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What Does the Fiscal Cliff Deal Mean for Seniors?

Jan. 16, 2013
Personal Finance
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The hubbub in Washington is over for the moment, and many decisions have been left for later. We were dangling from the fiscal cliff for only a few hours, as it turned out – but where does the deal leave seniors?

A Vanishing Opportunity

First of all, there’s one option that was missing in action in 2012 that’s back for two more years – if you act quickly. The IRA charitable rollover, which allows you to contribute your mandatory (if you’re over 71½) distributions to charity, expired in 2011. It’s good through 2013 now, but if you want to get credit for 2012 you have to make those donations before this January 31. Then you’ll have the rest of the year to think about your 2013 contributions. As usual, you can’t actually touch the money: the custodian of the account sends it directly to the charities. Consult your tax adviser, but don’t wait; Congress has compressed that missing 2012 opportunity into this month, and it’s over February first.

More Taxes

If you’re still working, you may notice that Social Security payroll taxes have returned to their 2010 levels. That’s because the deal let a two-year reduction expire, and it’s good news for the long-term health of the program. The non-partisan Tax Policy Center has the details:

“As a result, those with income between $40,000 and $50,000 would pay an additional $574 in payroll taxes in 2013. Those with household income between $75,000 and $100,000 (still solidly middle-class by Obama’s definition) would pay an additional $1,194 in 2013. Allowing the payroll tax to go back up to 6.2% from 4.2% will mean an average tax hike for all Americans of $721 over the course of 2013. That’s $60 a month.”

Cheer up, though: Those payroll taxes are going to strengthen Social Security, which is clearly a good idea. It was discouraging to see President Obama – operating from a position of strength – offering to reduce Social Security benefits with the “chained consumer-price index” ruse that we discussed here earlier. Apparently not enough politicians on either side of the aisle want to be seen cutting entitlements right now, though, so we’re safe for the moment. The other tax consequences of this bargain are a mixed bag, but let’s stay focused on seniors here.

No Medicare Cuts

Medicare itself is safe for now. As Diane Omdahl of 65 Incorporated explains, “Congress avoided significant cuts in Medicare payments to doctors as part of the fiscal cliff deal. In fact, the deal put off a 26.5% cut in Medicare reimbursement rates to doctors.” Hospitals weren’t so lucky: Omdahl cites “almost $15 billion in reduced payments to hospitals. This reduction could have a trickle-down effect on seniors when it comes to things like cost, procedures, and exams.”

Still to be decided is how much wealthier Medicare recipients will be required to contribute toward their expenses – and what we mean by “wealthy.” Right now, if you make less than $85,000 a year ($170,000 for couples) Medicare basically pays 75% of your costs. As the AP explains, “people the government considers well-off shoulder an increasing share of premiums, starting at 35 percent and going all the way up to 80 percent for individuals making more than $214,000 and couples over $428,000.” Those thresholds will probably be pushed downward, at the same time that the current freeze on income thresholds is maintained. If there’s no adjustment for inflation, you’ll drift into one of those higher brackets, and be required to pay a larger share of your Medicare expenses.

Fraudsters on the Run

Fortunately, it sounds as if the Department of Justice is getting serious about going after doctors and other providers who have been cheating Medicare of billions. Much of the fraud seems to be centered around greedy doctors and compliant seniors allowing fraudsters to bill Medicare for services they don’t need or never even receive.

Ms Omdahl lists a few measures affecting the two groups of providers that have been getting the most negative publicity lately – equipment suppliers and home health agencies:

  • Requiring durable medical equipment (DME) or home-health services to be ordered by a Medicare physician enrolled in the Medicare program.
  • Mandating a face-to-face encounter between physician and patient before certifying eligibility for home-health services or DME.
  • Instituting a 90-day period for enhanced oversight of initial claims from DME suppliers and in cases where HHS identifies significant risk of fraud among suppliers.
  • Allowing the IRS to share information with the Department of Health and Human Services (HHS) to screen and identify fraudulent providers.
  • Requiring procedures for screening providers and suppliers participating in Medicare, Medicaid, and the Children’s Health Improvement Program.

The Affordable Care Act itself includes another tactic that should have already upset a few suspects: HHS can hold up payments due to providers that are under suspicion for fraudulent billing.

But Premiums are Rising

Tony Drake, a Milwaukee-area financial professional specializing in senior issues, says the worst is yet to come:

“Seniors need to be watching Congress very closely, because they’ve punted the hard decisions on spending cuts until March . . . As it stands, two million beneficiaries are currently facing higher income-related Medicare premiums. Many believe that number will rise to 20 million over the next 10 years. Additionally, 17 million home-delivered meals, 1.9 million senior transportation rides and 2.7 million people receiving in-home help will likely be cut, according to the Leadership Council of Aging.”

We’ll be watching too, of course. Stay tuned to NerdWallet, and be prepared to write your representatives if things take a turn for the worse.