By Matthew A. Quick
The Health Insurance Portability and Accountability Act of 1996 (referred to as “HIPAA”) was enacted as federal law to address two main issues: (1) health care insurance coverage of employees and their families when the employees change or lose their jobs; and (2) the establishment of a national standardized means of transferring health care information. When creating the standards regarding the transfer of health care information, privacy rules evolved concerning the dissemination of certain health information. These privacy rules regulate the use and disclosure of Protected Health Information that is held or transferred by Covered Entities. Protected Health Information is considered any information held by a Covered Entity which concerns health status, any provisions of health care, or payment for health care that can be linked to an individual. Protected Health Information has been interpreted rather broadly and, in practice, includes any part of an individual’s medical record or payment history. Covered Entities include hospitals, health care professionals, mental health care professionals, health care clearinghouses (billing services, health information management services, etc.), health insurance providers, and any other entity that processes or facilitates the processing of Protected Health Information.
Generally speaking, Covered Entities must keep Protected Health Information confidential, with the exception of a few limited circumstances: (1) Covered Entities must disclose Protected Health Information to the individual upon request and when required to do so by law, such as reporting suspected child abuse; (2) Covered Entities may disclose Protected Health Information to facilitate treatment, payment or health care operations regarding the individual; and (3) most relevant to this article, Covered Entities may disclose Protected Health Information to identified agents if authorization is obtained from the individual.
It is important to address the HIPAA privacy rules when planning one’s estate in order to allow health care attorneys-in-fact (agents or patient advocates that make health care decisions for another) to lawfully receive protected health care information so that the attorney-in-fact can make educated and informed health care decisions. The authorization required to allow Covered Entities to disclose Protected Health Information to health care attorneys-in-fact is called a HIPAA Waiver. A HIPAA Waiver (also referred to as an “Authorization for Use and Disclosure of Protected Health Information”) waives the privacy rules of HIPAA as to Protected Health Information disclosed to certain, identified individuals (health care attorneys-in-fact).
The people who make health care decisions for us when we are unable need to be given broad access to our medical information to make the most informed decisions possible concerning our health care. For that reason a HIPAA Waiver is required for every estate plan.
-Educational Savings Programs-
On March 30, 2010, the Education Reconciliation Act was signed into law, which changes the repayment schedules for student loans. Students who borrow money starting in July 2014 will be allowed to limit payments to 10% of their income and, after 20 years, any remaining balance will be forgiven. Those who enter public service (military, teachers, nurses, and the like) will have any balance forgiven after 10 years.
The costs associated with this new legislation will not be the burden of the taxpayers. The savings associated with ending government subsidies to banks and other financial agencies that have been making and maintaining student loans will absorb the cost and allow a large increase in funds available for grants (money that does not need to be repaid). For example, the new law makes an additional $40 billion available for the need-based Pell Grants, which do not have to be repaid. In other words, by cutting the unnecessary middleman out of the process, the federal government is making the rising higher-education costs more bearable.
Even while accounting for the savings associated with this new student loan policy, students will still have to bear significant education costs that continue to rise. In the interest of making the costs a bit more tolerable, there are a few saving techniques that have become quite popular over conventional savings or the use of funds earmarked for retirement. Of note, beginning in 2010, those financing a student’s education will be eligible for tax credits up to $10,000 over 4 years (a tax credit is a dollar for dollar reduction of the amount of tax owed, as opposed to a deduction that just reduces the amount of taxable income). The ability to take the tax credits has an adjusted gross income ceiling of $80,000 ($160,000 for joint filers).
The three main educational savings programs are Section 529 prepaid tuition plans, Section 529 college savings plans, and Coverdell education savings accounts (Section 529 refers to the Internal Revenue Code). A Section 529 prepaid tuition plan is state run and only available in a limited number of states (Michigan has the Michigan Education Trust and Illinois has the College Illinois! 529 Prepaid Tuition Program). A prepaid tuition plan typically locks in the current tuition rate for the amount deposited. For example, if an amount deposited today is equal to 50% of a year of tuition, then 50% of a year of tuition will be credited regardless of the future cost of tuition (even if the tuition has sincedoubled). This plan is simple and does not involve choosing investments or building a portfolio. Locking in the current tuition rate usually offers a better return on investment than a certificate of deposit, money market account or conventional savings account and the funds deposited are tax deductible, with some limitations. If, however, a contributor wishes to make investments rather than lock in the tuition rate, thus potentially resulting in more money over time, a Section 529 college savings plan or Coverdell education savings account may be preferable.
Similar to Section 529 prepaid tuition plans, Section 529 college savings plans are tax-exempt college savings utilities. Unlike Section 529 prepaid tuition plans, there is no lock on tuition rates and no guarantee of return on investment, because a Section 529 savings plan is an investment in a portfolio, which is subject to the market. The investment allocation under a Section 529 college savings plan can only be changed twice per year and must be invested through a money manager. Withdrawals from a college savings plan may only be used for qualified higher education expenses (college and up) in order to be withdrawn tax free. However, unlike the Coverdell education savings accounts, as discussed below, there is no age limit for contributions to a Section 529 savings plan and no income limit for contributors.
Similar to Section 529 college savings plans, Coverdell education savings accounts are funded through investment portfolios and are subject to the market, however, no money manager is required and there is no limit on investment allocation changes—investments may be controlled by the contributor. The student must be under the age of 18 to receive contributions and under the age of 30 to make withdrawals. The current maximum annual contribution amount is $2,000 and the current adjusted gross income limit is $95,000 for single filers and $190,000 for joint filers. Contributions to the Coverdell education savings account are generally not tax deductible, but the withdrawn funds are tax-free if used for qualified education expenses. Coverdell education savings withdrawals may be used for any level of education (K-12 and higher), as opposed to the Section 529 college savings plans that can only be used for post-secondary education.
Each of the programs discussed can be used together to effect the greatest possible outcome. Because this article could only consider the basics of each program, be sure to consult a financial professional for more information on eligibility for student loans, transferability of the plans, contribution limits, and when and how the funds must be used.