The basic premium for Medicare Part B will be $99.90 a month, only a $3.50 increase over the $96.40 a month that most beneficiaries have been paying since 2008.  This increase is $7 a month less than what was being projected as recently as last May and means that most seniors will be able to keep the lion’s share of their Social Security benefit increase.  In addition, higher-income earners and others who have not benefited from the recent premium freeze will see a significant drop in their premiums.

Most Medicare recipients have not experienced a rise in their Medicare Part B premium — which pays for doctor visits and other outpatient costs — because of a provision in the Medicare law prohibiting premiums from climbing more than that year’s cost-of-living increase in Social Security benefits. Since there has been no Social Security increase in the last couple of years, most beneficiaries – nearly three-quarters – have continued to pay Part B premiums of $96.40 per month.

But this protection has not applied to the other one-quarter of beneficiaries who either:

• do not have their Part B premiums withheld from their Social Security checks, or
• pay a higher Part B premium surcharge based on high income (see below), or
• are newly enrolled in Part B.

These beneficiaries who did not benefit from the premium freeze will see their premiums reduced from $115.40 a month to the new $99.90 premium.  In addition, the Part B deductible will fall $22 to $140.

Donald Berwick, MD, administrator of the federal Centers for Medicare and Medicaid Services, said one big reason for the lower-than-expected premium hike was historically low rates of health care utilization, which he attributed in part to the health reform law’s focus on preventive services.  In addition, the unexpected Social Security benefit increase meant that rising Medicare costs could be spread among many more beneficiaries, with each one paying a smaller share.

“Between reduced Part B premiums and increased Social Security payments, the average Social Security recipient will have a net cost-of-living increase of $40 per month in 2012,” said the Center Medicare Advocacy.

Some might believe that politics played a role in keeping Medicare’s premiums down during an election year, but that’s not so, said Tricia Neuman of the non-partisan Kaiser Family Foundation. “Changes in premiums are obviously important to seniors but the numbers are based on what the law requires, and determined by independent actuaries, rather than politics,” Neuman said.

Following are all the new Medicare figures for 2012:

• Basic Part B premium: $99.90/month

• Part B deductible: $140 (was $162)

• Part A deductible: $1,156 (was $1,132)

• Co-payment for hospital stay days 61-90: $289/day (was $283)

• Co-payment for hospital stay days 91 and beyond: $578/day (was $566)

• Skilled nursing facility co-payment, days 21-100: $144.50/day (was $141.50)

As directed by the 2003 Medicare law, higher-income beneficiaries will pay higher Part B premiums. Following are those amounts for 2012:

• Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 will pay a monthly premium of $139.90 (was $161.50).

• Individuals with annual incomes between $107,000 and $160,000 and married couples with annual incomes between $214,000 and $320,000 will pay a monthly premium of $199.80 (was $230.70).

• Individuals with annual incomes between $160,000 and $214,000 and married couples with annual incomes between $320,000 and $428,000 will pay a monthly premium of $259.70 (was $299.90).

• Individuals with annual incomes of $214,000 or more and married couples with annual incomes of $428,000 or more will pay a monthly premium of $319.70 (was $369.10).

Rates differ for beneficiaries who are married but file a separate tax return from their spouse:

• Those with incomes between $85,000 and $129,000 will pay a monthly premium of $259.70 (was $299.90).

• Those with incomes greater than $129,000 will pay a monthly premium of $319.70 (was $369.10).

The Social Security Administration uses the income reported two years ago to determine a Part B beneficiary’s premiums. So the income reported on a beneficiary’s 2010 tax return is used to determine whether the beneficiary must pay a higher monthly Part B premium in 2012. Income is calculated by taking a beneficiary’s adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest,U.S.savings bond interest used to pay tuition, and certain income from foreign sources. This is called modified adjusted gross income (MAGI). If a beneficiary’s MAGI decreased significantly in the past two years, she may request that information from more recent years be used to calculate the premium.

Those who enroll in Medicare Advantage plans may have different cost-sharing arrangements. On average Medicare Advantage premiums will be 4 percent lower in 2012 than in 2011.

For Medicare’s Fact Sheet on the new numbers, which includes the new Medicare Part D premium adjustments for high earners, click here.

For more about Medicare coverage, click here.

To discuss Medicare coverage or other elder law issues with an attorney, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment.

A trustee’s duties include locating and protecting trust assets, investing assets prudently, distributing assets to beneficiaries, keeping track of income and expenditures, and filing taxes. (For more information on a trustee’s duties, click here.) As a trustee, you have a fiduciary duty to the beneficiaries of the trust, meaning that you have an obligation to act in the best interest of the beneficiaries at all times. It also means you will be held to a higher standard than if you were just dealing with your own finances.

A trustee is usually entitled to hire an attorney (and other professionals like an accountant) to assist in trust administration. The attorney’s fees will be paid from the trust funds. While hiring an attorney will cost money, not having an attorney at all could cost a trustee much more if errors are made.

A trust can be administered without court involvement, but that doesn’t mean that the administration is simple. There are many areas where problems can arise — for example, if assets aren’t invested properly, taxes are late, or if proper records aren’t kept. If something goes wrong during the administration of the trust, the trustee can be removed and held personally liable for any costs incurred or losses suffered. Even if a spouse is the trustee, he or she should still consult with an attorney. Many couples have so-called “AB” trusts to take advantage of the maximum estate tax exemption; these trusts require special knowledge to determine whether the trusts are properly funded and the taxes filed.

To discuss trusts with an attorney, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

After leveling off last year, the cost of adult day care services went up by 4.5 percent to $70 per day.  But the average cost of home health aides and homemaker/companion service rates remained unchanged at $21 and $19 per hour, respectively.

The survey also reports on the cost of a semi-private room in a nursing home, which also increased 4.4 percent to $214 a day, or $78,110 a year. The cost of a semi-private room in an Alzheimer’s wing rose from an average of $75,190 to $81,030 annually.

Once again, the highest rates for a private nursing home room in 2011 were found in Alaska, where the average cost dropped slightly from $687 a day to $655 a day. The lowest rates were found in Louisiana (with the exception of Baton Rouge and the Shreveport area), at and average of $141 a day.

The cost of assisted living was the highest in the Washington, D.C., area, at $5,757 a month and the lowest in Arkansas (except for Little Rock) at $2,156 a month. Average home health care aide services ranged from a high of $34 an hour in Rochester, Minnesota, to $14 and hour in the Shreveport area of Louisana. Adult day care services were highest in Vermont at an average of $148 a day and lowest in the Montgomery, Alabama, area, at $29 a day, a $2 drop from 2010.

For the full 2011 report, including listings of average long-term care costs in selected cities, click here.

To discuss elder law issues with an attorney, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

During this period, you may enroll in a Medicare Part D (prescription drug) plan or, if you currently have a plan, you may change plans. In addition, during the seven-week period you can return to traditional Medicare (Parts A and B) from a Medicare Advantage (Part C, managed care) plan, enroll in a Medicare Advantage plan, or change Advantage plans. Beneficiaries can go to www.medicare.gov or call 1-800-MEDICARE (1-800-633-4227) to make changes in their Medicare prescription drug and health plan coverage.

Even beneficiaries who were satisfied with their plan in 2011 need to review their options for 2012, particularly because things are still in flux due to changes brought on by the health care law. Prescription drug plans can change their premiums, deductibles, the list of drugs they cover, and their plan rules for covered drugs, exceptions and appeals. Medicare Advantage plans can change their benefit package and as well as their provider network.

According to the federal Centers for Medicare and Medicaid Services (CMS), Medicare Advantage premiums are expected todecrease by an average of 4 percent next year from this year, while Part D plan premiums will likely increase about 2 percent to $30 a month, on average.

“There’s no doubt that a lot of seniors are in the wrong plan,” Ross Blair, the CEO of PlanPrescriber.com, a site that compares Medicare plans, told SmartMoney.  “A lot of them could save hundreds of dollars a year by switching.”

Reaching for the Stars

One change beneficiaries using the Medicare Plan Finder will notice this year is CMS’s enhanced five-star rating system.  Plans that have achieved a five-star rating from CMS are identified with a “gold star” icon.  Those that have received a low overall quality rating for the past three years are identified with a “warning signal” icon.  Another new innovation is that there is no time limit to switch into a five-star Advantage or prescription drug plan. Medicare beneficiaries have one opportunity to switch to one of these top-rated plans anytime during 2012. (For more on the significance of the star rating system, see“Medicare Plans See Dollars in the Stars.”)

If you want out of your Advantage plan after December 7, you can “disenroll” between January 1 and February 14.  At that point you can return to traditional Medicare and add a Part D plan, or move into a five-star Advantage plan.  But if you return to traditional Medicare you may not be able to buy Medigap coverage at that point, although the rules vary by state.

If you take no action, you will remain in your current plan unless your Medicare Advantage or drug plan is terminating its Medicare contract. Also, if you receive the Low-Income Subsidy (LIS) to help pay for some or most of your Part D drug costs, you may be randomly reassigned to a different plan. (For more on the LIS program, also known as “Extra Help,” click here.)

Some factors to consider when evaluating your drug plan include:

• What is the monthly premium?
• Does the plan continue to cover necessary drugs?
• Does the plan provide coverage for drugs in the “doughnut hole” or coverage gap?
• What pharmacies are covered under the plan?

Some factors to consider when comparing Medicare Advantage plans include:

• What is the monthly premium?
• What is the cost-sharing for doctor visits?
• Which doctors and hospitals are covered?
• Is prescription drug coverage included?
• Are any other extra benefits included and will they be useful to you?

Remember that fraud perpetrators will inevitably use the Open Enrollment Period to try to gain access to individuals’ personal financial information.  Medicare beneficiaries should never give their personal information out to anyone making unsolicited phone calls selling Medicare-related products or services or showing up on their doorstep uninvited.  If you think you’ve been a victim of fraud or identity theft, contact Medicare.  For more information on Medicare fraud, click here or here.

Here are more resources for navigating the Open Enrollment Period:

• The 2012 Medicare & You handbook, which all Medicare beneficiaries should have received. The handbook can also be downloaded online at: www.medicare.gov/publications/pubs/pdf/10050.pdf 

• The Medicare Rights Center: www.medicareinteractive.org

• Your State Health Insurance Assistance Program, which offers independent counseling: https://shipnpr.shiptalk.org/

• Kiplinger’s “How to Compare Medicare Advantage Plans”

• Medicare Plan Finder: www.medicare.gov/find-a-plan

• U.S. News on “Understanding Your 2012 Medicare Enrollment Statements”

For more about Medicare, click here.

To discuss Medicare or elder law issues with an attorney, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

The scorecard, a collaboration between the AARP, The Commonwealth Fund, and The SCAN Foundation, looked at the range of services and supports available for people who need long-term care, whether in their home, nursing home, assisted living facility, or other setting. The report ranked the performance of long-term care systems in states in four main categories: affordability and access, choice of setting and provider, quality of life and quality of care, and support for family caregivers. According to the report, Minnesota, Washington, and Oregon provided the best long-term services and Mississippi, Alabama, and West Virginia provided the worst.

The findings indicate that there is a lot of area for improvement even in the top-performing states, and the report presents several actions that states can take to improve performance. One recommendation is that states expand Medicaid eligibility to increase access and choice as well as move the balance of services away from institutional care and toward home or community-based options. Other recommendations include providing greater flexibility to consumers to direct their own services, helping to move nursing home residents who want to return to the community back to their homes, and making sure nursing homes are properly and frequently monitored.

All the information from the scorecard has been put into an interactive Web site (http://www.longtermscorecard.org/) to allow policymakers to identify areas where improvement is needed and uncover gaps within the system.

To read the report and see a breakdown by state, go to http://www.longtermscorecard.org/.

To discuss elder law issues with an attorney, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

What Is an IRA?
IRAs are personal savings plans that allow you to set aside money for retirement and create tax savings. The advantage of IRAs is that you may be able to deduct some or all of your contributions to an IRA from your taxes and also be eligible for a tax credit equal to a percentage of your contribution. Earnings in a traditional IRA generally are not taxed until distributed to you. At age 70 1/2 you have to start taking distributions from a traditional IRA. Earnings in a Roth IRA are not taxed nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible. Any amount remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.

Rule Number One: Name Beneficiaries
From an estate planning perspective, the most important thing to remember with an IRA is to name a beneficiary. While a spouse is usually the logical choice for a beneficiary, you should be sure to name contingent beneficiaries as well. If you and your spouse died at the same time and there was no contingent beneficiary, then the IRA would go to your estate and be subject to probate (the legal process of administering the estate of a deceased person). When a spouse inherits an IRA, he or she can roll it over into his or her own IRA. When a non-spouse inherits an IRA, the heir will need to start taking distributions within a year after the IRA owner dies.

Stretching an IRA
If you don’t need the funds in your IRA for retirement and want to use them to provide for your beneficiaries instead, you may be interested in “stretching out” your IRA. To do this, when you reach 70 1/2, take only the required minimum distributions, leaving more assets in your IRA. When you die, your beneficiary can also stretch distributions out over his or her lifetime and then designate a second-generation beneficiary. It makes sense to name a young beneficiary because the younger the beneficiary, the smaller each distribution must be, which gives the funds in the IRA extra tax-deferred years to grow. For more information on stretching out an IRA, click here.

Trusts as Beneficiaries
In some cases, it may make sense to name a trust as a beneficiary. This is particularly true if you have minor children, children with special needs, or a beneficiary with poor spending habits. But the trust must be properly drafted to avoid negative tax consequences. If the trust is a “see-through” trust or “conduit” trust, then the distributions from the IRA to the trust after the participant’s death can be stretched out over the life expectancy of the oldest trust beneficiary. If you are planning to leave your IRA to a trust, you must consult with your attorney to ensure that the trust is properly drafted.

An IRA can be a valuable part of an estate plan, but the rules can be complicated.  To find out your options, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

The agreement calls for two stages of spending reductions. In the first stage, which will pare $917 billion from the budget, “entitlement” programs like Medicare, Social Security and Medicaid are spared. Instead, the cuts are evenly divided between defense and non-defense “discretionary” programs. Some aging and poverty programs that the elderly rely on, such as heating assistance, could be hit with budget reductions, but so will defense programs.

In the second stage, a 12-member Congressional committee – six members from each party — must agree on an additional $1.5 trillion in cuts by Thanksgiving, and Congress must vote on their proposal (with no modifications) by December 23. Here, Medicare, Medicaid, and Social Security will all be back on the table. In the case of Medicare, the powerful panel will be looking at changes like raising the eligibility age, increasing premiums for wealthy recipients, hiking deductibles and co-pays, and slashing payments to providers and drug companies.

To cut Medicaid, this joint committee will consider giving states more flexibility to reduce eligibility and benefits, meaning that it might become even tougher for elderly nursing home residents to qualify for Medicaid. The committee will also be looking at cutting payments to nursing homes, which just got hit with a more than 11 percent reduction. Nursing home residents could feel the impact in the form of reduced services and compromised care.

For Social Security, one thing the panel will undoubtedly consider changing is how the program’s cost of living increase is calculated, which will result in lower benefits. Pushing back the eligibility age for future retirees could also be on the table.

Although President Obama will be pressing the joint committee to not just cut programs but to increase revenues by raising taxes on the wealthy and corporations, it is anybody’s guess whether the panel’s Republican members will agree to this.

“The future of the programs really hangs in the balance,” said Joe Baker, president of the Medicare Rights Center, an advocacy group. “It could lead to deep cuts and irreversible changes to Medicare and Medicaid that shift costs to beneficiaries.”

If the 12-member panel can’t agree on a plan to pare at least $1.2 trillion from the budget — or Congress votes down its proposal or President Obama vetoes it — automatic spending cuts totaling that amount would kick in beginning in 2013. Medicaid, Social Security and veterans programs are among the programs that will be exempt from these mandatory cuts, but Medicare is not exempt. There would be a 2 percent cut to Medicare, although the savings would have to come from payments to providers like doctors and hospitals, not from beneficiaries. Such a reduction to providers would be on top of a 6 percent drop in provider payments already enacted to help finance health care reform. Doctors and hospitals would feel the impact initially, but Medicare beneficiaries would experience it soon enough as more providers refuse to treat Medicare patients, reduce services or go out of business.

There is, however, a strong incentive for the joint committee to avoid these automatic cuts and instead agree on a plan that Congress can pass and the President can sign: Along with the 2 percent automatic Medicare cut would be an automatic 8 percent reduction in defense spending, or nearly $500 billion. The thinking is that both Democrats and Republicans would view defense cuts of this magnitude as too damaging to their parties to contemplate.

Further reading:

“Five cuts the debt commission might make to Medicare, Medicaid” (Washington Post blog)

“FAQ: Debt Deal ‘Super’ Committee’s Impact On Health Spending Explained” (Kaiser Family Foundation Health News)

“Tea Party groups see Medicare overhaul chance” (Reuters)

“Social Security, Medicare dodge bullet, but cuts loom” (Reuters blog)

“Debt Deal Triggers Nerves In Health Industry; Providers Brace For Cuts” (Kaiser Family Foundation Health News)

“What Does the Debt Ceiling Agreement Mean for Medicare?” (Center for Medicare Advocacy, Inc.)

In the first case, Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia and her doctor recommended that she get 24-hour-a-day care. Her brother hired caregivers to assist Ms. Baral with daily activities. On her tax return, Ms. Baral included a deduction for medical expenses for the payments to the caregivers. The IRS said the expenses were not deductible and asked for more money. Following Ms. Baral’s death, her estate appealed the matter to the U.S. Tax Court.

Under tax law, expenses for medical care may be claimed as an itemized deduction if they exceed 7.5 percent of adjusted gross income. (Note that this threshold will rise to 10 percent of adjusted gross income in 2012.) The definition of medical expenses includes the cost of long-term care if a doctor has determined you are chronically ill. “Chronically ill” means you need help with activities like eating, going to the bathroom, bathing, and dressing, or you require substantial supervision due to a severe cognitive impairment.

The Tax Court agreed with Ms. Baral that the payments to the caregivers for assisting and supervising Ms. Baral are deductible medical expenses. The expenses qualified as long-term care services even though the caregivers were not medical personnel because a doctor had found that the services provided to Ms. Baral were necessary due to her dementia.

In the second case, Estate of Olivo v. Commissioner (U.S. Tax Ct., No. 15428-07, July 11, 2011), New Jersey resident Anthony Olivo provided nearly full-time care to his mother from 1994 to 2003, during which time he largely abandoned his practice as an attorney. After his mother died, Mr. Olivo became administrator of her estate.

Mr. Olivo filed a tax return for the estate and claimed a deduction of $1.24 million as a debt he said the estate owed him for the care he had provided his mother over the years. He claimed he had an oral agreement with his mother that after she died she would compensate him for his services. The IRS disallowed the deduction and Mr. Olivo filed a petition with the Tax Court.

The U.S. Tax Court agreed with the IRS that the estate is not entitled to the deduction. Applying the law in New Jersey, which presumes that services to a family member living in the same household are given for free (many states have similar laws), the court ruled that without a written agreement between Ms. Olivo and her son, it must assume that Mr. Olivo provided the services without any expectation he would be repaid.

To determine if your long-term care expenses are deductible, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

A prenuptial agreement can be used in a second marriage when both parties have children. For example, suppose you get remarried and both you and your spouse have children from a prior marriage. You want your house to pass to your children, but without proper planning and an agreement in place, your spouse could inherit the house and then pass the house to her children when she dies.

It is important to make sure your prenuptial agreement is valid. Following are the major factors needed to ensure this:

• In writing. To be valid, a prenuptial agreement must be in writing and signed by both spouses. A court will not enforce a verbal agreement.
• No pressure. A prenuptial agreement will be invalid if one spouse is pressured into signing it by the other spouse.
• Reading. Both spouses must read and understand the agreement. If a stack of papers is put in front of one spouse and he or she is asked to sign quickly without reading, the agreement can be invalidated. The spouse must be given time to read the document and consider it before signing it.
• Truthful. Both spouses must fully disclose assets and liabilities. If either spouse lies or omits information about his or her finances, the agreement can be invalidated.
• No invalid provisions. While the spouses can agree to most financial arrangements, a prenuptial agreement that modifies child support obligations is illegal. If an agreement contains an invalid provision, the court can either throw out the entire agreement or strike the invalid provision. Similarly, if the terms of the agreement are grossly unfair to one spouse, the agreement may be invalid.
• Independent counsel. Some states require spouses to seek advice from separate attorneys before signing a prenuptial agreement. Regardless of whether it is required by state law, it is the best way to make sure each spouse’s interest is protected.

Though a prenuptial agreement is an agreement that is signed before marriage, sometimes similar agreements can be made after the wedding (called a post-nuptial agreement).

To find out if a pre- or post-nuptial agreement is right for you, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

In the first case, Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia and her doctor recommended that she get 24-hour-a-day care. Her brother hired caregivers to assist Ms. Baral with daily activities. On her tax return, Ms. Baral included a deduction for medical expenses for the payments to the caregivers. The IRS said the expenses were not deductible and asked for more money. Following Ms. Baral’s death, her estate appealed the matter to the U.S. Tax Court.

Under tax law, expenses for medical care may be claimed as an itemized deduction if they exceed 7.5 percent of adjusted gross income. (Note that this threshold will rise to 10 percent of adjusted gross income in 2012.) The definition of medical expenses includes the cost of long-term care if a doctor has determined you are chronically ill. “Chronically ill” means you need help with activities like eating, going to the bathroom, bathing, and dressing, or you require substantial supervision due to a severe cognitive impairment.

The Tax Court agreed with Ms. Baral that the payments to the caregivers for assisting and supervising Ms. Baral are deductible medical expenses. The expenses qualified as long-term care services even though the caregivers were not medical personnel because a doctor had found that the services provided to Ms. Baral were necessary due to her dementia.

In the second case, Estate of Olivo v. Commissioner (U.S. Tax Ct., No. 15428-07, July 11, 2011), New Jersey resident Anthony Olivo provided nearly full-time care to his mother from 1994 to 2003, during which time he largely abandoned his practice as an attorney. After his mother died, Mr. Olivo became administrator of her estate.

Mr. Olivo filed a tax return for the estate and claimed a deduction of $1.24 million as a debt he said the estate owed him for the care he had provided his mother over the years. He claimed he had an oral agreement with his mother that after she died she would compensate him for his services. The IRS disallowed the deduction and Mr. Olivo filed a petition with the Tax Court.

The U.S. Tax Court agreed with the IRS that the estate is not entitled to the deduction. Applying the law in New Jersey, which presumes that services to a family member living in the same household are given for free (many states have similar laws), the court ruled that without a written agreement between Ms. Olivo and her son, it must assume that Mr. Olivo provided the services without any expectation he would be repaid.

To determine if your long-term care expenses are deductible, please email the Elder Law Center or call 630-844-0065. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

For more information on deducting medical expenses from your taxes, click here.