JANUARY 16, 2012 VOLUME 19 NUMBER 3
Let’s say you have a child with “special needs,” or a sister, brother, mother or other family member. You have not created a special needs trust as part of your own estate plan. Why not?
We know why not. We have heard pretty much all the explanations and excuses. Here are a few, and some thoughts we would like you to consider:
I don’t have enough money to need a special needs trust. Really? You don’t have $2,000? Because that’s all you have to leave to your child outside a special needs trust to mess with their SSI and Medicaid eligibility.
I can’t afford to pay for the special needs trust. We apologize that it can be expensive to get good legal help. But the cost of preparing a special needs trust for your child is likely to be way, way less than the cost of providing a couple month’s worth of care. That is what is likely to happen if you die without having created a special needs trust, since it will take several months of legal maneuvering to get an alternative plan in place. Even if there is no loss of benefits, the cost of fixing the problem after your death will be several times that of getting a good plan in place now.
I’ve already named my child as beneficiary on my life insurance/retirement account/annuity. Ah, yes — our favorite alternative to good planning. If your child is named directly as beneficiary, you may have avoided probate but complicated the eligibility picture. Their loss of benefits will occur immediately on your death, rather than waiting the month or two it would have taken to get the probate process underway. This just might be the worst plan of all.
It’ll all be found money to my kids. I’ll let them take care of it if I die. We have bad news for you: “if” is not the right word here. That aside, you should understand that a failure to plan means you are stuck with what’s called the law of “intestate succession.” That means (in Arizona — if you are not in Arizona you might want to look up your state’s law) that if you die without completing your estate plan, your spouse gets everything unless you have children who are not also your spouse’s children. If you are single, your kids get everything equally. If your child on public benefits gets an equal share of your estate, we will probably need to either (a) spend it all quickly or (b) put it into a “self-settled” special needs trust. That means more restrictions on what it can be used for, and a mandatory provision that the trust pays back their Medicaid costs when they die. All their Medicaid costs. Including anything Medicaid has provided before your death. Wouldn’t you like to avoid that result? It’s simple: just see us (or your lawyer if that’s not us) about a “third-party” special needs trust. The rules are so much more flexible if you plan in advance.
My child gets Social Security Disability (or Dependent Adult Child) Benefits and Medicare. Good argument. Because those programs are not sensitive to assets or income, your child might not need a special needs trust as much as a child who received Supplemental Security Income (SSI) and Medicaid (or AHCCCS or ALTCS, in Arizona). But keep these three things in mind:
Even someone who gets most of their benefits from SSD and Medicare might qualify for some Medicaid benefits, like premium assistance and subsidies for deductibles and co-payments. Failure to set up a special needs trust might affect them, even if not as much as another person who receives, say, SSI and Medicaid.
Even someone receiving Medicare will have some effect from having a higher income. Premium payments are already sensitive to income, and future changes in both Medicare and Social Security might result in reduced benefits for someone who has assets or income outside a special needs trust.
If your child has a disability, it might be that a trust is needed in order to provide management of the inheritance you leave them. If they are unable to manage money themselves the alternative is a court-controlled conservatorship (or, in some states, guardianship). That can be expensive and constraining.
I’m young. We agree. And we agree that it’s not too likely that you will die in the next, say, five years (that’s about the useful life of your estate plan, though your special needs trust will probably be fine for longer than that). But “not too likely” is not the same as “it can’t happen.” You cut down your salt and calories because your doctor told you it’d be a good idea — even though your high blood pressure isn’t too likely to kill you in the next five years, either. We’re here to tell you that it’s time to address the need for a special needs trust.
I’m going to disinherit my child who receives public benefits and leave everything to his older brother. That will probably work. “Probably” is the key word here. Is his older brother married? Does he drive a car? Is he independently wealthy? These questions are important because leaving everything to your older child means you are subjecting the entire inheritance to his spouse, creditors, and whims. And have you thought out what will happen if he dies before his brother, leaving your entire inheritance to his wife or kids? Will they feel the same obligation to take care of your vulnerable child that he does?
I’ll get to it. Soon. OK — when?
I don’t like lawyers. We do understand this objection. Some days we’re not too fond of them, either. But they are in a long list of people we’d rather not have to deal with but do: doctors, auto mechanics, veternarians, pest control people, parking monitors. Some days we think the only other human being we really like is our barista. We understand, though, that if we avoid our doctor when we are sick the result will not be positive. Same for the auto mechanic when our car needs attention. Also for the vet and all the rest. In fact, the only one we probably could avoid altogether is the barista, and we refuse to stay away on principle.
Seriously — lawyers are like other professionals. We listen to your needs, desires and information, and we give you our best advice about what you should do (and how we can help). Most of us really like people. In fact, all of us at Fleming & Curti, PLC, really like people — it’s a job requirement. We want to help, and we have some specialized expertise that we can use to assist you. Give us a chance to show you that is true.
SEPTEMBER 27, 2010 VOLUME 17 NUMBER 30
This is so confusing to clients, but it needn’t be. The rules are actually simpler than they seem. Stay with us, and we’ll walk you through it.
OK, here’s the set-up: You have three children, one of whom (the youngest) has a disability. We’ve decided to name her Cindy (sorry if we got that part wrong). Your estate plan is to leave everything equally to your three children, but you know that (1) Cindy can’t manage money, and (2) even if she could, leaving her money directly would knock her off of her public benefits. Just to make things more complicated, nearly half of your net worth is held in an IRA.
Before we roll up our sleeves, let us make a few observations about your situation:
If instead of an IRA you have a 401k, a 403b, Keogh or other retirement plan, the rules are pretty much the same. They’re somewhat different if you have a Roth IRA; we may tackle that issue in a future newsletter.
If Cindy’s disability entitles her to public benefits but she is able to manage money just fine then some of the trust issues might be different from what we describe here.
We’ve decided that your estate (your combined estate, if you are married) is just under the estate tax limits, whatever they might be. That’s so we don’t have to complicate this explanation with an estate tax element. But the truth is, that wouldn’t complicate things all that much — we just don’t want to have to throw those oranges into our apple basket. Not today, anyway.
Ready? Here we go. We’ll start by asking you some questions:
First question: What benefits does Cindy get? Is she on Supplemental Security Income (SSI)? Does she also get Social Security benefits, either on her own work history or on yours? Is she receiving Medicare coverage? How about Medicaid (or, in Arizona, AHCCCS)? Does she also get a housing subsidy, benefits through the Division of Developmental Disabilities, or therapy and care from the school district?
This question is important, because first we need to figure out whether her benefits will be affected by any trust you might set up for her. Here’s a surprise: it’s not enough to figure out what benefits she is on now, particularly if she was disabled before age 22. She might be eligible to receive benefits on your work history (or your spouse’s), and those benefits could go up when you retire and again when you die. Since your estate plan is all about what happens to your money when you die, the benefits Cindy gets then will be more important than the benefits she receives now.
Second question: How important is it to you to give your children the chance to “stretch-out” your IRA? We’re sorry — we didn’t explain what that means.
You already know that you have to withdraw money at a set pace, calculated based on your life expectancy, once you reach age 71 (we know — it’s really 70.5; it’s actually the year after you turn 70.5, so let’s just call it 71, okay?). You probably also realize that your beneficiaries get to use their own life expectancies after they inherit your IRA. Or at least they do most of the time.
If that is important to you, your beneficiary designation should make it easy for your children to use the longest stretch-out period possible. Since they are probably all different ages that means there is a benefit — maybe a slight one, but a benefit — to the youngest children to be able to use their own age rather than being stuck with an older sibling’s age.
Note: this assumes your children share your interest in stretching out the IRA withdrawals. Take the simple case, with Cindy not involved: if you make the other two children (let’s call them Amelia and Barbara) beneficiaries of the IRA, Barbara (the younger) will be able to take a little less out each year than Amelia is required to do. But if either of them decides to just withdraw all the money and use it for an extended European vacation, then they can choose to make a decision that is not tax-wise. If you want to prevent them from doing that, you have raised the complication factor — but it can be done. We’re just not going to try to explain it here. But we do — here.
Third question: Do you want to try to give Cindy some non-IRA assets rather than an interest in the IRA, just to make this simple? Let’s say you left your IRA to Amelia and Barbara, and increased Cindy’s share of the non-IRA assets to make the shares equal. Would that work?
Well, yes — but it’s not quite that easy. Say you leave $100,000 in an IRA to Amelia — is that worth $100,000 to her? No, because she will have to pay taxes on it when she takes it out. How much? It depends on her state, her marginal tax rate and how long she leaves it in the IRA, so it’s very hard to figure out the “real” value to Amelia. Plus we know that the real value of the same amount of IRA will be different for Barbara, making the calculation that much more difficult.
Maybe we can use a rule of thumb, though. Let’s guess that Amelia and Barbara will delay taking out their inherited IRA money as long as possible, and that when they do they’ll both be retired and not making a lot of income. Perhaps the “real” value (to them) of your IRA will be 65% to 80% of its balance when you die. Is that close enough for you to figure out what would be “fair” if you gave Cindy more cash and less IRA? We can’t tell you — this one is a judgment call for you.
Fourth question: Who will manage Cindy’s money after your death? Amelia, the banker (and classic first-born)? Barbara, who has some financial challenges of her own but has always been close to Cindy, and still lives in the same community with her? Your local bank? A family friend, or a professional you have worked with?
Enough questions for a moment. Let us tell you what we think, based on your answers.
First, you can create a trust and name it as beneficiary of your IRA. Don’t listen to your banker or your accountant if they tell you that you can not do that — they are reciting old rules that no longer apply.
But if you do name a trust as beneficiary, you are likely to force everyone to use a shorter stretch-out date — probably all three daughters will be stuck with Amelia’s life expectancy. If there are only a few years’ difference between the girls, that may not be a big deal. If this issue is important, then we probably can work around it — we can name Amelia and Barbara as beneficiaries directly, and a stand-alone “special needs” trust for Cindy’s benefit to receive her share of the IRA. If we do that, though, you have to make us a promise: you can’t let anyone else tell you to change your beneficiary designations after we get them set up. At least you have to promise not to make any changes until after you have met with us and gone back over the beneficiary form.
In fact, you will find that you have to help educate lots of folks about IRA beneficiary designations. Over time you will be told that you have a mistake in your designation, that you have unnecessarily caused tax increases for your daughters, that your lawyer obviously doesn’t know how to do this. We do, and we can help you respond to those bankers, accountants and others who tell you that you need to make changes. Keep us in the loop, please.
We also need to make sure you realize Cindy’s share can’t go to charity after her death. None of it. Even though the non-profit which provides a sheltered workshop for her would be the logical beneficiary of a share of “her” IRA portion, it mucks everything else up.
So how do we get Cindy’s portion of the IRA — and for that matter the rest of her inheritance — set up to benefit her without knocking her off of her SSI, Medicaid, AHCCCS and other government benefits? That’s what a special needs trust is all about.
We have important advice for you: Be careful as you look for information about special needs trusts, though: much of what you read will be about the rules (and limitations) on so-called “self-settled” special needs trusts, and Cindy’s trust will not be one of those. You will be establishing a “third-party” special needs trust, and the rules will be much different, and much more liberal. You can leave IRA and non-IRA assets in a special needs trust for Cindy’s benefit, and you will actually improve the quality of her life without jeopardizing the programs and benefits she receives.
We hope this helps sort through some of the finer points of IRA beneficiary designations. If you want more, we can recommend a really thorough article by our friend Ed Wilcenski, a New York lawyer. He wrote for Forbes.com, and he’s a smart guy who writes well.
Incidentally, we’d love to hear from you. Maybe you have a question about IRAs and special needs trusts, or you just want to tell us whether this helped you out. Maybe you want to quibble with some of our advice. We love to hear from readers.
We will not, however, undertake to represent you based on a simple e-mail or internet inquiry — we need much more information (starting with where you live — we don’t practice outside Arizona) before undertaking a lawyer/client relationship. We won’t be able to answer your specific questions about your own legal situation, either. What good are we, then? Well, we’ll try to demystify some of the general rules and answer general questions about these topics. Contact us if you’d like us to try, or simply Leave a Reply below. We’ll read your comments and let you know, even if we can’t help you with individual legal problems.
Do you wonder what will happen if you are no longer able to live independently? Will you have to “go into a home?” Is a nursing home the only way to go, or are there other living situations that might allow more independence? What will happen to your spouse? And who will pay for all of this? Medicare? Medigap insurance? Your kids? Is long term care insurance the answer?
Elders whose care is not covered by Medicare (and beware, Medicare covers only a limited period of “skilled” nursing care) have to look to Medicaid for help. Arizona has its own Medicaid program, the Arizona Long Term Care System (ALTCS). Unlike Medicare, which is available to elders above age 65, ALTCS applicants must qualify both medically and financially. The financial eligibility criteria are stringent and complex.
Victoria Blair, one of the partners at Fleming & Curti, PLC, offers a two hour program to address just these sorts of questions on Wednesday, January 27th and Thursday, January 28th. We will serve a continental breakfast and we promise to answer your questions about planning for (and paying for) long term care.
Both programs will include a discussion of the basics of ALTCS. Wednesday’s session will focus on our clients who are considering long term care options for themselves or a loved one. Thursday’s session will be a little more technical, and aimed at case managers, social workers and other professionals who want to better assist their clients. You are welcome to attend either session. There will be no charge for either program, but space is limited and reservations must be secured in advance.
Who should come to ALTCS School? Anyone who is thinking seriously about nursing home care, assisted living or in-home care, or is just curious about the options. Anyone who is contemplating purchasing a long term care insurance policy. Case managers and social workers are welcome (especially at Thursday’s session) and will leave with a clearer understanding and with answers to their questions about the system.
Ms. Blair will explain the medical and financial eligibility criteria for ALTCS. She will review what resources the “healthy” spouse can keep — a house, a car, money to live on — and strategies for “spend down.” She will review the penalties for making gifts (or selling assets for less than their value) to family members. And she will go over long term care insurance policies: what they cost, what they cover, and whether purchasing such a policy makes sense for you and your family.
To attend: contact Yvette in our office at (520) 622-0400 or by e-mailing our office. Please be sure to provide us with contact information and indicate whether you prefer to attend the client/layperson session on January 27th or the social worker/case manager/allied professional session on January 28th.
The Medicare program has announced its 2010 premium and coinsurance rates. As predicted, an anticipated increase in medical costs will mean a steep rise in Medicare-related premiums, but federal law protects most recipients from having to pay the new rates. One effect of changes in Medicare rate-setting over the last few years will be seen more clearly in 2010. Not long ago, every Medicare beneficiary could expect to pay the same portion of his or her medical costs. Those days are over, and a confusing system of co-payments, deductibles and premiums has now gotten more confusing.
Medicare has set the annual premium increase for Part B insurance at 15%, which translates into a 2010 premium of $110.50 per month. Nearly three-quarters of Medicare beneficiaries, however, will not have to pay that higher amount. Congress limited current Medicare beneficiaries’ premium increases to no more than their Social Security cost-of-living adjustment. Since Social Security announced two months ago that there will not be a COLA increase in 2010, that means that most Medicare beneficiaries will continue to pay $96.40 per month for Part B.
People who have been receiving Medicare but have not had Part B premiums deducted from their Social Security checks, for whatever reason, are not protected from the increased premiums.
New Medicare beneficiaries are not protected, either. If you start receiving Medicare benefits in 2010 for the first time, you will pay the higher rate.
Wealthy Medicare beneficiaries are not protected from increases. If a single person makes more than $85,000 per year, or a married couple more than $170,000, they will see the increase in their Part B premiums.
Wealthy Medicare beneficiaries actually get a double dose of increased premiums. Not only are they not protected from the 2010 increase, but they may also have to pay higher premiums based on their income levels. For the wealthiest Medicare beneficiaries — those whose individual income is over $214,000, or couples whose income is over $428,000 — the new Part B premium will be $353.60 per month.
Income for these calculations is determined by reference to the beneficiary’s 2008 income tax return. For those whose income has dropped since that year, it is possible to request a revision based on a later year’s tax returns.
Medicare Part D (the prescription drug benefit plan begun last year) includes an annual “election period” from November 15 through the end of the calendar year. Seniors—many of whom struggled to understand the program a year ago and waded through reams of information to select the most promising choice—now must review their existing Part D plan, figure out what changes are in store, and make another selection of the best option available for their individual circumstances.
As was the case last year, there is plenty of information about the plan options facing each Medicare beneficiary. The best collection of information about plan choices comes from the Medicare program itself, which operates a well-designed, understandable and informative website at www.medicare.gov. Among the points made by the Medicare site: the real due date for your Part D selection is December 8, not December 31—you need to make sure your new plan is in effect in time to assure coverage for any January prescription needs.
The upcoming year will provide a number of changes affecting prescription drug coverage. A few of those include:
The number of available plans continues to proliferate. In the Tucson area, for example, there will be 53 Prescription Drug Plans, 19 Medicare Health Plans, and 10 Medicare Special Needs Plans available—an increase of 20 total options.
Premiums will generally increase. Last year’s premiums for the Tucson area ranged from $6.14 to $64.86 per month, while the 2007 premiums will vary from $10.40 to $78.10.
Other costs will also increase, and by more than the rate of general inflation. While Social Security payments, for example, will increase by 3.3% next year, the out-of-pocket costs (not including premiums) for 2007 will increase by 7%. That figure includes a $265 deductible (the 2006 figure was $250), a copayment of the 25% for the next $2,135 (last year the copayment was for just $2,000 of drug costs), and a “donut hole” of $3,051.25 (up from $2,850).
Congress’ switch from Republican to Democratic control may lead to other changes, as well. Democratic leaders have made clear that they expect to immediately address the existing ban on government negotiation of drug prices. One Democratic leader has already introduced a bill that would direct the government to offer and operate a Medicare drug plan of its own. Administration officials argue that both measures conflict with the underlying free-market rationale behind Medicare’s prescription drug program, but it is too early to predict the outcome of that debate.
In June 2001, four national advocacy organizations and an individual plaintiff sued Secretary of the U.S. Department of Health and Human Services (HHS), Tommy Thompson. The lawsuit sought the court’s help to force Secretary Thompson to follow the law’s requirement that comparative written information about what participating Medicare+Choice Organizations (MCOs) offer be mailed to individual Medicare beneficiaries.
In August 2001, a preliminary injunction issued to compel the Secretary to comply with the law regarding the information mailed to Medicare beneficiaries. In 2002, the Secretary was enjoined permanently from failing to mail the information as required at Section 1395w-24(a)(1) of Title 42 of the United States Code by the U. S. District Court for the District of Columbia.Gray Panthers Project Fund, et.al., v. Tommy G. Thompson, 273. F.Supp.2nd 32(D.D.C.2002).
The plaintiffs to the action filed a motion to secure an award of attorney’s fees against Secretary Thompson on the basis that the Secretary had acted in bad faith in refusing to follow the dictates of the law. On February 23, 2004, the District of Columbia Circuit Court again ruled against Secretary Thompson and awarded the plaintiffs attorneys fees that amount to approximately $173,000.
The Center for Medicare Advocacy represented the plaintiffs against the Secretary to compel him to follow the statutory directive that Medicare beneficiaries, many of whom are infirm, receive the annual description of MCO plan comparisons. Secretary Thompson had argued that the plan comparisons were being left out due to the prohibitive cost of mailing this information. In issuing the preliminary injunction against Secretary Thompson, Judge Henry Kennedy, for the court, wrote that “it was astounded that the Secretary has the audacity to argue that compliance with the statutory mailing requirement is too expensive while simultaneously electing to spend $35 million on advertisements.”
Judge Kennedy summed up his opinion on the permanent injunction by saying “On the whole, the defendant [Secretary Thompson] has simply failed to provide the court with adequate assurances that he intends to cooperate with the applicable provisions in the long run…Agencies may not chose to follow some laws while ignoring others…”
It was undoubtedly this perception that Secretary Thompson wantonly failed to follow what the legislature directed that earned the plaintiff’s their attorneys fees. Attorney’s fees are not awarded routinely.
With the U.S. Senate’s approval of sweeping new Medicare provisions the public discussion has focused on whether the changes will be good for the program, its beneficiaries and the nation as a whole. Much controversy has also centered on the politics of the changes—including whether Republicans or Democrats won or lost, whether drug and insurance companies benefited at the expense of seniors, and whether senior advocacy groups sold out their members for temporary political gain. Not enough attention has been given to the actual provisions of the new law and the many questions raised by its enactment.
Under the new Medicare law, “Part D” coverage will be the primary payor for prescription drugs for seniors and the disabled, but the new law does much more than just adopt a new drug benefit. We answer many of the questions about the prescription drug benefit here, but in a companion issue of his newsletter Elder Law Fax, our friend and colleague Tim Takacs, a Hendersonville, Tennessee, elder law attorney, answers questions about the non-drug related provisions in the new law.
Q: What benefits will be available before Medicare’s full prescription drug program begins in 2006?
A: Starting sometime early in 2004, Medicare recipients will be offered a discount drug card costing $30. The card should entitle them to receive discounts of as much as 15% to 25% on drug costs. Low-income Medicare recipients will pay nothing for the drug discount card, and will receive $600 credit toward the cost of their drugs—though they will have to pay a co-payment of 5% to 10% of each prescription. The drug card program will end when the full prescription drug benefit takes effect in 2006.
Q: Will Medicare beneficiaries automatically receive the new drug benefit when it becomes available in 2006?
A: Apparently not. What is being called Medicare “Part D” will require enrollment and a monthly premium, currently set at $35 (but subject to changes before the 2006 effective date). This payment will be in addition to the Part B premium ($66.60 beginning next month). Medicare recipients with incomes below about $12,000 (or, for married couples, about $16,000) will pay no premiums for Part D.
Q: Once a beneficiary signs up for Part D, what drug savings should he or she expect?
A: Part D beneficiaries will still pay the first $250 of prescription medications out of their own pockets each year. The beneficiary will pay 25% of the next $2,000 of drug costs, and the entire cost of drugs between that level and $5,100.
Q: What does this mean for a real-life beneficiary’s drug benefit?
A: To take one example, a beneficiary with $500 in monthly drug costs today will pay about $335 per month under the new plan—if the premiums do not increase and the cost of drugs remains fairly stable. A beneficiary with current drug expenses of $50 per month will actually pay a little more than $60 per month under the new plan—but will be insured against catastrophic medication costs for the slight increase in payments. Neither of those examples will apply, incidentally, to poorer Medicare recipients, who will pay less for their drugs. Calculating the actual cost of drugs for a given beneficiary can be difficult; the Kaiser Family Foundation has prepared an internet page to give individuals a better idea of their own savings (or costs) under the Part D coverage.
Q: Are there other limitations on Part D coverage?
A: Yes, there are several other ways in which the drug benefit is limited. For example, after reaching the $5100 level in total drug costs, the participant will still have a co-payment for additional drugs of 5% of the drug costs.
Q: Will private insurance plans pay for the uncovered portion of drug costs?
A: Yes and no. Anyone who already has a “Medigap” (supplemental Medicare) policy that provides a drug benefit can continue to receive that benefit–provided that they choose to opt out of the new Medicare drug benefit program. No new Medigap policies with drug coverage can be sold, and no other private insurers will be permitted to sell policies that cover the deductibles and co-payments in the Medicare drug program.
Q: Will low-income seniors and disabled Medicare beneficiaries receive any additional benefits after 2006?
A: Yes. In addition to the waiver of premiums described earlier, there are also reduced co-payments for poorer participants. They will pay $1 to $2 (depending on income levels) for generic and $3 to $5 for brand name and “non-preferred” drugs. The “donut hole” (the uncovered portion of drugs costing between $2,250 and $5,100 each year) does not exist for poorer beneficiaries. Existing Medicaid coverage for drugs, however, will end—except for benzodiazepines and some other drugs that will not be covered by Medicare’s Part D program.
Q: Who will actually provide the Part D drug coverage—Medicare or private insurers?
A: The new law encourages individual insurance companies to enter the marketplace and provide coverage options under government supervision but without direct government management. In areas where no insurance programs are offered, however, Medicare will provide better subsidies to what the new law calls “fallback” insurance plans. The goal is to make sure that every Medicare beneficiary has at least two choices of drug coverage available. Incidentally, no “fallback” plan is permitted to offer drug coverage for the entire country.
Q: What effect will the new drug benefit have on state budgets?
A: The states are now paying a significant portion of drug costs for poorer Medicare beneficiaries who simultaneously qualify for Medicaid coverage—although the federal government does pay about half of Medicaid costs in most states. States will see some savings as those costs are shifted to Medicare, but the law requires the states to pay most of those savings back to Medicare.
Q: How will eligibility be determined for Medicare’s new needs-based benefits?
A: Medicare has never had a financial eligibility test before, though the little-known QMB and SLMB programs have provided premium assistance for poorer Medicare beneficiaries. The new law provides several additional benefits for Medicare recipients with low income and limited assets. In addition, the Medicare Part B premium will for the first time be increased for wealthier participants. State governments will be responsible for determining eligibility and enrolling low-income, low-asset beneficiaries in the new subsidized programs—probably utilizing the same eligibility staffs now employed to make Medicaid determinations.
There is much more to be considered in the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Some of the changes include provisions to reduce the cost of care in rural areas, a rollback of planned cuts in doctors’ reimbursement rates and an expansion of options available for health care coverage for younger citizens. For answers to questions about some of those other provisions, visit colleague Tim Takacs’ companion explanation in his weekly newsletter, Elder Law Fax.
While in Via Christi’s St. Francis Hospital in Wichita, Kansas, for tests, Lyle Rose fell out of his bed and hit his head. He suffered a subdural hematoma (a blood clot in the brain) and developed other complications. He stayed in the hospital for over a month, but despite the facility’s best efforts he died from his injuries.
Rather than pay for his intensive care stay itself, Via Christi chose to bill Medicare for Mr. Rose’s time in the hospital. Because Medicare pays less than the full cost of patients’ care, Via Christi ended up writing off over $150,000 of the $242,000 it billed for Mr. Rose’s care. Medicare rules precluded Via Christi from seeking payment for any portion of the bill it was required to write off.
After he died, Mr. Rose’s family sued Via Christi for negligence. They alleged that it was the hospital’s fault that he had fallen out of his hospital bed, and a jury ultimately agreed, if only partially. The jury awarded $582,186.01 in damages for Mr. Rose’s death, and ruled that Via Christi was responsible for 36% of that amount, or $209,586.96.
Via Christi then asked the judge to reduce the award because of the unpaid medical care it had provided. Via Christi argued that it had already contributed more than its 36% share of the medical care portion of Mr. Rose’s care; after all, the facility reasoned, the total amount of damages had included the portion of its fee that had been written off.
The trial court agreed and reduced the judgment against Via Christi to just over $115,000. The Kansas Supreme Court, however, reversed the trial judge and reinstated the original judgment against Via Christi.
According to the court, there were two problems with Via Christi’s position. First, Medicare rules prohibit providers from seeking reimbursement for any unpaid portion of a bill otherwise covered by Medicare. Since the Medicare law is federal, it preempted any Kansas state law which arguably might have authorized the offset.
The “collateral source” rule also keeps defendants from introducing information about a plaintiff’s insurance coverage. Medicare, ruled the Kansas court, is after all just an insurance program, and Mr. Rose’s estate should not be penalized for the fact that he was covered by insurance.
Via Christi argued that keeping this information out of the court case gave Mr. Rose’s heirs a windfall. That may be true, reasoned the court, but if there is to be a windfall, it should benefit the victim’s family rather than the hospital. Rose v. Via Christi Health System, October 31, 2003.
Home health care benefits available through the Medicare program have been curtailed in recent years. The effect of the government’s crackdown on home health care costs has been felt not only by patients, but also by health care providers themselves.
Take, for example, the case of Idaho’s Community Home Health agency (CHH). The company had been serving about 500 patients. Then Congress passed the Balanced Budget Act of 1997, directing Medicare to set limits on the costs which could be paid through for home care.
CHH, like other Medicare providers, had been paid a monthly amount based on an estimate of the number of patients it would see. These “periodic interim payments” would then be adjusted for the amount actually due the agency, with a smaller amount either paid or withheld from future payments once the bookkeeping was completed.
With the new law, however, CHH decided that it would not be able to serve the same number of patients. The agency dramatically cut its Medicare caseload in an attempt to anticipate the new government regulations. Its income would be slashed, but its costs would also be contained—or at least that was the theory.
Unfortunately, the agency continued to receive and cash checks based on its prior caseload. By the time CHH figured out it had a problem it had received overpayments of more than one million dollars. The agency told Medicare it needed to set up a plan to repay the money over time; Medicare first denied that there had been any overpayment, then threatened to withhold all payments until the account was corrected.
Although Medicare relented and offered a two-year repayment plan, CHH closed its doors and declared bankruptcy. Agency owners Gary and Verlene Kaiser, who had personally guaranteed CHH’s debts, also filed for bankruptcy. Meanwhile, Medicare investigators were allegedly telling other providers about the Kaisers and CHH, making it difficult for them to do any future business.
The Kaisers sued the government and Blue Cross of California, the “fiscal intermediary” which had handled CHH’s Medicare reimbursements. The Ninth Circuit Court of Appeals threw the lawsuit out, ruling that CHH and the Kaisers had to make their claims through Medicare’s administrative channels. The part of their claim alleging defamation and invasion of privacy was simply dismissed, since the government must give its consent to be sued. Kaiser v. Blue Cross, October 28, 2003.
CHH’s story provides a cautionary example to other providers. While government programs may provide a reliable cash flow, changes in the benefits can have a huge and unpredictable effect on the provider.
Helen Hosta of Cuyahoga County, Ohio, was admitted to Century Oak Care Center in February 2001. Mrs. Hosta was unable to sign the Century Oak admission agreement, so her daughter, Roberta, signed for her.
After Mrs. Hosta’s Medicare coverage ran out in March, 2001, her daughter Roberta and another daughter, Lynn Straka, applied for Medicaid to cover the nursing facility bills. Because she had financial resources in excess of Ohio’s Medicaid eligibility limits Mrs. Hosta failed to qualify for Medicaid coverage for another eight months.
Century Oak filed suit in August 2001 against Lynn Straka for non-payment of Mrs. Hosta’s bill. Ms. Straka answered the complaint claiming that she had no liability since she did not sign the contract with Century Oak, and Medicare and Medicaid regulations prohibit holding third parties liable for a patient’s bills. Ms. Straka also counterclaimed that Century Oak’s contract constituted negligent and false misrepresentation, and that the admission agreement contained the false and misleading statement that “’it is a federal crime to unlawfully divest assets to become Medicaid eligible.’”
Century Oak dismissed its claim against Ms. Straka after learning that she had not signed the care agreement. Century Oak pursued Mrs. Hosta for payment, but it also dismissed that lawsuit when payment was received. Ms. Straka, however, pursued her counterclaim against Century Oak for its alleged violation of federal and state law. The Ohio trial court dismissed Ms. Straka’s claim, and last month the Ohio Eighth District Court of Appeals upheld the trial court ruling. SWA, Inc., dba Century Oak Care Center v. Lynn Straka, June 19, 2003.
The Ohio courts found that Ms. Straka had no standing to pursue damages since she was not a party to the Century Oak contract. Interestingly, the Ohio court went further by saying that even if Ms. Straka could have sued her claim would have been over-reaching. Though Ms. Straka argued that Century Oak could not sue a third-party for a patient’s non-payment, the Ohio court pointed out that the federal law relevant to nursing facility admissions only prevents the facility from requiring someone else to guarantee payment as a condition of admission.
Although nursing homes can not require a third party to guarantee payment, someone with access to the patient’s funds (like a conservator or agent under a power of attorney) may be sued for non-payment. Anyone signing a nursing home admission contract should of course read it carefully and seek appropriate legal advice.
