New Pennsylvania Medicaid Transfer Penalty Set for 2021

 When you need long-term care at home or in a facility the costs can be staggering. That is why qualifying for government benefits through Medicaid is crucial to the financial, physical and emotional health of so many seniors and their families.

Unfortunately, qualifying for Medicaid long-term care benefits can be very difficult. One of the obstacles is the so-called “transfer penalty.” A period of ineligibility for benefits (transfer penalty) is imposed if an applicant has disposed of assets for less than fair market value during a five-year look-back period.

Imposition of a transfer penalty denies benefits for individuals who otherwise need and would qualify for Medicaid long term-care coverage. A denial can also effectively make an individual’s children liable for the costs of the needed care. See: Law Can Require Children to Pay Support for Aging Parents.

The transfer penalty applies when a transfer was made by the individual applying for Medicaid long-term care benefits, or their spouse, or someone else acting on their behalf. Unless the transfer is for some reason exempt, if an asset was transferred for less than fair consideration within the look-back period, then a period of ineligibility is imposed based on the uncompensated value of that transfer.

New Penalty Divisor for 2021

The length of the penalty period is calculated by taking the uncompensated value of the asset transfer and dividing it by the average private patient cost of nursing facility care in Pennsylvania at the time of application for benefits. The average cost to a private patient of nursing facility care is often referred to as the “private pay rate” or the “penalty divisor.”

The penalty divisor is revised each year as nursing facility care costs increase. As of January 1, 2021, the penalty divisor is set at $364.90 per day. This means that the PA Department of Human Services has calculated that the average monthly nursing facility private pay rate in Pennsylvania is $11,099.04 a month ($364.90 per day). [Please note that the penalty divisor is different in states other than Pennsylvania].

Uncompensated transfers made during the look-back period will be calculated at one day of ineligibility for every $364.90 transferred away. In Pennsylvania, a transfer penalty will be imposed when the value of transfers made in a month exceeds $500.

The rules are complicated. Seniors considering making large gifts or other transfers of assets are well advised to consult with an experienced elder law attorney before completing the transaction.  If you live in Pennsylvania you can contact the elder law attorneys at Marshall, Parker and Weber for more information.

Medicare Part B Premium and Deductible Amounts for 2021 Announced

 

Medicare is the vital healthcare program that covers most older Americans. It’s a complicated program. This article will take a look at one of its components – Medicare Part B and Part B’s premiums.  

Medicare Overview

Medicare is the federal health insurance program that covers people 65 and older and some younger adults with permanent disabilities and certain medical conditions. When Medicare was established in 1965 about half of American seniors had no health insurance. Today, virtually all Americans over age 65 have at least some health coverage through Medicare.

Medicare does not cover all health care services. For example, Medicare generally does not pay for long-term care services, regular eye exams and eyeglasses, hearing aids, or routine dental care.

Medicare coverage is divided into four parts – Part A, Part B, Part C (Medicare Advantage), and Part D.

Part A (Hospital Insurance) covers inpatient hospital care, some limited skilled nursing facility stays, home health care, and hospice care.

Part B covers physician services, outpatient hospital care, and some home health visits. It also covers laboratory and diagnostic tests, such as X-rays and blood work; durable medical equipment, such as wheelchairs and walkers; certain preventive services and screening tests, such as mammograms and prostate cancer screenings; outpatient physical, speech and occupational therapy; outpatient mental health care; and ambulance services.

Part D is prescription drug coverage.  

Part C (Medicare Advantage) allows beneficiaries to choose to receive their Part A, B, and D services through a private managed care insurance plan rather than original Medicare.  

Medicare Part B Premiums and Deductible

Part B generally pays 80% of the approved amount for covered services in excess of the annual deductible ($198 in 2020 and $203 in 2021). The beneficiary is liable for the remaining 20%. Many beneficiaries purchase a Medicare Supplement (Medigap) policy to cover that exposed 20%.

Part B coverage is not free. You pay a premium each month for your Part B coverage. If you get Social Security, Railroad Retirement Board, or Office of Personnel Management benefits, your Part B premium is deducted from your benefit payment. If you don’t get these benefit payments, you’ll get a bill. 

The Centers for Medicare and Medicaid Services (CMS) has recently announced that the standard monthly Part B premium for 2021 will be $148.50. This is an increase of $3.90 over the 2020 amount. Some beneficiaries will pay substantially more while those with low incomes and limited resources can get help paying the premiums through several Medicare Savings Programs.

Your monthly Part B premium will be increased if you are subject to penalty for late enrollment or reenrollment. Premiums are also increased for individuals and couples with higher incomes. This is referred to as your Income Related Monthly Adjustment Amount (IRMAA). The Government uses the taxpayer’s two-year prior (2019 for 2021 premiums) federal income tax return to determine if they are subject to an IRMAA premium adjustment. The calculation is based on your adjusted gross income plus tax-exempt interest income. This is referred to as your modified adjusted gross income (MAGI).  These high income-related monthly adjustment amounts affect less than ten percent of people with Medicare Part B. The 2021 total Part B premiums for high-income beneficiaries are shown in the following table:

If your MAGI income in 2019 was (you will pay in 2021)			You pay each month (in 2021)
File as Single on tax return	File joint tax return	File married separate tax return
$88,000 or less	$176,000 or less	$88,000 or less	$148.50
above $88,000 up to $111,000	above $176,000 up to $222,000	Not applicable	$207.90
above $111,000 up to $138,000	above $222,000 up to $276,000	Not applicable	$297.00
above $138,000 up to $165,000	above $276,000 up to $330,000	Not applicable	$386.10
above $165,000 up to	above $330,000 up to	above $88,000 up to	$475.20

$500,000                               $750,000                              $412,000  

 

$500,000 and above            $750,000 and above          $412,000 and above                                    $504.90                                          

Filing Single rates also apply to Head of Household and Qualifying Widow filings.

Special rules may apply to lower your IRMAA premium in some situations where your income has come down due to changed circumstances.   Click here for more information.

Note: If you have joined a Medicare Advantage Part C Plan, you still have Medicare. You'll get your Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance), and perhaps Medicare Part D (Drug) coverage from the Medicare Advantage Plan and not Original Medicare. Medicare Advantage Plans have different rules and charge different out-of-pocket costs for their enrollees. The premiums charged by Medicare Advantage plans may be substantially lower than with Original Medicare. Those rules and costs change each year.

Higher income Medicare beneficiaries with Part D coverage will have their premiums increased based upon IRMAA adjustments. Beneficiaries should have received a statement from the Social Security Administration in late November which shows their IRMAA adjustments. 

Related Links:

CMS Fact Sheet - 2021 Medicare Parts A & B Premiums and Deductibles

Pennsylvania Death Taxes Explained

 

Should you be worried about death taxes?

Many Pennsylvania seniors share similar financial and estate planning concerns and goals. We want to be sure that we have enough resources to provide for our needs during our lifetime. And we want to pass a little something – as much as possible really – on to our families after our deaths.

For most of us, death taxes are a nuisance, but won’t prevent us from reaching these planning goals. Death taxes don’t affect our lifetime financial security because they only come into play when we die.  And with proper planning they won’t affect the financial security of our spouse because in most cases there is no tax on what we leave to our surviving husband or wife.

For most of us death taxes hit our families only when both spouses are gone and our home and savings pass to our children or other heirs.  At that point, they usually do take a bite.

Here is my simplified overview of how death taxes apply for Pennsylvania residents.   [The following information is based on the tax laws as they exist in September 2020.]

Death taxes are imposed by two taxing authorities: state and federal.

Federal Transfer Taxes

The federal government imposes a set of taxes (estate, gift, and generation-skipping) on the transfer of wealth. Under current law few families are affected.

Generally, there is no tax on what you leave to your spouse or charity. And there is no tax on the first $11.58 million (in 2020) that passes to your other heirs. This means that a married couple can protect 23.16 million from the tax. These exclusions increase each year with inflation. There is the potential that the exclusion amounts could be reduced in the future, but they will still likely be more than most people require. If you are one of the few people who do have an estate over the exclusion limits you need to plan to avoid or limit federal transfer taxes. The tax rate is high – the federal estate tax is 40% on the excess – but that tax can be greatly reduced or eliminated by good advance estate planning.

While a 40% federal death tax is severe, it doesn’t affect many people. Fewer than 1% of all estates are subject to federal estate tax. For most of us, it is not a worry.  [Note, however, that the current estate tax structure is set to expire after 2025. In addition, nothing prevents future lawmakers from reducing the exemption amounts or increasing the tax rate.]

Pennsylvania Inheritance Tax

The Pennsylvania inheritance tax applies to the things that Pennsylvania residents leave to their children, grandchildren and other non-spouse heirs.  It will impact most Pennsylvania families.

Inheritance tax is imposed as a percentage of the value of a decedent’s estate transferred to beneficiaries whether the assets pass through probate or not. There is no bottom threshold – even small estates are subject to PA inheritance tax. The tax also applies to transfers made by a decedent within a year of death to the extent in excess of $3,000.  The tax rate varies depending on the relationship of the heir to the decedent.

With a few special exceptions the rates for Pennsylvania inheritance tax are as follows:

• –         0 percent on transfers to a surviving spouse, to a child age 21 or under from a parent, and to a parent from a child aged 21 or younger;
• –         4.5 percent on other transfers to direct descendants and lineal heirs (see below for definitions);
• –       12 percent on transfers to siblings; and
• –         15 percent on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax.

“Direct descendants” include natural children of parents and their descendants (whether or not they have been adopted by others), adopted descendants and their descendants and step-descendants. “Lineal heirs” include grandfathers, grandmothers, fathers, mothers and their children. “Children” include natural children (whether or not they have been adopted by others), adopted children and step-children.

There are some inheritance tax exemptions written into the law. The proceeds of life insurance policies on the decedent’s life are not taxed, and special rules may apply to IRAs and other retirement plans. In addition, real estate and physical objects located in another state are not subject to Pennsylvania inheritance tax.

Certain farm land and other agricultural property may be exempt from Pennsylvania inheritance tax, provided the property is transferred to eligible recipients. For more information about these agricultural exemptions and related requirements, see my earlier post: Pennsylvania eliminates tax on inheritance of family farms if law’s conditions are met.

Inheritance tax payments are due upon the death of the decedent and become delinquent nine months after the individual’s death. If inheritance tax is paid within three months of the decedent’s death, a 5 percent discount is allowed.

While the Pennsylvania inheritance tax can take a bite out of your estate, it is rarely devastating. Let’s say that when you die, your leave your home and investments to your children and that the net value of the inheritance is $300,000.  The PA inheritance tax would be 4 ½% of that, or $13,500, and the children would receive $286,500 in value.

If the $300,000 estate were left to a brother or sister the toll would be much higher. The PA inheritance tax would be 12% of that, or $36,000.

[This posting is an update of an article I originally posted on April 8, 2018.]