Robert M. Slutsky Associates

Elder Law, Estate Planning

And Financial Newsletter

Newsletter 22: June 2008

The rain is here (what happened to April showers bring May flowers?), summer's here soon. Read on . . .

A new study suggests that implementation of the health care law known as HIPAA is having a chilling effect on medical research.

About two-thirds of epidemiologists who responded to a national survey felt a HIPAA regulation known as the privacy rule has made research more difficult.

Only about one-fourth of respondents felt the rule enhanced study participants' confidentiality and privacy.

The findings were published in the Journal of the American Medical Association.

"The privacy rule has made research more costly and time consuming," said Dr. Ness, who chairs the epidemiology department at the Pitt Graduate School of Public Health.

The Institute of Medicine commissioned the survey to help inform a committee studying the effects of the privacy rule, which was implemented in 2003. Epidemiologists were surveyed because their research often involves medical records and human subjects.

Americans age 50 and over are increasingly disregarding age 65 as the time to stop working - more than 70% believe that keeping experienced workers engaged in society, either through continuing work or volunteering, is very important, according to a new poll.

The poll was commissioned by Experience Wave, experiencewave.org, a campaign supported by The Atlantic Philanthropies that advances federal and state policies to make it easier for mid-life and older adults to stay engaged in work and community life.

A tall, even-voiced man stood before 15 senior citizens recently at Des Moines' Old Country Buffet and made a compelling pitch for a new way to receive their Medicare.

The man, an insurance salesman, flipped on a PowerPoint projector and called up a picture of a happy senior. "Why is this lady smiling?" he asked. "Probably because of the savings involved in this program."

This company is one of several large insurers marketing Medicare Advantage plans in Iowa and across the nation. The federal government pays the insurers to provide health care coverage for seniors who otherwise would receive benefits directly from Medicare. In return, the insurers often offer extra benefits, including prescription drug coverage and health club memberships, and they tout simplified paperwork.

"You show one card for everything," the salesman said. "It does make life a little easier."

Near the beginning of his pitch, the saleman read a printed disclaimer urging people to make sure their doctors accepted the insurance. But later, when a senior asked him about the issue, he said he knew of only one Iowa health system, in western Iowa, that doesn't take patients who have the insurer's Medicare Advantage coverage.

A few days later, a major Des Moines-area health care provider ran a full-page newspaper advertisement, warning consumers that it would not accept most Medicare Advantage plans. The Iowa Clinic, which has about 115 physicians, referred to the plans as "Medicare Replacement Products." The ad stirred a brewing controversy over the Medicare Advantage plans, which critics say waste millions of Medicare dollars.

The controversy comes at a time when Iowa's senior citizens are making their annual decisions on whether to continue in the traditional Medicare program, whether to sign up for one of the numerous prescription drug plans insurers offer, or whether to enroll in a Medicare Advantage plan. The Iowa Clinic's chief executive officer, said in an interview that his doctors already were frustrated by the low reimbursements offered by traditional Medicare. He noted that the giant federal health plan pays Iowa's physicians less than almost any other state's doctors.

The CEO said the doctors were unwilling to accept the same rates from Medicare Advantage plans that reportedly receive 12 percent more per recipient than the government spends on recipients of regular Medicare. He said that the Iowa Clinic is accepting a few Medicare Advantage plans that pay a little better, and that it will provide interim care for current patients who have switched to the other plans. But it notified insurers last summer that it would not accept most of the plans, he said. "We felt we were clear on the front end with them," he said.

A Mayo Clinic spokeswoman said her Rochester, Minn., facility also does not accept most Medicare Advantage plans.

A leader of Iowa's largest physician association said that he doubts many of the state's doctors will follow the lead of the Iowa Clinic and Mayo in refusing Medicare Advantage plans, but he said that many agree that the plans unfairly suck up Medicare money. Dr. Michael Kitchell of Ames, who is chairman of the Iowa Medical Society, said his group agrees with the American Medical Association that the government is overpaying Medicare Advantage plans with money that should be going to health care providers. He said that a bill in Congress would cut Medicare Advantage payments, but that he expects President Bush to veto it.

Medicare officials acknowledge that the government spends on average 12 percent more on each Medicare Advantage member than it spends on each recipient of traditional Medicare. Officials said they could not estimate how much difference there is in Iowa. According to a study by the Commonwealth Fund, Medicare spent $922 more on each senior in private plans than it would have paid to cover those patients in traditional Medicare in 2005. That totaled $5.2 billion extra nationwide.

There's no doubt that many seniors like the plans given the benefits of the plans. One of the pluses of Medicare Advantage plans is that any senior citizen, except those with end-stage kidney disease, is eligible for any plan offered in their area. The plans may not reject potential members because of pre-existing health problems. However, if they stay on a Medicare Advantage plan for a while, then decide to switch back to regular Medicare, they might have trouble obtaining supplemental insurance coverage if they have an illness.

Prospective members should check whether their doctors and hospitals will accept the plans.

The out-of-pocket cost of caring for an aging parent or spouse averages about $5,500 a year, according to the nation's first in-depth study of such expenses, a sum that is more than double previous estimates and more than the average American household spends annually on health care and entertainment combined.

The costs for caregivers include not only "hands on" care but often reach into their own pockets to pay for many other expenses of care recipients, including groceries, household goods, drugs, medical co-payments and transportation. That nudges the average cost of providing long-distance care to $8,728 a year.

These caregivers, spending on average 10 percent of their household income, manage the financial burden by taking out loans, skipping vacations, dipping into savings or ignoring their own health care.

These findings and others, came from a telephone survey of 1,000 adults caring for someone over age 50 who needs help with activities like bathing, using the toilet, preparing meals, shopping or managing finances. It is the first detailed look at out-of-pocket spending among the estimated 34 million Americans providing care for older family members or friends and builds on a 2004 study.

The survey was conducted by the National Alliance for Caregiving, a research and policy organization, and Evercare, a division of the UnitedHealth Group, which coordinates long-term care for 150,000 clients. The report urges government assistance for family caregivers, whether through tax deductions, tax credits or other stipends.

Until now, all estimates of out-of-pocket spending were based on a single question buried in a broad 2004 survey of family caregivers. The 2004 survey, also the work of the National Alliance for Caregiving, had asked 1,247 caregivers to estimate their out-of-pocket expenses. Half said that they did have such expenses, averaging $2,400 a year.

By comparison, the new survey - with 29 questions devoted to this one subject - produced a markedly different result. Of the 1,000 respondents, only 2 said they had never laid out any money. The rest said they spent on average $5,531 a year, or 10 percent of their salary. The burden was heavier for those who earned less, 20 percent for respondents with incomes of $25,000.

37 percent of survey respondents had to quit work or reduce their hours because of their care-giving responsibilities. That compares with 16 percent in the 2004 research.

These are among other findings in the latest survey:

The most common expenses for caregivers are household goods and food (42 percent of respondents), transportation (39 percent), medical co-payments and pharmaceuticals (31 percent), clothing (21 percent), and home repair and maintenance (13 percent).

The most common strategy for covering these costs is cutting back on discretionary spending. Respondents reduced spending on leisure activities (49 percent) and vacations (47 percent), and postponed major purchases or home improvements (34 percent).

Other strategies involve caregivers compromising their own retirement. Some dipped into savings (34 percent); others limited saving for the future (27 percent). And many neglected personal health care (23 percent).

The highest out-of-pocket costs were incurred by long-distance caregivers, followed by those who live with their ailing relative. Caregivers who live nearby spend the least.

In addition to the telephone part of the survey, the report also includes detailed information and narrative accounts from 41 men and women who were paid $100 to keep expense diaries over the course of a month. This subgroup - not a representative sample because they were self-selected and were paid - reported sharply higher expenses than the telephone respondents.

The diarists spent an average of $12,348 a year - more than double the annual expenses of the larger, randomly selected telephone sample. In addition, the diarists who lived with their older relatives, spent the most - $14,832 a year, followed by $14,064 for long-distance caregivers and $8,496 for those who lived nearby. These discrepancies are not explained in the study, entitled "Family Caregivers: What They Spend, What They Sacrifice." It is likely that the diarists' day-to-day record-keeping produced more accurate information than did recollection.

As more households today have two working spouses and people have less children the caregiving burden and the cost is going to need to be dealt with in a more comprehensive way.

A bill pending in Congress could create a significant estate-planning opportunity for family members other than spouses who are named as beneficiaries on deferred compensation plans such as 401(k)s and 403 (b)s in addition to IRAs.

Currently, someone other than a spouse who is the beneficiary of a retirement plan must distribute inherited assets on a payout schedule that is set by the plan administrator. Typically the time period is five years or less, and taxes must be paid within that timeframe.

But if the bill becomes law, family members beyond spouses could take advantage of more favorable payout schedules by transferring the money into an inherited IRA. Then they can stretch account distributions over the course of their lifetimes, and get the benefit of a lifetime of tax-deferred growth. Spouses are already allowed to make such transfers under current law.

The Pension Protection Technical Corrections Act of 2007 contains a provision that would mandate that administrators of employer-sponsored retirement plans, such as 403(b) and 457 plans, allow non-spouse beneficiaries of these accounts to roll over assets into inherited individual retirement accounts following the plan participant's death.

A "stretch" option allows beneficiaries to take annual distributions while the balance compounds tax-deferred -- a huge benefit that many non-spouse beneficiaries, such as grandchildren, forego if retirement plan administrators require them to adhere to their own payout schedules, which is often only five years. You could lose the potential build-up under present law because the money diminishes more quickly, and so does the overall value to the family. But if you can stretch $50,000, tax-deferred, over 40 years, you'll have millions. Many plans require non-spouse beneficiaries to take a lump-sum distribution from the plan, making it completely taxable in just one year and squandering potential decades of tax-deferred compounded growth.

Plan administrators must already offer spousal beneficiaries of retirement accounts -- husbands and wives -- the option to rollover retirement plan funds into inherited IRAs. The correction, which would become effective in 2008, would ensure the benefit also applies to non-spousal beneficiaries, such as children, grandchildren and domestic partners.

The IRS, however, announced in January that retirement plan administrators were not bound by the provision -- they could allow rollovers by non-spousal beneficiaries or not. Congress responded by clarifying the issue in the technical corrections bill that's now pending.

Non-spouse beneficiaries who elect to roll over retirement-account distributions into inherited IRAs must be certain to make a direct transfer into an account that's properly titled. That means the name of the deceased plan participant must appear in the title of the IRA, such as Mary Brown IRA (deceased June 1, 2007).

The change would create an opportunity for estate planning throughout the U.S. that didn't exist before.

Two U.S. senators have introduced legislation that would end the practice of nursing home residents signing away their right to a trial before any actual dispute with the facility has arisen.

Nursing homes are increasingly asking -- or forcing -- patients and their families to sign arbitration agreements prior to admission. By signing these agreements, patients or family members give up their right to sue if they believe the nursing home was responsible for injuries or the patient's death. The Fairness in Nursing Home Arbitration Act, introduced by Sens. Mel Martinez (R-FL) and Herb Kohl (D-WI), chairman of the Special Committee on Aging, would make arbitration agreements signed before a dispute arises unenforceable, although it would still permit the parties to agree to arbitration after a dispute over care has arisen.

"When a family makes the difficult decision to help a loved one enter a nursing home, among the primary considerations is quality care. Forcing a family to choose between quality care and forgoing their rights within the judicial system is unfair and beyond the scope of the intent of arbitration laws," said Sen. Martinez. "This effort restores the original intent and tells families that they don't have to sign away their rights in order to access quality care."

The increased use of arbitration agreements has been paying off for the nursing home industry, according to a recent article in the Wall Street Journal. A study by Aon Global Risk Consulting projects that nursing homes' average costs per claim will drop from about $226,000 for incidents that took place in 1999 to about $146,000 for incidents that took place in 2006.

Theresa Bourdon, one of the study's authors and an Aon managing director, says that out of more than 200 claims she looked at that were subject to arbitration, none has yielded a multimillion-dollar payout. "We are not seeing big pops," Ms. Bourdon says.

But as industry litigation costs have been dropping, claims of poor treatment are on the rise, the Wall Street Journal reports. Meanwhile, patient advocates say that those seeking admission to a nursing home are in no position to make a determination about giving up their right to sue. Courts have sometimes struck down arbitration agreements as unfair, but others have upheld them. In Ohio last year, a court upheld an agreement signed by a woman who had entered a home from a hospital and was suffering intermittent bouts of confusion.

To read the Fairness in Nursing Home Arbitration Act (courtesy of the National Senior Citizens Law Center), go to the National Senior Citizens Law Center: ww.nsclc.org/areas/long-term-care/

Rates are stable (still in the high 5% for a 30 year refi no point loan for excellent credit). Given the inflation outlook, the Fed is likely to stop rate cutting soon. Although the fed has continued to lower short term rates (and is likely to continue to do so) the market priced 10 year T-Note (which is what mortgage rates are based on) has gone up a little. Traders apparently believe that inflation is more likely over the long run and are pricing that into mortgage rates.

People with adjustable rates should still try to refinance into fixed rate products if they can as rates are still historically low.