Friday, July 3, 2015

Medicare and Medicaid at 50

Medicare and Medicaid, the two mainstays of government health insurance, turn 50 this month, having made it possible for most Americans in poverty and old age to get medical care. While the Affordable Care Act fills the gap for people who don’t qualify for help from those two programs, there are important improvements still needed in both Medicare and Medicaid.

At the time the two programs were enacted in July 1965, advocates of Medicare, which today covers 46 million Americans over the age of 65 and nine million younger disabled people, expected that it would expand to cover virtually all Americans. Although polls between 1999 and 2009 showed consistent majorities in favor of expanding Medicare to people between the ages of 55 and 64 to cover more of the uninsured, it never happened.

Still, its achievement in improving life expectancy and reducing poverty among the elderly has been enormous. Before Medicare, almost half of all Americans 65 and older had no health insurance. Today that number is 2 percent. Analysts say that between 1970 and 2010, Medicare contributed to a five-year increase in life expectancy at age 65, by providing early access to needed medical care. Even compared with people under age 65 who have insurance, those on Medicare are less likely to miss needed care or have unmanageable medical bills.

While Medicare, which covers hospital care, doctors’ services and prescription drugs, is comprehensive, many people are still left struggling to pay premiums, cost-sharing for various services and the full cost of items not covered by Medicare, like dental care and extended stays in nursing homes. Roughly half of all Medicare recipients live on incomes of less than $24,000 per person, and while the poorest of them get additional help from Medicaid, many do not. Medicare still lacks a cap on the amount a beneficiary has to pay out of pocket, the most basic function of insurance. By contrast, the Affordable Care Act puts limits on beneficiary spending per year and over a lifetime.

The Affordable Care Act has helped Medicare beneficiaries by eliminating co-payments and deductibles for preventive care like mammograms and colonoscopies, and by providing discounts for very heavy users of prescription drugs. It will strengthen Medicare as a system through demonstration projects to find new ways to deliver care that will improve its quality and lower its cost. The challenge will be to identify and spread the most promising innovations so that they benefit not just Medicare, but the entire health care system.

Medicaid, the other part of the medical safety net, is a joint state-federal program for the poor. For the past five decades, it has been critical in reducing childhood deaths and infant mortality. It has saved the lives of patients with chronic conditions like heart disease, diabetes and asthma. Last year it covered some 64 million people in a typical month and 80 million people at some point during the year. If Medicaid did not exist, life expectancy in America would be much lower.

The problem with Medicaid is that federal rules give states great leeway in deciding whom the program helps. Many states are so cheap that only extremely poor parents qualify for Medicaid coverage and childless adults are excluded entirely. Texas, for example, only covers parents who earn up to 15 percent of the federal poverty level, or less than $4,000 a year for a family of four, and does not cover other non-disabled adults at all, while other states, including New York and California, offer far better coverage. The result is huge differences across the country for assistance to poor, sick people.

The Affordable Care Act was intended to reduce this disparity by offering additional federal funding for states to expand their Medicaid programs to cover all adults up to 138 percent of the federal poverty level, or $32,913 for a family of four. Yet 21 states, the vast majority run by Republican governors, have chosen not to expand.

Medicaid could be improved by raising its payments to doctors, who often refuse to take Medicaid patients because the rates are so low compared to private insurance and Medicare. Medicaid should also cover legal immigrants, who currently have to wait five years to be eligible, and illegal immigrants, who are currently denied coverage entirely.

Despite the perennial fear that the costs of these two programs will grow uncontrolled, spending in both has been growing at a relatively modest rate in recent years. Medicare and Medicaid have changed and grown over the decades, through Republican and Democratic administrations, to meet new challenges. Their performance and popular support has allowed them to withstand ideologically-driven attacks on their continuance as government entitlements. These programs succeed, in fact, because they entitle all eligible Americans to receive the health care they need.

Source: NYTimes

Monday, June 22, 2015

5 Reasons CEOs Don’t Focus on Exit Planning

According to recent studies, 60% of business owners do not currently have or plan to develop an exit strategy. Because business owners spend a large majority of their time running the business, it’s not surprising that little attention is given to thinking about what will happen to both the business and to them personally once they are ready to move on.

While every CEO has a personal and unique motivation for eventually selling the business, there are five common reasons most do not spend the necessary time to plan accordingly for this event:

Not Enough Time

The deadlines and intellectual rigors of running the day-to-day of a business can leave little time for anything else. Many owners put off their succession planning to focus on business operations and finding ways to enhance the value of their business through activities such as introducing new sales strategies, cost-cutting and customer diversification. While increasing the value of a business is the vanguard to any M&A transaction, planning for the exit itself is just as vital.

Most business owners know that developing a succession plan is a time-consuming process that can take months, even years, to complete. For an owner within five years of such a transition, it is recommended to begin this process two to three years prior to sale.

Reluctance to Cede Control

Business owners are accustomed to being in control. Planning for the sale of one’s business cannot be divorced from the fact that they will need to relinquish control to another party and move on from something they have managed meticulously over many years.

Concern about losing control might be related to personal reasons or may be purely operational. An business owner may not know what his second act is going to be and may find the idea of not coming to work everyday uncomfortable to think about and plan for. Alternatively, an owner who has been heavily involved in and is still instrumental to the daily operations of a business may be worried about what will happen to the business when he leaves.

Deal Complexities

Owners have a lot of decisions to make when considering how they want to sell their business and what the financial implications of those decisions are. There are a number of structures such a transaction can take, a plethora of buyers to consider, and legal, tax and accounting decisions to take into account.

For example, an owner might consider an asset sale or stock sale. He might consider selling to a strategic buyer or financial buyer. Even if he knows he wants to sell to a financial buyer, choosing to sell to a private equity firm versus a family office represents very different outcomes for the business and the owner alike.

An owner may be subject to various tax liabilities upon the sale of such a large asset, including capital gains, income, gift and estate taxes upon sale. Consulting with and beginning to formulate a deal team including a banker or advisor, lawyer and accountant can help business owners stay organized and account for these types of options and outcomes in their exit plan.

Designating a Successor 

As previously discussed, an exiting business owner must account for who will take the reigns in his absence. When considering who might succeed him, a CEO may take into account the role that senior managers, investors, partners or family members have played in the business thus far.

This is a particularly sensitive area for family-owned businesses which of late have struggled to transfer the businesses within the family. In fact, only about one-third of businesses succeed in passing the business down to the next generation.

Without a clearly defined successor, a buyer may take it upon himself to fill the role or a CEO may be forced to continue on in his role until a successor is identified. This is a less than ideal outcome for a seller who is either hoping to keep the business “in the family”, enable his employees growth opportunities and ready to immediately retire.

Retirement Jitters

Many owners may not be mentally or financially prepared to head into their golden years. While many business owners hope to achieve a sale price that provides a sufficient nest egg for them and their family to live off of, some have unrealistic expectations on what they will receive for their business.

Other business owners may not be ready to cash out their emotional equity or associate “retirement” with “being old”. What CEOs need to know is that exit planning is not the end, a great sale can free up a business owner up to pursue another venture, allow him to pass the business to a deserving second generation owner, or if he’s ready, retire and relax.

Source: Forum

Friday, June 19, 2015

How to Avoid an Estate Battle After You Die

It might seem that a woman who died at 104 after spending 20 years in a hospital despite being healthy enough to live in one of her three stately homes, accumulated a vast collection of dolls and preferred to communicate in French even though her father had been a United States senator would have little to teach the rest of us.

But two years after the death of that woman, Huguette Clark, the last surviving daughter of William A. Clark, who made a fortune in copper mining, her $300 million estate is still being disputed. And the battle has plenty of lessons for people with far less money.

At issue in Mrs. Clark’s case are two wills signed six years before her death in 2011. The first would have left most of her fortune to 21 distant relatives she did not know, may never have met and did not list by name. The second, signed a month later, increased the bequest for her caregiver, gave money to a goddaughter and established a foundation at her mansion in Santa Barbara, Calif., for her art and doll collection. The distant relatives got nothing.

The dueling wills have become part of a highly publicized court case involving Washington’s Corcoran Gallery of Art and one of Claude Monet’s Water Lilies paintings, valued at the time of Mrs. Clark’s death at $25 million. The case has also ensnared New York’s Beth Israel Medical Center, accused of pressing Mrs. Clark to make a big donation.

Documents full of intrigue have been filed in court — including a new cache just this week challenging the Corcoran Gallery’s claims — in preparation for a trial in September. The relatives could receive millions of dollars each if one or both wills is overturned or a settlement is reached. The caregiver and charities Mrs. Clark gave her money to could get nothing. Then there are the millions of dollars in legal fees to law firms and the tens of millions of dollars in estate taxes to the federal government, which will rise substantially if more money goes to the heirs than to charitable organizations.

“What we’re trying to do is make sure this case is being litigated with the right parties and not people who are trying to align themselves for ulterior motives,” said a lawyer, John D. Dadakis, in explaining the latest filings against the Corcoran. Mr. Dadakis is a partner at the law firm Holland & Knight, which is representing Mrs. Clark’s estate

It’s a big mess. But the dispute over Mrs. Clark’s two wills has implications for people with far less money. When is a person too old to decide her affairs? How can you insure that your money goes to the people and institutions you want to get it? Is there a way to prevent expensive lawsuits?
Wealth Matters
Insights from Paul Sullivan on the mindset and strategies of the affluent.

“People are living longer and they’re having periods of diminished capacity that are more and more common,” said Alan F. Rothschild Jr., a lawyer in Columbus, Ga., and a former chairman of the American Bar Association’s real property, trust and estate law section. “The litigation in this area is increasing because people are willing to sue more, even family members and the banks.”

Here is a look at some common issues raised in Mrs. Clark’s case.

DISPUTING HEIRS Challenges to wills by distant relatives are so common that lawyers have a nickname for those people: “laughing heirs” — as in they will be laughing all the way to the bank if their challenge succeeds.

“People tend to come out of the woodwork and believe that they’re closer than they are and should have some claim,” said a litigator who specializes in contested wills who spoke anonymously because other lawyers at her firm worked with some of the heirs in the Clark case. “The most often-challenged wills are those for people who don’t have direct, obvious heirs.”

A more common situation arises when a parent treats children differently. The trickier cases are those in which family members have had a falling out.

Paige K. Ben-Yaacov, a partner in the private client section of Baker Botts, said she counseled clients not to divide their estates unevenly. “They’re just making matters worse and opening the estate up to litigation.”

In Mrs. Clark’s case, she did not name her relatives in her wills because she did not know most of them. For people who intentionally leave out children, Ms. Ben-Yaacov advises creating a trail of estate documents over many years laying out their wishes in detail.

Mrs. Clark’s second will was in effect for six years before she died — normally long enough to establish that this was her intent, had she not been 98 when she signed it.

LEAVING A COLLECTIBLE The Corcoran Gallery is objecting to the will that gave it a $25 million Monet. If there were no will, the museum would receive a half-interest in a trust worth $3 million. That choice would seem to make little sense.

In an article in The Washington Post earlier this year, the Corcoran said it simply wanted to be sure that the second will, which gave it the painting, actually represented Mrs. Clark’s final wishes. Others have speculated that the Monet is not as valuable as once thought and that the museum would rather have cash than a painting it won’t display.

For people planning to leave something tangible like a painting to a museum, advisers suggest checking with the institution beforehand.

“You’d like to run that by them while the decedent is alive to make sure they’ll accept it,” said Sharon L. Klein, managing director of family office services and wealth strategies at Wilmington Trust. “You can’t force someone to take it.”

If the Corcoran doesn’t take the painting, the estate will have to pay about half of its value to the United States Treasury in estate taxes, since it will no longer be a charitable gift.

Mrs. Clark also set up, in the second will, a private foundation for the rest of her art and doll collection, to be housed in her mansion in Santa Barbara. Mr. Dadakis said the assets in the foundation accounted for about $125 million of the estate, including the mansion, worth $82 million. If that will is rejected, all will be subject to the estate tax.

PREVENTING DISPUTES Contesting a will is costly, time-consuming and emotional. One way to ensure that doesn’t happen is to make the downside of losing a risk too severe to take.

Long before death, when a will is filed and takes effect, people can put their assets into a revocable trust. They still have access to the money during their lifetime and can keep those assets out of the probate process. The trust could also act as a substitute for a will by naming other beneficiaries.

“The disappointed family member doesn’t have a legal right to challenge it,” Mr. Rothschild said. “They’d have to go to the court and say, ‘Even though it’s been in existence for many years, mother wasn’t competent to put it together.’ ”

When it comes to a will, one way to reduce the chances of a challenge is to put in a no-contest clause. In doing so a parent would leave a little to the otherwise disinherited children, but if they contest the will they get nothing.

“The trick is to strike the right balance between giving them enough so they’ll take it and not contest it and risk losing their inheritance,” Ms. Klein said. She said $5,000 might not do it, but $250,000 might.

For the big or contentious estates, like Mrs. Clark’s, the best option may be to appoint a professional trustee, usually from a trust company, who will be neutral. “If there is any kind of tension between family members it makes no sense to put a family member in there” as trustee, Ms. Ben-Yaacov said. “An independent trustee deals with this day in and day out. They’re good at defusing these situations.”

Source: NYTimes

Thursday, June 11, 2015

The best place to retire isn't Florida

If you're about to retire, these are the 10 best cities to do it in, according to Sorry, New York, you're on the worst list this time.

Americans on the brink of retirement should head for rockier terrain.

Phoenix, Denver and Colorado Springs are among the top 10 best cities to retire, according to a survey out today.

The full list includes:

1. Phoenix metro area, including Mesa and Scottsdale
2. Arlington/Alexandria, Va.
3. Prescott, Ariz.
4. Tucson
5. Des Moines
6. Denver
7. Austin
8. Cape Coral, Fla.
9. Colorado Springs
10. Franklin, Tenn.

Arizona cities showed up three times in the top 10 due to unparalleled weather and low property taxes, says Chris Kahn, research and statistics analyst at Bankrate.

"It's just a great place for a low-maintenance, outdoor type of lifestyle," he says. Plus, "your dollar is going to stretch further in Arizona."

Bankrate ranked the cities based on cost of living, weather, crime rate, health care quality, tax rates, walkability and a measure of well-being based on surveys of seniors already in the areas. Retirees, in particular, need to prioritize cost of living because they're relying on a fixed income, Kahn says.

However, proximity to family may often trump all other factors when it comes to deciding where to live in retirement, says Tom Warschauer, a finance professor and director of the personal financial planning program at San Diego State University.

"If the financial factors were the dominant factors, you would find everybody moving to the least costly alternative," he says. "And that's not happening."

He recommends retirees also take into account whether they want to live in a community with people their own age or be in a neighborhood with a range of age groups.

While people might expect Florida cities along the coast to be some of the more desirable locations for seniors, Kahn says the major ones don't make the top 10 because of how much it rains, the humidity and how expensive it can be to live in cities such as Miami. Northeast cities also fare poorly due to cost of living and cold.

Arlington and Alexandria, suburbs of Washington, D.C., are more expensive, but seniors benefit from Virginia's superior health care system, the ability to get around on foot and a low crime rate. Denver also has a higher cost of living but received good marks for similar reasons as Arlington and Alexandria: low taxes, good health care and the ability to walk.

Des Moines made the list for being affordable and receiving high praise from seniors who already live there, plus, "Iowa has one of the highest-ranking health care systems in the country," Kahn says.
In Austin, retirees will have no state income tax, same in Cape Coral. 

Bankrate found in a survey out in December that 60% of people who aren't yet retired would consider moving in retirement.

This is the first time Bankrate analyzed specific metro areas as desirable retirement locations; it puts out a survey on the best states to retire each year, but "it's not the most satisfying ranking," Kahn says. "We're basically combining the retirement experience (of) someone living in Manhattan with someone living in the Finger Lakes region. They're two totally different things."

The worst cities to retire include New York City, Little Rock, Ark., New Haven, Conn., and Buffalo. 

 Source: USA Today

Tuesday, June 2, 2015

Hoping is not a plan

Insurance is often necessary since most people can’t self-insure against financially catastrophic events.

Insurance is often necessary since most people can’t self-insure against financially catastrophic events.

To many, buying insurance for your car, home or life seems like a big waste of money.

What if you never get into an auto accident? Although most states require auto liability insurance, people nonetheless grouse about all that money doled out over the years. Or what if you never make a claim against your home insurance policy? That’s money gone too, they grumble.

And chances are you’re going to live a long life.

But like it or not, insurance is often necessary because most of us can’t self-insure against financially catastrophic events.

Still, lots of people have to be persuaded — when the law or a contract such as a mortgage doesn’t force the issue — to buy insurance. Such is the case of a reader who wrote me during one of my online discussions. She’s at a loss as to how to prove to her husband that they need life insurance.

Their background: They are in their early 30s with two young children. He is the main income earner. She works part time from home and cares for their children.

The mortgage is their only debt. “Emergency savings and retirement are in decent shape, although I would like to be saving even more,” the wife wrote. “We definitely aren’t living paycheck to paycheck, but don’t have much monthly wiggle room for ‘extras.’ ”

The wife’s argument for life insurance: “I feel strongly that we both need it,” she wrote. “I think we just need enough money to be able to afford to pay the mortgage and child care for a couple of years.” Life insurance would give the surviving spouse a chance to regain footing and make a more permanent game plan, she said.

The husband’s argument against life insurance: “He says he doesn’t want to pay a premium for something we are highly unlikely to ever need. He thinks that if one of us passed away, the other would just need to ‘deal with it’ as best we could.” And by “deal with it,” the husband’s plan is that the surviving spouse would sell the house and move out of state to be with family who would help with child care, she wrote.

I asked Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, to weigh in on what he would tell the husband.

“My first reaction is that ‘deal with it’ isn’t a plan,” Weisbart said. “Insurance is for rare but financially crushing events; because they’re rare, the premium is affordable and if the event insured-against does happen, financial disaster is avoided, and the road to recovery is faster and smoother,” Weisbart said he would tell the husband.

Okay, what about selling the house?

“We don’t know anything about the current house, but under the pressure of a post-death sale, it would likely fetch less than under more favorable selling conditions, particularly if there are some defects that couldn’t be fixed quickly and cheaply,” Weisbart said.

But the wife could go back to work, right?

“If [the husband] dies, she would immediately have new expenses,” Weisbart said. “She would need to transition from a part-time to full-time earner plus begin paying for child care.”

Weisbart had other questions for the husband:

●Does he have health insurance through his employer? “If so, the cost of successor coverage could be a substantially greater expense,” Weisbart said.

●Are there tasks that he performs for the couple that she would have to hire people to do after his death?

●Are living costs near the out-of-state family higher or lower than where they live now?

●Would the wife need to pay for school or a training program to boost her employment skills? How much would this cost?

●Would she ultimately be able to replace the income he earns?

●As for child care, has the family who would provide it agreed to do so, and are they — financially, physically, etc. — in a position to do that? (People promise a lot of things they don’t or can’t follow through on. Just saying.)

●If his wife dies, would he move with the kids to be nearer to family, and would he have to switch jobs? If so, would he have to take a salary cut to find employment in the new location?

“I think that it would be helpful for each of them to have life insurance, at least to help manage what I call transition expenses,” Weisbart said. “At their ages, it would be very cheap, particularly if they bought 20-year term policies.”

I hope the couple live a long and prosperous life. But hoping is not a plan.

Source: Washington Post