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Change in calculation of monthly deductions confuses Caja’s insurance holders

July 9, 2014

An increase in the amounts deducted by the Costa Rican Social Security System (Caja) this month surprised many who wonder about the origin of the increase they saw in their social security slip.

“Those who saw a variation in the amounts collected this month were the ones who own a voluntary insurance plan and self-employed workers,” explained the Caja’s temporary director of inspections, Doris Valerio Bogantes.

“There was not an increase in the insurance collection amount, but in the way we calculate the person’s monthly contribution,” she added.

Traditionally people who hold voluntary insurance policies and self-employed workers paid monthly insurance fees according to the income they report to the Caja. The government adds an extra amount for both health insurance and for the person’s retirement plan.

But the Caja’s Board of Directors last November approved a change in the deductions calculation that finance officials proposed to improve the agency’s financial situation. The move is part of a list of recommendations made by a blue-ribbon commission appointed in 2011 to evaluate the Caja’s deficit.

Valerio said that one of the findings of the commission was precisely that “there were many people paying very low insurance fees mostly because they reported lower income than what they actually made.”

For that reason, a group of the Caja’s finance officers recommended setting the reference figure to calculate a person’s insurance fee based on the minimum wage of a “Non-Specialized Worker” so that no one could report a lower income. That monthly salary last year, according to the Labor Ministry, was ₡257,000 ($514).

But on Jan. 1, an increase in the minimum wage took effect and that salary is now ₡266,942.69 ($533), which for some voluntary policyholders and self-employed workers implied an adjustment in the percentage shown as their monthly collection from the Caja.

“It was not set up specifically for retirees or foreign residents,” Valerio said, referring to some complaints made by expats who also have claimed they recently were asked to file new income statements before the Immigration Administration.

“If Immigration requested that some of these people file income reports or any other documentation, it was probably to assess their legal status in the country. It had nothing to do with any request from the Caja,” she stated.

Previously the law required that the monthly insurance fee for voluntary insurance plan holders and self-employed workers be calculated as 57 percent of the reported monthly income.

Deductions for each person corresponded to 8.25 percent: 4 percent for health insurance (SEM) and 4.25 for their retirement plan (IVM), while the government added 8 percent for SEM and 3 percent to their IVM funds.

“Some people have been taking advantage of this system,” Valerio stated.

Now the measure approved by the Caja’s Board of Directors stipulates that starting Oct. 1, the income percentage used to calculate deductions for these insurance holders will increase. Also deduction percentages will be adjusted as the government subsidy is gradually decreased.

Deductions will be calculated as 64.75 percent of monthly income, and that base amount will increase yearly until Oct. 1, 2019, when the monthly fee will be calculated based on 100 percent of the reported income and each person will pay it in its entirety.

“Current law allows us to enforce the new calculation method immediately, but we decided to implement it gradually over a five-year period to reduce its effect on holders of these types of insurance,” Valerio told The Tico Times.

A blue-ribbon commission composed of four independent experts studied the Caja’s financial and management situation over a period of six months in 2011.

Financial reports at the time described the Caja’s situation as “near bankruptcy,” a situation that the Pan American Health Organization (PAHO) confirmed that same year in a report on Costa Rica’s health care system.

The commission included economists Fernando Naranjo and Pablo Sauma, entrepreneur Rafael Carrillo and sociologist Juliana Martínez. They presented an analysis report and a list of recommendations on three different aspects: income, expenses and general management.

In their analysis, the experts agreed with most of the PAHO’s findings including conclusions stating that the Caja’s bad decisions regarding salary increase policies and unjustified increases in staff were responsible for losses that might range from ₡118 billion in 2012 to ₡300 billion in 2015.

Last October they delivered their final report to Caja authorities and a special Legislative Assembly commission, including a list of 81 recommendations to improve the agency’s financial situation.

Ever since, the Caja’s board has been applying measures in response to those recommendations, with an emphasis on those aimed at cutting the agency’s spending, Valerio said.

However, the agency’s financial situation is still far from recovering. Last November Caja officials were forced to take funds from the agency’s pension system to pay Christmas bonuses, or “aguinaldos,” to retirees.

Also, a projection made by the agency that oversees pension funds (SUPEN) last year stated that the sustainability of the Caja’s pension system will only last until 2023 if no substantial changes are made.

SUPEN Director Édgar Robles last month said that their expectations in 2014 are for the Caja to outline a plan that will allow the agency to achieve all improvements required for the long-term sustainability of the pension fund program.

“The first indicator of the Caja’s situation is that personal income today is not sufficient to pay pensions already granted. The system requires strong adjustments,” Robles stated in an interview last month.

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