OASDI, Medicare hospital insurance, and Medicare supplementary medical insurance are separately financed segments of Social Security, each with separate trust funds (OASDI has two funds). The OASDI program provides benefits for the aged, for the disabled, and for survivors of deceased workers. Financing for the cash benefits for OASDI comes from earmarked payroll taxes levied on employees, their employers, and the self-employed. The rate of these contributions is based on the taxable earnings of employees, up to a maximum taxable amount, with the employer contributing an equal amount. Self-employed people contribute twice the amount levied on employees.
OASDI benefits replace a portion of a person’s former earned income, expressed as a percentage of earnings in the year before retirement. In the interests of fairness and saving money in Social Security trust funds, the government has structured OASDI benefits to provide proportionately more support to poorer citizens and less to wealthier citizens, in relation to income earned during working years. In other words, those who earned low wages or salaries receive a larger percentage of their former income in benefits than do recipients who had higher incomes. In couples with just one worker contributing to Social Security, the noncontributing spouse who first claims benefits at age 65 or older receives 50 percent of the amount paid to his or her spouse. Similar percentages are payable to disabled individuals and their spouses. Surviving spouses and children receive a percentage of the retirement benefit computed from the earnings of the deceased earner.
During an average month in 1998, over 44 million people drew Social Security cash benefits.
In 1998 over 148 million persons contributed to Social Security funds. During an average month in 1998, over 44 million people drew Social Security cash benefits—less than one-third the number of contributors. The amount of cash benefits people receive varies depending on the combined wages, salaries, and self-employment income of the primary earner or earners in a family. The law specifies certain minimum and maximum monthly benefits. To keep the cash benefits in line with inflation, the SSA indexes them to increases in the cost of living. These adjustments—known as cost-of-living adjustments (COLAs)—are determined according to changes in the consumer price index, a figure compiled by the government to represent the current cost of a selection of goods and services.
Since 1983 individuals aged 70 and older have been entitled to receive full Social Security benefits even if they continue working. For younger eligible workers, the amount of benefits depends on age and earnings. In 1998, for example, working persons aged 65 to 69 with earnings of $14,500 or less received full Social Security benefits. For those older than 62 but younger than 65, an income of over $9,120 resulted in reduced benefits. Above these limits, Social Security benefits are reduced by $1 for each $2 in earnings for people under 65, and they are reduced by $1 for each $3 in earnings for people age 65 to 69. In accordance with automatic income adjustment provisions of the Social Security law, these limits increase yearly in proportion to increases in average annual wages.
Medicare health insurance for the elderly is split into two parts, hospital insurance, also known as part A, and supplementary medical insurance (SMI), also known as part B. Medicare hospital insurance pays for inpatient hospital services, nursing home and hospice care, and home health services. Financing for this part of Medicare comes for the most part from payroll taxes. Medicare supplementary medical insurance, which pays for many services provided by physicians, is funded in part by uniform monthly contributions from aged and disabled people enrolled in the program, and in part by federal general revenues. Legislation passed in 1982 and 1984 froze the share of SMI costs covered by federal revenues at 75 percent. In 1998 the Medicare SMI monthly premium for each participant was $43.80. In addition, patients are responsible for a deductible portion of their hospital costs and for copayment of 20 percent of physician charges.
Americans pay significantly more for OASDI and Medicare hospital insurance today than they did when the program was first started. The rate of employee contribution, which was one percent of wages when the program began in 1937, had increased to 7.65 percent by 1998. Of that amount, 6.2 percent was slated for OASDI and 1.45 percent for hospital insurance. The maximum amount of annual income subject to taxation for OASDI and Medicare hospital insurance was $68,400 in 1998.
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