What I really wanted to write about this month was the legislation making its way through Congress which would dramatically change how inherited IRAs can be taken out over time.
That is what I wanted to write about. But I won’t.
Part of the problem is that by the time this column reaches print, even though that may be only a few weeks, the legislation may have morphed into something completely different, or may have died completely. The other problem is that the details will probably change, as they always do when a bill is working its way through Congress, and I don’t want people to read my thoughts about an earlier version and not realize that it changed completely before it passed.
The new piece of legislation related to IRAs is called (at least in the House version) the SECURE Act. It has an incredibly ridiculous name, which was clearly cobbled together just to make it spell out SECURE. The bill has nothing to do with anything being more secure, and the name itself is so tortured that I refuse to give it credence in print. Okay, having said that I now have to tell you, or you’ll Google it anyway. It’s the “Setting Every Community Up for Retirement Enhancement Act”. Blech!
See, I don’t mind acronyms. I really don’t. But I do mind when words are twisted around to make the acronym happen, to the point at which the underlying name doesn’t make sense.
But let’s hold that thought for another month, and talk about another piece of legislation, one that actually did pass, but never took effect.
This other act was called the CLASS Act. It stood for “Community Living Assistance Services and Support” which was at least a little closer to what it was actually about.
The CLASS Act was part of the Affordable Care Act. Depending on your political leanings, you might refer to that as Obamacare. I’m going to try to be politically neutral in this column and just refer to it as the ACA.
One of the biggest problems with the ACA, when they were trying to get the bill passed back in 2010, was the potentially staggering cost of the program. So they came up with a way to make it look like the program would actually save money. They added the CLASS Act to the ACA.
The problem was, the CLASS Act was never going to work. It was, in effect, government-run long-term care insurance. People would voluntarily pay premiums, and then if they ever needed to be in any kind of assisted care (home-based care, assisted living, or a nursing home) the program would pay the costs.
The reason it was not going to work, is something called “adverse selection”. You only had to pay into the program for as little as five years, and then you could be covered for the rest of your life. Anyone who lives in the real world can predict what would happen: people who are relatively young and healthy would not pay into the program. People who were older or who had onrushing medical problems, would. But that meant that either the cost of the premiums was going to have to be so high that no one would voluntarily pay into it, or that after that initial five years, the government was going to be stuck with a hugely expensive obligation.
But they “scored” the program by assuming that lots of young and healthy people would pay into the program for many years before they needed it. So on paper, this was going to save the government a lot of money because not nearly as many people would need Medicaid. And the result was that even though the rest of the ACA was going to be very expensive for the government, they could say that it was actually going to save money overall because the savings from the CLASS Act would more than offset the cost.
Of course it never happened. Once the bill passed, and after a decent interval, the Secretary of DHSS pulled the plug on the whole CLASS Act program. It was such a blatantly bad program that the bill creating it gave the Secretary the authority to kill it. They knew it would never take effect. It had been a fraud from day one, it was not going to actually work, and it was canceled as soon as it had served its purpose of making the numbers look good for the ACA.
I propose that the next big federal program aimed at improving long-term care be called the “Community Health Enhancement And Treatment” Act. Do I have a second?
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account.
