Timing Is Everything Where Medicare’s Concerned

There are many complex rules about transitioning from employment-based health care coverage to Medicare, and mistakes are expensive and often, permanent. That’s the message from a recent article in The New York Times titled “If You Do Medicare Sign-Up Wrong, It Will Cost You.”

Tony Farrell did all the right things — he did the research and made what seemed like good decisions. However, he still got tripped up, and now pays a penalty in higher costs that cannot be undone. When he turned 65 four years ago, he was still working and covered by his employer’s group insurance plan. He decided to stay with his employer’s plan and did not enroll in Medicare. Four months later, he was laid off and switched his health insurance to Cobra. That’s the “Consolidated Omnibus Budget Reconciliation Act” that allows employees to pay for their own coverage up to 36 months after leaving a job.

Medicare requires you to sign up during a limited window before and after your 65th birthday. If you don’t, there are stiff late-enrollment penalties that continue for as long as you live and potentially long waits for coverage to start. There’s one exception. If you are still employed at age 65, you may remain under your employer’s insurance coverage.

What Mr. Farrell didn’t know, and most people don’t, is that Cobra coverage does not qualify you for that exemption. He didn’t realize this mistake for over a year, when his Cobra coverage ended, and he started doing his homework about Medicare. He will have to pay a late-enrollment penalty equal to 20% of the Part B base premium for the rest of his life. His monthly standard premium increases for Mr. Farrell from $135.50 to $162.60.

There are several pitfalls like this and very few early warnings. Moving from Affordable Care Act coverage to Medicare is also complex. There are also issues if you have a Health Savings Account, in conjunction with high-deductible employer insurance.

Here are some of the most common situations:

Still employed at 65? You and your spouse may delay enrollment in Medicare. However, remember, Cobra does not count. You still need to sign up for Medicare.

If you have a Health Savings Account (HSA), note that HSAs can accept contributions only from people enrolled in high deductible plans, and Medicare does not meet that definition. You have to stop making any contributions to the HSA, although you can continue to make withdrawals. Watch the timing here: Medicare Part A coverage is retroactive for six months for enrollees, who qualify during those months. For them, HSA contributions must stop six months before their Medicare effective date, in order to avoid tax penalties.

There are many other nuances that become problematic in switching from employer insurance to Medicare. If this sounds complicated, at least you are not alone. Moving to Medicare from other types of insurance is seen as complicated, even by the experts. The only government warning about any of this comes in the form of a very brief notice at the very end of the annual Social Security Administration statement of benefits.

There are advocacy groups working on legislation that would require the federal government to notify people approaching eligibility about enrollment rules and how Medicare works with other types of insurance. The legislation was introduced in Congress last year – the Beneficiary Enrollment Notification and Eligibility Simplification Act — and will be reintroduced this year.

Reference: The New York Times (Feb. 3, 2019) “If You Do Medicare Sign-Up Wrong, It Will Cost You”

Are Your Powers of Attorney ‘Hot’ Enough?

Many states, including Texas, allow people to give the agent named in their financial power of attorney what are referred to as “hot” powers, if they wish. This requires careful decision making, says the Glen Rose Reporter in an article that poses a question: “Should you add hot powers to your power of attorney?”

The “hot” powers are well-named, since they give a financial power of attorney considerable power. They allow the agent to create, amend, revoke or terminate a trust during the principal’s lifetime. The agent may also make a gift. In Texas, this is subject to the limitations under Texas Estates Code §751.032 and any special instructions, to create or change rights of survivorship, create or change a beneficiary designation and to authorize another person to exercise the authority granted under the power of attorney.

That is considerable leeway for an agent to be given during one’s lifetime.

In one case, a man decided that he wanted to give some of these “hot” powers to a power of attorney, but not all of them. Unless he made specific directions, he would be giving someone the ability to make gifts outright to individuals, to a trust, an UGMA (Uniform Gift to Minors Act) account or a qualified tuition program that meets the requirements of §529.

The attorney in this case advised the client that the gifts an agent can make, are limited to the dollar limits of the federal gift tax exclusion, or twice that, if the spouse agrees to a gift split as allowed under the Internal Revenue Code.

The gifts the agent can make are further limited to being consistent with the principal’s objectives, if the agent knows what those objectives are. However, if the agent does not know what those objectives are, he or she must still make sure the gift is aligned with the principal’s best interest, based on the value and nature of the principal’s property, foreseeable obligation and the need for maintenance.

The power of attorney in all cases needs to know what their responsibilities are, and if they are given “hot” powers, they need to be informed what those specific powers are. If the agent is someone other than a spouse or descendant, that agent may not make gifts to themselves. A spouse or descendant, however, could make gifts to themselves.

The man in this example wisely decided that while his son was very trustworthy and was going to be named his financial power of attorney, it would not be a good idea to place so much temptation in the young man’s path. Therefore, he instructed his attorney to modify the statutory form of the power of attorney, so his son is not permitted to make any gifts to himself.

Reference: Glen Rose Reporter (Jan. 3, 2019) “Should you add hot powers to your power of attorney?”

Is There an ADU in Your Future?

The idea of aging in place is something we’d all like to do. However, homes with many stairs or that are located in cold climates don’t always make this possible. One way that some families are addressing this wish to age in place: the Accessory Dwelling Unit, or ADU, according to Next Avenue in the article“Could an Accessory Dwelling Unit Help Your Aging Parent?” The flexibility—a home for mom for a few years, then used as an income-producing apartment—makes this an attractive option.

Sometimes referred to as a “granny pod,” the ADU is usually a small structure in a backyard, with little more than a bathroom, sleeping quarters and a kitchen. They are basically “tiny homes,” the very small living quarters that some people are opting for, in place of sprawling homes.

A survey by AARP found a third of adults 50 and older would be open to living in an ADU. Why not? It’s a great way to have some degree of privacy, while living near, but not with, children and grandchildren.

Communities are starting to update their zoning laws to permit the construction of ADUs, especially where housing costs are high. In Los Angeles, ADUs have been legal since 2017, when new laws about their use went into effect and the increase of ADU construction permits increased by 1,000%. Housing codes changes are being examined in many other cities, including Boston, Denver, Chicago, Denver, Seattle and Washington DC, say industry experts.

Some barriers still exist, and they may not go away quickly. One is that ADUs are not cheap, even thought they are small. Many cost $150,000 or more. Much of the cost is to hook the little house up to local utilities, as well as the cost of construction. Most lenders don’t offer ADU mortgages, so payment tends to be with cash or with a home equity line of credit. This restricts the number of people who can afford an ADU.

Local communities not behind the concept of an ADU, may be concerned about the little houses being less like a tiny home and more like a shack, having a negative impact on neighborhood looks and values. Zoning codes, even those that are changing, are strict about maintaining the structures.

If your family would benefit from an ADU, start by checking with your town’s planning or building department. If the community permits the use of ADUs, you’ll want to find local builders who have constructed ADUs before. Some builders may not be interested in what they perceive as a very small project.

As boomers grow and strive to maintain their independence, expect to see more communities embrace the use of ADUs.

Reference: Next Avenue (Jan. 2, 2019) “Could an Accessory Dwelling Unit Help Your Aging Parent?”

Who Will Pay for Your Nursing Home Care?

It’s hard for everyone in the family, when a beloved parent or grandparent must enter a nursing home, because they can no longer live on their own. Often the result of a physical or mental decline, the difficultly is compounded by worries about how to pay for the care, reports The Ledger in the article “The Law: Are you eligible for Medicaid nursing home coverage?”

Once health insurance coverage ends, the cost of care becomes enormous, with the monthly cost for a private-pay resident at nursing homes often exceeding $10,000 a month. What usually happens? Residents can’t afford the care and only have two options: qualify for Medicaid Nursing Home coverage, or sell every asset they can, impoverish the spouse, and ask adult children or other family members for help. Most people contact an elder law attorney and explore becoming eligible for Medicaid Nursing Home coverage.

Let’s use the state of Florida for an example of how to qualify for this coverage. A person must pass a three-part test that examines their assets, income and health, at the time the application is filed.

Income. As of Jan. 1, 2019, you could have a maximum of $2,313 per month in income (before deductions) to be eligible for Medicaid Nursing Home coverage. If your income was above that number, then legal planning is necessary to create a qualified income trust. Timing is extremely important, because if the trust is not set up correctly or in a timely fashion, you will not qualify for Medicaid.

There is a common mistake made about a spouse’s income being too high. It’s happily not true: a spouse’s income can be unlimited, and it does not impact a Medicaid applicant’s eligibility for benefits.

Assets. As of Jan. 1, 2019, you may have a maximum of $2,000 of countable assets and be eligible for Medicaid Nursing Home coverage. If the assets are above that threshold, there are a number of acceptable legal options to help the individual become eligible. There are two types of asset classes to consider when applying for Medicaid Nursing Home coverage: countable and non-countable.

Some non-countable assets are as follows: In Florida, homestead property up to $585,000 in value, one automobile, a prepaid burial contract and term life insurance without a cash value. Countable assets include bank accounts, investment accounts, life insurance with cash value, CDs and annuities.

As of Jan. 1, 2019, a spouse may have a maximum of $126,420 of countable assets, without having an impact on their spouses’ Medicaid eligibility.

An elder law attorney should be consulted to help the family understand the income and asset tests and create a strategy to help the individual qualify, if they anticipate needing Medicaid Nursing Home coverage. It’s best to do this well in advance, if possible.

ReferenceThe Ledger (Jan. 9, 2019) “The Law: Are you eligible for Medicaid nursing home coverage?”