view is that amounts appropriated to the Railroad Retirement Ac-
count as a result of this change made by this section would reduce
the amount of the interchange which would have otherwise been
transferred. This would be done in order to restore the Social Secu-
rity Trust Funds to the position they would have been had railroad
employment been covered by social security since 1937.
Effective date
In general, the provisions will apply to benefits received after De-
cember 31, 1983, in taxable years ending after that date. However,
the provisions will not apply to benefits received after December
31, 1983, if the generally applicable payment date of these benefits
was before January 1, 1984.
Section 122. Credit for the elderly and the permanently and totally
disabled
Under present law, individuals who are age 65 or over may claim
a tax credit equal to 15 percent of a base amount. Before the reduc-
tions described below, the maximum base amount is $2,500 for a
single person or for a married couple filing a joint return, if only
one spouse is 65 or over. For a married couple filing a joint return,
when both spouses are 65 or over, the base amount initially is
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$3,750. For a married couple filing separate returns, the initial
base amount is $1,875.
The maximum base amount (i.e., $2,500, $3,750, or $1,875) for the
credit is reduced by amounts received by the individual (and by the
spouse in the case of a married couple filing a joint return) as a
pension or annuity under the Social Security Act, the Railroad Re-
tirement Act, or certain other pensions or annuities that are other-
wise excluded from gross income. For example, no reduction is re-
quired for pension or annuity payments from a tax-qualified pen-
sion plan, even though the amounts may be excluded from gross
income.
The base amount is reduced further by one-half of adjusted gross
income in excess of $7,500 for a single person and $10,000 for a
married couple filing a joint return ($5,000 for a married individual
filing a separate return). Thus, for example, a single individual
with adjusted gross income of $12,500 or more is not eligible for the
credit.
Individuals under age 65 who have income from a public retire-
ment system also are eligible for the credit. However, the credit is
based only upon the individual's income from a public retirement
system up to the maximum base amount. Further, the credit is re-
duced by certain amounts of earned income rather than adjusted
gross income.
The credit for the elderly is nonrefundable, i.e., it may not
exceed tax liability.
Under present law, there also is a maximum exclusion from
gross income of $100 a week ($5,200 a year) of disability income for
taxpayers under age 65 who retired on disability, were permanent-
ly and totally disabled when then retired, and are permanently
and totally disabled in the year in which the disability income is
received. For this purpose, permanently and totally disabled means
unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that
can be expected to result in death or that has lasted or can be ex-
pected to last for a continuous period of not less than 12 months.
At age 65, taxpayers become ineligible for this exclusion but may
be able to claim the credit for the elderly.
The maximum amount excludible under present law is reduced
on a dollar-for-dollar basis by the taxpayer's adjusted gross income
(including disability income) in excess of $15,000 (for both married
and single taxpayers). Except in the case of a husband and wife
who live apart at all times during the taxable year, if the taxpayer
is married at the close of the taxable year, the exclusion is allow-
able only if a joint return is filed. Thus, if a taxpayer receives
$5,200 in disability income and $15,000 (or more) in other income
that together equal $20,200 (or more), he or she is not entitled to
any exclusion for disability payments.
The credit for the elderly initially was intended to provide com-
pensation to those whose retirement benefits were fully taxable
rather than consisting partially of tax-free social security benefits.
However, your Committee's bill subjects social security benefits to
income tax, so that the credit should be coordinated with the bene-
fit taxation provision. Once social security benefits are subject to
tax, favorable tax treatment for public retirees under age 65 should
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be limited to those permanently and totally disabled. For individ-
uals age 65 or over, however, your Committee believes that the fa-
vorable tax treatment should be improved in recognition of the fact
that taxation of benefits would not begin until relatively high
income levels. As provided under the bill, the credit generally is
not available to taxpayers whose incomes are sufficiently high that
social security or tier I railroad retirement benefits are includible
in income.
With respect to disability income, the provision coordinates and
rationalizes the tax treatment of the disabled and elderly by pro-
viding the same relief to those in both groups who do not receive
the advantage of tax-free social security disability or retirement
benefits. Thus, the abrupt change in tax treatment which the dis-
abled face at age 65 under present law would be eliminated. Al-
though the revised credit will not be less generous than the present
exclusion in the long run disabled taxpayers may benefit because
the credit to which they had been required to switch at age 65 is
improved.
In general, the bill retains present law for those age 65 or over.
However, individuals under age 65 will be eligible for the credit
only if they retired with a permanent and total disability and have
disability income from a public or private employer on account of
disability. The present law definition of permanently and totally
disabled is retained. Disability income is the aggregate amount
paid under an employer's accident and health plan or pension plan
and includible in the gross income of the individual to the extent it
constitutes wages (or payments in lieu of wages) for the period
during which the individual is absent from work on account of per-
manent and total disability. Amounts excluded from gross income,
for example, as the employee's after-tax contributions, will not be
eligible for the credit. The disabled individuals eligible for the
credit are generally the same individuals eligible for the disability
income exclusion under present law.
The maximum base amount on which the credit is applied will
be doubled, to $5,000 for a single individual or for a married couple
with only one spouse eligible for the credit, $7,500 for a married
couple with both spouses eligible for the credit, or $3,750 for a mar-
ried couple filing separate returns. For individuals under age 65,
the maximum base amount will be further limited to the amount
of disability income.
The base amount will be reduced by one-half of the excess of ad-
justed gross income over $7,500 for an individual, $10,000 for a
married couple filing a joint return, or $5,000 for a married couple
filing separately, as under present law. In addition, the base
amount is reduced by the amount of any pension, annuity, or dis-
ability benefit received under the Social Security Act or the Rail-
road Retirement Act and excluded from gross income, or with the
same exceptions as those under present law, the amount of other
pension, annuity or disability benefit that is excluded from gross
income.
The disability income exclusion is repealed.
These amendments are effective for taxable years beginning
after December 31, 1983.
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Section 123. Acceleration of increases in FICA taxes; 1984 employee
tax credit
Under present law, several increases in social security payroll
tax (FICA) rates are already scheduled to take effect between 1985
and 1990, as shown in the following table:
Employer-employee rate (each)
DASDI HI OASDI-HI
1984 ................................................................................................................................ 5.4 1.30 6.70
1985 ................................................................................................................................ 5.7 1.35 7.05
1986 ................................................................................................................................ 5.7 1.45 7.15
1987 ................................................................................................................................ 5.1 1.45 7.15
1988 ................................................................................................................................ 5.7 1.45 7.15
1989 ................................................................................................................................ 5.7 1.45 7.15
1990 ................................................................................................................................ 6.2 1.45 7.65
In conjunction with other changes in the law which are designed
to help insure the solvency of the OASDI Trust Funds, your Com-
mittee has found it necessary to advance the OASDI increase
scheduled for 1985 to 1984 and part of the increase scheduled for
1990 to 1988 (HI rates are not changed):
Employer-employee rate (each)
OASDI HI OASDI-HI
1984 ................................................................................................................................ 5.70 1.30 1.00
1985 ................................................................................................................................ 5.10 1.35 7.05
1986 ................................................................................................................................ 5.70 1.45 7.15
1987 ................................................................................................................................ 5.70 1.45 7.15
1988 ................................................................................................................................ 6.06 1.45 7.51
1989 ................................................................................................................................ 6.06 1.45 7.51
1990 ................................................................................................................................ 6.20 1.45 7.65
Because railroad retirement (RR) payroll taxes are linked to the
rates for social security, your Committee's bill also provides similar
increases in the corresponding railroad retirement taxes.
In order to cushion the impact on workers of the 1984 increase,
the bill provides employees a credit equal to 0.3 percent of compen-
sation subject to the FICA and RR taxes and to payments of
amounts equivalent to FICA taxes under section 218 of the Social
Security Act. Because the credit is to be taken into account at the
time the tax is collected (by deduction from the employees' wages
or otherwise), the net OASDI employee tax rate for 1984 will be
5.40 percent. This is the rate employers may use in computing
FICA tax due and in preparing annual statements of amount of tax
withheld. However, as under present law, the appropriation of
funds into, for example, the OASDI trust fund will be based on the
gross OASDI employee tax rate, which will be 5.70 percent.
These provisions will apply to remuneration paid after December
31, 1983.
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Section 124. Self-employment income tax and credit
The Self-Employment Contributions Act (SECA) imposes two
taxes (OASDI and HI) on self-employed individuals. Self-employed
persons pay an OASDI tax rate that is equal to approximately 75
percent of the combined employer-employee rate and an HI tax
rate that is equal to 50 percent of the combined employer-employee
rate.
The presently scheduled OASDI rates for self-employment
income are as follows:
Dec. 31,
1981
........................................................................ Jan. 1, 1985........................................................................
8.05
Dec. 31,
1984
........................................................................ Jan. 1, 1990........................................................................
8.55
Dec. 31,
1989
......................................................................................................................................................................
9.30
The HI rates for self-employment income are as follows:
Dec. 31,
1980
........................................................................ Jan. 1, 1985........................................................................
1.30
Dec. 31,
1984
........................................................................ Jan. 1, 1986.......................................................................
1.35
Dec. 31,
1985
......................................................................................................................................................................
1.45
Under present law, the expenses of compensation or purchased
services, including wages, the employer FICA tax, and payments to
self-employed individuals are deductible, for income tax purposes,
as business expenses. However, neither the employee FICA tax nor
the SECA tax is deductible.
Your Committee is concerned that, under the current system,
social security benefits are provided to self-employed individuals
for about 75 percent of the amount paid to provide employees with
equivalent benefits and that medicare benefits are provided to self-
employed individuals for 50 percent of the amount paid to provide
employees with equivalent benefits. Thus, the present tax treat-
ment of self-employed individuals accounts for a major portion of
the financial difficulties of the social security system. Removal of
the subsidy to self-employed individuals will alleviate these difficul-
ties. Further, your Committee believes that removal of the subsidy
will reduce the tax incentive to claim independent contractor
status and will reduce employment status classification disputes
with the Internal Revenue Service.
Under the bill, the OASDI tax rate on self-employment income
will be equal to the combined employer-employee OASDI rate, and
the HI tax rate on self-employment income will be equal to the
combined employer-employee HI rate. In order to cushion the
impact of the increase, your Committee's bill provides a permanent
credit against SECA taxes and also allows the one-time 1984 tax
credit to self-employed as well as to employees.
The OASDI tax rate on self-employment income will be:
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Dec. 31,
1983
........................................................................ Jan. 1, 1988........................................................................
11.40
Dec. 31,
1987
........................................................................ Jan. 1, 1990........................................................................
12.12
Dec. 31,
1989
......................................................................................................................................................................
12.40
The HI tax rate for self-employment income will be:
Dec. 31,
Dec. 31,
Dec. 31,
1983 ........................................................................ Jan. 1, 1985........................................................................
1984 ........................................................................ Jan. 1, 1986........................................................................
1985 ......................................................................................................................................................................
2.60
2.70
2.90
For 1984, self-employed individuals will be entitled to the same
type of credit against SECA tax allowed employees against FICA
tax. Thus, for 1984, self-employed individuals will be allowed a
credit against SECA tax equal to .3 percent of self-employment
income.
In addition, beginning in 1984, self-employed persons will be enti-
tled to a permanent credit against SECA tax. For 1984-1987, the
amount of this SECA tax credit will be 1.8 percent of self-employ-
ment income. For 1988 and subsequent years, the rate of the credit
will be 1.9 percent. The SECA tax credits may be directly taken
into account in computing SECA liability for a taxable year and es-
timated tax payments for that year.
The SECA tax credits will not reduce the revenues of the Social
Security trust funds, since under the Social Security Act, appropri-
ations into the trust funds will be based on the SECA tax rates
specified above without regard to the credits allowed against such
taxes.
The provision will be effective for taxable years beginning after
December 31, 1983.
D. BENEFITS FOR CERTAIN SURVIVING, DIVORCED, AND DISABLED SPOUSES
Section 131. Benefits for surviving divorced spouses and disabled
widows and widowers who remarry
Current law permits the continuation of benefits for surviving
spouses who remarry after age 60. However, benefits for disabled
or divorced disabled widow(er)s (payable from age 50 to 60) who re-
marry prior to age 60 have their benefits terminated unless the
new marriage is to certain auxiliary beneficiaries. Marriage of a
nondisabled divorced widow(er) (who can receive benefits at age 60)
will cause termination of benefits at any age.
Your Committee's bill provides that the social security benefit of
a disabled widow(er) or a divorced disabled widow(er) would not
terminate if the beneficiary remarries before age 60. In addition,
the benefits of a divorced widow(er) would not terminate if the ben-
eficiary marries after attaining age 60.
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This change would eliminate the penalty in current law for the
spouse described who remarries after the age of first eligibility for
benefits. Your Committee's provision eliminates the distinction
now in the law between disabled or divorced disabled widow(er)s
and divorced widow(er)s who are similarly situated except for age
or whether their new spouse is a social security auxiliary benefici-
ary. No change would be made in the current dual-entitlement pro-
vision of the law which allows an individual to receive only the
highest benefit for which such individual is eligible.
Section 132. Entitlement to divorced spouse's benefits before entitle-
ment of insured individual to benefits; exemption of divorced
spouse's benefits from deduction on account of work
Under current law, a divorced spouse cannot qualify for benefits
based on the earnings of a former spouse until the former spouse
has filed an application for benefits. Also, if the former spouse does
become entitled to benefits, but continues to work, a divorced
spouse may have some or all benefits withheld due to the former
spouse's earnings.
Your Committee's bill would allow divorced spouses who have
been divorced for at least two years to draw benefits at age 62 if
the former spouse is eligible for retirement benefits, whether or not
benefits have been claimed or suspended because of substantial em-
ployment. This provision is effective for benefits for months after
December 1984 for those who file applications on or after January
1, 1985. As a matter of equity, beginning in 1985, the earnings of
an individual receiving retirement benefits would no longer cause
deductions in the benefits of those divorced spouses already on the
benefit rolls.
This provision in your Committee's bill will be of particular
benefit to divorced women who do not qualify for benefits on their
own earnings and are unable to obtain benefits based on their
former husband's earnings because those husbands are still work-
ing. The requirements that the divorce must have been in effect for
at least 2 years is intended to discourage divorces solely for the
purpose of avoiding the earnings test.
Section 133. Indexing of deferred surviving spouse's benefits to
recent wage levels
Under current social security social security law, survivor bene-
fits are based on the amount of survivor benefits that would have
been payable to the deceased worker as determined by applying a
benefit formula to the worker's earnings in covered employment.
Such earnings are indexed to reflect economy-wide wage increases
through the second year before the death of the worker. Beginn-
ning with the year of death, benefit levels are indexed to price
changes.
Should the worker die long before his or her spouse can become
eligible for surviving spouse's benefits (at age 60 or age 50 if dis-
abled), the benefit may be based on outdated wages. Thus, the sur-
viving spouse is deprived not only of their deceased spouse's unrea-
lized earnings but also of the economy-wide wage increases that
may have occurred since the death of the spouse.
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Your Committee's bill provides for continuing to index the work-
er's earnings to reflect economy-wide wage increases up to the year
the worker would have reached age 60, or two years before the sur-
vivor becomes eligible for aged or disabled widow(er)'s benefits,
whichever is earlier. This provision will provide higher benefits for
widow(er)s whose spouses died before age 62 and would assure that
the widow(er)'s initial benefit reflected wage levels prevailing
nearer the time she or he comes on the rolls. The provision is effec-
tive for monthly benefits after December 1984 for individuals who
first meet all the criteria for entitlement (other than making appli-
cation for the benefits) after December 1984.
Section 134. Limitation on benefit reduction for early retirement in
case of disabled widows and widowers
Social security benefits for aged widows and widowers are first
payable at age 60. Benefits are payable in full (i.e., 100 percent of
the deceased worker's primary insurance amount) at age 65, and at
reduced rates at ages 60-64 based on the number of months of enti-
tlement before age 65. Benefits at age 60 equal 71.5 percent of the
PIA.
Benefits are also payable to disabled widows and widowers from
ages 50-59 at a rate equal to the aged widow(er)'s benefit at age 60
(71.5 percent of the PIA) and further reduced based on the number
of months of entitlement before age 60. At age 50, the disabled
widow(er)'s benefit equals 50 percent of the PIA.
Your Committee's bill would increase the benefits of disabled
widow(er)s age 50-59 to 71.5 percent of the PIA, the amount to
which widow(er)s are entitled at age 60. The increase in benefits
would be effective January 1984 for newly entitled beneficiaries
and for those already on the rolls as well.
The vulnerable condition of these beneficiaries is evidenced by
the fact that the average benefit for all disabled widow(er)s in cur-
rent-payment status in December 1982 was only $242 a month. At
the end of 1981, almost 28 percent of those receiving disabled
widow(er)'s benefits were also receiving supplemental security
income payments. Your Committee's bill would thus help improve
benefit adequacy for a group (of whom about 99 percent are
women) who, by definition, are both widowed and unable to work
and support themselves.
E. MECHANISMS TO ASSURE CONTINUED BENEFIT PAYMENTS IN ADVERSE
CONDITIONS
At least since 1950, it has been the policy to keep trust fund rev-
enues in each year approximately equal to expenditures. Under
this policy, known as current-cost financing, current revenues are
promptly paid out to current beneficiaries. If at any point revenues
from contributions to the system exceed amounts needed for bene-
fit payments, the excess is placed in the trust fund reserve. If rev-
enues fall short of the amount needed for benefit payments, the re-
serves are drawn upon to make up the difference. If however, the
reserves are not adequate to make up the shortfall, under current
law the trust funds have no way of making benefit payments on a
timely basis. (Thus, it is considered critical to have at least one
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month's benefit payments in reserve at the beginning of each
month, and to have enough of a reserve to carry benefit payments
through downturns in revenues during the year or during unfavor-
able economic periods.)
Your Committee shares the concern frequently expressed by ad-
visory groups, and most recently by the National Commission on
Social Security Reform, about the need to have procedures that
would preserve the system's capacity to continued paying benefits
on a timely basis even during unexpectedly adverse economic con-
ditions. Thus, your Committee's bill includes an interrelated set of
procedures-including interfund borrowing and the implementa-
tion of a revised accounting procedure for crediting the trust funds
with revenue receipts on a more regularized basis-that would help
to accomplish that purpose.
Section 141. Fixed monthly tax transfers
Your Committee's bill provides for a revision of accounting proce-
dures under which the Treasury Department would credit to the
OASDHI Trust Funds, at the beginning of each month, the amount
of payroll tax revenues that is estimated to be received during the
month. These amounts would be invested by the trust funds as all
other trust fund assets are invested and an appropriate allocation
made of the interest accrued on such investments.
Your Committee believes this procedure will help to alleviate po-
tential cash flow problems by stabilizing monthly income to the
OASDI trust funds prior to the point benefits are paid.
In paying interest to the general fund, the interest rate charged
to the trust funds in any month shall be equal to the rate earned
by the investments of the Trust Funds in the same month under
section 303 of the Committee bill. Interest shall be calculated on a
daily basis and apply to an amount equal to the amount trans-
ferred on the first of the month minus the amount which would
have been transferred up to that day 'of the month under proce-
dures in effect on January 1, 1983.
Section 152. Interfund borrowing extension
Under prior law (P.L. 97-123) interfund borrowing was allowed
during 1982 between the OASI, DI and HI funds. Your Committee's
bill would authorize continued interfund borrowing between these
three trust funds for 1983-1987. However, provision must be made
for repayment by the borrowing fund at the earliest feasible time
and in no case later than the end of calendar year 1989. Borrowing
also would be permitted only to the extent the lending fund had a
sufficient balance to lend the money without jeopardizing its own
ability to meet its obligations. Since your Committee continues to
be concerned about the long-term condition of the HI fund, it is
your Committee's intent that borrowing from the HI Fund should
be undertaken with due regard for the fund's status and that any
funds borrowered from the HI fund could be paid back when the
HI fund would need them to maintain its own benefit payments.
Borrowing, as under the prior law, would be at the discretion of
the Managing Trustee, who also would determine the time and
amount of repayment, consistent with the above cautions and re-
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strictions. Interest would be paid by the borrowing fund to the
lending fund on any amounts loaned, as under prior law.
Your Committee notes that some $17.5 billion was borrowed by
the OASI fund from the other funds ($5.1 billion from DI and $12.4
billion from HI) in November and December 1982 in order to
ensure benefit payments through June 1983. P.L. 96-403 also real-
located $8.8 billion in incoming taxes away from the DI fund and
into the OASI fund during 1980-82 ($4.1 billion in 1980, $4.4 billion
in 1981, and $0.3 billion in 1982). These reallocations, combined
with the interfund borrowing, dropped the DI reserves from 35 per-
cent at the beginning of 1980 to 15 percent at the beginning of
1983. However, the DI fund reserves are still expected to increase
over the long-term.
Section 143. Managing trustee report to the Congress concerning
trust fund shortfalls
While the use of the fixed tax transfer accounting procedure and
interfund borrowing will enable the Trustees to manage the cash
flow within the trust funds to maximum advantage, your Commit-
tee remains concerned that safeguards be provided in the event the
combined resources of the trust funds prove inadequate to pay
timely benefits. It is further concerned that when trust fund re-
serves remain low for several years, a situation could arise fairly
quickly where further action may be needed.
Your Committee's bill requires the Board of Trustees to report
immediately to the Congress whenever it is of the opinion that the
amount of any of the Trust Funds may become unduly small and
recommend a specific legislative plan to adjust the inflow and
outgo of funds to remedy this shortfall with due regard to the eco-
nomic situation that created the problem and the amount of time
available to act in a prudent manner. It is the intent of the Com-
mittee that such legislative action should be effective only so long
as is necessary to restore the fund to solvency.
F. OTHER FINANCING AMENDMENTS
Section 151. Financing of noncontributory military wage base cred-
its
Under current law gratuitous military wage credits are provided
to persons who served in the military after September 16, 1940. Al-
though members of the armed forces were compulsorily covered
under social security in 1957, wage credits continue to be provided
to military personnel in recognition of the value of non-cash com-
pensation received.
The cost of the additional benefits and the administrative ex-
penses arising from these noncontributory wage credits are borne
by the General Fund on a retroactive reimbursement basis (i.e., the
costs are reimbursed only after benefits have been paid).
Your Committee is concerned that since only the marginal cost
of benefits which result from the inclusion of gratuitous wage
credit is reimbursed and that this is done on a retroactive basis,
the Treasury receives a "bargain" as compared with other employ-
ers. This is because the weighted benefit formula under OASDI
produces relatively less additional benefit cost for those last mar-
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ginal dollars of earnings than for the first dollars of earnings. In
essence, then, not only does the Treasury pay the cost of providing
these social security credits later than does any other employer, it
also pays less, on the average, for each dollar of earnings.
As a result of these concerns, your Committee bill provides that
a lump-sum payment will be made to the OASDI Trust Funds from
the General Fund of the Treasury for: (i) The present value of the
estimated additional benefits arising from the gratuitous military
service wage credits for service before 1957; (ii) the amounts of the
combined employer-employee OASDI taxes on the gratuitous mili-
tary service wage credits for service after 1956 and before 1983; and
in addition, (iii) the HI Trust Fund will be credited with the com-
bined employer-employee HI taxes or gratuitous wage credits for
services rendered after 1965 and before 1983. (In the future, the
OASDHI Trust Funds would be reimbursed on a current basis for
such employer-employee taxes on such wage credits for service
after 1983).
Section 152. Accounting for certain unnegotiated checks for benefits
under the social security program
Under current law the Social Security Administration certifies
to the Department of Treasury the amount of benefits to be paid to
social security beneficiaries. Subsequently, Treasury transfers that
amount from the social security trust funds to a Treasury transfer
account. Treasury then mails the beneficiaries their checks.
However, some of these checks are never negotiated. Social secu-
rity checks remain unnegotiated for various reasons. For example,
some benficiaries may "save" their social security checks, rather
than cash them or deposit them in banks; also some checks may be
lost in the mail or be stolen and not be reported, because the bene-
ficiary did know that the check was coming, and still other checks
go to the deceased persons and are held by a survivor and not
cashed or returned.
Social security benefit checks, as well as most other government
checks, are not issued by Treasury under special program symbols.
Therefore, Treasury is not able to readily identify what portion of
government-wide uncashed checks are social security benefit pay-
ments. The Treasury is authorized neither to cancel uncashed gov-
ernment checks nor to credit the value of those checks to the ac-
counts upon which they were drawn. As a result, the trust funds
are not credited for any uncashed OASDI benefit checks. Instead,
the value of benefit checks which are not cashed remains in the
General Fund of the Treasury.
In order to recover this lost revenue to the OASDI Trust Funds,
your Committee's bill provides for a lump-sum payment to the
OASDI Trust Funds from the General Revenue representing the
amount of uncashed benefit checks which have been issued in the
past. In addition, your Committee's bill requires the implementa-
tion of a procedure under which: (1) the Treasury Department
would make it possible to distinguish OASDI checks from other
government checks; and (2) the trust funds would be credited on a
regular basis with an amount equal to the value of all OASDI
benefit checks which have not been negotiated for a period of 6
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months. Checks which are older than 6 months will still be negotia-
ble.
2. SECTION-BY-SECTION EXPLANATION OF TITLE I
Section 101. Coverage of newly hired federal employees
Section 101(a) of the bill provides Social Security coverage for
Federal employees hired on or after January 1, 1984 and for cer-
tain current Federal employees including the President, Vice Presi-
dent, appointed Federal officials, Federal judges, members of Con-
gress and legislative employees who are not covered under a feder-
al retirement system.
Section 101(aXl) of the bill replaces paragraphs (5) and (6) of sec-
tion 210(a) of the Social Security Act with new paragraphs (5) and
(6). (The present paragraphs (5) and (6) generally exclude from the
definition of Social Security covered employment civilian service
performed in the employ of the United States or an instrumentali-
ty of the United States.)
The new paragraph (5) of section 210(a) of the Act continues the
exclusions from Social Security coverage provided under the pres-
ent paragraphs (5) and (6) for employees of the United States or
any instrumentality of the United States who have been continu-
ously so employed since December 31, 1983 and for annuitants of a
Federal retirement system. An individual who returns to service in
the employ of the United States or an instrumentality of the
United States after a separation from such service of not more
than 365 consecutive days is nevertheless considered "continuous-
ly" employed for purposes of this section.
The new paragraph (5) does not apply to service: (1) as President
or Vice President of the United States, (2) in a position established
under sections 5312 through 5317 of title 5, United States Code, as
a noncareer appointee of the Senior Executive Service or a nonca-
reer member of the Senior Foreign Service, or in a position to
which the individual is appointed by the President or Vice Presi-
dent under sections 105(aXl), 106(aXl), or 107(aXl) or (bXl) of title 3,
United States Code, if the position's basic pay is at or above the
rate for level V of the Executive Schedule; (3) as a member of the
Supreme Court, United States Court of Appeals, United States Dis-
trict Court (including the district court of a territory), United
States Claims Court, United States Court of International Trade,
United States Tax Court, or as United States magistrate, referee in
bankruptcy, or United States bankruptcy judge; (4) as a Member,
Delegate, or Resident Commissioner of or to the Congress; or (5) as
an employee of the legislative branch who is not covered under the
Civil Service Retirement System as of January 1, 1984. The effect
of not applying paragraph (5) to such service is that such service is
covered under Social Security beginning January 1, 1984.
The new paragraph (6) provides that service performed: (1) by in-
mates in Federal penal institutions, (2) in Federal hospitals by cer-
tain interns, student nurses and other student employees, and (3)
by individuals employed on a temporary basis in case of fire, storm,
earthquake, flood, or other similar emergency continues to be ex-
cluded from Social Security as it is under present law.
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Section 101(a)(2) of the bill amends section 210(p) of the Act, re-
lating to Medicare qualified Federal employment, to conform to the
amendment made to section 210(a) of the Act by section 101(a)(1) of
the bill.
Section 101(b) of the bill amends section 3121 of the Internal Rev-
enue Code of 1954 to conform to the amendments made by section
101(a) of the bill.
Section 101(b)(1) of the bill amends section 3121(b) of the Code to
conform to the amendment made to section 210(a) of the Act by
section 101(a)(1) of the bill.
Section 101(b)(2) of the bill amends section 3121(u)(1) of the Code
to conform to the amendment made to section 210(p) of the Act by
section 101(a)(2) of the bill.
Section 101(c)(1) of the bill amends section 209 of the Act by
adding a new paragraph at the end thereof which provides that
payments made to retired justices or judges under the provisions of
section 371(b) of title 28, United States Code, for periods during
which they render services under the provisions of section 294 of
title 28, United States Code, are included as wages for Social Secu-
rity taxation purposes.
Section 101(c)(2) of the bill amends section 3121(i) of the Internal
Revene Code of 1954 by adding a new paragraph (5), which provides
that the payments made to retired justices or judges under the pro-
visions of section 371(b) of title 28, United States Code, for periods
during which they render services under the provisions of section
294 of title 28, United States Code, are included as wages for Social
Security taxation purposes.
Section 101(d) of the bill provides that the amendments made by
section 101 of the bill apply with respect to remuneration paid
after December 31, 1983.
Section 102. Coverage of employees of nonprofit organizations
Section 102(a) of the bill provides compulsory coverage of remu-
neration for services performed by current and future employees of
nonprofit organizations.
Sections 102(a)(1) and 102(a)(2) of the bill make changes in section
210(a)(8) of the Social Security Act to conform it to the amendment
made by section 102(a)(3).
Section 102(a)(3) of the bill amends section 210(a)(8) of the Act by
deleting subparagraph (B), thus eliminating the exclusion from the
definition of "employment" for Social Security benefit purposes
services performed in the employ of tax-exempt nonprofit organiza-
tions described in section 501(c)(3) of the Internal Revenue Code of
1954.
Section 102(b) of the bill amends section 3121 of the Code to pro-
vide compulsory Social Security taxation of remuneration for serv-
ices performed in the employ of such nonprofit organizations.
Sections 102(b)(1)(A) and 102(b)(1)(B) of the bill make changes in
section 3121(b)(8) of the Code to conform it to the amendment made
by section 102(b)(1)(C) of the bill.
Section 102(b)(1)(C) of the bill amends section 3121(b)(8) of the
Code by deleting subparagraph (B), to conform to the amendment
made by section 102(a)(3) of the bill.
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Section 102(b)(2) of the bill repeals section 3121(k) of the Code
which permits a tax-exempt nonprofit organization to provide
Social Security coverage for its employees by filing a waiver with
the Secretary of the Treasury, provides that a waiver will be
deemed to have been filed under certain circumstances, and per-
mits such an organization to terminate coverage for its employees.
Section 102(b)(3) of the bill amends section 3121(r) to repeal para-
graph (4), which requires religious orders which elect Social Secu-
rity coverage for their members also to elect Social Security cover-
age for their lay employees, and to make conforming changes in
references to sections 210(aX8) of the Act and 3121(b)(8) of the Code.
Section 102(c) of the bill provides that the amendemts made by
subsections (a) and (b) shall apply to service performed after De-
cember 31, 1983. However, the amendments do not affect section 2
of P.L. 94-563 (which provides that no refund or credit of taxes
shall be made to a nonprofit organization that is deemed to have
filed a waiver to provide Social Security coverage for its employees)
or section 3 of P.L. 94-563 and section 312(c) of P.L. 96-216 (which
permit an employee of a nonprofit organization that is deemed to
have filed a waiver to receive credit for past services if he pays the
Social Security employee tax on his wages).
Section 102(d) of the bill provides that if a nonprofit organization
has filed a waiver certificate under which Social Security coverage
has been extended to its employees, the period for which the certif-
icate is in effect may not be terminated on or after enactment.
Section 102(e) of the bill provides a rule for deeming to be fully
insured for Social Security purposes persons who, on January 1,
1984, are at least age 55 and employed by a nonprofit organization
to those employees coverage is extended solely as a result of this
section.
Section 102(e)(1)(A) of the bill provides that the deeming provi-
sion applies to individuals who, on January 1, 1984, are age 55 or
over and employees of a nonprofit organization to those employees
coverage is extended solely as a result of this section.
Section 102(e)(1)(B) of the bill provides that, for purposes of the
deeming provision, the quarters of coverage (required under section
102(e)(2)) must be acquired after January 1, 1984.
Section 102(e)(2) of the bill provides that the number of quarters
of coverage needed to be deemed to be fully insured is to be deter-
mined based on the following table:
The Number of Quarters of Coverage so Required
In the case of an individual who on Jan. 1, 1984, is-
Age 60 or over ......................................................................................................... 6
Age 59 or over but less than age 60 .................................................................... 8
Age 58 or over but less than age 59 .................................................................... 12
Age 57 or over but less than age 58 .................................................. 16
Age 55 or over but less than age 57 .................................................................... 20
Section 102(f) of the bill amends section 1886(b) of the Act by de-
leting paragraph (6), which provides for the reduction of Medicare
payments to hospitals for inpatiant hospital services in the case of
certain hospitals which terminate Social Security coverage of their
employees. Subsection (f) is effective for cost reporting periods be-
ginning on or after October 1, 1982.
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Section 103. Duration of agreements for coverage for State and local
employees
Section 103(a) of the bill replaces section 218(g) of the Social Se-
curity Act, which permits States to terminate Social Security cov-
erage for groups of State and local employees and prevents termi-
nated groups from becoming covered again, with a new section
218(g). Under the new section 218(g), Social Security coverage pro-
vided under a State's agreement with the Secretary may not be ter-
minated, and previously terminated groups are permitted to again
be covered under Social Security.
Section 103(b) provides that the new section 218(g) applies to all
current and future coverage agreements (or modifications of agree-
ments) between the States and the Secretary. It also provides that
the new section 218(g) shall apply without regard to whether a
notice of intent to terminate coverage has been filed by a State
with respect to any group of State of local employees.
Section 111. Shift cost of living adjustments to calendar year basis
Section 111 of the bill amends section 215(i) of the Social Security
Act to provide that after 1982, the automatic cost-of-living adjust-
ments (COLA) provided for in this section shall be made on a calen-
dar year basis (making the increase effective for December payable
in January, rather than effective for June payable in July of each
year) and that for COLAs effective after 1983, the period for meas-
uring the increase in the Consumer Price Index (CPI) shall be shift-
ed from a first-quarter to first-quarter measure to a third-quarter
to third-quarter measure.
Section 111(a)(1) of the bill amends section 215(i)(1)(A) of the Act
to provide that for years after 1982 a base quarter for measuring
an automatic increase in the CPI will end with the calendar quar-
ter ending on September 30, rather than March 31.
Section 111(a)(2) of the bill amends section 215(i)(2)(A)(ii) of the
Act to change the effective date of an automatic cost-of-living bene-
fit increase from June to December of any year in which the Secre-
tary determines a cost-of-living adjustment is required.
Section 111(a)(3) of the bill makes a conforming effective date
amendment in section 21502)(A)(iii) of the Act, which provides
that automatic increases in a year are applicable to primary insur-
ance amounts computed or recomputed in that year regardless of
when entitlement began in that year, to conform with section
111(a)(2) of the bill.
Section 111(a)(4) of the bill section 215(i)(2)(B) of the Act to con-
form with the effective month provided in section 111(a)(2) of the
bill.
Section 111(b)(1) of the bill amends section 215(i)(4) of the Act,
which requires the Secretary, after a COLA has been determined,
to publish in the Federal Register revisions of the table of benefits
under the law in effect in December 1978, to provide that such
tables will be revised as required by section 111(a)(2) of the bill.
Section 111(b)(2) of the bill amends section 215(i) of the Act as in
effect in December 1978 (provisions affecting those not covered by
wage indexing) and as applied in certain cases after 1978 (cases
computed under transitional provisions) to conform with the third
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quarter measuring period and the December effective date provi-
sions of sections 111(aXl) and 111(aX2) of of the bill.
Section 111(c) of the bill amends sections 203(fX8XA), the auto-
matic adjustment of the retirement test, 230(a), the automatic ad-
justment of the contribution and benefit base, and 202(m), the sole
survivor minimum benefit provision (as it applies in certain cases
by reason of section 2 of P.L. 97-123 relating to the minimum bene-
fit for those eligible before 1982) to conform with the provisions of
section 111(aX2) of the bill.
Section 111(d) of the bill provides that the amendments made by
this section will apply to cost-of-living adjustments for years after
1982; except that the change in the period for measuring the in-
crease in the CPI made by subsections (aXl) and (bX2)(A) will apply
only to cost-of-living adjustments for years after 1983.
Section 111(e) of the bill provides that, notwithstanding any
other provision in section 215(i) of the Act, the base quarter in 1983
will be a cost-of-living computation quarter even if the CPI has not
increased by at least 3 percent since the last prior cost-of-living
computation quarter. This amendment would ensure that a benefit
increase would be payable effective December 1983.
Section 112. Cost-of-living increases to be based on either wages or
prices (whichever is lower) when balance in OASDI trust funds
falls below specified level
Section 112 of the bill provides that, beginning in 1988, in any
year when the ratio of the combined OASDI trust funds balance to
estimated outgo is less than 20 percent, the automatic cost-of-living
increase for that year will be based on the lower of the increase in
prices or the increase in wages. The section also provides that,
when the combined OASDI trust fund ratio reaches 32 percent, a
catchup benefit increase will be made to take account of prior in-
creases that were based on less than the increase in prices.
Section 112(a) of the bill amends section 215(iX1XB) of the Social
Security Act by changing the definition of a cost-of-living computa-
tion quarter to take account of the possibility of benefit increases
based on wages. The new provision specifies that a cost-of-living
computation quarter will be a quarter in which the "applicable in-
crease percentage" (defined in a new subparagraph (C)) is 3 percent
or more.
Section 112(a) of the bill also redesignates subparagraph (C) as
subparagraph (H) and adds five new subparagraphs to section
215(i)(1) of the Act:
New subparagraph (C) defines applicable increase percentage as
the lower of the CPI increase percentage or the wage increase per-
centage for any year after 1987 when the combined OASDI trust
fund ratio is less than 20 percent and as the Consumer Price Index
(CPI) increase percentage for any other year.
. New subparagraph (D) defines the CPI increase percentage as
the percentage (rounded to the nearest tenth) by which the CPJ for
the current base quarter (or cost-of-living computation quarter) ex-
ceeds that index for the most recent prior quarter which was a
cost-of-living computation quarter (or was a base quarter in a year
when a general benefit increase was paid).
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New subparagraph (E) defines wage increase percentage as the
percentage (rounded to the nearest tenth) by which the SSA aver-
age wage index for the year preceding the current year exceeds
that index for the year preceding the most recent prior year which
included a cost-of-living computation quarter (or was a year in
which a general benefit increase was paid).
New subparagraph (F) defines OASDI fund ratio for a calendar
year as the combined balance in the Federal Old-Age and Survivors
Insurance Trust Fund and the Federal Disability Insurance Trust
Fund, reduced by the outstanding amount of any loans (including
interest) made to either fund from the Federal Hospital Insurance
Trust Fund, at the beginning of that calendar year to the total
amount which will be paid from such funds during that year, ex-
cluding repayment of (and interest on) loans from the Federal Hos-
pital Insurance Trust Fund and transfer payments between those
funds, and reducing any transfers to the Railroad Retirement Ac-
count by the amount of any transfers into those funds from that
account.
New subparagraph (G) defines SSA average wage index as the
average of the total wages reported to the Secretary of the Treas-
ury for the preceding calandar year as determined for purposes of
indexing earnings under section 215(b) of the Act.
Section 112(b) of the bill amends section 215(i)(2)(A)(ii) of the Act
so that the percentage increase determined under the preceding
section will be applied when determining the amount of the auto-
matic benefit increase.
Section 112(c) of the bill amends section 215(i) of the act by
adding a new paragraph (5), which provides for an additional per-
centage increase in certain years. An additional percentage in-
crease will be determined when the OASDI fund ratio is over 32
percent and a prior automatic benefit increase had been paid under
section 215(i) based on the wage increase percentage rather than
the CP increase percentage or no increase had been paid because
the wage increase percentage was less than 3 percent. The addi-
tional percentage increase is defined as the difference between the
compounded benefit increases that would have been paid if all in-
creases had been based on the CPI increase percentage and the
compounded percentage increases that were actually paid. Such in-
creases will be measured over the period beginning with the calen-
dar year in which the worker initially became eligible for an old-
age or disability insurance benefit, or died before becoming so eligi-
ble, and ending with the year in which the increase is due. (In the
case of benefits under sections 227 and 228, however, the period
begins with the year the person first became entitled to such bene-
fits.) The Secretary will reduce the amount of the additional per-
centage increase, if necessary, to assure that the fund ratio will
remain at or above 32 percent through the end of the following
year. Any additional percentage increase that is paid will be treat-
ed as part of the regular cost-of-living increase for that year.
Section 112(d)(1) of the bill amends section 215(i)(2)(C) of the Act
by adding a new clause (iii), which provides that the Secretary
must determine and promulgate the OASDI fund ratio and the
SSA wage index by November 1 of each year and include those
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amounts in any notification made under clause (i) and any determi-
nation published under subparagraph (D).
Section 112(dX2) of the bill amends section 215(iX4) of the Act by
providing that the new method of determining the percentage in-
crease will apply to benefit amounts determined under this subsec-
tion as in effect in December 1978.
Section 112(e) of the bill provides that the amendments made by
this section apply to monthly benefits for months after December
1987.
Section 112(f) of the bill provides a special method for determin-
ing the OASDI fund ratio for calendar year 1988. The OASDI trust
fund balance used in determining the OASDI fund ratio for that
year will be the estimated combined balance of the funds at the
close of that year, rather than at the beginning.
Section 113. Elimination of windfall benefits for individuals receiv-
ing pensions from noncovered employment
Section 113 of the bill changes the benefit formula used in com-
puting a worker's old-age or disability insurance benefits if the
worker receives an annuity based in whole, or in part, on nonco-
vered employment.
Section 113(a) of the bill amends section 215(a) of the Social Secu-
rity Act by adding a new paragraph (7), which provides, in subpara-
graph (A), that an individual's primary insurance amount (PIA)
will be computed under the special rules set out in subparagraph
(B) if (1) the worker's PIA would be computed under paragraph (1)
of section 215(a)-that is, under the wage indexing or special mini-
mum PIA provisions, (2) the worker attains age 62 or becomes dis-
abled after 1985 and (3) that worker is entitled to a periodic annu-
ity based in whole, or in part, on noncovered employment. This
special PIA, which will be computed with respect to the initial
month the worker becomes eligible for Social Security benefits, will
only apply during the worker s concurrent entitlement to such pe-
riodic annuity and to either old-age or disability insurance benefits.
There is an exception that precludes an individual's PIA from
being computed under this paragraph if he receives a periodic an-
nuity based in part on Federal employment before 1971 that was
covered under Social Security.
Subparagraph (B) of the new paragraph (7) provides that the PIA
in the cases set out in subparagraph (A) will first be computed
under the preceding paragraphs of section 215(a) of the Act, except
that a factor of 61 percent will apply to the lowest band of AIME
in the benefit formula (rather than 90 percent). There will be a
guarantee, which will help workers with relatively low periodic an-
nuities, that the reduction will not exceed one-half of the periodic
annuity. This alternative guarantee PIA equals the PIA that would
be computed under section 215(a) of the Act as though the individu-
al did not receive an annuity based on noncovered employment, re-
duced by 50 percent of the annuity. For these purposes, the amount
of the annuity is the amount payable to the individual when he
first becomes eligible for Social Security benefits, regardless of the
amount of the annuity he actually receives at entitlement or there-
after. Also, the amount of the annuity will be that portion of the
annuity attributable to noncovered service, with such attribution
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being based on the proportionate number of years of noncovered
service. If the PIA is computed under these special provisions, it
will be deemed to be computed under paragraph (1) of section
215(a) of the Act for purposes of applying other provisions of title II
of the Act.
Subparagraph (C) of the new paragraph (7) contains rules for
dealing with a range of special cases of annuities based on nonco-
vered employment. Clause (i) of the new subsection (aX7XC) states
that if the annuity is paid other than monthly, it will be allocated
on a monthly basis for purposes of the previously described PIA
computation.
Clause (ii) of the new subsection (a)(7)(C) states that if the benefi-
ciary has elected a reduced annuity so as to provide for his survi-
vors, the amount used in the PIA computation will be that of the
unreduced annuity.
Clause (iii) of the new subsection (aX7XC) states that if eligibility
for the annuity begins in a month subsequent to the month in
which the worker becomes eligible for old-age or disability insur-
ance benefits, his PIA will be computed using the amount of the
annuity for the first month in which it could become payable.
Clause (iv) of the new subsection (aX7)(C) states that, for purposes
of paragraph (7), the definition of periodic annuity includes a lump
sum payment if it is a commutation of, or substitute for, a periodic
annuity.
Section 113(b) of the bill amends section 215(d) of the Act by
adding a new paragraph (5) that provides special PIA computation
rules for a worker who meets the criteria set out in the new para-
graph (7)(A) of section 215(a) of the Act, except that his PIA is not
computed under paragraph (1) of section 215(a) by reason of para-
graph (4XB)(ii)-that is, he had substantial earnings before 1950
and qualifies for an "old-start" computation under the 1939 Social
Security Act provisions, as amended. The PIA in such cases will
equal the old-start PIA computed under section 215(d) of the Act as
though the worker did not receive an annuity based on noncovered
employment, reduced by the smaller of: (1) one-half of the old-start
PIA or (2) one-half of the periodic annuity. In determining the
amount of the annuity for this purpose, the same rules apply as in
the new section 215(a)(7)(B) of the Act. The exception provided in
the new section 215(a)(7)(A) also applies.
Section 113(c) of the bill amends section 215(f) of the Act by
adding a new paragraph (9), which provides, in subparagraph (A),
that if the worker becomes entitled to a periodic annuity based on
noncovered employment in a month subsequent to his entitlement
to old-age or disability insurance benefits, then that benefit will be
recomputed effective with the first month of concurrent entitle-
ment to that Social Security benefit and the periodic annuity.
Subparagraph (B) of the new section 215(f)(9) provides that if a
PIA is increased because of the additional earnings of an old-age or
disability insurance beneficiary, the increase is to be computed as
though the individual were not entitled to an annuity from nonco-
vered employment. That is, he will receive the full benefit of the
increase. Also, if the individual dies, the PIA will be recomputed
without regard to the annuity, so that his survivors will receive
survivor benefits that are not reduced because of the annuity.
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Section 113(d) of the bill provides conforming changes to sections
202(e)(2) and 202(f)(3) of the Act to include references to the new
section 215(f)(9)(B) of the Act.
Section 114. Increase in old-age insurance benefit amounts on ac-
count of delayed retirement
Section 114 of the bill would gradually increase the delayed re-
tirement credit (DRC), which is payable to workers who delay re-
tirement past age 65 and up to age 70 a, from 3 percent per year for
workers age 65 in 1989 to 8 percent per year for workers age 65
after 2007.
Section 114(a) of the bill amends section 202(w)(1)(A) of the Social
Security Act to replace the present language, which specifies the
amount by which an old-age benefit is increased for certain groups
of workers who delay retirement, with language that specifies that
this amount now will be determined under the new paragraph (6).
Section 114(b) of the bill further amends section 202(w) of the Act
by adding a new paragraph (6), which specifies that the amount by
which an old-age benefit will be increased for each month of de-
layed retirement is (1) one-twelfth of 1 percent for workers who
become eligible for monthly benefits before 1979, the same as
under present law, (2) one-fourth of 1 percent for workers who
become eligible after 1978 and before 1987, and (3) a percentage
gradually increasing by one-twenty-fourth of 1 percent every other
year so that it rises from seven-twenty-fourths of 1 percent for
workers who become eligible in 1987 to two-thirds of 1 percent for
workers who become eligible after 2004.
Section 121. Taxation of social security and railroad benefits
Section 121 of the bill provides for assessing income taxes in cer-
tain cases on monthly benefits under title II of the Social Security
Act and on tier 1 monthly benefits under the Railroad Retirement
Act. Benefits shall be included in taxable income for taxpayers,
whose adjusted gross income (under current law) combined with
one-half of their Social Security or tier 1 railroad benefits exceeds
$25,000 for a single taxpayer, $32,000 for a married couple filing
jointly or $0 for a married couple filing separately. In such cases,
this section provides that taxable income shall be the lesser of one-
half of (1) the designated benefits or (2) the amount by which ad-
justed gross income (under current Internal Revenue Code) plus
one-half of the benefits exceeds specified base amounts. This sec-
tion also contains special rules to provide for treatment of overpay-
ments and retroactive payments. In addition, this section requires
that: beneficiaries and the IRS be provided annual statements of
benefit payments; half of benefits received by nonresident aliens be
subject to income taxes and that such taxes be withheld from bene-
fits payable; and benefits subject to taxation include the portion of
any workmen's compensation payments that serve to reduce a tax-
payer's Social Security benefits.
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General rule
Section 121(a) of the bill amends part II of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1954 by redesignating section
86 as section 87 and inserting a new section 86 to provide for the
inclusion of a part of Social Security benefits in gross income for
income tax purposes.
The new sections 86(a) and 86(b) of the Code as amended provide
that gross income for a taxable year includes the lesser of one-half
of Social Security benefits received or one-half of the amount by
which the sum of adjusted gross income (under current law) plus
one-half of Social Security benefits exceeds the base amounts speci-
fied in subsection (c).
Section 86(c) provides that the base amount shall be $25,000 for a
single individual, $32,000 for a couple filing jointly, and zero for a
married taxpayer who does not file a joint return and who does not
live apart from his spouse throughout the taxable year.
Section 86(d) defines the term "Social Security benefit," provides
special rules for treatment of overpayment refunds and makes pro-
visions to take account of Social Security benefit reductions due to
the receipt of workmen's compensation benefits.
Paragraph (1) of the new section 86(d) defines the term "Social
Security benefit" as any amounts received by reason of entitlement
to (A) monthly benefits under title II of the Social Security Act and
(B) tier 1 railroad benefits.
Paragraph (2) of the new section 86(d) provides the amount of
benefits received for a taxable year shall be reduced by the amount
of any repayment by the taxpayer of benefits previously received.
The paragraph further provides that any tax reduction allowable
under section 165 of the Code for repayment of benefits shall be
limited to the amount by which any repayment of benefits previ-
ously received exceeds the amount of benefits received during the
taxable year.
Paragraph (3) of the new section 86(d) provides that the term
"Social Security benefit" shall include workmen's compensation
benefits to the extent such benefits cause a reduction in Social Se-
curity benefits in the taxable year.
Paragraph (4) defines the term "tier 1 railroad benefit" as a
monthly benefit under section 3(a), 4(a) or 4(f) of the Railroad Re-
tirement Act of 1974 (determined by taking into account sections
204(a)(1), 206(1) and 207(1) of Public Law 93-445).
Subsection (e) of the new section 86 provides a limitation on the
amount of Social Security benefits includable in taxable income for
any tax year in which a taxpayer receives a lump-sum payment of
benefits, any part of which is attributable to prior taxable years.
This subsection also defines the taxable year to which a Social Se-
curity benefit is attributable, authorizes the Secretary of the Treas-
ury to establish the time and manner by which a taxpayer may
elect to attribute lump-sum payment to prior tax years and pro-
vides restrictions on the revocation by a taxpayer of an election to
determine taxable income as provided under this subsection.
Paragraph 1 of the new subsection (e) provides that (A) if any
portion of a lump-sum payment of Social Security benefits received
during a taxable year is attributable to prior taxable years and (B)
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the taxpayer makes an election under the new subsection (e), then
the amount of such portion includable in gross income for such tax-
able year shall not exceed the sum of the increases in gross income,
if any, for such prior taxable years that would result from taking
such portion into account in the taxable years to which it is attrib-
utable.
Paragraph (2XA) of the new subsection (e) provides that a Social
Security benefit shall be attributable to the taxable year in which
the generally applicable payment date for such benefit occurred.
Paragraph (2)(B) authorizes the Secretary of the Treasury to pre-
scribe by regulations the time and manner for making an election
under the new subsection (eXl) and further provides that an elec-
tion made under this subsection may be revoked only with the con-
sent of the Secretary of the Treasury.
The new section 86(f) of the Code provides that Social Security
benefits shall be treated as pensions and annuities for purposes of
sections 43(cX2), 219(fXl), 221(bX2), and 911(bXl) of the Internal Rev-
enue Code. These sections deal respectively with earned income tax
credit for low income workers, retirement savings contributions,
deductions for two-earner married couples, and exclusion of foreign
earned income.
Information reporting
Section 121(b) of the bill amends subpart B of part II of sub-
chapter A of chapter 6 of the Internal Revenue Code to include a
new section, designated section 6050F, to provide that appropriate
Federal officials issue annual reports to the Secretary of the Treas-
ury and to all Social Security beneficiaries and Railroad Retire-
ment annuitants setting forth the amount of benefits paid each
such beneficiary in the calendar year, the amount of any benefits
repaid by the individual during the year, and the amount of reduc-
tion in any Social Security benefits on account of workmen's com-
pensation benefits.
The new section 6050F(a) of the Code requires the appropriate
Federal official to make a report to the Secretary of the Treasury
showing the aggregate amount of benefits paid to any individual
during the calendar year, the aggregate amount of benefits repaid
by such individual during such calendar year, the amount of reduc-
tions incurred by such individual due to reductions in Social Secu-
rity benefits on account of workmen's compensation, and the name
and address of the beneficiary.
The new section 6050F(b) of the Code requires the reporting offi-
cial to furnish by January 31 of each year, to each individual
whose name is set forth in any report under subsection (a), a writ-
ten statement showing the name of the agency making the pay-
ments and the aggregate amount of benefit payments, and any re-
payments and reductions with respect to the individual during the
prior calendar year.
The new section 6050(c) defines "appropriate Federal official" as
the Secretary of Health and Human Services in the case of month-
1y benefit payments under title II of the Social Security Act and as
the Railroad Retirement Board in the case of monthly benefit pay-
ments under the Railroad Retirement Act of 1974. The subsection
also provides that for purposes of section 6050F of the Code, the
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term "Social Security benefit" has the meaning given it by section
86(d)(1) of the Code as amended.
Treatment of nonresident aliens
'Section 121(c) of the bill amends the Internal Revenue Code to
provide for the taxation of Social Security benefits paid to nonresi-
dent aliens, for the withholding of income taxes from Social Secu-
rity benefits paid to nonresident aliens and for disclosure by the In-
ternal Revenue Service to the Social Security Administration and
the Railroad Retirement Board of the name, address, citizenship
and resident status of any individual for the purpose of administer-
ing this subsection.
Paragraph 1 of section 121(c) amends section 871(a) of the Code
by adding a new paragraph to provide that, for nonresident aliens,
one-half of Social Security benefits, as defined in section 86(d), be
included in gross income, but that section 86 shall not otherwise
apply.
Paragraph (2) of section 121(c) amends section 1441 of the Code
by adding a new subsection to provide, with respect to the with-
holding of tax on nonresident aliens, a cross reference to section
871(a)(3) of such Code.
Paragraph (3) of section 121(c) amends section 6103(h) of the Code
by adding a new paragraph to authorize the Secretary of the Treas-
ury, upon written request, to disclose information from the master
files of the Internal Revenue Service concerning the address, the
resident status and the citizenship of an individual to the Social Se-
curity Administration and the Railroad Retirement Board for pur-
poses of carrying out the withholding provisions of section 121(c)(1)
of the bill. This paragraph also makes a conforming amendment to
paragraph (4) of section 6103(p) of the Code.
Social Security benefits treated as United States source
Section 121(d) of the bill amends section 86(a) of the IRC by
adding a new paragraph to provide that Social Security benefits, as
defined in section 86(d), be treated as income from sources within
the United States.
Transfer to trust funds
Section 121(e) of the bill provides for determining tax liability at-
tributable to this section, appropriating estimated tax liability to
the Federal Old-Age and Survivors Insurance Trust Fund, the Fed-
eral Disability Insurance Trust Fund and the Railroad Retirement
Account and issuing reports with respect to the operation of this
section.
Paragraph (1) of section 121(e) of the bill provides that there
shall be appropriated to each payor fund amounts equivalent to the
aggregate increase in tax liabilities under chapter 1 of the Code
which is attributable to the application of sections 86 and 87(a)(3) of
such Code (as amended by the bill) to payments from such payor
fund.
Paragraph (2) of section 121(e) of the bill provides that amounts
appropriated to each payor fund shall be transferred at least once
a quarter based on estimates of the amounts referred to in para-
graph (1) and that any such quarterly payment shall be made on
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the first day of such quarter and shall take into account taxes at-
tributable to Social Security benefits estimated to be received
during such quarter. This paragraph also provides that proper ad-
justments are to be made in the transferred amounts to the extent
prior estimates were greater or less than the amounts required to
be transferred.
Paragraph (3) of section 121(e) of the bill defines the term "payor
fund" as any trust fund or account from which payments of Social
Security benefits are made and defines "Social Security benefits"
as having the same meaning as in section 86(d)(1) of the Code as
amended by the bill.
Paragraph (4) of section 121(e) of the bill requires the Secretary
of the Treasury to submit annual reports to the Congress, the Sec-
retary of Health and Human Services and the Railroad Retirement
Board showing the transfers made to each fund during the year,
the methodology used in determining the amounts transferred and
the anticipated operation of this subsection during the next 5
years.
Technical amendments
Section 121(f)(1) amends section 85(a) of the Code to provide that
Social Security benefits be excluded from adjusted gross income
for purposes of calculating the amount of unemployment benefits
to be included in taxable income.
Section 121(f)(2) makes a conforming amendment to subsection
(B) of section 128(c)(3) of the Code (as in effect for taxable years be-
ginning after December 31, 1984), concerning depository institution
tax-exempt savings certificates.
Paragraphs (3), and (4) of section 121(f) amend the tables of sec-
tions for part II of subchapter B of chapter 1 and for subpart B of
part III of subchapter A of chapter 61 of the Code to take account
of redesignated and new sections.
Effective dates
Paragraph (1) of section 121(g) provides that, except as provided
in paragraph (2), the amendments made by this section shall apply
to benefits received after December 31, 1983, in taxable years
ending after such date.
Paragraph (2) section 121(g) provides that the amendments made
by this section shall not apply to any portion of a lump-sum pay-
ment of Social Security benefits received after December 31, 1983,
if the generally applicable payment date for such portion was
before January 1, 1984.
Section 122. Credit for the elderly and the permanently and totally
disabled
Section 122 of the bill amends section 37 of the Internal Revenue
Code and repeals Code section 105(d). Section 122(a) amends section
37 to provide an income tax credit for the elderly and permanently
and totally disabled.
Section 37(a) provides a general rule that a qualified individual
shall be allowed as a credit against the tax imposed by Chapter 1 of
the Internal Revenue Code for the taxable year an amount equal to
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15 percent of the individual's "section 37 amount" (base amount)
for the taxable year.
Section 37(b) defines qualified individual to mean any individual
who (1) has attained age 65 before the close of the taxable year or
(2) who has retired on disability before the close of the taxable year
and who, when he retired, was permanently and totally disabled.
Section 37(c) provides that an individual's section 37 amount will
be an initial amount of $5,000 in the case of a single individual or a
joint return where only one spouse is a qualifed individual, $7,500
in the case of a joint return where both spouses are qualified indi-
viduals, or $3,750 in the case of a married individual filing a sepa-
rate return. In the case of a qualified individual who has not
reached age 65 before the close of the taxable year, the initial
amount generally cannot exceed the disability income for the tax-
able year. The limitation to disability income is modified in the
case of a joint return where both spouses are qualified individuals
and at least one spouse has not reached age 65 at the close of the
taxable year. If both spouses have not reached age 65 before the
close of the taxable year, the initial amount is limited to the sum
of both spouses' disability income. If one spouse has reached age 65
before the close of the taxable year, the initial amount is limited to
$5,000 plus the disability income for the year of the spouse below
age 65.
Section 37(c) defines disability income to mean the aggregate
amount includible in the gross income of the individual for the tax-
able year under Code sections 72 (annuities; certain proceeds of en-
dowment and life insurance contracts) or 105(a) (accident and
health plan amounts attributable to employer contributions) to the
extent such amount constitutes wages (or payment in lieu of wages)
for the period during which the individual is absent from work on
account of permanent and total disability.
Paragraph (3) of section 37(c) provides for reductions in the ini-
tial amount. The initial amount is reduced by any amounts re-
ceived as a pension or annuity or as a disability benefit under Title
II of the Social Security Act, under the Railroad Retirement Act of
1974, or otherwise excluded from gross income (with certain excep-
tions). No reduction in the initial amount is made for any amount
excluded from gross income under Code sections 72 (relating to an-
nuities), 101 (relating to life insurance proceeds), 104 (relating to
compensation for injuries or sickness), 105 (relating to amounts re-
ceived under accident and health plans), 120 (relating to amounts
received under qualified group legal services plans), 402 (relating to
taxability of beneficiary of employees' trust), 403 (relating to tax-
ation of employer annuities), or 405 (relating to qualified bond pur-
chase plans). For purposes of the reduction, any amount treated as
a social security benefit under Code section 86(d)(3) is treated as a
disability benefit received under Title II of the Social Security Act.
Paragraph (1) of section 37(d) provides that the section 37
amount is reduced by one-half of the taxpayer's adjusted gross
income in excess of $7,500 in the case of a single individual, $10,000
in the case of a joint return, or $5,000 in the case of a married indi-
vidual filing a separate return.
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Paragraph (2) of section 37(d) provides that the amount of the
credit will not exceed the amount of tax imposed on the taxpayer
under Chapter 1.
Paragraph (1) of section 37(e) requires that except in the case of a
husband and wife who live apart at all times during the taxable
year, if the taxpayer is married at the close of the taxable year, the
credit is allowed only if the taxpayer and spouse file a joint return
for the taxable year.
Paragraph (2) of section 37(e) provides that marital status is to be
determined under Code section 143.
Paragraph (3) of section 37(e) provides that an individual is per-
manently and totally disabled if he is unable to engage in any sub-
stantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continu-
ous period of not less than 12 months. An individual shall not be
considered to be permanently and totally disabled unless he fur-
nishes proof of the existence of the disability in such form and
manner, and at such times, as the Secretary of the Treasury may
require.
Section 37(f) provides that no tax credit for the elderly and the
permanently and totally disabled will be allowed to any nonresi-
dent alien.
Section 122(b) of the bill repeals Code section 105(d) which has
provided an exclusion for certain disability income.
Section 122(c) of the bill makes conforming amendments to the
Internal Revenue Code to reflect the revisions in the tax credit and
repeal of the disability exclusion.
Effective dates
Paragraph (1) of section 122(d) provides that, except as provided
in paragraph (2), the amendments made by this section shall apply
to taxable years beginning after December 31, 1983.
Paragraph (2) of section 122(d) provides as a transitional rule that,
if an individual's annuity starting date was deferred under Inter-
nal Revenue Code section 105(dX6) (as in effect on the day before
the date of the enactment of this section), the deferral will end on
the first day of the individual's first taxable year beginning after
December 31, 1983.
Section 123. Acceleration of increases in FICA taxes; 1984 employee
tax credit
Section 123(a) of the bill amends sections 3101(a) and 3111(a) of
the Internal Revenue Code of 1954 to provide a new schedule of tax
rates for employees and employers, each, for purposes of old-age,
survivors and disability insurance (OASDI).
Under present law, the OASDI tax rate schedule for employees
and employers, each, is as follows:
Calendar years: Percent
1984 ........................................................................................................................... 5.4
1985-1989 ................................................................................................................. 5.7
1990 and after ......................................................................................................... 6.2
Under the bill, the tax rates for employees and employers, each,
for OASDI are as follows:
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Calendar years: Percent
1984-1987 ................................................................................................................. 5.70
1988-1989 ................................................................................................................. 6.06
1990 and after ......................................................................................................... 6.20
See section 202 for tax rate for OASDI for calendar years afer
2014.
Section 123(b) of the bill provides a credit for employees against
OASDI and Railroad Retirement Tier 1 employee taxes for 1984 of
an amount equal to three-tenths of 1 percent of the individual's
wages for 1984.
Section 123(b)(1) adds a new section to the Internal Revenue
Code, designated as section 3510. Subsection (a) of such new section
provides a general rule for allowing the credit.
The new subsection 3510(b) provides that the credit provided
shall be taken into account in determining the amount of tax de-
ducted from the employee's wages.
The new subsection 3510(c) defines "wages" to mean the same as
provided in section 3121(a) of the Internal Revenue Code.
The new subsection 3510(d) provides that, for purposes of deter-
mining amounts equivalent to the tax imposed by section 3101(a) of
the Internal Revenue Code with respect to remuneration which (1)
is covered by an agreement under section 218 of the Social Security
Act (relating to coverage agreements with State and local govern-
ments) and (2) is paid during 1984, the credit shall be taken into
account.
The new subsection 3510(e) provides for a similar credit against
railroad retirement employee and employer representative taxes.
Paragraph (1) of the new subsection 3510(e) provides for allowing
as a credit against the taxes imposed by section 3201(a) and 3211(a)
of the Internal Revenue Code on compensation paid during 1984
and subject to such taxes an amount equal to three-tenths of 1 per-
cent of such compensation.
Paragraph (2) of the new subsection 3510(e) provides that the
credit shall be taken into account in determining the amount of
tax deducted from the employee's wages.
Paragraph (3) of the new subsection 3510(e) defines "compensa-
tion" to mean the same as provided in section 3231(e) of the Inter-
nal Revenue Code.
The new subsection 3510(f) provides that for purposes of subsec-
tion (c) of section 6413 of the Internal Revenue Code (relating to
refunds to employees of excess Social Security taxes withheld), in
determining the amount of the tax imposed by section 3101 or 3201
of the Internal Revenue Code, any such credit shall be taken into
account.
Section 123(b)(2) of the bill amends the table of contents for chap-
ter 25 of the Internal Revenue Code to reflect the credit provided.
Section 123(b)(3) provides that the amendments made by section
123(b) shall be effective with respect to remuneration paid during
1984.
Section 123(bX4) provides that, for purposes of section 218(h) of
the Social Security Act (relating to deposits to the Social Security
trust funds under voluntary agreements for coverage of State and
local government employees), amounts allowed as a credit pursuant
to the new subsection 3510(d) of the Internal Revenue Code shall be
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treated as amounts received under such an agreement. Section
123(bX5) provides that, for purposes of subsection (a) of section 15 of
the Railroad Retirement Act of 1974 (relating to maintenance of
the Railroad Retirement Account), amounts allowed as credit pur-
suant to the new subsection 3510(e) of the Internal Revenue Code
shall be treated as amounts covered into the Treasury under sec-
tion 3201(a) (relating to taxes withheld from wages) of the Internal
Revenue Code.
Section 124. Taxes of self-employment income; 1984 employee equiva-
lent tax credit
Section 124(a) of the bill amends section 1401(a) of the Internal
Revenue Code of 1954 to provide a new schedule of tax rates for
self-employment income for purposes of old-age, survivors and dis-
ability insurance (OASDI) and hospital insurance (HI).
Under present law, the OASDI tax rate schedule for the self-em-
ployed is as follows:
Taxable years beginning after: Percent
1981 (and before 1985) ............................................................................................ 8.05
1984 (and before 1990) ............................................................................................ 8.55
1989 ........................................................................................................................... 9.30
Under the bill, the tax rate on self-employment income for
OASDI are as follows:
Taxable years beginning after: Percent
1983 (and before 1988) ............................................................................................ 11.40
1987 (and before 1990) ............................................................................................ 12.12
1989 (and before 2015) ............................................................................................ 12.40
See section 202 for tax rate for OASDI for taxable years begin-
ning after 2014.
Section 124(a) of the bill also amends section 1401(b) of the Inter-
nal Revenue Code to provide a new schedule of tax rates for self-
employment income for purposes of HI. Under present law, the HI
tax rate schedule for the self-employed is as follows:
Taxable years beginning after: Percent
1980 (and before 1985) ............................................................................................ 1.30
1984 (and before 1986) ............................................................................................ 1.35
1985 ........................................................................................................................... 1.45
Under the bill, the tax rates on self-employment income for HI
are as follows:
Taxable years beginning after: Percent
1983 (and before 1985) ............................................................................................ 2.60
1984 (and before 1986) ............................................................................................ 2.70
1985 ........................................................................................................................... 2.90
Section 124(b) of the bill provides for inserting a new subsection
(c) in section 1401 of the Internal Revenue Code (and redesignating
the current subsection (c) as subsection (d)). The new subsection (c)
provides certain credits against the taxes imposed by section 1401
of the Internal Revenue Code.
Paragraph (1) of the new section 1401(c) provides for a credit
against the taxes imposed by section 1401 for any taxable year in
an amount equal to 1.8 percent (1.9 percent in the case of taxable
years beginning after December 31, 1987) of the self-employment
income for the individual for such taxable year.
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Paragraph (2) of the new section 1401(c) provides an additional
credit against the taxes imposed by section 1401 for any taxable
year beginning during 1984 in an amount equal to three-tenths of 1
percent of the self-employment income of the individual for such
taxable year.
Section 124(c) of the bill provides that the amendments made by
this section shall apply to taxable years beginning after December
31, 1983.
Section 125. Allocations to disability insurance trust fund
Section 125(a) of the bill amends section 201(b)(1) of the Social Se-
curity Act which deals with the amount to be allocated and appro-
priated to the Federal Disability Insurance Trust Fund each year.
Under present law, the amounts so allocated and appropriated
with respect to wages paid are as follows:
Calendar years:
Percent
1982-84 .....................................................................................................................
1.65
1985-89 .....................................................................................................................
1.90
1990 and after .........................................................................................................
2.20
Under the amended section 201(b)(1), the amount so allocated
and appropriated will be as follows:
Calendar years:
Percent
1983 ...........................................................................................................................
1.30
1984 ...........................................................................................................................
0.50
1985-89 .....................................................................................................................
1.00
1990 and after .........................................................................................................
1.20
Section 125(b) of the bill amends section 201(b)(2) of the Act,
which deals with the amount to be allocated and appropriated to
the Federal Disability Insurance Trust Fund each year with re-
spect to self-employment income. Under present law, the amounts
so allocated and appropriated with respect to any self-employment
income reported for a taxable year are as follows:
Taxable years beginning after:
Percent
1982 (and before 1985) ............................................................................................
1.2375
1984 (and before 1990) ............................................................................................
1.4250
1989 ...........................................................................................................................
1.6500
Under the amended section 201(b)(2), the amounts so allocated
and appropriated will be as follows:
Taxable years beginning after:
Percent
1981 (and before 1983) ............................................................................................
1.2375
1982 (and before 1984) ............................................................................................
0.9375
1982 (and before 1990) ............................................................................................
1.0000
1989 ...........................................................................................................................
1.2000
Section 131. Benefits for surviving divorced spouses and disabled
widows and widowers who remarry
Section 131 of the bill provides that for purposes of determining
an individual's entitlement to survivors benefits under title II of
the Social Security Act, the marriage of a disabled widow(er) and a
divorced disabled widow(er) after attaining age 50, and the mar-
riage of a divorced widow(er) after attaining age 60, shall be
deemed not to have occurred.
Section 131(a) amends section 202(e) of the Social Security Act
(and cross-references thereto) to provide that the marriage of (A) a
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disabled widow or a disabled surviving divorced wife after attaining
age 50 or (B) a widow or surviving divorced wife after attaining age
60 (or after attaining age 50 if, before the marriage, she was enti-
tled to benefits as a disabled widow or disabled surviving divorced
wife), shall be deemed not to have occurred.
Section 131(b) of the bill amends section 202(f) of the Social Secu-
rity Act (and cross-references thereto) to provide that the marriage
of (A) a disabled widower after attaining age 50 or (B) a widower
after attaining age 60 (or after attaining age 50 if, before the mar-
riage, he was entitled to benefits as a disabled widower), shall be
deemed not to have occurred.
Section 131(c) of the bill amends section 202(s) of the Social Secu-
rity Act to delete the provision therein for deeming not to have oc-
curred the marriage of a disabled widower, disabled widow or dis-
abled surviving divorced wife to an individual entitled to child's in-
surance benefits.
Section 131(d) of the bill provides that the amendments made by
this section shall be effective with respect to monthly benefits pay-
able for months after December 1983, except that benefits shall not
be paid to an individual not entitled to such benefits for December
1983 unless proper application therefor is made.
Section 132. Entitlement to divorced spouse's benefits before entitle-
ment of insured individual to benefits; exemption of divorced
spouse's benefits from deduction on account of work
Section 132 of the bill amends sections 202 and 203 of the Social
Security Act to provide spouse's benefits for a divorced spouse of an
insured individual without regard to whether the individual is enti-
tled to old-age benefits and to exempt a divorced spouse from the
operation of the earnings test as it applies to persons entitled to
benefits on the earnings record of the insured individual.
Section 132(a) of the bill amends section 202(b) of the Act, which
provides benefits for the wife of an old-age beneficiary to add a new
paragraph (5), which provides for the entitlement to, and termina-
tion of, benefits for a divorced wife of an individual who is not enti-
tled to old-age benefits.
The new subparagraph (5)(A) provides that a divorced wife of a
fully insured individual aged 62 or over who is not entitled to old-
age benefits will become entitled to wife's insurance benefits if the
divorced wife meets the requirements set forth in paragraph (1) for
entitlement to benefits as a divorced wife and the divorce from the
former husband has been in effect for at least 2 years. Subpara-
graph (5)(A) also provides that the amount of the benefit payable to
a divorced wife entitled to benefits under this paragraph will be
based on a primary insurance amount established for the insured
nonentitled individual as of the date the divorced wife first be-
comes entitled to benefits.
The new subparagraph (5XB) provides that, in addition to the ter-
mination events specified for a divorced wife in paragraph (1),
wife's benefits payable to a divorced wife under this paragraph will
terminate with the month before the first month in which the in-
sured individual is no longer fully insured.
Section 132(b) of the bill amends sections 203(b) and 203(d) of the
Act, which provide for deductions on account of work in the United
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States and outside the United States, respectively, to provide that
deductions because of the excess earnings of an individual shall not
be made from the monthly benefits of a divorced spouse entitled to
benefits on that individual's earnings record and that for purposes
of determining deductions on account of such individual's excess
earnings, the benefits of all other persons entitled to benefits on
that individual's earnings record will be determined as if the di-
vorced spouse were not entitled to wife's or husband's benefits on
that wage record. Section 132(b) of the bill also amends section
203(f) of the Act, which specifies to which months deductions on ac-
count of excess earnings are to be charged, to exclude divorced
spouses entitled to benefits on the wages of an entitled individual
or nonentitled insured individual.
Section 132(c) of the bill provides that subsection (a) will apply
with respect to monthly benefits payable for months after Decem-
ber 1984 on the basis of applications filed on or after January 1,
1985, and subsection (b) will apply with respect to monthly benefits
for months after December 1984.
Section 133. Indexing of deferred surviving spouse's benefits to
recent wage levels
Section 133 of the the bill amends section 202 (e) and (f) of the
Social Security Act, which provide benefits for aged and disabled
widows and widowers, respectively. The bill provides that in com-
puting benefits for a surviving spouse of a worker who dies before
reaching age 62, the worker's earnings will be indexed based on the
year the surviving spouse becomes eligible for benefits if this re-
sults in a higher benefit than the current method of indexing the
earnings based on the year the worker died.
Section 133(a)(1) of the the bill amends section 202(e)(2) of the Act
by striking out the first sentence of subparagraph (A) and by redes-
ignating the balance of that subparagraph as subparagraph (C) and
by redesignating subparagraph (B) as subparagraph (D).
Section 133(a)(1) of the the bill further amends section 202(e)(2)
by adding a new subparagraph (A), which provides that except
where a reduction for age applies under subsection (q), an offset be-
cause of the receipt of a governmental pension based on work not
covered by Social Security applies under paragraph (8) of this sub-
section, or the limit specified in redesignated subparagraph (D) of
this subsection applies, a monthly widow's insurance benefit will be
equal to the deceased worker's primary insurance amount (PIA) as
determined for purposes of this subsection after application of sub-
paragraphs (B) and (C).
Section 133(a)(1) of the the bill further amends section 202(e)(2) of
the Act by adding a new subparagraph (B). Clause (i) of new sub-
paragraph (B) provides that:
(1) in computing a PIA for purposes of determining a benefit for
a widow, disabled widow, surviving divorced wife, or a disabled sur-
viving divorced wife in the case of a worker who died before reach-
ing age 62 and whose PIA would be computed under section 215 as
in effect after December 1978 using indexed earnings, the formula
to be applied to the average indexed monthly earnings (AIME) will
be the formula that is applicable to workers who initially become
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eligible for old-age benefits in the second year following the substi-
tute year determined under clause (ii) of this new subparagraph;
(2) the substitute year determined under clause (ii) of this sub-
paragraph will be used as the indexing point when the deceased
worker's AIME is determined under section 215(b); and
(3) the PIA will be increased by cost-of-living adjustments under
section 215(i) beginning with the second year after the substitute
year determined under clause (ii) of this subparagraph.
Clause (ii) of new subparagraph (B) provides that the substitute
year will be the earlier of the year the deceased worker attained
age 60, or would have attained age 60 had he lived to that age, the
year the survivor becomes eligible for aged widow's benefits (or the
year the survivor becomes eligible for disabled widow's benefits),
but in no case earlier than the second year before the year the
worker dies.
Clause (iii) of the new subparagraph (B) provides that this new
computation applies only when it results in a PIA that is higher
than the PIA for the deceased individual that is computed under
the regular computation procedures in section 215.
Section 133(aX2) of the bill further amends section 202(eXl) to
allow the PIA's referred to in subparagraphs (B) and (C) to also be
considered for purposes of determining entitlement to, or termina-
tion of, widow's insurance benefits.
Section 133(bXl) of the bill amends section 202(0(3) of the Act by
striking out the first sentence of subparagraph (A) and by redes-
ignating the balance of that subparagraph as subparagraph (C) and
by redesignating subparagraph (B) as subparagraph (D).
Section 133(bXl) of the bill further amends section 202(0(3) by
adding a new subparagraph (A), which provides that except where
a reduction for age applies under subsection (q), an offset because
of the receipt of a governmental pension based on work not covered
by Social Security applies under paragraph (2) of this subsection, or
the limit specified in redesignated subparagraph (D) of this subsec-
tion applies, a monthly widower's insurance benefit will be equal to
the deceased worker's PIA as determined for purposes of this sub-
section after application of subparagraphs (B) and (C).
Section 133(bXl) of the bill further amends section 202(0(3) of the
Act by adding a new subparagraph (B). Clause (i) of new subpara-
graph (B) provides that:
(1) in computing a PIA for purposes of determining a benefit for
a widower or disabled widower in the case of a worker who died
before reaching age 62 and whose PIA would be computed under
section 215 as in effect after December 1978 using indexed earn-
ings, the formula to be applied to the average indexed monthly
earnings (AIME) will be the formula that is applicable to workers
who initially become eligible for old-age benefits in the second year
following the substitute year determined under clause (ii) of this
new subparagraph;
(2) the substitute year determined under clause (ii) of this sub-
paragraph will be used as the indexing point when the deceased
worker's AIME is determined under section 215(b); and
(3) the PIA will be increased by cost-of-living adjustments under
section 215(i) beginning with the second year after the substitute
year determined under clause (ii) of this subparagraph.
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Clause (ii) of new subparagraph (B) provides that the substitute
year will be the earlier of the year the deceased worker attained
age 60, or would have attained age 60 has she lived to that age, the
year the survivor becomes eligible for aged widower's benefits (or
the year the survivor becomes eligible for disabled widower's bene-
fits), but in no case earlier than the second year before the year the
worker dies.
Clause (iii) of the new subparagraph (B) provides that this new
computation applies only when it results in a PIA that is higher
than the PIA for the deceased individual that is computed under
the regular computation procedures in section 215.
Section 133(b)(2) of the bill further amends section 202(f)(1) to
allow the PIA's referred to in subparagraphs (B) and (C) to also be
considered for purposes of determining entitlement to, or termina-
tion of, widower's insurance benefits.
Section 133(c) of the bill provides that the amendments made by
this section apply with respect to benefits for persons becoming
newly eligible for surviving spouse's benefits after December 1984.
Section 134. Limitation on benefit reduction for early retirement in
case of disabled widows and widowers
Section 134 of the bill raises benefits for disabled widow(er)s enti-
tled before age 60 to the level payable to widow(er)s who become
entitled at age 60, that is, 71.5 percent of the worker's primary in-
surance amount. (Under present law, the benefits for disabled
widow(er)s entitled before age 60 are as low as 50 percent of the
worker's primary insurance amount where entitlement to such
benefits begins at age 50.)
Section 134(a)(1) of the bill amends section 202(q)(1) of the Social
Security Act by repealing the matter following subparagraph
(B)(ii), and subparagraphs (B) and (C) to eliminate the reduction
now made in disabled widow(er)'s benefits for months the widow(er)
is under age 60. The matter that is repealed specified the factor
used in the reduction of benefits for disabled widow(er)s and the
number of months for which the reduction applied when the initial
month of entitlement is a month prior to age 60.
Section 134(a)(2)(A) of the bill restates section 202(q)(6) of the Act
to delete section 202(q)(6)(B) that defines the "additional reduction
period" for disabled widow(er)'s benefits. The period began with the
first month of entitlement or age 50, whichever is later, and ended
at age 60. The remaining portion of 202(q)(6) is restated and redes-
ignated.
Sections 134 (a)(2)(B) and (a)(2)(C) of the bill contain conforming
changes to section 202(q) of the Act to delete references to the re-
pealed section 202(q)(6)(B).
Section 134(a)(3) of the bill amends section 202(q)(7) of the Act to
delete language pertaining to the "additional adjusted reduction
period", applicable in cases where entitlement to widow(er)'s insur-
ance benefits begins prior to age 60.
Section 134(a)(4) of the bill amends section 202(q)(10) of the Act to
delete references that pertain to the "additional adjusted reduction
period".
Section 134(b) of the bill amends section 202(m)(2)(B) of the Act
(as applicable after enactment of P.L. 123) by making a conforming
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change to refer to the new section 202(qX6XB). (Section 202(m) pro-
vides a minimum benefit for certain sole survivors.)
Section 134(c) of the bill makes the provision applicable to bene-
fits payable to widow(er)s effective for months after December 1983.
Section 141. Normalized crediting of social security taxes to trust
funds
Section 141 amends section 201(a) of the Social Security Act,
which deals with transfer of Social Security tax income from the
general fund of the Treasury to the trust funds, to provide for
transferring total estimated Social Security tax receipts for each
month from the general fund of the Treasury to the Social Security
trust funds on the first day of the month. Under present law,
Social Security taxes are transferred daily throughout the month
on the basis of estimated tax receipts.
Sections 141(aXl) (A) and (B) amend section 201(a) of the Social
Security Act to provide for such transfers of Social Security taxes
from the general fund to the Federal Old-Age and Survivors Insur-
ance and Federal Disability Insurance Trust Funds.
Paragraph (2) of section 141(a) of the bill provides that all
amounts transferred to either Trust Fund under the amended sec-
tion 201(a) shall be invested by the Managing Trustee of the Trust
Fund in the same manner and to the same extent as the other
assets of such Trust Fund. Further, such Trust Fund shall pay in-
terest to the general fund of the Treasury on the amount trans-
ferred on the first day of the month at a rate (calculated on a daily
basis, and applied against the difference between the amount so
transferred on such first day and the amount which would have
been transferred to the Trust Fund up to that day under the proce-
dures in effect on January 1, 1983) equal to the rate earned by the
investments of such Fund in the same month under section 202(d).
Sections 141(b) (1) and (2) amend section 1817(a) of the Social Se-
curity Act to make comparable changes with respect to the trans-
fer of taxes (including interest thereon) to the Federal Hospital In-
surance Trust Fund.
Section 141(c) provides that the amendments made by section 141
shall become effective on the first day of the month following the
month of enactment.
Section 142. Interfund borrowing extension
Section 142 of the bill provides for authorization of interfund bor-
rowing among the Social Security trust funds for calendar years
1983-1987, with provision for repayment of the principal and inter-
est of all such loans.
Section 142(a) amends sections 201(1) and 1817(j) of the Secial Se-
curity Act to reauthorize interfund borrowing among the Federal
Old-Age and Survivors Insurance Trust Fund, the Federal Disabil-
ity Insurance Trust Fund and the Federal Hospital Insurance
Trust Fund for 1983-1987. Prior authority for such borrowing ex-
pired at the end of 1982.
Section 142(b) further amends sections 201(1) and 1817(j) to pro-
vide for repayment of all sums borrowed under this and previous
authorities at the earliest feasible date and in any event no later
than December 31, 1989.
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Section 143. Recommendations by boards of trustees to alleviate in-
adequate balances in the social security trust funds
Section 143 adds a new section 709 to title VII of the Social Secu-
rity Act providing for recommendations by the Boards of Trustees
of the Social Security Trust Funds to the Congress to alleviate in-
adequate balances in the trust funds.
The new section 709 provides that if the Board(s) of Trustees of
the Federal Old-Age and Survivors Insurance and Federal Disabil-
ity Insurance Trust Funds, the Federal Hospital Insurance Trust
Fund or the Federal Supplementary Medical Insurance Trust Fund
determine at any time that the balance of such Trust Fund may
become inadequate to assure the timely payment of benefits from
such Trust Fund, the Board(s) shall promptly submit to each House
of the Congress a report setting forth the Board's recommendations
for statutory adjustments affecting the receipts and disbursements
to and from such Trust Fund necessary to alleviate such inadequa-
cy, with due regard to the economic conditions which created such
inadequacy and the amount of time necessary to alleviate such in-
adequacy in a prudent manner.
Section 151. Financing of noncontributory military wage credits
Section 151(a) of the bill provides for a lump sum reimbursement
of the Social Security trust funds by the general fund of the Treas-
ury for the cost of past and future Social Security benefits attribut-
able to noncontributory Social Security wage credits for military
service provided under section 217 of the Social Security Act for
the period on or after September 16, 1940 to December 31, 1956.
Section 151(a) of the bill replaces section 217(g) of the Act with a
new section 217(g). (Under the present section 217(g), the Social Se-
curity trust funds are reimbursed by Treasury annually, based on
an amortization schedule, for the cost of additional Social Security
benefits attributable to noncontributory wage credits for military
service for the period from September 16, 1940 to December 31,
1956).
The new section 217(g)(1) provides that within 30 days after en-
actment, the Secretary shall determine the amount equivalent to
the actuarial present value of all past and future OASDHI benefits
and the associated administrative costs (less reimbursement previ-
ously made under subsection (g) as in effect prior to enactment) at-
tributable to the noncontributory wage credits granted as a result
of section 217 of the Act.
The new section 217(g)(1) further provides that in determining
such actuarial present value, the Secretary consider the relevant
assumptions adopted by the Board of Trustees in their 1983 report.
The new section 217(g)(1) also requires the Secretary of the Treas-
ury to transfer to the OASDHI trust funds within 30 days after en-
actment the amount as determined by the Secretary under this
new section.
The new section 217(g)(2) provides that the Secretary would
revise the amount of the lump sum determined under paragraph
(1) in 1985 and every fifth year thereafter in order to make any
necessary adjustments to the prior determinations based on the
actual costs of benefits based on credits granted under section 217
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and to take into account the relevant assumptions adopted by the
Board of Trustees for the year in which the redetermination is
made. Within 30 days after such a revision, the Secretary of the
Treasury is required (to the extent provided in advance by appro-
priation acts) to transfer from the general fund to the OASDHI
trust funds amounts equal to any underpayments as determined by
the Secretary plus amounts equal to the administrative expenses
necessary to carry out the provisions. The trust funds would reim-
burse the general funds for any overpayments.
Section 151(b) of the bill provides for annual reimbursement of
the Social Security trust funds by the general fund of the Treasury
of an amount equal to the value of Social Security employer and
employee taxes which would have been paid on the deemed mili-
tary wage credits provided under section 229 of the Act after 1982
if such credits were wages covered under Social Security. (The
amount equal to the value of Social Security employer and employ-
ee taxes for such credits before 1983 would be reimbursed in a
lump sum payable 30 days after enactment.)
Section 151(bXl) of the bill replaces section 229(b) of the Act with
a new section 229(b). (Under the present section 229(b) the Social
Security trust funds are reimbursed annually by Treasury, based
on an amortization schedule, for the cost of additional Social Secu-
rity benefits attributable to the deemed wage credits for military
service for the period after 1956.)
The new section 229(b) authorizes annual appropriations on July
1 from the general fund of the Treasury to the OASDHI trust
funds of an amount, as determined by the Secretary, equal to the
value of the OASDHI employer and employee taxes which would
have been imposed if the deemed wage credits provided under sec-
tion 229(a) had been remuneration for employment as defined in
3121(b) of the Internal Revenue Code. The amounts authorized to
be appropriated under section 229(b) shall be based on estimates of
the Secretary as to the military wages deemed to be paid for the
year under 229(a), and such amounts shall be adjusted to the
extent that prior estimates were in excess of or less than actual
deemed military wages.
Section 151(b)(2) of the bill provides that section 151(b)(1) of the
bill shall apply with respect to military wages deemed to have been
paid for calendar years after 1982.
Section 151(b)(3)(A) of the bill requires the Secretary of Health
and Human Services to determine within 30 days after enactment
the additional amounts which would have been appropriated to the
trust funds if OASDHI employer and employee taxes had been im-
posed on the military wages deemed to have been paid under sec-
tion 229(a) for periods before 1983, if those deemed wages had been
remuneration for periods before 1983, if those deemed wages had
been remuneration for employment as defined in section 3121(b) of
the Code, plus the interest which would have been earned by the
trust funds if such taxes had been paid for those deemed wages.
Section 151(b)(3)(B)(i) of the bill requires the Secretary of the
Treasury within 30 days after enactment to transfer to the
OASDHI trust funds an amount equal to the amount determined
under section 151(b)(3)(A) of the bill, less any reimbursement made
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prior to enactment with respect to such military wages deemed to
have paid before 1983.
Section 151(bX3)(B)(ii) of the bill provides that the Secretary of
Health and Human Services shall revise the amount determined
under section 151(bX3)(BXi) of the bill within 1 year after the date
of the transfer based on the actual amount of additional deemed
wages credited under section 229(a) for periods prior to 1983. The
bill requires the Secretary of the Treasury within 30 days after any
such revision to transfer to the trust funds, or from the trust funds
to the general fund of the Treasury, the amounts the Secretary cer-
tifies as necessary to compensate for the revision.
Section 152. Accounting for certain unnegotiated checks for benefits
under the social security program
Section 152 of the bill provides for transferring amounts repre-
senting unnegotiated checks for benefits under title II of the Social
Security Act from the general fund of the Treasury to the Social
Security trust funds.
Section 152(a) amends section 201 of the Social Security Act (as
amended by section 143 of the bill) to provide that the Secretary of
the Treasury (1) shall implement procedures to permit the identifi-
cation of old-age and survivors insurance and disability insurance
benefit checks not presented for payment by the close of the sixth
month after the month they were issued; (2) shall credit the Feder-
al Old-Age and Survivors Insurance Trust Fund and the Federal
Disability Insurance Trust Fund for all benefit checks (including
interest thereon) drawn from such trust funds that are not present-
ed for payment before the close of such sixth month and that have
not previously been credited; (3) shall pay benefit checks presented
for payment after the close of such sixth month and recharge the
appropriate trust fund accordingly; and (4) may, if the Secretary
determines it to be necessary to effect proper payment, cancel any
unnegotiated original benefit check and issue a current benefit
check in lieu thereof.
Section 152(b) provides that the amendments made by section
152(a) shall apply to all title II benefit checks issued on or after the
first day of the 24th month after the month of enactment.
Section 152(c) provides interim procedures for determining the
amounts of and crediting unnegotiated checks pending implemen-
tation of the provisions of section 152(a) and defines unnegotiated
checks under the interim procedures.
Paragraph (1) of the new section 152(c) provides for monthly
transfers from the general fund of the Treasury to the Federal Old-
Age and Survivors Insurance Trust Fund and the Federal Disabil-
ity Insurance Trust Fund of amounts determined by the Secretary
of the Treasury and the Secretary of Health and Human Services
to be unnegotiated checks, including interest thereon. Transfers
under paragraph (1) shall occur in the month following the month
of enactment and in each of the succeeding 30 months, after which
the provisions of section 201 of the Social Security Act as amended
by this section shall become effective.
Paragraph (2) of the new section 152(c) provides that, for pur-
poses of paragraph (1), the term "unnegotiated benefit checks"
means title II benefit checks issued prior to the 24th month after
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enactment that remain unnegotiated more than 6 months after the
month of issuance and that have not perviously been credited to
the Trust Fund on which they were drawn.
B. Additional Provisions Relating to Long-Term Financing of the
Social Security System (Title II)
1. GENERAL DISCUSSION
The long-term deficit in social security financing is the result of
increased numbers of retirees in the next century as the baby-boom
generation retires, of the wage-indexed benefit structure that guar-
antees to future retirees increased real benefits that will reflect
general increases in the standard-of-living over their working ca-
reers and of inadequate long-term funding provided in previous
congressional actions.
The National Commission on Social Security Reform estimated
that the long-range actuarial deficit of the OASDI Trust Funds
over the 75-year valuation period from 1982-2056 would be 1.80
percent of taxable payroll. They estimated that enactment of the
provisions in their "consensus" package would reduce this deficit to
0.58 percent of taxable payroll. While the Commission members
who voted in favor of the "consensus" package agreed that the
long-range deficit should be reduced to approximately zero, they
were unable to agree on a specific recommendation. Some members
favored a proposal to gradually increase the normal retirement age
in the next century and others supported an increase in the contri-
bution rates in 2010.
According to the latest estimates by the Social Security Adminis-
tration's Office of the Actuary (using the anticipated intermediate
II-B assumptions of the 1983 Trustees Report) the long-range actu-
arial deficit of the OASDI Trust Funds over the period 1983-2057 is
projected to be 2.09 percent of taxable payroll. Your Committee's
bill, exclusive of Title II, would reduce this deficit to 0.68 percent of
taxable payroll.
Your Committee's bill would eliminate the remaining long-range
deficit through a combination of an increase in OASDI taxes and a
gradual change in the benefit formula to slow down the future
growth in real social security benefits. The increases in real bene-
fits graranteed by the current benefit formula can be moderated
without reducing the purchasing power of benefits in the future,
while at the same time assuring beneficiaries and workers that the
cost of the program will not absorb a disproportionate amount of
the nation's wealth as the number of elderly increase.
It should be noted that the cost of the OASDI program as a per-
cent of Gross National Product (GNP) increases over the 75-year
projection period from the present 5.2 percent to around 5.5 per-
cent by 2060, with some fluctuations downward from 1990 to 2010,
followed by an increase to over 6 percent in 2030 and then a gradu-
al decrease through 2060. In contrast, the income to the program
as a percent of GNP declines from the current 4.75 percent to
around 4 percent by 2060, with some increases over the period coin-
ciding with the period of the least cost of the program (1985-2000).
It is therefore clear that one of the major causes of the long-term
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defect is that a relatively steady share of an increasing national
economy is guaranteed for social security benefit payments by the
wage-indexed benefit structure, while a steadily decreasing share of
the GNP is being dedicated to support those benefits.
Under your Committee's bill, workers and beneficiaries would
share responsibility for assuring the long-term solvency of the
social security system through some reduction in future benefit
growth and some increase in taxes after a 25-year period of no tax
increases at all. Those expecting to receive benefits in the next cen-
tury would be assured that the system is solvent, while those who
will be working to support those benefits would have the assurance
that only a modest increase in taxes would be required.
Section 201. Adjustments on OASDI benefit formula
Your Committee's bill provides for reducing initial benefit levels
by approximately 5 percent by decreasing the percentage factors in
the benefit formula by two-thirds of one percent of their present
law value each year for a period of 8 years beginning with the for-
mula applicable for the year 2000.
Under current law, a primary insurance amount is computed for
each worker by first determining an average indexed monthly
earnings (AIME) figure (measured over the working lifetime and
using earnings that are updated to take account of increases in
average wage levels) and multiplying portions of that average by a
series of percentage factors. For those eligible for retirement bene-
fits in 1983, for example, the first $254 of AIME is multiplied by 90
percent, the next $1,274 of AIME multiplied by 32 percent, and all
AIME over $1,528 is multiplied by 15 percent. The dollar figures
($254 and $1,528) in this formula (called bend points) are increased
each year to reflect rising wages, but the percentage factors are
held constant.
Your Committee's bill provides for decreasing the percentage fac-
tors in the formula according to the following schedule:
Up to the first bend
point is-
Between the first
and second bend
points is-
Above the second
bend point is-
1979-99 ............................................................................................... 90.0
32.0
15.0
2000
.....................................................................................................
89.4
31.8
14.9
2001
....................................................................................................
88.8
31.6
14.8
2002
.....................................................................................................
88.2
31.4
14.7
2003
.....................................................................................................
87.6
31.1
14.6
2004
.....................................................................................................
87.0
30.9
14.5
2005
.....................................................................................................
86.4
30.7
14.4
2006
.....................................................................................................
85.8
30.5
14.3
2007 and after ..................................................................................... 85.2
30.3
14.2
In addition, your Committee's bill provides for reducing the 61
percent factor, which is a substitute for the 90 percent factor under
the provision to eliminate windfall benefits (section 113 of this bill)
by two-thirds of one percent each year until it ultimately reached
57.7 percent for 2007 and later.
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Reducing the percentage factors in the formula is a more equita-
ble method for reducing benefit levels than altering the bend
points. Reducing the percentage factors applies the reduction in
initial benefit levels equally at all levels of earnings, while the
bend point approach would result in some skewing of the weighting
that presently exists in the formula.
Your Committee's provision is phased in-taking 8 years to real-
ize the full 5 percent reduction in benefit levels and only affecting
newly eligible beneficiaries each year (roughly 4 percent of the
total). Replacement rates for successsive cohorts of newly eligible
beneficiaries decline slightly each year during the phase-in period
and then level off when the proposal is fully effective in 2007. As a
result of the provision, the replacement rate for a steady average-
wage earner will be reduced from 42 percent of AIME to 40 per-
cent. However, using the 1.5 percent real wage growth projected by
the Office of the Actuary under the intermediate II-B assumptions,
real benefits will continue to increase over successive cohorts of
newly eligible beneficiaries even during the phase-in.
Section 202. Adjustments in OASDI taxes
Your Committee's bill provides for increasing the OASDI tax
rate for employees, employers, and the self-employed in 2015.
OASDI taxes for employees and employers are currently scheduled
to increase to 6.2 percent each effective for 1990 and after. OASDI
taxes for self-employed persons will ultimately reach 12.4 percent
for 1990 and after under section 124 of your Committee's bill.
Under this provision, you Committee's bill provides for increasing
OASDI taxes in 2015 to 6.44 percent for employees and employers
each and to 12.88 percent for the self-employed.
2. SECTION-BY-SECTION EXPLANATION-TITLE II
Section 201. Adjustments in OASDI benefit formula
Section 201 of the bill, once it becomes fully effective in 2007,
will provide for a uniform reduction of initial benefits for newly eli-
gible workers of approximately 5 percent at all earnings levels.
Section 201(a) of the bill amends section 215(a)(1)(A) of the Social
Security Act by providing that the benefit formula factors will be
determined under the new section 215(a)(8), rather than always
being the 90 percent, 32 percent and 15 percent factors currently
specified in this section.
Section 201(b) of the bill amends section 215(a)(7)(B) of the Act (as
added by section 113(a) of this bill) by providing that the first
factor of the benefit formula that is applicable to workers who re-
ceive pensions based on employment that is not covered by Social
Security will be determined under the new section 215(a)(8), rather
than always being 61 percent.
Section 201(c) of the bill adds a new section 215(a)(8) to the Act.
This new paragraph provides a table specifying the benefit formula
factors applicable under section 215(a)(1) as 90 percent, 32 percent
and 15 percent for workers who become eligible for benefits or die
before 2000, and gradually decreasing (at % percent per year) until
the percentages are 85.2 percent, 30.3 percent, and 14.2 percent, re-
spectively, for workers who become eligible for benefits or die after
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2006. Similarly, the 61 percent factor referred to in section 215(a)(7)
will gradually decrease to 57.7 percent over the same time period.
Section 202. Adjustments in OASDI tax rates
Section 202 amends sections 3101(a), 3111(a) and 1401(a) of the In-
ternal Revenue Code of 1954 to provide for further changes in the
schedule of old-age, survivors and disability insurance (OASDI) tax
rates specified in sections 122 and 123 of the bill for 1990 and after
for employees and employers, each, and for the self-employed.
Subsections (a) and (b) provide further changes in the schedule of
tax rates on wages for 1990 and after for purposes of OASDI.
Under the schedule provided in section 122 of this bill, the OASDI
tax rate for employees and employers, each, for 1990 and after is
6.2 percent. Under this section, the 6.2-percent rate is effective only
through 2014. Beginning in 2015, the tax rate provided under the
bill, as amended by this section, is 6.44 percent, each, for employers
and employees.
Subsection (c) provides further changes in the schedule of tax
rates on self-employment income for 1990 and after for purposes of
OASDI. Under the schedule provided in section 123 of this bill, the
OASDI tax rate for the self-employed for 1990 and after is 12.4 per-
cent. Under this section, the 12.4-percent rate is effective only
through 2014. Beginning in 2015, the tax rate provided under the
bill, as amended by this section, is 12.88 percent for the self-em-
ployed.
The tax-rate schedules for OASDI for employees and employers,
each, and the self-employed, as provided under this section and sec-
tion 123 are shown below.
Employees and Employers, Each
Calendar years:
Percent
1984-1987
.................................................................................................................
5.70
1988-1989
.................................................................................................................
6.06
1990-2014
.................................................................................................................
6.20
2015 and after ......................................................................................................... 6.44
Self-Employed
Taxable years beginning after:
Percent
1983 (and before 1988) ............................................................................................
11.40
1987 (and before 1990) ............................................................................................
12.12
1989 (and before 2015) ............................................................................................
12.40
2014 ...........................................................................................................................
12.88
C. Miscellaneous and Technical Provisions (Title III)
1. GENERAL DISCUSSION
A. CASH MANAGEMENT
Section 301. Float periods
Under current law, social security benefit checks are issued to
beneficiaries on the third day of each month. Current Treasury
procedures allow a two-day float period before trust fund monies
are actually transferred to the Treasury to pay the checks which
have been issued. No float period is provided for the approximately
one-third of total benefit payments which are deposited directly in
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beneficiaries' banking accounts. Nor is a float period provided for
retroactive benefit adjustment checks issued during the month.
A study recently completed by the Inspector General of the De-
partment of Health and Human Services found that it took an
average 5.2 days for recurring benefit checks to clear the banking
system. Retroactive benefit checks require an average 11.1 days to
be processed. The Inspector General estimated that if a 5 day float
period were provided, interest income to the OASDI funds would be
increased by $91.5 million annually.
Your Committee's bill requires the Secretaries of Treasury and
Health and Human Services to conduct a study consisting of two
separate investigations. The first investigation concerns the actual
average length of time between the issuance of benefit checks and
their redemption. The Secretary of Treasury would be required to
report within six months to the Congress and the President con-
cerning the investigation's findings and, to adjust by regulation,
the current float period to more accurately reflect the actual aver-
age length of time between issuance of benefit checks and their re-
demption. Necessary regulations are to be promulgated within six
months of the date of enactment.
The second investigation concerns the feasibility and desirability
of providing for the transfer, on a daily basis, to the general fund
from the appropriate trust fund, amounts equal to the amounts of
benefit checks which are paid by the Federal Reserve Banks on
that day. The results of this investigation are to be submitted to
the Congress within 12 months of the date of enactment. Regula-
tions necessary to implement appropriate changes shall be promul-
gated within 12 months of the date of enactment.
Section 302. Interest on late State deposits
Your Committee's bill provides, in general, that the rate of inter-
est charged on late payments of contributions due on the earnings
of State and local employees shall be equal to the average interest
rate earned by new special obligations of the trust funds during the
period of the delinquency. Currently the rate of interest charged on
late payments is 6 percent per annum.
This change would eliminate any incentive for States to delay
payments of contributions on the earnings of their employees, in
order to invest the money at rates well above 6 percent.
Changes made by this section would apply to payments due for
wages paid after December 31, 1983.
Section 303. Trust fund investment procedures
Your Committee's bill makes several changes in the investment
procedures of the social security trust funds.
Under current law payroll tax revenues which are in excess of
the amount necessary to pay current benefits are to be invested in
special issue obligations available for purchase only by the trust
funds. Such obligations have maturities fixed with due regard for
the needs of the trust funds and bear an interest rate equal to the
average market yield on all marketable interest bearing obligations
of the U.S. which are not due or callable within 4 years. These cur-
rent procedures have been criticized when short-term rates exceed
long-term rates because trust funds have been invested in special
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issues with lower yields than those available to investors in short-
term government securities.
Your Committee's bill corrects disparities between yields availa-
ble to the trust funds and other government investors by providing
that the trust funds can be invested in special issues at short- or
long-term rates in order to maximize the return to the funds.
The bill also provides that: the interest rate assigned to the trust
funds shall be adjusted monthly; all present special issues should
be redeemed at their current market values; all "flower bonds"
shall be redeemed at their current market values; all other current
holdings, not needed to meet outgo, be held until maturity; and
that only special issues should be purchased by the trust funds in
the future.
In recent years, the Annual Reports of the Board of Trustees of
the OASI, DI and HI Trust Funds, have included actuarial opinions
by the Chief Actuary of the Social Security Administration and the
Director of the Office of Financial and Actuarial Analysis of the
Health Care Financing Administration. These actuarial opinions
have stated that: (1) the techniques and the methodologies used in
formulating the Trustees' Reports are generally accepted within
the actuarial profession; and (2) that the assumptions and cost-esti-
mates underlying the Trustees' Reports are reasonable.
Your Committee's bill would require that such actuarial opinions
be included in all future Reports of the Boards of Trustees of the
OASDI and HI Trust Funds.
Under current law, the Boards of Trustees are required to report
to the Congress not later than the first day of April of each year,
on the operation and status of the trust funds during the preceed-
ing fiscal year and on their expected operation and status during
the next ensuing five years. In view of the scope of these Social Se-
curity Act Amendments, your Committee's bill provides an excep-
tion to the April first deadline for 1983 only and requires that the
Annual Reports of the Trustees for 1983 be filed not later than 45
days after enactment of this legislation.
Section 304. Budget treatment of trust fund operations
Prior to fiscal year 1969, the operations of the social security
trust funds were not included in the unified budget of the Federal
Government. In 1974, in enacting the Congressional Budget Act of
1974, Congress implicitly approved the inclusion of the social secu-
rity trust funds in the unified budget. As a result, trust fund re-
ceipts and expenditures are included in statements of the status of
the Federal budget.
Your Committee believes that it would be desirable to provide as-
surance that changes in the social security will not be made on the
basis of budgetary considerations. Thus, your Committee's bill pro-
vides that beginning in fiscal year 1988, the operations of the
OASI, DI, and HI Trust Funds are to be removed from the unified
budget. During the interim years, the social security trust funds
would be displayed as a separate function within the budget.
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B. ELIMINATION OF GENDER-BASED DISTINCTIONS
Section 311. Divorced husbands
Current law provides for the payment of benefits to aged di-
vorced wives and aged or disabled surviving divorced wives but
benefits are not provided for similarly situated men. As a result,
Oliver v. Califano (1977) and other court decisions, benefits are cur-
rently being paid by the Social Security Administration to aged di-
vorced husbands and aged or disabled surviving divorced husbands
on their former wives' earnings records. Your Committee's bill
amends the statute to conform to these court decisions.
Section 312. Remarriage of surviving spouse before age of eligibility
Widows and widowers who remarry before age 60 are treated dif-
ferently with respect to their eligibility for benefits based on their
deceased spouses' earnings. A woman may qualify for benefits as a
surviving spouse, even though she has remarried, so long as she is
not married at the time she applies for benefits. A man, however,
under current law loses forever his eligibility as a surviving spouse
of his deceased wife worker if he remarries before age 60. Since the
decision of Mertz v. Harris (1980), SSA has paid benefits to remar-
ried widowers on the same basis as to remarried widows. Your
Committee's bill, therefore, makes the statutory requirements wid-
owers and widows consistent.
Section 313. Illegitimate children
Under current law, an illegitimate child may be eligible for bene-
fits based upon a man's earnings, without regard to the appropri-
ate State intestate laws, if, among other things, the man has been
decreed by a court to be the father of that child, or the man is
shown by evidence satisfactory to the Secretary to be the father of
the child. Similar provisions do not currently apply when an illegit-
imate child claims a benefit based upon his mother's earnings. Ad-
ditionally, in Jimenez v. Weinberger the Supreme Court in 1974, de-
clared unconstitutional the requirement that acknowledgement of
paternity must have been made prior to the time a worker first
became eligible for benefits.
Your Committee's bill removes this gender-based distinction by
providing that illegitimate children shall be eligible for benefits
based on their mother's earnings as they are currently for benefits
based on their father's earnings.
Section 314. Transitional insured status
Presently, certain workers who attained age 72 before 1969 are
eligible for social security benefits under transitional insured
status provisions which require fewer quarters of coverage than
would ordinarily be required. Wives and widows of eligible male
workers who reached 72 prior to 1969 also are eligible for benefits
under this provisions, but husbands and widowers of eligible female
workers are not.
Your Committee's bill removes this inequity by extending to hus-
bands and widowers the transitionally insured status provisions
which currently apply to wives and widows.
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Section 315. Equalization of benefits under section 228
Under section 228 of current law (Proutly Benefits), special pay-
ments are provided to persons who attained age 72 before 1968 and
who have no quarters of coverage and to persons age 72 in 1968 or
after who have at least three quarters of coverage for every year
after 1966 and before the year of attainment of age 72. However,
even though each spouse must meet the same eligibility require-
ments he or she would have to meet if not married, once the eligi-
bility of both is determined, the couple is treated as if the husband
were the retired worker and the wife were the dependent. The
benefit is allocated so that the husband is paid two-thirds of the
benefit and the wife is paid one-third.
This gender-based distinction is removed by your Committee's
bill which provides that where both husband and wife each qualify
for Prouty Benefits under section 228, each will receive a full
monthly benefit.
Section 316. Father's insurance benefits
Current law provides that a young wife, widowed mother or sur-
viving divorced mother who has an entitled child under age 16 in
her care receives a benefit for both herself and her child based
upon the earnings of her husband. Under present law a similarly
situated father cannot qualify for benefits based on his retired, dis-
abled, or deceased wife's earnings. As result of the Supreme Court
decision Weinberger v. Wiesenfeld (1975), and other court and ad-
ministrative decisions, SSA is currently paying benefits to similarly
situated fathers.
Your Committee's bill conforms the statute to the court decisions
on this issue, and provides that social security benefits will be
available to a father who has in his care an entitled child of his
retired, disabled, or deceased wife (or deceased former wife).
Section 317. Effect of marriage on childhood disability benefits and
on dependent or survivor benefits
Under present law, when a childhood disability beneficiary is
married to another childhood disability beneficiary or to a disabled
worker beneficiary, and the disability benefits of one of the
beneficiaries is terminated because the beneficiary recovers or en-
gages in substantial work, the continued eligibility of the other
spouse depends upon the spouse's sex. A woman's childhood disabil-
ity benefits end when her husband's disability benefits end. Howev-
er, a man's childhood disability benefits are not terminated when
his wife's disability benefits end.
In addition, if a childhood disability beneficiary or disabled
worker beneficiary marries a person receiving certain kinds of
social security dependent or survivor benefits, the benefits of each
individual continue. If the disabled beneficiary is a male and he re-
covers or engages in substantial work and his benefits are termi-
nated, his wife's benefits also end. If, however, the disabled benefi-
ciary is a woman, her husband's benefits are not terminated when
her disability benefits end.
Both of these gender based distinctions are removed by your
Committee's bill. In the first case, the bill continues the benefits of
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a childhood disability beneficiary, regardless of sex, when the bene-
ficiary's spouse is no longer eligible for benefits as a childhood dis-
ability beneficiary or disabled worker beneficiary. In the second
case, your Committee's bill continues social security payments to
an individual, regardless of sex, who is receiving dependents' or
survivors' benefits, when his or her spouse is no longer eligibility
for childhood disability benefits or benefits as a disabled worker.
Section 318. Credit for certain military service
Under present law, a widow but not a widower is permitted,
under certain circumstances, to waive the right to a civil service
survivor's annuity and receive credit (not otherwise possible) for
military service prior to 1957 for purposes of determining eligibility
for, and the amount of, social security survivors' benefits.
Under your Committee's bill, widowers will be allowed to exer-
cise this option in the same manner currently permitted for
widows.
Section 321. Coverage of employees of foreign affiliates of American
employers
Extension of social security coverage
Under present law, FICA tax is not imposed on wages paid to
U.S. citizens and resident aliens working abroad for a foreign em-
ployer. However, a domestic corporation may extend social security
coverage to U.S. citizens employed by its foreign subsidiary by en-
tering into a voluntary agreement to pay FICA tax for such U.S.
citizens (Code sec. 3121(1)). This coverage is available only to U.S.
citizens employed by (1) a (first-tier) foreign subsidiary at least 20
percent of the voting stock of which is owned by the domestic cor-
poration, or (2) a second-tier foreign subsidiary at least 50 percent
of the voting stock of which is owned by a qualifying first-tier sub-
sidiary. Further, this coverage is available only if the services per-
formed for the foreign subsidiary by the U.S. citizen would consti-
tute covered employment if performed in the United States.
There is no comparable provision for extending social security
coverage to U.S. citizens employed by a foreign subsidiary below
the second-tier level or by an unincorporated foreign affiliate of
any American employer.
Consistent with the goal of providing the broadest possible social
security coverage, your Committee believes that social security cov-
erage should be extended to U.S. citizens who are employed by for-
eign affiliates (including unincorporated businesses) of any Ameri-
can employer. Your Committee has concluded that the form in
which a business is organized should not be determinative of
whether social security coverage can be extended. Your Committee
has also concluded that the ownership interest in the foreign affili-
ate that is required to be held by the American employer should be
reduced from 20 percent to 10 percent (of direct or indirect owner-
ship). In view of the reasons underlying the provision of your Com-
mittee's bill that provides for the imposition of the FICA tax on
wages paid to resident aliens employed by American employers
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outside the United States, your Committee believes that this cover-
age should be further extended to resident aliens employed by for-
eign affiliates of American employers.
Your Committee's bill provides that any American employer (a
U.S. individual, partnership, trust, or a corporation) can extend
social security coverage to U.S. citizens and resident aliens em-
ployed by foreign affiliates of the American employer. A "foreign
affiliate of an American employer" is defined as any foreign entity
in which the American employer owns at least a 10-percent inter-
est (directly or through one or more entities). An American em-
ployer holds the required ownership interest in a foreign affiliate if
(1) in the case of a foreign corporation, the American employer
owns (directly or indirectly) at least 10 percent of the corporation's
voting stock, or (2) in the case of any other foreign entity, at least
10 percent of the profits interests.
As under present law, social security coverage in U.S. citizens
and resident aliens employed by foreign affiliates can be obtained
only if the American employer enters into a voluntary agreement
to pay FICA tax for U.S. citizens and resident aliens employed by
the foreign affiliate. Similarly, this coverage will be available only
if the services performed for the foreign affiliate would constitute
covered employment if performed in the United States.
The provision will apply to agreements entered into after the
date of enactment, and to modifications of agreements previously
entered into which are. made after the date of enactment. At the
election of any American employees, the provision will apply to
any agreement entered into on or before the date of enactment.
Qualified pension plan coverage
Under present law (sec. 406), if U.S. citizens are employed by a
domestic corporation's foreign subsidiary and the domestic parent
corporation has entered into an agreement to pay FICA tax for the
U.S. citizens employed by its foreign subsididary, then such U.S.
citizens can be included in the qualified pension, profit-sharing,
stock bonus, and so forth, plan of the domestic parent corporation.
Your Committee recognizes that the rationale of present law sec-
tion 406 is that it should be possible to provide coverage under
qualified pension, profit-sharing, stock bonus, etc., plans to the
same extent that social security coverage can be extended. In view
of the provision of the Committee bill that allows the extension of
social security coverage to resident aliens employed by a foreign af-
filiate of an American employer, your Committee concluded that a
corresponding change should be made in the treatment of coverage
under qualified pension, profit-sharing, stock bonus, etc., plans.
The Committee bill provides that, if the requirements of present
law are otherwise satisfied, coverage under a qualified pension,
profit-sharing, stock bonus, etc., plan of an American employer can
be extended to resident aliens, as well as U.S. citizens. Thus, an
American employer can treat U.S. citizens and resident aliens em-
ployed by a foreign affilitate as its own employees, for purposes of
extending coverage under a qualified pension, profit-sharing, stock
bonus, etc., plan. A conforming amendment is made to section 407,
relating to the treatment of certain employees of domestic subsid-
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iaries operating primarily abroad as employees of the domestic
parent corporation.
The bill will apply to American employers who enter into agree-
ments to pay FICA tax after the date of enactment, and to Ameri-
can employers who modify agreements previously entered into
after the date of enactment. At the election of any American em-
ployer, the provision will apply to an agreement to pay FICA tax
entered into on or before the date of enactment. The conforming
change to section 407 will apply to any plan established after the
date of enactment; or, at the election of a domestic parent corpora-
tion, to any plan established on or before the date of enactment.
Section 322. Extension of coverage by international social security
agreement
The purpose of an international social security agreement is to
establish "methods and conditions for determining under which
system [i.e., the foreign system or our own] employment, self-em-
ployment, or other service shall result in a period of coverage".
However, through inadvertent drafting errors in the Internal Reve-
nue Code and the Social Security Act, earnings that are intended
to be covered under the U.S. system pursuant to an international
social security agreement are not covered. This occurs because U.S.
social security taxes cannot be imposed on the earnings.
Your Committee's bill corrects these errors by providing for the
imposition of social security taxes if an international social secu-
rity agreement provides for coverage under the U.S. social security
system. This provision is effective for taxable years after the date
of enactment.
Section 323. Treatment of certain service performed outside the
United States
Service performed by resident of the United States for Ameri-
can employers
Under present law (Code sec. 3121(b)), social security tax under
the Federal Insurance Contributions Act (FICA tax) is imposed on
wages paid to U.S. citizens for service performed for American em-
ployers inside and outside the United States. The term "American
employer" is defined to include an individual who is a U.S. resi-
dent, a partnership in which two-thirds or more of the partners are
U.S. residents, a trust of which all of the trustees are U.S. resi-
dents, and a corporation organized under the laws of the United
States or of any State (sec. 3121(h)). The FICA tax is also imposed
on wages paid to resident aliens for services performed for Ameri-
can employers inside the United States. However, no FICA tax is
imposed on wages paid to resident aliens for services performed for
American employers outside the United States.
Your Committee believes that the disparate treatment of U.S.
citizens and resident aliens who work for American employers
abroad should be eliminated. Your Committee recognizes that resi-
dent aliens working for American employers outside the United
States are likely to have the same economic and personal ties with
the United States, and the same expectation of returning to the
United States, as do U.S. citizens. Your Committee believes that
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the coverage of these resident aliens will prevent the gaps in cover-
age which would otherwise occur when resident aliens who ordi-
narily work in covered employment outside the United States tem-
porarily work abroad for an American employer.
Your Committee's bill provides that FICA tax will be imposed on
wages for service performed outside the United States by a resident
alien as an employee for an American employer, to the same
extent that FICA tax is imposed on wages paid to a U.S. citizen for
such service. Thus, FICA tax will be imposed on wages paid to a
resident alien working for an American employer only if the serv-
ices performed would constitute covered employment if performed
in the United States. A conforming amendment is made for pur-
poses of benefits paid under the Social Security Act.
The provisions will be effective for remuneration paid after De-
cember 31, 1983.
Service performed by self-employed U.S. citizens and residents of the
United States
The social security tax on self-employment income (SECA tax) is
generally imposed on the worldwide self-employment income of
U.S. citizens and resident aliens. The starting point for computing
self-employment income is gross income (sec. 1402). For income tax
purposes, U.S. citizens working abroad can exclude from gross
income up to $80,000 (increasing to $95,000 in 1986) of foreign
earned income a year if they were present in a foreign country for
330 days (approximately 11 months) during a period of 12 consecu-
tive months, or if they were bona fide residents of a foreign coun-
try for an entire taxable year (sec. 911).
Under present law, foreign earned income that is excluded for
income tax purposes is included in self-employment income for
SECA tax purposes, where a U.S. citizen or resident alien meets
the 11-month physical presence test but does not meet the bona
fide resident test. If a U.S. citizen satisfies the bona fide residence
test, foreign earned income is also excluded for SECA tax purposes.
(An individual who is not a U.S. citizen would not be subject to
SECA tax if he is resident in a foreign country.)
Your Committee believes that, for purposes of the SECA tax,
there is no reason to distinguish between U.S. citizens who qualify
as residents of a foreign country for a year and U.S. citizens who
are physically present in a foreign country for 11 months of the
year. Rather, the SECA tax should be imposed on the worldwide
self-employment income of all U.S. citizens.
Your Committee's bill provides that, for purposes of the SECA
tax, all U.S. citizens working abroad will be treated in a consistent
manner. Thus, self-employment income will be computed without
regard to the exclusion of foreign earned income, regardless of
whether a U.S. citizen qualifies as a resident of a foreign country
or satisfies the physical presence text. A conforming amendment is
made for purposes of benefits paid under the Social Security Act.
The provision will be effective for taxable years beginning after
December 31, 1983.
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Section 324. Treatment of pay after age 62 as wages
Under current law any payment, other than vacation or sick pay,
made to an employee after the month in which he or she attains
age 62, where the employee did not work for the employer in the
period for which such payment is made, is excluded from the defi-
nition of wages for both benefit and tax purposes. These excluded
payments are frequently called standby and subject-to-call pay.
An allegation as to a stand-by or subject-to-call status must be
supported by evidence showing that (1) an employment relationship
has continued during the entire period at issue, and (2) a bona fide
agreement existed between the employer and employee will be
ready to work during that period when asked. Each case alleging
stand-by payments is decided on an individual basis. In practice,
SSA can rarely successfully challenge such an arrangement as in-
valid.
Your Committee's bill includes in the statutory definition of
wages, payments made to an individual with the expectation that
he or she will subsequently render services. This change is effective
with respect to calendar years beginning with the sixth month
after the date of enactment.
Section 325. Treatment of contributions under simplified employer
pensions (SEPs)
Under present law, the Internal Revenue Code excludes from
wages for social security tax purposes employer payments to or on
behalf of an employee under a simplified employee pension (SEP).
However, such employer contributions are treated as covered
wages for social security benefit purposes.
Your Committee's bill amends the Social Security Act of exclude
from the definition of covered wages for social security coverage
purposes employer contributions to a SEP that are deductible as
such by the employer. The bill makes clear that the exclusion ap-
plies, for both tax and coverage purposes, only with respect to the
employers' contribution of a SEP, not with respect to the amount
equivalent to the employee's contribution to an individual retire-
ment arragnement (IRA).
This provision applies to remuneration paid after December 31,
1983.
Section 326. Effect of changes in names of State and local employee
groups in Utah
Under present law, the State of Utah is permitted to extend
social security coverage to specific entities listed in the law as sepa-
rate coverage groups. The names of some of the entities specifically
listed in the law have changed since the provision was enacted.
Your Committee's bill amends the provision in the Social Secu-
rity Act listing entities for which Utah may arrange social security
coverage in order to provide that coverage would not be affected by
a subsequent change in the name of any of the entities.
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Section 327. Effective dates of international social security agree-
ments
Under current law, totalization agreements can only become ef-
fective after the expiration of a period during which each House of
the Congress has been in session on each of 90 days. This require-
ment has been interpreted to mean that both Houses of Congress
must be in session on a particular day for it to count in the 90-day
calculations.
Your Committee's bill shortens this review period by providing
that totalization agreements can become effective after the expira-
tion of a period during which only one House of the Congress must
be in session on each of 60 days.
Section 328. Technical corrections with respect to withholding of
sick pay of participants in multiemployer plans
Present law includes in the definition of wages, for the purpose
of withholding of social security and railroad retirement taxes, cer-
tain payments made under a sick pay plan to an employee or any
of this dependents by a third-party on account of the employee's ill-
ness.
Proposed Treasury Regulations require a third-party payor (for
example, an insurance company or a multiemployer plan) as well
as an employer, to withhold social security or railroad retirement
taxes on the sick pay as if the payments are wages. However, the
third-party payor is permitted to shift responsibility for the em-
ployer's portion of the tax to the last employer for whom the em-
ployee worked, proved that the third part payor promptly notifies
the last employer of the amount of payments.
Your Committee's bill provides that, in the case of a multiem-
ployer plan, to the extent. provided in Treasury Regulations, the
plan will be treated as the agent of the employer for whom services
are normally rendered. Your Committee intends that the rules re-
lating to acts to be performed by agents contained in present Inter-
nal Revenue Code section 3504 shall apply in these cases. Since the
plan is merely an agent of the employer for whom services are nor-
mally rendered, your committee intends that such employer will
continue to bear the ultimate liability for the taxes and that the
plan will either be reimbursed for its payment of the employer's
share of the tax through the collective bargaining process or will
have legal recourse under the normal statutory or common law
principles of agency against the employer for taxes paid as his
agent. In the absence of an agreement providing otherwise, the last
contributing employer shall be considered as the employer for
whom services are normally rendered.
The provision applies to remuneration paid after June 30, 1983.
Section 329. Elective compensation
Under a qualified cash or deferred arrangement (Code sec. 401(k))
forming a part of a tax-qualified profit-sharing or stock bonus plan,
a covered employee may elect to have the employer contribute an
amount to the plan on the employee's behalf or to receive such
amount directly from the employer in cash. Amounts contributed
to the plan pursuant to the employee's election are treated as em-
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ployer contributions to the plan and are excluded from the employ-
ee's taxable income and social security wage base.
Amounts distributed with respect to an employee under a quali-
fied plan generally are includible in the recipient's income, but are
excluded from the social security wage base.
Under an employer's cafeteria plan (Code sec. 125), a covered em-
ployee may choose among taxable benefits, which may include
cash, or nontaxable benefits. If certain requirements are met,
amounts applied under a cafeteria plan toward nontaxable benefits
(e.g., accident and health benefits or plan contributions under a
qualified cash or deferred arrangement) are excluded from the em-
ployee's income and generally from the social security wage base.
Taxable benefits chosen by the employee (e.g., cash) are includible
in income and generally includible in the wage base.
Tax-sheltered annuities (Code sec. 403(b)) may be purchased on
an individual basis for employees of public schools or tax-exempt
religious, charitable, and other organizations described in section
501(cX3). Subject to certain limitations, amounts paid by the em-
ployer to purchase the annuity are excluded from the employee's
income. A tax-sheltered annuity is typically, but not necessarily,
purchased for an employee pursuant to a salary reduction agree-
ment between the employer and employee.
The Internal Revenue Service has ruled that amounts paid for a
tax-sheltered annuity pursuant to a salary reduction agreement
are includible in the employee's social security wage base, although
such amounts are not subject to income tax withholding. The valid-
ity of the ruling position is in doubt in light of the Supreme Court
decision in Rowan Companies, Inc. v. United States (see section 330
of the bill).
Amounts distributed under a tax-sheltered annuity contract gen-
erally are includible in the recipient's income, but are excluded
from the social security wage base.
Generally, if an employee receives cash and then chooses to use
these funds for personal savings or benefits, the amount of cash re-
ceived is subject to FICA. This is true, for example, for contribu-
tions to an individual retirement arrangement even if the employ-
er transmits the funds directly to the IRA account.
Under cash-or-deferred arrangements, cafeteria plans, and tax-
sheltered annuities, the funds are set aside by individual employees
for certain fringe benefits or individual savings arrangements, and
thus, your Committee believes that related employer contributions
should be included in the FICA base, as is the case for IRA contri-
butions. Otherwise, individuals could, in effect, individually direct
the equivalent of cash compensation for their own purposes in
order to avoid FICA taxes. This would make the system partially
elective and would undermine the FICA tax base.
Under your Committee's bill, an employer's plan contributions
on behalf of an employer under a qualified cash or deferred ar-
rangement will be includible in the social security wage base for
tax and coverage purposes to the extent that the employee could
have elected to receive cash in lieu of the contribution. The provi-
sion is intended to apply to elective amounts under the cash or de-
ferred arrangement and not to nonelective amounts contributed by
employers to a qualified profit-sharing or stock bonus plan of which
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the arrangement may be a part. Amounts paid by an employer for
a tax-sheltered annuity for an employee will also be includible in
the wage base. In addition, amounts subject to an employee's desig-
nation under a cafeteria plan will be includible in the social secu-
rity wage base to the extent that such amounts may be paid to the
employee in cash or property or applied to provide a benefit for the
employee which is not otherwise excluded from the definition of
wages under section 3121 of the Code. These amounts will be sub-
ject to FICA at the time employer contribution is made.
These changes apply to remuneration paid after December 31,
1983.
Section 330. Codification of Rowan decision with respect to meals and
lodging
Under the Code, amounts which constitute wages for income tax
withholding purposes (sec. 3306) and amounts which constitute
wages for social security tax purposes (sec. 3121) are separately de-
fined. However, in Rowan Companies, Inc. v. United States, 452
U.S. 247 (1981), the Supreme Court held that the definition of
wages for social security tax purposes and the definition of wages
for income tax withholding purposes must be interpreted in regula-
tions in the same manner in the absence of statutory provisions to
the contrary.
At issue in Rowan was whether the value of meals and lodgings
provided employees at the convenience of the employer were wages
for social security tax purposes (i.e., were includible in the social
security wage base). The value of such employer-provided meals
and lodging may be excluded from the income of an employee (sec.
119). Treasury regulations required that the value of the meals and
lodging be included in the social security wage base, but excluded
such value from the definition of wages subject to income tax with-
holding. The Supreme Court decision invalidated those Treasury
regulations which required that the value of the meals and lodging
be included in the social security wage base.
The social security program aims to replace the income of
beneficiaries when that income is reduced on account of retirement
and disability. Thus, the amount of "wages" is the measure used
both to define income which should be replaced and to compute
FICA tax liability. Since the social security system has objectives
which are significantly different from the objectives underlying the
income tax withholding rules, your Committee believes that
amounts exempt from income tax withholding should not the
exempt from FICA unless Congress provides an explicit FICA tax
exclusion.
Your Committee's bill provides that, with the exception of the
value of meals and lodging provided for the convenience of the em-
ployer, the determination whether or not amounts are includible in
the social security wages base is to be made without regard to
whether such amounts are treated as wages from income tax with-
holding purposes. Accordingly, an employee's "wages" for social se-
curity tax purposes may be different from the employee's "wages"
for income tax withholding purposes. In addition, the bill provides
that definition of wages for social security tax and benefit purposes
is revised to exclude the value of employer-provided meals and
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lodging to the extent such value is also excluded from the employ-
ee's gross income.
This provision applies to remuneration paid after December 31,
1983.
D. OTHER AMENDMENTS
Section 331. Technical and conforming amendments to maximum
family benefit provisions
Under current law, when children are simultaneously entitled to
benefits on the records of two or more workers, the maximum
family benefits payable on each record are combined for the pur-
opses of determining the benefits payable to those children. The
law contains a limit, however, on the highest possible combined
maximum family benefit, sometimes referred to as the super maxi-
mum. Whenever the wage base increases (in January of every
year), the super maximum is recomputed. In addition, each year
the super maximum is increased when the cost-of-living adjustment
is made in general benefit levels. Under Section 111 of your Com-
mittee's bill this increase will occur in December, rather than June
as under current law. As a result of this change, families whose
benefits are limited by the super maximum could have their bene-
fits unexpectedly increased or decreased each January when the
super maximum is recomputed just one month after they had re-
ceived their cost-of-living adjustment.
To avert this undesirable result, your Committee's bill provides
that after initial entitlement, a family's super maximum would be
adjusted only one time each year when the cost-of-living increase is
provided to everyone on the benefit rolls.
Section 332. Reduction from 72 to 70 of age beyond which no de-
layed retirement credit can be earned
Under current law, delayed retirement credits are now provided
for months from age 65 to age 72 for which benefits are not paid
because the worker has substantial earnings from work or does not
apply for benefits. These credits are intended to provide partial
relief to workers who continue working past age 65 and who forego
benefits under the earnings test. The age at which the earnings
test no longer applies decreased from 72 to 70 on January 1, 1982.
However, delayed retirement credits are still provided for work
beyond age 70.
Your Committee's bill provides that for persons who attain age
70 after December 1983, delayed retirement credits will not be
given for months in which social security benefits are not paid
after age 70. For persons who attain age 70 before January 1984,
delayed retirement credits will be granted without regard to the
changes in law which result from this section except that no cred-
its would accure for months after December 1983.
Section 333. Relaxation of insured status requirements for certain
workers previously entitled to a period of disability
Under current law, workers who are disabled before age 31 may
qualify for disability benefits on the basis of a less stringent in-
sured status requirement than older workers. However, such a
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worker who recovers from his disability and subsequently becomes
disabled again at age 31 of later may have difficulty establishing
entitlement to disability benefits at that time. This occurs because
he has not had sufficient time to obtain the necessary 20 quarters
of coverage before his subsequent disability. It appears that this sit-
uation was not contemplated, in 1967, when the law was changed
to provide a special insured-status requirement for young workers.
Your Committee's bill provides that a worker who had a period
of disability which began before age 31, subsequently recovered,
and then became disabled again at age 31 or later could quality
again for disability benefits if he/she had quarters of coverage in
half the calendar quarters after age 21 and through the quarter in
which the later period of disability began (up to a maximum of 20
out of 40 quarters). Changes made by this section are effective gen-
erally for applications filed after enactment.
Section 334. Protection of benefits of illegitimate children of dis-
abled beneficiaries
Under present law, the first month for which certain benefits are
paid is delayed from the month during which the individual satis-
fied the various entitlement conditions to the first month through-
out which those conditions were satisfied. This provision does not
apply to the benefits of illegitimate children of retired benefici-
aries. However, this provision does apply to the illegitimate chil-
dren of disabled workers.
This disparity is removed by your Committee's bill which pro-
vides social security monthly benefits to the illegitimate child of a
disabled worker for a month in which the child satisfied all other
entitlement conditions, but was not eligible for benefits because the
acknowledgement or court decree or order establishing parenthood
occurred later than the first day of that month. Changes made by
this section are effective upon enactment.
Section 335. One-month retroactivity of widow's and widower's in-
surance benefits
Under current law, the payment of retroactive benefits is prohib-
ited if such payment would require the lowering of future benefits.
A perceived inequity occurs when an insured individual dies so late
in the month that the survivor is not able to file for benefits in
that month. In many of these cases, the actuarial reduction in
future benefits is unimportant, from the survivor's standpoint,
compared with the survivor's need to receive a retroactive benefit
promptly.
Your Committee's bill, allows an aged widow or widower to re-
ceive actuarially reduced benefits for the month in which the in-
sured spouse died, if the application is filed in the following month,
even though the retroactive payment would result in lower future
monthly benefits than would be the case if benefits were not paid
retroactively. This provision is effective for applications filed after
the second month following the month of enactment.
Section 336. Nonassignability of benefits
Since 1935 the Social Security Act has prohibited the transfer or
assignment of any future social security or SSI benefits payable
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and further states that no money payable or rights existing under
the Act shall be subject to execution, levy, attachment, garnish-
ment, or other legal process, or to the operation of any bankruptcy
or insolvency law.
Based on the legislative history of the Bankruptcy Reform Act of
1978, some bankruptcy courts have considered social security and
SSI benefits listed by the debtor to be income for purposes of a
Chapter XIII bankruptcy and have ordered SSA in several hundred
cases to send all or part of a debtor's benefit check to the trustee in
bankruptcy.
Your Committee's bill specifically provides that social security
and SSI benefits may not be assigned notwithstanding any other
provisions of law, including P.L. 95-598, the "Bankruptcy Reform
Act of 1978". This provision would be effective upon enactment.
Section 337. Use of death certificate to prevent erroneous benefit
payments to deceased individuals
There are currently no well-developed procedures or arrange-
ments to permit SSA to determine on a timely basis when a benefi-
ciary has died.
Your Committee's bill provides authority for the Secretary to
contract with states for death certificate information. This informa-
tion would be matched with SSA benefit records to assure that
benefit payments are promptly terminated when the beneficicary
dies.
Section 338. Public pension offset
Under current law, persons who became eligible for a public pen-
sion prior to December 1982 and who did not meet the conditions of
the public pension exception clause are subject to a dollar-for-dollar
offset of their social security benefit by the amount of their public
pension. This 100 percent offset will also apply to all persons be-
coming eligible for a public pension after June 1983.
Under a provision adopted in 1982 (P.L. 97-455), only persons
who become eligible for a public pension from December 1982
through June 1983 and who meet a one-half support" dependency
test are exempt from the offset.
Your Committee's bill provides that for persons who become eli-
gible for their public pension after June 1983, the amount of the
public pension used for purposes of the offset against social secu-
rity benefits would be one-third of the public pension.
Section 339. Study concerning the establishment of the Social Security
Administration as an independent agency
Your Committee's bill includes a provision which would author-
ize the appointment of a panel of experts to study the feasibility of
establishing the Social Security Administration as an agency inde-
pendent of the Department of Health and Human Services or any
other cabinet department, and the steps necessary to implement
such a change. In its final report in March, 1981, the National
Commission on Social Security recommended the creation of a sep-
arate agency responsible for administering the social security pro-
grams. More recently, the National Commission on Social Security
Reform stated its belief that making the Social Security Adminis-
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tration an independent agency would be logical. However, since the
issues involved in such an administrative reorganization are com-
plex, the Commission recommended a feasibility study. A minority
of the Commission were of the opinion that any study should be
confined to the details of implementing such a change.
Your Committee agrees that although there are strong argu-
ments in support of an independent Social Security Administra-
tion, a study of the ramifications of such a change is necessary.
The study should focus on, but not be limited to, how such a reor-
ganization would affect the following: social security beneficiaries
and the general public; relationships between the Social Security
Administration and other organizations, including other govern-
ment agencies; the makeup of the leadership of such an agency; the
need for the statutory quadrennial Advisory Council; what progams
would be administered by the agency; and appropriation of operat-
ing funds for the agency.
Your Committees interest in having such a study has grown out
of concern that the agency has been subject to repeated administra-
tive problems caused at least in part by the agency's connection
with the Department of Health, Education and Welfare (later
Health and Human Services) and by the involvement of the Office
of Management and Budget in routine administrative functions. It
also seems clear that SSA may not have received needed adminis-
trative resources because of priorities set by HHS and OMB with-
out regard to the basic function of the agency. Problems have also
been created by repeated reorganizations, several different commis-
sioners within the last 10 years, and periods of time without a per-
manent Commissioner. Your Committee, therefore, views the estab-
lishment of an independent Social Security Administration as a se-
rious goal, and the study mandated by the bill is to focus on both
the feasibility of such a step and the changes necessary to accom-
plish it.
The bill provides that the panel of experts consist of three indi-
viduals who are widely recognized as experts in the field of gov-
ernment administration. The panel, which would be appointed
jointly by the Chairmen of the House Committee Ways and Means
and Senate Finance Committee, is required to file its report not
later than April 1, 1984.
Section 340. Conforming changes in medicare premium provisions to
reflect changes in the cost
Under current law, the medicare monthly premium for part B
physician coverage (SMI) is deducted from the benefit checks of in-
dividuals receiving social security cash benefits. In addition, premi-
ums are increased each July first, the date on which benefits are
increased to reflect price increases in the economy (COLA). Since
the premium cannot be increased by an amount greater than the
amount of the general benefit increase, the increased premium
cannot result in a decreased monthly benefit.
In order to prevent beneficiaries' checks from being decreased in
July as a result of the changes, as provided in Section III of your
Committee's bill, in the month in which the general benefit in-
crease is effective, the SMI premium will not be adjusted until Jan-
uary 1, 1984.
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85
2. SECTION-BY-SECTION EXPLANATION-TITLE III
Section 301. Float periods
Section 301(a) of the bill requires that the Secretaries of Health
and Human Services and the Treasury shall jointly undertake as
soon as possible a thorough study of the "float period" between the
issuance of Social Security benefit checks by the Treasury and the
transfer of funds from the Federal Old-Age and Survivors Insur-
ance Trust Fund or the Federal Disability Insurance Trust Fund of
amounts to compensate the general fund for the amount of the
checks so issued.
Section 301(b)(1) of the bill requires that the study mandated by
subsection (a) include an investigation of the desirability and feasi-
bility of (1) maintaining the float periods allowed at the time of en-
actment and (2) making adjustments in such float periods.
Section 301(bX2) requires a separate investigation of the feasibil-
ity and desirability of providing, as a specific adjustment in the
float periods, for the transfer each day to the general fund from
the trust funds of amounts equal to the amounts of the benefit
which are paid by the Federal Reserve Banks on such day.
Section 301(c) requires that in conducting the study mandated by
subsection (a) the Secretaries shall consult, as appropriate, the Di-
rector of the Office of Management and Budget, who shall provide
such information and assistance as may be required in the study.
The Secretaries shall also solicit the views of other appropriate offi-
cials and organizations.
Section 301(d)(1) requires that not later than 6 months after en-
actment the Secretaries shall submit to the President and the Con-
gress a report of the findings of the investigation required by sub-
section (b)(1) and the Secretary of the Treasury shall by regulation
adjust the float periods as may have been found necessary or ap-
propriate in such investigation.
Section 301(dX2) requires that no later than 12 months after en-
actment the Secretaries shall also submit to the President and the
Congress a report of the findings of the separate investigation re-
quired by subsection (bX2) of the specific adjustment in the float pe-
riods described therein, together with their recommendations, and
that to the extent necessary or appropriate to carry out such rec-
ommendations, the Secretary of the Treasury shall by regulations
make adjustments with respect to the float periods described in
such subsection.
Section 302. Interest on late State deposits
Section 302(a) of the bill changes the rate of interest charged
States on late payment of Social Security taxes specified in section
218(j) of the Social Security Act from 6 percent per year to an
amount based on the rate of interest earned by current trust fund
investments.
Section 302(a)(1) of the bill makes a change in section 218(j) of
the Act to conform it to the amendment made by section 302(a)(3).
Section 302(aX2) of the bill provides that instead of an interest
rate of 6 percent per annum, the rate will be determined under sec-
tion 218(j)(2).
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Section 302(a)(3) of the bill adds a new paragraph (2) to section
218(j). The new paragraph provides that the rate of interest
charged States on late payment of Social Security Taxes will be in-
creased to 9 percent per annum for payments made during the 6-
month period beginning January 1, 1984. For subsequent 6-month
periods beginning July 1 and January 1 thereafter, the rate of in-
terest will be an annual rate equal to the average (rounded to the
nearest full percent, or the next higher percent if it is a multiple of
0.5 percent but not of 1.0 percent) of the annual rates of interest
applicable to the special obligations issued to the trust funds (in ac-
cordance with section 201(d)) during a prescribed base period. The
base period for the rate effective on January 1 of a year is the 6-
month period ending on the immediately preceding September 30
and the base period for the rate effective on July 1 of a year is the
6-month period ending on the immediately preceding March 31.
The interest rates will be determined no later than 15 days after
the end of the base period.
Section 302(b) provides that the amendments made by this sec-
tion apply with respect to payments made after December 31, 1983,
under a State's coverage agreement with the Secretary pursuant to
section 218 of the Act.
Section 303. Trust fund investment procedures
Section 303 of the bill requires the Managing Trustee of the Fed-
eral Old-Age and Survivors Insurance Trust Fund, the Federal Dis-
ability Insurance Trust Fund, the Federal Hospital Insurance Trust
Fund and the Federal Supplementary Medical Insurance Trust
Fund to redeem most current trust fund investments and make all
future investments in a new type of Treasury public debt obliga-
tion bearing interest at a rate that varies from month to month.
For each month, the interest rate on the new type of obligation
will be equal to the higher of (1) the average market yield over the
preceding month on all public-debt obligations (other than "flower
bonds") with maturities of more than 4 years or (2) the average
market yield for similar obligations with 4 years or less to maturi-
ty. This section also requires that annual reports of the Social Se-
curity Boards of Trustees to the Congress include a certification by
the chief actuary of the Social Security Administration that the re-
ports meet generally accepted standards within the actuarial pro-
fession. Lastly, this section allows the 1983 annual reports to be
filed any time before 45 days after enactment.
New variable-interest obligations
Section 303(a) amends section 201(d) of the Social Security Act to
provide that the Managing Trustee of the Federal Old-Age and
Survivors Insurance Trust Fund and the Federal Disability Insur-
ance Trust Fund shall invest such portion of the trust funds as is
not required to meet current withdrawals in public debt obligations
which shall be issued exclusively for the trust funds and shall be
redeemable at par plus accrued interest at any time. The amended
subsection further provides that such obligations shall bear interest
in any month (including the month of issue) at a rate, rounded to
the nearest one-eighth of 1 percent equivalent to the higher of (1)
the average market yield over the preceding month on all marketa-
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ble interest-bearing Federal obligations (other than "flower bonds")
then forming part of the public debt which have maturities of more
than 4 years or (2) the average market yield over the preceding
month on similar obligations which have maturities of 4 years or
less. The amended subsection also defines the term "flower bond"
to be a United States Treasury bond issued before May 4, 1971 that
may be redeemed at par in advance of maturity upon the death of
the holder of the obligation for the purpose of payment of estate
taxes.
Section 303(b) of the bill amends section 1817(c) of the Social Se-
curity Act to establish investment requirements for the Federal
Hospital Insurance Trust Fund identical with those established in
section 303(a) of the bill for the Federal Old-Age and Survivors In-
surance Trust Fund and the Federal Disability Insurance Trust
Fund.
Section 303(c) of the bill amends section 1841(c) of the Social Se-
curity Act to establish investment requirements for the Federal
Supplementary Medical Insurance Trust Fund identical with those
established in section 303(a) of the bill for the Federal Old-Age and
Survivors Insurance Trust Fund and the Federal Disability Insur-
ance Trust Fund.
Transition to new investment procedures
Section 303(d) provides that at the time the amendments made
by section 303 of the bill become effective, the Secretary of the
Treasury shall redeem at par plus accrued interest all outstanding
obligations issued exclusively to the four trust funds, shall redeem
at market rates all "flower bonds" and shall reinvest all proceeds
from the redemptions as set forth in subsections 303(a), (b) and (c)
of the bill. Section 303(d) further provides that any marketable ob-
ligations, other than "flower bonds", shall be held by the trust
funds until maturity unless the assets thereof are needed to meet
benefit obligations. In addition, section 303(d) repeals sections
202(e), 1817(d) and 1841(d) of the Social Security Act, which deal
with current trust fund redemption procedures.
Section 303(e) of the bill amends sections 201(c), 1817(b) and
1841(b) of the Social Security Act to require that the annual re-
ports of the Boards of Trustees of the trust funds shall include an
actuarial opinion by the Chief Actuary of the Social Security Ad-
ministration certifying that the techniques and methodologies used
are generally accepted within the actuarial profession and that the
assumptions and cost-estimates used are reasonable.
This section also provides that the 1983 annual reports of the
Boards of Trustees of the trust funds, notwithstanding sections
201(c)(2), 1817(b)(2) and 1841(b)(2) of the Social Security Act, may be
filed at any time not later than 45 days after the date of enact-
ment.
Effective date
Section 303(f) provides that the amendments made by this section
shall take effect on the first day of the first month which begins
more than 30 days after the date of enactment.
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Section 304. Budgetary treatment of trust fund operations
Section 304 of the bill provides for adding a new section 710 to
title VII of the Social Security Act relating to budgetary treatment
of Social Security trust fund operations.
Section 304(a)(1) adds a new section 710 to the Social Security
Act which provides that the disbursement of the Federal Old-Age
and Survivors Insurance Trust Fund, the Federal Disability Insur-
ance Trust Fund, the Federal Hospital Insurance Trust Fund and
the Federal Supplementary Medical Insurance Trust Fund shall be
treated as a separate major functional category in the budget of
the United States Government as submitted by the President and
in the congressional budget, and the receipts of such Trust Funds,
including the taxes imposed under sections 1401, 3101 and 3111 of
the Internal Revenue Code of 1954, shall be set forth separately in
such budgets.
Paragraph (2) of section 304(a) of the bill provides that the
amendment made by paragraph (1) shall apply with respect to
fiscal years beginning on or after December 1, 1984, and ending on
or before September 30, 1988, except that such amendment shall
apply to the fiscal year beginning on October 1, 1983, to the extent
that it relates to the congressional budget.
Section 304(b) amends section 710 for fiscal years beginning on or
after October 1, 1988, to provide that the receipts and the disburse-
ments of the Federal Old-Age and Survivors Insurance Trust Fund,
the Federal Disability Insurance Trust Fund and the Federal Hos-
pital Insurance Trust Fund and the taxes imposed under sections
1401, 3101 and 3111 of the Internal Revenue Code of 1954 shall not
be included in the totals of the budget of the United States Govern-
ment as submitted by the President and in the congressional
budget and shall be exempt from any general budget limitation im-
posed by statute on expenditures and net lending (budget outlays)
of the United States Government.
Subsection (b) of the amended section 710 further provides that
the disbursements of the Federal Supplementary Medicare Insur-
ance Trust Fund shall be treated as a separate major functional
category in the budget of the United States Government as submit-
ted by the President and in the congressional budget, and the re-
ceipts of such Trust Fund shall be set forth separately in such
budgets.
Section 311. Divorced husbands
Section 311 of the bill provides benefits based on a retired, dis-
abled, or deceased woman's Social Security earnings record for a di-
vorced husband or surviving divorced husband on the same basis as
benefits are now provided for women in like, circumstances.
Section 311(a)(1) of the bill amends section 202(c)(1) of the Act,
which provides husband's insurance benefits based on a retired or
disabled woman's Social Security earning's record, to provide bene-
fits for the divorced husband age 62 or over of a retired or disabled
worker.
Section 311(a)(2) of the bill further amends section 202(c)(1) of the
Act by adding a new subparagraph (C) which provides that a di-
vorced husband (like a divorced wife) must not be married at the
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time he applies for benefits in order to become entitled to benefits
based on his former wife's earnings. This section also provides that
benefits for a husband or divorced husband shall terminate in the
same situations as benefits for wives and divorced wives are termi-
nated.
Section 311(a)(3) of the bill makes a conforming change in section
202(cX3) of the Act to provide that, except that, except as provided
in section 202(q) of the Act, the amount of a divorced husband's
monthly benefit shall be equal to one-half the primary insurance
amount of his former wife.
Section 311(aX4) of the bill further amends section 202(c) of the
Act by adding a new paragraph (4) to provide that the entitlement
to benefits or a divorced husband shall not be terminated by reason
of his marriage to a woman receiving benefits as an adult disabled
child, a divorced wife, a widow, a mother, or a parent, as is now the
case for divorced wives.
Section 311(aX5) of the bill further amends section 202(c) of the
Act to make reference to divorced husbands as well as husbands.
Section 311(a)(6) of the bill amends section 202(bX3XA) of the Act,
which allows continuation of benefits for divorced wives who marry
certain other Social Security beneficiaries, to provide that an indi-
vidual's entitlement to benefits as a divorced wife shall not be ter-
minated by reason of her marriage to a person receiving benefits as
a divorced husband.
Section 311(a)(7) of the bill makes a conforming change in section
202(cX1)(D) of the Act.
Section 311(aX8) of the bill makes a conforming change in section
202(dX5XA) of the Act.
Section 311(b)(1) of the bill amends section 20201) of the Act,
which provides widower's insurance benefits based on a deceased
woman's Social Security earnings record, to provide widow's insur-
ance benefits for the surviving divorced husband, age 60 or over, of
a deceased worker.
Sections 311(b) (2), (3), and (4) of the bill make conforming
changes in section 202(0) (widower's insurance benefits) of the Act
to add references to a surviving divorced husband to such section
as it currently applies to a widower.
Sections 311(b)(5) and (6) of the bill amend sections section
202(gX3)(A), and 202(h)(4)(A) of the Act, respectively, to provide that
an individual's entitlement to benefits as a widow, mother or
parent shall not be terminated by reason of her marriage to a
person receiving benefits as a divorced husband.
Section 311(cXl) of the bill amends section 216(d) of the Act to
define the terms "divorced husband" and "surviving divorced hus-
band" as a man divorced from a retired or disabled worker, or from
an individual who has died, but only if he was married to such in-
dividual for 10 years immediately before the divorce. The definition
and duration-of-marriage requirement are equivalent to the cur-
rent definition of the requirement for a divorced wife and surviving
divorced wife in section 216(d).
Section 311(cX2) of the bill amends the heading of section 216(d)
of the Act by changing it from "Divorced Wives; Divorce" to "Di-
vorced Spouses; Divorce."
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Section 311(d)(1) of the bill amends section 205(b) of the Act,
which relates to the procedural rights of individuals applying for
benefits, to make a conforming change to add divorced husbands
and surviving divorced husbands to the list of individuals who may
request a hearing.
Section 311(d)(2) of the bill amends section 205(c)(1)(C) of the Act
to make a conforming change by including a surviving divorced
husband in the definition of a "survivor."
Section 312. Remarriage of surviving spouse before age of eligibility
Section 312 of the bill amends section 202(f)(1)(A) of the Act to
strike out the requirement for entitlement to widower's insurance
benefits that a widower must not have remarried before age 60 and
to require instead that he be unmarried at the time he applies for
benefits, as is now the case for widow's benefits.
Section 313. Illegitimate children
Section 313 of the bill provides that an illegitimate child's status
for purposes of entitlement to child's insurance benefits shall be de-
termined with respect to the child's mother in the same way as it
is now determined with respect to the child's father. The section
amends the Social Security Act to conform with a 1974 Supreme
Court decision in Jiminez v. Weinberger, which privides that cer-
tain illegitimate children can be entitled to benefits based on a dis-
abled worker's earnings if the relationship and/or living with or
support requirements in the statute are met at the time the child
applies for benefits instead of before the worker becomes disabled.
The section also makes similar changes with respect to children of
retired workers, who are not covered by the Court's decision.
Section 313(a) of the bill amends section 216(h)(3) of the Act to
provide that a woman's illegitimate child who cannot inherit from
her under applicalbe intestate property law and who cannot be
deemed to be her child for such purposes under other provisions of
such section 216(h)(3) shall nevertheless be deemed to be her child
for Social Security benefit purposes if the woman has been decreed
by a court to be the child's mother, or, alternatively, the woman is
shown by evidence satisfactory to the Secretary of Health and
Human Services to be the child's mother and was living with the
child or contributing to the child's support at the time the child ap-
plies for benefits.
Section 313(b) of the bill amends section 216(h)(3)(A)(ii) of the Act
to provide, in the case of a child of a retired worker, that the living
with or support requirements be met at the time the child applies
for benefits, rather than at the time the worker becomes entitled
or reaches age 65 as under present law.
Section 313(c) of the bill amends section (h)(3)(B)(ii) of the Act to
provide that, in the case of a child of a disabled worker, the living
with or support requirement be met at the time the child applies
for benefits, rather than at the time of the worker's period of dis-
ability began as under present law.
Section 313(d) of the bill further conforms section 316(h)(3) to pro-
vide that a child may be entitled to benefits under this section
based on the earnings of either a male and female parent.
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Section 814. Transitional insured status
Section 314 of the bill amends section 227 of the Social Security
Act, which provides benefits for certain people who do not meet the
regular insured status requirements, to provide benefits for hus-
bands and widowers where, under comparable circumstances, bene-
fits are paid under present law to wives and widows.
Section 314(a) of the bill amends section 227(a) of the Act to pro-
vide for the payment of benefits to husbands.
Section 314(b) of the bill amends sections 227(b) and 227(c) of the
Act to provide for the payment of benefits to widowers.
Section 314(c) of the bill amends section 216 of the Act to provide
a new subsection 216(a), which defines "spouse" as a husband or a
wife as defined in subsection 216(b) or (f), respectively, and "surviv-
ing spouse" as a widow or widower as defined in subsection 216(c)
or (g), respectively.
Section 815. Equalization of benefits under section 228
Section 315 of the bill amends section 228 of the Social Security
Act, which provides special payments for certain uninsured individ-
uals, to provide that where both members of a couple are eligible
for benefits under section 228 the wife will get an amount equal to
the full payment that the husband now gets, rather than an
amount equal to one-half of that amount as under present law.
Section 315(a) of the bill eliminates the provisions in section
228(b) of the Act which provide that where a husband and a wife
are both eligible for a benefit under section 228, the amount pay-
able to the wife shall be one-half the amount payable to the hus-
band. Thus, the full benefit amount will be payable to each
member of the couple.
Section 315(b) of the bill amends section 228(cX2) of the Act to
provide that where only one member of a couple is entitled to a
benefit under this section and the other member is eligible for a
governmental pension, the full benefit payable under this section
will be reduced by the amount that the other member's govern-
mental pension exceeds the full benefit amount (rather than 50
percent of that amount) determined under this section.
Section 315(c) of the bill amends section 228(cX3) of the Act to
provide that where both members of a couple are entitled to bene-
fits under this section and the husband is eligible for a governmen-
tal pension, the benefit payable to the husband will be reduced by
the amount of his governmental pension. Then the benefit of his
wife will be reduced by the amount, if any, that the husband's gov-
ernmental pension exceeds the full amount of her benefit deter-
mined under this section. If the wife is eligible for a governmental
pension, the benefit of her husband determined under this section
will be similarly reduced.
Section 315(d) of the bill further amends section 228 of the Act by
substituting pronouns referring to both male and female genders
for pronouns referring to the male gender only, wherever they
a Section 315(e) of the bill provides that the Secretary will increase
the benefit amounts specified in section 228 of the Social Security
Act to take account of any general benefit increases enacted or
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cost-of-living adjustments provided under section 215(i) which have
occurred since June 1974 or will occur in the future.
Section 316. Father's benefits
Section 316 of the bill provides benefits based on a retired, dis-
abled or deceased woman's Social Security earnings record for a
husband, divorced husband, widower, or surviving divorced father
caring for a minor or disabled child beneficiary on the same basis
as benefits are provided for women in the like circumstances.
Section 316(a) of the bill amends section 202(g) of the Act to pro-
vide father's insurance benefits based on a deceased worker's Social
Security earnings record for a widower or surviving divorced father
caring for a minor or disabled child beneficiary on the same basis
as are now provided for women.
Section 316(b) of the bill changes the heading of section 202(g) of
the Act from "Mother's Insurance Benefits" to "Mother's and Fa-
ther's Insurance Benefits".
Section 316(c) of the bill amends section 216(d) of the Act (as
amended by section 311(c)(1) of this bill) to provide definitions of
"surviving divorced father" and "surviving divorced parent." A
surviving divorced father is defined as a man divorced from an in-
dividual who has died if (a) he is the father of her son or daughter,
or (b) he legally adopted her son or daughter, or (c) she legally
adopted his son or daughter while he was married to her and while
the son or daughter was under age 18, or (d) he was married to her
at the time both of them legally adopted a child under age 18. A
surviving divorced parent is defined as either a surviving divorced
mother or surviving divorced father.
Section 316(d) of the bill makes a conforming change in section
202(c)(1) of the Act (as amended by section (311(a) of this bill) in the
nature of a cross reference to section 202(s) of the Act to provide
that a man may not be entitled to husband's insurance benefits
before age 62 where the only entitled child he has in his care is
over age 16 and is not disabled.
Section 316(e) of the bill amends section 202(c)(1)(B) of the Act to
provide that a retired or disabled worker's husband under age 62
who is caring for an entitled child beneficiary may qualify for hus-
band's insurance benefits.
Section 316(f) of the bill amends section 202(c)(1) of the Act (as
amended by section 311(a) of the bill) to provide that husband's in-
surance benefits will terminate when a man under age 62 is no
longer caring for an entitled child beneficiary who has not attained
age 16 and is not disabled.
Section 316(g) of the bill amends section 202(f)(1)(C) of the Act to
provide for automatic conversion from father's insurance benefits
to widower's insurance benefits at age 65.
Section 316(h) of the bill makes a conforming change in section
202(f)(5) of the Act (as redesignated by section 131(b)(3)(A) of the
bill) to add an 84-month period after entitlement to father's bene-
fits ends as an additional period of time during which a widower's
disability may begin. This additional period of time is available to
widows under present law.
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Section 317. Effect of marriage on childhood disability benefits and
on other dependent's or dependent survivor's benefits
Section 317 of the bill amends section 202 of the Social Security
Act to provide in certain cases that the termination of a male indi-
vidual's entitlement to benefits based on a disability shall not
cause his spouse's entitlement to dependent's or survivor's benefits
to be terminated.
Section 317(a) strikes out that part of section 202(dX5) of the Act
that provides for the termination of benefits to a female childhood
disability beneficiary married to a childhood disability or disabled
worker beneficiary whose benefits are terminated because he recov-
ers or engages in substantial gainful work. (Present law includes
no provision for terminating the benefits of a male childhood dis-
ability beneficiary under similar circumstances.) Subsection (a) also
amends sections 101(bX3), 202(e)(3), 202(gX3) and 202(hX4) to provide
for continuing the wife's, widow's or parent's insurance benefits of
a woman married to a childhood disability beneficiary whose bene-
fits are terminated because he recovers or engages in substantial
gainful work.
Section 317(b) of the bill provides that the amendment made by
subsection (a) shall be effective for terminations in months after
the month of enactment.
Section 318. Credit for certain military service
Section 318 of the bill amends section 217(f) of the Social Security
Act to extend its provisions to widowers. Under the present section
217(f), widows and children (but not widowers) may waive the right
to a civil service survivor's authority and instead receive credit for
military service prior to 1957 in determining eligibility for, or the
amount of, Social Security survivors' benefits.
Section 319. Conforming amendments
Section 319(a) of the bill amends section 202(b)(3)(A) of the Act
(as amended by section 311(a)(6) of the bill), to provide that the en-
titlement to benefits of a divorced wife shall not be terminated by
reason of her marriage to a man entitled to father's insurance
benefits.
Section 319(b) of the bill amends section 202(q)(3) of the Act to
provide that the old-age or disability insurance benefits of a surviv-
ing divorced husband shall be reduced to take account of his prior
receipt of reduced survivor's benefits.
Section 319(c) of the bill amends section 202(qX5) of the Act to
provide that the benefits of a husband or widower shall not be ac-
tuarially reduced for any month in which he has a child under age
16 in his care.
Section 319(d)(1) of the bill amends section 202(q)(6)(A) of the Act
(as amended by section 134(a)(2) of this bill) to extend to an individ-
ual entitled to husband's insurance benefits present-law provisions
relating to certificates of election to receive actuarially reduced
benefits to a spouse who has an entitled minor or disabled child
beneficiary in his or her care.
Section 319(dX2) amends section 202(qX7) to provide that a hus-
band or widower (like a wife or widow) who gets reduced benefits
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because he elected to receive benefits before he reached age 65 to
adjust the reduction period subsequently to take account of months
the worker's child was in his or her care.
Section 319(e)(1) of the bill amends section 202(s)(1) of the Act by
providing a reference to section 202(c)(1) of the Act (as amended by
section 316(d) of this bill) to preclude entitlement of a man to hus-
band's insurance benefits before age 62 where the only entitled
child he has in his care is over age 16 and not disabled.
Section 319(e)(2) of the bill amends section 202(s)(2) of the Act by
providing a reference to section 202(c)(4) (as amended by section
311(a)(4) of this bill) to provide that the entitlement to benefits of a
divorced husband shall not terminate by reason of his marriage to
a person age 18 or over entitled to child s insurance benefits only if
the child was under a disability.
Section 319(e)(3) of the bill amends section 202(s)(3) of the Act (as
amended by section 131(c)(2) of this bill) by including references to
subsection 202(c)(4) (as added by section 311(a)(4) and amended by
section 317(a) of the bill) and subsection 202(f)(4) (as amended by
sections 311(f)(5) and 317(b) of the bill) to provide that for certain
beneficiaries, marriage to a childhood disability beneficiary shall be
deemed not to have occurred.
Section 319(f) of the bill amends section 203(b) (as amended by
section 132(b) of the Act) of the Act by inserting a reference to fa-
ther's benefits to provide for deductions on account of earnings of
his retired-worker spouse.
Section 319(g) of the bill amends section 203(c) of the Act to in-
clude husbands and fathers in the provision that authorizes the
Secretary to make deduction from benefits on account of failure to
have a child in his care and in the provision for deductions from
benefits on account of noncovered work outside the United States.
Section 319(h) of the bill amends section 203(d) of the Act to au-
thorize deductions from the benefits of a man getting benefits as a
divorced husband or widower getting father's insurance benefits
who is married to a retired worker engaged in noncovered work
outside the United States, where such deductions are now author-
ized for female beneficiaries in similar circumstances.
Section 319(i)(1) of the bill amends section 205(b) of the Act (as
amended by section 311(d)(1) of the bill), as it relates to the proce-
dural rights of indivudals applying for benefits, to include surviv-
ing divorced fathers among the individuals who can request a hear-
ing.
Section 319(i)(2) of the bill amends section 205(c)(1)(C) of the Act
(as amended by section 311(dX2) of the bill) to include a surviving
divorced father in the definition of "survivor" for purposes of the
provisions of section 205(c) that relate to informing an individual or
his survivor of the amounts of such individual's wages and self-em-
ployment income, and of the periods during which such wages were
paid and such income was derived, shown in records maintained by
the Secretary.
Section 319(j) and (k) of the bill amend sections 216(f)(3XA) and
216(g)(6)(A) of the Act, respectively to allow a man who was enti-
tled or potentially entitled to husband's insurance benefits based
on the earnings of his former wife in the month before his mar-
riage to another individual not to have to meet the 1-year duration-
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of-marriage requirement for husband's insurance benefits based on
such other individual's earnings.
Section 319(1) of the bill amends section 222(b)(1) of the Act to
provide for deductions from the benefits of a disabled surviving di-
vorced husband under age 60 who refuses to accept rehabilitation
services, as is now true for other such disabled dependents.
Section 319(m) of the bill amends section 222(bX2) of the Act to
authorize deductions from the benefits of a man entitled to father's
insurance benefits who is married to a disability insurnace benefi-
ciary if she refuses to accept rehabilitation services and has deduc-
tions made from her benefits (as is now true for mother's insurance
benefits).
Section 319(n) of the bill amends section 222(b)(3) of the Act to
authorize deductions from the benefits of a man getting benefits as
a divorced husband based on the earnings of a disability insurance
beneficiary if she refuses to accept rehabilitation services and has
deductions made from her benefits (as is now true for other such
dependent beneficiaries).
Section 319(o) of the bill amends section 223(d)(2) of the Act to
make the definition of disability for widows, surviving divorced
wives and widowers, in present law also apply to surviving divorced
husbands.
Section 319(p) of the bill amends section 225 of the Act to extend
the Secretary's authority to suspend benefits of a surviving di-
vorced husband who is receiving benefits based on disability if he
believes that a person is no longer under a disability, (as is now the
case for other benefits based on disability).
Section 319(qXl) of the bill amends section 226(eX3) of the Act to
provide that, for purposes of entitlement to hospital insurance
benefits, a person entitled to father's insurance benefits will be
deemed to have filed for disabled widower's benefits on the basis of
his application for hospital insurance benefits, in the same manner
as persons entitled to mother's insurance benefits may not be
deemed to have filed for disabled widow's benefits.
Section 319(q)(2) of the bill amends section 226(eX3) of the Act to
provide that, for purposes of determining an individual's entitle-
ment of hospital insurance benefits under the preceding section, an
individual will, upon furnishing proof of disability within 12
months after enactment, be deemed to have been entitled to
widow's or widower's benefits as of the time they would have been
entitled if timely application had been made.
Section 320. Effective date
Section 320(a) provides that, except as otherwise provided, part B
of title III of the bill shall be effective with respect to Social Secu-
rity benefits payable for months after the month of enactment. Sec-
tion 320(b) provides that nothing in any amendment made under
part B shall affect benefits paid prior to enactment as a result of a
court decision (i.e., benefits for divorced husbands; surviving di-
vorced husbands; remarriage of a widower before attaining age 60;
and benefits for young fathers, young surviving divorced fathers
and husbands caring for child beneficiaries).
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Section 321. Coverage of employees of foreign affiliates of American
employers
Section 321(a)(1) of the bill amends section 3121(1)(1) of the Inter-
nal Revenue Code of 1954 (which provides that a domestic corpora-
tion may enter into an agreement with the Secretary of the Treas-
ury to permit Social Security coverage of U.S. citizens working
abroad for a foreign corporation which is a subsidiary of the domes-
tic corporation) to provide that (1) coverage shall also be provided
for U.S. residents, and (2) that any American employer, not just a
corporation may enter into such agreement.
Section 321(a)(2) of the bill amends section 3121(1)(8) of the Code
(defining "foreign subsidiary") to define a foreign affiliate of an
American employer as any foreign entity (not just a foreign corpo-
ration) in which such American employer has not less than a 10
percent interest. The bill further provides that an American em-
ployer has a 10 percent interest in any entity if the employer has
such interest directly (or through one or more entities): (1) in the
case of a corporation, in the voting stock thereof, and, (2) in the
case of any other entity, in the profits thereof.
Section 321(b) of the bill amends clause (B) of section 210(a) of
the Social Security Act (defining "employment") to conform to the
amendment made by section 321(a)(1) of the bill.
Section 321(c) of the bill amends section 406(a) of the Code (relat-
ing to treatment of certain employees of foreign subsidiaries for
pension, profit-sharing and stock bonus purposes) to extend its pro-
visions to U.S. residents working abroad for a foreign affiliate of an
American employer.
Section 321(d) of the bill amends section 407(a) of the Code (relat-
ing to certain employees of domestic subsidiaries engaged in busi-
ness outside the United States) to extend its provisions to U.S. resi-
dents who are employees of domestic subsidiaries engaged in busi-
ness outside the United States.
Section 321(e) of the bill amends sections 3121(1), 406, 1402(b) and
6413(c) of the Code to conform to the amendment made by section
321(a)(1) of the bill.
Section 321(f)(1) of the bill provides that the amendments made
by section 321 of the bill (other than subsection (d)) shall apply to
new agreements entered into after the date of enactment or, at the
election of any American employer, shall apply to any agreement
entered into on or before the date of enactment. Any such election
shall be made in accordance with any regulations established by
the Secretary of the Treasury.
Section 321(f)(2) of the bill provides that the amendments made
by section 321(d) shall apply to plans established after the date of
enactment or, at the election of any domestic parent corporation,
shall apply to any plan established on or before the date of enact-
ment. Any such election shall be made in accordance with any reg-
ulations established by the Secretary of the Treasury.
Section 322. Extension of coverage by international social security
agreement
Section 322(a) of the bill provides that services designated as em-
ployment under an international Social Security agreement en-
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tered into under section 233 of the Social Security Act are covered
and taxed for Social Security purposes.
Section 322(aX1)(A) of the bill makes a change in section 210(a) of
the Act to conform it to the amendment made by section
322(a)(l)(B).
Section 322(a)(1XB) of the bill amends section 210(a) of the Social
Security Act to add a new clause (C) which provides that the defini-
tion of "employment" includes service, regardless of where or by
whom performed, which is designated as employment or recognized
as equivalent to employment under an international Social Secu-
rity agreement.
Section 322(aX2) of the bill amends section 3121(b) of the Internal
Revenue Code of 1954 to conform to the amendments made by sec-
tion 322(aXl) of the bill.
Section 322(b) provides that net earnings from self-employment
derived by a nonresident alien individual are covered and taxed for
Social Security purposes as provided for under an international
Social Security agreement.
Section 322(bXl) of the bill amends section 211(b) of the Act to
provide that the definition of "self-employment income" for Social
Security purposes includes net earnings from self-employment de-
rived by a nonresident alien individual as provided for under an in-
ternational Social Security agreement.
Section 322(bX2) of the bill amends section 1402(b) of the Code to
conform to the amendment made by section 322(bXl) of the bill.
Section 322(c) of the bill provides that the amendments made by
subsections (a) and (b) are effective for taxable years beginning on
or after enactment.
Section 323. Treatment of certain service performed outside the
United States
Section 323(a) of the bill provides that services performed outside
the United States by a U.S. resident for an American employer are
covered and taxed for Social Security purposes.
Section 323(a)(1) of the bill amends section 3121(b) of the Internal
Revenue Code of 1954 to provide that the definition of "employ-
ment" for Social Security tax purposes includes service performed
outside the United States by U.S. residents for American employ-
ers.
Section 323(a)(2) of the bill amends section 210(a) of the Act to
provide that the definition of "employment" for Social Security
coverage purposes includes service performed outside the United
States by U.S. residents for American employers.
Section 323(b) of the bill amends the Act to provide that the ex-
clusion from gross income for income tax purposes of certain for-
eign earned income (in accordance with section 911(aXl) of the In-
ternal Revenue Code of 1954) shall not apply in computing net
earnings from self-employment for Social Security purposes.
Section 323(bXl) of the bill amends section 1402(a)(11) of the Code
by providing that income described in section 911(aXl) of the Code
cannot be excluded from gross income in computing net earnings
from self-employment.
Section 323(bX2XA) of the bill amends section 211(a)(10) of the
Act to provide that foreign earned income excluded under section
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911(a)(1) of the Code shall not be excluded from gross income in
computing net earnings from self-employment for Social Security
purposes.
Section 323(b)(2)(B) of the bill amends section 211(a)(10) of the Act
to provide that, with respect to taxable years beginning after De-
cember 31, 1981 and before January 1, 1984, an individual de-
scribed in 911(d)(1)(B) of the Code (a citizen or resident of the
United States who is present in a foreign country during at least
330 full days of any period of 12 consecutive months) cannot ex-
clude foreign earned income from gross income for purposes of de-
termining net earnings from self-employment for purposes of Social
Security coverage.
Section 323(c)(1) of the bill provides that the amendments made
by section 323(a) of the bill apply to remuneration paid after De-
cember 31, 1983.
Section 323(c)(2) of the bill provides that the amendments made
by section 323(b) of the bill (except for the amendment made by sec-
tion 323(b)(2)(B)) apply to taxable years beginning after December
31, 1983.
Section 324. Treatment of pay after age 62 as wages
Section 324(a) of the bill repeals section 209(i) of the Social Secu-
rity Act which excludes from the definition of wages for Social Se-
curity purposes any payment (other than vacation or sick pay)
made to an employee after the month in which he or she attains
age 62 if the employee did not work for the employer in the period
for whch such payment is made.
Section 324(b) of the bill repeals section 3121(a)(9) of the Code to
conform to the amendment made by section 324(a) of the bill.
Section 324(c) of the bill provides that the amendments made by
this section apply with respect to calendar years beginning more
than 6 months after enactment.
Section 325. Treatment of contributions under simplified employee
pensions
Section 325(a) of the bill amends section 3121(a)(5)(D) of the Inter-
nal Revenue Code of 1954 by striking out the reference to section
219 of the Code and replacing it with a reference to section
219(b)(2) of the Code, to assure that the entire employee contribu-
tion to a simplified employee pension, as defined in section 408(k)
of the Code, is taxable for Social Security purposes.
Section 325(b) of the bill amends section 209(e) of the Social Secu-
rity Act by adding a new paragraph (5) which excludes from the
definition of "wages" for Social Security coverage purposes employ-
er contributions to a simplified employee pension if, at the time of
payment, it is reasonable to believe that the employee will be enti-
tled to a deduction from adjusted gross income under 219(b)(2) of
the Code for such payment.
Section 325(c) of the bill provides that the amendment made by
section 325 shall apply to remuneration paid after December 31,
1983.
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Section 326. Effect of changes in names of State and local employees
groups in Utah
Section 326(a) of the bill amends section 218(o) of the Social Secu-
rity Act, which provides that certain entities in Utah may be treat-
ed as separate coverage groups with respect to Utah's coverage
agreement with the Secretary, by adding at the end thereof a new
sentence stating that the special treatment of such entities is not
affected by changes in the names of the entities.
Section 326(b) of the bill provides that the amendment applies to
name changes made before, on, or after enactment.
Section 327. Effective dates of international social security agree-
ments
Section 327(a) of the bill amends section 233(e)(2) of the Social Se-
curity Act by changing the congressional review period for interna-
tional Social Security agreements from a period during which each
House of the Congress has been in session on each of 90 days to a
period during which at least on House of the Congress has been in
session on each of 60 days.
Section 327(b) of the bill provides that the amendment made by
section 327(a) is effective upon enactment.
Section 328. Technical correction with respect to withholding of sick
pay of participants in multiemployer plans
Section 328(a) of the bill amends section 3(dX2) of Pub. Law 97-
123 by adding a new subparagraph (D). The new subparagraph pro-
vides that a multiemployer sick plan shall act, to the extent pro-
vided in regulations, as an agent of the employer for whom a
worker normally renders services.
Section 328(b) of the bill provides that the amendment is effec-
tive with respect to sick pay paid after June 30, 1983.
Section 329. Amounts received under certain deferred compensation
and salary reduction arrangements treated as wages for FICA
taxes
Section 329(a) of the bill amends section 3121 of the Internal Rev-
enue Code of 1954 by adding a new subsection (v) which specifies
that nothing in section 3121(a), which defines "wages" for Social
Security taxation purposes, shall exclude "wages" from Social Se-
curity taxation purposes any employer contributions: (1) under a
qualified cash or deferred compensation plan described in section
401(k) of the Code, (2) under a cafeteria plan described in section
125(d) of the Code (to the extent an employee can choose to receive
a cash, property, or other benefits that would be taxable for Social
Security purposes), or (3) for the purchase of an annuity contract
described in section 403(b) of the Code.
Section 329(b) of the bill amends section 209 of the Social Secu-
rity Act by adding a new paragraph at the end thereof to conform
to the amendments made by subsection (a) of the bill.
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Section 330. Codification of Rowan decision with respect to meals
and lodging
Section 330(a)(1) of the bill amends section 3121(a) of the Internal
Revenue Code of 1954 by adding a new paragraph (19) which spe-
cifically excludes from wages taxable for Social Security purposes
the value of an employee's meals or lodging furnished by or on
behalf of the employer if, at the time they are furnished, it is rea-
sonable to believe that the employee will be able to exclude such
items from income under section 119 (which provides an exclusion
from gross income for the value of meals and lodging furnished for
the convenience of employers).
Section 330(a)(2) of the bill amends section 209 of the Social Secu-
rity Act by adding a new subsection (r) which specifically excludes
from covered wages for Social Security purposes the value of an
employee's meals or lodging excluded from taxation under 330(a)(1)
of the bill.
Section 330(b)(1) of the bill amends section 3121(a) of the Internal
Revenue Code of 1954 by adding a sentence after paragraph (19) (as
added by section 330(a)(1) of the bill) providing that regulations pre-
scribing exclusions from wages for income tax withholding pur-
poses shall not be construed to require a similar exclusion from
wages for Social Security taxation purposes.
Section 330(b)(2) of the bill amends section 209 of the Act by
adding a sentence after subsection (r) (as added by section 330(a)(2)
of the bill) providing that regulations prescribing exclusions from
wages for income tax withholding purposes shall not be construed
to require a similar exclusion from wages for Social Security cover-
age purposes.
Section 331. Technical and conforming amendments to the maxi-
mum family benefit provisions
Section 331 of the bill eliminates the January readjustment of
the limit on combined maximum family benefits (CMFB) that
occurs because of a technical defect in the maximum family benefit
provision included in the 1977 Social Security amendments.
Section 331(a)(1) of the bill amends section 203(a)(3)(A)(ii) of the
Social Security Act to restate that the CMFB limit is equal to 1.75
times the highest primary insurance amount possible based on the
contribution and benefit base for a given year, and to specify that
once the CMFB is computed for a family, that limit will thereafter
increase on the basis of cost-of-living increases alone. The year for
which the CMFB is computed for a family will be the later of 1983
or the year the CMFB provisions first apply. There is a special rule
that if the CMFB provisions cease to apply for a family and then
subsequently apply again, the CMFB limit will be redetermined.
Section 331(a)(2) of the bill amends section 203(aX7) of the Act to
provide that the new rules on the CMFB limit will also apply to
CMFB cases where at least one of the primary insurance amounts
involved is computed under the pre-1977 amendment provisions
and at least one other is computed under the post-1977 amendment
provisions.
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Section 331(b) of the bill corrects a cross reference to a maximum
family benefit provision to which a conforming change should have
been made, but was not, in the 1977 amendments.
Section 331(c) of the bill provides that the new rules on the
CMFB limit will be effective with respect to payments made for
months after December 1983.
Section 332. Reduction from 72 to 70 of age beyond which no de-
layed retirement credits can be earned
Section 332 of the bill is a technical amendment to make a con-
forming change in section 202(w) of the Act that increases Social
Security benefits on account of delayed retirement-retirement
after age 65.
Section 332(a) would lower from 72 to 70 the age beyond which
no further delayed retirement credit is available.
Section 332(b) provides that the change would apply to workers
who reach age 70 after 1983. For workers who reach age 70 before
1984, prior law would apply except that no delayed retirement
credits would accrue for any months after 1983.
Section 333. Relaxation of insured status requirements for certain
workers previously entitled to a period of disability
Section 333(aXl) of the bill makes a conforming change in clause
(ii) of section 216(i)(3XB) of the Social Security Act.
Section 333(aX2) of the bill adds a new clause (iii) to section
216(iX3XB) of the Act which extends the special insured status test
described in clause (ii) for purposes of a period of disability to those
workers who used the special insured status test in establishing a
period of disability that began before they became age 31, who sub-
sequently recovered, but who then became redisabled at age 31 or
later before having enough time to work long enough to earn 20
quarters of coverage prior to becoming redisabled. Such a worker
would be insured if at least half (and not less than six) of the quar-
ters elapsing after he or she attained age 21 and up to and includ-
ing the quarter in which the worker became redisabled were quar-
ters of coverage, or, if the redisability occured before 12 quarters
have elapsed, at least 6 of the 12 quarters ending with the quarter
of disability were quarters of coverage.
Section 333(bXl) of the bill makes a conforming change in clause
(ii) of section 223(c)(1XB) of the Act.
Section 333(bX2) of the bill adds a new clause (iii) to section
223(c)(1)(B) of the Social Security Act which extends the special in-
sured status test for purposes of disability insurance benefits in the
same manner as such test is extended under section 333(aX2) for
purposes of a period of disability.
Section 333(c) of the bill provides that the amendments made by
subsections (a) and (b) will be effective with respect to applications
filed after the date of enactment, except that no monthly benefits
will be payable or increased by reason of these amendments for
months before the month after enactment.
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Section 334. Protection of benefits of illegitimate children of dis-
abled beneficiaries
Section 334(a) of the bill amends section 216(h)(3) of the Act to
provide benefits for illegitimate children of disabled workers for
the month in which they satisfy all entitlement conditions, as pro-
vided under present law to the illegitimate children of retired
beneficiaries.
Section 334(b) of the bill provides that the amendment made by
subsection (a) shall be effective on the date of enactment.
Section 335. One-month retroactivity of widow's and widower's in-
surance benefits
Section 335 of the bill amends section 202(j)(4)(B) of the Act to
allow an aged widow or widower to receive actuarially reduced
benefits for the month in which the insured spouse died, if the ap-
plication is filed in the following month, even though the retroac-
tive payment would result in a lower future monthly benefits than
would be the case if benefits were not paid retroactively.
Section 335(a) of the bill amends section 202(j)(4)(B) of the Act to
make an exception to the rule, enacted by the Social Security
Amendments of 1977, that bars the payment of retroactive benefits
if such payments would require the lowering of future benefits.
Section 335(b) provides that this change would apply to survivors
who apply for monthly benefits after the second month following
the month of enactment.
Section 336. Nonassignability of benefits
Section 336(a)(1) of the bill amends section 207 of the Social Secu-
rity Act, which concerns assignment of benefits, by designating the
text of the present section 207 as subsection (a).
Section 336(a)(2) of the bill amends section 207 of the Act by
adding a new subsection (b) which prohibits the provisions of sec-
tion 207 from being limited, superseded, or modified by any other
provision of law except by express reference to section 207.
Section 336(b) of the bill amends section 459(a) of the Act by in-
serting a reference to section 207 in order to continue to permit, for
purposes of child support and alimony obligations, the garnishment
and similar proceedings against an individual's Federal benefits
which are based upon remuneration for employment.
Section 336(c) of the bill provides that the amendments made by
subsection (a) will apply only with respect to benefits payable or
rights existing under the Act on or after the date of enactment.
Section 337. Use of death certificates to prevent erroneous payments
to deceased individuals
Section 338 of the bill amends section 205 of the Social Security
Act to add a new subsection (r), which would authorize the Secre-
tary of Health and Human Services to establish a program under
which the States would furnish information derived from official
death certificates for the purpose of correcting Social Security Ad-
ministration records and preventing payments to deceased persons.
The new subparagraph (r) would exempt death information fur-
nished by the States from the disclosure provisions of the Freedom
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of Information Act and provide for payment to the States for the
reasonable cost of furnishing such information.
Section 338. Public pension offset
Section 338 of the bill liberalizes the amount of the Social Secu-
rity spouse's or surviving spouse's benefit that is offset when a
person receives a governmental pension based on his or her own
work not covered by Social Security.
Section 338(aXl) of the bill amends sections 202(bX4)(A), (cX2)(A),
(f)(2)(A), and (gX4)(A) of the Act and paragraph (7XA) of section
202(e) of the Act (as redesignated by section 131(aX3)(A) of the bill)
to provide that the amount of the offset will be equal to one-third
of the amount of any monthly periodic public pension, rather than
the full amount of that pension. Section 338(a)(2) of the bill pro-
vides that the amount of any reduction under this provision will be
rounded, if necessary, to the next higher multiple of $0.10.
Section 338(b) of the bill provides that this amendment will apply
to the monthly benefits of persons who become eligible for public
pensions after June 1983.
Section 339. Study concerning the establishment of the Social Secu-
rity Administration as an independent agency
Section 339 provides for a Joint Study Panel under the authority
of the Ways and Means and Finance Committee to make a study
concerning the establishment of the Social Security Administration
as an independent agency.
Subsection (a) establishes a Joint Study Panel on the Social. Secu-
rity Administration.
Subsection (b) prescribes the manner of appointment of the mem-
bers appointed to the Panel.
Subsection (b)(1) provides that the Panel shall be composed of
three members, appointed jointly by the Chairman of the Commit-
tee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate and that such Chairman shall
jointly select one member of the Panel to serve as its Chairman.
The provision further requires that members of the Panel shall be
chosen, on the basis of their integrity, impartiality, and good judg-
ment, from individuals who, as a result of their training, experi-
ence, and attainments, are widely recognized by professionals in
the field of government administration as experts in that field.
Subsection (b)(2) provides that vacancies in the membership of
the Panel shall not affect the power of the remaining members to
perform the duties of the Panel and shall be filled in the same
manner in which the original appointment was made.
Subsection (b)(3) provides that each member of the Panel not oth-
erwise in the employ of the U.S. Government shall receive the
daily equivalent of the annual rate of basic pay payable for level V
of the Executive Schedule for each day during which such member
is actually engaged in the performance of the duties of the Panel.
Further, each member of the Panel shall be allowed travel ex-
penses in the same manner as any individual employed intermit-
tently by the Federal Government is allowed travel expenses under
section 5703 of title 5, United States Code.
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Subsection (b)(4) provides that, by agreement between the Chair-
men of the Committee on Ways and Means and the Committee on
Finance, such Committees shall provide the Panel, on a reimburs-
able basis, office space, clerical personnel, and such supplies and
equipment as may be necessary for the Panel to carry out its
duties. Further, subject to such limitations as the Chairmen of such
Committees may jointly prescribe, the Panel may appoint such ad-
ditional personnel as it considers necessary and may fix the com-
pensation of such personnel as it considers appropriate at an
annual rate which does not exceed the rate of basic pay then pay-
able for GS-18, and may procure by contract the temporary or in-
termittent services of clerical personnel and experts or consultants,
or organizations thereof.
Subsection (b)(5) provides for appropriating to the Panel from the
four Social Security trust funds such sums as the Chairmen of the
Committee on Ways and Means and the Committee on Finance
shall jointly certify to the Secretary of the Treasury as necessary to
carry out the Panel's duties. Further, the Secretary of the Treasury
shall allocate among the four trust funds the total amount to be
transferred from the trust funds so that the amount of the sums
transferred from each such trust fund shall bear the same ratio to
the total amount transferred from all such trust funds as the
amount expended from such trust fund during the fiscal year
ending September 30, 1982, bears to the total amount expended
from all such trust funds during such fiscal year.
Subsection (c) sets forth the duties of the Panel with respect to
the study provided for under this section.
Subsection (c)(1) provides that the Panel shall undertake, as soon
as possible after the date of enactment, a thorough study with re-
spect to the feasibility and implementation of removing the Social
Security Administration from the Department of Health and
Human Services and establishing it as an independent agency in
the executive branch with its own independent administrative
structure, including the possibility of such a structure headed by a
board appointed by the President, by and with the advice and con-
sent of the Senate.
Subsection (cX2) provides that the Panel, in its study, shall ad-
dress, analyze, and report specifically on the following matters: the
effect of the organizational status of the Social Security Adminis-
tration on beneficiaries under the Social Security Act and the gen-
eral public; the legal and other relationships of the Social Security
Administration with other organizations, within and outside the
Federal Government, and the changes in such relationships which
would be required as a result of establishing the Social Security
Administration as an independent agency; any changes which may
be necessary or appropriate, in the course of establishing the Social
Security Administration as an independent agency, in the constitu-
tion of the Boards of Trustees of the four Social Security trust
funds; and such other matters as the Panel may consider relevant
to the study.
Subsection (d) provides that the Panel shall submit to the Com-
mittee on Ways and Means of the House of Representatives and
the Committee on Finance of the Senate, not later than April 1,
1984, a report of the findings of its study, together with any recom-
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mendations the Panel considers appropriate. Further, the Panel
and all authority granted in this section shall expire 30 days after
the date of the filing of the required report.
Section 340. Conforming changes in medicare premium provisions to
reflect changes in costs-of-living benefit adjustments
Section 340 of the bill amends sections 1818(d) and 1839(c) and (g)
of the Social Security Act, which establish monthly premium rates
under parts A and B of title XVIII of the Act, to provide that the
effective dates of changes in the monthly premium for uninsured
persons enrolled in part A, hospital insurance, and the monthly
premium for persons enrolled in part B, supplementary medical in-
surance, will be moved from July of a year to January of a year.
Section 340(aXl) of the bill amends section 1818(dX2) to change
the time when the Secretary of Health and Human Services must
determine and promulgate the monthly premium under part A
from the last calendar quarter of each year to the next to last cal-
endar quarter of each year.
Sections 340(aX2) and (3) of the bill further amend section
1818(dX2) to change the effective date of changes in the part A pre-
mium from July 1 of the year following the year of promulgation
to January 1 of the year following the year of promulgation.
Section 340(bX1)(A) of the bill amends section 1839(c) to change
the time when the Secretary of Health and Human Services must
determine and promulgate the actuarial rates for the aged and dis-
abled and the monthly premium rate for all part B enrollees from
December of each year to September of each year.
Sections 340(bX1XB), (C) and (D) amend sections 1839(cX1X3) and
(4) to change the period for which the actuarial rates and monthly
premium will apply from the 12-month period beginning on July of
the year following the year of promulgation to the calendar year
following the year of promulgation.
Sections 340(b)(1)(E) and (F) further amend section 1839(CX3)(A)
to change the period over which the comparison of primary insur-
ance amounts at a given AIME level is made for purposes of estab-
lishing a percentage limitation on increases in the monthly premi-
um from May 1 of the year of promulgation and May 1 of the fol-
lowing year to November 1 of the year preceding the year of pro-
mulgation and November 1 of the year of promulgation.
Sections 340(b)(2)(A) and (B) amend section 1839(g) to provide
that the requirement that the monthly premium for months after
June 1983 and prior to July 1985 equal 50 percent of the actuarial
rate for the aged will apply instead to months after December 1983
and prior to January 1986.
Section 340(c) provides that the amendments made by subsec-
tions 340(a) and (b) will apply to premiums for months beginning
with January 1984.
Section 340(cXl) provides that, for months after June 1983 and
before Janurary 1984, the monthly premium rates under parts A
and B of titles XVIII will equal the monthly premium rates for
June 1983.
Section 340(c)(2) provides that the amount of the government
contribution for months after June 1983 and before January 1984
will be computed on the basis of the actuarial rate which would
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have been in effect without regard to this section, but using the
premium which was actually in effect for these months.
D. Supplemental Security Income (SSI) Provisions (Title IV)
A. BENEFIT INCREASE AND PASS-THROUGH REQUIREMENTS
(1) The Federal SSI benefit payment is increased by $20 per
month for individuals and $30 per month for couples, effective July
1, 1983.
(2) The next Federal SSI cost-of-living adjustment (COLA) is de-
layed from July 1983 until January 1984, and the current linkage
between the OASDI and the SSI COLA is maintained. Federal SSI
benefits will be adjusted in January 1984, and every January there-
after, by the same percentage and under the same procedures as
OASDI benefits.
(3) The current SSI pass-through law is amended to provide that,
in order to meet the "payment level" pass-through requirement, a
State could not reduce its SSI supplemental payment levels below
the amount that would provide SSI recipients with an increase in
benefits equal to the amount that Federal SSI benefits would be in-
creased in July 1983 under the current COLA provisions. A State
could continue to comply with Federal pass-through law by meet-
ing the present "aggregate amount" requirement. In other words,
as under current law, a State would not be required to spend more
in total for State SSI supplemental payments than the total aggre-
gate amount of State supplementation paid by the State in the pre-
vious 12-month period.
B. PAYMENT OF SSI TO TEMPORARY RESIDENTS OF PUBLIC EMERGENCY
SHELTERS
Under current law, aged, blind or disabled individuals who are
residents of private emergency shelters are eligible for SSI. Howev-
er, such residents of public shelters cannot receive SSI. Under the
committee bill, aged, blind or disabled individuals who are tempo-
rary residents of public emergency shelters could receive SSI pay-
ments for a period of up to three months during any 12 month
period.
Effective from enactment until September 30, 1984, emergency
and other in-kind assistance provided by a private nonprofit organi-
zation to an aged, blind or disabled individual, or to a family with
dependent children, would be disregarded under the SSI and AFDC
programs, if the State determines that such assistance was pro-
vided on the basis of need.
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107
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3. SECTION-BY-SECTION EXPLANATION
Section 401: Increase in Federal SSI benefit standard
The current Federal monthly SSI benefit standard is $284.30 for
a single person and $426.40 for married couples. Benefits are in-
dexed to the Consumer Price Index (CPI). Cost-of-living increases
are provided annually in July if the CPI for the first quarter of the
calendar year increases by a least 3 percent over the first quarter
of the previous year. Benefits are increased by the same percentage
as social security benefits. This occurs through a reference in the
SSI law to the SSI social security cost-of-living provision. For exam-
ple, the current payment level of $284.30 per individual, which
became effective July 1982, represents an increase of 7.4 percent
(or $19.60 monthly) from the previous July 1981 level of $264.70.
Section 401 contains changes in the SSI law that are directly re-
lated to the Social Security amendments included in previous
Titles of this bill and the proposed changes in SSI contained in the
recommendations of the National Commission on Social Security
Reform.
This section provides for a $20 increase in the Federal SSI bene-
fit standard for an individual and a $30 increase for a couple, effec-
tive July 1, 1983. This increase would be in lieu of the cost-of-living
increase in the Federal SSI benefits standard that would occur July
1, 1983 under current law. It is also in lieu of the National Social
Security Commission's proposal to increase the current $20 month-
ly disregard to $50, limiting the additional $30 to OASDI benefits
only.
The next cost-of-living adjustment (COLA) in the Federal SSI
benefit standard would occur on January 1, 1984 and then each
January 1st thereafter. As under present law, the cost-of-living in-
crease for SSI benefits would continue to occur through the refer-
ence in the SSI law (Title XVI) to the provisions in the Social Secu-
rity law (Title II) which make automatic cost-of-living increases in
Social Security benefits. Therefore, the six-month delay and related
modifications in the base period for determining the cost-of-living
increase contained in the Social Security amendments in this bill
will also apply to the SSI program.
A stated intent of the Social Security Commission's report was to
provide that low income social security recipients be protected
against a loss of income due to the proposed six-month delay in the
OASDI cost-of-living increase, from July 1, 1983 until January 1,
1984. Under the Commission's proposal to increase the SSI disre-
gard of OASDI income from $20 to $50 a month, concurrent recipi-
ents of SSI and OASDI would have received a $30 monthly increase
in their total income as of July 1, 1983.
In other words, increasing the disregard, as proposed by the Com-
mission, would have more than made up for the income loss due to
the six-month COLA delay for those SSI recipients who also receive
OASDI (social security) benefits. This is approximately one-half of
all SSI recipients. The other half, however, those who receive only
SSI benefits, which is approximately two million individuals, would
not benefit from the proposed increase in the disregard.
As shown in table 1, while 70 percent of the aged receiving SSI
receive both SSI and social security payments, only 36 percent of
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the disabled and 38 percent of the blind receiving SSI also receive
social security benefits. Table 2 shows the percentage of the SSI re-
cipients in each State, by reason for SSI eligibility, who else receive
social security benefits.
Because the proposed disregard increase would benefit only one-
half of all SSI recipients, the Committee chose to increase the Federal
SSI benefit standard by $20 per month for individuals and $30
per month for couples, instead of increasing the disregard of social
security income by $30 per month. This increase will apply to all
SSI recipients, those who receive only SSI payments as well as
those who receive both SSI and social security benefits.
TABLE 1.-NUMBER OF PERSONS RECEIVING FEDERALLY ADMINISTERED PAYMENTS: PERCENT
RECEIVING OTHER INCOME AND AVERAGE MONTHLY AMOUNT, BY REASON FOR ELIGIBILITY AND
TYPE OF INCOME, MAY 1982
Total number ............................................................
3,961,932
1,632,615
78,095
2,251,822
Percent with other income:
Social security benefits ...................................
50.1
70.1
37.6
36.1
Other unearned income ...................................
10.4
12.6
11.4
8.8
Earned income ................................................
3.2
1.6
6.8
4.3
Average monthly amount:
Social security benefits ...................................
$233
$236
$246
$228
Other unearned income ...................................
$80
$71
$81
$90
Earned income ................................................
$108
$106
$404
$93
TABLE 2.-SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND DISABLED: PERCENT OF
PERSONS IN CONCURRENT RECEIPT OF FEDERALLY ADMINISTERED SSI PAYMENTS AND SOCIAL
SECURITY BENEFITS AND AVERAGE MONTHLY AMOUNT OF SOCIAL SECURITY BENEFITS, BY
REASON FOR ELIGIBILITY AND STATE, DECEMBER 1980
Total ...........................
51.0
70.2
37.8
36.0
$196.94
$198.56
$208.43
$194.00
Alabama ...................................
58.7
72.8
34.4
40.7
164.00
164.96
159.33
161.85
Alaska ......................................
34.4
55.3
17.5
21.8
171.49
169.74
187.00
173.89
Arizona .....................................
44.3
65.6
25.4
31.0
167.22
168.38
164.70
165.68
Arkansas ..................................
61.0
75.7
33.1
43.4
164.31
165.58
159.03
161.66
California ..................................
60.1
77.5
55.0
45.8
254.44
258.33
255.66
248.86
Colorado ...................................
43.8
64.9
19.1
28.1
177.37
177.83
179.96
176.51
Connecticut ..............................
31.3
48.4
21.9
23.4
180.73
183.22
175.88
178.41
Delaware ..................................
47.0
72.5
47.6
32.6
188.16
189.69
199.31
185.63
District of Columbia .................
38.0
67.7
27.8
26.6
184.51
186.61
193.90
182.26
Florida ......................................
41.6
50.5
30.7
32.9
177.32
178.25
169.59
176.11
Georgia .....................................
53.4
70.4
33.0
39.1
170.24
171.31
157.73
168.92
Hawaii ......................................
41.9
52.4
22.9
32.0
187.57
189.57
193.08
184.16
Idaho ........................................
48.5
75.1
25.4
35.0
180.31
183.37
174.97
176.93
Illinois ......................................
32.4
56.2
21.2
22.9
117.38
179.92
175.55
174.86
Indiana .....................................
45.9
71.4
26.0
32.1
177.70
180.58
172.67
174.22
Iowa .........................................
52.7
74.1
43.7
36.6
183.32
186.43
191.71
177.62
Kansas .....................................
44.7
69.5
34.6
29.0
178.56
181.85
178.49
173.53
Kentucky ..................................
51.0
71.6
24.9
35.3
161.72
164.49
143.32
157.66
Louisiana ..................................
47.6
64.9
27.7
32.1
165.14
167.45
152.32
161.13
Maine .......................................
63.6
84.1
48.1
47.3
205.59
209.28
182.44
200.80
Maryland ..................................
38.6
63.6
22.4
26.3
178.92
181.72
181.69
175.49
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TABLE 2.-SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND DISABLED: PERCENT OF
PERSONS IN CONCURRENT RECEIPT OF FEDERALLY ADMINISTERED SSI PAYMENTS AND SOCIAL
SECURITY BENEFITS AND AVERAGE MONTHLY AMOUNT OF SOCIAL SECURITY BENEFITS, BY
REASON FOR ELIGIBILITY AND STATE, DECEMBER 1980-Continued
Massachusetts .......................... 61.5 80.2 57.4 38.4 249.61 257.76 261.69 226.45
Michigan .................................. 47.1 70.9 27.9 35.6 201.92 203.08 191.46 200.97
Minnesota ................................. 44.5 68.5 24.5 28.6 174.13 178.46 177.08 166.85
Mississippi ................................ 59.3 75.8 31.7 39.9 157.14 158.81 146.11 153.55
Missouri ................................... 53.8 71.3 41.9 37.9 172.71 174.48 167.20 169.81
Montana ................................... 47.8 71.7 36.0 35.8 181.88 185.73 176.92 178.04
Nebraska .................................. 48.8 71.4 36.0 34.2 181.63 185.45 174.22 176.58
Nevada ..................................... 53.0 73.3 59.2 26.4 210.56 212.88 234.13 194.04
New Hampshire ........................ 45.3 63.8 37.0 33.6 184.62 186.86 170.81 182.48
New Jersey .............................. 40.0 54.1 31.5 31.4 197.17 199.73 185.63 194.64
New Mexico ............................. 47.8 68.5 25.3 33.9 165.12 167.39 146.81 162.32
New York ................................. 41.8 60.9 31.7 30.5 213.42 219.57 201.82 206.22
North Carolina .......................... 56.5 77.1 30.6 39.9 166.04 168.21 163.76 162.50
North Dakota ........................... 54.8 69.5 25.6 40.0 171.69 175.39 159.35 165.09
Ohio ......................................... 38.3 63.2 26.9 28.2 175.69 179.97 166.66 171.89
Oklahoma ................................. 48.5 63.7 22.9 33.5 170.32 171.13 162.51 168.87
Oregon ..................................... 43.5 70.5 23.1 30.5 183.17 185.66 177.95 180.39
Pennsylvania ............................ 45.1 67.9 38.7 32.7 195.15 198.97 192.52 192.17
Rhode Island ............................ 51.3 68.6 34.2 40.3 212.16 220.49 197.33 203.16
South Carolina .......................... 55.4 75.4 28.8 39.1 167.55 168.87 150.22 165.88
South Dakota ........................... 51.8 70.7 27.5 35.2 175.50 180.59 174.71 166.04
Tennessee ................................. 54.7 75.0 27.8 37.4 164.14 165.74 150.58 161.60
Texas ....................................... 54.6 69.3 30.3 36.1 168.89 170.32 162.69 165.44
Utah ......................................... 34.4 59.2 27.2 23.0 173.04 177.11 147.63 169.04
Vermont ................................... 58.2 80.1 43.4 43.1 205.33 207.59 180.88 202.92
Virginia ..................................... 52.1 73.8 29.4 35.9 169.28 170.90 159.01 166.96
Washington .............................. 45.7 70.7 28.3 33.0 198.75 199.40 191.66 198.15
West Virginia ........................... 43.7 66.6 25.2 31.5 163.44 169.57 148.85 156.90
Wisconsin ................................. 62.3 83.8 32.7 45.1 225.85 229.04 211.92 221.17
Wyoming .................................. 52.0 73.3 37.9 37.2 180.82 183.35 157.27 177.90
Other areas: Northern
Mariana Islands ................... .3 ........................................ .9 ..............................................................................
The Committee is aware of the point of view that those individ-
uals who have paid social security taxes and qualified for OASDI
benefits should have some return from the taxes they have paid.
Thus, they should have a higher total income than individuals on
SSI who have not qualified for social security benefits.
It is the position of the Committee, however, that the primary
purpose of the SSI program is to assure a minimum income for the
aged, blind and disabled in all States. The Supplemental Security
Income Program (SSI), as the name implies, is intended to be com-
plementary to, or to supplement where necessary, social insurance
benefits or other income an aged, blind or disabled person may
have, but which is less than the Federal SSI benefit standard. In
addition, there are other aged, blind and disabled persons who, be-
cause of life-long disability, the failure of employers to deduct and
pay social security taxes on their behalf (such as those in domestic
employment), or for other' reasons, do not qualify for social secu-
rity. The purpose of the SSI program is to provide these individuals
with a minimum level of income.
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After evaluating the Commission's proposal, which would in-
crease the income of only those SSI recipients who also qualified
for social security, the Committee chose to provide a greater degree
of protection from deprivation for all aged, blind and disabled who
rely on the SSI program, either as a supplement to other income or
as their only source of income.
Table 3 compares SSI proposals that would increase the disre-
gard for social security income from $20 to $50 per month with the
Committee bill, which provides for a July 1983 $20 per month in-
crease in the Federal SSI benefit standard for individuals and a $30
per month increase for couples, in lieu of increasing the disregard.
As indicated, under the Committee bill (column 3), as of January
1984 both SSI only and SSI/OASDI individual recipients will re-
ceive a projected $32 increase in their monthly income. Whereas,
under the proposals that would increase the disregard, over this
same period SSI/OASDI recipients would receive a $41 increase
and SSI only recipients would receive only an $11 increase.
TABLE 3.-COMPARISON OF ALTERNATIVE PROPOSALS WITH COMMITTEE BILL
[Monthly individual payment level to recipients]
1. (a) Provide 4.1% July COLA; (b) 2. (a) Delay July COLA; (b) Increase 3. Committee bill: (a Delay July
Increase disregard to $50 in July disregard to $50 in July) Provide COLA; (b) Increase July benefits by
4.1% January BOLA $20/$30; (C) Provide 4.1% January
COLA
February ........................... 304 ............................ 304 ............................ 304 ..........................
1983 ............................................................ 284 ............................ 284 ............................ 284
July .................................. 345 ............................ 334 ............................ 324 ..........................
1983 ............................................................ 295 ............................ 284 ............................ 304
January ............................ 345 ............................ 345 ............................ 336 ..........................
1984 ............................................................ 295 ............................ 295 ............................ 316
Total ................... 41 ............................ 41 ............................ 32 ..........................
Increase in monthly
benefits from
February 1983 to
January 1984. ......................................... 11 ............................ 11 ............................ 32
Estimated total cost
(millions of dollars):
Fiscal year 1983......... 225 75 110
Fiscal year 1984......... 660 460 505
Fiscal year 1985......... 755 500 580
Fiscal year 1986......... 755 500 580
Fiscal year 1987......... 740 480 605
Fiscal year 1988......... 780 475 630
Section 402: Adjustment in Federal SSI pass-through provisions
Since July 1, 1975 there have been automatic cost-of-living in-
creases in the Federal SSI benefit standard. This has resulted in
the Federal benefit standard increasing from $146 a month for an
individual and $219 for a couple in June 1975 to the current Feder-
al benefit standard of $284 for an individual and $426 for a couple.
There was wide variation among State benefit standards for aid
to the aged, blind and disabled under the State programs in effect
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prior to the implementation of the SSI program in January 1974.
In the case of individuals who were receiving aid under the State
programs in December 1973, States were mandated to provide a
State supplement for such individuals so that they would not lose
income when they were transferred to the SSI program. While
State supplementation of the Federal SSI benefit standard in the
case of new applicants was optional with the States, those States
that chose to supplement were protected against any costs which
exceeded the States' calendar year 1972 expenditures for payments
to aged, blind and disabled, up to the State's January 1972 pay-
ment level. The States that qualified for these "hold-harmless"
payments from the Federal government had a portion of their
State supplementary payments financed by the Federal govern-
ment. In many States, however, almost the entire cost of the pro-
grams of aid to the aged, blind and disabled was assumed by the
Federal government because the federally financed SSI minimum
benefit standard exceeded the States' benefit standard or maxi-
mum payment level under prior State operated programs.
When Congress enacted provisions providing annual cost-of-living
increases in the Federal SSI benefit standard, most assumed that
the annual increases would benefit SSI recipients in all the States,
including those in States that supplemented the Federal SSI bene-
fit standard.
However, in 1976 Congress became aware that some States were
decreasing their State SSI supplementary payment levels when
there was a cost-of-living increase in the Federal SSI benefit stand-
ard. As a result, SSI recipients in such a State did not receive an
increase in income.
In 1976, Congress enacted as part of Public Law 94-585 SSI
"pass-through requirements". If a State does not meet these re-
quirements, it is subject to the loss of Federal matching funds
under Title XIX (Medicaid) of the Social Security Act.
Under current law, the basic elements of which have not been
changed since enactment in 1976, a State can meet the pass-
through requirements by either (1) maintaining the State supple-
mentation payment levels at the levels they were in December
1976; or (2) by spending in total no less for State SSI supplemen-
tal payments than the total aggregate amount of State
supplementation paid by_ the State in the previous 12-month
period. An amendment contained in the Tax Equity and Fiscal Re-
sponsibility Act of 1982 (P.L. 97-248) allows a State that shifts from
the aggregate spending option to the State supplementation pay-
ment level option to use the State supplementation payment level
in the previous December rather than the level in December 1976.
The Committee is concerned that, because the "payment level"
pass-through requirement has not been updated since enactment in
1976, it is possible that in some States SSI recipients would receive
none of the July 1983 $20/$30 increase in the Federal SSI standard
provided in this section. For example, if a State has increased its
State supplemental payment levels at any time since December
1976, it may subsequently reduce them and still meet current law
pass-through requirements, so long as it does not reduce them
below what they were in December 1976.
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To the extent such a State does reduce its supplemental payment
levels in conjunction with an increase in the Federal SSI benefit
standard, it reduces the amount of the Federal increase that is
"passed-through" to recipients. The following is a hypothetical ex-
ample using California supplemental payment levels:
Federal SSI payment ....................................................................................................
168
284
304
State supplemental payment level ................................................................................
108
166
146
Total ....................................................................................................................
276
450
450
In this example, the recipients in July 1983 do not receive any of
the Federal increase (i.e. none of it is "passed-through") because
the State supplemental payment is reduced by the same amount
the Federal SSI benefit is increased. Nevertheless, California would
be in compliance with current Federal pass-through requirements
because it had not reduced its State supplemental payment below
in December 1976 level, which, as shown, was $108.
Because of the Committee's concern that, under current law, it is
possible for some States to pass-through none of the $20/$30 in-
crease, this section updates the current "payment level" pass-
through requirement. The intent of this change is to provide SSI
recipients with an increase in total income equal to the cost-of-
living increase that would have been provided in the Federal SSI
benefit standard in July 1983 under the present COLA provisions.
At the same time, the Committee has maintained the current pro-
tection for States against total supplementation costs in excess of
total expenditures in the previous year.
This section amends the current SSI pass-through law to provide
that, in order to meet the "payment level" pass-through require-
ment, a State could not reduce its SSI supplemental payment levels
below that which would be sufficient to provide SSI recipients with
an increase in benefits equal to the amount that Federal SSI bene-
fits would be increased in July 1983 under the current COLA provi-
sions. A State could continue to comply with Federal pass-through
law by meeting the present "aggregate amount" requirement. In
other words, as under current law, a State would not be required to
spend more in total for State SSI supplemental payments than the
total aggregate amount of State supplementation paid by the State
in the previous 12-month period.
The six month delay in the social security cost-of-living increase,
combined with a $20/$30 increase in the Federal SSI benefit stand-
ard, creates the necessity to continue to provide some flexibility for
States that have a significant number of SSI "state supplementa-
tion only" recipients. "State supplementation only" recipients are
those aged, blind or disabled individuals and couples whose count-
able income from non-SSI sources, which in most cases is from
social security, exceeds the Federal SSI benefit standard. They
qualify for an SSI payment only because of State SSI supplemen-
tary payments which, in their case, are entirely financed by the
State.
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There are approximately 470,000 "state supplementation only"
SSI recipients receiving benefits under federally administered and
State administered State supplementation programs. Tables 4 and
5 show the number of persons receiving Federal and State adminis-
tered State supplementation, by reason for eligibility and State, in
June 1982. These tables also show the number of persons that are
"state supplementation only" recipients.
As indicated in columns 1 and 2 of Table 6, which uses California
as an example, when there is a cost-of-living increase in both the
Federal SSI benefits and social security benefits, an individual who
receives only social security and State supplementation payments
can receive an increase in total income without additional cost to
the State. However, when there is an increase in the combined
Federal/State SSI benefit standard and not an increase in the
social security benefit, as will occur under this bill, without some
flexibility in the pass-through requirements, some States would
have a significant increase in their total state supplementation
costs. This would be the case in States such as California, Massa-
chusetts and Wisconsin in which over 30 percent of their SSI recip-
ients are "state supplementation only" cases.
Therefore, the bill will continue to allow States the flexibility to
use a portion of the total amount of State supplementation funds to
make up for the lack of an increase in the social security for "state
supplementation only" recipients by reducing the State supplemen-
tary payment standard for all SSI recipients in the State, as indi-
cated in column 3 of Table 6.
TABLE 4.-SUPPLEMENTAL SECURITY INCOME: NUMBER OF PERSONS RECEIVING FEDERALLY
ADMINISTERED STATE SUPPLEMENTATION, BY REASON FOR ELIGIBILITY AND STATE, JUNE 1982
With with with with
State State State State
Total n supple- Total supple- Total supple- Total supple-
mentatbe meetatbn meetatbn mentation
only only only only
Total ...........................................1,600,323 421,481 631,386 242,285 36,031 9,247 932,906 169,949
Arkansas .................................................. 303 17 181 13 18 .................. 104 4
California .................................................. 666,415 269,478 287,500 152,132 17,503 6,280 361,412 111,066
Delaware .................................................. 440 82 133 36 48 11 259 35
District of Columbia ................................. 14,184 408 3,776 187 202 5 10,206 216
Florida ...................................................... 11 .................. 7 .................. 1 .................. 3 ................
Georgia ..................................................... 344 54 201 31 11 .................. 132 23
Hawaii ...................................................... 9,387 595 4,442 344 162 3 4,783 248
Iowa .................................. :...................... 1,690 216 252 60 893 54 545 102
Kansas ..................................................... 178 6 40 1 6 .................. 132 5
Louisiana .................................................. 996 60 942 51 2 .................. 52 9
Maine ....................................................... 19,451 3,970 8,049 2,423 289 31 11,113 1,516
Maryland .................................................. 449 19 132 5 21 .................. 296 14
Massachusetts .......................................... 108,588 41,180 56,732 30,047 4,849 1,920 47,007 9,213
Michigan .................................................. 103,999 11,248 31,029 4,829 1,854 95 71,116 6,324
Mississippi ................................................ 382 17 257 9 6 .................. 119 8
Montana ................................................... 732 95 57 8 4 .................. 671 87
Nevada ..................................................... 3,758 985 3,268 792 449 181 41 12
New krsey .............................................. 78,402 7,110 28,238 3,448 1,109 51 49,055 3,611
New York ................................................. 326,285 46,323 114,523 26,218 3,919 316 207,843 19,789
Ohio ......................................................... 400 34 132 10 21 2 247 22
Pennsylvania ............................................ 145,410 13,251 46,408 6,752 2,944 92 96,058 6,407
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TABLE 4.-SUPPLEMENTAL SECURITY INCOME: NUMBER OF PERSONS RECEIVING FEDERALLY
ADMINISTERED STATE SUPPLEMENTATION, BY REASON FOR ELIGIBILITY AND STATE, JUNE
19821-Continued
Rhode Island ............................................ 13,317 2,533
South Dakota ........................................... 101 2
Tennessee ................................................. 45 1
Vermont ................................................... 8,006 1,364
Washington .............................................. 39,988 3,945
Wisconsin ................................................. 57,057 18,488
Unknown .................................................. 5 ..................
With With With
State. State State
Total supple- Total supple- Total supple-
mentation mentation mentation
only only only
All persons
With
State
Total2 supple-
mentation
only
4,971 1,449 202 21 8,144 1,063
39 .................. 4 1 58 1
18 .................. 3 .................. 24 1
3,029 774 114 8 4,863 582
12,629 1,835 555 36 26,804 2,074
24,400 10,831 842 140 31,815 7,517
1 ...................................................... 4 ................
' Partly estimated.
2 Includes all persons with both Federal SSI payments and federally administered State supplementation and those eligible for federally
administered State supplementation only.
TABLE 5.-SUPPLEMENTAL SECURITY INCOME: NUMBER OF PERSONS RECEIVING STATE-
ADMINISTERED STATE SUPPLEMENTATION, BY REASON FOR ELIGIBILITY AND STATE, JUNE 1982
Total ........................................... ' 246,548 ..................
States reporting supplementa-
tion only cases ....................... ' 238,113 49,106
Alabama ................................................... 16,971 3,182
Alaska 2 ................................................... 928 260
Arizona ..................................................... 1,672 175
Colorado ................................................... 33,936 10,661
Connecticut .............................................. 12,025 8,768
Florida ...................................................... 7,414 ..................
Idaho ........................................................ 2,647 572
Illinois ...................................................... 29,138 7,344
Kentucky .................................................. 7,845 1,742
Maryland .................................................. ' 550 1550
Minnesota 2 ............................................. 10,139 1,378
Missouri ................................................... 20,515 5,749
Nebraska .................................................. 8,433 1,506
New Hampshire ........................................ 4,517 (3)
New Mexico ............................................. 1281 ..................
North Carolina .......................................... 10,917 2,478
North Dakota ........................................... 99 2
Oklahoma ................................................. 53,089 2,425
Oregon ..................................................... 12,416 2,314
South Carolina .......................................... 1,746 ..................
South Dakota ........................................... 338 (3)
Utah ......................................................... 15,853 ..................
Virginia ..................................................... 3,580 (3)
West Virginia ........................................... 109 ..................
Wyoming .................................................. 1,390 ..................
Includes data not distributed by reason for eligibility.
2 Represents March 1980 data for Alaska and February 1982 data for Minnesota; data not available for June 1982.
Data not available.
Includes data for the blind.
With With With
State State State
Total supple- Total supple- Total supple-
mentation mentation mentation
only only only
With
State
Total supple-
mentation
only
127,213 29,313 3,215 583
12,408 2,393 124 16
379 128 12 2
988 141 4 ..................
23,758 9,240 149 8
5,410 3,892 87 53
101,001 18,660
4,439 773
537 130
680 34
10,029 1,413
6,528 4,823
3,907 .................. (3) .................. 43,507 ................
1,024 305 26 2 1,597 265
6,025 1,521 298 38 22,815 5,785
4,373 1,310 103 5 3,369 427
(3) (3) (3) (3) (3) (3)
2,886 493 156 21 7,097 864
16,579 4,394 757 281 3,179 1,074
3,428 641 135 22 4,870 843
1,564 (3) 167 (3) 2,786 (3)
(3) .................. (3) ................ (3) ..............
6,221 1,667 258 44 4,438 767
65 1 2 .................. 32 1
34,408 1,828 453 10 18,228 587
4,070 1,359 601 81 7,145 874
715 .................. 22 .................. 1,009 ................
201 (3) 2 (3) 135 (3)
(3) .................. (3) ................ (3) ................
1,859 (3) 37 (3) 1,684 (3)
42 ...................................................... 67 ................
527 .................. 28 .................. 835 ................
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TABLE 6.-IMPACT IN CALIFORNIA OF COMMITTEE SSI AMENDMENTS: MONTHLY PAYMENTS TO
INDIVIDUAL SSI RECIPIENTS
Current law February 1983 Current law July 1983 Committee bill; $20 Committee bill pass-through
COLA in SSI and OW incase in J modified full $20 increase in July
(4.1 percent) pa lob 1983 lem ~t an
(1) (2) (4)
(3)
Social security .................. 350 250 0 364 260 0 350 250 0 350 250 0
$20 disregard .................. -20 -20 0 -20 -20 0 -20 -20 0 -20 -20 0
Countable income.... 330 230 0 344 240 0 330 230 0 330 230 0
Federal SSI benefit
standard ...................... 284 284 284 295 295 295 304 304 304 304 304 304
Excess social security
income .................... 46 0 0 49 0 0 26 0 0 26 0 0
Federal SSI payments.. 0 54 284 0 55 295 0 74 304 0 74 304
State supplemental
standard ...................... 166 166 166 166 166 166 157 157 157 166 166 166
Countable social
security income....... -46 0 0 -49 0 0 -26 0 0 -26 0 0
State supplemental
payment .................. 120 166 166 117 166 166 131 157 157 140 166 166
Total income:
Social security ............. 350 250 0 364 260 0 350 250 0 350 250 0
Federal SSI payment.... 0 54 284 0 55 295 0 74 304 0 74 304
State supplemental
payment .................. 120 166 166 117 166 166 131 157 157 140 166 166
Section 403: SSI eligibility for temporary residents of emergency
shelters for the homeless
The homeless who use public emergency shelters in large cities
are not eligible for SSI because residents of public Institutions
(except small group homes and medical institutions) are not eligi-
ble for SSI the first full month throughout which they are a resi-
dent of public institution Aged, blind or disable individuals who are
residents of private emergency shelters are eligible for SSI.
This section provides that aged, blind or disabled individuals
living in public emergency shelters could receive SSI payments for
up to three months during any 12-month period. The SSI benefits
should enable the individual, with the help of the staff of the shel-
ter and other public or private agencies, to arrange and make nec-
essary deposits for permanent housing.
Section 404: Disregarding of emergency and other in-kind assistance
provided by nonprofit organizations
Under present law, privately financed emergency and other in-
kind assistance, other than energy assistance, that is provided to
aged, blind or disabled individuals is counted as income under the
SSI program. Such assistance to families with dependent children
may be counted as income under State AFDC law.
This section provides that, effective from enactment until Sep-
tember 30, 1984, emergency and other in-kind assistance provided
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by a private nonprofit organization to an aged, blind or disabled in-
dividual, or to a family with dependent children, would be disre-
garded under the SSI and AFDC programs, if the State determines
that such assistance was provided on the basis of need.
TABLE 7.-NUMBER OF PERSONS RECEIVING FEDERALLY ADMINISTERED SSI PAYMENTS BY STATE,
SEPTEMBER 1982
Total 1 ........................................................................
3,907,121
1,588,102
77,678
2,241,341
Alabama 2 ................................................................................
127,630
67,651
1,924
58,055
Alaska 2 .............................................................................
2,967
1,092
54
1,821
Arizona 2 ................................................................................
28,639
10,294
596
17,749
Arkansas ..................................................................................
72,101
37,357
1,438
33,306
California ..................................................................................
667,769
282,083
17,801
367,885
Colorado 2 ................................................................................
28,538
11,025
385
17,128
Connecticut 2 ............................................................................
23,012
6,535
426
16,051
Delaware ..................................................................................
6,760
2,174
169
4,417
District of Columbia .................................................................
14,620
3,915
201
10,504
Florida ......................................................................................
169,746
79,358
2,796
87,592
Georgia .....................................................................................
146,963
63,494
2,875
80,594
Hawaii ......................................................................................
9,898
4,532
170
5,196
Idaho 2 .....................................................................................
7,281
2,240
110
4,931
Illinois 2 ....................................................................................
118,052
30,811
1,935
85,306
Indiana 2 ..................................................................................
40,258
12,486
1,179
26,593
Iowa .........................................................................................
24,472
9,238
1,013
14,221
Kansas .....................................................................................
19,181
6,485
302
12,394
Kentucky 2 ...............................................................................
90,998
36,748
2,031
52,219
Louisiana ..................................................................................
125,507
55,453
2,069
67,985
Maine .......................................................................................
20,137
8,156
290
11,691
Maryland ..................................................................................
46,488
14,270
671
31,547
Massachusetts ..........................................................................
109,936
55,676
4,949
49,311
Michigan ..................................................................................
108,931
31,778
1,913
75,240
Minnesota 2 ..............................................................................
29,762
10,792
641
18,329
Mississippi ................................................................................
109,554
55,957
1,791
51,806
Missouri 2 .................................................................................
77,808
33,065
1,265
43,478
Montana ...................................................................................
6,535
1,950
131
4,454
Nebraska 2 ..............................................................................
12,919
4,412
228
8,279
Nevada .....................................................................................
6,663
3,307
465
2,891
New Hampshire 2 .....................................................................
5,151
1,737
120
3,294
New Jersey ..............................................................................
82,835
29,464
1,129
52,242
New Mexico 2 ...........................................................................
24,349
9,448
457
14,444
New York .................................................................................
340,213
118,765
3,996
217,452
North Carolina 2 ......................................................................
133,166
56,854
2,957
73,355
North Dakota2 .........................................................................
5,856
2,676
82
3,098
Ohio .........................................................................................
113,805
29,249
2,306
82,250
Oklahoma 2 ..............................................................................
60,383
28,501
950
30,932
Oregon 2 ...................................................................................
21,876
6,529
502
14,845
Pennsylvania ............................................................................
153,322
48,908
3,040
101,374
Rhode Island ............................................................................
14,509
5,312
214
8,983
South Carolina 2 ......................................................................
80,267
34,327
1,851
44,089
South Dakota ...........................................................................
7,750
3,302
147
4,301
Tennessee .................................................................................
124,515
53,525
1,977
69,013
Texas 2 .....................................................................................
245,345
130,021
4,194
111,130
Utah 2 .....................................................................................
7,541
2,081
168
5,292
Vermont ...................................................................................
8,531
3,144
122
5,265
Virginia 2 ..................................................................................
78,222
31,209
1,399
45,614
Washington ..............................................................................
43,047
13,062
595
29,390
West Virginia2 .........................................................................
39,147
11,627
636
26,884
Wisconsin .................................................................................
61,851
25,032
958
35,861
Wyoming 2 ...............................................................................
1,680
637
40
1,003
Unknown ..................................................................................
14
5
1
8
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TABLE 7.-NUMBER OF PERSONS RECEIVING FEDERALLY ADMINISTERED SSI PAYMENTS BY STATE,
SEPTEMBER 1982-Continued
Includes persons with Federal SSI payments and/or federally administered State suppfementation, unless otherwise indicated.
Data for Federal SSI payments only; State has State-administered supplementation.
Data for Federal SSI payments only; State supplementary payments not made.
Source: Office of Research and Statistics, Social Security Administration.
E. Unemployment Compensation Provisions (Title V)
1. OVERVIEW
A. EXTENSION OF FEDERAL SUPPLEMENTAL COMPENSATION (FSC)
PROGRAM
The Committee bill extends the FSC program for 6 months, from
April 1, 1983 through September 30, 1983.
Effective April 1, 1983, FSC benefits would be payable as follows:
(1) Basic FSC benefits: Individuals who begin receiving FSC on or
after April 1, 1983 could receive up to a maximum of. 14 weeks in
States with IUR 6.0 or above; 13 weeks in States with IUR 5.0 to
5.9; 11 weeks in States with IUR 4.5 to 4.9; 10 weeks in States with
IUR 3.5 to 4.4; 8 weeks in all other States.
(2) Additional FSC benefits: Individuals who exhaust FSC on or
before April 1, 1983 could receive additional weeks equal to three-
fourths of the basic FSC entitlement payable in the State, up to a
maximum of: 10 weeks in the 14 basic week States; 8 weeks in the
13 and 11 basic week States; 6 weeks in the 10 and 8 basic week
States.
(3) Individuals who begin receiving FSC before April 1, and have
some FSC entitlement remaining after that date, could also recieve
additional weeks under (b) above. However, the combination of
their remaining basic FSC entitlement received after April 1, 1983,
and the additional weeks provided in (b), cannot exceed the maxi-
mum number of weeks of basic FSC benefits payable in the State,
shown in (a) above.
States would be provided the option of deducting an amount
from the unemployment compensation benefits otherwise payable
to an individual and using the amount deducted to pay for health
insurance, if the individual elects to have such a deduction made
from his benefits.
C. TREATMENT OF CERTAIN ORGANIZATIONS WHO WERE RETROACTIVELY
GRANTED 501 (C) (3) STATUS
Under certain specified conditions, a nonprofit organization that
was retroactivley granted 501(cX3) status, and that elects to switch
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 Approved For Release 2008/10/30: CIA-RDP85-00003R000200140003-8
from the contribution to the reimbursement method of financing
unemployment benefits, would be allowed to apply any accumulat-
ed balance in its State unemployment account to costs incurred
after it switches to the reimbursement method.
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 Approved For Release 2008/10/30: CIA-RDP85-00003R000200140003-8
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 Approved For Release 2008/10/30: CIA-RDP85-00003R000200140003-8
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123
3. SECTION-BY-SECTION
PART A, SECTIONS 501-510: FEDERAL SUPPLEMENTAL COMPENSATION
States provide unemployment compensation benefits to unem-
ployed individuals who meet the qualifying requirements of State
law. These beneifts are financed by employer-paid, State unemploy-
ment payroll taxes.
In all States, in order to receive State benefits, an individual
must have earned a specified amount or wages and/or worked for a
certain period of time prior to filing for unemployment compensa-
tion. There is, however, substantial variation among the States in
the amount of previous earnings or employment necessary to quali-
fy for benefits. In addition to the prior work or earnings require-
ment, to qualify for State benefits the claimant must have been
"involuntarily" terminated from his most recent job; he must be
able to work, available for work, and seeking work; and he must
not refuse an offer of suitable employment.
Most States provide up to a maximum of 26 weeks of State un-
employment compensation benefits to unemployed individuals who
meet the qualifying requirements of State law. Many claimants
qualify for less than the maximum 26 weeks, and in seven (7)
States claimants may receive more than 26 weeks of State benefits.
The number of weeks a claimant may draw benefits (except in the
eleven "uniform duration" States) and the amount of his or her
weekly unemployment payment varies with the level of wages or
length of employment prior to the filing for benefits.
Under the permanent Federal-State extended unemployment
compensation benefits program, additional weeks of unemployment
compensation are payable to individuals who exhaust their State
benefits during periods of high unemployment. Extended benefits
are financed 50 percent from State unemployment taxes and 50
percent from Federal unemployment taxes.
Under the extended benefits program, an individual may receive
additional weeks of benefits equal to one-half of the number of
weeks of State benefits to which he or she was entitled. No one,
however, may receive more than 13 weeks of extended benefits, or
a combined total of more than 39 weeks of State plus extended
benefits.
Extended benefits are payable in a State when, over a moving 13
week period, the State insured unemployment rate (IUR-the per-
centage of workers covered by the State unemployment compensa-
tion program who are claiming State benefits in a particular week)
averages at least 5 percent and, in addition is at least 20 percent
higher than the State IUR during the comparable period in the two
prior years. When the "20 percent" factor is not met, a State, at its
option, may provide extended benefits when the State IUR reaches
6 percent. Thirty-nine (39) States have incorporated the optional 6
percent "trigger" into their State law.
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The Tax Equity and Fiscal Responsibility Act of 1982 (Public
Law 97-248) established the FSC program. This program provides
additional weeks of unemployment compensation at the same
weekly benefit amount to individuals who have exhausted their
State benefits and any extended benefits to which they are enti-
tled. The FSC program, which became effective on September 12,
1982, expires March 31, 1983.
As originally enacted, the FSC program provided 10, 8, or 6 addi-
tional weeks of benefits. The Surface Transportation Assistance
Act of 1982 (Public Law 97-424) increased the maximum number of
weeks of FSC benefits to 16, 14, 12, or 8, depending on the State
where the individual filed for or received the additional benefits.
Beginning with the week of January 9, 1983, the FSC program
provides the following maximum weeks of benefits:
(1) 16 weeks in States with an insured unemployment rate (IUR)
of at least 6.0 percent (measured as the average over a moving 13
week period);
(2) 14 weeks in States that were triggered on the extended bene-
fits program between June 1, 1982 and January 6, 1983;
(3) 12 weeks in remaining States with a 13 week average IUR of
at least 4.5 percent;
(4) 10 weeks in remaining States with a 13 week average IUR be-
tween 3.5 and 4.5 percent; and
(5) 8 weeks in all other States.
In order to be eligible for these benefits, an individual must have
exhausted his regular State benefits and any extended benefits to
which he was entitled; he has to meet all requirements for State
and extended benefits; and, (1) his benefit year must have ended on
or after June 1, 1982, or (2) he must have been eligible for extended
benefits for any week beginning on or after June 1, 1982.
When an individual is determined to be eligible for State unem-
ployment compensation benefits, he generally has 52 weeks, known
as the benefit year, in which to collect the benefits to which he is
entitled. In most States, the benefit year begins with the first week
for which a valid claim for benefits was filed. Therefore, in most
States, if an individual first filed a valid claim for unemployment
compensation benefits for a week beginning on or after June 1,
1981, he should be eligible for FSC benefits. If an individual's bene-
fit year ends before June 1, 1982, but he was eligible to receive ex-
tended benefits for any week beginning on or after June 1, 1982, he
should be eligible for FSC benefits.
If an individual is eligible for FSC benefits, the number of weeks
of FSC he may receive is determined in relation to the number of
weeks of regular State benefits to which he was entitled. An eligi-
ble individual may receive FSC for the lesser of (a) 65 percent of
the number of weeks of regular State benefits to which he was en-
titled or (b) the maximum number of weeks of F`SC benefits pro-
vided in the State. In the case of an interstate claim for FSC, the
individual is eligible for the lesser of (a) the maximum number of
weeks of FSC payable to him in the State in which he receives the
benefits or (b) the maximum number of weeks payable to him in
his former State.
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EXTENSION OF FSC THROUGH SEPTEMBER 30, 1983
Sections 501-510 of the bill extend the FSC program, which will
expire on March 31, 1983, for six months, or until September 30,
1983, and make certain modifications in the program. Under this
extension, effective April 1, 1983, FSC benefits will be payable as
follows:
(a) Basic FSC benefits: Individuals who begin receiving FSC on or
after April 1, 1983 could receive up to a maximum of. 14 weeks in
States with 13 week average IUR 6.0 or above; 13 weeks in States
with 13 week average IUR 5.0 to 5.9; 11 weeks in States with 13
week average IUR 4.5 to 4.9; 10 weeks in States with 13 week aver-
age IUR 3.5 to 4.4; and, 8 weeks in all other States.
(b) Additional FSC benefits: Individuals who exhaust FSC on or
before April 1, 1983 could receive additional weeks equal to three-
fourths of the basic FSC entitlement payable in the State, up to a
maximum of. 10 weeks in the 14 basic week States; 8 weeks in the
13 and 11 basic week States; and, 6 weeks in the 10 and 8 basic
week States.
(c) Individuals who begin receiving FSC before April 1, and have
some FSC entitlement remaining after that date, could also receive
additional weeks under (b) above. However, the combination of
their remaining basic FSC entitlement received after April 1, 1983,
and the additional weeks provided in (b), cannot exceed the maxi-
mum number of weeks of basic FSC benefits payable in the State,
shown in (a) above.
In response to the alarming rate of unemployment, and the terri-
ble hardship faced by the millions of unemployed, in August of last
year the Congress passed the temporary Federal Supplemental
Compensation (FSC) program described above. This program was
enacted for six months and will expire on March 31, 1983.
When enacted, it was hoped that strong signs of economic recov-
ery would emerge during the program's six month duration creat-
ing new employment opportunities. FSC was intended to "bridge
the gap" for jobless workers until new employment became availa-
ble.
Unfortunately, the unemployment rate remains above 10 per-
cent. 12 million Americans are out of work. Most areas of the coun-
try are continuing to face record levels of unemployment. Thou-
sands of jobless workers are exhausting their State and extended
benefits each week and are depending on the additional weeks of
benefits provided under the temporary FSC program in order to
provide for themselves and their families until they find employ-
ment. It is therefore necessary, as provided in this section, to
extend the FSC program for six months beyond the current expira-
tion date.
It is estimated that, by April 1, 1983, 1.2 million unemployed
workers will have exhausted the FSC benefits to which they were
entitled. A simply extension of the current FSC program will not
help these individuals. Furthermore, recent unemployment statis-
tics indicate that as the economy improves, it is the short-term un-
employed who tend to be rehired first. For these reasons, along
with extending the basic FSC program, this section provides addi-
tional weeks of benefits for individuals who have or soon will ex-
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haust their FSC benefits. These additional weeks of benefits will
help those individuals who have been unemployed for the longest
period of time and who appear to be among those in the greatest
need of assistance.
The following tables provide information on the number of weeks
of FSC benefits that will be payable to individuals in different
States under the extension of the program provided in this section.
TABLE 1.-MAXIMUM NUMBER OF BASIC AND ADDITIONAL WEEKS OF FSC PAYABLE AFTER APR. 1,
1983, UNDER EXTENSION CONTAINED IN COMMITTEE BILL, AS OF FEB. 12, 1983, FSC TRIGGER
RATE 1
Average 13
week insured
unemployment
as
rate (IUR12
of Feb. 1983
Maximum
Maximum number of
number of additional
basic weeks weeks of FSC
of FSC pa able to
payable after individuals
Apr. 1, 1983, who exhausted
under or began
committee receiving FSC
bill Y prior to Apr.
1, 1983 2
Alabama ...........................................................................................................................
6.52
14 10
Alaska ..............................................................................................................................
8.55
14 10
Arizona .............................................................................................................................
4.35
10 6
Arkansas ..........................................................................................................................
7.03
14 10
California ..........................................................................................................................
3
5.67
13 8
Cobrado ...........................................................................................................................
3.94
10 6
Connecticut ......................................................................................................................
4.01
10 6
Delaware ..........................................................................................................................
3
3.73
10 6
District of Columbia .........................................................................................................
3.88
10 6
Florida ..............................................................................................................................
2.55
8 6
Georgia .............................................................................................................................
3.67
10 6
Hawaii ..............................................................................................................................
3.46
8 6
Idaho ................................................................................................................................
8.05
14 10
Illinois ..............................................................................................................................
6.43
14 10
Indiana .............................................................................................................................
5.77
13 8
Iowa .................................................................................................................................
5.28
13 8
Kansas .............................................................................................................................
4.45
10 6
Kentucky ..........................................................................................................................
6.99
14 10
Louisiana ..........................................................................................................................
5.77
13 8
Maine ...............................................................................................................................
5.57
13 8
Maryland ..........................................................................................................................
4.76
11 8
Massachusetts ..................................................................................................................
4.55
11 8
Michigan ..........................................................................................................................
8.01
14 10
Minnesota .........................................................................................................................
4.82
11 8
Mississippi ........................................................................................................................
6.90
14 10
Missouri ...........................................................................................................................
4.97
11 8
Montana ...........................................................................................................................
6.09
14 10
Nebraska ..........................................................................................................................
3.64
10 6
Nevada .............................................................................................................................
5.56
13 8
New Hampshire ................................................................................................................
3.34
8 6
New Jersey ......................................................................................................................
4.98
11 8
New Mexico .....................................................................................................................
4.53
11 8
New York .........................................................................................................................
4.33
10 6
North Carolina ..................................................................................................................
5.15
13 8
North Dakota ..................................................................................................................
4.78
11 8
Ohio .................................................................................................................................
3
6.59
14 10
Oklahoma .........................................................................................................................
3
4.12
10 6
Oregon .............................................................................................................................
7.44
14 10
Pennsylvania ....................................................................................................................
8.06
14 10
Puerto Rico ......................................................................................................................
8.67
(4) 10
Rhode Island ....................................................................................................................
6.26
14 10
South Carolina ..................................................................................................................
5.89
13 8
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TABLE 1.-MAXIMUM NUMBER OF BASIC AND ADDITIONAL WEEKS OF FSC PAYABLE AFTER APR. 1,
1983, UNDER EXTENSION CONTAINED IN COMMITTEE BILL, AS OF FEB. 12, 1983, FSC TRIGGER
RATE '-Continued
Average 13
week insured
unemployyment
rate (IUR12a
of Feb ,
1983
Maximum
Maximum number of
number of additional
basic weeks weeks of FSC
of FSC pa able to
payable after individuals
r. 1, 1983, who exhausted
under or began
committee receiving FSC
bill x prior to Apr.
1,
1983 x
South Dakota ...................................................................................................................
2.83
8
6
Tennessee .........................................................................................................................
5.31
13
8
Texas ...............................................................................................................................
3.04
8
6
Utah .................................................................................................................................
5.78
13
8
Vermont ...........................................................................................................................
6.03
14
10
Virginia .............................................................................................................................
2.79
8
6
Virgin Islands ...................................................................................................................
4.49
10
6
Washington ......................................................................................................................
7.28
14
10
West Virginia ...................................................................................................................
10.00
14
10
Wisconsin .........................................................................................................................
1.08
14
10
Wyoming ..........................................................................................................................
5.51
13
8
The FSC trigger rate is the State insured unemployment rate-the percentage of workers covered under the State unemployment compensation
law who are claiming State unemployment benefits in a particular week-averaged over a moving 13-week period. It is updated, and subject to
change, on a weekly basis. Therefore, the number of weeks of FSC payable in any State when the extension takes effect on Apr. 1, 1983, could be
different from that shown below, which is based on the FSC trigger rate as of Feb. 12, 1983.
:Individuals who exhaust FSC on or before Apr. 1, 1983, could receive additional weeks of FSC benefits equal to 9'4 of the basic FSC
entitlement up to a maximum of: 10 weeks in 14 basic week States; 8 weeks in 13 and 11 basic week States; 6 weeks in 10 and 8 basic week
States.
Individuals who be in receiving FSC prior to Apr. 1, 1983, and who have FSC entitlement after that date could also receive additional weeks.
However, the combination of their remaining basic FSC entitlement received after Apr. 1, 1983, plus additional weeks cannot exceed the maximum
number of weeks of basic FSC benefits payable in the State after Apr. 1, 1983.
IUR rate as of Feb. 5, 1983.
13 weeks FSC due to 20 weeks regular duration.
TABLE 2.-MAXIMUM NUMBER OF WEEKS OF FSC PAYABLE AFTER APR. 1, 1983, UNDER EXTENSION
CONTAINED IN COMMITTEE BILL AND UNDER CURRENT LAW, AS OF FEB. 12, 1983, FSC TRIGGER
RATE '
Maximum No.
of weeks of
FSC under
current law
Average 13
week insured
unemployment
rate (IU) as
of Feb. 112,
1983
Maximum No.
of weeks of
FSC payable
after Apr. 1,
1983, under
committee
bill =
Alabama ...........................................................................................................................
6.52
14 16
Alaska ..............................................................................................................................
8.55
14 16
Arizona .............................................................................................................................
4.35
10 14
Arkansas ..........................................................................................................................
7.03
14 16
California ..........................................................................................................................
3
5.67
13 14
Colorado ...........................................................................................................................
3.94
10 10
Connecticut ......................................................................................................................
4.01
10 10
Delaware ..........................................................................................................................
3
3.73
10 14
District of Columbia .........................................................................................................
3.88
10 10
Florida ..............................................................................................................................
2.55
8 8
Georgia .............................................................................................................................
3.67
10 10
Hawaii ..............................................................................................................................
3.46
8 10
Idaho ................................................................................................................................
8.05
14 16
Illinois ..............................................................................................................................
6.43
14 16
Indiana .............................................................................................................................
5.77
13 14
Iowa .................................................................................................................................
5.28
13 14
Kansas .............................................................................................................................
4.45
10 14
Kentucky ..........................................................................................................................
6.99
14 16
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TABLE 2.-MAXIMUM NUMBER OF WEEKS OF FSC PAYABLE AFTER APR. 1, 1983, UNDER EXTENSION
CONTAINED IN COMMITTEE BILL AND UNDER CURRENT LAW, AS OF FEB. 12, 1983, FSC TRIGGER
RATE 1-Continued
Maximum No.
of weeks of
FSC under
current law
Average 13
week insured
unemployment
rate (IUR as
of Feb. 12,
1983
Maximum No.
of weeks of
FSC payable
after Apr. 1,
1983, under
committee
bill -
Lousiana ...........................................................................................................................
5.77
13
14
Maine ...............................................................................................................................
5.57
13
14
Maryland ..........................................................................................................................
4.76
11
14
Massachusetts ..................................................................................................................
4.55
11
14
Michigan ..........................................................................................................................
8.01
14
16
Minnesota .........................................................................................................................
4.82
11
14
Mississippi ........................................................................................................................
6.90
14
16
Missouri ...........................................................................................................................
4.97
11
14
Montana ...........................................................................................................................
6.09
14
16
Nebraska ..........................................................................................................................
3.64
10
10
Nevada .............................................................................................................................
5.56
13
14
New Hampshire ................................................................................................................
3.34
8
8
New Jersey ......................................................................................................................
4.98
11
14
New Mexico .....................................................................................................................
4.53
11
14
New York ........................................................................................................................
4.33
10
10
North Carolina .................................................................................................................
5.15
13
14
North Dakota ..................................................................................................................
4.78
11
12
Ohio ................................................................................................................................
3 6.59
14
16
Oklahoma ........................................................................................................................
3 4.12
10
10
Oregon .............................................................................................................................
7.44
14
16
Pennsylvania ...................................................................................................................
8.06
14
16
Puerto Rico ......................................................................................................................
8.67
(4)
(4)
Rhode Island ...................................................................................................................
6.26
14
16
South Carolina .................................................................................................................
5.89
13
14
South Dakota ..................................................................................................................
2.83
8
8
Tennessee .........................................................................................................................
5.31
13
14
Texas ...............................................................................................................................
3.04
8
8
Utah .................................................................................................................................
5.78
13
14
Vermont ...........................................................................................................................
6.03
14
16
Virginia ............................................................................................................................
2.79
8
8
Virgin Islands ..................................................................................................................
4.49
10
14
Washington ......................................................................................................................
7.28
14
16
West Virginia ...................................................................................................................
10.00
14
16
Wisconsin ........................................................................................................................
7.08
14
16
Wyoming ..........................................................................................................................
5.51
13
12
The FSC trigger ra!e is the State insured unemployment rate-the percentage of workers covered under the State unemployment compensation
law who are claiming State unemployment benefits in a particular week-averaged over a moving 13-week period. It is updated, and subject to
change, on a weekly basis. Therefore, the number of weeks of FSC payable in any State when the extension takes effect on Apr. 1, 1983, could be
different from that shown below, which is based on the FSC trigger rate as of Feb. 12, 1983.
2 Individuals who exhaust FSC on or before Apr. 1, 1983, could receive additional weeks of FSC benefits equal to 0; of their basic FSC
entitlement up to a maximum of: 10 weeks in 14 basic week States; 8 weeks in 13 basic and 11 week States; 6 weeks in 10 and 8 basic week
States.
Individuals who be in receiving FSC prior to Apr 1, 1983 and who have FSC entitlement after that date could also receive additional weeks.
However, the combination of their remaining basic FSC entitlement received after Apr. 1, 1983, plus additional weeks cannot exceed the maximum
number of weeks of basic FSC benefits payable in the State after Apr. 1, 1983.
IUR rate as of Feb. 5, 1983.
* 13 Weeks FSC due to 20 week Reg. duration.
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TABLE 3.-NUMBER OF FSC WEEKS PAYABLE IN STATES WITH IUR 6.0 OR ABOVE: MAXIMUM 14-
WEEK BASIC ENTITLEMENT; MAXIMUM 10 ADDITIONAL WEEKS
Number of weeks avairable after Apr. 1 Total FSC weeks
(weeks received before
Basic entitlement Additional weeks Maximum payable weeks payable after
after Apr. 1 Apr. 1)
0 .................................................................................. 14 0 14 14
1 .................................................................................. 13 1 14 15
2 .................................................................................. 12 2 14 16
3 .................................................................................. 11 3 14 17
4 .................................................................................. 10 4 14 18
5 .................................................................................. 9 5 14 19
6 .................................................................................. 8 6 14 20
7 .................................................................................. 7 7 14 21
8 .................................................................................. 6 8 14 22
9 .................................................................................. 5 9 14 23
10 ................................................................................ 4 10 14 24
11 ................................................................................ 3 10 13 24
12 ................................................................................ 2 10 12 24
13 ................................................................................ 1 10 11 24
14 or more .................................................................. 0 10 10 24
TABLE 4.-NUMBER OF FSC WEEKS PAYABLE IN STATES WITH IV 5.0-5.9: MAXIMUM 13-WEEK
BASIC ENTITLEMENT; MAXIMUM 8 ADDITIONAL WEEKS
Number of weeks available after Apr. 1 Total FSC weeks
(weeks received before
Basic entitlement Additional weeks Maximum payable plus weeks payable
after Apr. 1 after Apr. 1)
0 .................................................................................. 13 0 13 13
1 .................................................................................. 12 1 13 14
2 .................................................................................. 11 2 13 15
3 .................................................................................. 10 3 13 16
4 .................................................................................. 9 4 13 17
5 .................................................................................. 8 5 13 18
6 .................................................................................. 7 6 13 19
7 .................................................................................. 6 7 13 20
8 .................................................................................. 5 8 13 21
9 .................................................................................. 4 8 12 21
10 ................................................................................ 3 8 11 21
11 ................................................................................ 2 8 10 21
12 ................................................................................ 1 8 9 21
13 or more .................................................................. 0 8 8 21
TABLE 5.-NUMBER OF FSC WEEKS PAYABLE IN STATES WITH IUR 4.5 TO 4.9: MAXIMUM 11-WEEKS
BASIC ENTITLEMENT; 8 ADDITIONAL WEEKS
Number of weeks available after Apr. 1
Total FSC weeks
Basic entitlement
Additional weeks
Maximum payable
after Apr. 1
(weeks received before
plus weeks pa able
after Apr. y)
0 ..................................................................................
11
0
11
11
1 ..................................................................................
10
1
11
12
2 ..................................................................................
9
2
11
13
3 ..................................................................................
8
3
11
14
4 ..................................................................................
7
4
11
15
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TABLE 5.-NUMBER OF FSC WEEKS PAYABLE IN STATES WITH IUR 4.5 TO 4.9: MAXIMUM 11-WEEKS
BASIC ENTITLEMENT; 8 ADDITIONAL WEEKS-Continued
Number of weeks available after Apr. 1 Total FSC weeks
(weeks received before
Basic entitlement Additional weeks Maximum payable plus weeks payable
after Apr. 1 after Apr. 1)
5 .................................................................................. 6 5 11 16
6 .................................................................................. 5 6 11 17
7 .................................................................................. 4 7 11 18
8 .................................................................................. 3 8 11 19
9 .................................................................................. 2 8 10 19
10 ................................................................................ 1 8 9 19
11 or more .................................................................. 0 8 8 19
TABLE 6.-NUMBER OF FSC WEEKS PAYABLE IN STATE WITH IUR 3.5-4.4: MAXIMUM 10-WEEK
BASIC ENTITLEMENT; MAXIMUM 6 ADDITIONAL WEEKS
Number of weeks available after Apr. 1 Total FSC weeks
(weeks received before
Basic entitlement Additional weeks Maximum payable plus weeks payable
after Apr. 1 after Apr. I )
0 .................................................................................. 10 0 10 10
I ................................................................................. 9 1 10 11
2 ................................................................................. 8 2 10 12
3 ................................................................................. 7 3 10 13
4 ................................................................................. 6 4 10 14
5 ................................................................................. 5 5 10 15
6 ................................................................................. 4 6 10 16
7 ................................................................................. 3 6 9 16
8 ................................................................................. 2 6 8 16
9 ................................................................................. 1 6 7 16
10 or more .................................................................. 0 6 6 16
TABLE 7.-NUMBER OF FSC WEEKS PAYABLE IN STATES WITH IUR 3.4 OR LOWER: MAXIMUM 8-
WEEK BASIC ENTITLEMENT; MAXIMUM 6 ADDITIONAL WEEKS
Number of weeks available after Apr. 1 Total FSC weeks
(weeks received before
Basic entitlement Additional weeks Maximum payable plus weeks payable
after Apr 1 after Apr. payable
0 ................................................................................. 8 0 8 8
1 ................................................................................. 7 1 8 9
2 ................................ ....................................... 6 2 8 10
3 ................................................................................. 5 3 8 11
4 ................................................................................. 4 4 8 12
5 ................................................................................. 3 5 8 13
6 ................................................................................. 2 6 8 14
7 ................................................................................. 1 6 7 14
8 or more ................................................................... 0 6 6 14
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PART B-MISCELLANEOUS PROVISIONS
Section 511: Voluntary health insurance programs permitted
Under current law, Section 3304(a)(4) of the Federal Unemploy-
ment Tax Act prohibits States from withdrawing money from the
state unemployment compensation benefits or to refund certain
taxes erroneously paid by employers.
This section provides that no provision in current law shall be
construed to prohibit a State from deducting an amount from the
unemployment compensation benefits otherwise payable to an indi-
vidual and using the amount deducted to pay for health insurance,
if the individual elects to have such a deduction made from his
benefits.
Section 512: Treatment of certain organizations retroactively deter-
mined to be described in section 501(c)(3) of the Internal Reve-
nue Code of 1954
Unemployment insurance coverage was extended to employees of
certain nonprofit organizations in 1970 and then extended to em-
ployees of basically all nonprofit organizations in 1976.
Under the 1970 and 1976 amendments, nonprofit organizations
were provided the option of financing unemployment benefits paid
to their former employees through the State unemployment payroll
tax tystem that applies to private employers (contribution method)
or by retroactively reimbursing the State trust fund for the amount
of benefits paid to their former employees (reimbursement method).
Nonprofit employers who had voluntarily -covered their employ-
ees prior to the 1970 or 1976 amendments and financed benefit
costs by the contribution method, and after enactment of the 1970
or 1976 amendments chose to switch to the reimbursement method
of financing, were permitted to apply any accumulated balance in
their accounts toward costs incurred in the future and paid for on
a reimbursement basis. The authority to make such a transfer,
however, was available for a limited period of time and expired
shortly after enactment of the 1976 and 1970 amendments.
This section allows a nonprofit organization that elects to switch
from the contribution to the reimbursement method of financing
unemployment benefits to apply any accumulated balance in its
State unemployment account to costs incurred after it switches to
the reimbursement method, under the following conditions:
(1) the organization did not elect to switch to the reimbursement
method under prior authority because during these periods the or-
ganization was treated as a 501(c)(4) organization by the IRS; but
the organization has been subsequently determined by IRS to be a
501(c)(3) organization; and,
(2) the organization elects to switch to the reimbursement
method before the earlier of (a) 18 months after such election was
first available to it under State law or (b) January 1, 1984.
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F. Prospective Payments for Medicare Inpatient Hospital Services
(Title VI)
1. GENERAL DISCUSSION
Your Committee's bill includes a major change in the method of
payment under medicare for inpatient hospital services. Such serv-
ices would be paid for on the basis of prospectively determined
rates under a new payment system, which generally follows the
outline of an Administration proposed plan. A single payment
amount would be paid for each type of case, identified by the diag-
nosis related group (DRG) into which each case is classified.
The bill is intended to improve the medicare program's ability to
act as a prudent purchaser of services, and to provide predictibility
regarding payment amounts for both the Government and hospi-
tals. More important, it is intended to reform the financial incen-
tives hospitals face, promoting efficiency in the provision of serv-
ices by rewarding cost/effective hospital practices. In contrast, the
cost-based reimbursement arrangements under which medicare has
operated in the past lack incentives for efficiency. Subject to some
limits on overall payment amounts, the "reasonable cost" reim-
bursement system simply responds to hospital cost increases by
providing increased reimbursement.
In Public Law 97-248, the Tax Equity and Fiscal Responsibility
Act of 1982 (TEFRA), the Congress directed the Department of
Health and Human Services to develop recommendations for a
system of prospective payment for medicare inpatient hospital
services. The department's report was submitted in late 1982, and
its recommendations have been embodied in Administration-spon-
sored legislation. Your Committee's bill is a modified version of the
Administration's recommendations.
1. SETTING THE PROSPECTIVE PAYMENT AMOUNT
(a) Summary. Under your Committee's bill, the Secretary would
be required to prospectively determine a payment amount for each
medicare hospital discharge. Discharges would be classified into di-
agnosis related groups, or DRG's. In order to moderate the impact
of the prospective payment proposal on urban and rural hospitals
and across different regions of the country, separate payment rates
would apply to urban and rural areas in each of the nine census
divisions of the country (the 50 States and the District of Colum-
bia). The regional adjustment would no longer apply beginning
with payments after the fourth year of the program. As a perma-
nent feature of the system, the DRG rates would be adjusted for
area differences in hospital wage levels so that hospitals in high
wage areas would receive somewhat larger payments than hospi-
tals in lower wage areas.
The Secretary would be required to study and report to the Con-
gress for each of the early years of the program on the appropriate-
ness and necessity for the regional adjustment. In addition, a study
and report, before the end of 1985, would be required on the appro-
priateness of the urban/rural differential.
The rates established for hospitals would be derived from histori-
cal medicare cost data, updated according to a formula for use in
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fiscal years 1984 and 1985. During these years, the increases in
payment rates would be subject to the requirement that expendi-
tures under the prospective payment plan be no greater than those
under the reimbursement provisions of the 1982 TEFRA legisla-
tion.
In recognition of the difficulty of determining for many years
into the future an appropriate rate of increase in inpatient hospital
payments, your Committee's bill provides, for years beginning with
fiscal year 1986, a different approach to updating payment levels.
A panel of independent experts would review the appropriateness
of the update formula, taking into account such factors as changes
in the hospital marketbasket index, productivity, technological and
scientific advances, the quality of health care and utilization of rel-
atively costly though effective methods of care. The Secretary
would determine an update factor taking into consideration the
expert panel's recommendations.
(b) The DRG classification system. The prospective payment
system would be based on the diagnosis related groups (DRG) case
classification system, which classifies patients into groups that are
clinically coherent and homogenous with respect to resource use.
The DRG classification system, developed some years ago, has been
improved in recent years and represents the most fully developed
case classification system representative of a national data base
and readily adaptable to a national program. Your Committee rec-
ognizes, however, that in developing separate payment rates for
each of 467 DRG's, it will be necessary to rely on currently availa-
ble data sources and to use a sample of cases, e.g., the 20 percent
sample of medicare beneficiary bills (MEDPAR) to arrive at the
DRG rates. Your Committee expects that the Secretary will use the
best data reasonably available to calculate the DRG rates.
The Secretary will calculate a relative price (or weight) for each
DRG compared with the average medicare case. (For instance, a
craniotomy case may be found to be 3.5 times as expensive as the
average case.) This relative price (or weight) will be used to adjust
an average medicare cost per discharge figure to obtain the pro-
spective rate for cases within particular DRG's.
Your Committee recognizes that there may be insufficient data
to calculate relative prices for some DRG's because of the small
number of medicare cases in some DRG's, e.g., obstetrical cases.
While this may not have been a problem under the case-mix meth-
odology used in implementing the 1982 TEFRA legislation, it is im-
portant in the proposed prospective payment system to establish a
rate for every DRG whether or not it is likely that a case will actu-
ally occur. Therefore, your Committee recognizes that the Secre-
tary will need to rely on an alternative method for setting the pro-
spective rate for low-volume DRG's-for example, by combining
MEDPAR data for several years or by reference to an external
source in which these DRG's are more common, e.g., data from
State systems.
(c) Steps in determining DRG payment rates-fiscal year 1984.
The process for determining DRG payment rates for fiscal year
1984 begins with the determination of allowable operating costs of
inpatient hospital services for each hospital for the most recent
cost reporting period for which data are available. These cost data
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are updated for fiscal year 1983 by the estimated industry-wide
actual increase in hospital costs and further updated for fiscal year
1984 by the hospital marketbasket increase plus one percentage
point. The resulting amounts are standardized by excluding an esti-
mate of indirect medical education costs, adjusting for area wage
variations, and adjusting for variations in case mix.
The Secretary then computes an average of these standardized
amounts for each census division: (i) for all hospitals in urban
areas, as currently defined for purposes of the so-called section 223
limits; and (ii) for all hospitals in rural areas.
Each of these average standardized amounts is then reduced to
account for the payment that will subsequently be made to specific
hospitals of additional amounts for atypical cases ("outliers").
These average standardized amounts are then reduced as may be
required to achieve budget-neutrality in relationship to the reim-
bursement provisions that would have applied under the 1982
TEFRA legislation. In determining budget neutrality for the DRG
part of the payment, the Secretary would include in the DRG pay-
ment amounts the additional payments for outlier cases, for indi-
rect medical education costs, and for costs of nonphysician services
to inpatients previously paid for under part B, and additional pay-
ments reflecting other adjustments.
Separate urban and rural DRG-specified rates for each census di-
vision are then determined by computing the product of the aver-
age standardized amounts described above and the weighting factor
for each DRG.
These DRG-specific rates are then adjusted to recognize area
wage differences for purposes of determining the payment amount
using methodologies for area wage adjustments similar to the cur-
rent section 223 limits. (The actual revenue to the hospital, in addi-
tion to the DRG-specific payment rate, will be influenced by one or
more of the following: payment of capital costs and costs of ap-
proved educational programs on a reasonable cost basis; an adjust-
ment for indirect teaching costs; additional payment for atypical-
outlier-cases; and various exceptions and adjustments.)
(d) Steps in determining DRG payment rates-fiscal year 1985.
For fiscal year 1985, the process is similar to that for fiscal year
1984, except that previously determined standardized amounts are
updated by the marketbasket increase plus one percentage point. A
reduction is then made for the value of outlier payments, an ad-
justment is made to maintain budget neutrality, and so forth.
(e) Steps in determining DRG payment rates-fiscal year 1986 and
later. For fiscal year 1986 and later, the updating process is simi-
lar, except that there is no step in the computation designed to
achieve `budget neutrality." Instead, the independent panel dis-
cussed above would advise the Secretary regarding the updating
factor to be used. By May 1 before the beginning of each fiscal
year, the panel would be required to report its recommendations to
the Secretary, who would make a determination of the increase
factor which will apply. The Secretary would publish a proposed
determination (along with the panels recommendations) in the
Federal Register by June 1 and a final decision by September 1.
(f) Adjustment for atypical cases or outliers. Your Committee is
concerned that under the prospective payment system, there will
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be cases within each diagnostic category (DRG) that will be ex-
traordinarily costly to treat, relative to other cases within the
DRG, because of severity of illness or complicating conditions, that
are not adequately compensated for under the DRG payment meth-
odology. Under your Committee's bill, the Secretary would be re-
quired to provide additional payments, amounting to not less than
4 percent of total DRG related payments, as outlier payments.
Under your Committee's bill, the Secretary is required to make
additional payments in cases where the length of stay in each DRG
exceeds, by more than 30 days, the average length of stay for cases
within the same DRG. In addition, if a case has some other unusu-
al length of stay or unusual cost, the Secretary may provide for ad-
ditional payment amounts. Your Committee understands that the
Secretary intends to make payments (in addition to the standard
DRG payment) for days in excess of the 30 days ("outlier days") at
a per diem rate. A per diem rate would be calculated for each DRG
by dividing the DRG payment amount by the mean length of stay
for the DRG. The Secretary proposes to reimburse at 60 percent of
that daily rate for each "outlier' day.
Your Committee understands that amounts reimbursed for the
"outlier days" would reduce the DRG payment level across the
DRG's.
Your Committee is concerned that using length of stay as the
only indicator of extraordinary costliness (as recommended by the
Secretary) is inadequate. The Secretary is strongly urged to use
some other statistical test to develop a more flexible and responsive
outlier policy.
The Secretary's report to Congress on the prospective payment
proposal (December 1982) included a discussion of measures of cen-
tral tendency as it relates to outlier policy. Since the only cases
that are currently being considered for additional payment under
the outlier policy are extraordinarily costly cases, your Committee
suggests that the Secretary consider the use, as a way of defining
outliers, of the two standard deviation rule. Under this rule, out-
liers are defined as cases for which costs are outside the boundary
of the mean cost per case plus two times the standard deviation of
cost per case.
Although not wishing to preclude the Secretary from using other
measures, as he or she deems appropriate, your Committee would
reiterate that it considers length of stay an important, but not
wholly adequate indicator of outliers and thus, suggests some addi-
tional measures be considered.
The Secretary would be required to study the appropriateness of
the outlier policy, and to include in that study an analysis of the
appropriateness of, and necessity for, adjustments in payment rates
for extremely short lengths of stay within a DRG, and to report
findings to Congress by the end of 1985.
(g) Public description of methodology and data. The Secretary
would be required to provide for publication in the Federal Regis-
ter, on or before September 1 before each fiscal year (beginning
with fiscal year 1984), of a description of the methodology and data
used in computing the DRG payment rates, including any adjust-
ment required to produce budget neutrality in relation to the
TEFRA level of medicare reimbursement outlays.
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Your Committee believes this requirement for open publication
and description of data is important to assure confidence among
the affected parties in the integrity of the payment system, the
adequacy of the data, and the accuracy of the calculations involved.
(Also, as previously noted, for fiscal years after fiscal year 1985, the
Secretary would be required to publish in the Federal Register
both the determination of increase factors used to determine pay-
ment rates, and also the recommendations of the panel of inde-
pendent experts regarding this matter.)
2. TRANSITION TO THE NEW PROSPECTIVE PAYMENT SYSTEM
(a) Phase-in. Payments under the new prospective payment
system would not be designed to reflect a hospital's cost situation
and therefore can be expected to result in medicare reimbursement
gains and losses for hospitals in relation to what they would have
received under present law. Therefore, your Committee bill pro-
vides for a phase-in period to minimize disruptions that might oth-
erwise occur because of a sudden change in reimbursement policy.
Implementation of the new prospective payment system would be
phased in over a 3-year period, starting with each hospital's first
accounting year beginning on or after October 1, 1983. During the
first year, 25 percent of the payment amount for each case would
be determined under the DRG prospective payment methodology;
75 percent of the payment amount would be determined on each
hospital's own cost base. During the second year, 50 percent of the
payment amount would be determined under the prospective pay-
ment methodology and 50 percent on each hospital's own cost base.
During the third year, 75 percent of the payment amount would be
determined under the prospective payment methodology and 25
percent would be determined on each hospital's own cost base.
During the fourth year, 100 percent of the payment amount would
be determined under the DRG payment methodology.
The portion of a hospital's payment determined on its own cost
base would be calculated as though the hospital's target amount
under the 1982 TEFRA legislation were its payment amount (that
is, without application of the provisions under which a hospital re-
tains only a portion of its cost-per-case savings below the target
amount and medicare pays any portion of the hospital's cost per
case in excess of the target amount, and without regard to the ex-
ceptions, exemptions and adjustments which may have been au-
thorized under TEFRA for that year). The payment amount, like
the target amount under present law, is projected from the hospi-
tal's cost base. Because the payment can be determined without
reference to the hospital's costs in the current year, it can be pro-
spectively determined.
The calculation of this part of the hospital's payment for hospital
accounting periods beginning on or after October 1, 1983 and on or
after october 1, 1984 would be subject to the so-called section 223
limits. For hospital accounting periods beginning on or after Octo-
ber 1, 1985, cost data would not be available for use in determining
the section 223 limits and no section 223 limit would be applied.
For the two years in which the section 223 limits are applicable,
the section 223 exemptions, exceptions and adjustments would not
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be applicable. However, your Committee's bill provides new author-
ity for exceptions and adjustments under which relief, if appropri-
ate, could be provided.
Your Committee understands that there will be a relatively
small number of hospitals for which there is no historical cost ex-
perience on which to base a target rate; for example, new hospitals.
In this case, your Committee expects the Secretary to make appro-
priate provision for applying a prospective payment rate. This
might be accomplished by using the total cost limit appropriate to
the hospital as the hosptial-specific portion of the payment due the
hospital during a transition year.
The Secretary would be required to maintain a system of cost re-
porting during the period of transition to the new prospective pay-
ment system and for at least two years after full implementation of
the new payment program. Thus, cost data would be available for
use in making future adjustments in the DRG system and for other
possible uses.
(b) Unbundling. Under current law, services provided to medi-
care beneficiaries who are inpatients of a hospital are generally
billed under part A of the medicare program. However, under cer-
tain circumstances, payments are made for non-physician services
(for example, radiology, laboratory, physical therapy, prosthetics,
etc.) which are separately billed by the supplier as a part B service
even though they are provided to a hospital inpatient. Thus, under
current law, some non-physician services may be billed under part
A in one hospital and yet, in another hospital may be billed under
part B of the program.
Your Committee's bill would provide, effective October 1, 1983,
that all non-physician services provided in an inpatient setting
would be paid only as inpatient hospital services under part A with
some adjustments discussed below, as the Secretary deems appro-
priate.
The DRG rate covers inpatient services. However, your Commit-
tee is concerned that in providing a single, inclusive, payment rate
for non-physician services under the prospective payment system,
it would be inequitable to allow one hospital, which has many bill-
ing arrangements whereby services are reimbursed under part B,
to receive the same payment rate as a hospital that provides all
services under part A.
The Secretary is given authority to waive these restrictions, and
to provide for adjustments in the DRG payment rates, for hospitals
which can demonstrate to the Secretary that their practice prior to
October 1, 1982, were such that their services were extensively
billed independently under part B. Such hospitals could be permit-
ted, by the Secretary, to continue such billing arrangements during
the transition period for phasing-in the prospective payment
system. Such arrangements would not be recognized once the pros-
pective payment system is fully implemented.
It is the Committee's intent that the Secretary provide for such
adjustments only in cases where there will be significant hardship
on the part of the hospital. If a hospital has a billing arrangement
for one or two services, for example, laboratory services and physi-
cal therapy services, it is anticipated by your Committee that such
a hospital would, without significant delay, be able to provide ad-
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justments in its contracts to allow payment through the hospital
under the DRG rate for such services.
It is your Committee's intent to limit the administrative burden
of implementing this provision on the Administration, yet provid-
ing some flexibility for hospitals that currently bill under part B
for significant proportion of services.
Your Committee bill requires that the Secretary estimate each
year amounts that would have been reimbursed under part B for
inpatient hospital services (other than physician services) and to in-
clude, each year in the base rate for determining the DRG pay-
ment rates an approximation of this amount.
3. EXCLUSION OF CAPITAL-RELATED EXPENSES AND RETURN ON EQUITY
(a) Capital-Related Costs. Under current law, medicare reim-
burses hospitals for the reasonable cost of capital. Costs of capital
include depreciation, interest and rent.
Under your Committee bill, capital-related costs would be ex-
cluded from the prospective payment system. Such costs would con-
tinue to be paid on a reasonable cost basis. However, your Commit-
tee recognizes that capital expenditures total over 6 percent of
medicare hospital payments and that a fully prospective payment
system would move away from cost-based reimbursement for capi-
tal.
Your Committee recognizes that developing a method to include
capital in a prospective payment system will require some addition-
al study. On the other hand, continuing to pay capital based on
cost will offer incentives for hospitals to undertake projects which
substitute capital costs for labor and other costs included in the
DRG payments. For this reason, your Committee bill includes three
provisions which will move toward a system of capital payments on
a prospective basis.
The first provision required the Administration to undertake a
study and make recommendations to the Congress, by December
31, 1983, on a system for setting capital payments on a prospective
basis. Your Committee intends that this study review all options
for a prospective payment system, including broadening the DRG
payment to include a capital component, establishment of limits
modeled on section 223 applicable to capital costs only, and the set-
ting of limits on capital on a statewide basis. The Secretary should
review the methods used by States with hospital cost control pro-
grams-including Maryland, Massachusetts, New York and New
Jersey-to determine which State programs provide useful models.
The study should also include a discussion of alternative means to
ensure that public institutions and other hospitals in inner city
and rural areas have adequate capital resources.
Under the second provision, your Committee bill notes that it is
the intent of Congress, in implementing a system for including cap-
ital-related costs in a prospective payment, that costs related to
capital projects initiated on or after March 1, 1983, may be distin-
guished and treated differently from projects initiated before that
date. This provision is to place providers on notice that, in any
future prospective capital payment system, only those capital proj-
ects initiated before March 1 of this year will be considered old
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projects. Projects initiated on or after such date may be subject to
alternative payment methods for capital costs. This provision is to
indicate to hospitals that they should not begin new capital under
the assumption that the costs of these projects will continue to be
reimbursed on the basis of reasonable costs.
The third provision requires all States to have a section 1122 cap-
ital approval agreement in effect within three years. Specifically,
your Committee bill provides that, beginning three years after the
date of enactment of the bill, medicare will not make payment
with respect to any new capital expenditures unless the State in
which the hospital is located has a section 1122 agreement with the
Secretary, and the capital expenditures have been recommended
for approval by the State under the Section 1122 review mecha-
nism.
Since all fifty States now have either a certificate-of-need or sec-
tion 1122 program in place, this provision should impose no addi-
tional burden on the States. This requirement makes it clear that,
during the period medicare continues to make payment for capital
based on reasonable cost and a new prospective capital payment
system is being designed, the States should not eliminate an exist-
ing capital review program.
Your Committee intends that the Secretary facilitate the signing
section 1122 agreements with the States that now have certificate-
of-need programs but not section 1122 programs. The reestablish-
ment of a section 1122 agreement should be especially simple for
more than 25 States which once had section 1122 agreements.
The capital provisions of your Committee's bill reflect the need
for additional analysis before a system to set capital payments on a
prospective basis can be adopted. On the other hand, the bill also
stresses the need to ensure that the nation does not experience an
inflationary increase in capital projects during the pendency of
capital cost reimbursement. Your Committee intends to review the
issues relating to hospital capital in greater detail when the Secre-
tary's report is completed.
(b) Return on Equity. Under current law, proprietary hospitals
receive a return on equity capital invested and used in providing
patient care. Equity capital is the net worth of a provider adjusted
for those assets and liabilities which are not related to patient care.
The rate of return is one and one-half the average rate of interest
on special issues of public debt obligations issued to the Hospital
Insurance Trust Fund.
Your Committee bill provides for the phase-out of return on
equity over the four year period during which the prospective pay-
ment system is phased-in. During the first year of the transition, 75
percent of any return on equity amount would be paid, since 75
percent of each payment to a hospital per discharge during that
year would be cost-based. During the second year, 50 percent of any
return on equity amount per discharge would be cost-based. During
the third year, 25 percent of the return on equity would be paid.
Beginning with the fourth year, no payments for a return on
equity would be paid, since 100 percent of the payments to hospi-
tals would be determined under the prospective payment system.
Your Committee believes that a return on equity is not appropri-
ate under a prospective payment system. The return on equity was
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seen as a means of attracting investment into the health care
system. Your Committee believes that this inducement is no longer
necessary. Further, your Committee believes that a payment re-
flecting a profit is inappropriate in a prospective payment system
where the payment no longer represents a hospital's actual costs
but is intended as an inducement to a hospital to reduce its costs in
order to reap a reward.
Your Committee's intent that the phase-out will represent a real
savings to medicare; thus, the provision is outside the budget neu-
trality of the prospective payment system, and the savings will not
be included in the base for computing the DRG payment.
Your Committee bill requires the Secretary to report to the Con-
gress at the same time he or she reports on recommendations with
respect to capital-related costs, before the end of 1983, on payment
with respect to the return on equity. Your Committee expects the
Secretary to analyze the differential impact on hospitals of meth-
ods of capital financing, including debt financing and tax-exempt
bond financing, for proprietary and non-profit hospitals as well as
reporting the impact of alternative methods of financing on the
medicare trust fund and the general revenues.
4. DIRECT AND INDIRECT MEDICAL EDUCATION COSTS
Direct and indirect expenses associated with medical education
activities would be specifically excluded from payment determina-
tions under the prospective payment system. Medical education ex-
penses, such as the salaries of interns and residents under ap-
proved education programs (as defined in current regulation, in-
cluding nursing education programs), would continue to be paid on
the basis of reasonable cost.
In addition, with respect to indirect medical education expenses,
an adjustment would be provided equal to twice the teaching ad-
justment, based on the ratio of residents to beds, that is applied in
the so-called section 223 limits on reimbursement under present
law. Your Committee strongly believes in the importance of provid-
ing this adjustment in the light of serious doubts (explicitly ac-
knowledged by the Secretary in his recent report to the Congress
on prospective payment) about the ability of the DRG case classifi-
cation system to account fully for factors such as severity of illness
of patients requiring the specialized services and treatment pro-
grams provided by teaching institutions and the additional costs as-
sociated with the teaching of residents.
The latter costs are understood to include the additional tests
and procedures ordered by residents as well as the extra demands
placed on other staff as they participate in the education process.
Your Committee emphasizes its view that these indirect teaching
expenses are not to be subjected to the same standards of "efficien-
cy" implied under the DRG prospective system, but rather that
they are legitimate expenses involved in the postgraduate medical
education of physicians which the medicare program has historical-
ly recognized as worthy of support under the reimbursement
system.
The adjustment for indirect medical education costs is only a
proxy to account for a number of factors which may legitimately
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increase costs in teaching institutions. Your Committee believes
that it is important, in addition, to recognize explicitly extraordi-
nary expenses in individual cases, and has therefore required (as
discussed elsewhere) an expansion and modification of the Secre-
tary's recommended policy regarding atypical cases or outliers
(which it is reasonable to expect would occur more commonly in
teaching hospitals than in other hospitals). Finally, in recognition
that additional unforseen problems may arise in connection with
teaching hospitals, your Committee's bill (as indicated elsewhere)
would require the Secretary to make exceptions and adjustments,
where appropriate, with respect to payment to teaching hospitals.
5. EXEMPTIONS, EXCEPTIONS AND ADJUSTMENTS
Hospitals that are not included in the prospective payment pro-
posal would be subject to the rate of increase provision as in
TEFRA, including the incentive payments. The rate of increase
permitted would be marketbasket plus one percent.
(a) Psychiatric, long-term care, rehabilitation and children's hos-
pitals. Such hospitals would be specifically exempted from your
Committee's prospective payment bill. The DRG system was devel-
oped for short-term acute care general hospitals and as currently
constructed does not adequately take into account special circum-
stances of diagnoses requiring long stays.
The definition of rehabilitation hospital will be prescribed in reg-
ulations promulgated by the Secretary. The Committee under-
stands that there are currently extensive rules pertaining to reha-
bilitation hospitals and suggests that the Secretary use such regu-
lations and consult with the Joint Commission of Accreditation of
Hospitals in order to define a rehabilitation hospital.
In addition, your Committee's bill would exempt, upon the re-
quest of a hospital, distinct part rehabilitation or psychiatric units
of acute care hospitals. The Secretary, under current medicare
rules and regulations, has prescribed in detail standards and crite-
ria that distinct parts must meet including establishment of sepa-
rate cost entities for cost reimbursement and requirements that
such units have a sub-provider identification number. It is the
Committee's intent that psychiatric and rehabilitation distinct part
units meet standards as the Secretary may prescribe and it is an-
ticipated by the Committee that such standards would provide for
maintenance of standards relating to patient care that are found in
psychiatric and rehabilitation hospitals respectively.
(b) Sole community providers. The Secretary would be authorized
to provide for exceptions and adjustments to take into account the
special needs of sole community providers. Your Committee is pro-
viding this authority, in order to permit the Secretary to take into
account the special circumstances that sole community providers
may have.
(c) Public and other hospitals. The Secretary would be required
to take into account and to make appropriate exemptions, excep-
tions and adjustments for hospitals that serve a disproportionately
large number of medicare and low-income individuals. Concern has
been expressed that public hospitals and other hospitals that serve
such patients may be more severely ill than average and that the
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DRG payment system may not adequately take into account such
factors. The Secretary in his report to Congress stated that the De-
partment of Health and Human Services would continue to study
ways of taking account of severity of illness in the DRG system.
The Committee strongly urges the Secretary to continue these
studies. Your Committee bill would require the Secretary to under-
take a study of other needs of such hospitals. If upon review the
Secretary determines that such exemptions, exceptions or adjust-
ments are appropriate, the Secretary would then be authorized to
make such exemptions, exceptions or adjustments.
(d) Other providers. The Secretary would be authorized to pro-
vide, by regulations, for such exceptions and adjustments as he or
she deems appropriate (including those that may be appropriate
with respect to public hospitals, teaching hospitals, and hospitals
that are extensively involved in cancer treatment and research). In
giving the Secretary such authority, your Committee anticipates
that an analysis be undertaken to look into the special needs of
these providers.
(e) Alaska and Hawaii. Your Committee's bill would authorize
the Secretary to make exceptions and adjustments to take into ac-
count special needs of hospitals located in Alaska and Hawaii.
Under current law the Secretary has recognized that Alaska and
Hawaii have higher hospital costs than other states and has pro-
vided under the Section 223 regulations a special adjustment to
take into account these costs. The Committee expects that the Sec-
retary will examine the impact of the prospective payment system
on Alaska and Hawaii and after such study determine if such ex-
ceptions and adjustments are justified to provide for such excep-
tions and adjustments.
(f) Hospitals outside the fifty states. Your Committee's bill would
exempt from the prospective payment system hospitals located in
geographic areas outside the fifty States and the District of Colum-
bia but within the United States for purposes of medicare (e.g.
Puerto Rico). The Committee is concerned that the cost experience
of these hospitals may be so varied that the DRG prospective pay-
ment system may not adequately reflect the needs of these hospi-
tals.
(g) Study on prospective payment for exempt hospitals. Your Com-
mittee's bill would require the Secretary to report to Congress
within two years after enactment on whether exempt hospitals
should be brought under the prospective payment system and if so,
how this should be accomplished.
6. ADMINISTRATIVE AND JUDICIAL REVIEW
Under current law, a provider may request administrative
review by the Provider Reimbursement Review Board (PRRB) of a
final decision of a fiscal intermediary regarding items on the pro-
vider cost report, subject to certain conditions. A provider may
appeal the PRRB decision to Federal court or, where it involves a
question of law or regulation which the PRRB does not have the
authority to review, the provider may appeal directly to Federal
court.
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Your Committee's bill would provide for the same procedures for
administrative and judicial review of payments under the prospec-
tive system as is currently provided for cost-based payments. In
general, the same conditions, which now apply for review by the
PRRB and the courts, would continue to apply.
With respect to administrative and judicial review, your Commit-
tee's bill would permit review except in the narrow cases necessary
to maintain budget neutrality and avoid adversely affecting the es-
tablishment of the diagnosis related groups, the methodology for
the classification of discharges within such groups, and the appro-
priate weighting of such groups.
It is the purpose of your Committee's bill to establish a prospec-
tive payment system for medicare. The prospective payment will
no longer have any relationship to a hospital's actual costs. Thus, it
is your Committee's intent that a hospital would not be permitted
to argue that the level of the payment which it receives under the
system is inadequate to cover its costs.
The Secretary would be required by your Committee's bill to es-
tablish payment amounts in fiscal 1984 and 1985 at a level which
will cause the system to be budget neutral in relation to current
law. Of necessity, this limitation will require the Secretary, after
taking into account adjustment required under the system, to
change the basic payment rate to a level which will result in
budget neutrality. For example, the Secretary might set the rate at
102 percent rather than 105 percent of the mean. The altering of
this basic payment rate to achieve budget neutrality is not reviewa-
ble.
Your Committee bill precludes review of the establishment,
methodology and weighting of diagnosis related groups because of
the complexity of such action and the necessity of maintaining a
workable payment system. Thus, neither the definition of the dif-
ferent diagnosis related groups, their weights in relation to each
other, nor the method used to assign discharges to one of the
groups would be reviewable. Whether there was an error in human
judgment in coding an individual patient's case would be reviewa-
ble.
7. ADMISSIONS AND QUALITY REVIEW
The Secretary would be required to establish a system for moni-
toring admissions and discharges of both hospitals receiving pros-
pective payment and of hospitals exempt from prospective payment
but continuing to receive payment under the growth rate limita-
tions. In establishing such a system, the Secretary could utilize the
Health Care Financing Administration, medicare intermediaries,
or professional standards review organizations/professional review
organizations (i.e. a utilization and quality control peer review or-
ganization with a contract under part B of title XI) or other medi-
cal review organization to review admissions, discharges, and qual-
ity of care for medicare inpatient hospital services.
In addition, hospitals would be required, as a condition of pay-
ment under medicare, to enter into, and maintain, an agreement
with a utilization and quality control peer review organization
which has a contract with the Secretary under part B of title XI to
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perform review of admissions, discharges and quality of care with
respect to medicare inpatient hospital services. The provision
would be effective October 1, 1984.
Under the Tax Equity and Fiscal Responsibility Act of 1982, title
XI was revised to require the Secretary to contract with peer
review organizations in each area of the country. Subject to certain
conditions, the Secretary is permitted under title XI to determine
which organization in an area will conduct the most effective
review. While the new provisions of title XI became effective Octo-
ber 1, 1983, the Secretary has not yet entered into any agreements
under this law. Your Committee's bill would make it clear that the
Secretary must begin entering into contracts with review organiza-
tions under title XI. If the Secretary has not entered into a con-
tract in an area with an organization, there will be no designated
organization with which a hospital can enter into an agreement. It
is the intent of the provision, that, if there is no designated organi-
zation, the hospital will not receive payment under medicare.
Your Committee believes that the new prospective payment
system requires a strong system of medicare review and that title
XI is the appropriate mechanism for that review. The Secretary
has ample time before October 1, 1984, to implement title XI with
no adverse effect on medicare payments to hospitals.
Under title XI, medicare intermediaries may be designated as
review organizations, but only beginning 12 months after the Sec-
retary has begun to enter into contracts under that title. This
delay was intended to provide a preference for medical review orga-
nizations. There is concern that the 12 months will not have run
before the effective date of your Committee's provision (October 1,
1984). Thus, your Committee's bill provides that the 12 month wait-
ing period for intermediaries to qualify as review organizations (as
specified in section 1153(b)(2)) will begin to run on the date on
which the Secretary begins to enter into contracts or on October 1,
1983, whichever is earlier. This would assure that the waiting
period would be complete by the effective date of your Committee's
provisions.
Concern has been expressed regarding the function and duties of
medicare intermediaries in their continuing capacity as interme-
diaries (as opposed to their role as review organizations) and their
interaction with designated review organizations. Therefore, your
Committee wishes to make it clear that medicare intermediaries
will continue to gather, review and analyze medicare claims data.
To minimize the administrative costs of the medicare program, the
intermediary will supply such information and in such a format, as
defined by the Secretary, as is necessary to support the review or-
ganization (designated under title XI) in its review function. This
could include collection of claims data by diagnostic code, by pro-
vider, by patters of admission, or by any other format deemed nec-
essary to support the review organization.
The Secretary would be authorized to disallow payment and/or
terminate participation in medicare, or require a hospital to take
corrective actions, where a provider is determined to be engaged in
aberrant or unacceptable practices. Specifically, your Committee's
bill provides that, if the Secretary determines that a hospital, in
order to circumvent the prospective payment method or the rate of
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growth limitations, has taken an action that results in the admis-
sion of medicare beneficiaries unnecessarily, or which results in
unnecessary multiple admissions of medicare beneficiaries, or re-
sults in inappropriate medicare or other practices, the Secretary
may (1) deny payment, in whole or in part, for such admission, or
(2) require the hospital to take corrective action. Your Committee
wishes to make it clear that any denial of payment or termination
which occurs under this provision will be subject to the same rights
of appeal as provided under current law.
Because prospective payments will be made on a per admission/
per discharge basis, your Committee is concerned that there may
be an incentive for hospitals to increase their admissions or reduce
the quality or availability of care. Accordingly, the Secretary would
be provided with this additional authority to deny payment or ter-
minate providers where they are determined to be engaged in un-
acceptable practices relating to admissions, lengths of stay, quality
of care or other forms of circumvention of the payment system.
The Secretary would also be required to study and report back to
the Congress before the end of 1985 on long-range policy changes to
limit increase in admissions resulting from the prospective system.
The Secretary would be required to include analyses and recom-
mendations on adjustments to the DRG payment rate for increased
admissions (such as a volume adjustment) and to report on the de-
velopment of administrative systems, such as pre-admission certifi-
cation, to minimize the incentive to increase admissions.
8. STATE COST CONTROL PROGRAMS
Under current law, the Secretary has the authority to establish
medicare demonstration projects. The Secretary has used this au-
thority to establish State-wide demonstrations for payment of hos-
pital services in four States-Maryland, New Jersey, New York,
and Massachussetts.
In addition, the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), authorized the Secretary to make medicare payments
under a cost control system established in a State if certain condi-
tions were met. While the provision was effective October 1, 1982,
the Secretary had not entered into any agreements with States
under this authority as of March 1, 1983.
Under your Committee's bill, the Secretary would be authorized
to approve a State cost control system (i.e. grant a medicare
waiver) if five conditions were met. For those States which current-
ly have an agreement with the Secretary, the Secretary would be
required to continue the State program, upon the expiration of the
agreement, if, and for so long as, the five conditions were met.
Where any other State system met the first five conditions and six
additional conditions, the Secretary would be required to approve
the State program.
Your Committee's bill provides that the Secretary would be au-
thorized, at the request of a State, to make medicare payments if
the following conditions are met: (1) the system applies to substan-
tially all acute-care non-Federal hospitals in the State; (2) the
system applies to the review of at least 75 percent of all revenues
or expenses in the State for inpatient hospital services (including
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medicaid); (3) the Secretary has been provided satisfactory assur-
ances as to the equitable treatment of payors, employees and pa-
tients; (4) the Secretary has been provided assurances that under
the State system, over a 36-month period, the amount of payments
made under the system will not exceed what would otherwise have
been spent under medicare; and (5) the Secretary determines that
the system will not preclude a Health Maintenance Organization
(HMO) or a Competitive Medical Plan (CMP) from negotiating di-
rectly with hospitals with respect to the organization's rate of pay-
ment for inpatient hospital services.
The first four of the conditions are identical to those provided
under TEFRA. The fifth condition was added by your Committee.
In would apply with respect to HMOs and CMPs as defined in Sec-
tion 1876(b).
When considering the conditions which a state system should
meet, your Committee determined that HMOs need special treat-
ment because they have unique problems where a cost control
system covers all payors within a state. Evidence indicates that use
of hospital services by HMO members varies considerably from
that of individuals covered under health insurance plans. If an
HMO had an average stay of 2.9 days for a specified type of case,
but the average for that type of case was 4.2 days, the HMO would
be effectively paying at the higher rate. If HMOs are required to
pay for hospital care based on utilization practices other than their
own, they could be paying for services they do not use.
A second problem HMOs encounter when they cannot negotiate
different rates is that they are prevented from offering hospitals
certain benefits which only they can offer. For instance, because
HMOs determine where their members will be hospitalized, HMOs
can create special economies of scale for a hospital or guarantee it
a certain level of use. If direct negotiation were not allowed, HMOs
could be forced to forego the economic advantages inherent in their
mode of organization and operation.
In establishing this exception for HMOs to negotiate directly
with hospitals, your Committee determined that the effectiveness
of state cost control systems would not be impaired. However, the
Committee recognizes that the ability to negotiate different rates
creates a strong incentive for entities other than HMOs and CMPs
to attempt to conform to the definition in section 1876(b). If these
other entities are permitted to use the exception, state cost control
systems would be seriously undermined. Therefore, the Committee
expects that the definition in section 1876(b) will be narrowly inter-
preted.
Your Committee bill places several limitations on the Secretary
in the application of the five conditions which must be met for a
State to be eligible for a waiver. The Secretary would not be per-
mitted to require that a State system be based upon a DRG pay-
ment methodology. While the language of your Committee's bill
does not specifically limit the authority of the Secretary under the
current demonstration authority with respect to DRGs, your Com-
mittee believes that the Secretary should not limit future demon-
stration projects to systems based on a DRG methodology. Your
Committee believes that State systems provide a laboratory for in-
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novative methods of controlling health care costs and should, there-
fore, not be limited to one methodology.
Under your Committee's bill, the Secretary would be prohibited
from requiring that a new State system or a continuation of a cur-
rent State system produce savings greater than the savings that
would have accrued in the State under the Federal medicare pay-
ment system. In determining whether the fourth condition compar-
ing the State's expenditures to medicare expenditures to medicare
expenditures is met, the Secretary would be permitted to use what-
ever test he or she determined was appropriate. However, if the
Secretary chose to use a test which was based upon rates of in-
crease, whether an inflation factor or the national rate of increase
in medicare expenditures, the State would be permitted, at its
option, to have the test applied, with respect to medicare inpatient
hospital services, either on an aggregate payments basis or on a
per admission or discharge basis. If the Secretary chose to use a
test based upon the national average percentage rate of increase
for medicare inpatient hospital services, the Secretary would not be
permitted to require that the State rate of increase in such pay-
ments be less than the national average rate of increase.
Your Committee believes that States should be encouraged to de-
velop innovative reimbursement methodologies without being held
to a stricter standard than the one imposed under medicare. With-
out this provision, States may be dissuaded from experimentation,
thus limiting the ability of the Congress and others to judge var-
ious cost control mechanisms.
Your Committee's bill further provides that the Secretary would
be required to approve any State system if, in addition to the first
five conditions, the system met the following six conditions: (1) the
system is operated directly by the State or an entity designated by
law; (2) the system is prospective; (3) the hospitals covered under
the system will make such reports as the Secretary may require; (4)
the State has provided assurances that the system will not result
in admissions practices which will reduce treatment to low income,
high cost, or emergency patients; (5) any change in the system
which materially reduces payments will only take effect upon 60
days notice to the Secretary and to hospitals; and (6) the State has
provided assurances that, in the development of the system, the
State has consulted with local government officials concerning the
impact of the State system on public hospitals.
Your Committee bill would require the Secretary to respond to
requests from States applying under these eleven conditions to re-
spond within 60 days of the date the request is submitted. In addi-
tion, it is the intent of your Committee that the Secretary provide
the Congress and the State an explanation for the denial of approv-
al of the State program.
Your Committee believes that State cost containment systems
have proven effective in reducing the cost of hospital care and that
such systems should be encouraged. It is the intent of this provi-
sion that the Secretary continue medicare waivers for States which
currently have effective demonstration projects and provide an op-
portunity for new States to develop sound approaches to cost con-
tainment. State systems covering all payors have proven effective
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in reducing health costs and should be encouraged. Such State pro-
grams may be useful models for our national system.
Your Committee bill would specifically alter the terms of the
New York and Massachusetts medicare demonstration agreements
with the Secretary. In the fall of 1982, the State of New York en-
tered into an agreement with the Secretary for a three-year medi-
care demonstration project, effective January 1, 1983. Under the
terms of the New York medicare waiver, the rate of increase in
medicare hospital costs in the State was required to be 1.5 percent
below the national rate of increase in medicare hospital costs. Mas-
sachusetts entered into a similar agreement, effective October 1,
1982. Your Committee bill provides that, upon the request of the
State, the Secretary is required to modify the terms of the New
York and Massachusetts waivers to eliminate the requirement that
the State rate of increase in medicare hospital costs be below the
national rate.
The Secretary would be required to quantify and report to the
Congress on the overall impact of State systems, assessing not just
Medicare but other programs such as Medicaid, the impact of such
programs on private health insurance costs and premiums, and on
tax expenditures.
Under your Committee's bill and under the current demonstra-
tion authority of the Secretary, State systems are required to meet
a savings test that is related to medicare. Such systems may also
achieve other savings also. There has been an ongoing debate about
whether, and how, to quantify or take into account such savings in
assessing State systems. Analytic information on all of the types of
savings and benefits to the Federal government is not available.
Thus, your Committee believes that the Secretary should collect
data which will make it possible to quantify the overall savings ac-
curing from the State system and report to the Congress on the
impact of such savings.
9. PAYMENTS TO HMOS
Your Committee bill would permit, at its election, and Health
Maintenance Organization (HMO) or a Competitive Medical Plan
(CMP) that receives medicare payments on a risk basis, to choose to
have the Secretary directly pay hospital for inpatient hospital serv-
ices furnished to medicare enrollees of the HMO or CMP. The pay-
ment amount would be at the DRG rate (or on the basis of reason-
able cost for services provided in hospitals not covered under the
prospective payment proposal) and would be deducted from medi-
care payments to the HMO or CMP.
10. BENEFICIARY COST SHARING
Under current law, medicare pays all reasonable expenses for
the first sixty days of inpatient hospital care mimus a deductible
($304 in 1983) in each benefit period. For days 61-90, a coinsurance
amount ($76 in 1983) is also deducted.
Under your Committee's bill hospitals would be prohibited from
charging beneficiaries amounts in excess of the statutory deduct-
ible and coinsurance the prospective payment rates would be con-
sidered payment in full.
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11. PHYSICIAN PAYMENTS
Under current law, reimbursment to physicians is based upon
reasonable charge under the part B program.
In your Committee bill the Secretary would be required to begin
to collect data necessary to compute the amount of physican
charges attributable, by diagnosis related groups, to physicians'
services furnished to inpatients of hospitals whose discharges are
classified within those groups. The Secretary, in addition, would be
required to include, in its annual report to Congress in 1984, rec-
ommendations on the advisability and feasibility of providing for
payments for physicans' services furnished, based on the DRG clas-
sification of the discharges of those inpatients.
Your Committee is concerned that physicians have a significant
impact on hospital utilization and costs. The Committee, therefore,
is requiring the Secretary to begin to collect data and to study the
feasibility and appropriateness of, including physician payments
under the DRG system. The Committee understands that collection
of data in this form will take some time and is thus requiring the
Secretary to begin to collect it as soon as possible.
12. STUDIES AND REPORTS
Your Committee's bill would require the Secretary to study and
make the following reports to Congress:
At the end of 1983:
1. The method by which capital-related costs associated with in-
patient hospital services can be included in the DRG prospective
payment rates (see discussion of capital-related costs).
2. The issue of payment for return on equity capital for hospitals
receiving payments under the prospective system (see dissussion of
return on equity).
3. The impact of the prospective payment system on skilled nurs-
ing facilities and recommendations concerning skilled nursing facil-
ities, including payment methods for SNFs. Such report should
assess the extent to which the new hospital prospective payment
system may have an adverse impact on hospital-based and other
SNFs, including incentives for hospitals to shorten patient length
of stay, resulting in more patients being discharged into SNFs at
an earlier stage in their recovery, possibly causing the costs of
SNFs to increase.
Your Committee intends that the report requirement with re-
spect to prospective payment for SNFs which was due December
31, 1982, shall be sent to the Congress at the earliest possible date.
Annually, at the end of each year, from 1984 through 1987, the
Secretary would be required to report on the impact of the prospec-
tive payment methodology during the previous year on individual
hospitals, classes of hospitals, beneficiaries and other payors for in-
patient hospital services, and in particular the impact of computing
averages by census division rather than on a national average
basis. The report should include information on the impact on hos-
pitals serving low-income individuals. Each report must include
such legislative recommendations as the Secretary deems appropri-
ate. The Comptroller General must review and comment on the
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adequacy of each of the reports with respect to his or her analysis
of the impact of the prospective payment methodology.
As part of the 1984 report, the Secretary should begin the collec-
tion of data necessary to compute the amount of physician charges
attributable, by DRGs, to physicians' services furnished to inpa-
tients of hospitals whose discharges are classified within the DRGs.
The Secretary must include in the 1984 report, recommendations
on the advisability and feasibility of providing for determining the
amounts of the payments for physicians' services furnished to hos-
pital inpatients on a DRG-related basis (see physician payments);
As part of the 1985 annual report, the Secretary must include
the results of studies on:
1. the feasibility and impact of eliminating or phasing-out sepa-
rate urban and rural DRG prospective payment rates (see discus-
sion of setting the prospective payment amount);
2. whether and how hospitals which are now not covered under
the prospective payment system can be paid for inpatient hospital
services on a prospective basis (see discussion of exemptions, excep-
tions and adjustments);
3. The appropriateness of the factors used to compensate hospi-
tals for the additional expenses of outlier cases (see discussion of
setting the prospective payment amount-outliers);
4. The feasibility and desirability of applying the prospective pay-
ment methodology to all payors for inpatient hospital services; and
5. the impact of the prospective payment system on hospital ad-
missions and the feasibility of making a change in the prospective
payment rate or requiring preadmission certification in order to
minimize the incentive to increase admissions (see discussion of ad-
missions and quality review).
As part of the 1986 annual report, the Secretary must include
the results of a study examining the overall impact of State sys-
tems of hospital payment, particularly focusing on the State sys-
tem's impact not only on the medicare program but on the medic-
aid program, on payments and premiums under private health in-
surance plans, and on tax expenditures (see discussion of state cost
control programs).
In addition to the studies and reports specified in your Commit-
tee's bill, the Secretary shall conduct a major continuing research
program on issues related to medicare program costs and payment
methods. The research program shall include payment methods to
hospitals as well as payment methods to HMOs and CMPs. Particu-
lar attention should be paid to the impact of payment methods to
hospitals, and HMOs and CMPs, on quality of care, the use of tech-
nology, and the type of technology developed.
It is your Committee's intention that the Secretary conduct a
major, independent, multiple-disciplainary research effort, and that
such research shall include long-term contracts with two or three
university-based applied research centers. The reseach shall focus
on issues related to medicare program costs and payment methods
and shall include the use of such experts as physicians, economists,
statisticians, actuaries, financial and organizational specialists and
other relevant disciplines.
The Secretary is directed to study and report on the practical
methods of using public disclosure of DRG rates (once capital costs
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have been included in the system) to enable consumers and others
to make useful price comparisons among hospitals. The study
should include a discussion of the feasibility and method by which
hospitals might publish their charges for non-government payors
according to DRG categories.
Although the bill would prohibit hospitals from billing their
medicare patients for the difference between their charges and the
prospective price, your Committee desires to have the Secretary
study the circumstances under which such additional billings
might be allowed. Specifically, the Committee is interested in the
feasibility and effect of allowing hospitals in an area to charge in
excess of the DRG price, up to some maximum amount, where
there is a hospital(s), with adequate capacity, in that same area
which posts prices equal to or lower than the DRG prices. In order
to encourage beneficiary selection of such lower cost hospitals, your
Committee desires the Secretary to evaluate also the possibility of
reducing beneficiary deductible and copayment amounts where
they select hospitals posting prices below medicare DRG prices.
2. SECTION-BY-SECTION EXPLANATION-TITLE VI
Section 601 of the Bill amends section 1886 of the Social Security
Act (`SSA') to establish a method (the `DRG prospective rate
system') of paying hospitals, for their operating costs of inpatient
hospital services, on the basis of rates that are prospectively deter-
mined and that vary for each discharge accordingly to the diagno-
sis-related group (DRG) in which the discharge is classified.
Section 601(a) amends subsection (a) of section 1886 of the SSA to
eliminate the so-called medicare `section 223' limits on inpatient
hospital costs for cost reporting periods beginning on or after Octo-
ber 1, 1985, and to clarify that `operating costs of inpatient hospital
services' (to which the DRG prospective rates will apply) does not
include capital-related costs or direct medical and nursing educa-
tion costs.
Section 601(b) amends subsection (b) of section 1886 of the SSA,
which now provides for a system of reimbursement ('target rate
system') under which hospitals are paid per case based on how
their costs compared to individual `target' costs for different hospi-
tal accounting periods. The amendments clarify that the target
rate system does not apply to hospitals paid under the DRG pros-
pective rate system, provide that the target rate system would con-
tinue to apply to other hospitals after fiscal year 1985, and clarify
that the Secretary of Health and Human Services ('the Secretary)
would make estimates of hospital marketbasket changes, for pur-
poses of this system and the DRG prospective rate system, in ad-
vance of the period for which the marketbasket will be applied.
Section 601(c) amends subsection (c) of section 1886 of the SSA,
which now provides discretionary authority for the Secretary to
provide for medicare payments under a State's hospital reimburse-
ment control system, rather than under medicare rules, if the
system meets four requirements: (i) it must apply, to substantially
all non-Federal acute care hospitals; (ii) it must apply to at least 75
percent of hospital inpatient revenues or expenses; (iii) it must pro-
vide equitable treatment of all payors, hospital employees, and hos-
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152
pital patients; and (iv) it must not allow (over 36-month periods)
greater expenditures under medicare than otherwise would have
occurred in the absence of the system. The bill would also require
that such a system not preclude a health maintenance organization
or competitive medical plan from negotiating hospital rates direct-
ly with hospitals.
The bill would restrict the Secretary's discretion in several re-
spects. First, the Secretary. would be prohibited from denying a
State's program waiver application on the ground that the State's
system is based on a payment method not related to DRGs or on
the ground that the system does not result in an actual saving of
funds to medicare. Second, if the Secretary uses a percentage in-
crease method (e.g., not allowing costs above a fixed percentage of a
previous year's allowable costs) for projecting what is allowable
under the State system, the Secretary must permit the State the
option of applying that test (for inpatient hospital services) either
on an aggregate basis or on a per case basis; and if the Secretary
uses the test of limiting a State to the national aggregate rate of
increase in medicare expenditures in all the States, the Secretary
cannot require a State's rate of increase to be less than the average
rate of increase in all the States.
The section also requires the Secretary, if the State system other-
wise meets the requirements specified above, to approve the system
if the system is currently approved under a demonstration project
or if the system meets the following requirements: (i) the system
must be operated directly by the State or by an entity designated
under State law; (ii) the system must provide for the prospective
determination of hospital rates; (iii) hospitals must make such re-
ports (instead of medicare cost reports) as the Secretary may re-
quire in order to monitor the State's performance; (iv) the system
cannot result in hospitals' changing admissions practices in order
to `dump' or divert patients who cannot pay for their hospital serv-
ices; (v) significant changes in the system will not be made without
60 days notice to the Secretary and to hospitals likely to be materi-
ally affected by the change; and (vi) the system must have been de-
veloped in consultation with local governmental officials. The Sec-
retary must respond within 60 days to State applications meeting
these latter requirements.
Section 601(d) amends section 1886(d) of the SSA to redesignate
and transfer to section 1814 of the SSA provisions relating to allow-
ing the Secretary to eliminate the so-called `lesser-of-cost-or-charge'
provisions in current medicare law.
Section 601(e) adds four new subsections, (d), (e), (f), and (g), de-
scribed below in detail, to section 1886 of the SSA (which section
was originally added to the Tax Equity and Fiscal Responsibility
Act of 1983, or `TEFRA').
Proposed subsection (d) establishes a method for the payment of
hospitals for operating costs of inpatient hospital services on the
basis of DRG prospective rates. This provision would not apply to
hospitals located outside the 50 States and the District of Colum-
bia, psychiatric hospitals, rehabilitation hospitals, children's hospi-
tals, or long-term care hospitals, or (upon request of a hospital) dis-
tinct rehabilitation or psychiatric units of the hospital. There is a
three-year transition in moving to full implementation of the DRG
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prospective rate system. In fiscal year 1984, hospitals would receive
75 percent of their payments on the basis of the target rate system
established under section 1886(b) of the SSA (but without regard to
existing limits on the proportion of additional payments that a hos-
pital will gain or lose, and subject to the hospital's medicare `sec-
tion 223' limit under section 1886(a) of the SSA), and would receive
the remainder based on the hospital's adjusted DRG prospective
payment rate. In fiscal years 1985, and 1986, the percentage cov-
ered under the target rate system decreases to 50 percent and 25
percent, respectively, and, beginning with fiscal year 1987, pay-
ments to covered hospitals would be based entirely on the hospi-
tal's adjusted DRG prospective payment rates.
Paragraph (2) of that subsection describes the process for comput-
ing the adjusted DRG prospective payment rate for discharges in
fiscal year 1984. The computation proceeds as follows:
(A) The Secretary would compute, based on the cost recent avail-
able cost report data, the allowable operating costs of inpatient hos-
pital services for each hospital covered under the system.
(B) The Secretary would update the amounts for fiscal year 1983
using industry-wide data for previous periods and would project for
fiscal year 1984 using a formula that reflects the change in the cost
of the mix of goods and services that hospitals purchase (hospital
marketbasket) plus one percent, the so-called marketbasket plus
one factor.
(C) The Secretary would standardize each hospital's amounts to
eliminate fluctuations (from the national average) caused by in-
creased costs indirectly attributable to medical education programs,
by differences between the average wage level for hospital employ-
ees in the area in which the hospital is located and the national
average wage level of hospital workers, and by differences between
the hospital's case mix and the average case mix of hospitals in the
United States.
(D) The Secretary would then compute separate averages for
urban hospitals (that is those located in SMSA's or similar areas)
and for rural hospitals in each of the nine census divisions
throughout the continental United States, Alaska, and Hawaii.
(E) In order to standardize for typical case costs, the Secretary
would reduce each of these averages by the proportion (not less
than 4 percent) of the DRG payments that is attributable to the
extra payments for `outlier' cases, described in proposed paragraph
(5) below.
(F) The Secretary would then adjust each of the averages as may
be necessary to assure that the total amounts paid under the DRG
prospective rate system, for fiscal years 1984 and 1985, are the
same as the portion of the payments which would have been spent
under the medicare law as modified by TEFRA, in order to achieve
`budget neutrality'.
(G) The Secretary would then compute DGR-specific rates by
multiplying the urban and rural average rates for each of the
census divisions by the weighting factor for each DRG, described in
proposed paragraph (4) below.
(H) Finally, the Secretary would adjust the part of the payment
which reflects wage and wage-related costs to reflect differences be-
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tween those costs in the area of the hospital and those costs in hos-
pitals in the United States generally.
Paragraph (3) of that subsection provides, in a very similar
manner, for the computation of the adjusted DRG prospective rates
for discharges occurring after fiscal year 1984. The computation
proceeds as follows:
(A) The Secretary would take the urban and rural averages for
the previous year (before outlier or budget neutrality adjustments)
and increase them by a marketbasket plus one percent factor for
fiscal year 1985 and, for later fiscal years, by an appropriate factor
(described under subsection (e) below) determined by the Secretary
after receiving recommendations from a panel of independent ex-
perts. These averages would be made urban and rural areas within
each of the census divisions for fiscal years 1985, 1986, and 1987,
but would be consolidated for all urban hospitals and for all rural
hospitals beginning with fiscal year 1988.
(B) The Secretary would then make the same type of reduction
for outlier payments (described in (E) above) as was made in fiscal
year 1984.
(C) The Secretary would, for fiscal year 1985 only, then make the
same type of adjustment (described in (F) above) as was made in
fiscal year 1984 to assure budget neutrality.
(D) The Secretary would then compute DRG-specific rates for
urban and rural hospitals (as described in (G) above) within each
census division (for fiscal years before fiscal year 1987).
(E) Finally, the Secretary would adjust such rates to reflect dif-
ferences in area wage levels (as described in (H) above).
Paragraph (4) of that subsection requires the Secretary to classify
(and permits the Secretary from time to time to modify the classifi-
cation of) hospital discharges into diagnosis-related groups (DRG's)
and to set up rules for classifying specific discharges into those
groups. Based upon the relative hospital resources used in provid-
ing care to patients with diagnoses within the different groups, the
Secretary would establish a weighting factor for each DRG for use
in computing the DRG-specific payment rates.
Paragraph (5) of that subsection requires the Secretary to pro-
vide additional payments (comprising at least 4 percent of total
DRG-related payments) for outlier cases (that is, cases which are
significantly out-of-line with the typical case within the same DRG
classification). A case is deemed to be an outlier if its length of stay
exceeds by more than 30 days the average length of stay for cases
within the same DRG or if it has such other unusual length of stay
or unusual costs as the Secretary believes merit a special addition-
al payment amount. In addition and in order to compensate for the
additional indirect costs incurred in teaching hospitals, the Secre-
tary is required to make an additional payment in an amount re-
flecting twice the 6.06 percent factor provided under the current
section 223 regulations. The Secretary also is required to provide
for exceptions and adjustments to the DRG payment amount to
take into account the special needs of public and other hospitals
that serve a disproportionate number of low-income and medicare
patients, may provide for exceptions and adjustments to take into
account the special needs of sole community hospitals and hospitals
located in Alaska or Hawaii, and shall provide for such other ex-
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ceptions and adjustments as may be warranted (including those for
public, teaching, and cancer hospitals). In addition, the Secretary is
required to provide for an adjustment to reflect the fact that cer-
tain inpatient hospital services formerly billed under part B and
not included in the base for the system will, because of other
changes in the law, no longer be able to be paid for under part B.
Paragraph (6) of that subsection requires the Secretary to publish
in the Federal Register, not later than September 1 of each year,
the methods under which the Secretary is computing the DRG
prospective rate for the following fiscal year.
Paragraph (7) of that subsection prohibits administrative review
(including review by the Provider Reimbursement Review Board)
and any form of judicial review of the Secretary's determination of
any "budget neutrality" adjustment or of the Secretary's establish-
ment (including classification methods and weighting factors) of di-
agnosis-related groups (DRG's).
Proposed subsection (e) provides that the prospective payment
system established under proposed subsection (d) must be "budget
neutral" in fiscal years 1984 and 1985; that is, the expenditures
under medicare under the new system will be the same as those
under medicare as amended by TEFRA. In addition, there would be
an assurance during fiscal years 1984 and 1985 that 75 percent and
50 percent, respectively, of the expenditures would be made under
the modified target rate system and the remainder would be made
under the DRG prospective rate system.
For subsequent fiscal years, the Secretary is required to appoint
a panel of independent experts to review hospital marketbasket
changes, technological advances, and other factors that influence
changes in hospital costs and report to the Secretary on what the
appropriate percentage increase for hospitals should be for fiscal
years beginning with fiscal year 1986. The Secretary is required,
after considering the panel's report, to publish in the Federal Reg-
ister by June 1 of each year the proposed allowable percentage in-
crease for the following fiscal year and, after opportunity for com-
ment, to publish in final form by September 1 the allowable per-
centage increase which will apply for the following year. The Sec-
retary is required to continue to maintain, through fiscal year
1988, some system for reporting of hospital cost data.
Proposed subsection (f) requires the Secretary to establish a hos-
pital admission and discharge monitoring system, to assure that
hospitals paid on a prospective basis (either under the target rate
system or under the DRG prospective rate system) do not "game"
the system through inappropriate or multiple admissions, prema-
ture discharges, inappropriate classification of discharges, or other
inappropriate practices. The Secretary is authorized, in the case of
such practices, to deny payment to hospitals (in whole or in part)
or to require them to take other appropriate corrective action
[(such as preadmission review of all patients)]. A hospital dissatis-
fied with the Secretary's action has a right to a hearing in the
same manner as in the case of denial of payment under analogous
provisions of the medicare law.
Proposed subsection (g) prohibits payment of new capital expendi-
tures for hospitals in a State unless, by 3 years after enactment,
the State has entered into a "section 1122" capital expenditure
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review agreement with the Secretary and has recommended ap-
proval of the expenditures under that agreement. In addition, the
Secretary is required to phase-out, over a three-year period, the al-
lowance for return on equity capital for proprietary hospitals re-
ceiving payment under the DRG prospective rate system, so that
the amount of the allowance would decrease to 75 percent of the
current allowance (for hospital accounting periods beginning in
fiscal year 1984) to 50 percent of the current allowance for fiscal
year 1985, to 25 percent of the current allowance in fiscal year
1986, and would be eliminated entirely beginning in fiscal year
1987. A later provision in section 603 requires the Secretary to
report to the Congress on the return on equity issue by the end of
1983.
Section 602 makes various technical, conforming, and miscella-
neous amendments to reflect the fact that most hospitals will be
receiving payment for inpatient hospital services on the basis of
DRG prospective rates and no longer on the basis of the reasonable
cost of providing these services. One provision permits the Secre-
tary, after September 1984, to enter into contracts with fiscal inter-
mediaries to perform functions as peer review organizations. An-
other provision, effective October 1, 1983, prohibits medicare pay-
ments for inpatient hospital services not provided by physicians or
the hospital unless the hospital is paid directly for such payments,
and requires the provider agreement of hospitals paid under the
DRG prospective rate system to provide that the hospital has such
arrangements with any outside entity furnishing medicare services
to inpatients of the hospital; the Secretary is given authority to
waive these restrictions for three years for hospital billing prac-
tices in effect before October 1, 1982. Effective October 1, 1984, hos-
pitals receiving payment under an alternative State hospital reim-
bursement control system or under the DRG prospective rate
system are required, as part of their provider agreements, to have
an agreement with a utilization and quality control peer review or-
ganization (with a contract with the Secretary under part B of title
XI of SSA, as amended by TEFRA) to perform utilization review
and similar activities with respect to medicare patients; since hos-
pitals cannot remain as medicare providers after October 1, 1984,
without such an agreement, the Secretary must provide for con-
tracts with peer review organizations in all parts of the United
States not later than that date. Effective October 1, 1983, hospitals
receiving prospective payments (either under the target rate
system or the DRG prospective rate system) must agree not to
charge patients for services for which payment is denied because of
an inappropriate admission or medical practice described above.
Hospitals receiving payments under the DRG prospective rate
system cannot charge their patients for services covered under the
system because the hospital provides more costly care than may be
paid for under the system.
In addition, the section permits health maintenance organiza-
tions to elect to have hospital payments made (under the appropri-
ate payment system) directly to hospitals and subtracted from pay-
ments from medicare to the organizations. The Provider Reim-
bursement Review Board would be authorized to review hospital
complaints concerning payment under the DRG prospective rate
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system, except for the Secretary's determination on any "budget
neutrality" adjustment and on factors relating to the DRG system.
Section 603(a) requires the Secretary to make various studies and
reports in calendar years 1983 through 1987. By the end of 1983,
the Secretary is required to report on an analysis of how capital-
related costs can be included in the DRG prospective rate system,
what payment should be made for return on equity capital (which
payment is phased out under a previous provision), and the impact
of the DRG system on skilled nursing facilities. Each annual report
in 1984 through 1987 includes an analysis of the impact of the
system (in the previous year of its operation) on hospitals, patients,
and payors and, in particular, on the effect of the system's provid-
ing rates on a census division basis, for urban and rural areas,
rather than on a national basis, for urban and rural areas. Each
report includes any appropriate legislative recommendations, and
the GAO is required to review and comment on the adequacy of
the Secretary's impact analysis. During fiscal year 1984, the Secre-
tary is required to begin the collection of data on charges for phy-
sician inpatient services, by DRG's, and to include in the annual
report for that year recommendations on the feasibility and advis-
ability of providing for the payment of charges for these services on
a DRG-related basis. As part of the 1985 annual report, the Secre-
tary is required to include the results of studies concerning elimi-
nating or moderating the effect of providing for separate DRG
rates for urban and rural hospitals, whether and how hospitals
which are now not covered under the DRG prospective rate system
(e.g., psychiatric, rehabilitation, children's, and long-term care hos-
pitals) could be brought under it or a similar system, the appropri-
ateness of the factors used in computing the additional payments
for outlier cases, the feasibility and desirability of extending the
DRG prospective rate system to all payors, and the impact of the
system on increased admissions and methods of minimizing such
an adverse impact. As part of the 1986 annual report, the Secre-
tary is required to include the results of a study examining the
overall impact of State hospital reimbursement systems, focusing
on their "system-wide" impact.
Section 603(b) restates the fact that the changes in medicare law
made in the title do not affect the Secretary's authority to continue
or develop experiments and demonstration projects. However, the
Secretary is directed to modify certain current medicare State dem-
onstration projects so that each of these States is not required to
contain the rate of increase in medicare hospital costs in that State
below the national average rate of increase of those costs.
Section 603(c) states that Congress, in implementng a system for
including capital-related costs under a prospective payment system,
intends to provide some distinction between capital projects initiat-
ed before March 1, 1983 (old capital) and projects initiated on or
after that date (new capital).
Section 604 provides that the changes made by this title, except
as specifically described above, apply to hospital cost reporting pe-
riods beginning during or after fiscal year 1983. In the case of pa-
tients admitted in a reporting period before the effective date and
discharged after that date, there is an apportionment of costs be-
tween different payment systems. In order to provide for prompt
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implementation of the DRG prospective rate system, the Secretary
is authorized to publish interim regulations by September 1, 1983,
which would apply to discharges in fiscal year 1984, and to revise
these regulations by December 31, 1983. Any revisions would apply
only to discharges occurring 30 days or more after the notice of the
revision is provided. The Secretary also can provide for this expe-
dited regulatory process to provide for timely implementation of
the provisions relating to exceptions, adjustments, and additional
payments under the DRG prospective rate system.
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IV. COST ESTIMATES AND ACTUARIAL ANALYSIS
Memoranda on the estimated financial effects of your commit-
tee's bill on the social security trust funds were prepared by the
Office of the Acutary and are shown in this report. The memoran-
da, and attached tables, are self-explanatory. The table showing the
estimated effects of tax-related provisions of the bill was prepared
by the Joint Committee on Taxation.
MARCH 4, 1983.
MEMORANDUM
From: Richard S. Foster, Office of the Actuary, Social Security Ad-
ministration.
Subject: Estimated Short-Range Financial Effects of H.R. 1900 as
Reported by the Committee on Ways and Means on March 4,
Based on the 1983 Alternative II-B Assumptions.
The attached tables present the estimated effects on the OASDI
and Medicare programs of H.R. 1900 as reported by the Committee
on Ways and Means. Table 1 shows the estimated changes in
OASDI tax income or benefit outgo in calendar years 1983-89 for
the provisions of the bill which have an effect on short-range
income and outgo. Table 2 presents similar estimates for the Medi-
care program (HI and SMI). Table 3 compares the OASDHI tax
rate schedules under present law and under H.R. 1900. Table 4 pre-
sents the estimated operations of the OASI, DI, and HI Trust
Funds under the law as it would be modified by H.R. 1900. All of
the estimates are based on the alternative II-B assumptions pre-
pared for use in the 1983 Trustees Report. The HI and SMI esti-
mates were prepared by the Office of Financial and Actuarial
Analysis, Health Care Financing Administration.
As reported by the Ways and Means Committee, the major provi-
sions of H.R. 1900 are generally similar to the recommendations of
the National Commission on Social Security Reform. In addition,
the technical and miscellaneous proposals in H.R. 660 have been
incorporated. A complete description of the bill's provisions will be
contained in a forthcoming Legislative Bulletin prepared by the
Office of Legislative and Regulatory Policy.
One of the provisions of H.R. 1900 would modify the procedures
for the investment of trust fund assets. Due to the nature of the
proposed changes, together with the extreme sensitivity of invest-
ment earnings to the timing of cash flows and to short-term vari-
ations in interest rates, it is not possible to include the effects of
this provision in our estimates at this time. Such estimates should
be available in the near future. Under the alternative II-B assump-
tions, it is expected that the provision would reduce trust fund in-
terest income somewhat, although the amounts involved would not
be very significant relative to the increase in tax and other income
provided by H.R. 1900.
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Another provision in H.R. 1900 would treat employer payments
to a 401(k), 403(b), or "cafeteria" fringe benefit plan as covered
earnings under the Social Security program. Our estimates of
future Social Security tax income under present law do not explic-
itly reflect the loss in tax income that would result from a rapid
expansion in the number of these plans. Thus it would be mislead-
ing to indicate that the tax income projected under present law
could be significantly increased if plan payments were made sub-
ject to payroll taxes. The estimates shown in this memorandum, ac-
cordingly, do not include such effects. It is important to note, how-
ever, that a rapid expansion of these plans now appears to be fairly
likely. In the absence of the provision in H.R. 1900, the potential
reduction in annual OASDHI tax income attributable to such an
expansion could easily amount to roughly $1-2 billion within a few
years.
As indicated in table 4, under the alternative II-B assumptions
the provisions of H.R. 1900 would be sufficient to enable the timely
payment of OASDI benefits throughout the short-range projection
period. The interfund loans from the HI Trust Fund could be
repaid during 1986-88, and the bill's "stabilizer" proposal (effective
in 1988) would not be triggered. Thus H.R. 1900 as reported by the
Ways and Means Committee would substantially improve the fi-
nancial outlook for the OASDI program. It must be said, however,
that the bill would not offer assurance that the OASDI program
would operate satisfactorily under adverse economic conditions.
Under alternative II-B, which assumes moderate but steady eco-
nomic growth, asset levels remain at fairly low levels (relative to
annual expenditures) through about 1988. While estimates are not
yet available under alternative III, which assumes somewhat
slower-but steady-economic growth, it is anticipated that virtual-
ly no margin for safety would exist. Thus if actual future economic
growth were even slightly slower, on average, than assumed in al-
ternative III, the OASDI Trust Funds would be depleted within the
relatively near future. In particular, this result would occur if the
economy suffers another recession within the next 5 years or so.
Given the nontrivial possibility of such an occurrence, it cannot be
said that H.R. 1900 would assure the financial soundness of the
OASDI program during this decade.
Under alternative II-B, the HI Trust Fund would continue to de-
cline and would be depleted in about 1990.
RICHARD S. FOSTER, F.S.A.,
Acting Deputy Chief Actuary.
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TABLE 1.-ESTIMATED CHANGES IN OASDI TAX INCOME OR BENEFIT OUTGO UNDER H.R. 1900 AS
REPORTED BY THE COMMITTEE ON WAYS AND MEANS, BASED ON 1983 ALTERNATIVE II-B
ASSUMPTIONS
1983
1984
1985 1986 1987 1988
1989
Total,
1983-89
Increase tax rate on covered wages and salaries ........................................
8.6
0.3 ........................ 14.5
16.0
39.4
Increase tax rate on covered self-employment earnings ...............................
1.1
3.1 3.0 3.2 3.7
4.4
18.5
Cover all Federal elected officials and political appointies ............................
(1)
(1) (1) (1) (1)
(1)
1
Cover new Federal employees ......................................................................
.2
.7 1.2 1.8 2.4
3.1
9.3
Cover all nonprofit employees ......................................................................
1.3
1.5 1.8 2.1 2.6
3.1
12.5
Total for new coverage .................................................. ............
1.5
2.2 3.0 4.0 5.0
6.1
21.9
Prohibit State and local government terminations ........................................
.1
.2 .4 .6 .8
1.1
3.2
Provide general fund transfers for military service credits and
unnegotiated checks .................................................................... 19.7
-.4
-.4 -.3 -.3 -.3
-.3
17.7
Delay benefit increases 6 months .................................................... 3.2
5.2
5.4 5.5 6.2 6.7
7.3
39.4
Tax one-half of benefits for high income beneficiaries .................................
2.6
3.2 3.9 4.7 5.6
6.7
26.6
Continue benefits on remarriage ..................................................................
(2)
(2) (2) (2) (2)
(2)
-.1
Modify indexing of deferred survivors' benefits ........................................................
(2) (2) (2) (2)
(2)
(2)
Raise disabled widow(er)'s benefits to 71.5 percent of PIA ....................... -.2
-.2 -.2 -.2 -.3
-.3
-1.4
Pay divorced spouses whether or not worker has retired ........................................
(2) (2) (2) (2)
(2)
-.1
Replace 90-percent factor in benefit formula with 61 percent,
for individuals receiving pensions from noncovered employ-
ment ................................................................................................................................ (3) (a) .1
.1
.3
Offset one-third of spouses' noncovered government pension .......... (2) (2) (2) (2) (2) (2)
(2)
-.1
1 Net additional taxes of less than $50,000,000.
2 Additional benefits of less than $50,000,000.
2 Reduction in benefits of less than $50,000,000.
Note.-Estimates shown for each provision include the effects of interaction with all preceding provisions. Totals do not always equal the sum of
components due to rounding. Positive figures represent additional income or reductions in benefits. Negative figures represent reductions in income or
increases in benefits.
Source: Social Security Administration Office of the Actuary, Mar. 4, 1983.
TABLE 2.-ESTIMATED CHANGES IN MEDICARE INCOME OR OUTGO UNDER H.R. 1900 AS REPORTED
BY THE COMMITTEE ON WAYS AND MEANS, BASED ON THE 1983 ALTERNATIVE II-B ASSUMPTIONS
[In billions]
1983 1984
1985
1986
1987
1988
1989
Total
1983-89
Hospital Insurance:
Provide for prospective hospital reimbursement ......................................
$0.2
$2.0
$3.6
$5.2
$7.0
$18.0
Increase tax rate on covered self-employment earn-
ings ......................................................................................
$0.4
1.3
1.5
1.6
1.7
1.8
8.3
Cover all nonprofit employees ...................................................
.3
.4
.5
.5
.6
.7
3.0
Prohibit State and local government terminations .....................
(1)
.1
.1
.1
.2
.3
.8
Provide lump-sum general fund transfer for military
service credits ........................................................
$3.3
-.1
-.1
-.1
-.1
-.1
-.1
2.5
Total for HI charges ...............................................
3.3
.6
1.8
3.9
5.8
1.6
9.6
32.6
1 Additional income of less than $50 million.
Notes: 1. Under N.R. 1900, the financing of the Supplementary Medical Insurance pr ram would be shifted to a calendar year basis. The
estimated changes in SMI premium and general revenue income that would result from this shift are as follows (in billions):
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Change in premium income ......................................................................... -$0.1 (') $0.1 $0.2 $0.3 $0.3 $03
Change in general revenue income ................... ............................ ..................... ........ $0.7 -.2 -.2 -.3 -.2 -.3
It should be noted that these are fiscal year estimates and are based on the assumptions underlying the President's 1984 Budget. Thus they are
not directly comparable to other estimates in this memorandum. In addition, the estimates reflect a revision in the language that appears in the bill as
reported. This revision would allow the general revenue contribution determined under section 1844(a)(1) to be determined using the June 1983
premium rate and the actuarial rates already promulgated for July 1983 through June 1984.
2. Estimates shown for each provision include the effects of interaction with all preceding provisions. Totals do not always equal the sum of
components due to rounding. Positive figures represent additional income or reductions in benefits. Negative figures represent reductions in income or
increases in benefits.
TABLE 3.-TAX RATE SCHEDULES UNDER PRESENT LAW AND UNDER H.R. 1900 AS REPORTED BY
THE COMMITTEE ON WAYS AND MEANS
[Percent of taxable earnings]
Calendar year Total for Total for
OASDI OASI DI OASDI HI OASDI OASI DI OASDI HI
and HI and HI
Employees and employers, each
1982 ............................ 6.70 4.575 0.825 5.40 1.30 6.70 4.515 0.825 5.40 1.30
1983 ............................ 6.70 4.575 .825 5.40 1.30 6.70 4.775 .625 5.40 1.30
1984 ............................ 6.70 4.575 .825 5.40 1.30 7.00 5.200 .500 5.10 1.30
1985 ............................ 7.05 4.150 .950 5.70 1.35 7.05 5.200 .500 5.70 1.35
1986 to 1987 .............. 1.15 4.750 .950 5.70 1.45 7.15 5.200 .500 5.70 1.45
1988 to 1989 .............. 1.15 4.750 .950 5.70 1.45 7.51 5.560 .500 6.06 1.45
1990 to 2014 .............. 7.65 5.100 1.100 6.20 1.45 7.65 5.600 .600 6.20 1.45
2015 and later ............. 7.65 5.100 1.100 6.20 1.45 7.89 5.840 .600 6.44 1.45
Self-employed persons
1982 ............................ 9.35 6.8125 1.2375 8.05 1.30 9.35 6.8125 1.2375 8.05 1.30
1983 ............................ 9.35 6.8125 1.2375 8.05 1.30 9.35 7.1125 .9375 8.05 1.30
1984 ............................ 9.35 6.8125 1.2375 8.05 1.30 14.00 10.4000 1.0000 11.40 2.60
1985 ............................ 9.90 7.1250 1.4250 8.55 1.35 14.10 10.4000 1.0000 11.40 2.70
1986 to 1981 .............. 10.00 7.1250 1.4250 8.55 1.45 14.30 10.4000 1.0000 11.40 2.90
1988 to 1989 .............. 10.00 1.1250 1.4250 8.55 1.45 15.02 11.1200 1.0000 12.12 2.90
1990 to 2014 .............. 10.75 7.6500 1.6500 9.30 1.45 15.30 11.2000 1.2000 12.40 2.90
2015 and later ............. 10.75 7.6500 1.6500 9.30 1.45 15.78 11.6800 1.2000 12.88 2.90
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