Senators Lieberman and Coburn proposed raising the age for eligibility to 67 from 65, and charging more to those who can afford more, two measures that they project would save the government $600 million over the next decade alone.  The backlash was immediate.

AARP issued a statement on June 29, 2011 acknowledging that while health care costs must be addressed, and should be more affordable to all, seniors shouldn’t be paying that price if it results from “arbitrary limits, caps or triggers that would result in harmful cuts to critical Social Security and Medicare benefits”.

Here’s one example of the care we have come to expect, despite the high cost: The day after AARP’s statement, Medicare confirmed that it would continue to pay for two cancer drugs, Avastin and Provenge, which cost $88,000 and $93,000 annually.  Few people would be able to afford these treatments without health insurance, and for the elderly Medicare is that insurance because they would have no other. One Wall Street analyst estimated that the use of the new drugs for the treatment of prostate cancer could cost “$500,000 per patient or more over the course of therapy, which I don’t think the system can afford since 80 percent of the patients are on Medicare” (Andrew Pollack, “New Drugs Fight Prostate Cancer, But at High Cost”, NYT 6/27/11).   Many feared that these would no longer be covered because once the FDA confirmed its revocation of Avastin as a treatment for breast cancer, for example, a number of insurance companies, Cigna, Wellpoint, UnitedHealthcare, and Health Care Service Corporation, announced that they would reconsider coverage as well if the drug was used off label (meaning not what it was originally approved by the FDA to do).  Those who aren’t on Medicare may be out of luck if they can’t pay privately. 

 Andrea Lowenthal, Esq. 

The Elder Justice Act was adopted in 2009, and together with the Older Americans Act of 1965, is intended to do what its name implies.  The report is based on a survey of Adult Protective Services programs across the country, and an audit of the federal that are supposed to support them.  The purpose of APS programs is to receive reports of abuse, investigate, and arrange for services.

Studying elder abuse first requires defining elder abuse, which is generally considered to include physical, sexual and psychological abuse, and financial exploitation and neglect.  Perpetrators include persons known to the elder, who may have caretaking responsibilities, and others, such as phone scammers, who prey on those they find vulnerable. Because the definition of elder abuse has not been consistent over the decades in which it has been studied, and there has not been consistency in the targets studied, the various studies are considered to underestimate the incidence of abuse, possibly by a considerable amount. 

Elder abuse is considered to be underreported in part because of the very vulnerabilities that make the elders subject to abuse in the first instance. Furthermore, counting on third parties to voluntarily report the abuse depends upon their being both aware of the abuse and their willingness to step forward, even on a confidential basis; third parties with patient confidentiality restrictions may not report abuse unless otherwise mandated by law. New York State is one of just four states in which no one is a “mandatory reporter” of abuse, while in 14 states “everyone” is a mandatory reporter.  The rest typically specify that physicians, home health care providers, mental health service providers, and law enforcement authorities are mandatory reporters (thereby overriding patient/client confidentiality), and a number of states include financial institutions in this group. 

The problem is growing along with the increasing number of persons over 65 years old. The study of APS agencies indicated that their funding had been either steady or actually decreasing over the five years prior to the study, in part because most of their funding is from state and local revenues.  The federal funds devoted to elder abuse are a miniscule part of the total federal budget, and only 1/1000^th of the budget of the Administration on Aging!  Seven federal agencies with the Department of Health and Human Services, and the Justice Department, spent $11.9 million on grants for elder justice activities in 2009.  This meager funding is addressed to some degree by the Affordable Care Act. 

Under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, generally referred to as the “Affordable Care Act”, there was established an Elder Justice Coordinating Council and Advisory Board to coordinate research, training and data collection concerning elder justice programs.  The Affordable Care Act establishes four grant programs, and it also allocates funding of $600 million for 2011 through 2014 to the Department of Health and Human Services for elder justice to fund APS programs, collect data, develop best practices, and provide research and training.  Additional grants will be available for forensic centers at higher education institutions, and for the establishment of mobile forensic centers.  Long term care worker training will benefit from further grant funding, as well as for ombudsman training programs. 

Andrea Lowenthal, Esq.

Remarkably, in a June 2011 Kaiser Health Tracking Poll, 32% of respondents said they would support major reductions in Medicare to prevent it from going bankrupt, and 42% would support minor reductions for this purpose.  If you think that’s generous, consider this: 21% said they would support major reductions to avoid tax increases for the wealthy, while 33% said they would support minor reductions to avoid such increases. 

At the heart of this is the question: will Medicare go broke, as is presently predicted?  Or is it “too big to fail”, a theoretical size no one seems able to determine until we’re at the precipice of the failure.  Is there such a thing as “too big to fail” with a federal program of this magnitude and with the consequences of failure being catastrophic for millions?  Even if it is “too big”, is there anything we can do about the apparently undeniable inability to survive without reforming the Medicare as we know it now? 

The Kaiser Poll results indicate just how little Americans really understand about Medicare and about the Patient Protection and Affordable Care Act and its provisions for changes to Medicare.  A third of all those polled, and 25% of seniors, incorrectly believe that the Medicare hospital trust fund will be bankrupt in 15 years, while 37% believe the hospital trust fund will face a shortfall but not be broke.  The Congressional Budget Office has said that the Patient Protection and Affordable Care Act will strengthen the hospital trust fund, so either this message hasn’t been received, or it hasn’t been believed by more Americans.  In any case, if the fund can’t pay even some of the anticipated bills we still need to know where the money will come from.  Or what will be cut, and when. 

The Patient Protection and Affordable Care Act has a number of provisions that affect Medicare:

1. Closing the “donut hole” of prescription drug costs
2. Improving health care delivery
3. Increasing access to preventive services by eliminating co-pays and deductibles
4. Reducing payments to Medicare Advantage Plans
5. Increase the premiums to higher income Medicare recipients
6. Increase the Medicare payroll tax on higher income Americans
7. Create the Independent Payment Advisory Panel of experts.

The greatest level of awareness in the poll concerned item 5, the increased premiums to higher income Medicare recipients; Of those polled, only 46% of seniors were correct in their awareness, while only 50% of all polled were correct.  Interestingly, the provision of which everyone was least correctly aware was item 3, a measure that would seem to be viewed as a major benefit for long run cost management of the Medicare program, assuming you agree that an ounce of prevention is worth more than the cure in restraining the growth of Medicare costs.  Parenthetically, according to Centers for Medicare & Medicaid Services, as of June 10, 2011, 5.5 million Americans, or 16% of the 33 million in traditional Medicare (ie, not Medicare Advantage), used one or more of the preventive benefits.  It’s a start in the goal of reducing the very high cost of care attributable to preventable, or at least manageable, chronic conditions.  Obviously, the word still has to get out about the availability of this benefit. 

Overall, the Kaiser Poll shows that 41% of seniors viewed themselves as worse off as the result of health care reform, while only 31% thought they would be better off, and 19% believe it won’t make much difference.  The public is divided on the law, with 31% and 20%, respectively, wanting to see the law expanded or unchanged, and just under 40% wanting it repealed or replaced with a Republican alternative.

Andrea Lowenthal, Esq.

Total US health care spending in was $2.486 trillion in 2009, having increased from 7.2% of GDP in 1970 to 17.6% of GDP in 2009.  Of the $2.486 trillion overall spending, Medicaid accounted for for 15% and Children’s Health Insurance Program (CHIP) 0.4%; private insurance, and other private sources (including “out of pocket”) accounted for 51.5%. 

Medicaid and CHIP together serve 76 million people and cost $40 billion in federal and state funding in 2010.  Of those, 68 million are receiving Medicaid benefits, and more than 16 million are seniors and persons with disabilities, including those receiving long term care at home or in facilities.  CHIP provides for an additional 8 million children.  Medicaid represented 8.1% of the federal budget in 2010, and its poised to provide for many more Americans under the Affordable Care Act to satisfy the goal of health insurance coverage for all. 

Current Medicaid expenditures are approximately 18% of total hospital, 33% of total nursing home, 35.6% of home health, and 52.5% of residential and personal care expenditures.  Medicaid also supports community health centers, school health centers and mental health clinics, all of which also treat the officially uninsured.  Medicaid is an entitlement program, just like Medicare, however unlike Medicare it is funded from revenues; there is no federal trust fund or any dedicated revenue stream to support it.  So-called “dual eligibles” are those who receive both Medicare and Medicaid; most of these are seniors, but 41% are persons with disabilities under 65 yo. 

Medicaid-paid care is funded jointly by the federal government and the individual states, which design their own programs subject to certain mandated federal guidelines.  The states must fund approximately 50% of their Medicaid costs, 60% of which can come from local governments, although in 2009 states reported that 80% was funded by the state general funds.  In New York State, of its 2009 budget of $121 billion Medicaid was 26.7% of the total budget, including federal funds, and 13.4% of just the state funded portion.  The national average is 21% and 12% respectively.  Today, with Medicaid spending estimated at a third of NYS’s budget, or about $53 million, Governor Cuomo established a “Medicaid Redesign Team” to address ways to cut it as part of a major budget overhaul. 

For more details see:

Robert Wood Johnson Foundation, Issue Brief: Impact of the Economy on Health Care (August 2009). www.academyhealth.org/files/HCFO/findings0809.pdf. 

The Affordable Care Act requires every individual, with limited exceptions (including hardship and religious objection), to obtain health insurance, whether privately or through some government source, or suffer penalties for failing to do so.  The penalty is a “shared responsibility payment” calculated based on household income.

The Commerce Clause, which grants Congress the power to “regulate commerce with foreign Nations, and among the several States …”  has been broadly interpreted by the Supreme Court to give Congress power over activities that “substantially affect interstate commerce” and this is what the Court opinion focuses upon: “Virtually everyone participates in the market for health care delivery, and they finance these services by either purchasing an insurance policy or by self-insuring.  Through the practice of self-insuring, individuals make an assessment of their own risk and to what extent they must set aside funds or arrange their affairs to compensate for probable future health care needs … Congress has a rational basis to believe [that self-insuring] has substantial effects on interstate commerce … [and] to believe that the provision was essential to its larger economic scheme reforming the interstate markets in health care and health care insurance.”

The Commerce Clause doesn’t distinguish between activity and inactivity, although the Supreme Court has never directly addressed this distinction or defined it.  The Sixth Circuit Court also notes that it, and three other federal Appellate Courts concluded that activity and inactivity are indistinct for purposes of the Child Support Recover Act, which also depends on Congress’s power under the Commerce Clause to enforce child support payments in one state against individuals in another state. 

Is there a substantial effect?  Yes, concluded the Court, because “18.8% of the non-elderly United States population (about 50 million people) had no form of health insurance for 2009” based on the 2010 US Census.  Yet, it’s a virtual certainty that every single one of them will need health care services, and have needed such services, insured, amounting to “over $100 billion” annually for which taxpayers and the insured effectively pay the premiums, and when they can’t pay these increasing premiums they too join the uninsured. 

The Court reviews the Congressional findings concerning the Congress’s role in regulating health insurance as an economic activity, and the significance of a complete pool of insured persons to the effectiveness of the health insurance markets.  Among Congress’s findings was that lower health insurance premiums would result by requiring all to pay premiums and not simply opt out until such time as they might need coverage, but that likewise insurers should not be permitted to exclude persons because of pre-existing conditions if everyone is required to be insured.   The Court notes that 35% of persons who apply for insurance are offered limited coverage, or charged higher premiums because of their conditions, or denied coverage altogether. 

The dissenting opinion in the Sixth Circuit focuses on the distinction between regulating health insurance, rather than health care, and that if Congress can force individuals to participate in health care then there is perhaps no limit on its power.  Its possible this argument, which depends in part on the Tenth Amendment’s mandate that the states and people have all power not specifically granted to the federal government, will be further explored in the appeals pending in other Circuit Courts and eventually by the US Supreme Court.

See Thomas Moore Law enter v Obama, US Court of Appeals for the Sixth Circuit, No. 10-2388, June 29, 2011. 

The other pending challenges are:

• Liberty University, Inc. v. Geithner (U.S. District Court, Western District of Virginia), also upholding the constitutionality of the individual mandate under the Commerce Clause.
• Commonwealth of Virginia v. Sebelius (U.S. District Court, Eastern District of Virginia), striking down the individual mandate as an unconstitutional exercise of congressional power, and severing the individual mandate and penalty from the Affordable Care Act (leaving the rest of the Act intact).
• State of Florida v. U.S. Department of Health and Human Services (U.S. District Court, Northern District of Florida), which has ruled that the individual mandate and penalty cannot be considered a tax within Congress’s constitutional powers of taxation.  Also struck down the individual mandate as an unconstitutional exercise of congressional power and ruled that the individual mandate cannot be severed from the remainder of the Act.
• Mead v. Holder (U.S. District Court, District of Columbia), upholding the constitutionality of the individual mandate under the Commerce Clause.

 Andrea Lowenthal, Esq.

1920
The Civil Service Retirement Act provided a retirement system for many governmental employees.

1935
The Social Security Act passed; provides for Old Age Assistance and Old Age Survivors Insurance.

1937
Railroad Retirement Act provided pensions for retired railroad employees and spouses.

1950
President Truman initiated the first National Conference on Aging, sponsored by the Federal Security Agency.

1952
First federal funds appropriated for social service programs for older persons under the Social Security Act.

1956
Special Staff on Aging established within the Office of the Secretary of Health, Education and Welfare, to coordinate responsibilities for aging.

Federal Council on Aging created by President Eisenhower.

1958
Legislation introduced in Congress, calling for a White House Conference on Aging.

1959
Housing act authorized a direct loan program for non-profit rental projects, for the elderly at low interests rates, and lowered eligibility ages for public-low-rent housing, for low-income women to age 62.

1960
Social Security Administration eliminated age 50 as minimum for qualifying for disability benefits, and liberalized the retirement test and the requirement for fully insured status.

1961
First White House Conference on Aging held in Washington, D.C.

Social Security Amendments lowered the retirement age for men from 65 to 62, liberalized the retirement test, and increased minimum benefits and benefits to aged widows.

1962
Legislation introduced in Congress, to establish an independent and permanent Commission on Aging.

1965
Older Americans Act signed into law on July 14 1965. It established the Administration on Aging within the Department of Health, Education and Welfare, and called for the creation of State Units on Aging.

Medicare, Title XVIII, a health insurance program for the elderly was established as part of the Social Security Act.

Medicaid, Title XIX, a health insurance program for low-income persons, was added to the Social Security Act.

1967
Older Americans Act extended for two years, and provisions made for the Administration on Aging to study the personnel needs in the aging field.

Age Discrimination Act signed into law.

Administration on Aging moved from the Office of the Secretary of HEW and placed in the newly created Social and Rehabilitative Service Agency within the Department.

1969
Older Americans Act Amendments provided grants for model demonstration projects, Foster Grandparents, and Retired Senior Volunteer Programs.

1972
A new Title VII is created under the Older Americans Act authorizing funds for a national nutrition program for the elderly.

1973
Older Americans Act Comprehensive Services Amendments established Area Agencies on Aging. The amendments added a new Title V, which authorized grants to local community agencies for multi-purpose senior centers, and created the Community Service Employment grant program for low-income persons age 55 and older, administered by the Department of Labor.

Comprehensive Employment and Training Act was enacted; included older persons.

1974
Title XX of the Social Security Amendments authorized grants to states for social services. These programs included protective services, homemaker services, transportation services, adult day care services, training for employment, information and referral, nutrition assistance, and health support.

Housing and Community Development Act enacted; provided for low-income housing for the elderly and handicapped, pursuant to the Housing Act of 1937.

National Institute on Aging created to conduct research and training related to the aging process, and the diseases and problems of an aging population.

1975
Older Americans Act Amendments authorized grants under Title III to Indian tribal organizations. Transportation, home care, legal services, and home renovation/repair were mandated as priority services.

1977
Older Americans Act Amendments required changes in Title VII nutrition program, primarily related to the availability of surplus commodities through the Department of Agriculture.

1978
Older Americans Act Amendments consolidated the Title III Area Agency on Aging administration and social services, the Title VII nutrition services, and the Title V multi-purpose senior centers, into a new Title III and added a new Title VI for grants to Indian Tribal Organizations. The old Title V became the Community Service Employment grant program for low-income persons, age 55 and older (created under the 1978 amendments as Title IX).

Congregate Housing Services Act authorized contracts with local public housing agencies and non-profit corporations, to provide congregate independent living service programs.

OAA amendments required each state to establish a long-term care ombudsman program to cover nursing homes

1981
Older Americans Act reauthorized; emphasized supportive services to help older persons remain independent in the community.

Act expanded ombudsman coverage to board and care homes

1984
Reauthorization of the Older Americans Act clarified and reaffirmed the roles of State and Area Agencies on Aging in coordinating community-based services, and in maintaining accountability for the funding of national priority services (legal, access, & in-home).

Carol Fraser Fisk named Commissioner on Aging

1987
Omnibus Budget Reconciliation Act provides for nursing home reform in the areas of nurse aide training, survey and certification procedures, pre-admission screening an annual reviews for persons with mental illness.

Reauthorization of the Older Americans Act added six additional distinct authorization of appropriations for services: in-home services for the frail elderly; long-term care ombudsman; assistance for special needs; health education and promotion; prevention of elder abuse, neglect, and exploitation; and outreach activities for persons who may be eligible for benefits under supplemental security income (SSI), Medicaid, and food stamps. Additional emphasis was given to serving those in the greatest economic and social need, including low-income minorities.

The Nursing Home Reform Act (Omnibus Budget Reconciliation Act) mandated that nursing facility residents have “direct and immediate access to ombudspersons when protection and advocacy services become necessary.” Simultaneously, the OAA reauthorization charged states to guarantee ombudsman access to facilities and patient records, provided important legal protections, authorized state ombudsmen to designate local ombudsman programs and required that ombudsman programs have adequate legal counsel.

1990
Americans with Disabilities Act extended protection from discrimination in employment and public accommodations to persons with disabilities.

Cranston-Gonzalez National Affordable Housing Act reauthorized the HUD Section, 202 Elderly Housing program, and provided for supportive service demonstration programs.

Age Discrimination in Employment Act made it illegal, in most circumstances, for companies to discriminate against older workers in employee benefits.

1992
Reauthorization of the Older Americans Act places increased focus on caregivers, intergenerational programs, protection of elder rights and calls for a 1995 White House Conference on Aging.

The elevation of Commissioner on Aging to Assistant Secretary for Aging.

OAA amendments added a new Title VII “Vulnerable Elder Rights Activities” which included the long-term care ombudsman; prevention of elder abuse, neglect and exploitation; elder rights and legal assistance development; and benefits outreach, counseling and assistance programs. The legislation emphasized the value of the four programs coordinating their efforts. The amendments highlighted the role of local ombudsman programs and the state ombudsman’s role as leader of the statewide program and advocate and agent for systemwide change.

1993
Fernando M. Torres-Gil was sworn in as the first Assistant Secretary for Aging in the Department of Health and Human Services on May 6, 1993.

2000
Older Americans Act Amendments of 2000 signed into law (P.L. 106-501), establishing the new National Family Caregiver Support Program, and reauthorizing the OAA for 5 years on November 13, 2000.

2001
HHS Secretary Tommy G. Thompson released $113 million for first National Family Caregiver Support Programs grants to states on February 15, 2001.

2003
Enactment of the Medicare Prescription Drug, Improvement and Modernization Act (MMA)

2006
Medicare Part D Prescription Drug program (part of MMA) went into effect

Enactment of the Lifespan Respite Care Act (administered by AoA)

Older Americans Act Amendments of 2006 signed into law (P.L. 109-365), embedding the principles of consumer information for long-term care planning, evidence based prevention programs, and self-directed community based services to older individuals at risk of institutionalization. OAA was reauthorized for 5 years on October 17, 2006.

2009
Kathy Greenlee appointed by President Obama as 4th Assistant Secretary for Aging

2010
Enactment of the Affordable Care Act

2011
First of the nation’s baby boomers turn 65.

CLASS (Community Living Assistance and Supports) program, part of the Affordable Care Act, is designated to be administered by the Administration on Aging

Kathy Greenlee appointed as Administrator of the CLASS (Community Living Assistance and Supports) program in addition to serving as Assistant Secretary for Aging

Most of us are “not getting any younger” no matter how much denial we’re in.  In fact, great numbers of us appear to be getting older (chronologically speaking, at least), and lots of people who count things are keeping track of these numbers.  Economists, policy makers, officials and analysts of all stripes like numbers because numbers because quantitative facts give us a sense of measurement, order and control.  If we can just get a handle on the numbers, then a solution can be devised for whatever problem the numbers present.  Right?  Older Americans also represent a huge part of the voting population, and thus ought to be in a position to have a significant effect on political outcomes.

The time is now. When it comes to the facts of aging in America, you have to wonder what we’re going to do about all the problems that will need solutions.  The time horizon is short; in fact, its right now.  The challenges we face are increasing, and at the same time the funds to face these challenges are shrinking (in fact, given the deficit, there are no funds – they just have to get allocated from some other part of the already deep hole of debt that we’re in).  The more I investigate aging in America, the more I see how much harder we are each going to have to work to solve these problems for ourselves and our families.  It doesn’t seem that “government” (whether you argue for big or small, more or less) is going to be able to do a lot more than it is right now: framing the problems, and, hopefully, keeping some order.  The rest is going to be up to us, individually and collectively.

This is everyone’s concern. The statistics based on recent census data and other studies are mind-boggling, and perhaps mind-numbing in the sense that you read them and want to turn the page.  But at a time when budget deficits at the federal and state level are the hourly news, and mudslinging about Medicare has become dinner conversation, these numbers are worth focusing upon.  No one wants to lose their own “entitlements”, least of all older persons who don’t have decades of productivity ahead of them and especially during a prolonged period of recession.  Certainly, something is going to have to change, not least of all our expectations.  For those of us who are not already an “older” American, but who have been responsible for aging relatives, there is nothing surprising about what this really means to all of us, right now, not just decades from now.

Administration on Aging, and its role. Statistically, older Americans are a very substantial portion of our population with needs that require specific focus by the federal Department for Health and Human Services.  The Administration on Aging (AOA), advises the Secretary of Health and Human Services, and is one major source for consolidated statistics in its role as “an advocate for the elderly within the federal government … working to encourage and coordinate a responsive system of family and community based services throughout the nation”.

The AOA’s “core” programs are authorized under the Older Americans Act of 1965 (amended in 2006, and expected to be reauthorized in 2011).  The AOA’s budget includes categories of expenditures such as “health and independence”, “caregiver services”, “protection of vulnerable older Americans”, and “network support” (ie, the various “State, Territory, local and Tribal” agencies its supports).  The AOA’s budget was about $1.5 billion in 2010, and it sought an additional $108 million, or 7.7% for 2011 largely to permit it to address increasing needs of families and caregivers.  This is a minute fraction of the total federal budget, and less than 2% of the federal budget allocated for the Department of Health and Human Services.  It does not include entitlement programs such as Social Security and Medicare, which also serve older Americans, and which are a very substantial portion of the federal budget.

The numbers. According to the Administration on Aging, the population of persons 65 years or older (officially “older”) is approximately 40 million, or 13% of the U.S. population.   The population 65+ increased from 35 million in 2000, or 14 % in a decade, and is expected to increase again 55 million in 2020, a 36% increase for that decade. The 85+ population increased from 4.2 million in 2000 to approximately 5.7 million in 2010, a 36% increase, and is projected to increase to 6.6 million in 2020, a 15% increase for that decade.

Not only do we have a large population that is becoming older, we are all living a lot longer than in previous generations.  Life expectancy at age 65 increased by only 2.5 years between 1900 and 1960, but has increased by another 4.2 years from 1960 to 2007.  Persons reaching age 65 currently have an average life expectancy of an additional 18.6 years (19.9 years for females and 17.2 years for males), but with advances in health care this can be expected to increase further. The number of persons over 100 years old, now about 65,000, has increased 72% from 1990, and while it is still a very small absolute number it is increasing in proportion to the number of elderly.

Add to these statistics the projections for minority populations, which are projected to increase from 5.7 million in 2000 (16.3% of the elderly population) to 8.0 million in 2010 (20.1% of the elderly) and then to 12.9 million in 2020 (23.6% of the elderly).  The complexity issues of aging are manifold when you also consider the diversity of our population.

If by 2030 there will be about 72.1 million older persons, or approximately 19% of the population – an increase of 82% in about two decades – you have to wonder how the remaining 81% of the population will support this 19%?   Clearly, something drastic is going to have to change to make it possible to care for older Americans.  We are experiencing a long-lasting, broad based recession at a time when the core wage earning generations are most needed to contribute to the funds for Social Security and Medicare, in addition to all the other government programs that support older Americans.

Income of older Americans. The major sources of income as self-reported by older persons in 2008 were Social Security (87% of older persons), income from assets (54%), private pensions (28%), government employee pensions (14%), and earnings (25%).   Social Security constituted 90% or more of the income received by 34% of beneficiaries in 2008 (21% of married couples and 43% of non-married beneficiaries).   Almost 3.4 million elderly persons (8.9%) were below the poverty level in 2009, and the median income of older persons in 2009 was $25,877 for males and $15,282 for females, and these figures include whatever government-based sources were reported.  Some of these elderly are living together, but we know that many are living alone and they are barely scraping by on the income they have.  We have recently been warned that the Social Security fund might run dry in 2036, or 2037, or 2040 – calculations vary – and Medicare funds may run dry by around 2024.  Those estimates include all the payments most of us will be making into the fund until then.  We all see that something has to change, if only our own expectations.

This discussion about Aging in America will be continued.

The Law Offices of Andrea Lowenthal PLLC concentrates in Wills & Trusts, Elder Law, including Medicaid Planning and Applications, Guardianships, Probate of Estates, and Specials Needs Matters.  Please contact Andrea Lowenthal, Esq., at 212-662-5324 or andrea@lowenthallaw.com, to discuss your personal plan for aging, including your estate plan, or need assistance with the plan for a parent or other relative.  You can read more about planning at www.plan-for-aging.com.

Whether or not you are fortunate enough to benefit from some of these changes, now is the time to create or update your estate plan.  Ideally, you already have in place a Will, a Power of Attorney and other critical advance directives. If not, then you undoubtedly know that you ought to have.  Perhaps you have also done some further planning with the use of trusts, gifting, charitable contributions, or life insurance, for example.  Or maybe you just haven’t gotten around to it.  In the past year alone, I have seen too many instances of unintended consequences of the failure to engage in even very basic planning.  Better to have made a plan and later, if necessary, adjust that plan, than to allow the laws of intestacy, and others if you become incapacitated, dictate what happens.

Please remember that your estate tax planning must take into account not only Federal law, but also state law.  Just because the Federal exemption has increased, temporarily, to $5 million, does not necessarily mean you are in the clear.  Furthermore, this discussion is just to make you aware of changes that may concern you.  You absolutely must consult a tax advisor for definitive advice for you and your family. That said, please read on ….

What’s New

Under current law, for only 2011 and 2012, the gift, estate and generation-skipping transfer tax exemptions are all $5 million (indexed for inflation after 2011) and the tax rate is 35%, but in 2013 the exemption will revert to $1 million and the top tax rate will be 55%. If you already made otherwise taxable gifts totaling $1 million, then you now have another $4 million gifting opportunity for at least these two years.  Remember, that is your lifetime, tax free maximum.  Whether or not you have millions or measure your estate in thousands, the annual gift tax exclusion remains unchanged at $13,000 per donee, so that amounts gifted in excess of $13,000 (the non-taxable amount) will be allocated to your $5 million lifetime exemption.

Marital Deduction Planning

First, just a review of what’s not new: the 100-percent marital deduction generally permitted for estate and gift tax for the value of property transferred between spouses (who are US-citizens).  Transfers of “qualified terminable interest property” are eligible for the marital deduction . “Qualified terminable interest property” is property: (1) that passes from the decedent; (2) in which the surviving spouse has a “qualifying income interest for life”; and (3) to which an election applies.   A “qualifying income interest for life” exists if: (1) the surviving spouse is entitled to all the income from the property (payable annually or at more frequent intervals) or has the right to use the property during the spouse’s life; and (2) no person has the power to appoint any part of the property to any person other than the surviving spouse.  For spouses who are non-US citizens, a qualified domestic trust must be used instead, and is not discussed here.

Remember that while property passing from one spouse to another is not subject to tax, however it is once it’s in the estate of the surviving spouse.  Therefore, a “credit shelter” trust is commonly found in wills of spouses, the purpose of which is to allow the surviving spouse to use the income of a portion of the deceased spouse’s estate while allowing the principal to escape her estate taxes.

What is new is “portability”. Portability may mean that spouses may be less likely to need credit shelter trust planning.  For married persons, “portability” of a spouse’s unused estate tax exemption was introduced but this only applies to spouses who both die between January 1, 2011, and December 31, 2012.  There is no portability of any unused GST tax exemption for the surviving spouse. This portability issue may seem academic to those of you who are younger and healthy, but for some people it may be quite relevant to their current planning, or an unintended consequence.  If, for example, the husband dies in 2011 with an estate of $2 million, then his estate can elect to permit the wife to use the $3 million unused by the husband.  If the wife dies while portability is in place, then she would have a total estate tax exemption of $8 million.  Again, since portability is in place for 2011 and 2012, planning for portability or not means you have to be on your toes, and be prepared to make changes in your plans on or before 2013 when we know what’s next

Spouses can also plan now using trusts and this $5 million current lifetime gift maximum.  Each spouse can establish a trust for the benefit of the other, their children and future generations. Benefits of using a trust structure, rather than making outright gifts include asset protection, estate tax protection, and income shifting, among other things. However, you must be sure to be aware of the reciprocal trust doctrine, which might otherwise cause the trusts to cancel out each other, and grantor trust rules.

The State’s Take

Remember that your plans must take into account not only Federal estate, GST and gift taxes, but also state taxes.  For example, New York State does not impose a tax on gifts.  But the NYS estate tax is computed on the New York adjusted taxable estate in total – including the first $1 million of the taxable estate that is “exempt” from estate tax.  So, if your estate is less than $1 million, then there’s no NYS estate tax, but if it’s over that amount then the estate tax is on the entire estate.  This is why it is particularly important for New York residents to consider using lifetime gifts as part of their estate planning.  You can’t take it with you, but if you haven’t given it away before your assets become your “estate” you face a higher estate tax.

Life Insurance

Just a reminder about life insurance: the increased gifting opportunities in 2011 and 2012 also increase the opportunity for you to use life insurance to provide income for a family, or to pay estate taxes, for example. An irrevocable trust created to purchase life insurance starts with a one-time gift or successive gifts from the person creating the trust.  The gifts received by the trust are used to pay the premiums on a life insurance policy.  If structured properly the assets (which are the policy proceeds when you die) will not be included in your taxable estate, making them free of estate taxes.  Furthermore, those assets can then remain in the trust so that they remain subject to trustee management, unreachable by the creditors of your beneficiaries, and help you meet other objectives (eg, the special needs of a disabled beneficiary).

Please contact me at 212-662-5324 or andrea@lowenthallaw.com if you would like to review your estate plan and learn more about opportunities available to you.  You can read more about personal planning at www.plan-for-aging.com.

Attorney Advertising Notice:

We are not providing you with information because we have targeted you as needing our services for a particular matter, and we are not soliciting you for any particular matter or assignment.  We are providing this information to make you aware of the type and quality of legal services we provide.  The information in this newsletter should not be relied upon as legal advice specific to you or your circumstances unless and until we provide that advice to you as a client of the firm.  If you have any questions, for purposes of attorney advertising rules, please contact The Law Offices of Andrea Lowenthal PLLC at 212 662 5324.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purposes of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.

Please read on …

Long Term Disability Statistics
According to the 2000 National Home and Hospice Care Survey, conducted by the Centers for Disease Control’s National Center for Health Statistics, over 1.3 million Americans received long term home health care services during 2000 (the most recent year this information is available). Three-fourths of these patients received skilled care, the highest level of in-home care, and 51% needed help with at least one “activity of daily living” (such as eating, bathing, getting dressed, or the kind of care needed for a severe cognitive impairment like Alzheimer’s disease). The average length of service was 312 days, and 70% of in-home patients were 65 years of age or older.

Patient age is particularly important as more Americans live past age 65. The U.S. Department of Health and Human Services Administration on Aging tells us that Americans over 65 are increasing at an impressive rate: from 40.2 million Americans in 2010, to 71.5 million Americans by 2030.  HHS also estimates that 9 million Americans over age 65 will need long term care this year – 22.3% of all those persons over 65. That number is expected to increase to 12 million by 2020 – a 33% increase in the number of Americans needing long term care in just 10 years. The Department also estimates that 70% of all persons age 65 or older will need some type of long term care services during their lifetime.

The Alzheimer’s Factor
Alzheimer’s is growing at an alarming rate. Alzheimer’s increased by 46.1% as a cause of death between 2000 and 2006, while causes of death from prostate cancer, breast cancer, heart disease and HIV all declined during that time period.

In 2010 The Alzheimer’s Association published a report titled, “Alzheimer’s Disease Facts and Figures” that explored different types of dementia, causes and risk factors, and the cost involved in providing health care, among other areas. In this report were some striking statistics:

• An estimated 5.3 million Americans of all ages have Alzheimer’s disease. This figure includes 5.1 million people aged 65 and older and 200,000 individuals under age 65 who have younger-onset Alzheimer’s.
• One in eight people aged 65 and older (13%) have Alzheimer’s disease.
• Every 70 seconds, someone in America develops Alzheimer’s. By mid-century, someone will develop the disease every 33 seconds.
• The number of people aged 65 and older with Alzheimer’s disease is estimated to reach 7.7 million in 2030 – more than a 50% increase from the 5.1 million aged 65 and older currently affected.
• By 2050, the number of individuals aged 65 and older with Alzheimer’s is projected to number between 11 million and 16 million – unless medical breakthroughs identify ways to prevent or more effectively treat the disease.

There is no treatment available to stop or slow the progression of Alzheimer’s.  There are five drugs currently approved by the U.S. Food and Drug Administration that temporarily slow the worsening of symptoms for approximately 6 to 12 months in about half the patients who take them. 

Caregivers are at risk of developing health problems.  There were approximately 10.9 million unpaid caregivers (family members and friends) providing care to persons with Alzheimer’s or dementia in 2009. According to the Alzheimer’s Association, those persons are at high risk of developing health problems, or worsening existing health issues. For example, family and other unpaid caregivers of people with Alzheimer’s or another dementia are more likely than non-caregivers to have high levels of stress hormones, reduced immune function, slow wound healing, new hypertension and new coronary heart disease.

Spouses who are caregivers for the other spouse with Alzheimer’s or other dementia are at greater risk for emergency room visits due to their health deteriorating as the result of providing care. A study mentioned in the 2010 Alzheimer’s Association report found that caregivers of spouses who were hospitalized for dementia were more likely than caregivers of spouses who were hospitalized for other diseases to die in the following year.

Receiving care.  According to the National Nursing Home Survey 2004 Overview, the national average length of stay for nursing home residents is 835 days, with over 56% of nursing home residents staying at least one year. Significantly, only 19% are discharged in less than three months. Those residents who were married or living with a partner at the time of admission had a significantly shorter average stay than those who were widowed, divorced or never married. Likewise, those who lived with a family member prior to admission also had a shorter average stay than those who lived alone prior to admission.

While a relatively small number (1.56 million) and percentage (4.5%) of the 65+ population lived in nursing homes in 2000, the percentage increased dramatically with age, ranging from 1.1% for persons 65-74 years to 4.7% for persons 75-84 years and 18.2% for persons 85+. According to the U.S. Census Bureau, in 2009, 68% of nursing home residents were women, and only 16% of all residents were under the age of 65. The median age of residents was 83 years.

Planning Note: Many seniors will require significant in-home care lasting, on average, close to a year. For those requiring nursing home care, that care lasts, on average, nearly 2 1/2 years! Its no surprise to find that the older the senior or loved one, the more likely he or she will need long term care – which is significant given that Americans are living longer.

According to the MetLife 2010 Mature Market Institute, current estimates indicate that nearly 1 million people live in approximately 39,500 assisted living residences in the U.S. The average age of an assisted living resident is 86.9 years old, and the median length of stay in assisted living is 29.3 months.

Long-Term Care Costs Can Be Staggering
Not only will many individuals and families face prolonged long term care, in-home care and nursing home costs continue to rise. According to the 2010 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs national averages for long term care costs are as follows:

• Monthly base rate (room and board, two meals per day, house keeping and personal care assistance) for assisted living care is $3,293 or $39,516 annually, a 5.2% increase from 2009.
• Daily rate for a private room in a nursing home is $229, or $83,585 annually, a 4.6% increase over the 2009 rate.
• Daily rate for a semi-private room in a nursing home is $205, or $74,825 annually, a 3.5% increase over the 2009 rate.
• Hourly rate for home health aides is $21, unchanged from 2009.

These costs vary significantly by region, and thus it is critical to know the costs where the individual will receive care. For example, the average cost for a private room in a nursing home is much higher in the Northeast ($381 per day, or $139,065 annually, in New York City) than in the Midwest (only $174 per day, or $63,510 annually, in Chicago) or the West ($238 per day, or $86,870 annually, in Los Angeles).

Planning Note: Nursing home costs will consume many Americans’ assets. A recent Harvard University study indicates that 69% of single people and 34% of married couples would exhaust their assets after 13 weeks (i.e., 91 days) in a nursing home!

Long-Term Care Insurance May Cover These Costs
If a parent, their spouse, or family member needs long term care, the cost could easily deplete and/or extinguish the family’s hard-earned assets. Alternatively, seniors (or their families) can pay for long term care completely or in part through long term care insurance. The cost of this insurance is rising rapidly because insurance companies are already finding that the information upon which they based their pricing has or will result in this insurance becoming a money-loser for them.  A recent article in the New York Times discusses not only the virtual certainty of increased premiums for this insurance, but also the fact that at least one well-known insurance company is threatening to exit the business of long term care insurance altogether.  (http://www.nytimes.com/2010/11/13/your-money/13money.html?nl=your-money&emc=your-moneyema2)

There are some very important features of a long term care plan to be considered, including, for example, automatic cost of living increases in the daily benefit to be received.  Most long term care insurance plans let the individual choose the amount of the coverage she wants, as well as how and where she can use her benefits. A comprehensive plan includes benefits for all levels of care, custodial to skilled. Clients can receive care in a variety of settings, including the person’s home, assisted living facilities, adult day care centers or hospice facilities. Any long term care insurance purchase should be carefully researched to understand the different costs and features available. 

Planning in the Event Long Term Care Insurance is Unavailable or Insufficient
Unfortunately, many Americans will either be medically ineligible for long term care insurance or unable to afford the premiums by the time they start seriously considering this kind of insurance. In that event, more aggressive planning should be considered as early as possible to make sure life savings are not depleted as a result of having to pay out-of-pocket for care. With the help of an elder law attorney, a plan can be created that will protect much of the assets of an individual or couple that would otherwise be at risk of being depleted.

All Planning Should Thoroughly Address Disability
When a person becomes disabled, he or she is often unable to make personal and/or financial decisions. If the disabled person cannot make these decisions, someone must have the legal authority to do so. Otherwise, the family must apply to the court for appointment of a guardian over the person or property, or both. People are dismayed to discover how costly and heart-wrenching it can be to become legal guardians of their loved ones.  Guardianship will likely be avoidable if planning is done while the person has the mental competence, and the documents are drafted to anticipate the circumstances of aging.

At a minimum, everyone, but especially seniors, need broad powers of attorney that will allow agents to handle all of their property upon disability, as well as the appointment of an agent (a decision-maker) to handle health care decisions under a health care proxy or power of attorney  (the name of the legal document varies by state, but all accomplish the same thing). Alternatively, a fully funded revocable trust can ensure that the senior’s person and property will be cared for as desired, pursuant to the highest duty under the law – that of a trustee.

Conclusion

The above discussion outlines the minimum planning clients should consider in preparation for a possible disability. It is imperative that clients work with a team of professional advisors (legal, medical and financial) to ensure that, in light of their unique goals and objectives, their planning addresses all aspects of a potential disability. Please contact Andrea Lowenthal at Law Offices of Andrea Lowenthal pllc, (212) 662-5324 to discuss the planning options.

1. Avoid disinheriting the special needs beneficiary
2. Don’t procrastinate, it might cost you
3. Don’t ignore planning for special needs
4. Create a flexible trust for the beneficiary
5. Choose a trustee carefully
6. Encourage contributions to the special needs trust
7. Limit reliance on siblings

Understanding the pitfalls associated with special needs planning is a must for all of us who assist families who have loved ones with special needs.  One of the biggest mistakes families make is to fail to address the problem with specialized advice.

Tip #1: Avoid disinheriting the special needs beneficiary. Many disabled persons receive Supplemental Security Income (“SSI”), Medicaid or other government benefits to provide food, shelter and/or medical care. The loved ones of the special needs beneficiaries may have been advised to disinherit them – beneficiaries who need their help most – to protect those beneficiaries’ public benefits. But these benefits rarely provide more than basic needs. And this solution (which normally involves leaving the inheritance to another sibling) does not allow loved ones to help their special needs beneficiaries after they themselves become incapacitated or die.  The best solution is for loved ones to create a special needs trust to hold the inheritance of a special needs beneficiary.

Planning Note: It is unnecessary and in fact poor planning to disinherit special needs beneficiaries. Loved ones with special needs beneficiaries should consider a special needs trust to protect public benefits and care for those beneficiaries during their own incapacity or after their death.

Tip #2: Procrastinating can be costly for a special needs beneficiary. None of us know when we may die or become incapacitated.  It is important for loved ones with a special needs beneficiary to plan early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, special needs beneficiaries may never be able to compensate for a failure to plan. Minor beneficiaries without special needs can obtain more resources as they reach adulthood and can work to meet essential needs, but special needs beneficiaries may never have that ability.

Planning Note: Parents, grandparents, or any other loved ones of a special needs beneficiary face unique planning challenges when it comes to that child. This is one area where families simply cannot afford to wait to plan.

Tip #3: Don’t ignore the special needs of the beneficiary when planning. Planning that is not designed with the beneficiary’s special needs in mind will probably render the beneficiary ineligible for essential government benefits. A properly designed special needs trust promotes the comfort and happiness of the special needs beneficiary without sacrificing eligibility.

Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation and essential dietary needs. If the trust is sufficiently funded, the disabled person can also receive spending money, electronic equipment and appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses: the sorts of things families now provide to their child or other special needs beneficiary.

Planning Note: When planning for a beneficiary with special needs, it is critical that families utilize a properly drafted special needs trust as the vehicle to pass assets to that beneficiary. Otherwise, those assets may disqualify the beneficiary from public benefits and may be available to repay the state for the assistance provided.

Tip #4: A special needs trust does not have to be inflexible. Some special needs trusts are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the beneficiary’s public benefits, many trusts are not customized to the particular beneficiary’s needs. Thus the beneficiary fails to receive the benefits that the parents or others provided when they were alive.

Another frequent mistake occurs when the special needs trust includes a pay-back provision rather than allowing the remainder of the trust to go to others upon the death of the special needs beneficiary. While these pay-back provisions are necessary in certain types of special needs trusts, an attorney who knows the difference can save family members and loved ones hundreds of thousand of dollars, or more.

Planning Note: A special needs trust should be customized to meet the unique circumstances of the special needs beneficiary and should be drafted by a lawyer familiar with this area of the law.

Tip #5: Use great caution in choosing a trustee. Loved ones or family members can manage the special needs trust while alive and well if they are willing to serve and have proper training and guidance. Once the family member or loved one is no longer able to serve as trustee, they can choose who will serve according to the instructions provided in the trust. Families or loved ones who create a special needs trust may choose a team of advisors and/or a professional trustee to serve. Whomever they choose, it is crucial that the trustee is financially savvy, well-organized and of course, ethical.

Planning Note: The trustee of a special needs trust should understand the trustmaker’s objectives and be qualified to invest the assets in a manner most likely to meet those objectives.

Tip #6: Invite others to contribute to the special needs trust. A key benefit of creating a special needs trust now is that the beneficiary’s extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. For example, these family members and friends can name the special needs trust as the beneficiary of their own assets in their revocable trust or will, and they can also name the special needs trust as a beneficiary of life insurance or retirement benefits.  Unfortunately, many extended family members may not be aware that a trust exists, or that they could contribute money to the special needs trust now or as an inheritance later.

Planning Note: Creating a special needs trust now allows others, such as grandparents and other family members, to name the trust as the beneficiary of their own estate planning.

Tip #7: Relying on siblings to use their money for the benefit of a special needs child can have serious adverse effects. Many family members rely on their other children to provide, from their own inheritances, for a child with special needs. This can be a temporary solution for a brief time, such as during a brief incapacity if their other children are financially secure and have money to spare. However, it is not a solution that will protect a child with special needs after the death of the parents or when siblings have their own expenses and financial priorities.

What if an inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did?

Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of their lives. When parents provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.

Planning Note: Relying on siblings to care for a special needs beneficiary is a short-term solution at best. A special needs trust ensures that the assets are available for the special needs beneficiary (and not the former spouse or judgment creditor of a sibling) in a manner intended by the parents.

Bonus Tip:  Stay up to date on changes in the law. The rules applicable to special needs trusts are constantly changing.  Most recently, the Social Security Administration changed the rules on special needs trusts that are created using assets of the special needs beneficiary (called a “self-settled special needs trust”).  The new Social Security regulations require certain provisions to be present in any self-settled trust drafted after January 1, 2000 that allows for early termination of the trust (termination prior to the death of the special needs beneficiary).

If these required provisions are not in the trust, the special needs beneficiary could lose SSI or Medicaid eligibility.  The new regulations go into effect October 1, 2010.   Please contact us if you have questions about the new regulations or if you would like more information on the changes.

Planning Note: A recent change in the Social Security Administration regulations governing self-settled special needs trusts could render some existing trusts invalid for SSI or Medicaid purposes.  It is imperative to stay up to date on changes in the rules that apply to special needs trusts to ensure the benefits received by a special needs beneficiary are not jeopardized as a result of changes in the law.

Conclusion. Planning for a special needs beneficiary requires particular care and knowledge on the part of the planning team.  A properly drafted and funded special needs trust can ensure that special needs beneficiary has sufficient assets to care for him or her, in a manner intended by loved ones, throughout the beneficiary’s lifetime.  Please contact us if you have any questions or would like to discuss any information in this newsletter further.

Attorney Advertising Notice:

We are not providing you with information because we have targeted you as needing our services for a particular matter, and we are not soliciting you for any particular matter or assignment.  We are providing this information to make you aware of the type and quality of legal services we provide.  The information in this newsletter should not be relied upon as legal advice specific to you or your circumstances unless and until we provide that advice to you as a client of the firm.  If you have any questions, for purposes of attorney advertising rules, please contact The Law Offices of Andrea Lowenthal PLLC at 212 662 5324.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purposes of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.