Wednesday, February 21, 2007

Long term care insurance

NBC Nightly News started a series "Trading Places: Caring for our Parents" on Feb. 12, 2007. The first week recounted eldercare situations of NBC News anchors. The second week has ventured into the "real world" and on Feb. 21 the series covered long term care insurance.

Typical premiums seem to range from about $1000 a year in middle age to many times that. But even if someone has paid $50000 over a lifetime in premiums, one year in a typical nursing home in most cities would repay that.

Medicare only covers up to 90 days nursing home care after a hospital stay, in most cases. The general concept is that skilled nursing care is covered when the patient is expected to get better, but custodial care or intermediate care is not. Different levels of nursing home care are a major concept in MMIS (Medicaid Management Information Systems) since they affect the way states may be reimbursed by the federal government and they are politically sensitive. I worked in this area on the New York State system back in 1977-1978 when I worked for Bradford National Corporation in New York City.

If states get tougher in enforcing filial responsibility laws on adult children (about 30 states have them), long term care insurance could become a much more critical topic. I recall its being discussed in employee meetings at Reliastar in Minneapolis when I was working there in 1999. My own write up on filial responsibility is here.

Monday, February 19, 2007

More eldercare situations, and barter

As there are more only children or older adult children in small families in eldercare situations with elderly parents still living, sensitive tax and benefit issues may come up, and they may not have been spelled out explicit in tax law or administrative policy before.

It does appear from the literature (and IRS publications) that if one wants to claim an elderly parent as a dependent, there are stringent income limits on what the parent may earn above social security. This changes every year, so check with the regs or a tax advisor. If one lives with the parent rent free and claims the parent as a dependent, one has to add the fair market value of his housing to his "income."

That gets into the subject of barter, which the IRS discusses in detail under "other income" in its publications. The main situation that worries the IRS is that two parties that would normally exchange money (in a manner reportable in conventional channels) will barter to avoid taxes. The IRS gives as a specific example an artist living in an apartment building, giving the landlord a painting in exchange for free rent. The fair market value of the rent for the unit and of the painting must be reported. The IRS also has specific rules about barter clubs, gambling winnings, and prizes where goods are awarded rather than money (as on contests run by media outlets or television shows). If you win a trip by predicting whom Donald Trump will fire on The Apprentice, check with a tax advisor if you actually take the trip.

Do informal custodial care situations amount to barter when no dependency is claimed? The problem in practice that it is hard to "prove a negative" -- you cannot prove that something will not be a problem just because you cannot find it mentioned. But generally the IRS looks at arrangements between blood or lineal relatives as personal business, unless the individuals have intentionally set up business arrangements otherwise. For example, the IRS does not allow a property lived in free by a relative to have tax losses associated with expenses as it would on an investment property (with passive income rules) unless the relative pays fair market rent and the unit normally would be rented to the outside world. For example, look at this link.

Obviously, tax (and, for that matter, social security benefits policy) in sensitive personal situations like this can have serious social implications. It would be easy to imagine an intrusive tax policy (whether legislated by Congress or determined indirectly by IRS policies or tax courts) that penalizes eldercare situations, even when the general trend has been to encourage eldercare to be done at home to relieve the strain on nursing homes, assisted living, and other caregiving institutions, especially in a world where people can live longer. No wonder libertarians want to eliminate the income tax, or at least go to the postcard flat tax (as Forbes had proposed).

Anyone with knowledge or experience or specific references is invited to comment (moderated).

Picture: Raleigh Tavern, Williamsburg VA

Wednesday, February 07, 2007

SSA tidies website, seems to offer more details on Windfall Elimination Provision

SSA (the image there is not clickable on the blog go to seems to have tidied up its website, and has added a rolling newsfeed in the upper lefthand corner. It warns that the rules for Government Pension Offset were tweaked in 2004. The home page gives handier reference to the essential information on the rules that will affect most potential and actual beneficiaries.

There appears to be some extended discussion of the Windfall Elimination Provision, which bears some relationship to the Government Pension Offset. Some local, state, and government employers (including the federal government until around 1983) offered self-contained retirement plans and did not deduct FICA taxes. Persons who draw a pension from these sources may have social security benefits reduced somewhat. For every year of a person's work history, there is a threshhold amount of FICA earnings that define "substantial FICA earnings" for that year. The more years of substantial earnings, the less the offset. With thirty or more years, there is no offset. At the other end, the offset could be as much as half of another government's pension. In some communities this affects teachers a lot, whose retirement plans are unusual enough that some insurance companies (like ING) offer to sell annuities especially designed for them.

A person might get a lump sum payout when leaving a non-FICA government employer after a short period (not long enough for vesting). That would be a reimbursement that would not include an employer contribution, in most cases. It is not absolutely clear from the rules on the SSA site (or their application for benefits form) how this is handled. But it would sound like, if you simply got your contributions back, there is no penalty, but you don't get any FICA credit for that period of employment (for example, toward the 40 covered quarters) because you were not covered then. This kind of problem probably would need the attention of a social security and benefits attorney in some detailed cases.

SSA had a temporary shutdown Feb 6 and 7 on beneficiaries seeing their benefits; this seems to be fixed. SSA is often making security changes to the website and seems to have occasional extended maintenance outages.