Archive for the ‘Medicare & Social Security’ Category

Financial Planning For Retirement

As with most articles on my blog, this one started with a conversation with a friend.   The friend recently turned 60 and is starting to seriously think about retiring from a professional position.   He is thinking about a range of options: fully retiring at age 62, shifting to part-time with his firm and delaying retirement until 65 or 66, or continuing to work full-time until 65 or 66.   From a lifestyle perspective, my friend would like to retire sooner, rather than later, but wants to feel confident about having enough financial resources for he and his wife to live comfortably throughout their retirement.

Health Insurance

It may seem odd to start a discussion of financial planning for retirement with health insurance but Presidential executive actions to not enforce the requirement for mandatory insurance coverage and leave uncertain the fate of some insurance subsidies under the Affordable Care Act (ACA/ObamaCare) have already disrupted the individual insurance market.   Republican proposals to repeal and replace ObamaCare are creating further uncertainty in the insurance market for individuals and, if enacted, are expected to significantly increase the cost of coverage for older, pre-Medicare age, individuals.     One CNN report on the Senate bill as of June 27, 2017 shows the cost of ACA Silver Plan coverage increasing from $1,800 to $8,300 because the proposed Republican legislation allows insurers to adjust rates by age and reduces insurance coverage.   Until things are settled in Washington, it will be very difficult for any individual contemplating retirement before age 65 (when Medicare kicks in) to determine if individual health care insurance will be available and at what cost.

The best advice for now for someone considering retirement is to work full or part time until age 65 in order to retain employer-based health insurance coverage or confirm that you can purchase coverage through your employer using COBRA benefits and retire up to 18 months before turning age 65.   The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, with the individual paying the full cost of insurance.

Savings/Investments

When considering how much savings/investments you will need for retirement there are two issues to consider.

  1. Will your savings/investments generate enough income to allow you to live comfortably and
  2. Will the income from your savings/investment last long enough if you have a very long life?

Generating Enough Income

Popular guidelines for retirement income suggest that you should have sufficient income to replace about 70% to 85% of your pre-retirement annual after tax income to live comfortably in retirement but some more recent thinking suggests your income needs will not decrease that much in retirement as travel and entertainment, recreation expenses will offset reduced income use for business clothing, commuting costs, etc. (See Kiplinger Article).

Rather than focusing on your pre-retirement income, I believe most of those contemplating retirement prefer to focus on pre-retirement expenses to determine if they will be able to afford the lifestyle to which they are accustomed when they retire.   If you plan a major lifestyle change in conjunction with your retirement, like moving to a different community or buying a vacation home, you will need to adjust your expenses, and potentially your taxes, to account for these major lifestyle changes. Looking at actual spending, perhaps over a couple of years, with adjustments for any major lifestyle changes, should provide a solid basis for estimating your expenses in retirement.

The most widely used tool for determining the income that your savings/investments will generate is the 4% rule.   As explained in a CNN Money article (CNN Money Article), “The basic mechanics of the 4% rule are pretty simple. You start with an initial withdrawal of 4% of savings and then increase the dollar amount of that first withdrawal by inflation each year to maintain purchasing power.

So, for example, if you have a nest egg of $500,000 and inflation is running at 2% a year, you would withdraw $20,000 the first year of retirement, $20,400 the second year, $20,800 the third and so on. This regimen results from research done in the early 1990s by now retired financial planner William Bengen. After testing different withdrawal rates using historical rates of return for stocks and bonds, Bengen concluded that 4% was the highest withdrawal rate you could use if you want your savings to last 30 or more years.

Some experts have suggested, however, that a 4% withdrawal rate might be too ambitious given today’s low bond yields and lower projected returns for stocks.  For example, Wade Pfau, a professor of retirement income at The American College, says that retirees should probably limit themselves to an initial withdrawal rate of 3% or so if they want a high level of assurance (although not a guarantee) that their savings will support them for at least 30 years. For more on how much lifetime income one can expect to get through inflation-adjusted withdrawals, income annuities and other methods of creating income based on current market conditions, check out Pfau’s Retirement Income Dashboard (Pfau’s Retirement Dashboard).”

Many financial firms also offer retirement planning services, some of which use a range of alternative models to estimate retirement income needs. One I have used personally in the past is from TRowePrice at TRowePrice Retirement Planner.

I continue to find the 4% rule works well provided you maintain a portfolio that includes stocks as well as presently low yielding bonds and have adequate cash reserves to stay invested through market downturns.   But one common mistake many pre-retirees make is failing to adjust pre-tax retirement income when comparing it to post-tax retirement expenses.   While some retirement income is tax sheltered and some state’s do not tax certain retirement income, be sure to remember that most of your retirement income will be subject to Federal, state and local income tax, even Social Security, and typically taxes are a big enough expense that it will be worth consulting a financial planner or your tax accountant to make sure you get your post-retirement tax calculation right.

Assuring Enough Income For A Long Retirement

A 65-year-old woman has a 68% chance of living to 80 and a 28% chance of living to 90. And a 65-year-old man has a 58% chance of living to 80 and a 17% chance of living to 90.2  (BLS Spending Patterns Of Older Americans).  And these are averages for the entire population. A physically fit, more affluent senior who enjoys better medical care and diet than average and is less likely than average to smoke can expect to live longer than the above statistics suggest.   As a result, a healthy, affluent baby boomers retiring today should assume 30 – 40 years of life in retirement – living to age 95 or 105 if retiring at age 65.

Assuming you are not spending beyond your means and have sufficient savings under the 4% rule to pay for your post-retirement expenses, there are two primary risk areas that might cause a retiree to outlive their savings:

  1. A large unexpected expense, most likely the cost of institutional care for yourself or your spouse for a prolonged period, or
  2. A significant market downturn from which your savings are unable to recover.

Long-term care insurance can protect you against much of the risk of prolonged institutional care but the ideal time to purchase such a policy was when you were in your 50s. It may be cost prohibitive to purchase such a policy at or near retirement age.   My wife and I have policies through Lincoln National Life Insurance Company that we purchased when I was 53 and my wife 52.   These used a lump-sum up-front payment to purchase as annuity that pays the premiums for a long-term care insurance policy while also offering a death benefit if the LTC insurance is not used. The mechanics of this are complicated but I like the idea that the payment amount was locked in at the beginning. If you do not have long term care insurance, you may want to build an additional cushion into your retirement savings to “self-insure” against this risk.   Setting aside $150,000 to $200,000 when you retire that will grow with inflation, which is enough to cover up to 24 months in an assisted living facility, should provide reasonable protection against you or a spouse requiring institutional care in the future (See The Cost of Care and other posts on this blog for more information on the cost of care, what Medicare, Medicaid and the VA will pay for and the cost of institutional vs. at-home care).

My preferred method for guarding against the adverse impact of a market downturn is to have a larger than recommended cash component to my savings/investments that will allow me to draw cash in lieu of stock principal for more that a year in the case of a significant market downturn and to use Social Security in lieu of a commercial annuity product to assure long-term income. Many financial planning websites will recommend an annuity to assure continuity of income into very old age.   While an annuity purchased from a financially sound and reputable company can assure long-term retirement income, the combination of high up-front fees and current low interest rates make commercial annuities less attractive to me, although I am using one in conjunction with my LTC insurance policy.

For a senior with a sufficient savings / investment portfolio to be able to afford retirement, I believe Social Security offers the most attractive option to create the type of guaranteed income that an annuity offers. Social Security pays an inflation-adjusted retirement benefit for as long as you live. A Social Security benefit for someone who contributed the maximum to the system retiring in 2017 at age 66 (Full Retirement Age) is $2,687 per month but will rise to $3,538 per month if you defer collecting Social Security benefits until age 70.  And this higher benefit will continue to grow with inflation over time. If you have sufficient savings to be able to defer collecting Social Security Benefits until age 70, I believe Social Security offers the most cost-effective way to create a guaranteed annuity-like investment stream for your very old age.

Asset Allocation

A CNN Money asset allocation model suggest a mix of 65% bonds, 20% large cap stocks, 5% small cap stocks and 10% foreign stocks for someone 3 -5 years from retirement with a medium risk tolerance and some flexibility about when income is received CNN Money Asset Allocation Wizard.  This is consistent with the financial maxim that the percentage of bonds in your portfolio should equal your age.

However, T Rowe Price’s asset allocation model recommends 50% – 65% stock, 25% – 35% bonds and 5% – 15% short term liquid assets for someone about to retire at age 65.   Within the stock portion of the portfolio, TRowe recommends 15% – 19% international/global stocks, 7% – 10% U.S. mid/small cap stocks and 28% to 36% U.S. large cap stocks.   Within the bond portfolio, TRowe recommends 5% – 7% international bonds, 2% to 4% high yield bonds and 18% to 24% investment grade bonds TRowePrice Asset Allocation Tool.

I believe thinking about and consciously deciding on an asset allocation for your retirement savings/investment portfolio is one of the most important things an investor should do with their portfolio on an annual basis.   Many financial publications and mutual fund companies offer asset allocation models and it may be helpful to consider several and understand what is driving them to help you make a good asset allocation decision for your own portfolio.

My own allocation is a bit closer to the TRowePrice model with 51% equities including a small amount of alternative investments, 32% bonds and 17% short-term cash-equivalent investments.   My bond allocation includes a significant amount of tax-exempt municipal bonds and, in my mind, the higher allocation to cash offsets the potential market risk of a larger allocation to equities while allowing me to benefit from dividend yields that are in many cases higher than bond yields and from potential stock price appreciation over time.   My stock portfolio includes a healthy dose of individual income producing stocks, exposure to Real Estate Investment Trusts (REITs) through an index fund and some individual stocks and a managed bond portfolio in which I own individual bonds rather than bond funds. I see a real advantage to owning individual bonds over a bond fund because, absent a default, you can hold individual bonds to maturity and protect your principal while the value of a bond fund can fluctuate with market conditions and the actions of other fund investors.

Good Advisors

As my bio under “The Blogger” heading above indicates, I worked for 15 years as a stock analyst with Legg Mason and Stifel Nicolaus and was recognized seven times as a Wall Street Journal All-Star analyst. While I have the skills to manage my own investments I work with a full service investment advisor at Stifel, Nicolaus & Company to manage my portfolio and in recent months have shifted from a commission based to fee based compensation structure as Stifel, like many other firms, has implemented the fiduciary rule.

The focus of many investors today is on minimizing investment fees and purchasing low cost index funds or exchange traded funds (ETFs) over using full service advisors and owning actively managed funds or individual stocks. Understanding and minimizing the fees on your investment portfolio is important and there is a lot of investment analysis that passive investments have outperformed most active managers and individual stock pickers.   However, I continue to see value in a full service advisor and a degree of active management, particularly if you have a larger amount of investments.

The key advantages I see to a full service advisor/active management include:

  • Keeping all or almost all your investments in a single place.   This makes it much easier to understand and monitor your asset allocation and will be extremely helpful to your spouse and other surviving relatives if you die or are incapacitated. Some low-cost brokers and funds companies offer a broad enough array of investment options and can provide some advisory services over the phone or in person in the event of a death or impairment but not the same personalized attention as an experienced broker or fee advisor in my view.
  • Index funds may do less well in a more volatile market.   We are approaching 10 years of unprecedented low interest rates and market stimulus from central banks throughout the world.   In this low-volatility, interest/stimulus driven, broad-based post-downturn stock market rally passive investments have outperformed.  But with index funds and the entire market more highly valued and influenced by a relatively small number of mega-market-cap stocks, like Apple and Amazon, will index funds continue to outperform when and if the market and investors are tested by a significant correction and increased volatility?   I can’t predict the future, but believe there is a case to be made that the underlying assumptions that have allowed passive investments to outperform may change and again create an opportunity for value-based investing and active management.
  • You may need an active manager to buy individual bonds.   As noted above, because owning individual bonds provides greater principal protection than a bond fund, I prefer to own individual bonds.   The only practical way to do this may be to work with an active bond manager because buying bonds as individual, particularly tax-exempt issues, can be difficult. In addition, I want to hold individual bonds through a single account with my other investments for administrative convenience and to keep down overall fees.
  • A good advisor can save you from yourself.   Much has been written in recent years on the psychology of investing. One of the most difficult things for even experienced investors to do is to keep one’s nerve when the market is selling off and potentially even buy on dips.   An experienced and trusted advisor can help you keep your nerve in a market downturn and help protect you against following the herd. A good advisor can also protect you against being lazy in a good market by periodically adjusting your asset allocation and culling your portfolio in a tax-efficient manner.

I hope these ideas for evaluating and managing your financial resources for retirement are helpful and will be happy to respond to questions and comments.

I formerly worked at Legg Mason Wood Walker, Inc. and at Stifel Nicolaus & Company, Inc. and previously had some of my investment portfolio with T Rowe Price Investment Services, Inc.  I do not currently receive and do not expect to receive in the future remuneration from any of these companies.

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On the page “What Is Retirement” (see link above on the banner of this blog) I propose a new definition for retirement as “The period of one’s life when one shifts from working primarily for the means of earning income to working primarily for the satisfaction of producing a purpose or result while devoting additional time to recreation, education and leisure activities.” to replace the current Oxford English Dictionary definition of ”The period of one’s life after leaving one’s job and ceasing to work.”

Today’s New York Times has an article entitled “Working Longer May Benefit Your Health https://www.nytimes.com/2017/03/03/business/retirement/working-longer-may-benefit-your-health.html?smprod=nytcore-iphone&smid=nytcore-iphone-share&_r=0

While ultimately concluding that the scientific evidence is inconclusive about whether working longer benefits your health, The New York Times article says the answer tends toward yes and asserts this is true not just for more highly educated, healthier adults in more fulfilling jobs but for many types of jobs that keep the mind active and provide networks for social interactions.

The headline of The New York Times article seems to imply a choice between working full-time and full-time retirement but most of those cited in the article as working past retirement age have shifted from full-time to some type of part-time employment or consulting.    My experience, and that of many well-educated friends, shows them most satisfied in a partial retirement lifestyle where part-time work, consulting or a challenging volunteer position offers the mental stimulation and social networking opportunities that The New York Times article asserts benefit seniors’ health.    I believe seniors, their employers and society in general all benefit from meaningful part-time, consulting and volunteer experiences and that we will see more and more baby-boomer seniors in these partially-retired positions going forward.

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The Government Will Not Pay For Your Long Term Care

Too many middle and upper income consumers still believe that Medicare, Medicaid or some other government program will pay for their long term care or the long term care of other elderly family members.

Medicare, the Federal healthcare program for those age 65 and over, pays for hospital care (Part A), physician care (Part B) and prescription drugs (Part D) and is often combined with private Medicare supplemental insurance to help cover copays. Some consumers opt for a Medicare Advantage (MA) /managed care plan (Part C) in lieu of Fee for Service Medicare that combines A, B and D benefits and may add other benefits in exchange for a restricted network of providers. Medicare will cover home health care or care in a skilled nursing or other post-acute care facility but only after a three-day inpatient hospital visit (observation status doesn’t count). While some MA plans may waive the mandatory 3-day hospital visit and provide home health or skilled nursing care to avoid a hospital stay, Medicare only pays for home health or skilled nursing care on a short-term basis to avoid or recover from an inpatient hospital visit. The basic Medicare Fee For Service benefit for skilled nursing care is for a maximum of 100 days in a given year only after a 3-day inpatient hospital stay, with only 20 days fully funded and the remainder with a 20% co-pay and only as long as the patient is progressing toward recovery. Long term custodial care for a senior who needs assistance with the activities of daily living, at home or in a facility, is not covered by Medicare.

Under the Medicare hospice benefit, Medicare will provide comprehensive palliative care but only for those (1) whose hospice doctor and regular doctor (if you have one) certify that you’re terminally ill (with a life expectancy of 6 months or less) (2) accept palliative care (for comfort) instead of care to cure their illness and (3) who sign a statement choosing hospice care instead of other Medicare-covered treatments for your terminal illness and related conditions.   Hospice care is provided under the Medicare Fee for Service Part A even if you are a member of a MA plan.    The Medicare hospice benefit offer comprehensive in-home or in-institution care for those expected to live six months or less.  It is an extremely valuable, and still somewhat underused, benefit but it does not provide long term custodial care.

Medicaid, the joint Federal / State program that pays for medical care for the poor will pay for long term care in a skilled nursing facility or in a home and community based setting, which in some states includes assisted living facilities. However, there are strict income and asset tests for Medicaid, which in Maryland are an individual income of approximately $12,000 or less ($16,000 or less for a couple) and assets of no more than $4,000, $6,000 for a couple. A spouse is generally allowed to exclude a home from the asset test and his/her retirement savings but all joint savings and investments would have to be spent down to at least $6,000 before Medicaid benefits can be used and states have become increasingly good about looking back at least three years to see that assets have not been distributed to other family members to meet the asset test. These tests effectively exclude middle and upper income individuals and families from using Medicaid for long term care without first exhausting the large majority of their savings. Medicaid may also limit which facilities and programs you can use since not all assisted living facilities or home health agencies accept Medicaid patients.

With this post, I hope to kick of a series of posts on the issue of Paying for Care that will provide information on the cost of care and strategies for funding it through savings or long term care insurance.

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There is an excellent article in today’s Wall Street Journal, Monday, March 28, 2016 on the difficulties of sorting out your parents’ financial affairs after they become incapacitated.   It includes a number of recommendations on steps you should take with your family while your parents are still healthy to share financial information and avoid the difficulties the author experienced.

http://www.wsj.com/articles/the-difficult-delicate-untangling-of-our-parents-financial-lives-1459130770

 

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As my bio indicates, I spent more than 25 years working in the private sector, primarily in equity research and investment banking for publicly traded securities firms.    I, like many with private sector careers and nearly everyone even slightly right of center politically, take as an article of faith that the private sector is more efficient than the government at doing just about anything.    However, when it comes to Social Security and Medicare (technically the Centers for Medicare and Medicaid Services or CMS) my experience over the past year indicates these agencies far exceed private sector insurers in quality of service.

In a single week in January 2016, I applied for Social Security, my wife applied for Medicare and my wife interacted over a billing issue with CareFirst, the Maryland Blue Cross / Blue Shield company.    These interactions highlighted for me the contrasts between dealing with these two Federal government agencies and dealing with a private sector health insurer.  I found the difference in quality in the government’s favor to be so dramatic that I thought it warranted a comment on my blog.

The quality differences with Social Security, Medicare and private insurers start online.    The ssa.gov and medicare.gov websites are well designed and easy to negotiate and the online process to apply for Social Security and Medicare are clear, easy to understand and complete.   Follow up correspondence from the agencies can be couched in bureaucratic language but is timely, understandable and alerts you and your spouse to possible benefits, like Social Security if one of you signs up for Medicare, help paying for drugs or the availability of spousal benefits.

After I recently filed online for Social Security benefits the agency had some questions.  I was contacted via email by an agency employee within 48 hours of filing my application for benefits and asked to set up a time to talk.    I received a call back from a claims specialist within the time slot to which we had agreed.   She was very pleasant and enthusiastic, was able to resolve the questions she had and indicated she would move my application along with formal notification likely coming closer to the month in which my 66th birthday would occur.  She clearly disclosed that the detailed guidelines for staff of Social Security changes included in the recently passed budget bill had not yet been prepared but agreed that May 1 was the deadline, which I had met, for various rules changes.  In short, both my online and telephone interaction with a Social Security claims specialist were easy and pleasant and I believe they will prove effective.

My wife’s experience with Medicare and CareFirst involved only online experiences.   With Medicare she was able to quickly and easily complete her Medicare application and has already received her notice of eligibility with coverage beginning in the month she will turn 65.     She has yet to select Part B and Part D providers, which will be private insurers operating within Medicare requirements.    Contrast this with her almost simultaneous online interaction with CareFirst, which has provided one or both of us with individual health insurance coverage for the last five years or so.

In January, our credit charge used to automatically pay my wife’s CareFirst monthly premium had some information change, so the automatic payment of her CareFirst premium had not gone through.    This was communicated to her with conflicting emails, one auto-generated indicating the payment had been processed and another saying it had been rejected and she risk losing coverage if payment was not received.   This led us to the CareFirst website, where we spent 10 – 15 minutes trying to find the right area to update the payment information and then another frustrating 15 minutes plus because the system would not allow us to update the information on the credit card.   We finally realized we had to first delete the exist card on file for automatic payments and then enter the same card with updated information.   But nowhere was this explained in instructions or in the repeated message that the system was unable to update the card on file.

We have previously had equally or more frustrating experiences with CareFirst online, over the phone and even going to an office and dealing with a person face to face when we initially tried to sign up for individual policies (pre Affordable Care Act Exchanges) and when I shifted from our joint policy to Medicare and we tried to keep coverage in place for my wife.  The letter we received from CareFirst indicating we had first been approved for individual health insurance policies was so badly written that neither of us, despite two sets of graduate degrees, were able to understand it.    It was only when we received a bill that we realized coverage had been approved.   After going to a CareFirst office in person to remove me from our CareFirst coverage when I switched to Medicare but leave coverage in place for my wife, the company still miss-handled the conversion and my wife had to have a number of phone calls with the company before she was able to get her coverage continued.   Lest you think this is only an issue with CareFirst, I have also found Medicare.gov much easier to negotiate than the websites of United Healthcare for Medicare Supplemental Insurance and websites of Medicare Part D drug coverage providers.

So, for seniors and their family members, take heart.   Our experience indicates that Social Security and Medicare are much easier to deal with than your current private insurer.   Kudos to the dedicated employees working at the Social Security Administration and the Centers for Medicare and Medicaid Services and keep up the good work.   America’s seniors need you.

For all of us as citizens, we need to admit there are times when government works and may even work better than the private sector – despite what you will hear during this Presidential election year.   And before you say it – the cost to operate Social Security and Medicare is also lower on a percentage basis than the cost to provide private insurance.

 

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Beware Of Observation Status At Hospitals

The Affordable Care Act includes a number of measures intended to rein in unnecessary or wasteful spending by Medicare.    These are generally grouped under the label “value-based purchasing”.    One key element of value-based purchasing are penalties for hospitals that have high levels of readmissions after discharge that went into effect in 2012.    The penalties, which gradually ramp up to 3% of inpatient Medicare reimbursement to a hospital, are designed as an incentive for hospitals to provide quality care while in the hospital and to assure that the patient is provided with a smooth handoff to quality post-acute care after a hospital visit.

Hospital readmissions are down significantly since excessive readmission penalties have come into effect but according to an article in the Wall Street Journal on December 2, 2015 entitled “U.S. Rules Reshape Hospital Admissions” http://www.wsj.com/articles/medicare-rules-reshape-hospital-admissions-1449024342 the new rules have also prompted hospitals to reclassify many more hospital visits as “observations” rather than “admissions”.    In most cases, a stay of even a few days may be classified as “observation” rather than an inpatient “admission” and a patient can be on “observation” status even though given a room.    Medicare treats “observation” visits as lower cost outpatient treatment and they do not trigger a readmission penalty because they don’t count as an admission or readmission.

So if you or your loved one is cared for in a hospital on “observation” status rather than as an inpatient “admission”, gets a room and receives the same level of care, why should you care about how the hospital classifies the visit?   The big risk for a patient and patient’s family in an observation visit is that Medicare does not treat an observation visit as a three-day hospital stay that triggers Medicare payments for post-acute care.    As a result, a patient treated for three or four days in a hospital on “observation” status who then needs rehabilitation care or time to recover in a skilled nursing facility would be fully responsible for these costs rather than Medicare fully paying for up to 20 days of skilled nursing care and partially paying for up to 100 days of skilled nursing care if the patient needs that much care and is still making progress toward recovery.     The WSJ article cites families being on the hook for $20,000 of skilled nursing care because a hospital classified a four-day visit as “observation” rather than an inpatient “admission”.

I would urge any patient or family of a patient to strongly advocate to be formally admitted to a hospital for any serious injury or condition and to use right to appeal to Medicare if you or your loved one is not admitted or is admitted but is being discharged in less than three days to skilled nursing care.  It is unfortunate that the stress of any hospital visit for a patient or a loved one needs to be further complicated by worrying about “observation” vs. “admission” status but the downstream costs can be dramatically higher for one vs. the other.

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According to a report in today’s (10/29/15) Wall Street Journal on page C1, the two-year budget agreement, passed by the House of Representatives on October 28th and headed to the Senate, will eliminate the ability of social security recipients to elect and suspend benefits at age 66  and have their spouse claim spousal benefits while the primary recipient with suspended benefits continues to increase their ultimate payment by delaying their own social security benefits until age 70.   This strategy is described in books such as Get What’s Yours – The Secrets To Maxing Out Your Social Security and in my blog post on May 27, 2015 with the same title.   The change is scheduled to go into effect six months after the budget bill becomes law, after which Social Security will not longer allow family members to submit a new claim for spousal benefits on a suspended benefit.   So there may still be a small window for couples where both spouses will be 66 within the next six months to utilize this benefit.

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Layman’s Guide To Post Acute Care

I had a conversation with a friend today who has a relative that is comatose after a surgical procedure.   The patient has recently been shifted from a feeding tube though the nose to one connected to the stomach and is about to be transitioned from oxygen through a breathing tube to a ventilator connected directly to the throat via a tracheotomy.   This progression is typical for someone who is unable to eat or breath on their own because temporary breathing and feeding tubes over time begin irritate the throat and must be replaced with more direct connections.     Once these more permanent breathing and feeding connections are completed, the patient will likely be transitioned from an ICU to a transitional care unit within the hospital and then the hospital and Medicare or a private insurer will likely soon want the patient relocated to from the hospital, which is designed to provide short-term acute care.

While hospital discharge planners or social workers and the patient’s health insurance provider may all have suggestions or recommendations or preferences about where the patient’s post-acute care should be provided, under Medicare and some types of private health insurance the family will have a choice about where post-acute care is provided.    This short guide summarizes the options to help you achieve the best result for a loved-one at a stressful time for all concerned.

Types of Facilities – There are four types of post-acute care options, which are typically stand-alone facilities but can also be co-located within a general acute care hospital in some cases.   The four types of post-acute care facilities are:

  1. Rehab Hospital, also called an IRF- Inpatient Rehabilitation Facility
  2. Long Term Acute Care Hospital, LTAC, sometimes LTACH
  3. Nursing Home, also called a SNF – Skilled Nursing Facility or in some cases a Transitional Care Facility, which is essentially a SNF located within a hospital
  4. Hospice, which can be provided in a specialized hospice facility, within a SNF or other medical facility or in someone’s home.

A Rehab Hospital or IRF is designed to provide post-acute care for patients who require and are physically able to participate in a minimum of three hours a day of physical therapy (PT), occupational therapy (OT), and/or speech therapy at least five days per week.   Requirements for IRFs call for registered nurse (RN) oversight and availability 24 hours a day and between five and seven and a half nursing hours per patient per day, while the standard for nursing homes is usually between two and a half and four nursing hours per patient per day.   IRFs are also going to have regular physician visits and supervision and extensive rehabilitation gyms and specialized rehab equipment and staff.     So IRFs generally offer a higher level of care than nursing homes but only those patients who are able to handle at least three hours of therapy per day are able to transition to a IRF.   Medicare and most private insurers will pay for IRF care for patient who needs and can tolerate relatively intense therapy following an episode of care in a general acute care hospital.

A Long Term Acute Care Hospital (LTAC) is licensed as a acute care hospital but is designed to care for patients with a 25 – 30 day average length of stay versus less than 5 days in a general acute-care hospital.   Typical LTAC patients have multiple co-morbidities, multi organ system failure, and significant loss of independence, most following a traditional hospital stay.   LTACs are designed to care for critically ill patients who require specialized, aggressive, goal-directed care over an extended recovery period.   So patients on feeding tubes, with tracheotomies and complex, difficult to treat medical conditions are well-suited for care in an LTAC provided there are expectations that the patient’s condition can improve or that their condition needs to be stabilized before stepping down to another setting offer less intense care, such as a SNF or home healthcare.  Medicare and most private insurers will pay for LTAC care for medically complex patients who need ICU level care for an extended period following an episode of care in a general acute care hospital and have some prospect for recovery or being stabilized so they can ultimately be cared for at home or in a SNF.

A Nursing Home or Skilled Nursing Facility (SNF) in most cases offers two types of care.    One is true post-acute care that includes therapy services similar to what is provided in an IRF and some may accommodate complex patients including patients with tracheotomies similar to what may be provided in an LTAC.   Some nursing homes have extensive rehab gyms and therapy staff and will have 24/7 RN care and attending physicians.  But not all nursing homes provide post-acute care services or take medically complex patients and requirements for nursing hours and physician supervision are typically lower in a SNF than an IRF or LTAC.    Nursing homes also offer longer-term nursing care, sometimes call custodial care, for patients who have health conditions that require enough nursing care to make care at home infeasible or who do not have a home or family situation that will allow care at home.    Custodial patients may staff for years and there is little expectation that they will recover and return home.    Medicare and private insurers will generally pay for a limited period of post-acute care in a SNF following an episode of care in an acute care hospital.  But the amount of time for which Medicare will fully cover SNF care is 20 days, after which a co-pay kicks in, and Medicare will not cover long-term custodial care for a patient who is not making progress toward recovery.   For patients without long term care insurance the only option for paying for long-term custodial care in a SNF is Medicaid, which generally will only cover payments after all of a patient’s own funds are exhausted.

Home Healthcare is non-facility based option that provides post-acute care for some patients.   It can deliver wound care, PT, OT and speech therapy and other types of skilled care but will not provide 24/7 patient monitoring and generally requires support from family members in order for this to be a viable option immediately following a general acute care hospital treatment.   Home healthcare often comes into the picture is to provide followup therapy or nursing care after a patient transitions from an IRF, LTAC or SNF to home but is only relatively healthy patients with supportive living situations and families are typically able to get all of their post-acute care from home healthcare.   Medicare and private insurances will pay for home healthcare but only for specific skill nursing and therapy services.

Hospice Care provided in a specialized facility, within a senior housing, nursing home or other health facility, or in one’s own home, is intended for patients who are expected to live for six months are less.    The care is design to keep the patient comfortable and free from pain and to help family member cope with a loved-ones impending death.   While most healthcare providers are reluctant to conclude that additional medical treatment will not allow a patient to get better, hospice care is a very good option once the family and their healthcare providers reach this conclusion.  Medicare and most private insurers will pay for hospice care in a variety of settings.

Deciding Where a Love-One Should Receive Post-Acute Care – Important factors to consider include: the type and level of care the patient needs, the quality and location of the facility.     The type of care that each facility offers is summarized above and you can discuss the appropriate placement with the care team at the hospital including your physicians, nurses, discharge planners and social workers who usually take primary responsibility for transitioning a patient to post-acute care.    There is a tendency to favor facilities offering the highest level of care, such as an LTAC or rehab facility over a nursing home.   However, if the patient will does not need or will not be able to tolerate the level of therapy these facilities can provide it may be better to to directly to a nursing home rather than spend a few days or a week in another type of facility and have to move the patient a second time.    Many patients will prefer home healthcare to facility-based care but it is important to be realistic about whether the physical conditions of the home and the amount of support family members can provide make this the best first post-acute care option.    Location matters because it is important for family members to visit during what may be a multiple week or month period of post-acute care and family members are more likely to visit if a facility is conveniently located.     Finally, quality can be assessed by visiting a facility, speaking with discharge planners and social workers, checking online (The Centers for Medicare and Medicaid Services (CMS) has a 5-star quality rating system that isn’t perfect but can help – https://www.medicare.gov/nursinghomecompare) and in the case of skilled nursing, check with the state Office of Aging ombudsman about any prior complaints.

It will be much easier to evaluate and find space in a facility of your choice if you start looking before your loved-one is about to be discharged.    However, if you need more time it is possible to appeal a hospital discharge and generally buy yourself one-three days if you need more time to evaluate and decide upon your best option for post-acute care (see appeals on the Medicare.gov website).
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Important Changes in New Two-Year Budget Agreement

According to a report in today’s (10/29/15) Wall Street Journal on page C1, the two-year budget agreement, passed by the House of Representatives on October 28th and headed to the Senate will eliminate the ability of social security recipients to elect and suspend benefits at age 66 (described below under Take Advantage Of Spousal Benefits At Age 66) and have their spouse claim spousal benefits while continuing to benefit from delaying their own social security benefits until age 70.

Start of Original Post

I purchased and read the book Get What’s Yours – The Secrets To Maxing Out Your Social Security after seeing a generally favorable book review.   The authors are Laurence J. Kotlikoff, Philip Moeller and Paul Solman; respectively an economics professor at Boston University, a journalist who writes about retirement for Money and the PBS website Making Sen$e and a business and economics correspondent for PBS NewsHour.

In an effort to make the details of social security entertaining and approachable, I thought the authors relied on somewhat tortured personal anecdotes and repeated and repeated key points, indicating in my view a condescending attitude toward their readers.   The book nevertheless has some very useful information for those trying to assess their best options for Social Security and some helpful cautions.

Key points include:

Know The Basic Facts and Terminology – For most baby boomers (those born between 1946 and 1954) 66, not 65, is now the “Full Retirement Age” and 70 is the “Maximum Retirement Age”.   You can elect to begin collecting Social Security for retirement as early as 62, but if you do your monthly distributions are reduced by 25% of your full retirement benefit at age 66. Your benefits will grow by 8% of your full retirement benefit per year if you wait from age 66 to age 70.   The book explains a lot of other Social Security terminology, some of which may be critical to you maximizing your benefits, and also presents a lot of information on survivor, spousal and disability and dependent child options under Social Security. The Social Security website ssa.gov is also full of information.

View Social Security An Annuity To Protect Against Exhausting Other Assets – One of the great benefits of Social Security is that the payments last as long as you live and may provide survivor options to your spouse and children. The authors argue, and I agree with them, that assuring yourself a higher annual income from Social Security for as long as you live late in retirement, when there is a chance you might exhaust your other resources, is more important than starting benefits early, unless you have no other retirement income available to you or know for certain that you will die early.

The Financial Incentives To Delay Claiming Benefits Are Compelling – If your full retirement benefit at age 66 were to be $1,500 per month, your benefit if you claim benefits early, beginning at age 62, would be only about $1,125 per month.   By starting benefits at age 62, you would get four more years of payments, totaling $54,000, than waiting until age 66. But by waiting for the higher payment you would receive $31,500 more in total benefits before inflationary adjustments if you were to live to age 85.   More important, is that by waiting you would have a substantially higher annual income, $18,000 vs. $13,500 before inflationary adjustments, late in life when there is chance your other forms of retirement savings are exhausted and inflationary adjustments will magnify this difference over time.

Wait Until 70 To Take Social Security Benefits If You Can – Using the same example of a $1,500 monthly retirement benefit at age 66, by waiting to age 70, rather than starting retirement benefits at age 66, you would boost your annual retirement income to approximately $1,980 per month, $23,760 annually (by approximately 32% compare to your standard age 66 full retirement benefit).   Since these figures would be adjusted for cost of living, the absolute differences between the lower and higher figures would be even greater on a post-inflation basis.

Take Advantage Of Spousal Benefits At Age 66 – One of the key opportunities for maximizing your Social Security benefits concerns the Spousal Benefit. You will want to consult the book or another resource for details but in essence if one spouse is several years older than the other and was the higher wage earner, it is possible for the older, higher wage earner to file for Social Security retirement benefits at age 66 and suspend benefits for up to four years until age 70 in order to create the opportunity for the lower wage earning spouse to claim restricted spousal benefits (50% of the higher wage earners full retirement benefit) without triggering retirement benefits for the higher wage earner and without reducing the growth in the higher wage earner’s social security benefit between age 66 and 70.   There are penalties, if this maneuver is started before the younger spouse reaches age 66.

Evaluating Your Options – There are a multitude of potential Social Security benefits and options for getting them. To help you understand the specific Social Security options available to you, the lead author, Laurent Kotlikoff , also offers an online Social Security software planning tool at maximizemysocialsecurity.com, which gets good press reviews but which I have not tried.   At times the book is only a promotional tool for the software playing up the risks of making an error in claiming Social Security and warning against relying on the Social Security Administration for advice.   Anecdotal feedback I have gotten from other Social Security recipients seems much more favorable about the advice available from Social Security offices than the impression you get from reading Get What’s Yours – The Secrets To Maxing Out Your Social Security but the book is a useful resource.

 

 

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Signing Up For Medicare

I have a group of friends who first came together in a special 6th grade class and continued in school together through high school.   About 10-year ago we began having informal reunions every two or three years.   This year, since I am one of the first to turn 65 and have some background in healthcare, I have been asked to provide some tips on signing up for Medicare to the group, which I summarize in this blog.

Many of us who previously worked in the private sector generally have a negative view of government programs.   But, my experience strong suggests Medicare is easier than you think.   In signing up for Medicare I found the government website (Medicare.gov) and dealing with the Centers for Medicare and Medicaid Services (CMS) to be much better than dealing with the private health insurance companies, including those offering employer sponsored plans and individual policies and the companies that administer Medicare Supplemental and Part-D drug insurance.

The Basics

  • You are eligible for Medicare on the first day of the month in which you turn 65 unless your birthday is the first of the month, in which case you start the first day of the prior month.
  • You are required to sign up for Medicare within a seven-month period before and after your 65th Ideally you should sign up in the three months before the month in which you turn 65. You may face higher premiums if you delay signing up unless you remain covered by an employer’s insurance policy.
  • There are two main parts to Medicare – Part A (Hospital Insurance) that covers inpatient and post-inpatient services and Part B (Medical Insurance) that covers medically necessary doctor and outpatient services.
  • Because co-payments for Medicare Part A and Part B can be significant with a long hospital stay or prolonged illness, most Medicare members also purchase a Medicare Supplemental Insurance policy from a private insurance company to help cover deductibles and co-pays.
  • Many insurers offer Medicare Supplemental policies and you will be inundated with offers as you approach 65 but all must offer a standard set of plan options (A – N) from which you can choose.
  • Medicare offers a prescription drug benefit, Medicare Part D, for which you must sign up through a private company separately from Part A and B.
  • Medicare members also have the option of combining A, B and D coverage into a single policy call a Medicare Advantage Plan, or Part C, which is a Medicare Managed Care or HMO/PPO type policy.  These policies can offer cost advantages, additional benefits and better-integrated services but may also restrict options for healthcare providers and drugs.

The  Cost

Medicare Part A is generally free to those that have paid Medicare taxes over the year.   Medicare Part B has a sliding fee scale tied to income with monthly premiums ranging from $104.90 for individuals with incomes of $85,000 annually or less up to $335.70 for individuals with income above $214,000 annually (income based on most recent tax return on file). Supplemental insurance premiums range from about $70 per month to $225 per month depending on the plan you choose.

Part D also has a sliding monthly premium fee scale based on income but it is essential in selecting a Part D Plan to consider the annual deductible and co-pays for the drugs you use, not just the monthly premium, to determine the total costs you can expect to pay.   The base monthly premium for a Part D Plan is generally less than $50 with income based additions of $12 to $71 per month in 2015 for individuals with incomes over $85,000.   Medicare and others provide on line tools that will assist you to select the most cost effective Part D Plan based on the cost of insurance and the deductible and co-pays for the specific drugs that you take and you can change plans annually.

In some cases Medicare Advantage or Part C plans may offer lower costs or more comprehensive coverage than an A-B-D plan with supplemental insurance but Medicare Advantage plans can limit the caregivers or medications you may be able to use.

Key Decisions

Unless you remain covered under an employer’s healthcare plan, or are covered by certain other approved exceptions, you need to sign up for Medicare or face significant penalties for delay.

The key question is whether to sign up for Original or Traditional Medicare – Part A, Part B and Part D with supplemental insurance or for a Medicare Advantage (Part C) Plan.   The key advantage of Original Medicare is that you have full choice over your physicians, hospitals and other care providers while a Medicare Advantage Plan may restricted the care providers you can see and otherwise limit or direct utilization.

There are also important choices to be made about which Medicare Supplemental Plan to select, with a broad range of premiums and deductibles, some offering coverage outside the US and some not.   The best Part D Plan for each person will vary based on the drugs they use, so using an online tool to evaluate plans is key to making this decision.

I selected an Original Medicare Plan with Parts A, B and D and a Medicare Supplemental Insurance Plan from AARP/United Healthcare.   I wanted to preserve the ability to use my present primary care doctor, so I did not consider Medicare Advantage options.   My choice of a Medicare supplemental insurance provider was influenced by many frustrations in dealing with CareFirst (the Blue Cross/Blue Shield provider in Maryland) and by a consultation with former stock analyst colleges that follow health insurance providers.   I also decided to purchase my Part D Plan through AARP/United Healthcare but, because I take few drugs, I did not spend a lot of time shopping for a Part D Prescription Drug Plan.

Other Resources

This short introduction to Medicare should be supplemented with information from Medicare and supplemental insurance providers.   See particularly “Medicare & You 2015” available free at Medicare.gov and available online and downloadable to e-readers for free.   AARP (aarp.org), among others, also offers a general Medicare Guide and sponsors a Medicare Supplemental Insurance Program offered through United Healthcare.   In the Medicare & You guide, Medicare also indicates you can contact your State Health Assistance Program (SHIP) or call 1-800-MEDICARE (1-800-633-4227) and say Agent to get individual help but I did not try either of these.

 

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