More than 270 hospitals nationwide have notified the Social Security administration of their intention to drop out of the program because of its rising costs and their doubts about its future.
The hospitals--including the Washington Hospital Center and the Fairfax Hospital Association--are the largest group among about 800 nonprofit institutions and local governments to file notices of intention to withdraw from Social Security during the coming year.
Unlike most private employers, nonprofit organizations and state and local governments are not required to participate, and the desire to "opt out" appears to be growing, according to hospital administrators and pension benefit experts.
Hospital administrators are showing a "strong interest" in pulling out of Social Security because "many believe that Social Security is going bankrupt," according to Robert W. Kalman, an employe benefit consultant with the Washington office of William M. Mercer Inc. "They are also concerned that the Social Security tax has become a growing burden on payroll costs, and many now feel that hospitals can provide comparable benefits for less than they are currently paying for Social Security benefits."
The state of Alaska has already completed its pullout from Social Security, but many other organizations that have filed notice of intent to withdraw may eventually decide not to. They have two years from the time they submit their notice to make a final decision, and are reportedly using the time to conduct studies on alternatives.
The Fairfax Hospital Association, for example, which operates three hospitals in Fairfax county, filed a withdrawal notice, but has decided not to go through with it, according to spokesman Peggy Pond. The hospitals could save on payroll taxes by pulling out, she said, but "we feel we have an obligation to protect our staff. We also had to consider the ethics of it--should we, as citizens, pull out 5,000 payments a month from the system's tax base?"
The Washington Hospital Center also filed notice, but has not decided whether to carry through on it, officials there said.
Social Security Administration figures show that 271 hospitals, almost 150 other nonprofit organizations, and about 300 state and local governments have filed withdrawal notices. They represent a total of about 13 million workers.
Steven Kukla, head of the financial management department of the American Hospital Association, said many hospitals never actually intended to pull out of Social Security, but filed notices to protect themselves against legislation in Congress that would have ended the withdrawal option. That bill did not pass, but it apparently prompted many institutions to examine their coverage and decide they would save money by dropping it.
The AHA is not encouraging members to pull out, but "there are several reasons why it's attractive" to do so, Kukla said. Many hospital employes are female, and thus entitled to partial benefits if their husbands are covered, he said. In addition, he said, "young people are generally disillusioned about Social Security," and thus willing to accept higher current salaries or contributions to individual retirement accounts in place of Social Security coverage.
Hospital administrators, under pressure to cut costs, are reportedly being lured by professional financial managers and benefits consultants who encourage them to drop out of Social Security and set up privately run pension programs that require less current input.
Researchers at the Employee Benefit Research Institute, which analyzes retirement programs, said hospitals can do that because a high percentage of their work force is transient. By setting a five or 10 year period to be vested under the private program, the hospitals can ensure that most of the workers covered under their plans will never actually collect.
Kalman said that "Social Security benefits cannot be duplicated." The argument that female employes don't need coverage, he said, fails to take into account the rising divorce rate and the growth in the number of single-adult households. In addition, he said, private plans, unlike Social Security, are not "portable" from one job to another, and usually do not provide comparable coverage in the event the worker is disabled.
"The ultimate impact of withdrawal," he said, "cannot be predicted fully by anyone."