Walgreens, Humana May Expand Their Partnership

Walgreen Co. and Humana Inc. are reportedly in preliminary talks to take equity stakes in one another. This past summer, the two companies unveiled a partnership aimed at providing easier access to primary care and other services for seniors in the Kansas City, Mo., area. As of Aug. 31, 2018, Walgreens owned 9,560 drugstores in total across all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. With almost 3.3 million Medicare beneficiaries, Humana holds a 17.7% market share in the Medicare Advantage (MA) market nationwide, and it dominates in Mississippi and Louisiana with more than 60% market share.

SOURCES: Walgreen Co., AIS's Directory of Health Plans, https://aishealthdata.com/dhp.

New Study Suggests Appropriate Low-Dose Aspirin Use Could Save Millions in Costs

Appropriate use of low-dose aspirin for primary and secondary cardiovascular event prevention could improve patient outcomes with significant cost savings to payers, according to a recent study published in the Journal of Managed Care & Specialty Pharmacy. The study compared current rates of aspirin use to appropriate guideline-recommended aspirin use and found that aspirin is underused in the U.S. It suggests that clinical evidence-based, guideline-compliant use of aspirin for primary and secondary cardiovascular event prevention would result in $4.2 million and $11 million, respectively, in cost savings for a hypothetical 1-million-member plan over a five-year period. The charts below detail estimated savings and medical events for the hypothetical population.

SOURCE: Journal of Managed Care & Specialty Pharmacy. 2018;24(11):1102-11. Visit https://www.jmcp.org/doi/full/10.18553/jmcp.2018.24.11.1102.

Big Pharma returning to U.S. price hikes in January after pause

Michael Erman, Robin Respaut

DECEMBER 19, 2018 / 6:28 PM / 8 DAYS AGO

NEW YORK/SAN FRANCISCO (Reuters) - Novartis AG (NOVN.S) and Bayer AG (BAYGn.DE) are among nearly 30 drugmakers that have taken steps to raise the U.S. prices of their medicines in January, ending a self-declared halt to increases made by a pharma industry under pressure from the Trump administration, according to documents seen by Reuters.

Other drugmakers set to raise prices at the start of 2019 include Allergan Plc (AGN.N), GlaxoSmithKline Plc (GSK.L), Amgen Inc (AMGN.O), AstraZeneca Plc (AZN.L) and Biogen Inc (BIIB.O), the documents show.  

The hikes will pose a new challenge to President Donald Trump’s pledge to lower the costs of prescription medications in the world’s most expensive pharmaceutical market.

The U.S. Department of Health and Human Services (HHS) has proposed a slew of policies aimed at lowering prices and passing more of the discounts negotiated by health insurers on to patients. Those measures are not expected to provide relief to consumers in the short-term, however, and fall short of giving government health agencies direct authority to negotiate or regulate drug prices.

Twenty-eight drugmakers filed notifications with California agencies in early November disclosing that they planned to raise prices in 60 days or longer. Under a state law passed last year, companies are required to notify payers in California if they intend to raise the U.S. list price on any drug by more than 16 percent over a two-year period.

The details were provided to Reuters in response to a public records request to California Correctional Health Care Services, which provides healthcare services to the state’s corrections department. The department spends more than $3 billion annually on drugs for inmates, more than any other state.

“Requests and public shaming haven’t worked” to lower drug prices, said Michael Rea, chief executive of RX Savings Solutions, which helps health plans and employers seek lower cost prescription medicines. “We expect the number of 2019 increases to be even greater than in past years.”

Pfizer Inc rolled back planned price increases in July after President Trump said in a tweet that the drugmaker “should be ashamed” and that his administration would respond to the hikes.

Pfizer said it would defer hikes until January 2019 to support the administration as it pursued its new pricing policies. Pfizer’s move prompted many of its industry peers, including Bayer, Novartis, Allergan, AstraZeneca and Amgen, to follow suit.

Drug price increases implemented by the 20 biggest drugmakers did slow down during the second half of 2018, with those companies raising prices on just over half the number of drugs as in 2017, according to data compiled by consultancy RX Savings Solutions.

Pfizer has already announced plans to hike prices on 41 of its drugs in mid-January.

60-DAY NOTICE      

The California corrections department documents indicate that the companies plan to increase prices as early as Jan. 1. Most do not detail for which drugs or by how much, but specific details were given in the case of Novartis and Bayer.

Novartis is planning to raise prices on more than 100 indications of over 30 different drugs in January, the documents show, with increases ranging from 4.5 percent to 9.9 percent. Drugs on the list are expected to account for more than $20 billion of Novartis’ revenue this year and include multiple sclerosis drug Gilenya, psoriatic arthritis treatment Cosentyx, and leukemia treatment Tasigna.

The list also includes Diovan, the brand name version of blood pressure treatment valsartan, generic versions of which are currently in shortage after a potential carcinogen was detected in active ingredients made in China, prompting widespread recalls.

Novartis spokesman Eric Althoff said the company plans to raise U.S. list prices on 14 percent of the medicines it sells in the country in 2019, for an average increase of 4.7 percent on those drugs.

 “Our rebates and discounts, however, continue to grow even faster,” Althoff said. As a result, the company expects a net price decrease of nearly 5 percent across the whole U.S. portfolio, he said.

Over the last three years, net price decreases for its U.S. business have ranged from 2 percent to 2.6 percent, the company said.

Bayer filed notifications with California agencies to increase prices on six of its drugs in January, many of which are birth control products. Most of these price increases are 5 percent.

Bayer said that the U.S. wholesale price of its products are not representative of what most consumers pay and that “list price increases are expected to be offset by higher rebates and discounts paid to insurance companies and pharmacy benefit managers.”

Amgen did not respond to requests for comment. AstraZeneca and Biogen declined to comment for this story.

GSK would not give details about its specific price increases, which are set to take effect on or around Jan. 1 and could change before then. Allergan said that all of its price increases will be aligned with its pledge made in 2016 to limit drug price increases on its products to less than 10 percent annually.

The United States, which leaves drug pricing to market competition, has higher drug prices than in other countries where governments directly or indirectly control the costs, making it the world’s most lucrative market for manufacturers.

Lowering prescription drug prices was a top priority in Republican Trump’s 2016 presidential campaign. Rival Democrats are expected to step up congressional scrutiny of drug price hikes next year after gaining control of the U.S. House of Representatives in elections in November.

“Drug companies raising their prices and offsetting them with higher rebates benefits everyone but the consumer,” HHS spokeswoman Caitlin Oakley said in a statement.

Trump and HHS Secretary Alex Azar “remain committed to lowering drug prices and reducing out of pocket costs, and will continue to take bold action to restructure this broken market,” she said.

Reporting by Michael Erman in New York and Robin Respaut in San Francisco; Editing by Michele Gershberg and Sonya Hepinstall

Our Standards:The Thomson Reuters Trust Principles.

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Health Insurance Costs Crushing Many People Who Don’t Get Federal Subsidies

By Steven Findlay DECEMBER 14, 2018

Like millions of Americans in this final week of open enrollment for the Affordable Care Act marketplaces, Diane McCabe is shopping for health insurance.

“At my age, I can’t go without it even though I’m healthy now,” said McCabe, 62, a self-employed real estate agent in Luzerne County, Pa. “But the process is frustrating, and the expense significant.”

That’s because McCabe is one of the 5 million people who buy their own coverage and pay the full cost. Her income is too high to qualify for a government subsidy to help defray the premium.

McCabe this week settled on a $773-a-month policy that has a $4,000 deductible — the amount she’ll have to pay out-of-pocket before insurance kicks in. She estimates that will account for at least 15 percent of her income in 2019.

Under the ACA, people who earn up to 400 percent of the poverty level (about $48,500 for an individual and $100,400 for a family of four in 2019) are eligible for premium subsidies. Eighty-seven percent of the 10.6 million people with ACA plans this year received a subsidy.

The financial challenge for people like McCabe has come into much sharper focus during the past year, as insurance premiums have spiked.

These increasing costs plus rising deductibles and copayments have driven millions who don’t get a subsidy to drop their coverage or turn to cheaper, less comprehensive — and sometimes inadequate — insurance.

The Trump administration has highlighted the plight of the unsubsidized and said that its regulatory revamp of the health law will give consumers new, more affordable options. One of the key administration efforts is extending the use of short-term insurance plans that have lower premiums but don’t provide the full benefits that the ACA requires, such as continuous coverage of preexisting conditions or maternity care.

Those plans are not eligible for subsidies now, but, under regulations the administration proposed in October, subsidies could be available starting in 2020.

Critics counter that the administration’s approach runs a high risk of undermining core features of the ACA. And a legal battle over the administration’s proposed new rules is likely.

Bottom of Form

“The subsidy structure is unquestionably a problem,” said Chris Sloan, a director at Avalere Health, a policy and research think tank in Washington, D.C. “It’s a cruel reality for those above the income cutoffs. But it’s not clear that the administration’s actions are the best solution.”

Opponents of the Trump administration’s proposals contend they could lead young, healthy people to abandon ACA coverage and choose less comprehensive and expensive coverage — leaving more older and sicker people in the exchanges. That would result in steadily increasing costs for those plans, and could eventually destabilize the ACA marketplaces, policy analysts say.

Overall, about 4.4 million fewer people who buy coverage on their own were insured in 2018 compared to 2015, a decline from 18.8 to 14.4 million. Most of the decline occurred among people who don’t get subsidies.

On And Off Insurance

Cameron and Lori Llewellyn, of Dover, Del., have found insurance just too expensive.

In June 2017, Lori left a job that provided the family with good health coverage. She wanted to start her own business — a clothing boutique. Cameron is a self-employed construction contractor.

The Llewellyns tried to enroll in a plan through the ACA exchange in the summer of 2017. But Cameron’s income was too high to qualify for a subsidy. On the open market, they were quoted rates as high as $2,000 a month, with deductibles of $4,000 or more, for themselves and their 8-year-old daughter, Bryce.

They opted instead to go without coverage until the end of 2017. Then again, for this year, they ended up not qualifying for subsidies and decided to go without insurance.

 “We just couldn’t justify the expense, especially with that high of a deductible,” Lori said. “But it wasn’t a comfortable situation. We wanted coverage for all the reasons people know they need it.”

For 2019, the Llewellyns are trying again. They have enrolled through the state ACA exchange in a policy with a premium of $1,286 and a $7,900 deductible, but with a subsidy that will cover the entire premium.

Spencer Ricks, 36, a self-employed attorney in Salt Lake City, is choosing a different path. He, his wife and their 3-year-old daughter bought ACA-compliant coverage in 2016. Their premium rose from around $600 in 2016 to $970 in 2017 with a $10,000 deductible.

Ricks was told his premium for 2018 for the same plan would be $1,200 with a $13,500 deductible. He pulled the plug on the family coverage and instead enrolled his wife — who was pregnant — in a plan costing $570 a month with a $5,000 deductible.

Ricks and his daughter then joined a Christian Healthcare Ministry plan costing $157 a month, with a $10,000 deductible. For 2019, Ricks is enrolling the whole family is another religious-affiliated plan, costing $529 a month with a $2,250 deductible.

But the most prevalent alternative to an ACA plan for people who don’t get subsidies in 2019 is likely to be a short-term plan.

Previously available for only 90 days — primarily to bridge gaps in coverage — the Trump administration expanded that time frame to 364 days.

The plans can be bought at any time, but sales are up now because more people are shopping during the ACA’s open enrollment, said Sean Malia, a senior director at eHealth, an online brokerage.

Melanie and Pete Howell, of Austin, Texas, are among eHealth’s newest customers. They had an ACA plan this year costing $1,100 a month with a $7,000 deductible. It covered the couple and their two children, ages 22 and 17.

The Howells’ income is too high to qualify for a subsidy. When their insurer notified them that the premium was going to $1,400 a month in 2019, they opted for a short-term plan that will cost $380 a month with a deductible of $12,500.

The plan does not cover prescription drugs, and the Howells will pay 30 percent of the costs for doctor, emergency room visits and any surgical procedures.

“This buys us some time at a much more affordable price to figure out what to do for the longer term,” said Melanie Howell.

No Easy Solutions

Although both ACA critics and advocates say that addressing the high cost of coverage for non-subsidized families should be a priority, there are no easy bipartisan fixes in sight.

Many ACA supporters urge legislation that raises the threshold for subsides above 400 percent of poverty — to, say, 600 percent. But that stokes concerns of added federal spending.

A more realistic approach, for now, could be to permit states to experiment with ways to help those over the 400 percent threshold, said Sabrina Corlette, a research professor at the Georgetown University’s Health Policy Institute.

For example, with federal government permission, eight states have already launched, or will in 2019, “reinsurance” programs that redeploy federal dollars to help insurers cover the costs of families with high medical expenses. The programs have kept premium costs down for both people who get subsidies and those who don’t.

Another proposal would permit states more leeway to restructure the ACA subsidies to provide less help to people with high-cost health care needs and more help to those not currently eligible for subsidies.

“Letting states try things out has bipartisan support and there are mechanisms for that already in place,” Corlette said. “It would seem to have the best chance of yielding something useful to help this population [the unsubsidized] for now.”

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Health Law Could Be Hard to Knock Down Despite Judge’s Ruling

By Jan Hoffman, Robert Pear and Adam Liptak

Dec. 15, 2018

Could a federal judge in Texas be the catalyst that finally brings down the Affordable Care Act, a law that has withstood countless assaults from Republicans in Congress and two Supreme Court challenges?

On the morning after Judge Reed O’Connor’s startling ruling that struck down the landmark health law, legal scholars were doubtful.

Lawyers on both sides of previous A.C.A. battles said the reasoning behind this one was badly flawed, notably in its insistence that the entire 2010 law must fall because one of its provisions may have been rendered invalid by the 2017 tax overhaul legislation. Had Congress meant to take such radical action, they said, it would have said so at the time.

Legal experts also noted that the Supreme Court, where most people believe the case is headed, historically has been reluctant to strike down federal laws, particularly those that have become ingrained in the lives of millions of citizens.

For now, the ruling is unlikely to affect the more than 23 million people who get health coverage through the insurance marketplaces set up by the law and the expansion of Medicaid in 36 states. The Trump administration immediately said — despite the president’s gleeful tweets hailing the decision — that it would continue to enforce the law until the appeals process plays out, which could take more than a year. That will ensure that the American health care system, which has been operating under the law for more than five years, will not be thrown into immediate chaos.

Judge O’Connor, who was appointed by George W. Bush to the Federal District Court in Fort Worth, has ruled against laws supporting immigration, transgender and Native American rights. Conservative lawyers are known to choose his district to file cases, hoping he will fire opening salvos that propel their issues through the court system.

The crux of Judge O’Connor’s decision centered on the health law’s requirement that most people have health coverage or pay a tax penalty.

That tax penalty was effectively eliminated when Congress reduced its amount to zero in the tax legislation enacted last year. And once the tax penalty no longer stood, the so-called “individual mandate” was unconstitutional and the entire law had to fall, the judge reasoned in accepting the argument of the 20 states that brought the lawsuit challenging the legislation.

But an array of legal experts said that argument was unsound. Jonathan H. Adler, a conservative law professor at Case Western Reserve University in Cleveland, called that position “simply nonsensical” and said the judge’s conclusion was “hard to justify” and “surprisingly weak.”

He and others pointed to the fact that even though Congress erased the tax penalty, it did not touch the rest of the sprawling health act. A longstanding legal doctrine called “severability” holds that when a court excises one provision of a statute, it should leave the rest of the law in place unless Congress explicitly stated that the statute could not survive without that provision.

In this case Congress’s intention was particularly clear, legal experts said.

“Congress amended one provision of a 2,000 page law and did not touch the rest of the law so it is implausible to believe that Congress intended the rest of the law not to exist,” said Abbe R. Gluck, a health law expert at Yale Law School.

Judge O’ Connor also cited congressional intent, focusing on language from the 2010 law, which underscored the significance of the individual mandate to the entire act. But he largely ignored the 2017 congressional action. In essence, legal scholars said, he looked to one congressional view and not the more recent one.

And in so doing, he opened the door for House Democrats to intervene in successive appeals. On Saturday aides to Representative Nancy Pelosi, who is expected to become the next speaker of the House, said she would move quickly to notify the Trump administration that House Democrats intended to step in to defend the law in the case.

As the legal showdown plays out, efforts to protect the A.C.A. are also underway in the courts. Earlier this year the state attorney general of Maryland sued the Trump administration for attempting to gut the act. The case is pending.

Nicholas Bagley, a health law expert at the University of Michigan, suggested that Judge O’Connor may not yet be done with the case. In a series of tweets on Saturday, Mr. Bagley noted that the judge had not yet addressed a handful of central issues in the suit, nor had he issued a final ruling indicating whether the act should fall immediately. Judge O’Connor could indeed hold onto the case before an appellate court takes it up.

But if he lets the case move forward, a likely timeline, according to many legal experts, is that the case will be taken up by the United States Court of Appeals for the Fifth Circuit in New Orleans this spring. If the Fifth Circuit upholds Judge O’Connor’s decision, the Supreme Court is likely to agree to hear the case in its term that starts in October 2019, with a decision in 2020. If the Fifth Circuit overturns the judge’s ruling and upholds the law, there is a good chance the Supreme Court would decline to even take the case, legal scholars said.

One law professor, Ilya Somin of George Mason University, criticized parts of the opinion, but said he was “a bit less confident about the outcome” because “the history of A.C.A.-related litigation is filled with surprises and failed predictions by experts.”

Among the observations flying about was the notion that the Supreme Court only rarely strikes down federal laws, and it is particularly reluctant to do so when the laws have been in place for years and affect millions of people. In fact, Chief Justice John G. Roberts Jr. wrote in his 2012 opinion upholding the health care law, that the court should err on the side of sustaining federal laws.

“As between two possible interpretations of a statute, by one of which it would be unconstitutional and by the other valid,” he wrote, quoting Justice Oliver Wendell Holmes Jr., “our plain duty is to adopt that which will save the act.”

The five justices who voted to uphold the law in a landmark 2012 case, including Justice Roberts, are all still on the court.

Follow @NYTHealth on Twitter. | Get politics and Washington news updates via Facebook, Twitterand in the Morning Briefing newsletter.

A version of this article appears in print on Dec. 15, 2018, on Page A16 of the New York edition with the headline: Scholars Say Ruling On Health Law Rests On Shaky Ground.

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U.S. Health Care Spending Growth Slows in 2017

Total U.S. health care spending increased 3.9% to $3.5 trillion, or 3.2% to $10,739 per person in 2017, according to the Centers for Medicare & Medicaid Services. The growth was similar to average annual growth between 2008 and 2013. Private health insurance spending went up 4.2% to $1.2 trillion, slowing from the 6.2% growth seen in 2016. Medicaid saw 2.9% growth in its total expenditures, after increasing 4.2% in 2016. According to CMS, the slower Medicaid spending growth was influenced by decelerating enrollment growth and a reduction in the Medicaid net cost of health insurance. Health insurance spending on the Children's Health Insurance Program, Department of Defense and Department of Veteran Affairs grew 5.8% to $132.6 billion, up from growth of 3.5% in 2016.

NOTE: "Other Health Insurance Programs" includes Children's Health Insurance Program (Titles XIX and XXI), Department of Defense and Department of Veterans Affairs. Dollar amounts shown are in current dollars. Percent changes are calculated from unrounded data.

SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group. Visit https://go.cms.gov/1Jy5kin

CMS approves Medicaid work waivers in Michigan and Maine

By Harris Meyer  | December 21, 2018

The CMS on Friday approved Medicaid work requirement waivers for Michiganand Maine, in what Administrator Seema Verma called an early Christmas gift to those states.

That increases to seven the number of states where the CMS has allowed states to require Medicaid enrollees to work or engage in other "community engagement" activities as a condition of eligibility. More than 10 other states have requested or are considering similar Section 1115 five-year demonstration waivers. Michigan's is the by far the largest state Medicaid program to move to a work requirement. It kicks off Jan. 1, 2020.

"Christmas came early for these Governors & we are proud to support local innovation all across this great country!" Verma wrote in a tweet.

But these waivers are facing legal challenges. A federal judge in Washington, D.C., blocked the CMS approval of Kentucky's waiver, and that same judge is currently hearing a similar challenge to Arkansas' program. Nearly 17,000 Arkansans have been disenrolled this year due to not meeting the new reporting and work requirements.

Maine and Wisconsin are the only two states where the work requirement will apply to the traditional Medicaid population. It only applies to the expansion population in Michigan, Arkansas, Indiana, Kentucky, and New Hampshire.

Michigan Democratic Gov.-elect Gretchen Whitmer opposes the work requirement but likely will try to find a way to minimize resulting coverage losses. It's estimated that the requirement could apply to more than 500,000 of the nearly 655,000 low-income adults in the Healthy Michigan expansion program, and that as many as 54,000 people could lose coverage due to the work and reporting requirements.

In Maine, Democratic Gov.-elect Janet Mills has said she will quickly implement a 2017 voter-approved ballot initiative to expand Medicaid to an estimated 70,000 people. The state likely would have to submit a new waiver request to include the expansion population in the work requirement. But it's uncertain whether Mills would make that request, or even allow the current waiver to take effect.

"We expect that Governor-elect Mills will terminate the waiver and will not allow it to advance," said Robyn Merrill, executive director of Maine Equal Justice Partners, which pushed for the Medicaid expansion. "If she did advance it ... it is our position that the state plan would either need to be amended or a new state plan amendment would be needed."

The Michigan waiver would require non-disabled adults ages 19 to 62 to report at least 80 hours per month of work, training, or volunteer activities to keep their Medicaid coverage. They would lose it if they fail to report the required hours for three months in a 12-month period. They could regain their coverage only after proving they were in compliance.

In addition, beneficiaries with incomes from 100% to 138% of the federal poverty level who have been enrolled in the Healthy Michigan program for at least four years starting in 2014 will have to pay a premium of 5% of their income. Plus, they'll have to complete a health risk assessment or have completed a healthy behavior, such as get a preventive screening within the previous year.

In Maine, Medicaid enrollees would also be required to work or engage in training or community-engagement activities for at least 20 hours per week, and would have to pay monthly premiums. If they failed to meet the requirements for a total of three months within a three-year period, they would lose coverage.

The CMS and Republican leaders in these waiver states argue that the work requirement will improve Medicaid enrollees' health and well-being by pushing them into productive work and educational activities.

But Jesse Cross-Call, a senior policy analyst at the Center on Budget and Policy Priorities, which opposes work requirements, cited the Arkansas experience as a reason to halt these waivers.

"Michigan should reconsider moving forward with its harmful changes or risk joining Arkansas in seeing thousands of low-income adults lose coverage, reversing the state's progress in expanding coverage and reducing uncompensated-care costs."

Harris Meyer is a senior reporter providing news and analysis on a broad range of healthcare topics. He served as managing editor of Modern Healthcare from 2013 to 2015. His more than three decades of journalism experience includes freelance reporting for Health Affairs, Kaiser Health News and other publications; law editor at the Daily Business Review in Miami; staff writer at the New Times alternative weekly in Fort Lauderdale, Fla.; senior writer at Hospitals & Health Networks; national correspondent at American Medical News; and health unit researcher at WMAQ-TV News in Chicago. A graduate of Northwestern University, Meyer won the 2000 Gerald Loeb Award for Distinguished Business and Financial Journalism.

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Life Insurance As A Baby Boomer Estate Planning Tool

InsuranceNewsNet December 27, 2018 

By Rod Rishel

The youngest baby boomers will turn 55 in 2019. Many of them are still in the planning stages of their financial lives – seeking solutions to longevity challenges, estate planning needs or both. Many life insurance products are designed to address both types of challenges, but leveraging these solutions in the new year may help boomers transfer their wealth successfully.

The need is critical. Forty-two percent of baby boomers don’t even have an estate plan, according to research by Caring.com. Other boomers have plans that are out of date. Yet, Americans are continuing to live longer and many boomers will also continue to accumulate wealth they’d like to pass to beneficiaries.

$30 Trillion Already At Stake

Boomers are the wealthiest generation in American history and are about to pass down those riches – some $30 trillion – over the next few decades. However, that exchange may not be as large as they had hoped if they don’t take the right estate-planning steps.

For boomers with significant assets, additional estate-planning needs can arise, and life insurance may be able to help. Life insurance can play an important role in providing liquidity  --cash -- at death when faced with the following cash flow drains.

Final expenses. This category may be the most immediate liquidity need faced by the baby boomer client. These costs, associated directly with an individual’s death, may include end-of-life medical expenses, funeral expenses and unpaid debts.

Probate. Next, the process of probating and administering an estate can include expenses, such as attorney’s fees, executor’s fees, accountant’s fees, appraiser’s fees, court costs and other probate expenses. The larger and more complex a boomer’s estate, the more time-intensive and costly the probate process can be.

Estate taxes. Estate taxes may be problematic for a boomer’s beneficiaries because of how quickly the taxes are due after death. For example, the federal estate tax is due just nine months from the date of death and, in most cases, must be paid in cash. The current top federal estate tax rate is 40 percent.

Additionally, a state estate and/or inheritance tax may be due. The number of states that levy an estate or inheritance tax is always changing, but according to the Tax Foundation, 18 states and the District of Columbia levy an estate tax or an inheritance tax (Maryland is the sole state with both levies) in 2018. Be sure to tell clients to consult a tax expert about their own circumstances.

Estate equalization. Estates often consist of assets, such as a family business or a large real estate holding, that are difficult to divide between heirs. In such situations, there may be a desire to keep the asset whole by passing it to one heir, while providing an equalizing inheritance to the remaining heirs using cash and other property.

Business succession. The surviving owners of a business may need cash to help them buy the company from the decedent’s estate, ultimately providing the surviving heirs with needed funds. Also, the business itself may need cash to continue operating while new management and ownership changes are undertaken.

Charitable giving. The passing of assets to a charity can provide benefits for both the charity and the estate – particularly when a charitable gift helps reduce the size of the potential estate tax bill. However, an individual’s desire not to “disinherit” their heirs by giving away property may present an obstacle to strategies that could benefit the charity. Additional liquidity can help provide for that inheritance.

Why Life Insurance?

Timing. Many of the needs described are time critical and must be addressed with cash fairly quickly. Life insurance is different from other financial assets in that it provides liquidity – cash - promptly after death.

Tax benefits. Generally, life insurance death benefits are free from income tax (based on current Internal Revenue Code). If set up in a trust designed to keep the life insurance out of the estate, the life insurance death benefit can be free from estate tax as well. Again, tell clients to consult a tax expert about their own circumstances.

Helps avoid forced liquidation costs. Some clients may point out that the estate can simply sell some assets and use the proceeds to provide liquidity. However, there are three potential pitfalls to this thinking that life insurance avoids:

1.        Taxes – Depending on the assets that are liquidated and used to pay the estate tax, the sale may trigger a capital gains tax. Assets, such as real estate or stocks, often contain sizeable capital appreciation.

2.       Sales expenses – Commissions, appraisals, fees and other expenses associated with the sale of an asset will reduce the net liquid value of the asset to the estate.

3.       The “fire sale” discount – In order to generate cash when it is needed, some assets may need to be sold in a hurry. This can result in a lower sale price, especially if the market for the asset is depressed at the time of the sale.

Cost/benefit advantages. Due to the way life insurance is constructed, the death benefit proceeds generally may be larger than the premiums paid. Therefore, the death benefit proceeds may help pay for estate liquidity expenses.

A Fitting Solution

Life insurance is well-suited to provide liquidity to meet the needs of clients with large estates, making it an important consideration in boomer estate plans. And, with fewer years to establish a plan than Generation X or millennial clients, unretired boomers must have the right strategies in place.

Furthermore, as about 10,000 boomers turn age 65 each day – in addition to all those boomers turning 55 – financial professionals have seemingly unlimited opportunities to fulfill estate planning needs in the new year. But, where can your client start?

An Estate-Planning Checklist

Here are some estate-planning measures to review with boomer clients.

·         Consult an attorney who specializes in estate planning who can provide advice and draft estate planning documents and engage any other needed advisors.

·         Gather information on financial condition and future financial needs.

·         Inventory all assets, liabilities, income and expenses.

·         Determine the goals and objectives in estate planning (i.e., providing financial security for family, giving to charity, addressing potential taxation issues, etc.).

·         With qualified advisors, formulate a plan designed to accomplish the goals.

·         Ensure that the client has chosen their estate beneficiaries and, as desired, designated specific property or interests to distribute to each beneficiary.

·         Encourage the boomer to select guardians to be responsible for the care and management of any minor children.

·         Have the boomer prepare for potential incapacity by naming who will manage their property and make any needed health care decisions.

·         If the boomer is using a will, ensure that they have nominated an executor to carry out its provisions.

·         Review how life insurance solutions, including indexed universal life policies, may be leveraged in the estate plan to provide for favorite charities, surviving beneficiaries or liquidity needs of the estate.

·         If using a life insurance trust, help the boomer decide which assets will fund the trust.

·         Have a trustee named to manage the trust property and administer the trust.

·         If business interests are a part of the estate, plan for successor ownership and the disposition of the boomer’s interests.

·         Have the boomer consider making tax free gifts of up to $15,000 for single taxpayers or $30,000 for married couples (as indexed for 2018) during life by using the annual exclusion.

·         Recommend that the client select a safe, accessible place, such as a lock box or a fireproof safe, to keep all estate planning documents. Have the client notify his or her attorneys and any other interested persons (including the executor) of the location of those documents.

The Big Picture

Many boomers can expect to live long lives and have wealth to share. The help you provide them in the coming year with planning for the successful transfer of that wealth may benefit their families and favorite charities for generations to come.

Rod Rishel is chief executive officer, life insurance, for AIG. Rod can be contacted at rod.rishel@innfeedback.com.

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