Circumstances Under Which Nonprofit Hospitals Are Reviewing and Deciding To Terminate Social Security Coverage

HRD-83-42: Published: Mar 2, 1983. Publicly Released: Mar 14, 1983.

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In response to a congressional request, GAO examined the circumstances under which nonprofit hospitals are reviewing and deciding upon the option to terminate social security coverage.

GAO found that these hospitals generally exercised their termination option because of a desire to save money and to control future costs. Concern about the future financial integrity of the social security system was also cited as an important factor in their decision. In deciding to withdraw from social security, most hospitals made a detailed analysis of the feasibility of terminating coverage, worked with a consultant to design a detailed alternative plan and, upon obtaining employee reaction to the new plan, decided whether to pull out of social security. If the majority of employees indicated a strong inclination to retain their social security coverage, hospital officials said they would not exercise their termination option. GAO found that the consultants appeared to use reasonable actuarial assumptions in designing the contribution plans, but the hospitals did not try to fully replace social security with their alternative plans. A portion of the hospitals' cost reduction after adopting the alternative plans results from the new plan's paying reduced benefits to some employees who receive social security benefits.

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