by Robert H. Spicknall

FOR MANY YEARS, it has been my pleasure to assist law firms, lawyers, and their families as their health insurance agent.

Unquestionably, the most difficult age bracket to be in for health insurance is 60–64. Typically, those who have individual coverage or are part of a group with fewer than fifteen employees have health insurance premiums based on age. If you agree that health insurance is generally very expensive, then you’ll find that health insurance premiums for those ages 60–64 to be outrageous. 

As I assist many in the 60–64 age bracket, I invariably point to the light at the end of the tunnel: age 65, when people become eligible for Medicare. The reason one usually pays much less for health insurance at age 65 is because Medicare is heavily subsidized by the federal government. 

Medicare Components 
The Medicare program provides health care to more than forty-three million Americans. The federal agency that runs Medicare is the Centers for Medicare and Medicaid Services (CMS). CMS is part of the U.S. Department of Health and Human Services. 

Medicare assists people age 65 or older, and persons younger than 65 who have disabilities such as permanent kidney failure. 
There are four components to the Medicare program: 
Medicare Part A helps cover inpatient care in the hospital. Most people receive Medicare Part A without paying a premium. This is because they or a spouse paid Medicare withholding taxes while working. 
Medicare Part B covers physician services and outpatient services. It is optional, yet is selected by most. The majority of the cost of Part B is borne by the federal government. Most individuals pay the standard Part B monthly premium ($96.40 in 2009). However, wealthier seniors, or about 5 percent of Medicare enrollees, pay more. The chart above shows the Part B monthly premium amounts in 2009 based on income. These amounts change each year. 
Medicare Supplement, or Medigap, Insurance is a private insurance policy designed to supplement Medicare Parts A and B. Insurance agents and insurance companies can only sell standardized Medicare Supplement policies, which are identified by letters (“Plan F,” for example). These plans will have different required deductibles, copayments, and coinsurance. One should purchase a Medicare Supplement policy that coincides with the Part B effective date. When your Medicare Part B is activated, you have a six-month window in which to purchase a Medigap policy and be guaranteed that it will be issued. If you miss this window, you can apply later, but you may be declined or charged a higher premium due to health history. 
Medicare Part D helps pay for prescription drugs. The program is administered by numerous insurance companies on the federal government’s behalf. The federal government has established guidelines for the types of drug plans and has set minimum standards of benefits. However, not all Part D plans are the same. They vary by benefits, costs, and their lists of specific drugs covered (“formulary”). You likely will want to enroll in a Part D plan initially at your Medicare eligibility date. If you enroll beyond three months past your eligibility date, premiums will be higher, and you will be penalized the longer you wait unless you maintain comparable prescription drug coverage elsewhere. Delay can be costly: The penalty is 1 percent of average monthly premium for each month delayed, and the penalty continues through the remainder of one’s life. Many Part D insureds are unaware there is an open enrollment period November 15 through December 31 each year that allows enrollees to change Part D coverage to better suit their needs. If you already have Part D coverage and you switch plans during open enrollment, you will not incur the penalty. 

When to Start the Medicare Enrollment Process
To prevent confusion and unnecessary expense in the future, pick one common effective date for all of your Medicare coverage. 

You should begin the process three months before the month of your sixty-fifth birthday. First, contact your Social Security office to enroll in Medicare Part A. Also, it is typically wise to enroll in Part B at this time. Do not enroll in Part B unless you are planning to cancel your current coverage and purchase a Medicare
Supplement (Medigap) policy with the same effective date. This is because when you enroll in Medicare Part B, you have a guaranteed right to buy a Medicare Supplement for six months. You cannot be declined for Medicare Supplement coverage if you sign up during this open enrollment period. However, if you apply for a Medicare Supplement beyond the six-month window, you may be charged a higher rate or declined coverage due to health history. Finally, Part D coverage, or prescriptions for seniors should have the same effective date as Part B
and the Medicare Supplement. Confusion often arises when people fail to pick a common effective date for:
• Medicare Part A
• Medicare Part B
• Medicare Supplement

Unfortunately, all sorts of tellers, clerks, customer service representatives, brokers, account managers, and other employees of financial institutions give customers advice about how to title accounts and name beneficiaries. This wreaks havoc with many estate plans and causes problems.

New Account Forms at financial institutions routinely ask you to name a beneficiary. Do not feel that you have to name a beneficiary. In most cases you're better off leaving that section of the form blank. When the representative wants you to fill it in, say, "No, thank you. I have a carefully thought out will and estate plan which I intend to use to dispose of my assets."

Here is an example of what can go wrong: Mom visits her attorney and makes an estate plan. The estate plan provides that her estate should pass equally to children, and if a child is predeceased, that child's share goes to a trust for that deceased child's issue.

Later, a financial institution representative tells Mom that the could avoid probate by changing the title on her brokerage account to read POD (pay on death) in equal shares to children. A couple of years later, son dies, leaving 3 children of his own. Then Mom passes away.

According to the beneficiary designation on the brokerage account, it is now divided between the two surviving children, and the grandchildren, deceased son's children, get nothing. That is clearly not what Mom wanted; but thanks to the advice from the "expert" who advised the beneficiary designation, her wishes are not carried out.

Here is another example: A financial institution representative tells Mom that she could avoid probate by changing the title on her brokerage account to read POD (pay on death) to Number One Son, Baby Brother, Daughter One, and 3 grandchildren (sons of deceased Daughter Two). That's six beneficiaries. Mom passes away.

The broker says he needs everyone to agree on any sales or distributions from the account since all 6 are now co-owners. Number One Son is not on good terms with Baby Brother who blames Number One Son that nothing has been done in the three months since Mom passed away. Number One Son is executor but since this account is not probate property, the Executor has no authority over it, so it really is not Number One Son's responsibility. (But tell that to Baby Brother.) Daughter One is not speaking to any of her co-owners because she says the three grandsons (who are getting half of the account, one-sixth each) are getting more than their share. Daughter One says that the grandsons should only receive the one-fourth share that would have been Daughter Two's if she lived. After all, that's what Mom's will says. Of course, the will doesn't operate on the POD account thanks to the advice of the "expert."

The accountant says that since Mom died last year, the account's income and any sale proceeds should not be reported to Mom's social security number. That makes sense, but not one of the six named beneficiaries is willing to have the entire sale proceeds reported to him on a 1099-B; and the broker can only use one social security number for the transaction. Mom's lawyer, who is the other Co-Executor, is angry because the plan he designed is messed up, and it looks like the six beneficiaries of the brokerage account are going to have to be treated as a partnership comprised of the six beneficiaries for income tax purposes. The partnership's tax ID number then can be used for the 1099 instead of any one of the 6 beneficiaries. That will require a tax ID number, a partnership agreement, and federal and state partnership income tax returns - all very costly, time-consuming and unnecessary. Since some of the beneficiaries are unhappy and hostile to each other, getting them to understand and cooperate looks like many hours of legal work.

The three grandsons are begging for money. Since their mother died, they are in need of money to pay college tuition. They can't get financial aid because they have an asset that they must spend first. Each owns 1/6 of the brokerage account. One of them is under 18, and the brokerage house will not pay out anything to the minor nephew unless a legal guardian is appointed for them. Ironically, the probate proceeding required for guardianship is much more onerous and expensive than probate of a will.

If the brokerage account had not been POD or TOD, it would have passed under Mom's will. The 3 grandsons would have shared their deceased mother's one-fourth share. The Executors would have authority to sell the investments. Any income tax consequence would be reported and paid by the estate. The grandson could have received distribution for tuition. The payment could have been made to the college or to a custodian for the benefit of the minor. No partnership would have to be created, and no partnership income tax returns filed.

Certainly, for Mom in our example, avoiding probate caused many, many problems. The so-called "expert" who advised her really did not have any knowledge, training or experience in estate settlement and the various property law and tax issues involved. She should not have named beneficiaries. 

In America today, 2.6 million children with special needs will need costly care long after their parents have passed away. A recent special needs survey conducted by The Hartford insurance company found that 62% of parents of these children with special needs have no plan to cover the cost of caring for the child when they no longer are able to do so.

The survey further reported that parents that do have a plan often make mistakes that may disqualify their child for government services on which they now depend.

"When you consider the daily demands already being put on the parents of a special needs child, no one should be surprised that they have not taken time to create a plan for their child's future," said The Hartford's Donna Scalaro, a director in estate and business planning for The Hartford's Individual Life business. "That being said, it is important to acknowledge that doing nothing puts the child's future well-being at risk."

Scalaro suggests that parents take these four steps to help ensure their child is protected:

1. Work with a professional financial advisor to develop a plan capable of funding a lifetime of support for your child with special needs, over and above what the government will provide.

 
2. Establish a special needs trust to protect the assets and to ensure the child will qualify to receive government benefits and services.

3. Speak with the person you want to be your child's guardian so they fully understand the commitment and are willing to take on the obligation.

4. Buy a permanent life insurance policy to cover the anticipated cost of care.

Click here to read the full article on The Hartford's survey and findings.

Many people, just as they become eligible for Medicare, discover that the insurance rug has been pulled out from under them. Some doctors — often internists but also gastroenterologists, gynecologists, psychiatrists and other specialists — are no longer accepting Medicare, either because they have opted out of the insurance system or they are not accepting new patients with Medicare coverage. The doctors’ reasons: reimbursement rates are too low and paperwork too much of a hassle.  When shopping for a doctor, ask if he or she is enrolled with Medicare. If the answer is no, that doctor has opted out of the system. Those who are enrolled fall into two categories, participating and nonparticipating. The latter receive a lower reimbursement from Medicare, and the patient has to pick up more of the bill.  Doctors who have opted out of Medicare can charge whatever they want, but they cannot bill Medicare for reimbursement, nor may their patients. Medigap, or supplemental insurance, policies usually do not provide coverage when Medicare doesn’t, so the entire bill is the patient’s responsibility.  The solution to this problem is to find doctors who accept Medicare insurance — and to do it well before reaching age 65. But that is not always easy, especially if you are looking for an internist, a primary care doctor who deals with adults. Of the 93 internists affiliated with New York-Presbyterian Hospital, for example, only 37 accept Medicare, according to the hospital’s Web site.  Two trends are converging: there is a shortage of internists nationally — the American College of Physicians, the organization for internists, estimates that by 2025 there will be 35,000 to 45,000 fewer than the population needs — and internists are increasingly unwilling to accept new Medicare patients.  In a June 2008 report, the Medicare Payment Advisory Commission, an independent federal panel that advises Congress on Medicare, said that 29 percent of the Medicare beneficiaries it surveyed who were looking for a primary care doctor had a problem finding one to treat them, up from 24 percent the year before. And a 2008 survey by the Texas Medical Association found that while 58 percent of the state’s doctors took new Medicare patients, only 38 percent of primary care doctors did.

Source:  New York Times (1 April 2009)
Full story:  http://www.nytimes.com/2009/04/02/business/retirementspecial/02health.htm

Welcome to the VAElderLaw Blog. As you are probably already aware, a "BLOG" is the name given to a web log. Simply put, it's my regulary updated account of ideas, court decisions, and opinions on Elder law, Estate Planning adn Financial Planning.

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