The National Insurance Board
To a letter from the Nassau Institute, published in the
September 19, 2009 edition of the Nassau Guardian.
September 21, 2009
The National Insurance Board (NIB) wishes to address and correct “facts” advanced by the Nassau Institute in a letter to the Editor, published in the Nassau Guardian of Saturday, September 19, 2009, and referenced in a Tribune article on September 21, 2009. In that letter, the Nassau Institute incorrectly suggested that National Insurance is proposing an 84.1% increase in taxes.
Each month the National Insurance Board collects contributions from employers and employees that are invested for future benefit payments to workers should they lose employment income for reasons such as sickness, maternity, advanced age, invalidity, death and more recently, loss of employment. Contributions made to NIB are certainly not taxes; they are contributions, or, in commercial insurance terms premiums, for which contributors receive returns in the form of income-replacing benefits. There is a direct link between contributions made and benefits received. For example, National Insurance contributions provide full relief for employers from any costs and liability related to job-related accidents or diseases.
In their letter, the Institute gives an example of how a proposed 2% rate increase and a change in the wage ceiling from $400 to $600 per week will result in a 84.1% increase in contributions. While their mathematics may be correct for someone earning $600 or more per week, the Institute does not state that each of the considered increases they refer to would result in increased benefits to contributors. Also, a ceiling increase will not affect all workers and employers. In fact, when the ceiling is increased next, only around 40% of the workers and their employers will be affected, i.e., only those workers who are now contributing on the maximum $400 per week contribution ceiling will be required to pay more. From this perspective, the Nassau Institute’s calculations are not correct as they appear to assume that all workers make in excess of $400 per week. In fact, the assumption seems to be that all workers make at least $600. We know that this is not true; we know that not all workers will be affected, and those affected will not all have to pay on the new ceiling.
It must be restated that National Insurance contributions are payable on actual wages up to the ceiling. If that ceiling is increased to $600 today, then the person who makes $525 per week, will pay contributions on that amount and not on $600 per week.
So then, contrary to the Nassau Institute’s contention, 60% of workers will see no change in their weekly or monthly deductions. The remaining 40% of workers will be affected, but in varying degrees. Depending on their actual wages, some will pay contributions on wages of $10 more per week; or on $100 more; or, in the case of those earning the ceiling or above, on $200 more.
It cannot be overstated that those who will pay more in contributions as a result of the ceiling increase will realize larger benefits based on their higher insurable wages.
The National Insurance program needs to maintain its relevance as both the economy and social patterns change and thus various responses are required from time to time. In April 2009, an unemployment benefit was added. Because of this new benefit over 11,000 unemployed workers have had a portion of their lost income replaced and over $14 million has been returned to the economy thus far, boosting local consumption and benefiting Bahamian businesses. A ceiling adjustment would be in response to increasing wage levels over the past 10 years and will enhance NIB’s relevance to higher income workers.
Regarding the specific adjustments referred to by the Nassau Institute, the Government of The Bahamas has not announced any rate increase or ceiling adjustments. While new benefit initiatives and actuarial recommendations do call for rate and ceiling adjustments, no changes or implementation dates have been set. It is likely, though, that the additional 1% contribution for unemployment benefit that will be shared equally by employers and employees, will take effect in early 2010, and this is required to support the continuing benefit. Likewise, the Chronic Disease Prescription Drug Plan, when expanded to all NIB eligible contributors, will call for a rate adjustment, now suggested at 1%. The accompanying benefit that will be delivered to all employees, when this rate increase is approved and implemented, will result in a significant benefit to contributors and employers and will likely result in decreased health care costs for the entire country.
The National Insurance program has for over 30 years proven its value and importance to workers, employers and the overall economy. To maintain its value and relevance, changes are required from time to time. In this case, new benefits and a ceiling adjustment are being considered. The Government and the National Insurance Board will be proactive in measures aimed at ensuring that Bahamians can depend on the National Insurance Board to provide meaningful benefits to current and future generations of Bahamians. We know that we must reform NIB. Workers and the media are calling for this reform, particularly to ensure that the Fund remains relevant, vibrant, and paying a meaningful benefit beyond 2032. It would not be responsible for NIB to know that it has to reform and to introduce new benefits, provide for income relevancy and move to introduce the recommended Actuarial recommendations, without reviewing the cost of the additional benefits. Simply put, we cannot sit by and do nothing when we know that we should act now.