Many people who currently have “traditional” IRAs but not Roth IRAs are thinking about converting them into Roth IRAs under special rules that will permit this during 2010. One thing about these conversions is that whatever gains you had on your original IRA investments will be taxed as ordinary income. And there are many complications about this feature of the conversion process that are cause for concern even though, after you have made your conversion, your Roth IRAs live happily “tax free ever after.” One is that if you go through the conversion, your tax bracket may increase, and you may even get into an Alternative Minimum Tax situation. I am not a CPA and can’t give any advice about this process, other than there is a Medicare angle which I have not seen mentioned in the press and which you need to discuss with your CPA. When you convert, the gains you have made will count as income, and it is possible that they will so increase your income that you will have to pay a surcharge on your Part B Medicare premium, or that, if you are already doing so, it might raise it still higher. (The government euphemistically refers to these high-income surcharges as “subsidy reductions.”) While this is covered in some detail in section 9 in the very first chapter of my book, an individual with an income over $85K (this includes married persons filing separately), or a couple (filing jointly) with an income over $171K, will have their premiums boosted by up to $243.10 a month. (Of course, each of the couple, if they have both have Part B of Medicare, must pay this.) If the income from your conversion is the only reason you go above these thresholds, you will only have to pay this surcharge for one year (typically the year two years after the tax year involved). Again, as you can spread out your conversion income to two years (to 2011 and 2012, instead of 2010, I believe), this could be longer. Again, these conversions are quite complex and you undoubtedly need an accountant to guide you, but for a couple it’s possible to increase your Part B premiums by up to almost $6,000 in one year! That might make anyone think twice about doing this, or perhaps how they go about doing it.
And, just so you know, the Health Care Reform legislation added two kickers to this. One is that it froze the income levels mentioned above to the amounts shown above. This means that even if you are not subject to a Part B premium surcharge now, this could change, even if your income goes up only a little. (Previously, the income thresholds would go up somewhat every year.)
But the second kicker is more important. Not only will your Part B premium be subject to high income surcharges, but so too will your Part D premium, beginning in 2011. So if your income increases a lot in 2010, your 2012 Part D premium may get hit with a surcharge. (Again, the legislation euphemistically refers to these high-income surcharges as Part D “subsidy reductions.”). A double-whammy! Again, I have not seen this mentioned in the Roth conversion literature, and I am still trying to calculate just how much money this would cost a Part D beneficiary. But again, discuss this with your accountant if you are or plan to be a Part D beneficiary in the next few years.
Thursday, June 17, 2010
Monday, June 14, 2010
Medicare Advantage under Health Care Reform
In my last posting I talked about the fact that the new Patient Protection and Affordable Care Act will significantly reduce payments to Medicare Advantage plans (Part C) over the next several years. And fewer beneficiaries will use this approach to getting their Medicare benefits. A recent (June 11) Wall Street Journal editorial was entitled “Farewell, Medicare Advantage,” and I even heard someone on the radio say that Medicare Advantage will disappear. Again, I don’t think that will happen; nor do we need to say “”Farewell” to Medicare Advantage. However, the editorial did point me to the Centers for Medicare & Medicaid Services (CMS) website, where its actuary has posted his estimates of what will happen to Medicare Advantage, and these estimates are significantly more pessimistic than the Congressional Budget Office numbers I used in that blog posting. The CMS actuary believes that only about seven and a half million beneficiaries will be in this option by 2017, half of what he estimated would have been the case if the Act had not passed. So again, it’s NOT going to disappear or go away, contrary to what some may be saying, but it does certainly appear that many beneficiaries will, in the years ahead, no longer find that Medicare Advantage is the substantial help to them that this part of the Medicare program has been to so many.
Monday, June 7, 2010
Medicare Advantage and Health Care Reform
A senior asked me the other day if Medicare Advantage was going to leave her state. I am not sure exactly what precipitated her question, but it is indicative of the great concern Medicare beneficiaries have that the Health Care Reform bill contains many cuts to the Medicare program to “pay for,” in terms of budget neutrality, the huge costs of that bill. And the single largest cut is in payments to Medicare Advantage plans. A Congressional Budget Office paper estimates the projected ten year reduction in dollars to Medicare Advantage (Part C) plans will be some $132,000,000,000 ($132 billion, that’s a lot of zeros!).
In fact, what surprised me is that the same paper projects that fewer Medicare beneficiaries will be enrolled in Medicare Advantage as the years go by. Again, the gurus at CBO project that enrollment will decrease from the current almost ten and a half million beneficiaries to just over nine million beneficiaries in 2019!
I told the senior that I wasn’t very good at predicting the future, but in the last big reduction in Medicare Advantage payments, which occurred in the very late 1990s, some states were indeed left bereft of any Medicare Part C Plans. In fact, I recall vividly at a meeting in New Hampshire in 1999 where a beneficiary complained bitterly that this was the third year in a row that his Medicare Advantage plan left Medicare program, and now the very last one in the state was leaving. And whether that will happen in this cycle of reduction I just don’t know. One of the big thrusts of the Health Care Reform bill is to better coordinate care and improve its quality, and managed care is a natural setting for this. So I doubt that in the long haul Congress will allow Medicare managed care plans to completely disappear from any state.
But what will clearly happen is that fewer managed care plans will stay in the Medicare business. And I find this unfortunate because I have counseled many beneficiaries to join Medicare Advantage plans. And particularly so where the beneficiary is in tight economic circumstances, but not so tight as to be able to qualify for a Medicare Savings Program which would pay their coinsurance and deductibles. Many of these beneficiaries simply can’t afford a Medigap policy, and they get pretty good protection with certain Medicare Advantage plans. This is especially true as their co-payments are generally limited and they get annual catastrophic protection, which you don’t get in regular Medicare.
As Plans drop out from year to year, these beneficiaries will have to become adept at searching for a new one that gives them a good deal with their medical expenses and yet one which their doctors and providers will accept. It will be really important for them to do their homework and to talk to a SHIP (State Health Insurance Assistance Program) counselor in the Fall to make sure they are in the best Plan come each January.
In fact, what surprised me is that the same paper projects that fewer Medicare beneficiaries will be enrolled in Medicare Advantage as the years go by. Again, the gurus at CBO project that enrollment will decrease from the current almost ten and a half million beneficiaries to just over nine million beneficiaries in 2019!
I told the senior that I wasn’t very good at predicting the future, but in the last big reduction in Medicare Advantage payments, which occurred in the very late 1990s, some states were indeed left bereft of any Medicare Part C Plans. In fact, I recall vividly at a meeting in New Hampshire in 1999 where a beneficiary complained bitterly that this was the third year in a row that his Medicare Advantage plan left Medicare program, and now the very last one in the state was leaving. And whether that will happen in this cycle of reduction I just don’t know. One of the big thrusts of the Health Care Reform bill is to better coordinate care and improve its quality, and managed care is a natural setting for this. So I doubt that in the long haul Congress will allow Medicare managed care plans to completely disappear from any state.
But what will clearly happen is that fewer managed care plans will stay in the Medicare business. And I find this unfortunate because I have counseled many beneficiaries to join Medicare Advantage plans. And particularly so where the beneficiary is in tight economic circumstances, but not so tight as to be able to qualify for a Medicare Savings Program which would pay their coinsurance and deductibles. Many of these beneficiaries simply can’t afford a Medigap policy, and they get pretty good protection with certain Medicare Advantage plans. This is especially true as their co-payments are generally limited and they get annual catastrophic protection, which you don’t get in regular Medicare.
As Plans drop out from year to year, these beneficiaries will have to become adept at searching for a new one that gives them a good deal with their medical expenses and yet one which their doctors and providers will accept. It will be really important for them to do their homework and to talk to a SHIP (State Health Insurance Assistance Program) counselor in the Fall to make sure they are in the best Plan come each January.
Thursday, June 3, 2010
Medicare Beneficiaries Defraud the Program – With No Penalty!
The U.S. Departments of Justice and of Health and Human Services have recently released their joint report on what they accomplished in 2009 to combat fraud against the Medicare, Medicaid and various other federal healthcare programs. (Goggle “Annual Report for FY 2009 on the Health Care and Abuse Control Program.”) It gives page after page of disheartening detail on how the Medicare program is mercilessly and shamelessly ripped off and defrauded with scheme after scam after plot, many of these frauds going on for years, with amounts totaling billions of dollars stolen from the program. And these are the ones we know about!
But what I found even more appalling was that in many of these scams Medicare beneficiaries were willing participants! The very people who have most to gain by protecting the program were full engaged in the rip offs!! Over and over you can read how beneficiaries were offered – and accepted – bribes, kickbacks and payola to conspire in these crimes. But what is even worse, and which belies the government’s promise of “zero tolerance on fraud” is that NOTHING was done to any of these beneficiaries to either punish them for their frauds or to take away or restrict their Medicare entitlement. It’s like giving out “Get Out of Jail Free” cards. And in my experience, I have never known of a beneficiary being prosecuted or having their Medicare card revoked or suspended for defrauding Medicare. Perhaps it’s time this changed.
Again, beneficiaries, this is YOUR program, and YOU need to protect it!
But what I found even more appalling was that in many of these scams Medicare beneficiaries were willing participants! The very people who have most to gain by protecting the program were full engaged in the rip offs!! Over and over you can read how beneficiaries were offered – and accepted – bribes, kickbacks and payola to conspire in these crimes. But what is even worse, and which belies the government’s promise of “zero tolerance on fraud” is that NOTHING was done to any of these beneficiaries to either punish them for their frauds or to take away or restrict their Medicare entitlement. It’s like giving out “Get Out of Jail Free” cards. And in my experience, I have never known of a beneficiary being prosecuted or having their Medicare card revoked or suspended for defrauding Medicare. Perhaps it’s time this changed.
Again, beneficiaries, this is YOUR program, and YOU need to protect it!
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