getting the most out of medicare and social …2018/05/23 · medicare and social security webinar...

Getting the Most Out of Medicare

and Social Security Webinar Nick Halbur

Elder Law of Omaha, PC, LLO

Joe Elsasser, CFP, RHU, REBC Sequent Planning, LLC

May 23, 2018

Lincoln, NE

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The NSBA Senior Lawyers Section presents

Getting the Most Out of Medicare and Social Security

WebinarThis presentation will provide attorneys with key planning opportunities and

the pitfalls to avoid when helping a client plan for retirement or when planning for their own retirement, including:

• How the Primary Insurance Amount (PIA) iscalculated in determining the amount of retire-ment, spousal and survivor benefits.

• The impact of the Bipartisan Budget Actof 2015, including new limitations on fil-ing a Restricted Application or a VoluntarySuspension.

• Understanding Medicare Parts A, B, C andD and how the “what” you apply for and the“when” you apply may affect your coverage.

• How retirement income may impact thepotential cost for Medicare.

• Understanding the Medicare Appeal process.

• A timeline to consider when signing up forMedicare Parts A-D.

• Understanding how Medicare works withother employer provided benefits.

• Understanding how applying for SocialSecurity later may impact Medicare benefits.

• What to think about and mistakes made whenapplying for Social Security and Medicarebenefits.

Speaker:Nick Halbur, Elder Law of Omaha, PC LLO

Wednesday, May 23, 201812:00 pm - 1:00 pm

NE MCLE Accreditation#157161 (Distance learning)

1 CLE hour

www.nebar.com

NSBA CLE Cancellation Policy: • A full refund will be granted only when a cancellation request is received at least 72 hours prior to the live or distance-learning CLE event. • A cancellation request made less than 72 hours of the live or distance learning CLE event or following the live or distance-learning CLE event will be refunded, less a $30 processing fee. • You may send a substitute (e.g., someone from your firm) in lieu of cancelling. • The cancellation policy for a NSBA sponsored CLE event does not apply to independent third-party CLE providers, and attorneys are subject to their cancellation policy.

Faculty Bios

Nick Halbur, Elder Law of Omaha, PC LLO: Nick Halbur completed his Juris Doctorate at the University of St. Thomas School of Law in Minneapolis in 2006. He began his legal career teaching the Elder Law Clinic at the University of St. Thomas where he represented clients, supervised students and taught a classroom component. After three years practicing in Omaha, Mr. Halbur joined Elder Law of Omaha in 2014. His practice focuses on estate planning, probate, and long-term care planning including Medicaid and Veterans benefits.

Joe Elsasser, CFP®, RHU, REBC, is an Investment Advisor Representative of Sequent Planning, LLC an Omaha-based Investment Advisory and Financial Planning firm and is the President of Covisum, LLC, a financial technology company that develops and supports software systems for financial advisors, including Social Security Timing®, a patented software package that helps financial advisors identify optimal Social Security claiming strategies for their clients, Tax Clarity, an advisor-focused software that helps identify tax opportunities and challenges, and SmartRisk, which helps advisors quantify risk in investment portfolios. Joe also co-authored Social Security Essentials: Smart ways to help Boost your Retirement Income.

Joe has been featured or quoted in several local and national publications including the Wall Street Journal, the Journal of Financial Planning, USA Today, MarketWatch, CBS MoneyWatch, Kiplingers, Money Magazine, and Accounting Today.

Joe is a Certified Financial Planner™, Registered Health Underwriter, Registered Employee Benefits Consultant, licensed Investment Advisor Representative of Sequent Planning, LLC and licensed insurance agent. He holds a Bachelor’s degree with honors from the University of Nebraska Omaha.

Learn more about Joe’s financial planning practice at www.sequentplanning.com or about Social Security Timing® and Tax Clarity™ at www.covisum.com

1

Nick Halbur, J.D.Elder Law of Omaha

Joe ElsasserSequent Planning

Covisum

Graduated from University of St. ThomasSchool of Law in 2006

Member of the Nebraska and Iowa BarAssociations

Member of the National Academy of Elder LawAttorneys

Accredited Veterans Benefits Planner

2

Founder of Sequent Financial and Covisum

Sequent is a financial advising firm currentlyexpanding around the country while Joe focuseson assisting his Omaha client base

Covisum develops, sells, and supports “SocialSecurity Timing“, “Tax Clarity“, and “SecurityRisk”software packages used by over 20,000 advisorsaround the country.

Series 65 Investment Advisor, Certified FinancialPlanner, and also carries an Insurance License

Identify common mistakes

Point out planning opportunities

Summarize significant recent reforms

Help you to plan for your clients and for your own lives

Answer your questions

3

Joe Elsasser, CFP®

Navigating Social Security Benefit Choices

© 2018 Social Security Timing – All rights reserved.

Disclosures

The Presenter is in no way employed by, affiliated with, or endorsed by the Social Security Administration (SSA) or any other government agency. The Social Security Timing® website, software and materials are not endorsed or affiliated with the SSA.

. All Examples are hypothetical and for illustrative purposes only. Actual results will vary. No part of this presentation is intended to make an offer of sale or purchase of any specific security or insurance product.

Financial Planning and Investment Advisory Services offered through Sequent Planning, LLC a Registered Investment Advisor

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Our Focus Today

• Benefit Basics

• Strategies for :

– Married Couples

– Divorced Individuals

– Widows

• Taxes

What Makes Social Security Unique

• Inflation Adjusted

• Longevity Protected

• Tax Advantaged

• Backed by a Government Promise

• 40% “cheaper” than commercial annuities

Source: www.forbes.com/2008/02/07/retirement-roth-taxes-pf-guru-in_jn_0207retirement_inl.html

5

Will Social Security Be There?

Source: https://www.ssa.gov/oact/TRSUM/tr16summary.pdff

How are benefits determined?

Step 1: Average Indexed Monthly Earnings (AIME)

• Past yearly earnings areindexed for inflation

• Highest 35 indexed yearsare added together thendivided by 420 to getmonthly figure, AIME.

Tip: Watch out for zeros, if you had breaks in work history

25000

20000

15000

10000

5000

01980 1985 1990 1995 2000 2005 2010

30000

35000

40000

45000

Actual Earnings Adjusted Earnings

6


Step 2: Primary Insurance Amount (PIA) Formula calculation

• First $895 of AIME – 90%

• $896 to $5397 – 32%

• Above $5397 – 15%90%

32%

15%

$895

$5397

0

2500

2000

1500

1000

500

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000

Average Indexed Monthly EarningsFu

ll M

onth

ly R

etire

men

t Ben

efit


Step 3: Apply Actuarial Reduction or Delayed Retirement Credits

• full retirement age is 66for people born between1943-1954

• gradually increases to67 for people born in1960 or later.

Retirement Age Percent of PIA

62 75

63 80

64 86 2/3

65 93 1/3

66 100

67 108

68 116

69 124

70 132

7

There are 3 major Categories of Benefits

A good strategy makes the most of all 3!

Break Even Analysis

8

Considerations for Married Couples

Why Break-even Breaks Down

• 9 whole year election ages for Mr.

• 9 whole year election ages for Mrs.

62 63 64 65 66 67 68 69 70

62 X X X X X X X X X









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Spousal Benefits

To Qualify:

• Married at least 1 year

• Primary worker must have filed

• Generally must not qualify for a benefit of your own that is equal to or greater than ½ of the primary workers PIA

• Up to 50% of your spouse’s PIA (not benefit amount)

Jane would be eligible for ½ at

her full retirement age $1,000.

John’s primary insurance amount at full retirement

age is $2,000.

Filing for Spousal Early/Late

• Reduced on a faster schedule if filing early

• No delayed credits on spousal benefits

RetirementAge

Percent of PIA

Spousal

62 75 70

63 80 75

64 86 2/3 83 1/3

65 93 1/3 91 2/3

66 100 100

67 108 100

68 116 100

69 124 100

70 132 100

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Survivor’s Benefits

At the death of the first spouse, the surviving spouse can receive a maximum of either:

• His or her own benefit

• The benefit of the deceased

• 82.5% of the PIA of the deceased (If deceased filed early)

The Most Common Mistakes

• Higher Wage Earner Files Early and Shortchanges Survivor’s Benefit

• Both Delay Past Full Retirement Age - No One Claims a Spousal Benefit.

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Bipartisan Budget Act of 2015

• Changed Social Security for married couplesand divorced spouses, creating 3 sets of rules allbased on your date of birth.

• The act did not change the ability to elect only aWidow benefit, then switch to a retirementbenefit or vice versa.

d Social Security for married couples and divorced spouses, creating 3 sets of rules all based on your date of birth.

The act did not change the ability to elect only a Widow benefit, then switch to a retirement benefit or vice versa.

Bipartisan Budget Act of 2015

Born on or before May 1st, 1950• File and Suspend (Prior to April 30th, 2016)

• Restricted Application

Born after May 1st,1950 but before January 2nd, 1954• File and Suspend – only to fix a mistake• Restricted Application

Born on or after January 2nd, 1954• File and Suspend – only to fix a mistake• No Restricted Application

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Married Couple – Case Study

• John DOB 1/2/1950, PIA at FRA $2,500

• Jane DOB 12/2/1953, PIA at FRA $1,300

• 2.7% inflation

• 1% Real Rate of Return

• Should they both elect now or implement aSwitch Strategy?

Recommended Strategy

File now

$0 $300,000 $600,000 $900,000

Strategy Comparison

$1,009,347

$907,000


13


Recommended Strategy

File now

$0 $300,000 $600,000 $900,000

Strategy Comparison

$1,009,347

$907,000Over $102,000 DifferenceOver $102,000 Difference

What was the suggested strategy?

• John file for benefits at 69 years 11 months - $3,167.

• Jane should file for only a Spousal benefit beginning at her age 66 - $1,205. Then switch to her Retirement benefit at age 70 - $2,013, receiving the maximum delayed credit.

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Some of the bigger questions that get asked?Some of the bigger questions we get asked…

What if we die at age ? ? ?100.0

92.5

85.0

77.5

70.0

100.092.585.077.570.0

Her

Dea

th A

ge

His Death Age

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Why not just ask SSA for Advice?

• SSA looks to get thehighest monthly benefiton the day you file

• SSA can not give advice

• SSA can not coordinatebenefits with outsideassets

Considerations for the Divorced

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Divorced Spouse Benefit

• Married total of 10 years

• Not currently married

• Same benefits amounts and reductionsapply for early claiming as a currentSpouse

• “Independently Entitled” Divorced 2+ years

Planning for Divorced Individuals

• Cross Claim is available –

– Both exes claim simultaneously on eachothers spousal benefit

• Because you can’t count on what thesurvivor benefit will be, consider best andworst case scenario

17

Is there an impact on the Ex?

• Does not affect a current spouse or otherdependents

• Ex is not notified by SSA that you areclaiming under his record

Considerations for Widows

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Qualifications

• Widow

• 60 Years Old

• Unmarried (Unless Remarried After Age 60)

• Was Married Minimum of 9 Months Prior to Death (Special Exceptions Apply)

Widow Planning

• Widow Benefit is based on when The Deceased filed and when the Survivor Files.

• Straight Line Reductions – 28.5%/Number of months to Widow FRA

• Example: At age 60 = 71.5% of PIA at FRA

• No “Deeming” can restrict at any age

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Widow Case Study

• John never elected anddied at 65 – Benefit at 66would have been $2,000

• Jane is 5 years younger(Age 60 now)

• Jane’s benefit on her ownearnings at 62 would be$1,200

What should Jane do?

60-85 1,430Total Benefit $429,000

File Without Thinking - File for Widow benefits at age 60 $1,430/month

60-69 1,43070-85 1,980Total Benefit $528,000

Strategy 1 – File for only Widow at age 60 - $1,430/mo and switch to her own Retirement with delayed retirement credits at age 70 - $1,980/mo

62-65 1,20066-85 2,000Total Benefit $513,600

Strategy 2 – File for only retirement at age 62 - $1,200 switch to Widow at 66 -$2,000/mo

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Surviving Divorced Spouse

• 10 years of marriage

• Must be unmarried unless remarried after reaching age 60

• Benefit amount is the same as surviving spouse

Switch Strategies® may get you more

Married Couples– Claim your own, then add

Spousal– Claim your Spousal, then switch

to your own

Divorced Individuals– Same options, but ex’s actions

are irrelevant (Independently Entitled)

Survivors– Claim widow, then Retirement – Claim Retirement, then Widow

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You Can Work and Still Collect

After Full Retirement Age, you can work and make as much as you want with no Earnings Test

Prior To Full Retirement Age

• $17,040

• $1 for each $2 overthe limit

• $17,040


Calendar Year of Full Retirement Age

• $45,360


• $45,360


Benefits are Taxed Differently

Provisional Income50% of Social

Security Benefit

Ordinary Income

Dividends and

Capital Gains

Non-Taxable Interest

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Benefits Tax Thresholds

• $25,000 (50%)• $34,000 (85%)• $25,000 (50%)• $34,000 (85%)

• $32,000 (50%)• $44,000 (85%)• $32,000 (50%)• $44,000 (85%)

$40,000-$32,000 = $8,000$8,000 * .5 =

$4,000

$0 over Second Threshold

Total Taxable Benefit = $4,000

(10%)

$50,000-$32,000 = $18,000

$18,000 * .5 =$9,000

$50,000-$44,000=$6,000

$6,000 * .35 = $2,100

Total Taxable Benefit = $11,100

(55%)

$40,000 Social Security with $20,000 IRA Withdrawal = $40,000 Provisional Income

$20,000 Social Security with $40,000 IRA Withdrawal = $50,000 Provisional Income

Tax Examples

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On The Return

40k IRA 20k Social Security

20k IRA40k Social Security

Taxable Social Security $11,100 $4,000

Taxable Other income $40,000 $20,000

Total Taxable Income $51,100 $24,000

Minus Standard Deduction(add $2,600 if over age 65)

$24,000 $24,000

Net Taxable Income $27,100 $0

Total Federal Income Tax $2,874 $0

Table assumes Married Filing Jointly, 2018 tax brackets, Standard Deduction

Part A, Hospital

Free to individuals 65+ and receiving SS or RR retirement. Hospital, hospice, physical rehabilitation. When combined with Part B it is also known as “Original Medicare”.

Part B, Medical Services

Premiums are typically taken directly from retirement checks. Medically necessary services, supplies, preventative services, doctor visits, vaccines, ambulance services, mental health services

Medicare Advantage Plans/Medicare + Choice/Part C

The “Part” that is really a replacement for A & B and can also include the coverage of a D plan and even more. Private companies offer the plans approved by Medicare.

Part D, Prescription DrugsPrivate companies provide a variety of coverage“formularies” at different prices which change periodically.

Medicare Supplement Insurance/Medigap Policies

Cover all or part of many of the deductibles in Original Medicare. Options including foreign travel, co-insurance at a nursing home, or out of pocket maximuims.

MEDICARE’S “PARTS”

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INITIAL ENROLLMENT PERIOD: The month you turn 65 plus the 3 calendar months before and after.

OPEN ENROLLMENT PERIOD: Each year from October 15 to December 7.

SPECIAL ENROLLMENT PERIODS: Most commonly the 8 months after leaving employment that offered insurance.

MAGIModified Adjusted Gross Income

IRMAAIncome Related Monthly Adjustment Amount

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2016 MAGI IRMAA(extra cost)

Total 2018 Premium

Individual Joint

<$85,000 <$170,000 $0 $134

$85,001 -$107,000

$170,001-$214,000

$53.50 $187.50

$107,001 -$133,500

$214,001 -$267,000

$133.90 $267.90

$133,501 -$160,000

$267,001 -$320,000

$214.30 $348.30

>$160,000 >$320,000 $294.60 $428.60

2016 MAGI IRMAA(extra cost)

+ Average D Premium

Individual Joint

<$85,000 <$170,000 $0 $57.93

$85,001 -$107,000

$170,001-$214,000

$13 $70.93

$107,001 -$133,500

$214,001 -$267,000

$33.60 $91.53

$133,501 -$160,000

$267,001 -$320,000

$54.20 $112.13

>$160,000 >$320,000 $74.80 $132.73

26

A change in marital status

A retirement or reduction in work hours

Loss of investment property (rental propertyflooded)

Pension or other income source terminated

Medical provider notifies beneficiary ofdecision to terminate covered services nolater than 2 days from proposed termination

Follow instructions on notice for anexpedited appeal with support of yourphysician to the Quality ImprovementOrganization

27

Gather medical records, especially themedical necessity of the care being ended

QIO has 72 hours to make a decision

You can continue to submit information afteryour initial communication, but a decisioncould come at any time

Ideally you can obtain a letter from thephysician regarding why the care is needed

If the QIO rules against you, then you go tothe Qualified Independent Contractor nolater than noon of the following day

The QIC also has a 72 hour period make adecision, but you can extend that period upto 14 days

After these two steps more traditionalappeals to an Administrative Law Judge andthe Medicare Appeals Counsel

28

(402) 614‐6400 www.ElderLawOmaha.com

www.SequentPlanning.com www.Covisum.com

11/1/2017

Retired Worker Fully Insured (40 credits), attained age 62, filed an application

Divorced spouse benefit - (been divorced 2 yrs or less, married totaling 10 yrs)

Be the divorced spouse of NH entitled to RIB or DIB, attained age 62, filed an application, not currently married, claimant must not be entitled to a RIB based on a PIA which = to or greater than 1/2 the PIA of the NH

Independently - Entitled Divorced Spouse - (divorced at least 2 continuous yrs, married totaling 10 yrs)

Be the divorced spouse of a fully insured worker age 62, attained age 62, filed an application, not currently married, claimant must not be entitled to a RIB based on a PIA which = to or greater than 1/2 the PIA of the NH

Eligibility Requirements

Spousal Benefit - (married at least 1 year)

Be the spouse of NH entitled to RIB or DIB, attained age 62, filed an application, claimant must not be entitled to a RIB based on a PIA which = to or greater than 1/2 the PIA of the NH

Dedicated Support Team

1.877.844.7213

[email protected]

Widow (survivor) Benefit - (married minimum 9 mos)

Be the widow of a NH who died fully insured, attained age 60, be unmarried unless you remarried after reaching age 60, filed an application, not be entitled to RIB = to or greater than the deceased NH's PIA, proof of NH's death

Surviving Divorced Spouse Be the surviving divorced spouse of a NH who died fully insured, attained age 60, be unmarried unless you remarried after reaching age 60, filed an application, not be entitled to RIB = to or greater than the deceased NH's PIA, proof of NH's death

Eligibility Requirements

Deceased DID fi le

Filed prior to FRA: Max Widow Benefit = Larger of deceased reduced benefit or 82.5% of deceased PIA

Filed After FRA: Max Widow Benefit = Deceased Benefit including Delayed Retirement Credits

Deceased did NOT file

Died prior to FRA: Max Widow Benefit = PIA of Deceased

Died after FRA: Max Widow Benefit = Deceased benefit as if deceased elected on date of death including Delayed Retirement Credits

Widow Options

RIB - Retirement Insurance Benefit DIB - Disability Insurance Benefit NH - Number Holder (worker) PIA - Primary Insurance Amount FRA - Full Retirement Age

2018 Social Security Facts

COLA 2%

Maximum Taxable Earnings $128,700

Quarter of Coverage $1,320

Under FRA $17,040/yr ($1,420/mo)

Year individual reaches FRA $45,360/yr ($3,780/mo)

Earnings Test Exempt Amount

Abbreviations

Year of Birth Full Retirement Age

1937 or earlier 65

1938 65 yrs 2 mos

1939 65 yrs 4 mos

1940 65 yrs 6 mos

1941 65 yrs 8 mos

1942 65 yrs 10 mos

1943-1954 66

1955 66 yrs 2 mos

1956 66 yrs 4 mos

1957 66 yrs 6 mos

1958 66 yrs 8 mos

1959 66 yrs 10 mos

1960 or later 67

New Law

Auxiliaries, such as spouses or children, may claim benefits based on a worker who claimed benefits and requested a voluntary suspension prior to April 30, 2016. Suspensions requested on or after April 30, 2016 preclude any other beneficiary from collecting child or spousal benefits during the suspension.

Individuals born on or before Jan. 1, 1954 may restrict an application to only spousal benefits, while delaying receipt of their retirement benefits and collecting an 8% per-year delayed retirement credit.

Individuals born Jan. 2, 1954 and later should focus on whether to file early or file late while considering the implications of the decision for the surviving spouse.

Age Worker Spouse

62 75% 70%

63 80% 75%

64 86.66% 83.33%

65 93.33% 91.67%

66 100% 100%

67 108% 100%

68 116% 100%

69 124% 100%

70 132% 100%

Reduction/Credit by Election Age

Born between 1943-1954

First 36 Months Months in

Excess of 36

Spousal 25/36 of 1% /mo 5/12 of 1% /mo

Retirement 5/9 of 1% /mo 5/12 of 1% /mo

Reduction Percentages

Year of Birth Widow FRA

1939 or earlier 65

1940 65 yrs 2 mos

1941 65 yrs 4 mos

1942 65 yrs 6 mos

1943 65 yrs 8 mos

1944 65 yrs 10 mos

1945 - 1956 66

1957 66 yrs 2 mos

1958 66 yrs 4 mos

1959 66 yrs 6 mos

1960 66 yrs 8 mos

1961 66 yrs 10 mos

1962 or later 67

31T H E N E B R A S K A L A W Y E R M A Y / J U N E 2 0 1 8

Knowing the key planning opportunities and pitfalls to avoid in areas of law that impact many clients can add signifi-cant value to your practice and solidify your position as a trust-ed advisor. Few programs impact as many elderly Americans as Social Security and Medicare. These are fundamental parts of retirement and disability coverage for Americans. We begin contributing from our very first paycheck, we know recipi-ents with benefits throughout our lives. Any retirement plan for ourselves or our clients will include their impact. Social Security Retirement Benefits have been with us since the New Deal and the original Social Security Act in 1935 to replace lost wages due to retirement, disability, or the loss of a family breadwinner. Medicare was established 30 years later in Title XVIII of the Social Security Act providing health insurance to people age 65 and older with no income or medical eligibility tests. They are ubiquitous programs, touching virtually every

lawyer and every client. Many of the rules are widely known and well established, but those same rules are still subject to reforms and a number of common misconceptions. The cli-ent’s decisions regarding these programs can have far reaching impacts on their future. The primary goals of this article are to identify common mistakes, to point out planning opportu-nities, and to summarize the most significant recent reforms. Most clients in my practice, elder law, come to me having established their Social Security and Medicare eligibility. They have typically made their elections on their own or sometimes with the advice of a financial advisor, insurance agent, or their brother-in-law from Detroit. I help clients regularly fight through the process of accessing Medicaid or Veterans benefits but could count on one hand the number of times I’ve been hired specifically to address Social Security Retirement issues or Medicare coverage. While not the central subject of the rep-resentation that I do, I still get questions about these programs almost daily and being aware of the planning opportunities

feature article

Getting the Most Out of Medicare and Social Security

by Nick Halbur and Samantha D’Angelo

Nick Halbur Nick Halbur completed his Juris Doctorate at the University of St. Thomas School of Law in Minneapolis in 2006. He began his legal career teaching the Elder Law Clinic at the University of St. Thomas where he represented clients, supervised students, and taught a classroom component. After three years practicing in Omaha, he joined Elder Law of

Omaha in 2014. His practice focuses on estate planning, probate, and long-term care planning including Medicaid and Veterans benefits.

Samantha D’Angelo Samantha D’Angelo completed her Juris Doctorate at Creighton University School of Law in Omaha, Nebraska in 2017. She joined Elder Law of Omaha in December of 2017. Her main practice areas are estate and long-term care planning. She’s still learning the field of elder law, and she enjoys doing legal research and writing and getting to meet and assist clients.

➡


found here adds value for many of my clients. The programs are specifically designed to be easy to access and are easily taken for granted as automatic, but the details of their workings can still be as surprising and complex as any government program. While Social Security Retirement and Medicare are easier to access (no need to document your net worth or link a disability to military service to get in the door) and typically well run programs, delving deeper into the impact of our client’s deci-sions regarding these programs will make you a more valuable resource to your clients, and of course it won’t hurt when it comes time to make your own retirement plans.

Start with the Primary Insurance Amount

Social Security is fundamentally an insurance policy that provides coverage to workers and their families. Working sufficient quarters (40 quarters aka 10 years of work history) establishes coverage for lost wages due to death, disability, or retirement. A worker’s highest 35 years of adjusted earn-ings determine the Primary Insurance Amount or PIA. The calculation follows a progressive formula that replaces a higher percentage of the earnings for low wage earners with diminish-ing returns on higher levels of income.1

In one unique case my client had taken an assumed name and was able to obtain a new Social Security Number (that was all before I was hired, or even born). His Retirement Benefit was reduced because his PIA was determined without the benefit of his entire work history. He had the qualifying quarters under the assumed name, but not 35 years of work, so his PIA had a number of zeros weighing down his average. We submitted an SSA-1696-U4 for him to appoint me as his attorney. Social Security required a legal name change to the assumed name, we obtained and sent a certified copy of the order, then Social Security Administration (SSA) combined the work histories, and calculated a new, higher, PIA. The PIA is used in determining retirement, spousal, and survivor benefits. An understanding of these three major benefits and how they impact each other can significantly improve a client’s overall financial picture. The PIA is the base off of which to calculate the different possible benefit levels and ultimately to determine the size of an individual’s (and possibly their family member’s) future benefit checks.

Reductions, Credits and The Moving Finish Line

A worker will receive the PIA (plus annual Cost-of-Living Adjustments) each month for life, if their election to start tak-ing Social Security Retirement benefits is made at their Full Retirement Age (FRA). The scheduled increase to FRA starts taking effect in 2021. In 2018, FRA is 66 but will start to move up in 2-month increments starting with individuals born in 1955 (so FRA for an individual born in 1955 is 66 years

and 2 months, which will be in March of 2021 for those born January 1955) until FRA reaches 67 for people born in 1960 or later, which will be their birthdays in 2028. Clients born in 1955 through 1959 will need to count months to determine their FRA.

A person is a Retired Worker and begins receiving Social Security Retirement Benefits when they are fully insured (40 credits aka qualifying quarters of work), they are within 4 years of FRA (they are at least 62), and they have filed an application. An early election means less money, a Reduction to 75% of PIA for a retired worker who elects to file as soon as they can. A late election means more money, up to a 32% Credit above PIA for a retired worker who elects to apply for their Retirement Benefit 4 years after FRA (currently age 70). The Retirement Benefit for electing at 62 is 56.8% of the Retirement Benefit for electing at age 70 (75/132). Two individuals with the same birth date and PIA electing at 62 and 70 will have received the same gross benefits late in their 81st year of life, often called the “Break Even Point.” This system of Reductions and Credits has remained the same since it was set in 1983 when interest rates (and therefore the time value of money) was much higher and life expectancy was lower. Therefore, with interest rates reduced and most people living longer lives, in the run of cases electing later will net more funds to the worker, even after an upward adjustment for the time-value of the dollars received earlier by a person electing at 62.

Spousal Benefits are Determined by the Time the Spouse Elects

There is a Social Security Spousal Benefit and it can be of great value to a couple where one spouse does not have the qualifying quarters to have their own Retirement Benefit, or in cases where one spouse’s PIA is significantly smaller than the other’s. The Spousal Benefit is 50% of the worker’s PIA to the worker’s spouse. There is a reduction down to 70% of that value for electing as early as 4 years before the FRA of the spouse, but no credits for delaying past FRA. The couple must have had their first wedding anniversary and the spouse with the higher PIA must already have filed for their Retirement Benefit.

A common mistake, even amongst financial planning pro-fessionals, is to assume that the Spousal Benefit is based off of the worker’s Retirement Benefit (determined by when the worker elected to take benefits) when it is actually based on the worker’s PIA and the age of the spouse when the spouse elects to take the Spousal Benefit. Again, the maximum benefit is half of the worker’s PIA and delaying this benefit past FRA does not increase it past that, so failing to elect at FRA just misses out on checks without increasing the later benefit.

The availability of spousal benefits should be considered in a financial plan for retirement because those additional dol-

GETTING THE MOST OUT OF MEDICARE AND SOCIAL SECURITY



the widow(er) may receive up to the PIA of the late spouse, or if the late spouse lived past their FRA without electing, then the widow(er) may receive up to the Retirement Benefit if the late spouse had elected on their date of death. The “up to” is the maximum of the Survivor Benefit, but it may be elected as early as age 60 with its own reduction factor of up to 28.5% for electing before their Widow Retirement Age (Widow Retirement Age is equal to the FRA of a person born 2 years earlier than the widow(er)). At the Widow Retirement Age, the widow(er) can receive their maximum Survivor Benefit, there are no credits for further delay of the Survivor Benefit. A key factor to communicate to clients is that the choice of when to elect has an impact on the potential benefit of the spouse with the lower PIA who lives longer, providing more incen-tive to delay retirement benefits as the spouse could receive the increased amount for their lifetime as well.2

Planning Options Reduced by the Bipartisan Budget Act of 2015

If a client mentions a plan to use a Restricted Application or Voluntary Suspension to maximize benefits, then they may be planning from old or out-of-date advice. The Bipartisan Budget Act (BBA) of 2015 made significant changes to the strategies of filing a Restricted Application or a Voluntary Suspension (aka file and suspend).

lars can decrease the incentive to delay election for retirement benefits since the household can receive the worker’s full PIA plus 50% to the spouse while the later election increases the worker’s Retirement Benefit but does not increase the Spousal Benefit. If you run into a client who has less than ½ the Social Security check of their spouse, it could be that they are receiv-ing their own Retirement Benefit when they should be getting the Spousal Benefit (or it could be that they are getting the highest benefit, but the worker elected after FRA and is getting a credit). This may be an easy way to boost household income, which will be a pleasant surprise to the client given the conven-tional wisdom that Social Security is “fixed income.”

Survivor Benefits are Not as Simple as You Thought

There is a general rule of thumb, one that I’ve told many clients, that the surviving spouse gets the larger of their own benefit or the benefit of their late spouse. That general rule is often true, especially when you practice elder law and you are discussing the issue with a couple, both of whom are living, receiving their own Retirement Benefit, and past FRA. There is a caveat to that rule that a widow or widower does not have to suffer the full Reduction if their late spouse elected early, they may still get up to 82.5% of the late spouse’s PIA. In cases where the deceased spouse never received a Retirement Benefit

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been the case, you must be receiving services beyond custodial care from the skilled nursing facility for any Medicare cover-age at all. The single largest payer of long-term care services is Medicaid, the means-tested health insurance of last resort.

Medicaid is neither a lettered “part” of Medicare nor a part of Medicare in the more literal sense. Spenddowns, the 5-year look-back, and our new Estate Recovery statute (2015’s LB 72 and 2017’s LB 268) in Nebraska are all Medicaid issues. The confusion between Medicare and Medicaid will continue forever, even if they would change the names so that they don’t sound so much alike. Medicaid is partially federally funded, but directly administered by the state governments and some tribes. Medicaid is also administered by different names, so don’t confuse any of those with any part of Medicare. Here in Nebraska we use “Medicaid” which is the most common label, but Iowa, Illinois, Minnesota and others use “Medical Assistance,” there is also Medi-Cal in California, SoonerCare in Oklahoma, and Green Mountain Care in Vermont.3

The remaining Medicare Parts do carry premiums, though that comes as a surprise to many people. Medicare participants may not take action to make the payments, the premiums are withdrawn from Social Security payments before those funds hit the client’s account. Medicaid recipients may have their Part B premium paid directly by Medicaid (so while they are different programs they both provide Medical insurance so of course they interact). When reporting gross Social Security Income to other agencies (VA, Medicaid, IRS) make sure that the client or you are not reporting the smaller net amount that actually hits the client’s or your account each month.

Medicare Part B provides coverage for medically necessary services or supplies and preventative services. This includes doctor visits, vaccines, ambulance services, mental health ser-vices, and some parts of hospital and home healthcare. Part B enrollment is automatic for individuals receiving Social Security benefits and it is the individual’s responsibility to refuse cover-age if that is what they want. Instructions for doing so are included with the materials that accompany the Medicare Card in the mail. Enrolling in Medicare Part B late carries a 10% increase in premium for each year that a client should have had Part B but failed to do so. That time can be delayed if you have employer-sponsored coverage as discussed above. Part B is a prerequisite to enrolling in a Medicare Supplement Policy or a Medicare Advantage Plan. Part A and Part B together are often referred to as “Original Medicare.”

As mentioned earlier, Medicare Advantage Plans (MAP) make up Part C of Medicare. MAPs must include all benefits of Parts A and B and typically also include prescription drug coverage, like Part D below. There are a variety of MAPs and they provide a variety of additional coverage beyond those provided by Original Medicare. That additional coverage can include dental, vision, or wellness packages. MAPs are

Before the BBA any couple could employ a “file and sus-pend” strategy to access the Spousal Benefit without locking in a lower Retirement Benefit for the spouse with the more favor-able work history. The worker could file but then immediately request that those retirement benefits be suspended. That used to allow the spouse to be eligible for the Spousal Benefit. The suspended Retirement Benefit would continue to grow per the standard annual increase that incentivizes later filing. Since the effective date of the BBA (April 29, 2016) it has not been pos-sible to receive a Spousal Benefit while the Retirement Benefit is in suspension. There is a limited provision to fix a mistake for individuals born after May 1, 1950, using file and suspend.

Employing a Restricted Application strategy, an individual who had reached FRA could restrict their application to only a Spousal Benefit while allowing their own retirement benefit to accumulate additional Credits when taken years later. The BBA changed this for individuals born on or after January 2, 1954. For those individuals electing for either a Spousal or a Retirement Benefit are treated as an election for both and the higher will be paid out. If eligibility for an additional Benefit arises after the initial application (e.g., first wedding anniver-sary), then that individual will be treated as if they immediately elected the higher of the two benefits.

These changes should not be confused with a switch strat-egy for widow(er)s. A widow or widower can still elect only a Survivor Benefit then switch to a Retirement Benefit or the reverse. The switch is similar in some respects but was not eliminated by the BBA.

Medicare Parts A-DMedicare has 4 “parts,” known as A through D. The label

“parts” is a bit of a misnomer, especially as it applies to “Part C” Medicare Advantage Plans (MAP), so don’t let that label confuse you. MAPs are really a different type of plan provided by private companies which must include the coverage found in Parts A and B but can also include more extensive cover-age and usually prescription drug coverage, thereby replacing the need for a separate Part D policy as well. Another option is to choose a Medicare Supplement policy from a private insurer to fill in the gaps in Part A and B coverage. Medicare Supplements are also referred to as “Medigap Policies.” You do have to work through each of the “parts” of your plan, because you aren’t going to end up with one for each lettered part, so don’t try, just make sure that the total package you select pro-vides all of the coverage you are looking for.

Medicare Part A is free to individuals who are 65 or older and receiving a Social Security or Railroad Retirement benefits. Part A covers hospital and hospice care with some coverage for rehabilitation (not long-term care) in a skilled nursing facility along with some home health care services. Many individuals assume that Medicare covers long-term care, but that has never



more consolidated within a MAP which will take the place of A and B, and probably cover your prescriptions/Part D.

The newest letter in the Medicare family is the prescrip-tion drug coverage under Part D. These are offered by private companies, including many of the same companies that offer MAPs. The cost and coverage of Part D plans can vary con-siderably and interact with existing VA, employer, union, or Indian Health Service coverage. The list of covered drugs is called the formulary. Most formularies have tiers of drugs and the coverage varies by the tier within the formulary. The plans change annually, but you will be rolled over to the same plan or similar plan (if the same plan is no longer offered) each year. If your current plan is changing or being cancelled and the change effects a drug you are taking, then you are entitled to 60-days notice from the plan provider. If you are in a MAP with drug coverage and start a Part D plan you will automati-cally be removed from the MAP and placed back on Original Medicare.

I often advise that clients consult with an insurance agent who specializes in all of the Medicare alternatives. There should be no direct fee to the client, the agent should be com-pensated (if at all) on commission, and the client pays the same price they would have paid if they selected the same plan with-out any guidance. My clients have generally been very happy to have the chance to speak to “someone who actually understands

offered by private companies that have their plans approved by Medicare. The insured person still pays a Part B premium, and Medicare in turn pays a fixed amount each month to the company carrying your MAP. The insured also pays a pre-mium to the carrier of the MAP. All coverage is provided by the Medicare Advantage Plan, not Original Medicare. As you can imagine there are a large number of possible plans and they change periodically and even by region, so I am not going to delve into the individual plans here.

Another alternative is “Medicare Supplement Insurance” as they must be labeled on the official paperwork by law, but they are much more commonly referred to as “Medigap,” even on medicare.gov. These policies cover all or part of many of the deductibles in Original Medicare, with options including cov-erage for foreign travel, co-insurance at a skilled nursing facil-ity, or an out of pocket maximum.4 If you start with a Medigap policy and later join a MAP/Part C plan it is typically wise to drop the Medigap. If you have a MAP it is actually illegal for anyone to sell you a Medigap policy unless you are switching to Original Medicare at the same time, which you have the option to do within 12 months of first joining the MAP. Medigap policies with prescription drug coverage eliminate the need for a Part D plan, discussed below. So the major options are to go with Original Medicare (A & B) to which you may add a Medigap Policy and/or a Part D plan, or have your coverage

ARBITRATION AND MEDIATION SERVICES

The Honorable William M. "Bill" Connolly, retired after twenty-two years on the bench with the Nebraska Supreme Court, is now Of Counsel with the firm of Erickson | Sederstrom practicing in Arbitration and Mediation.

WWW.ESLAW.COM (402)384-6896

[email protected]

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single person and at $44,001 for a married couple filing jointly. So, when accessing additional spendable income, a Social Security recipient could trigger more tax by pushing themselves over one of those thresholds and netting less spendable income than they had hoped. Taking additional income at these points makes other dollars that the client already had taxable, giving the new dollars they receive an effective tax rate above their marginal rate.

For the higher income tier of clients, who are already pay-ing taxes on 85% of their Social Security, you may run into an “Income Related Monthly Adjustment Amount” (IRMAA) added to Medicare premiums. Along with the progressive tax bracket structure and progressive system for determining the taxability of Social Security Income there is a progressive structure to the cost of Medicare Part B and Part D premiums. At Modified Adjusted Gross Income (MAGI)5 of $85,001 for a single person or $170,001 for a joint return, Part B Premiums are increased by $53.50/month (so $107 for a couple both covered by Part B) up to an Adjustment of $294.60/month for singles with MAGI of $160,001 or couples with $320,001 or more (for a couple that would be a total of $7,070.40 in additional annual premium for the same Part B coverage over the base cost). Part D uses the same brackets with those at the $85,001/$170,001 level paying an additional $13/month and the top MAGI resulting in $74.80 per month increased Part D premium.

Clients will receive an IRMAA notification letter and can appeal that determination based on changes since their most recent tax return including a change in marital status, reduction of income, or property losses to disasters. An IRMAA can be a temporary collateral consequence of a large capital gain or a Roth conversion, but will go back down later.

The options for avoiding these income thresholds are gen-erally to take from post-income-tax sources if the client is near a threshold. Income that does not add to Combined Income or MAGI, and therefore won’t trigger additional taxable Social Security Benefit or an increased IRMAA on Medicare pre-miums, include Roth distributions, medical use of a Health Savings Account, borrowing against the cash value of life insur-ance, and reverse mortgage proceeds. Funding a Roth IRA earlier in life is always the ideal method, but this dynamic is an additional future potential bonus. Health Savings Accounts (HAS) are great for these strategies if you have them and the offsetting medical costs. HSA do lose the 20% penalty for non-medical uses once the client turns 65, though withdrawals for non-medical uses are still taxable.

Medicare AppealsAs indicated earlier, Medicare is generally a well-run pro-

gram and I don’t see disputes come to me on a regular basis. I tend to attribute this to there being well established rules as

all of this insurance stuff” even if they end up buying essentially the same plan they’ve had for years.

Medicare EnrollmentEach individual has their own Initial Enrollment Period

when they become eligible, typically the calendar month they reach 65 plus the 3 calendar months before and after that. Open enrollment runs each year from October 15 to December 7. There are also Special Enrollment Periods opened by anevent like the end of employment that supplied employer-sponsored group coverage. As indicated above Part A carries no premium, so enroll when you are eligible. You have eight months after leaving a job with employer-sponsored group coverage to enroll in Part B. If you enroll later than that 8 months of your Initial Enrollment Period, then you will pay a penalty for late enrollment. When planning your initial enroll-ment, it is wise to get your application into your Social Security Administration office 2 months before you want coverage to start. You can then get a lot of personal up–to-date informa-tion by creating an account for yourself at MyMedicare.gov. An SSA.gov account is also a very good idea for Social Security Benefit information and management.

The Potential Cost of Accessing Extra Retirement Dollars

Many retirees find it necessary to access additional income and their options can be limited, but it is important to look at all of the consequences of drawing out assets to see how much of those dollars the client will really end up having as spendable income. Tax-deferred retirement accounts like tra-ditional IRAs and 401(k) accounts are another cornerstone of American retirement planning. Many fail to consider how the management of those accounts interact with Social Security Benefits, Medicare Premiums, and taxes.

Elderly clients will be paying less tax under the recent tax law changes, if they paid any before. The standard deduction for a single filer was nearly doubled to $12,000 in 2018 and to $24,000 for married couples, but personal exemptions were eliminated. On top of that change, those age 65 and older receive an additional standard exemption of $1,600 for a single person or $2,600 for a married couple.

Up to 85% of Social Security Benefits may be taxable income. When “Combined Income” exceeds the base amounts for your filing status (married/single), a portion of your Social Security Benefits become taxable. “Combined Income” is Adjusted Gross Income + non-taxable interest income + ½ of your Social Security Benefits. If that sum hits $25,000 for a single person or $32,000 for a couple filing jointly, then up to 50% of their Social Security Benefits become taxable income. That is increased to the maximum of up to 85% of Social Security Benefits becoming taxable as income at $34,001 for a



Thank you to the NSBA staff, the Senior Lawyers Section, and Judge Alan Brodbeck for inviting me to put this article together. Thank you to Lauren DeGroot and Joe Elsasser of Sequent Planning, LLC, Lisa Hatterman of Health Markets, Grant Runyan of Mutual of Omaha, and Matt Jetter of Jetter and Associates for your input and materials as I prepared this article and the upcoming webinar.

Endnotes1 I have borrowed heavily from Joe Elsasser’s white paper, “Social

Security planning after the Bipartisan Budget Act” available at https://nationwidefinancial.com/media/pdf/NFM-15348AO.pdf but received permission from Mr. Elsasser’s associate.

2 For additional discussion of the widow benefit you can look to Joe Elsasser’s blog post found at http://www.covisum.com/blog/social-security-widow-benefit-explained

3 https://aspe.hhs.gov/dataset/medicaid-program-names 4 https://www.medicare.gov/supplement-other-insurance/com-

pare-medigap/compare-medigap.html 5 Modified Adjusted Gross Income, a tax number with

a Christmasy sounding abbreviation created as part of the Affordable Care Act, generally it is AGI plus any tax-exempt interest income from lines 37 and 8b of an IRS 1040.

to coverage, but there is the alternative theory that potential clients don’t come to me because when a person is denied coverage they must quickly start planning for the next steps for themselves or their loved one instead of looking for legal advice. Also, the appeal process is very fast and if you aren’t already working with an elder law attorney you might not have time to hire one. The appeals are in the form of a file review and often handled by the care provider, but I have participated in a few over the years. I will summarize the first two levels of appeal here before the matters eventually find themselves in a more typical administrative process.

A medical provider must notify the beneficiary of the deci-sion to terminate covered services no later than 2 days before the proposed end of the services. Medicare is an insurance program; it only pays for care that has been provided, not care that should have been provided. Therefore, in order to remedy a problem with a Medicare appeal, you must keep the care in place. That requires an expedited appeal with the support of a physician.

The very first step is to the call the Quality Improvement Organization (QIO) at the 1-800 number provided on the notice of denial of coverage by noon the calendar day follow-ing receipt of the notice. Next, gather up the patient’s medical records including materials regarding the medical necessity of the care. They have 72 hours upon receipt of your communi-cation to make a decision regarding Medicare coverage if you request an expedited appeal. While QIO is gathering informa-tion to support their conclusion, you should continue to gather information to support your case. Ask the treating physician to submit a written statement to the QIO explaining why the client needs the care and ask that he or she be available to the QIO by telephone to answer questions.

If the QIO rules against your client, your next level of appeal is made with a call to the Qualified Independent Contractor (QIC) no later than noon of the calendar day fol-lowing notification by the QIO of its decision. The QIC has the ability to perform another appeal of your Medicare denial. Send a copy of the "Medicare Redetermination Notice" along with any written argument and exhibits. The QIC must make a decision within 72 hours of your call and receipt of any medi-cal records needed for consideration. You can extend this peri-od to up to 14 days to gather medical records and prepare your argument. Appeals beyond that point go to an Administrative Law Judge (ALJ), cannot be expedited, and take on a more typical administrative law pace. An additional level of appeal after the ALJ is to the Medicare Appeals Counsel.

If you are left wanting more, or thinking, gosh those numbers would all make a lot more sense with some sort of visual aid, like a chart or graph, then you should sign up for the upcoming webinar on May 23 at 12:00 p.m. on the same topic offered through the NSBA and the Senior Lawyers Section, or if you are reading this after May 23, then check the NSBA’s website for the materials.

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getting the most out of medicare and social …2018/05/23 · medicare and social security webinar...

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