Newsletter: July 2008

Newsletter 23: July 2008

Summer is here. Time for barbeques, family and staycations (if you do not want to pay for the gas).Read on . . .

Citizens share opinions on America’s fiscal future (OY!)

A retiree for every couple.

The imbalance between workers and beneficiaries didn’t happen overnight. In 1945, a decade after Social Security was created, there were 42 workers paying into the system for each retiree. Today, there are three. By 2030, every couple will have their own retiree to support.

Lawmakers have long known this. But in recent years, the short term deficit picture has improved, masking the long term problem.

The annual budget deficit dropped from $413 billion in 2004 to about $161 billion this year, but much is not included in that calculation: money owed to the Social Security Trust Fund, future federal and military retirement costs, obligations to veterans and more.

Nothing drives the problem home better than the baby boom generation. The impact of baby boomers on the Social Security and Medicare systems started in about 1990, when they began entering their 40s and were more prone to getting hurt or sick. The number of Americans claiming disability benefits doubled from 4.2 million in 1990 to 8.4 million in 2006.

In each retiree’s case, the decision whether to take Social Security benefits now or later hinges on two issues: life expectancy and investment acumen. Those who take Social Security at 62 will get only 75% of their full benefit each month for the rest of their lives. Those who put off receiving the benefits get a higher percentage of their full benefit, up to 100% for those who wait until age 66 to retire. Those who wait up to age 70 can get 132% of their full benefit.

If you expect to live to a ripe old age, financial planners say, it may be worth waiting for the larger benefit at age 66 or later. But if you’re investment savvy or can put the money to good use now, it may be worth taking early retirement.

Most people are taking their social security benefit early. The actuaries at Social Security have accounted for such decisions. Because benefits are reduced for early retirement, the choices retirees make won’t affect the long term solvency of the system.

The Medicare situation is far worse. As baby boomers age, so will the average age of beneficiaries, and with it the medical costs that accompany longevity. Recognizing that health care costs present the greatest threat to the federal budget and economy, the Congressional Budget Office has revamped its operation to find new ways to lower costs.

Robert Bixby of the Concord Coalition, which organized the “Fiscal Wake Up Tour” tour, opened an event in Manchester, N.H., with a reference to that state’s first in the nation presidential primary. “The first thing I want to do is assure you that none of us is running for president,” he said. “After you hear what we have to say, you’ll understand why.”

During the next hour, the local chamber of commerce was treated to a series of PowerPoint presentations with arrows that invariably pointed the wrong way. Negative savings rates. Rising health care costs. An aging population.

One suggestion put forth was profound: stopping heroic care for the terminally ill, which costs Medicare billions. This gets to be a very emotional conversation.

It’s getting emotional in Washington as well. Even the debate over immigration is connected, because an estimated 12 million illegal immigrants make up a growing share of the payroll tax paying workforce. The influx of immigrants helps to slow down the inexorable decline in the number of workers per retiree.

The solutions aren’t pretty: raising the retirement age for full Social Security benefits past 67, the current limit for people born in 1960 or later. Charging wealthier Medicare beneficiaries more — a new reality for doctors’ care — or giving them less. Raising or eliminating the wage cap for payroll taxes. Perhaps all of that and more.

If we do not start making the difficult decisions now the situation will only be more dire later.

Spousal Social Security Benefits After a Divorce

A divorced spouse is not out of luck regarding social security benefits. To get Social Security benefits based on an ex-spouse’s earning you have to be at least 62, unmarried and not eligible for a higher benefit based on your own Social Security record or someone else’s. You will have to have been married for at least 10 years to get benefits from an ex-spouse

Like any spouse you can receive up to 50% of your ex-spouse’s full social security benefit at your full retirement age or a reduced amount if you take benefits earlier.

You can calculate whether getting benefits on your own earnings or that of your ex-spouse is higher at www.socialsecurity.gov or call (800) 772-1213.

However, Retirement Dreams Need Not Be Gone Forever

Daily headlines warn American workers that their retirement years may be far from golden. The average worker needs more retirement income than ever, due to increased life expectancy and soaring health care costs. But the main components of the retirement income system—Social Security and employer provided pensions—are on the decline. What’s more, fewer employers are providing retiree health insurance, forcing households to purchase their own coverage or do without.

This bleak picture has inspired calls to fix Social Security, shore up employer pensions, and redesign 401(k) plans. But as Alicia Munnell and Steven Sass show in a thought provoking book, Working Longer, the most effective response to the retirement income challenge lies elsewhere—in remaining in the workforce longer. At first blush, it may seem too simple to suggest that saving retirement requires reducing its length. But working longer does not mean working forever. By staying on the job for another two to four years, retirees in 2030 can be as well off as those in the current generation.

Working Longer investigates the prospects for moving the average retirement age from 63, the current figure, to 66. The authors ask whether future generations of workers will be healthy enough to work beyond the current retirement age, as well as whether older men and women are willing to do so. They examine companies’ incentives to employ older workers and ask what government can do to promote continued participation in the workforce. Finally, they consider the challenge of ensuring a secure retirement for low wage workers and those who are unable to continue to work.

Spending a few additional years in the labor force can make a big difference. By continuing to work until their mid 60s or beyond, most individuals should be able to secure a reasonably comfortable retirement. Implementing such a change on a large scale will not be simple, however. It requires thought and planning on the part of individuals, employers, and the government. In Working Longer, Munnell and Sass explain what each of these groups can and should do to keep the American dream of retirement alive.

What to do With Mom’s Stuff

To avoid hurt feelings when a parent dies there are a few rules that will help avoid acrimony when dividing up items of personal property:

1.Appraise everything of value. Later add up the value of items given to each family member and then offset any bequests of money to keep things fair. To find an appraiser go to www.appraisers.org.

2.Come up with a plan. Gather items of similar monetary or sentimental value and let each heir pick a piece of his or her choosing. Draw straws to see who goes first.

Good Websites

Health Websites: For medical treatment options: www.nexcura.com; for drug information: www.nlm.nih.gov/medlineplus/druginformation.html

State Spending on Home Based Long Term Care

Over the last decade, states have shifted Medicaid long term care spending from nursing homes to home and community based care. Nursing home facilities can cost more than twice as much as home based care.

Nearly all states have worked to make sure low income Medicaid recipients have the option of receiving long term care in their homes, rather than entering confining and costly nursing homes.

But states are now recognizing that seniors and the disabled of all income levels need help navigating the complex array of local care providers, and are setting up one stop counseling centers for anyone wanting advice on services and how to pay for them.

Wisconsin in the mid 1990s was the first to set up what it called Aging and Disability Resource Centers (ADRCs), well advertised storefronts that provide information and advice on home care services, such as bathing and dressing, meal preparation, nursing, housekeeping and specialized transportation.

Now, 42 other states, with the help of federal grants, are following Wisconsin’s lead.

The movement is part of a national effort to help the elderly and those with mental and physical handicaps maintain their independence, while reducing the cost per person of Medicaid and other long term care assistance programs.

Since 2004, the U.S. Department of Health and Human Services (HHS) has given states more than $42 million in grants to create Wisconsin style centers, which now serve about 22 percent of the population. Last month, 11 states – Alaska, Arkansas, California, Florida, Georgia, Illinois, Indiana, Iowa, New Mexico, North Carolina and Wisconsin – received additional money to make centers available statewide.

Besides keeping seniors and the disabled from being unnecessarily confined to nursing facilities, home care programs can save states billions on Medicaid, the federal and state program that provides medical assistance for the poor and handicapped. That’s because home based long term care costs up to half as much as comparable nursing home care, according to AARP.

But finding and helping people in need is not an easy task. Most people put off planning for long term care until a crisis strikes — a stroke, an accident or the death of a spouse. As a result, they often end up in nursing homes, not knowing where else to turn. According to a 2006 survey by HHS, seven out of 10 nursing home residents thought there were no other options in their area.

That was true in the past, but since the late 1980s, states have increased the proportion of Medicaid dollars spent on nursing home alternatives, making more services available for those who choose to stay at home. Last year, HHS provided states $1.75 billion in Medicaid incentives to continue funding home and community based health care alternatives over the next five years.

Wisconsin’s resource centers help people determine what services they need and where to find them, offering solutions as diverse as hiring a housekeeper to give a family caretaker a needed break to building a wheelchair ramp, arranging transportation to doctor’s appointments and signing up for senior day care programs, she said.

Even before Wisconsin’s resource centers were launched, the state employed so called benefit specialists to help people get their medical bills paid. “Without a doubt, it has been the most popular program for the elderly for the past 20 years,” she said.

Out of about $141 billion spent on long term care each year, some $58 billion is funded by Medicaid, according to HHS. Medicare — the federal health care program for the elderly — pays about $28 billion, individuals and families spend $51 billion and the balance is paid by other public and private assistance programs, according to 2005 HHS data.

Since 1992, the proportion of long term care provided by nursing homes has declined from an average of about 89 percent to 76 percent in 2005, according to HHS. States vary widely in both the cost of nursing facilities and the percentage of long term care provided in them. Alaska has the highest nursing home cost at $196,735 per year and Louisiana has the lowest rate at $43,435, according to a MetLife survey.

Four states – Oregon, New Mexico, Alaska and Vermont – spend 60 percent or more of their Medicaid dollars on home based care, while Mississippi and the District of Columbia spend less than 20 percent, according to AARP. Pennsylvania spends about 24% meaning we could greatly improve the services to people who want to stay in their home.

What Nursing Home Staff Levels Are Required?

Nursing homes are notoriously understaffed. Studies have shown that more staff leads to better care, but employees are often overworked and turnover can be high. When choosing a nursing home, one of the most important details is the staff to patient ratio, but what staffing levels are required by law?

Federal law requires Medicare and Medicaid certified nursing homes to have a registered nurse (RN) director of nursing (DON); an RN on duty at least 8 hours a day, 7 days a week; and a licensed nurse (RN or LPN) on duty the rest of the time. However, there are no minimum staffing levels for nurse’s aides, who provide most of the day to day care. Instead, nursing homes are required “to provide sufficient staff and services to attain or maintain the highest possible level of physical, mental, and psychosocial well being of each resident.” In addition, nursing homes must provide a minimum of 75 hours of training for the aides.

The important factor in improving quality of care is the amount of nurse time each patient receives. If a nursing home met only the federal nurse staffing requirements described above, a resident would receive 20 minutes of nurse time per day. In 2000, the Centers for Medicare and Medicaid Services (CMS) reported that the preferred minimum staffing level was when nursing home residents received three hours of total staff time per day two hours of nursing assistant time and one hour of licensed nurse time. The optimum staffing level, according to the CMS, is one hour of licensed nurse time and three hours of nursing assistant time.

Most states have standards that are higher than the federal requirements, but still fall short of the levels recommended by the CMS. According to a recent study, the key to improving nursing home staffing levels is increasing state standards. The study by UCSF School of Nursing, found that states with the highest standards for nursing staff levels are the only states where nursing homes have enough staff to prevent serious safety violations. According to the study, the act of raising the state minimum staffing ratio has a direct impact on the quality of care nursing home residents receive.

Pension Rights

Are you having difficulty getting the pension or 401(k) plan funds you worked years to earn? Five pension counseling projects, funded through the U.S. Administration on Aging and serving plan participants and their beneficiaries in 22 states, can help.

The retirement system’s complexity and unresponsiveness can overwhelm the most tenacious retirees when they try to obtain the pensions they have earned. Companies change their names, merge or go bankrupt. They terminate, freeze and under fund pensions. In some instances companies deny that employees worked for them, or they miscalculate pension benefits. Death or divorce can add difficulty in securing pension benefits. Solving these problems is the work of the pension counseling projects.

Since their inception in 1992, the pension counseling projects have obtained pension benefits valued at more than $75 million for workers and retirees who have earned them.

In most cases pension counseling projects confront a seemingly never ending succession of brick walls to obtain what a retiree clearly appears to be entitled to. For example, a 62 year old man from Connecticut worked for a large communications company for nearly 21 years, more than enough time to meet the legal requirements for vesting. He called the Pension Action Center at the University of Massachusetts Boston, utterly frustrated that after trying for more than a year, he was unable to get his pension.

First, company officials told him that they had no record of his employment. After he provided proof of his employment, they told him he must have worked in a position that was not covered by the pension plan. When he asked what that position was and why it was not covered, they said that they didn’t know because they had no records. The same baffling statements were initially repeated to the Pension Action Center.

Obtaining the legal documents that governed the plan proved that there was no basis for the statements. The documents specifically provided that “all employees” were pension plan participants and would accrue benefits under the plan. The Action Center filed a formal claim on the man’s behalf, pointing out the plan provisions and documenting his lengthy employment. After months of follow up phone calls and letters, a favorable decision was received. The man received a monthly pension of more than $600 for his lifetime with an estimated value of more than $144,000.

The pension counseling projects offer a unique and confidential service that is free of charge for individuals who need help. If either you, your company or pension plan is within a project’s service area, you may contact your project for help. For Pennsylvania retirees: Mid America Pension Rights Project: (866) 735 7737. www.pensionrights.org/help/counseling.html

Real Estate and Mortgages

Rates are up (mid 6% for a 30 year refi no point loan for excellent credit). Given the inflation outlook, the Fed has essentially stopped cutting rates and may even raise them soon. However this may help the mortgage market since mortgage rates are based on the market’s future belief on inflation and not on the what the Fed does with short term rates. If the market believes that by raising short term rates the Fed is going to squelch inflation it may lower long term mortgage rates.

People with adjustable rates should still try to refinance into fixed rate products if they can as rates are still historically low and likely to be higher in the near future before they go down.

In addition to Elder Law, our firm practices real estate law and originates mortgages. Please call us at (610) 940-0650 with any questions or for rate quotes.

PLEASE NOTE THAT PRIOR ISSUES OF THE NEWSLETTER ARE ON OUR WEBSITE: www.slutskyelderlaw.com

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Robert Slutsky, Esq. has been practicing Elder Law for 15 years. He helps families in Montgomery, Delaware, Philadelphia, Chester and Bucks Counties. Mr. Slutsky has represented local Area Agencies on Aging, long term care facilities and was a member and officer on the CAPS Board of Directors for over 10 years. Home visits are available. You may reach him at (610) 940-0650, robslutsky@comcast.net or the website at www.slutskyelderlaw.com.

DISCLAIMER: The content of this Newsletter is for general information only. It is not intended to be legal, tax, financial, medical or other advice. The reader should obtain legal, tax, medical or other advice from a competent professional to address his or her specific needs. We do not endorse any particular service provider. If a service provider is mentioned in an article it is simply because we may have come across them in our travels and cannot speak to their quality of service or integrity.