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July 5, 1983

INTRODUCTION

"Women's issues" are becoming increasingly important to the nation's policy makers and politicians. This has led, among other things, to the Economic Equity Act (H.R. 2090 and S.888) introduced in the House by Patricia Schroeder (D-CO), and in the Senate by Dave Durenberger (R-MN). The many subjects addressed by H.R. 2090 and S.888 fall into three broad categories. The first deals with tax and retirement matters and is found primarily in Title I. The second category deals with child care issues: dependent care tax credits and availability in Title II and child support enforce- ment in Title V. The third category covers regulation and insur- ance in Titles IV and III, respectively.

As with almost every omnibus bill, the Economic Equity Act contains good and bad features. Many of the tax and retirement provisions, for example, address very real inequities. This is particularly true of provisions that would recognize the economic value produced by homemakers by allowing them to contribute up to $2,000 annually to an individual retirement account (IRA). Yet the bill also contains such provisions as the misnamed "Nondis- crimination in Insurance." This would provide for "sex neutral" insurance which could cost a woman with a typical range of policies thousands of dollars over her lifetime.

To prevent the more controversial parts of the bill from delaying action on other segments, separate bills encompassing the varied provisions of the Economic Equity Act have been intro- duced in the House. The five major subdivisions of Title I, for instance, have been introduced as H.R. 2100, H.R. 2099, H.R. 2127, H.R. 2300,-and H.R. 2126. Title II has been introduced as H.R. 1991, H.R. 2093, and H.R. 2242. H.R. 100 is the equivalent of Title III, and H.R. 2410 is the same as Title IV. Finally, the provisions in Title V have been introduced as H.R. 2411 and H.R. 2374.

Splitting the omnibus bill in this way enables its key pro- visions to be addressed independently. Congress can reject those features based on faulty logic, and amend those where the mechanism provided will not attain the intended goal. More important, legis- lators will not feel pressed into voting for all or none of the package, as if that were a litmus test of their concern for the problems of women.

With some fine-tuning, most of the tax changes contained in these bills would bring real equity into the tax code, and provide women with more freedom to pursue their chosen role as either home- maker or breadwinner. The measures dealing with child care, sup- port enforcement, and pension rights, however, need more attention by Congress. While the purposes are generally laudable, the means offered may be deficient in many instances. The third set of pro- visions" dealing with insurance, would be disastrous for-women. The idea of "sex neutral" insurance is a seriously flawed notion and should be treated accordingly.

The Economic Equity Act, therefore, addresses some genuine and serious problems faced by women. By treating each segment of the act on its merits, and passing those parts which contain good sense as well as good*intentions, Congress could do much to bring real equality to American women.

TAX AND RETIREMENT (TITLE I)

Private pension reform. Also introduced separately by Repre- sentative Geraldine FeFr-aro (D--NY) as H.R. 2100, this section of Title I of the Economic Equity Act is designed to secure the pen- sion rights of widows, enable more women to become vested in their own pension plans, and recognize the property rights of a former spouse in pension benefits.

In many cases a widow may find that she has no rights to her husband's pension benefits after his death. Currently, if a fully vested employee dies before reaching retirement age, his (or her) spouse may be unable to collect any pension benefits. In fact, it is possible that a woman may receive none of the income on which .she had expected to live if her husband dies the day before he retires.

Even if the employee dies after eaching retirement age, his widow may be denied survivors' benefits.' The Employee Retirement Income Security Act (ERISA) contains a "waiting period" provision allowing pension plans to withhold benefits from a widow whose husband dies of natural causes within two years of retiring.

Survivor's benefits or joint survivor's annuity benefits represent an option which allows a portion of the pension payment to continue to the surviviftg spouse if the pensioner dies first. Selecting this option reduces the benefits the pensioner receives during his or her lifetime.

often a couple plans for retirement on the assumption that a portion of the pension will continue if the husband dies first. The widow who finds herself denied these benefits may face sub- stantial hardship. The Economic Equity Act attempts to eliminate this problem by establishing the right of a widow to the survivors' pension benefits of vested employees, even if the employee dies before reaching retirement age, and by abolishing the "waiting period" provision of ERISA.

Under current law, a widow may find herself without continu- ing benefits because her husband signed away her rights without informing her. An employee can legally opt out of survivors' benefits without informing his or her spouse. This increases the payments to the pensioner during his lifetime, but offers no secur- ity for the surviving mate. Title I would require written con- sent of both the employee and his or her spouse to waive the survivors' annuity option. This will increase the paperwork burden of employers slightly, but these costs are offset by help- ing reduce the problem of poverty among older women. Title I also changes the law to enable more working women to gain their own pension benefits. Women's careers generally follow a pattern different from men's. Most significantly, women's careers are often interrupted during child-bearing years. Recognizing the impact this pattern has on women's ability to become vested in a pension fund, Title I would lower the minimum age for parti- cipation in a pension plan from 25 to 21. Women experience their highest labor force participation rate during the ages of 20 to 24.

In addition, Title I would modify break-in-service rules to give 20 hours per week credit for up to one year of employer- approved paternity or maternity leave if the employee returns to his or her job. Thus, the woman who takes off a few months to have a child would still receive some service time credit for the purposes of meeting vesting requirements.

This change is important. In 1979, only 41 percent of women working full-time were vested in their pension plans, compared with 51 percent of men.2 This difference is clearly due in part to time off for child-bearing. As with other changes proposed, the costs to the pension plan would increase as more people eventu- ally collected pensions, but providing the means for women to plan a more secure retirement may well be worth the cost.

The final provision allows divorce courts to recognize a spouse's claim on pension benefits. This claim may be in the form of either an award of alimony or child support. Problems may arise, however, depending on how such decisions are enforced.

Recognizing the right of an ex-spouse to collect part of a pension is one thing; guaranteeing that alimony or child support payments are actually made is quite another. Asking the pension fund to distribute payments not only to an employee, but also to one or more ex-wives as well as keeping current with the changing legal status of the case is going beyond what can be reasonably expected.

Civil service pension reform. Introduced separately by Congresswoman Schroeder as H.R. 2300, this section of Title I 'con- tains two reforms. First, it would establish the rights of the divorced spouse of a civil servant or retiree to a specified share of the civil service retirement annuity and survivors' benefits if the couple were married 10 years or more. Secondly, it would require written consent of the spouse (or former spouse) to waive survivors' benefits.

While need for the second reform is clear, the first is ques- tionable. Whether former spouses have a claim on the pensions of ex-husbands or wives seems a matter better left to the divorce courts. Though the Economic Equity Act provides for court review, modification, or rejection in these cases, laying down in law a course of action creates a presumption that former spouses auto- matically have these rights. SRousal individual retirement accounts. Introduced by Repre- sentative Ferraro as H.R. 2099, this seFt-1-on of Title I recognizes the homemaker's economic contribution to the family. The current tax code contains no provisions for housewives, who earn no salary, to contribute to an IRA. This law not only denigrates the role of the homemaker but also reduces the retirement income available to families in which the wife has chosen to stay home during all or part of her working life. Title I would change this by allowing homemakers to contribute up to $2,000 to a family IRA. H.R. 2099 would also allow divorced women to treat alimony as income for the purposes of opening an IRA.

While H.R. 2099 is estimated to reduce Treasury revenues by about $100 million, the benefits of expanding IRA coverage would eliminate inequities in the tax code, encourage savings, and aid women--either alone or as part of a family--in providing for their retirement.

Head-of-household tax reform. This provision is designed to provide tax relief to the growing number of single parent families-- most of which are headed by women. Introduced by Congresswoman Barbara Kennelly (D-CT) as H.R. 2126, this section would change the federal income tax code to provide single heads-of-households with a zero bracket amount equal to that allowable on joint returns.

While opponents of this provision seem concerned primarily with the resulting reduction in tax revenues--expected to be $1 billion annually by 1986--the-goal of providing relief through reduced tax liability is laudable. Single heads-of-households face costs and limitations not common to other families. This particular method, however, may be overly rough-and-ready. Though simple to administer, it is not clear such a change provides the relief needed. More effort should be given to determining how much tax easement is appropriate. Then the. best way of providing relief can be found.

Displaced homemakers tax credit. "Displaced homemakers" are those women who planned a life 6-fworking at home as a wife and mother but suddenly find themselves in need of a job because they are widowed or divorced. Very often these women lack marketable skills and thus find it hard to get a job. This section of Title I, introduced as H.R. 2127 by Representative Kennelly, would provide employers with a tax credit for hiring these women. Displaced homemakers would be added to the list of "disadvantaged" workers, thus enabling employers to claim a tax credit up to $3,000 during the-first year of employment and up to a $1,500 tax credit in the second year.

A tax credit, however, may not be the best means of helping displaced homemakers. Few employers have taken advantage of similar programs in the past. They cite unfamiliarity with the program, government red tape, and fear of an IRS audit.3 It is also unclear whether such credits provide many net new jobs. Rather, employers may simply substitute one worker for another, or accept credits for employees they would have hired anyway.

The provisions of Title I, are designed to aid women by re- ducing their tax liability and by helping them to secure an income during retirement. Many provisions correct inequities in current law, such as by allowing housewives and women receiving alimony to contribute to IRAs, requiring the signature of both spouses when survivors' benefits are abandoned, and by guaranteeing rights to an income for the widow of a fully-vested employee even if he dies before retirement. other provisions are of more doubtful value. Tax credits for employers who hire displaced homemakers, for example, probably will not provide the help these women need.

DEPENDENT CARE (TITLE II)

Title II addresses four areas: the tax exempt status of child care facilities, a new sliding scale for tax credits against dependent care expenses, the refundability of these credits, and information and referral systems. As in Title I, these provisions have been formulated into separate bills.

Tax-exempt status for child care facilities. Congressman Barber Conable (R-NY) has intr6-duced H.R. 1991, encompassing part of Title II, to simplify the procedure by which non-profit daycare centers attain an "educational" designation, giving them tax- exempt status. Under current law, institutions that provide care either' solely for infants and/or school-aged children after classes or in conjunction with pre-school 'care have problems demonstrating the "educational" nature of their services.

Conable's bill declares that day care centers providing care for the children of working mothers are to be considered educational institutions and granted tax-exempt status: Since such organiza- tions already pay little or no tax, the primary impact would be to reduce the paperwork for day care centers.

Slidinq scale for tax credits. The 1981 Tax Act established a sliTirng scale of tax credits for work-related child care ex- 4 penses. The credit ranges from 30 percent for families with incomes under $10,000 to 20 percent for families with incomes of $28,000 or more. Title II would raise the available credit to 50 percent of child care expenses for families with incomes below $10,000, and reduce the credit available by one percent for every $1,000 increase in income, down to a floor of 20 p@rcent. Thus, families with $40,000 incomes and above would receive a 20 percent credit.

Opponents of this measure are concerned that it would cut federal revenues by $613 million in 1985 and $955 million in 1988.5 Proponents counter that families with lower incomes often have no choice but to pay someone to care for their children while the parent or parents work. Thus the costs of expanding the credit are felt to be justified.

Refundabilitv. Another section of Title II, introduced by Representative Barbara Mikulski (D-MD) as H.R. 2093, would allow families who do not earn enough to pay income tax to receive pay- ment from the Treasury for the amount of credit to which they would have been entitled had they paid income taxes. opponents not only fear the cost of the credit program, but also argue that because the refunds would be received in a lump sum once a year, they would not be used to upgrade child care. Proponents counter that this is true of any targeted credit.

Information and referral. This section, also introduced by Representative MikulskT -asH.R. 2242, would provide grants to help communities establish child care information and referral services. Among the positive aspects of this proposal is the fact that the grants, once begun, would be phased out over 5 years. In addition, improved information would stimulate competition, leading to im- proved child care.

Is this, however, an appropriate role for the federal govern- ment? Federal money leads to federal regulation--on top of exist- ing state and local rules concerning day care. The states, rather than Washington, ought to be funding information and referral centers. If there really is a pressing need for this service, moreover, it is surprising that it has not already been provided by churches, neighborhood groups, or other organizations in the non-profit sector.

CHILD SUPPORT ENFORCEMENT (TITLE V)

Experts estimate over 90 percent of those individuals ordered by a court to pay child support fail to voluntarily make all the payments ordered. Between 25 and 33 percent of fathers never make a single court-ordered payment. Title V attempts to address this problem.

Amendments to the child support program. Title IV-D of the Social.Security Act requires each state to have an approved program of child support enforcement; this must include measures to estab- lish paternity and locate missing fathers. These have been applied primarily to AFDC (aid to families with dependent children) cases. Title V of the Economic Equity Act, introduced as H.R. 2374, by Representaive Kennelly, states explicitly that Title IV-D child support enforcment programs are to aid non-AFDC mothers in securing court-ordered support payments. Furthermore, Title V would extend the means by which states may help women collect support payments. It would expand the power of states to withhold federal income tax refunds from any parent delinquent in child support payments and would establish mandatory wage assignments, liens against property, and a child support clearinghouse to monitor the time- liness and accuracy of payments. This would make it easier for a woman to demonstrate that support payments are in arrears. The primary beneficiaries of this measure would be women struggling to maintain their independence and avoid the welfare system. This becomes very difficult when support is irregular or non-existent. Federal mandatorX wage assio4ent. Title V would provide for the automatic assignment of federal civilian employees' wages when child support is ordered. once the court sets a child sup- port payment, the federal Office of Personnel Management (OPM) automatically would withhold the support payment and mail it to the recipient. These provisions are also contained in H.R. 2411, introduced by Representative Schroeder.

Advocates argue that the approach would help the employee by making the payment automatic and would recognize the federal responsibility to devise a system that will help ensure court- ordered payments are made in a timely fashion. What bothers the provision's opponents is the presumption of guilt for every federal employee obliged to pay child support. It would be fairer, it is argued, to bring OPM into the case only after an employee has proved to be delinquent in making the support payments.

REGULATORY ISSUES (TITLE IV)

Regulatory Reform.

This section of the bill, also introduced as H.R. 2410 by Representative Schroeder, would direct federal administrative and executive agencies to identify and rewrite regulations, rules, and guidelines with sex-based distinctions, as well as those that result in different treatment based on gender, to make them "sex-neutral."

This change is long on symbolism but short on effect. That some regulations use "he" to refer to both men and women has little impact on how the regulations are administered. Women are most often adversely affected by rules and regulations regarding tax and business activities, for instance, because they are generally newer entrants in the market place, not because of "sexist" official jargon. Many regulations, such as occupational licensing restric- tions, intentionally or unintentionally give established businesses and individuals an advantage over new entrants. It is these regu- lations that fall most heavily on the growing number of women now entering the professions and starting new businesses.

Title IV does not get At the heart of the problem women face. Far more could be accomplished by identifying those rules that tend to protect existing workers at the expense of potential en- trants.

NON-DISCRIMINATION IN INSURANCE (TITLE III)

The insurance provisions of Title III have drawn the most attention. Separately introduced by Congressman John Dingell (D-MI) and Senator Bob Packwood (R-OR) in H.R. 100 and S.372, this section of the Economic Equity Act would prohibit insurance companies and pension funds from making distinctions based on race, color, religion, sex or national origin. State insurance regulators already have forbidden discrimination based on all these factors but sex. The current debate thus concerns using sex as a means of classifying those who buy insurance. Availabilitz and price. Advocates of Title III argue that insurance companies have treated women unfairly, denying them equal access to various insurance products and charging unfair rates for policies available to both sexes. Most frequently cited are health and disability policies. Not only do women pay more for these policies, but it is said that they can face problems obtaining this insurance. It is argued that waitresses and women domestic workers are often unable to obtain disability insurance

For a further discussion of this point, see Catherine England and Robert J. Valero, "Working Women: Is Uncle Sam the Solution ... or the Problem?" Heritage Foundation Backgrounder No. 263, May 2. 1983. while men in similar occupations find it readily available. Fur- thermore, women who work in their homes are said to be unable to acquire adequate coverage, while men have no problems. In addition, disability coverage is alleged to be unavailable for homemakers as well as for part-time employees, of whom 70 percent are women. Advocates of H.R. 100 and S.372 also argue that women who-do have disability insurance are often subject to longer waiting periods befbre benefits begin, and then receive payments for a shorter period of time.

Opponents of Title III accuse their critics of being wrong or out of date. Home-based professional or self-employed women, for instance can buy disability coverage on the same basis as men- in every state. Furthermore, few homemakers actually obtain the disability insurance available to them through some companies. As for disability policies, insurers are prohibited by state regulators from making any distinctions between men and women either in establishing waiting periods or in making payments.

Maternity Benefits.

The Pregnancy Discrimination Act of 1978 requires firms with more than 15 employees to include maternity coverage in group health policies. H.R. 100 and S.372 would extend such coverage to all individual and group health policies for com- panies with fewer than 15 employees. Advocates of this change argue that maternity coverage has been unavailable, excessively expensive, or has provided only flat rate benefits that generally fail to cover full costs of the pregnancy. Insurers are said to view pregnancy as an "optional" condition, and so fail to include it in general health policies. Supporters of the mandatory exten- sion of maternity benefits note that other "optional" medical expenditures are routinely covered, including vasectomies and cosmetic surgery.

What these arguments ignore is that adding the costs of preg- nancy (which are often very high) to all health insurance contracts would unfairly penalize those who have no need for such coverage-- single males or the elderly, for example. Furthermore, the re- sultant increase in individual health policy costs could lead to "adverse selection.

Sex Characterization.

There is also significant disagreement about the overall impact of outlawing sex categorization. The National Organization of Women maintains that women pay almost

"Adverse selection" occurs when an increase in premiums leads those who see themselves as facing less than average risk.to forego insurance al- together. This leaves insurance companies with a riskier group and the need to increase premiums again. Such an increase may cause even more of those facing a below average risk to leave, necessitating a further increase in rates. The cycle may continue, leaving a particular insurer with only those customers who are almost certain they will present a claim.

$16,000 more than men for a full range of insurance over their lifetimes (see: Table 1). In a letter to Business Week, however, Richard V. Minck of the American Council oT 'Life Insurance points out several errors in NOW's calculations. since employers must provide all employees the same health and disability benefits, there is no cost differential for women in these cases.

Table I

Type of Insurance NOW estimates a Minck's estimates b (The cost of (The cost of female premiums female premiums compared to compared to male premiums) male premiums)

auto -$1,640 -$1,640

health + 6,662 0

disability + 4,854 0

life + 5,856 3,210

TOTALS +$15,732 -$4,850 a. Source- "Sex and Insurance Policy," Business Week, February 7, 1983, p. 83. b. Source: Letter to the Editor of Business Week by Richard V. Minck, Execu- tive Vice President, American Council of Life Insurance, p. 2.

Minck also criticizes as grossly atypical the life insurance policy chosen by NOW for its example. In fact, Minnesota Mutual (whose premium is cited) sold just three of these policies during 1982--and those to employers rather than to individuals. Minck chose as more representative a whole life policy and used the premiums of a company that sold over 300,000 such policies in 1981. With this popular policy a woman would save $3,210 on life insurance between ages 35 and 65.

Using Minck's estimates, women save almost $5,000 over their lifetime when sex is used as a means of risk classification. Some experts claim that these estimates are conservative. Mavis Walters of the Insurance Services Office has noted that under certain con- ditions some insurance companies offer lower automobile insutance rates to women over 30, leading to savings for women in auto insurance alone over $5,000 during a lifetime. Such policies bring the total savings for the average woman to over $8,000.

Further evidence comes from states that have mandated unisex automobile insurance premiums. In Michigan, for example, sex neu- tral insurance boosted women's premiums from 140 percent to 327 percent. In Massachusetts, the premiums paid by women have not only increased substantially, but insurance companies are avoiding taking on young male drivers as customers. As a result, 90 percent of the auto insurance for young men has been forced into the state- supported residual market reinsurance facility, where the insurance costs are subsidized by the taxpayer.

Use of other characteristics. Advocates of Title III complain that it is unfTir @to treat every woman as the "average" woman. Proponents contend that gender ii often used merely as a proxy for other characteristics which describe an individual more com- pletely than his or her sex. With regard to automobile insurancel, for example, it is argued that miles driven is a better predictor of automobile accidents than sex. Advocates of H.R. 100 and S.372 maintain that young women have fewer accidents than their male counterparts because they drive fewer miles. Use of the "true" characteristic would create a fairer system, they claim, without unnecessarily penalizing women drivers.

A similar argument is made regarding the demonstrably longer life spans of women. Fewer women smoke than do men, while males generally drink more than females. Moreover, career choices tend to lead men to higher pressure or more dangerous jobs than women. These factors, advocates argue, explain the differences in male/ female life spans and should be the characteristics which insurers consider.

Opponents of-sex neutral insurance respond that insurers already use many other characteristics assigning risk categories. Smoking and drinking habits, occupation, avocation, miles driven, urban versus rural living, commuting versus leisure-time driving, driving record, and the family health record are but a few of the criteria insurers use to categorize customers. But none of these explains all the differences in insurance risk. Consider driving records. While miles driven is a predictor of accident claims, it does not, as some have suggested, explain male-female differ- ences. When driving records are compared for men and women driving the same number of miles per year, women still show better records in every category of miles driven.

Similarly, the gap between the life expectancies of men and women cannot be explained solely by life style. other data support the theory that women are more resilient than men. For example,

8 J. Daniel Bray in The State Factor, American Legislative Exchange Commit- tee, May 1983, p. 6. 9 Statement of Dr. Mary W. Gray, President, Women's Equity Action League, before the Senate Commerce Committee, April 12, 1983, p. 14.

85 percent of the children with birth defects are male--a statis- tic obviously not explicable by differing "life styles.1110 Clearly, there are basic risk differences not covered by either faction.

Retroactivity and pension funds. While most insurance poli- cies are renegotiated periodicalli-yand could be easily adjusted to a unisex rate basis, others pose problems. Whole life insurance policies, for example, involve long-term contracts governing pre- miums and,payments. Of even more concern would be the effect of Title III on pension funds currently being paid and on employees nearing retirement. If passed in its present form, H.R. 100 and S.372 would require employers to "top u benefits for the group currently receiving the lower payments. This would lead to un- funded liabilities for pension funds because these extra payments obviously were not factored into the pension calculations. Such a move could imperil the smaller funds.

Title III supporters apparently believe that any difference in treatment along gender lines implies discrimination. They fail to admit the validity of any actuarial distinctions on the basis of sex and argue that the insurance industry is one of the last significant strongholds of sex discrimination.

Yet the issue is not a matter of sex di'scrimination, but of proper risk categorization. The basis of insurance is gfoup pool- ing of risk. But competition within the industry naturally leads insurers to attempt twidentify low-risk groups and attract them through reduced premiums.. This practice led insurance companies to notice the different claim records of men and women and then make a distinction on that basis--rewarding the group with the lower risks. In the process, insurance companies created a fairer system by assigning individuals to groups defined as narrowly as possible. It would be very unfair to ask women drivers to sub- sidize men, for example, or to ask shorter-lived male pensioners to subsidize women. It will not be the insurance companies that lose under a sex neutral system. It will be the men and women who face higher insurance rates as a result of less exact risk categorization.

It might finally be noted that if advocates of sex neutral insurance are correct and premium/benefit differences are due to discrimination rather than valid risk distinctions, there would be enormous profits awaiting any company willing to market insur- ance to women on an "equal" basis. once can only wonder why some enterprising woman (perhaps a member of NOW) has not seized the opportunity.

10 Carol J. Hornby, "The Cost of Noa-Discrimination (H.R. 100)," Fact Sheet, Re ublican Study Committee, May 19, 1983, p. 1-35-83. p "Topping up" refers to the equalization of pension payments through rais- ing the payments made to the group receiving lower monthly checks to'those of the group receiving more.

CONCLUSION

In considering the plight of women, the authors of the Economic Equity Act identified and sought to correct some real imbalances faced by women. Expanding the ability of women to par- ticipate in IRAs, and securing the rights of widows to income from their husbands' pension funds are reforms long overdue. They will help women become more financially independent. Drawing attention to the problems faced by women ufiable to collect court ordered child support and the inability of parents to learn the range of child care alternatives available is useful and the solutions of- fered have some merit.

It is unfortunate that discussion of the bill has centered around its most destructive section. The crusade for "sex neutral" insurance has not only drawn attention away from issues of real importance, but also seems destined, if it succeeds, to cost the average woman thousands of dollars over her lifetime in unneces- sarily high insurance premiums.

With the principal exception of Title III, the Economic Equity Act has much to offer. Its answers are not perfect in many cases, but at least the attempt has been made to identify and deal with the problems and inequities confronting women today.

Catherine England Policy Analyst