Forget PPACA: 3 important pieces of legislation most advisors are overlooking

By Dan McGrath

Jester Financial Technologies


Everyone seems to be studying the Affordable Care Act these days. However, due to current legislation, the real problem that is unfolding is what will happen to investors in the future.

As 2014 is creeping closer, and as the implementation of some of the rules and regulations from the Affordable Care Act are starting to take effect, people are beginning to fill up conference rooms and seminars to learn more. However, while all eyes are staring at this one piece of legislation, there are three other important pieces that are often overlooked.

No. 1 — The Medicare Modernization Act of 2003

This piece of legislation created Medicare Advantage Plans, as well as Part D prescription drug coverage. But even Congress seemed to miss the fact that this bill essentially paved the way for Medicare to be means tested.

Why you need to know about it: Means testing is defined as using a client’s income to determine what they will pay for something. Ultimately, a client’s retirement income is now going to be used against them when Medicare determines their premiums.

How it will impact you: The penalties for those clients considered to be high-income earners are:
  • For Medicare Part B: an extra 40 percent to 220 percent of premiums.

  • For Medicare Part D: anywhere from an extra $11.29 a month to $66.60 a month.
Some notable examples of income include any wages, Social Security, pension income, rental income, most capital gains, dividends including municipal bonds, withdrawals from traditional IRAs, (401(k)s, 403(b)s, Keoughs, SEPs and most annuities. For Medicare purposes, income is defined as “Your adjusted gross income PLUS your tax exempt interest income, or anything on lines 38 and 8b of the IRS form 1040.”

The problem: Medicare has been historically inflating at over 7 percent for the last 47 years. With the new legislation, there is a strong possibility that clients be paying more — not because of their health, but because of their financial plans!

No. 2 — Court case No. 11-5076 or Brian Hall vs. Kathy Sebelius

Due to the 1993 Procedure Operational Manual for Social Security, in order to collect Social Security benefits, you must accept Medicare, as well.

Why you need to know about it: As you just read, if a client collects Social Security, and they do not have credible health insurance through their employer (or their spouse’s employer), they must accept Medicare. Once they do accept Medicare, their late enrollment penalties also begin.

How it will impact you: Your clients now have a guaranteed expense in retirement to consider in their financial planning.
The problem: On the surface, it would seem to be obvious: As retirees, your clients need to have health care coverage. Right now, Medicare appears to be one of the less expensive options on the market. But again, Medicare:
  • Is not free

  • Has been inflating at over 7.5 percent for 47 years

  • Is means tested. How well your clients’ financial plan performs will play a critical role in what they pay

  • Part B premiums, along with any surcharges, are automatically deducted from a client’s Social Security check
No. 3 — The 2014 Presidential Budget

This is the game plan for how the country will pay for itself in the upcoming year. Please note that this legislation has not yet passed through Congress, but it is an excellent commentary on where we may be headed.

Why you need to know about it: For those that are currently retired (or plan on retiring shortly), the 2014 budget calls for not only an increase in the means testing surcharges, but a decrease in the income limits, which will remain constant until “25 percent of all Medicare beneficiaries” are impacted. The budget also calls for a new 15 percent surcharge on low cost-sharing MediGap plans.

How this will affect you: Simply put, if your clients happen to earn too much income, or might not be properly insured in retirement, they face probable increases in their Medicare premiums.

The problem: According to the Associated Press, the current surcharges could be increased by 50 percent. This could increase those surcharges to a point where high income earners will be paying between 60 percent and 320 percent more for their Part B and D premiums, while anyone who purchases a MediGap Plan F or G policy may be subject to a 15 percent surcharge too. 1

I can hear it now; as an advisor, you are now asking, “What does this all mean to me?”

Simple.

If there was ever a niche worth exploring, planning for the cost of health care in retirement may top the list. What other niche includes not only 92 percent of all clients, but also every single person who will ever collect Social Security?

1 http://bigstory.ap.org/article/medicare-hike-could-also-hit-some-middle-class