ElderLaw Answers Blog

A number of politicians and writers have predicted that the nation will go bankrupt because our Social Security, pension, Medicare and Medicaid commitments far exceed our ability to pay for them.  This imbalance will be most extreme when the big cohort of Baby Boomers stops working and starts drawing on their Social Security and Medicare benefits — especially in their later years, when their Medicare-covered care will be most expensive.

One economist who has calculated this unfunded obligation is Professor Laurence J. Kotlikoff in The Coming Generational Storm.

Now, Henry Aaron of the Brookings Institution debunks these dire predictions in a blog entry on the Brookings site.  He argues that there is no general “entitlement” problem.  “Rather, the nation faces a daunting health care financing problem that bedevils private insurers and public programs alike.”   He explains that this distinction is critical because the definition of the challenge we face will influence the solution.

According to Congressional Budget Office projections, as a percentage of GDP non-health care entitlement spending will increase by 1 percent over the next four decades.  At the same time, all health care spending — governmental and private — is projected to increase from the current already high level of 16 percent of GDP to 37 percent.  Even at the current level, we spend about twice as much per capita as other developed countries, with worse results.  According to Aaron,

“Patients receive only a little over half of recommended care during typical contacts with doctors or hospitals. Huge amounts are spent on interventions that yield negligible benefits, while opportunities to achieve sizeable health improvements at little cost go unexploited. And as the projections indicate, at least on the cost front, things will get worse. And there is also that continuing national shame—that 46 million people are uninsured and lack adequate financial access to standard care.”

Aaron concludes by calling for a debate focussed on health care reform, not entitlement reform: “Reaching agreement will be difficult and slow. But a debate about a bogus ‘entitlement crisis’ misdirects public discussion. Not incidentally, it would threaten the adequacy of social security benefits that during the current financial turmoil have proven to be the only source of income on which the retired and disabled can count with absolute security.”

Mediation, which has been increasingly used to resolve business disputes and in divorce, has been increasingly used in family disputes around elder care issues.  These disputes can arise among children who have different views about the care a parent needs and how their financial resources should be spent and between a parent and children when the children believe that the parent needs assistance and the parent disagrees or cannot give up control.

If these disputes go to court, typically in the context of a guardianship proceeding, ususally no one wins (except perhaps the attorneys who can end up spending a lot of time and charging large fees).  If the parties are willing — a big if — these disagreements can often be resolved through mediation in a way that is quicker, cheaper and somewhat gentler on the participants feelings than litigation over guardianship.

National Public Radio recently featured our friend, Rikk Larsen, of Elder Decisions in a program on this topic.  You can listen to it by clicking here.

Our problem, despite our believe in mediation as the best method of resolving disputes, is that all parties must be willing to come to the table to make mediation possible.  Often not everyone is willing.

The Institute on Assets and Social Policy (IASP) at Brandeis University studied Massachusetts seniors and found that almost 70% are at financial risk and that more than 80% of single seniors face financial insecurity.

More than four in 10 seniors in Massachusetts have inadequte financial resources to cover their financial needs over their expected lifespans, according to the study.  More than a third have nothing left at the end of each month.  And more than half pay too much for housing.

The study was conducted before the current economic downturn, so many seniors are facing more difficult financial challenges than are reflected in the study.  And matters are likely to become worse for future seniors because few will have pensions to rely upon.  For them, the old three-legged stool of pension, Social Security and savings, will be reduced to the two wobbly legs of Social Security and savings.

The study makes a number of recommendations for policy changes to improve the financial picture for both today’s and tomorrow’s seniors.  These include policies to facilitate the ability to work longer, whether full-timer or part-time, reformation of Medicare to reduce out-of-pocket costs, and universal long-term care insurance.

Just over half (51%) of the respondents to the ElderLawAnswers survey on the whether there should be a federal estate tax and, if so, at what level should it begin, voted against there being tax at all.  Almost a fifth (19%) felt the cut off should stick at the current $3.5 million level.  Fewer than one in three felt that the smaller estates should be taxed, with 16% calling for a tax on estate of more than $1 million and 12% for a tax on estates larger than $2 million.

As the law stands now, only those estates over $3.5 million are taxed and for those dying in 2010, there’s no estate tax.  However, if Congress doesn’t act, the threshhold will revert back to $1 million for those dying in 2011 or thereafter, the figure in place before the Bush tax cuts.  Everyone expects Congress to act this year, and the current betting is for a permanent $3.5 million threshhold.

I’m in the $2 million camp.  With relatively minor planning, both members of a couple can exclude the full exempt amount, so this would mean a $4 million exemption for married couples.  While no one likes to pay taxes, this comes down to a question of fairness.  Money must be raised for the necessary expenses of government, whether that’s paving our roads, educating our children, bailing out our bankers, or protecting our borders. 

If we don’t do this by taxing the estates of the richest Americans, we’ll have to do so by raising income taxes or by borrowing, pushing the cost onto our children and grandchildren.  It is only fair that those who benefited most financially from the American system should be called upon to support that system rather than relying on others, whether now or in the future, to do so.

That said, I do feel that the estate tax rate, beginning at 45% is too high.  A lower, more graduated rate, may in fact reap more revenue since taxpayers would be less driven to avoid it.