TIME GOES BY | GRAY MATTERS: Some Basics

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by Saul Friedman

This is a good time, before the year is out, to catch up on some things financial that older Americans need to know. Much can be left to your adviser or accountant, but these days it’s better if you understand and have a hand in your finances and what’s going on with your Social Security and Medicare benefits.

Social Security
As you’ve probably heard, there will be no cost of living adjustment (COLA) or increase beginning in January for Social Security beneficiaries. This is a first, but it’s difficult to complain; the COLA in 2009 was a healthy 5.8 percent, the highest since 1982, and many Americans who worked (if they did) did not see that sort of increase in their wages, if any.

I know that the actual cost of living – housing, food, medical care and drugs - grew faster for older people than the official Consumer Price Index, which has been flat during this recession. The same inequity is involved in calculating poverty levels, which cheats some people out of benefits. Several members of Congress have promised legislation to change the CPI for the benefit of older consumers, but it won’t happen anytime soon.

Medicare
President Obama has said he’s considering a flat payment of $250 for every beneficiary in lieu of the COLA and Congress may stir to act on this. For most beneficiaries, the lack of a COLA increase means that the present Medicare Part B monthly premium of $96.40 cannot be raised because of what are called the “hold harmless” provisions in the law which say your Social Security benefits cannot be reduced.

However, for newcomers to Medicare, the standard Part B premium next year will be $110.50. And because of the Medicare Part D law of 2003, the program now provides means testing for the first time whereby more affluent beneficiaries will pay still higher premiums.

Thus, the premium for individuals with yearly incomes between $85,000 and $107,00 will be $154.70; between $107,000 and $160,000: $221; between $260,000 and $214,000: $287.30; greater than $214,000: $353.60. For couples filing joint returns, double all these income numbers to find your premium.

There are other Medicare numbers for next year: The Part B yearly deductible (now at $110) is going up to $155. While Medicare pays 100 percent of the first 20 days of skilled nursing care (usually after a hospital stay of at least three days), the co-insurance for days 21 to 100 will be a hefty $137.50 a day, which is why Medicare cannot be considered long term nursing care.

The Part A hospital deductible is going up to $1,100 per spell of illness. Hospital stays for the first 60 days are fully covered, but co-insurance is $275 a day for days 61 to 90 and $550 for days 91 to 150.

The 2010 resource limits, recently announced, for the full Low Income Subsidy to pay for Part D premiums and other costs are $8,100 for an individual and $12,910 per couple. And for the partial subsidy, $12,510 for an individual and $25,010 if married.

While Medicare does not cover long term nursing care, it does cover most of the costs of medical care for nursing home residents or during home care. Medicaid, the federal program administered by states, will cover nursing care and in a future column, we’ll explore planning for Medicaid when a loved one needs nursing care and while the spouse remains at home.

There’s been some talk on Capitol Hill that the health care reforms now before the Congress may eliminate some higher Part B premiums which, I believe, were approved by the Republican Congress in 2003 to encourage more affluent people to desert Medicare for private insurance.

One more Medicare note: Under the law, Part B premiums must pay for one-quarter the cost of Medicare services for doctors and other outpatient services. Because the Congress is expected to cancel scheduled cuts and raise fees for doctors, the Associated Press and critics of health reform have reported that this would result in higher Part B premiums during the next ten years.

The one-quarter rule and rising doctor fees have been responsible for past premium increases, but David Certner of AARP told me that the increase in the fees for doctors will be offset by other savings in the Medicare program and premium raises will be held down. We’ll see.

Mandated IRA Withdrawals
On another money issue, my sources in Congress tell me that the IRS will NOT suspend for another year, the requirement that persons over 70-1/2 must, during the year, withdraw from their IRAs and other tax-deferred savings plans a certain amount of money, based on one’s age. It’s called the Required Minimum Distribution (RMD).
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