Health-Care Reform: Considerations for Seniors

The enactment of the new health-care reform legislation contains some provisions that directly affect our nation's older population. If you're a senior, you may be concerned about how these reforms may affect your access to health care and the benefits you are currently receiving.

Medicare spending cuts
Not surprisingly, the concerns of retirees and seniors generally center on potential cuts in Medicare benefits. At the outset, the new legislation does not affect Medicare's guaranteed benefits. However, a goal of the new health-care legislation is to slow the increasing cost of Medicare premiums paid by beneficiaries, and to ensure that Medicare will not run out of funds. To help achieve these goals, cuts in Medicare spending will occur over a ten-year period, beginning in 2011, particularly targeting Medicare Advantage programs––Medicare programs provided through private insurers but subsidized by the federal government. These cuts could reduce or eliminate some of the extra benefits Medicare Advantage plans may offer, such as dental or vision care, and some insurers may choose to increase premiums. But Medicare Advantage plans cannot reduce primary Medicare benefits, nor can they impose deductibles and co-payments that are greater than what is allowed under the traditional Medicare program for comparable benefits. And, some of the federal funds previously earmarked for Medicare will be reallocated to doctors and surgeons as an incentive to treat Medicare patients.

Medicare Part D drug program changes
Some Medicare Part D beneficiaries are surprised to find that they have to pay for the entire cost of prescription drugs out-of-pocket after reaching a gap in their annual coverage, referred to as the "donut hole." Currently, if you're a Medicare Part D beneficiary, you may pay up to an additional $3,610, out-of-pocket, for medicines after reaching an initial threshold of $2,830 in total prescription drug costs (including Part D payments, beneficiary co-pays, and deductibles). But, beginning in 2010, beneficiaries who fall in the donut hole will receive a $250 rebate, and, in 2011, they will receive a 50% discount on brand-name drugs. By 2020, a combination of federal subsidies and a reduction in co-payments will completely eliminate the donut hole. However, individuals with annual incomes greater than $85,000, and couples with incomes exceeding $170,000, will see their Part D premiums increase as the federal subsidy offsetting some of the cost of Medicare Part D premiums is reduced.

Benefits added to Medicare
The legislation also improves some traditional Medicare benefits. For example, Medicare beneficiaries will receive free wellness and preventive care beginning in 2011.

Increased access to home-based care
Often, people with disabilities or illnesses would rather receive care at home instead of at a hospital or nursing home. The new health-care reform law provides for programs and incentives for greater access to in-home care. The Community Living Assistance Services and Support program (CLASS) will be established sometime after 2011 (depending on when final regulations are published) as a voluntary insurance program, financed through payroll deductions and available to all working adults who choose to participate. This national program allows participants with functional limitations to maintain their personal and financial independence and live in the community by providing a cash benefit of at least $50 per day (after a five-year vesting period) for nonmedical services, such as home-care services, family caregiver support, and adult day-care or residential-care services. In order to qualify, a participant must need help with at least two activities of daily living, such as eating, toileting, transferring, bathing, dressing, or continence.

Also in 2011, the Community First Choice Option will be available to states to add to their Medicaid programs. This option will provide benefits to Medicaid-eligible individuals for community-based care instead of placement in a nursing home. In addition, the State Balancing Incentive Program, to be established in 2011, will provide increased federal funds to qualifying states that offer Medicaid benefits to disabled individuals seeking long-term care services at home, or in the community, instead of in a nursing home. The Independence at Home demonstration program, available in 2012, will be a test program that provides Medicare beneficiaries with chronic conditions the opportunity to receive primary care services at home. That is intended to reduce costs associated with emergency room visits and hospital readmissions, and generally improve the efficiency of care.

This article was provided by Forefield and distributed by Lawrence Sprung.

Health-Care Reform: How Does It Affect You?

Now that comprehensive health-care reform has been signed into law, how will it affect you? While some portions of the law become effective in 2010, other provisions are phased in over time. Nevertheless, it is almost certain that at least some of these reforms will have an effect on you and your family.

If you already have health insurance
First, by 2014, most U.S. citizens and legal residents will be required to have qualifying health insurance or face a possible fine. But even if you already have insurance, some reform provisions may affect you. For instance, beginning this year, you generally can keep your adult child on your coverage up to age 26. And, your insurer will no longer be able to rescind your coverage if you get sick, impose lifetime coverage limits, rescind your coverage except for fraud, or impose coverage exclusions for your child due to pre-existing health conditions. In 2014, you can no longer be charged higher rates based on your health status or gender, and insurers cannot extend waiting periods beyond 90 days.

Starting next year, reimbursements from health flexible spending accounts (health FSAs) and health reimbursement accounts (HRAs) for over-the-counter drugs will be restricted, and tax-free reimbursements from health savings accounts (HSAs) and Archer MSAs for over-the-counter drugs will not be allowed, while the tax on HSAs and Archer MSAs increases for distributions not used for qualified medical expenses. In addition, beginning in 2013, contributions to health FSAs will be limited to $2,500 per year. Finally, the income threshold for itemizing medical expense deductions will increase from 7.5% to 10% in 2013.

If you have Medicare
Medicare beneficiaries will also see some changes to their coverage. You'll be covered for most preventive and wellness care expenses without co-payments beginning in 2011. Medicare Part D participants who find themselves paying all of the cost of their prescriptions after reaching a minimum threshold, a situation referred to as the "donut hole," will gradually see their out-of-pocket expenses decrease, beginning in 2010 with the payment of a $250 rebate, until 2020, when the donut hole is completely filled. If you're a Medicare Advantage beneficiary, however, beginning in 2011, you may see some of the extra benefits offered by these plans dropped as government payments to these plans are restructured and, in some cases, reduced. And, in 2013, if you're an individual with annual earnings equal to or greater than $200,000, or a married couple with joint annual earnings of $250,000 or more, your Medicare payroll tax will increase by 0.9%, from 1.45% to 2.35%. Also, for high income taxpayers, a Medicare tax of 3.8% will be applied to some types of investment income, such as rent, capital gains, and annuity payments, but not distributions from qualified retirement plans, such as IRAs and 401(k) accounts.

If you don't have insurance
If you don't have insurance, or if it's too expensive, the new reforms may make it easier for you to get and keep health insurance. By 2014, insurers will have to accept you regardless of your health history, and premiums can only vary based on tobacco use and age. Prior to that time, if you haven't been able to get insurance for at least six months due to a pre-existing condition, you will be able to purchase insurance through temporary high-risk pools.

In 2014, Medicaid availability is expanded to those under age 65 with incomes up to 133% of the Federal Poverty Level (FPL). You will also have state-based American Health Benefit Exchanges, available by 2014, through which you can buy health insurance from various plans. In addition, premium and cost-sharing subsidies will be available for individuals and families with incomes at or below 400% of the FPL, which can aid in reducing the cost of insurance purchased through exchanges.

This article was provided by Forefield and distributed by Lawrence Sprung.

Overhaul of Federal Student Loan Program

With the nuances of health care reform getting all the attention, you may be surprised to learn that the recently passed health care legislation—the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010—includes several provisions related to college. The most noteworthy of these provisions involve:

Distribution of federal student loans-Pell Grants-Income based repayment for federal student loans

The distribution of federal student loans
Currently, there are two ways to obtain a federal student loan—borrow directly from the federal government under the William D. Ford Federal Direct Loan (“Direct Loan”) program or borrow from a private lender who participates in the Federal Family Education Loan (FFEL) program. The FFEL program has been in existence since 1965 (the Direct Loan program since 1994), and private lenders in the FFEL program receive government subsidies to encourage them to loan money to students.

Under the new legislation, private lenders will no longer receive government subsidies to make federal student loans, and the FFEL program will be eliminated. Starting July 1, 2010, all federal student loans will be made directly from the federal government to borrowers under the Direct Loan program.

Generally, student borrowers shouldn't notice much of a difference with this change. If anything, the new system should be simpler and less confusing, because borrowers won't have to "shop around" for a private lender to obtain their federal student loans.

Parents who wish to take out a federal PLUS Loan might find themselves better off because the interest rate on a federal PLUS Loan obtained through the Direct Loan program is capped at 7.9%, compared to the interest rate on a federal PLUS Loan obtained through the FFEL program, which is capped at 8.5%.

Pell Grants
The Pell Grant is the federal government’s largest financial aid grant program. It is available to undergraduate students with exceptional financial need (typically students from families who earn less than about $45,000 per year). Graduate students aren’t eligible.

The new legislation provides for automatic annual inflation-adjusted increases to the Pell Grant beginning in 2013. For the current academic year 2009/2010 (which runs from July 1, 2009, through June 30, 2010), the maximum Pell Grant is $5,350. It is scheduled to increase to $5,550 in 2010/2011, and will remain at that level for the following two years. It will then increase by the rate of inflation (via the consumer price index) in each of the next five years, reaching approximately $5,900 in 2019/2020.

Income based repayment
On July 1, 2009, the federal government's new Income Based Repayment (IBR) program went into effect. The IBR program was created to help college graduates manage their increasingly large student loan payment obligations. Under the program, a borrower’s monthly student loan payment is calculated based on income and family size. A borrower is allowed to pay 15% of his or her discretionary income to student loan payments, with any remaining debt forgiven after 25 years. The program is open to graduates with a federal Stafford Loan, Graduate PLUS Loan, or Consolidation Loan made under either the Direct Loan program or the FFEL program.

The new legislation enhances the IBR program. Under the legislation, borrowers who take out new federal student loans after July 1, 2014, will pay 10% of their discretionary income to student loan payments, with any remaining debt forgiven after 20 years.

This article was provided by Forefield and distributed by Lawrence Sprung.

Health Care Reform

Landmark Health Care Reform
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (Patient Act) into law. The House of Representatives also passed a reconciliation bill, the Health Care and Education Affordability Reconciliation Act of 2010, which makes changes to the Patient Act and is currently before the Senate for approval. Together, both pieces of legislation make sweeping reforms to health care in the United States.

U.S. citizens and legal residents will be required to have qualifying health insurance (exceptions apply) by 2014, or pay a fine. It is estimated that more than 32 million uninsured Americans will gain coverage through government subsidies to offset premiums, and through Medicaid coverage. The Congressional Budget Office projects that the final legislation will cut the national deficit. Nevertheless, the bill is projected to cost about $940 billion. Some of that cost will be paid by:

Imposing a tax of up to 2.5% of household income on individuals who lack qualifying health care coverage, to be phased in beginning in 2014

Increasing the medical expense income tax deduction threshold to 10% of adjusted gross income, up from the current 7.5%

Increasing the Medicare Part A tax rate by 0.9% on wages for individuals with earnings over $200,000 and for married couples with earnings exceeding $250,000, and assessing a new 3.8% tax on unearned income for these higher-income individuals

An excise tax on so-called "Cadillac Plans"

Imposing taxes or fees on health insurance providers and drug companies, while doctors and hospitals will receive less compensation from government sources

Key provisions effective within six months following enactment include:
A provision that children covered by insurance can no longer be denied coverage because of pre-existing conditions

Payment of $250 rebate to Medicare Part D beneficiaries subject to the coverage gap (beginning January 1, 2010) and gradually reducing the beneficiary coinsurance rate in the coverage gap from 100% to 25% by 2020

Insurers will not be able to impose lifetime caps on insurance coverage

All plans offering dependent coverage will be required to allow children to remain under their parents' plan until age 26

Insurers cannot cancel or deny coverage if you are sick except in cases of fraud

Adults with pre-existing conditions will be able to buy coverage from temporary high-risk pools until 2014, when coverage cannot otherwise be denied for pre-existing conditions

The creation of a long-term care insurance program to be financed by voluntary payroll deductions (effective January 1, 2011)

Key provisions effective on or before January 1, 2014, include:
All Americans must carry health insurance or face a fine, with exceptions for economic hardship, religious beliefs, and other situations (e.g., a couple has income of less than $19,000)

Extends Medicaid coverage to non-disabled adults with incomes at or below 133% of the Federal Poverty Level

Adults with pre-existing conditions cannot be denied coverage or have their insurance cancelled due to pre-existing conditions

Requirement that states establish an American Health Benefit Exchange that facilitates the purchase of qualified health plans and includes an Exchange for small businesses; also requires employers that contribute toward the cost of employee health insurance to provide free choice vouchers to qualified employees for the purchase of qualified health plans through Exchanges

Tax credits will be available to qualifying families to offset the cost of health insurance premiums
Employers with more than 50 employees must offer health insurance for their employees or be fined per employee

Part of the Reconciliation Act passed by the House and presently before the Senate adds student loan provisions including:

An end to the bank-based system of distributing federal student loans—private lenders would no longer receive government subsidies to make federal student loans and all such loans would now be made directly from the federal government to borrowers

Annual inflation-adjusted increases would apply to the Pell Grant beginning in 2013

$2 billion would be paid over four years to community colleges to improve educational and career-training programs

$1.5 billion would be available over ten years to increase income-based repayment benefits for student loan borrowers—mandatory monthly payments would be limited to 10% of discretionary income (down from the current 15%), and outstanding loan balances would be forgiven after 20 years (down from the current 25 years)

$750 million over five years would be available for College Access Challenge grants to support state efforts to help more low-income students graduate from college

$255 million a year would be allocated to historically black colleges and minority-serving institutions

This article was provided by Forefield and distributed by Lawrence Sprung

Hiring Incentives to Restore Employment (HIRE) Act

Legislation signed into law by the President on March 18, 2010 includes the Hiring Incentives to Restore Employment (HIRE) Act. Provisions contained in the Act include:

Payroll tax exemption for hiring unemployed workers
For wages paid after March 18, 2010 and before January 1, 2011, qualified employers (generally, any employer other than the federal, state, or local governments) are exempt from the Social Security (Old Age, Survivors and Disability Insurance, or "OASDI") portion of the FICA employment tax with respect to qualified individuals. Qualified employers can elect to forego this payroll tax suspension.

A qualified individual is an individual who:

1. Begins employment after February 3, 2010, and before January 1, 2011.
2. Certifies that he or she has not been employed for more than 40 hours during the 60-day period ending on his or her date of hire.
3. Is not hired to replace another employee, unless the other employee separated voluntarily, or was terminated for cause.
4. Is not related to the employer.

A special rule applies to wages paid prior to April 1, 2010 that would otherwise qualify for the payroll tax exemption. Such wages are subject to regular employment tax rules (employers must pay the regular amount of Social Security tax). However, the amount by which an employer's payroll tax would have been reduced under this provision will be treated as a payment against tax in the second quarter of 2010.

Tax credit for retaining new hires
For tax years ending after March 18, 2010, a business tax credit will be allowed for each qualified "retained worker." A retained worker is a qualified individual (i.e., an individual hired after February 3, 2010, and before January 1, 2011, and who otherwise meets the requirements for the payroll tax provision described above) who:

1. Was employed on any date during the year,
2. Was employed for a period of not less than 52 consecutive weeks, and
3. Has wages during the last 26 weeks of the 52-week period that equal at least 80 percent of his or her wages during the first 26 weeks of the 52-week period.

The credit is allowed for each employee in the taxable year in which the second requirement above (i.e., that the individual be employed for a period of no less than 52 consecutive weeks) is first satisfied.

The amount of the credit for each retained worker equals the lesser of:

1. $1,000, or
2. 6.2 percent of wages paid to the retained worker during the 52 consecutive weeks of employment

IRC Section 179 expensing
The 2009 limits relating to I.R.C. Section 179 expensing are extended for one year, to taxable years beginning in 2010. As in 2009, the maximum amount that a taxpayer may expense is $250,000 of the cost of qualifying property placed in service for the taxable year. This amount is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000.

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