Posts Tagged ‘Medicare’

Medicare Savings Programs: QMB, SLMB, QI, QDWI and Extra Help

FEBRUARY 9, 2015 VOLUME 22 NUMBER 6

Health care programs for the elderly, the poor and the disabled can be complicated and confusing. We frequently find that clients are unclear about the differences — in eligibility and in coverage — between Medicare and Medicaid, for instance. Add in the fact that Arizona calls its Medicaid program AHCCCS (the Arizona Health Care Cost Containment System) but also ALTCS (the Arizona Long Term Care System) for some parts of the program, and the confusion begins to climb. Let us try to confuse things just a little bit more before (we hope) introducing some clarity.

First, the key distinctions between the two biggest government health care programs:

  • Medicare is a federal program, with very little state involvement (other than what we’ll be detailing in a moment). Medicaid is a joint federal-state program, administered by the individual states but funded mostly by the federal government.
  • Medicare beneficiaries are over age 65 OR they are receiving Social Security Disability Insurance payments. In other words, it is intended to cover the elderly and the disabled. Medicaid beneficiaries, on the other hand, may or may not be elderly or disabled — but they must be poor (with the state’s definition of “poor” quite variable).
  • Medicare covers (to a greater or lesser extent) inpatient hospital care, outpatient doctors’ visits and medications. Medicaid covers all medical expenses, including long-term care costs (an item that Medicare covers to a very limited extent).
  • Assets and income are irrelevant to Medicare coverage (except, of course, that if you are able to work you can’t be “disabled” in order to qualify before age 65). Medicaid pays close attention to income (whether earned from wages or received from investments, by gifts or otherwise) and assets (though there are differences state-to-state).
  • Medicare beneficiaries frequently have to pay co-payments (a share of the cost of a doctor’s visit, for instance), deductibles (the first $XX of a year’s medical costs, with XX being highly variable) and premiums (a flat amount for Medicare Part B coverage, for instance). Other than fairly nominal copayments, Medicaid beneficiaries usually do not have to pay any significant share of their medical costs; once eligibility is established, Medicaid picks up the entire cost.

Obviously, a person over age 65 might also have limited resources and income. A person with a disability might, as well. And a Medicare beneficiary might need medical care not covered by the program — like nursing care, for instance. There are five little-known programs available to help people who qualify for Medicare but need help with their premiums, deductibles or co-payments:

  • The Qualified Medicare Beneficiary (QMB) Program. The most generous of the four is the QMB program. It pays Medicare Part A and Part B premiums, and all co-payments and deductibles. QMB recipients also automatically qualify for “extra help” with their Medicare Part D premiums. In order to qualify, the applicant must have income of less than the federal poverty level (in 2015, that figure for a single person living in the continental U.S. is $11,770/year, or $981/month — for a married couple it is $15,930/year or $1,328/month) plus $20. In other words, a single person with income of less than $1,001/month will qualify. In addition, in many states (not including Arizona, which does not have an asset limitation for QMB benefits) the QMB applicant must have assets of less than $7,280 (for a single person) or $10,930 (for a married couple). Not counted among the assets in states which impose an asset limitation: the applicant’s home, car, household contents and a few other items (they use the same exclusions applied to the Supplemental Security Income (SSI) program).
  • The Special Low-Income Medicare Beneficiary (SLMB) Program. SLMB applicants can have up to 120% of the federal poverty income figures (plus the $20 that is disregarded — in other words, up to $1,197/month for a single person or $1,613 for a married couple), but are held to the same asset levels as those in the QMB program. Upon qualifying, the SLMB applicant will have Medicare Part B premiums paid — that will amount to a $104.90 monthly benefit for most Medicare recipients. SLMB beneficiaries also get “extra help” with their Part D premiums.
  • Qualifying Individuals (QI). A small group of people who do not qualify for any other Medicaid program might get help with their Medicare Part B premiums, if their income is between the $1,197 limit for a single person under SLMB and $1,345 (representing 135% of the federal poverty level, plus that ubiquitous $20). A married couple may have up to $1,813/month. As with QMB and SLMB, if you qualify for QI you also automatically get “extra help” with your Part D premiums.
  • Qualified Disabled and Working Individuals (QDWI). This one requires a little more explanation. For someone who once received Social Security Disability payments but returned to work, QDWI can pay the Medicare Part A premium (that’s $426/month in 2015). Income limits are up to 200% of the federal poverty guidelines (plus that $20), or $1,982 for a single person or $2,675 for a married couple. The most important thing about QDWI, though, is how few people will qualify — Arizona’s AHCCCS program notes that almost every QDWI recipient would also be eligible for the much more generous “Freedom to Work” program.
  • “Extra Help.” Programs that help pay co-payments and deductibles for Medicare’s Part D (drug) coverage go under the friendly name “extra help.” Any QMB, SLMB, QI, or SSI recipient will also get “extra help.” In some cases the program might reduce co-payment amounts but not eliminate them.

These programs can be bewilderingly complex, but they mean real benefits to recipients. Eligibility or the amount of benefit may also change year-to-year, as the beneficiary’s income goes up or down.

Medicare Eligibility at 65: What You Need to Know

NOVEMBER 10, 2014 VOLUME 21 NUMBER 41

Almost ten thousand Americans turned 65 today. Almost all of them will be eligible for Medicare coverage. Those who are new to Medicare will need to make some decisions about whether to sign up for Part B, what to do about Part D, whether to choose Medicare Advantage or “traditional” Medicare, and whether to purchase a “Medigap” policy. Generally speaking, today’s new 65-year-olds have a seven-month period to make their decisions — starting three months ago and running through this month and the next three months.

If you are in that group, you might wonder where you can go to find information about your options. There are a few reliable, unbiased options out there, but our favorite by far is your local Area Agency on Aging. If you live in Tucson, that would be the Pima Council on Aging. If you’re planning on turning 65 in the next few months, or if you just did and you haven’t done anything about it yet, get on the phone and call the PCOA right now. They’ll probably suggest that you sign up for their monthly New to Medicare Workshop, held once a month at the PCOA offices. Go.

There are a number of common Medicare mistakes new 65-year-olds make. You can learn about your options, and how to avoid those mistakes. Some of the things to watch out for:

  • When you sign up for Medicare, you have the option of skipping Part B coverage. Very, very few new Medicare beneficiaries should skip that coverage — even if you feel that you just don’t need it (or can’t afford it) now. Generally, the only people who should skip Part B are those who have current employer-provided health coverage (including active-duty members of the military). Covered by COBRA, Tricare or other private insurance? Get Part B coverage. What happens if you don’t? Later, when you do sign up for Part B (and you almost certainly will), the premiums will be high enough to essentially recapture your “missed” contributions. And don’t assume that your existing coverage qualifies to avoid the increased premiums in the future — check with your Area Agency on Aging, Medicare and/or your employer.
  • You get coverage for medications one of two ways: either you sign up for a “Part D” plan or drug coverage is part of your Medicare Advantage plan. Make sure you sign up for Part D one way or the other. As with Part B, failure to sign up now just means your premiums will be higher later. Don’t think you need (or can afford) Part D coverage? Consider AARP’s suggestion: sign up for the cheapest plan available in your community, primarily so that you don’t pay a penalty later when you do need medication coverage.
  • Don’t think you qualify for Medicare because you haven’t worked for 40 quarters? Get more information. You might want to sign up for Part B and Part D coverage now. You might be better off getting Medicare coverage even if you have to pay a premium (it might, for example, be cheaper and better than your current coverage). You might qualify under a spouse’s work history. Check it out.
  • Still working at 65? You still qualify for Medicare. It’s not tied to your work status, and the eligibility age hasn’t increased to 66, as Social Security already has — and Social Security’s retirement age is headed to 67. But not Medicare.
  • Are you already receiving Social Security benefits? If you are on Social Security Disability, your Medicare card will automatically arrive in the mail after you’ve had two years of SSDI benefits. If you’re receiving Social Security retirement benefits (because you signed up for Social Security between ages 62 and 65), your card will arrive automatically three months before your 65th birthday. When you get that card, you have seven months to sign up for Part A and Part B, choose your plan and select drug coverage.

Those are some of the basic rules (and things to watch out for). The program is complicated, though, and there is much uncovered here. There are special rules for people who are volunteering out of the country on their 65th birthday. There are new rules for same-sex spouses (expanding their coverage to match prior rules covering opposite-sex couples). There are issues of overlap between Affordable Care Act policies and Medicare. There are other benefits that help poor Medicare beneficiaries pay for their premiums, deductibles and co-payments. There is a high likelihood that one of the special rules has some effect on you, so get in touch with your Area Agency on Aging to find out more about your Medicare coverage.

This is Huge: Feds Publish New Rules on Gay Marriage

SEPTEMBER 2, 2013 VOLUME 20 NUMBER 33

Just a few weeks ago we wrote about some of the uncertainties facing legally married same-sex couples living in states (like Arizona) that refuse to recognize the validity of their marriages. If a legally-married couple moves to Arizona, we wondered, would their ability to receive some of the tax benefits available to married couples change just because their new state did not recognize or approve of their marriage? We suggested that same-sex couples ought to be aware of the problem, but assume that they should be able to enjoy the same benefits (and burdens, for that matter) available to their married heterosexual friends.

Well, the United States government weighed in on the subject this week, and the positions taken by two different federal agencies made it clear that a valid marriage is a valid marriage — at least in the federal government’s eyes. The result? Same-sex couples still need to pay extra attention to their estate planning choices, but their choices will be much more palatable.

On August 29, 2013, the Internal Revenue Service released Revenue Ruling 2013-17. Its bottom line: if you are legally married, even though your current state of domicile does not recognize it, you will be treated as married for all tax purposes. Period. Income tax, estate tax, gift tax — it makes no difference. You are married.

In our earlier newsletter we talked about a couple, married in Massachusetts, who had moved to Arizona. Could they file their federal income taxes as “married, filing jointly”? Could they list one another as beneficiary on their IRA or 401(k) accounts, relying on the ability of a spouse to roll those benefits over into a new IRA? Would they get the benefit of a full step-up in basis for income tax purposes, just like other married couples holding community property? It was not clear a week ago. Today it is clear. The answer in each case is “yes” — though perhaps a qualified “yes” in one or two of those cases.

Why a qualified yes? Mostly because community property titling is a special case. Yes, there are federal income tax benefits for married couples titling their assets as community property — but the availability of that option is governed by state property law. Arizona is one of the handful of states recognizing community property designations at all, and it limits the option to couples it thinks are married. If a same-sex couple, legally married in another state, attempts to title, say, real estate as community property (or community property with right of survivorship), will Arizona recognize that title?

We are not sure, and so suggest that the safe approach is to create a trust (probably a joint, revocable trust), provide that all the assets in the trust are held as community property, and title most assets to that trust. That does mean that same-sex couples will end up paying somewhat more for their estate planning than their married heterosexual friends — but they will get the same result at a relatively modest cost.

The other notable change on the federal level involves long-term care arrangements for Medicare recipients. It is far less expansive than the big IRA announcement, but reflects the same general approach: married same-sex couples are to be accorded the same benefits as married heterosexual couples, at least on the federal level.

An August 29, 2013, announcement from the Department of Health and Human Services affects Medicare Advantage beneficiaries. It is not very far-reaching, but it is nonetheless important. In cases where one spouse is already admitted to a skilled nursing facility (what most of us call a “nursing home”), when the second spouse requires placement he or she must be permitted to choose the same facility. In other words, Medicare Advantage plans must have rules supporting spouses’ ability to stay together. And those policies must apply to same-sex married couples, too — even if their marriages are not recognized in the state where they live.

Why is this modest change important? Because, like the IRS declaration, it indicates that the federal government will be extending protections to validly married same-sex couples regardless of their state of residence.

Legal rights and responsibilities are evolving quickly for same-sex marriage. The first few states permitting same-sex marriages debated whether to even permit out-0f-state couples to marry. In the next wave of legal developments, it seemed clear that couples living in Arizona probably would not benefit from traveling to, say, Canada or Iowa to get married, only to return to Arizona and have their marriages all but invalidated. This week’s announcements make it clear that a committed same-sex couple should seriously consider whether they want to get married in a friendlier jurisdiction, even if they intend to return to Arizona to live.

The federal pronouncements also make it that much more difficult for states like Arizona to continue to resist the pressure to change. If a legally married same-sex couple, living in Arizona, wants to get divorced, do they have access to the Arizona court system? The current legal thinking in Arizona is that they might be able to seek annulment of their marriage (which, in Arizona’s legal view, never validly existed), but not a divorce (or dissolution).

Consider, for instance, the dilemma facing Phoenix-area resident Anne Armstrong (not her real name) earlier this year. She and her partner Roberta Reynolds had been married in California, but Anne wished to end the marriage. She filed a petition for annulment of the marriage in the Arizona Superior Court in Phoenix. Roberta did not respond, but the Judge Eartha K. Washington nonetheless refused to annul the marriage. Because same-sex marriages are invalid in Arizona, ruled the judge, there was nothing she could do to help Anne end her California marriage.

The Arizona Court of Appeals reversed that decision and sent the case back to the judge for further proceedings to annul the marriage and divide the couple’s property. Atwood v. Riviotta, May 16, 2013. While Anne’s legal problems were addressed, the decision left two huge issues unresolved: (1) what about same-sex married couples who don’t want to end their marriages, and (2) why should the legal process for ending same-sex marriages be different in the first place? Furthermore, the Court of Appeals resolution was by an unpublished decision, meaning it could not even be cited as precedent for other, similar cases as they arise.

What about resolution of child custody issues, or property divisions? What about bigamy laws, or other societal norms affecting married couples? If a couple is permitted to file income tax returns as married under federal law, why should it be different for state income tax returns? The pressure on Arizona (and other resistant states) is intense: it is time for our legal system to deal with changes sweeping across the country, and the federal government’s pronouncements this week will add to that pressure.

Special Needs Trusts and the New Medicare Tax

MARCH 25, 2013 VOLUME 20 NUMBER 12
You may have heard about a potentially significant new tax liability for special needs trusts. With adoption of the Patient Protection and Affordable Care Act (what is often referred to as “Obamacare”) Congress created a new tax intended for high earners to contribute to Medicare. A fairly complicated formula attempts to capture investment income (as distinct from income from employment) and impose a tax.

Enter the doctrine of unintended consequences — or at least we hope this consequence was unintended. Because of the definition of income subject to the tax, it is possible that some special needs trusts will end up paying a significantly higher tax. Here’s how it works:

The new tax is imposed on “net investment income.” That is defined as dividends, capital gains, interest, rents, royalties — pretty much income other than wages. It was intended to cover relatively higher-income individuals, so it will kick in only for the highest tax brackets for each category of taxpayer. That means, for instance, that a married couple will owe the 3.8% Medicare tax only if their total income (including that investment income) exceeds $250,000.

But here’s the problem: the highest tax bracket for trusts kicks in at a much, much lower figure — $11,950 in 2013. So a special needs trust subject to income taxation will pay an extra 3.8% on any investment income in excess of that amount.

Let’s use an illustration. Mildred’s will included a special needs trust for her daughter Diana. Mildred died in 2011, and the trust was funded with $500,000 of property from her estate. The trust is now invested in an appropriate mix of stocks and bonds, and last year it generated about 4% in interest, dividends, recognized capital gains, etc. That means income of about $20,000; the tax would be about $6,000 on that amount. Because of the 3.8% surtax, however, the tax bill will rise by almost another $1,000.

That’s not too bad, but of course the tax on Mildred’s trust is already much higher than it would have been had it been taxed to Mildred herself. The trust paid the highest marginal tax rate (39.6%) on nearly half of the total income — whereas Mildred herself would have still been in the 15% tax bracket if she were still alive in 2013. Now the total tax paid by the trust has gone from more than double to nearly three times Mildred’s individual tax burden.

Don’t panic. It’s not as bad as that. There are several reasons why the new Medicare tax will have an effect on special needs trust planning, but not that broad of an effect on the actual tax paid.

First, let’s clear up one confusion: the higher tax rates — both the Medicare tax and the highest, 39.6% rate on trust income — only applies to trusts set up by someone else to hold an inheritance or gift, and usually only after the death of the donor. A special needs trust set up to handle personal injury settlement proceeds does not have any separate tax effect at all — it is what is called a “grantor” trust, and is taxed as if it actually was the individual whose money went into the trust. The Medicare surtax, and the highest marginal tax rate, will only affect that kind of special needs trust if the total income is at least $200,000.

Next, even the “third-party” trust established by Mildred (the third party in the trust’s name) has a significant way out of paying high taxes. It just has to provide some benefits for Diana. If, for instance, the trust paid for a companion to take Diana out of her assisted living apartment once a week in 2013, the income tax gets paid by Diana and not the trust. The higher tax levels never kick in, because Diana’s income is not high enough to be subjected to the top level OR the Medicare tax.

It’s actually even better than that. Mildred’s trust is almost certainly a “qualified disability trust.” That means it gets to take the equivalent of a personal tax exemption, as if it was Diana — meaning that the first $3,900 of the trust’s income escapes taxation altogether. Plus the administrative expenses (trustee’s fees, some of the investment fees, lawyer’s and accountant’s fees) are all deducted from income. So Mildred’s trust’s $20,000 of income only gets reported on Diana’s return to the extent of about $5,000 — and Diana probably won’t pay any income tax at all.

Diana is lucky in another way, and Mildred’s trust shares that luck. Diana is pretty healthy, and does not have significant medical expenses. In another, similar trust with large medical payments, the ultimate tax paid can also be reduced simply by claiming large medical deductions on the beneficiary’s return.

Nonetheless, the new Medicare tax is a concern for trustees of third-party special needs trusts — especially very large trusts. Double the size of Mildred’s trust (or quadruple it) and it is easy to see that the tax burden might rise steeply. The trustee of a third-party trust with several million dollars might find it prudent to invest in assets that will appreciate in value but not throw off much income — presuming, of course, that the appreciating assets will not be sold during the beneficiary’s lifetime.

Can a Special Needs Trust Pay Credit Card Bills? Security Deposit?

JANUARY 21, 2013 VOLUME 20 NUMBER 3
Administering a “special needs” trust can be a challenge. The rules often seem vague, and they occasionally shift. What may seem like a simple question might actually involve layers of complexity. Sometimes an expenditure might be permissible under the rules of, say, the Social Security Administration, but not acceptable to AHCCCS, the Arizona Medicaid agency — or vice versa. Trustees work in an environment of many constantly-moving parts.

Take two questions we have been asked lately:

I am trustee of a self-settled special needs trust for my sister. Can I pay her credit card bills?

Maybe (don’t you just love lawyers’ answers?). Let’s break the question down a little bit.

First, have identified the trust as “self-settled.” That means the money once belonged to your sister (it might have been an inheritance, or a personal injury settlement, or her accumulated wealth before she became disabled). That also means the rules are somewhat more restrictive.

We will assume that the bills are for a credit card in her name alone. If the card belongs to someone else, the rules may be different. Not many special needs trust beneficiaries can qualify for a credit card; when they can, it can be a very useful way to get things paid for (as you will soon see).

The next question requires a look a the trust document itself. It might be that it prohibits payments like the one you would like to make. That would be uncommon, but not unheard of. We will assume that the trust does not expressly prohibit paying her credit card bills.

What benefits does your sister receive? Social Security Disability and Medicare? No problem. Supplemental Security Income (SSI) and AHCCCS (Medicaid)? Could be a problem.

Next we need to know what was charged to the credit card. Was it food or shelter? If it was used for meals at restaurants, or grocery shopping, or for utility bills, you probably do not want to pay the credit card bill from the trust. If you do (and assuming the trust permits it) then you will face a reduction of any SSI she receives, and possible loss of AHCCCS benefits.

Were the credit card bills for clothes, medical supplies, gasoline for her vehicle, even car repairs? There is probably no problem with paying the credit card statement. Even home repairs should be OK in most cases (just not rent, mortgage, utilities, etc. — and the rules might be different if anyone else lives with your sister).

As you can see, what started out as a simple question turns out to have a lot of complexity. You might want to talk with a lawyer about your sister could use the credit card. When it works, though, it can be quite a boon — it is an easy way to get gas into her car and clothes on her back.

Can my special needs trust pay the security deposit on my new apartment?

What an interesting question. We think the answer is probably “yes.”

Once again we need to look at the trust document itself. Was it funded with your own money (like a personal injury settlement), or was the trust set up by a relative or friend with their own money? Is there language prohibiting payment for anything related to your apartment?

Assuming no trust language prohibits the payment, we can turn to the effect such a payment would have on your benefits. Social Security Disability and Medicare? Once again, no problem. SSI and AHCCCS/Medicaid? Your benefits might be reduced, but the payment can probably be made.

The key question is whether a “security deposit” is “rent.” Arguably, it is not — it is advance payment for cleaning. A special needs trust — even a self-settled special needs trust — can pay for cleaning. Social Security’s rules treat payment of “rent” as what’s called “In-Kind Support and Maintenance (ISM).” This payment, we think, should not be characterized as ISM.

If it is not ISM, then it should have no effect on your SSI or your AHCCCS benefits. If it does, it might simply reduce your SSI payment (by the amount of the deposit, but capped at about $250). So long as you still get SSI it should not have any effect on your AHCCCS benefits.

Are these rules unnecessarily complicated? Yes. Does it sometimes end up costing more in legal fees to figure out what to do than it would to just pay the bills? Yes. Welcome to the complex world of special needs trust administration. Would it be possible to write simplified rules that allowed limited use of special needs trust funds while saving a bundle on administrative expenses? Yes — but please don’t hold your breath while waiting for them.

Not a Policy Wonk or Wannabe? Skip This Week’s Elder Law Issues

AUGUST 6, 2012 VOLUME 19 NUMBER 30
The Director of Arizona’s Medicaid program (AHCCCS – the Arizona Health Care Cost Containment System) testified last month before the United States Senate Special Committee on Aging, and his remarks caught our attention. Director Thomas Betlach was testifying about “dual eligibles” — people who are eligible for both Medicaid (AHCCCS) and Medicare. He particularly was talking about Arizona’s unusual approach, which utilizes managed care programs as the centerpiece for Medicaid recipients.

Mr. Betlach’s testimony is interesting, at least to people with a strong policy bent. You can read his remarks online and decide if that includes you. But we were not as focused on dual eligibles and managed care as we were on his description about the Arizona program as it actually operates.

For instance, Mr. Betlach reported that 72% of Arizona’s elderly and physically disabled (his term) Medicaid recipients are now receiving their care at home or in a community-based care setting — as distinguished from institutionalization in a nursing home or similar facility. For Medicaid recipients with a developmental disability, that figure increases to 98% — in other words, only two percent of Arizona’s Medicaid-subsidized patients with developmental disabilities are in long-term care institutional settings.

Whatever you may think about Arizona’s history of care for vulnerable patients (and we are not always big fans), that is pretty remarkable. Of course a significant percentage are receiving their care in assisted living facilities or adult care homes — not nursing homes, but not exactly home, either. Mr. Betlach’s testimony did not segregate out the numbers or percentages for those populations, but we are still impressed with the high percentage being cared for in settings other than nursing homes.

Another interesting element of Mr. Betlach’s testimony: the managed-care emphasis in Arizona’s AHCCCS program has helped increase the percentage of managed-care patients in Medicare, and has held down the costs of (among other things) prescription drugs and the long-term care costs themselves. And the savings at least arguably demonstrate better care: Arizona’s Medicare/Medicaid patients  have a one-third lower hospitalization rate and a 21% lower readmission rate after release from hospitalization.

Want to know more about AHCCCS, the Arizona Long Term Care System (ALTCS) and Home and Community Based Services (HCBS)? You might want to look at the AHCCCS reports page. From there you can link to reports prepared for the federal government, for the state legislature and other reports. One we found particularly interesting: a report to the federal government on HCBS care (the latest year available is calendar year 2010).

Haven’t yet satisfied your inner wonk? Try the population statistics maintained by AHCCCS on its members and trends. Our favorite: we did not realize that the number of AHCCCS/ALTCS patients with developmental disabilities (24,654) was so close to the number of members listed as “elderly” or “physically disabled” (27,941). The former category seems to be growing ever-so-slightly faster than the latter, and that surprised us as well.

CMS: Hospice Patients CAN Appeal Their Care Provider’s Decisions

JULY 9, 2012 VOLUME 19 NUMBER 26
Surveys indicate that recipients of Medicare benefits are consistently pleased with the care they receive. Hospice patients (and their families) often express even higher levels of satisfaction — even though the patient so often dies. But not all hospice patients are pleased with the care they receive, and some will inevitably want to challenge the care providers’ decisions. How do they do that? It can be difficult to figure out.

Harold Block (not his real name) provides a case in point. When his wife was diagnosed as terminally ill, Mr. and Mrs. Block decided to enroll her in a hospice program available through Medicare. All of her care was provided by the hospice provider, and Medicare paid virtually all of the costs of care.

Mrs. Block soon found that the pain medications she was receiving were simply not adequate. Her attending physician agreed, and prescribed Actiq, a powerful drug intended to treat “breakthrough pain.” Mr. Block immediately filled the prescription, paying out of his own pocket. In the last month of his wife’s life he paid $5,940 for the painkiller.

A few months after his wife’s death Mr. Block submitted the receipts for her medications to the hospice organization for payment. They declined to reimburse him. He wrote to the hospice group again, noting that the drug had been prescribed by her attending physician, that it had been part of her care plan (which had been signed by her hospice team, as well), and that he intended to appeal the denial of coverage. The hospice organization told him he should address his appeal to National Government Services, a “fiscal intermediary” that handles Medicare provider’s claims.

Mr. Block wrote to the fiscal intermediary. He received a response telling him that only the legal representative of his wife’s estate could pursue the claim. He sent back documents showing he had been appointed as personal representative of her estate. He received another letter telling him he would have to prove that he had legal authority. He sent another copy of the legal documents. Frustrated, he hired an attorney, who wrote to the Centers for Medicare and Medicaid Services (CMS), telling them that Mr. Block wanted to appeal the denial of coverage for his wife’s medication.

CMS responded to the attorney saying that only the original hospice provider could appeal the denial. Since he was seeking to appeal a denial of coverage BY the same hospice provider, Mr. Block and his attorney decided he would need to sue CMS.

Eighteen months after his wife’s death, and still not having gotten any substantive answer to his request for reimbursement, Mr. Block filed a lawsuit against CMS in California’s federal court. His allegation: CMS had to provide an appeal mechanism for dissatisfied hospice patients under Medicare law and federal Constitutional principles. CMS’s response: there IS an appeal process, just not the one that Mr. Block had been told about. The trial judge, based on CMS’s representations about an available appeal process, dismissed his lawsuit.

The Ninth Circuit Court of Appeals upheld the dismissal, finding that there is an appeal process for unhappy hospice patients — though no one in the Medicare or hospice system seemed to be able to tell Mr. Block where he should file his appeal or how it would work. The first step in the appeal process, wrote the appellate court, would be for Mr. Block to request the hospice provider to reconsider its denial (forget that the hospice provider already told Mr. Block — incorrectly — that he should appeal to the fiscal intermediary). Next step: ask for reconsideration of the redetermination (no, we’re not kidding here). Next step after that: appeal to a Medicare Administrative Law Judge, then to the Medicare Appeals Council for review and then, if none of those steps has worked, to court for formal judicial review.

“We understand [Mr. Block’s] frustration, having been misinformed by CMS and forced to hire an attorney and bring suit to be properly informed of his right to appeal,” wrote the appellate court. Notwithstanding that frustration, wrote the judges, Mr. Block “already has the only relief he seeks — he and other hospice beneficiaries may utilize the [CMS] procedures to appeal a hospice provider’s refusal to provide a drug or service. We expect that the Secretary [of CMS] will take action to ensure that her agencies are properly informed in the future.”Back v. Sebelius, July 5, 2012.

For our part, we look forward to seeing clarification of Medicare hospice beneficiaries’ right to appeal unfavorable decisions. With that appellate process clarified, satisfaction levels can only improve even further. We also hope that Mr. Block gets his $5,940 back sometime soon — he’s waited four years for it so far. To that end, CMS has agreed not to assert that Mr. Block waited too long to file his appeal — which would be the case if he had just waited for those four years to pursue his claim.

Why You Should Not Create a Special Needs Trust

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:

  1. 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.
  2. 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.
  3. 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.

We also know a good barista.

How To Leave An IRA To A Child Who Has a Disability

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:

  1. 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.
  2. 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.
  3. 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.

January Session Will Focus On Paying for Long-Term Care

NOVEMBER 16, 2009  VOLUME 16, NUMBER 61

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.

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