Kathleen Casey-Kirschling may not be a household name, but she holds a singular title in American history. Born just a few seconds after midnight, January 1, 1946, in Philadelphia, PA, she is known as America’s first baby boomer. About 3.4 million more babies were born that year, kicking off what would soon be known as the baby boom generation - those born in the years 1946-1964, following the end of World War II in August 1945.
Now, those first-year baby boomers are turning 70 1/2, the age the Internal Revenue Service (IRS) has set for mandatory withdrawals from tax-deferred retirement plans such as IRAs and 401(K) plans. The process of mandatory withdrawals is called "required minimum distributions", or RMDs. The RMD rule was implemented to keep account holders from letting their money grow tax-deferred, indefinitely. There has to be a payday someday and, with RMDs, Uncle Sam can count on a steady stream of tax revenue at ordinary tax rates on at least a portion of the value of the accounts.
Edward Shane, a managing director at Bank of New York Mellon Corporation, estimates that baby boomers have saved $10 trillion in various tax-deferred retirement accounts. However, with around 75 million baby boomers alive today, the average amount per person is only $133,333, which is not enough to fund 20-30 years of retirement.
RMDs are based on actuarial data and must be calculated by the taxpayer. The calculation is determined by use of one of three tables in IRS Publication 590-B (https://www.irs.gov/pub/irs-pdf/590b.pdf). Most people will use Table III, the Uniform Lifetime Table. This table is for unmarried account owners, married account owners whose spouses are not more than 10 years younger, and married owners whose spouses are not the sole beneficiaries of their IRAs. The table indicates the distribution period for each age. The distribution period is the divisor to calculate how much money should be withdrawn. For example, the table indicates a distribution period of 27.4 for age 70. Therefore, if a taxpayer has $100,000 in tax-deferred accounts on December 31, 2016 and turns 70 ½ in 2017, the taxpayer will divide $100,000 by 27.4 and withdraw the resulting amount of $3,650 by December 31, 2017. Since this withdrawal will be the taxpayer’s first RMD, he/she can defer the withdrawal until April 1, 2018.
A taxpayer can wait until April 1st of the year after he/she turns 70 ½ to withdraw his/her first RMD. However, that delay will result in two required RMDs for that year - one for the deferred year and one for the current year, which must be taken by December 31st. Caution: There is a severe penalty for not taking a RMD on time. In addition to the tax owed on the required withdrawal amount, a taxpayer will owe and extra 50% of the amount that should have been withdrawn. For example, if in the previous example the taxpayer only withdraws $2,000 of the required $3,650, the taxpayer will still owe taxes on the whole $3,650 plus an $825 penalty ($1,650 not withdrawn times 50%).
The big question with RMDs is how to maximize your income stream and minimize your tax burden at the same time. Here are some helpful strategies to accomplish that goal:
Reinvest – Resist the temptation to spend your withdrawal and reinvest it, or at least a portion, in a taxable account where it will continue to grow.
Charitable Contribution – You can have your RMD sent directly to the charity of your choice. You will receive no tax deduction for the gift, but you will owe no income tax on the amount, either. You can donate up to $100,000 of your RMD to charity without any federal income tax liability.
Purchase a QLAC – A qualified longevity annuity contract (QLAC) is a deferred annuity that you purchase inside your IRA or 401(k). A QLAC begins paying regular income at a later date, usually no later than age 85. The amount you purchase as a QLAC is removed from the total of your tax-deferred accounts before calculating your RMD in the years before the income from the QLAC begins. The amount you can purchase as a QLAC is limited to 25% of your total tax-deferred accounts or a maximum of $125,000.
Sign up for Social Security – The amount you receive in social security benefits at full retirement age is based upon your highest 35 years of earnings. Each year you delay receiving social security benefits between full retirement age and age 70 increases your total benefit by 8 percent. Per a working paper from the Center for Retirement Research at Boston College, an individual who waits until 70 to retire and sign up for social security will receive a benefit that is 76 percent higher than retiring at age 62. The Boston College paper also noted that working just until age 63 instead of age 62 replaced a zero-income year in the 35 years of earnings for 46 percent of women and 15 percent of men. [According to an October 2016 report from the Teachers Insurance and Annuity Association (TIAA), women work an average 29 years to men’s 38 because women spend an average 5.5 years out of the workforce caring for children and 1.2 years as a caregiver for an older adult.] However, despite the benefits in delaying receiving social security benefits until age 70, after age 70 there is no extra benefit in waiting to draw your first social security check.
Health Savings Account (HSA) – You may be able to make a distribution directly from your IRA to your HSA if you have an HSA-eligible high-deductible health insurance policy. It is a one-time distribution and must be less than or equal to your maximum annual HSA contribution for the year minus any contributions you’ve already made for the year. The distribution must also be made directly by the trustee of the IRA to the trustee of the HSA and you must remain enrolled in an HSA-eligible high-deductible health insurance policy for 12 months after the transfer. The distribution cannot be deducted as an HSA contribution, but you will be able to withdraw it from the HSA tax-free for medical expenses in any year. Plus, the distribution from IRA to HSA will not be included in your income, if all of the aforementioned conditions are met.
Stay on the job – If you remain employed with your current employer and don’t own more than 5 percent of the company, you are not required to make RMDs from your current employer’s 401(k) plan until you officially retire. Additionally, you can even continue to fund your current employer’s 401(k) plan. However, RMDs from IRAs and 401(k) accounts with previous employers will still be subject to RMDs. By some estimates, there could be as many as 25 percent of the 70-74 age group still in the work force in just a few years.
The baby boomers may be the first generation to re-fire rather than retire. Ms. Casey-Kirschling has helped flood victims in Illinois and Hurricane Katrina survivors. In her words, "I’m proud of how the boomers reached for the stars. We accomplished a lot and created a lot of wealth, but we need to be OK with handing off the baton to younger generations. You only have the moment. You can’t live in the past, and you don’t know what the future is going to bring."
We hope this blogpost will be helpful to any of you who are fast approaching the 70 1/2 milestone. If we can assist you with any financial concerns, please feel free to contact us at any time. May you have good health and financial security in the years that lie ahead.
The 115th Congress was sworn in and officially took office on January 3, 2017. Both parties immediately drew battle lines over President-elect Donald Trump’s campaign promise to repeal the Affordable Care Act (ACA), commonly known as Obamacare.
The repeal of the ACA is part of President-elect Trump’s seven-point plan to reform healthcare. His plan can be found in detail on his website www.donaldjtrump.com/positions/healthcare-reform. The seven points are summarized, as follows:
1. Completely repeal Obamacare.
2. Modify existing law that inhibits the sale of health insurance across state lines.
3. Allow individuals to fully deduct health insurance premium payments from their tax returns under the current tax system.
4. Allow individuals to use Health Savings Accounts (HSAs). Contributions into HSAs should be tax-free and should be allowed to accumulate.
5. Require price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals.
6. Block-grant Medicaid to the states.
7. Remove barriers to entry into free markets for drug providers that offer safe, reliable, and cheaper products.
President-elect Trump also wants to reform our mental health programs and institutions and relieve healthcare cost pressures on state and local governments by simply enforcing the current immigration laws and restricting the number of visas granted to enter the United States.
In a press conference with Republican (GOP) leadership on Capitol Hill the next day, Vice-President-elect Mike Pence stated, “First order of business is to repeal and replace Obamacare”. He noted that a lot of states are experiencing approximately 25 percent premium rate increases this year. Representative Steve King (R-IA) introduced a bill to fully repeal the ACA, stating, “I believe Obamacare should be ripped out by the roots, and I will not stop fighting until we have successfully done just that”. Representative Dave Brat (R-VA) indicated that GOP leadership wants to present legislation for the repeal to Mr. Trump for his signature by February 20 of this year. However, Speaker of the House Paul Ryan (R-WI) informed reporters that there would be “transition relief”, which GOP leaders expect could take anywhere from 18 months to three years.
At the same time Republicans were meeting on Capitol Hill, President Obama met with House and Senate Democrats for about two hours in hopes of saving his signature legislation. According to one attendee, President Obama told them that, “tearing it down is relatively easy but tearing this down without harming tens of millions of people is incredibly hard. You should be proud of what we did. Don’t take any glee in their [Republicans] screwing it up.” New Senate minority leader Chuck Schumer (D-NY), in taking a hard stance against repeal, has adopted the slogan, “Make America Sick Again”, an obvious play on words of Trump’s campaign slogan, “Make America Great Again”. In an interview with Politico, Senator Schumer issued these strong words, “And if they think we’re going to come in and save their [Republicans] butts when they screw it up? No.”
The interaction between Donald Trump and Chuck Schumer could be one of the more interesting aspects of the new leadership in Washington D.C. In the aforementioned Politico interview, Schumer was quoted as saying about Donald Trump, “God bless him. But I don’t know him that well. And it doesn’t matter. What matters is [sic] are the issues and our values, not pats on the back. They can try to flatter me, it’s not going to work.” He has also been quoted as saying, “He’s not my friend.” However, in April 2006, Senator Schumer appeared on Season 5, Episode 8 of Donald Trump’s reality television show, The Apprentice. He hosted that week’s winning team to breakfast in the presidential suite of the historic Hay-Adams Hotel in Washington D.C. He told the winning team, regarding Trump, “His father and my grandfather were builders together in Brooklyn. Even when he was much younger, you knew he was going to go places.” It appears Senator Schumer never thought one of those places would be The White House.
As of today, the two big questions seem to be: 1) How will Republican leadership go about repealing Obamacare? 2) What will the repeal mean for individuals, insurance companies, and healthcare providers?
Republican Strategies for Repeal
Vice-president-elect Mike Pence said Mr. Trump could begin using executive actions on day one. Representative Chris Collins (R-NY) also added, “The president in his first day in office is going to do some level of executive orders related to ObamaCare.” However, no GOP leader offered specifics as to what the executive orders would entail.
The most probable strategy for dismantling Obamacare would be the process known as budget reconciliation. Budget reconciliation is basically a way for Congress to quickly pass legislation related to taxes or spending, especially for entitlement programs. Since 1980, Congress has passed 24 budget reconciliation bills. Twenty were signed into law and four were vetoed. Some of the past budget reconciliation bills include the Omnibus Budget Reconciliation Act of 1981(which was the foundation for what became known as the “Reagan Revolution”), the Balanced Budget Act of 1997, and the Bush tax cuts of 2001 and 2003. The Byrd rule in the Senate, named for former Senator Robert C. Byrd (D-WV), prevents abuse of budget reconciliation. The rule allows legislation to be considered for budget reconciliation only if it relates to spending, taxes, and deficits. The Senate parliamentarian usually determines whether the legislation violates the Byrd rule, but the Senate can waive the rule with a 60-vote majority. Budget reconciliation will be an important tool for Senate Republicans since its usage requires only a simple majority vote and cannot be filibustered. However, budget reconciliation can only be used once per Congress. Hence, any other legislation proposed by Republicans could be subject to filibuster by Senate Democrats unless Republicans move to change the rules to further limit filibustering.
Therefore, Republicans will be limited to using budget reconciliation to repeal only the parts of Obamacare that relate to spending and taxes. According to Robert Pear of the New York Times, some actions permissible through budget reconciliation would include:
• Phasing out tens of billions of dollars given each year to states that have expanded Medicaid eligibility.
• Removing penalties for individuals who choose to live without insurance
• Removing penalties for larger employers who do not offer insurance coverage to employees
• Repealing subsidies for private health insurance coverage obtained through the public marketplaces, known as exchanges
• Repealing taxes and fees imposed on certain high-income people
• Repealing taxes and fees on manufacturers of brand-name prescription drugs and medical devices
Impact of Repeal
Many pundits are already speculating about the ramifications of the repeal of the ACA even before President-elect Trump has been sworn in and Congress has proposed any serious legislation. The overriding concept definitely seems to be uncertainty due to the lack of specifics related to repeal. The day after the new Congress was sworn in, shares of hospital companies had plummeted by 1p.m. Tenet Healthcare Corporation shares were down 25% and Community Health Systems, a chain of 158 hospitals, many of them rural, were down 29%. Shares of HCA Holdings and LifePoint Health were down 14% and 13%, respectively. The same day, Mizuho Securities downgraded “ACA vulnerable stocks” from buy to neutral and issued this statement, “The worst possible outcome for healthcare stocks is a reality. We see extreme risk of ACA repeal/replace, loss of the Medicaid expansion, a primary driver of results for both hospitals and health plans, and reversal of the many value-based regulations that promote home healthcare”. Terry Lynam, spokesperson for Northwell Health said, “Changes are needed in the ACA, but the idea of dismantling it is worrisome.”
Health insurance companies are also concerned. J.B. Silvers, a professor of health finance at Case Western Reserve University and a former health insurance CEO, thinks that a delay of two or three years in implementing the repeal will increase the risk of the Obamacare individual insurance exchange markets to the point that continuing in the market will not be feasible. He states that the number of people purchasing individual policies on the exchanges will drop like a rock if both the premium subsidies now available to lower-income enrollees go away immediately and the mandate to sign up for an insurance plan disappears. There is, after all, a clause in the agreement between insurers and the federal government that allows insurers to cancel or withdraw from policies if subsidies end. Mr. Silvers expects many insurers to leave anyway since they must decide on their 2018 participation by late spring of 2017.
Dante Chinni, who heads up the American Communities Project at American University and writes the Politics Counts blog for the Wall Street Journal, brings up one of the more interesting aspects of the potential repeal of the ACA. He notes that counties that gave Donald Trump the highest levels of support could feel the most impact. He notes that Gallup data, analyzed with the county typology from the American Communities Project, show that eight county types have seen increases in health insurance coverage greater than the national average. Six of the eight county types – representing about 77 million people or 33 million votes, a quarter of the total cast – sided with Mr. Trump, some by very large margins. The table below details the demographic results:
County Type Change in Insured since 2008 2016 Vote and Margin
Native American Lands 14.80% Trump +5%
Working Class Country 6.80% Trump +46%
Graying America 5.80% Trump +22%
Hispanic Centers 5.70% Clinton +2%
Rural Middle America 4.90% Trump +39%
African American South 4.90% Trump +1%
Big Cities 4.50% Clinton +35%
Evangelical Hubs 4.30% Trump +51%
National Average 3.90% NA
Mr. Chinni points out that three of the county types – Graying America, Rural Middle America, and Working Class Country – make up large parts of Florida, Michigan, Pennsylvania, and Wisconsin, states that were key to Mr. Trump’s electoral college victory. However, when more people purchase health insurance simply because they are mandated by law or required to pay a penalty if they don’t, those people may still dislike the law. This possibility is supported by Gallup data that shows nationally 53% disapprove of the law while only 42% approve of it. Nevertheless, individuals who have benefitted from insurance coverage and subsidies may not be able to regain coverage either because of a pre-existing condition or because of higher premiums. A recent study by the Commonwealth Fund and Rand Corporation revealed that without repeal, an individual ACA policy will cost around $3,200 a year in 2018 but a replacement policy after repeal will cost $4,700.
One of the more dicey issues that the new administration and Congress will have to address is how to keep one of the most popular aspects of the ACA – requiring insurance companies to cover everyone, including those with pre-existing conditions – while repealing one of the most unpopular aspects of the ACA – mandating that everyone purchase health insurance, including the young and healthy. If the mandate is lifted and the young and healthy drop coverage knowing they can purchase coverage whenever they need it, insurers would be forced to significantly increase premiums.
According to the Kaiser Family Foundation, a full repeal would also result in higher payments for services performed for beneficiaries enrolled in Medicare Advantage, the managed-care portion of Medicare. Therefore, premiums would probably increase in order to offset the increase in cost of services. Seniors would also have to pay more for prescription drugs, widening what is known as “the doughnut hole”. Before the ACA, seniors received a certain dollar amount of coverage for prescription drugs and then had to pay out of pocket unless or until they qualified for high-dollar, catastrophic provisions. The gap between the set dollar amount and the catastrophic provisions was known as “the doughnut hole”. The ACA significantly decreased the amount that seniors on Medicare had to pay for their prescription drugs, thereby helping to close “the doughnut hole”
The new leadership in Washington D.C. will have many facets of this sweeping legislation to consider in order to come up with the best solution. Whether to completely “repeal and replace” or merely redesign the existing model will be a mammoth challenge. Arguments can be made for both. But, for now, it is interesting to note the words of Warren Buffet, “In a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
Effective October 1, 2016, Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs) are permitted to bill for nursing visits, provided certain criteria are met. Section 1861(aa)(1)(C) of the Social Security Act authorizes RHCs and FQHCs located in areas with a shortage of home health agencies to furnish part-time or intermittent nursing care and related medical supplies (other than drugs and biologicals) by a Registered Professional Nurse (RN) or Licensed Practical Nurse (LPN) to a homebound individual under a written plan of treatment.
The patient is considered homebound as defined at http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c07.pdf.
An area with a shortage of home health agencies exists if the RHC or FQHC is located in a county, parish or similar geographic area in which the Secretary has determined that:
- There is no participating HHA under Medicare, or adequate home health services are not available to RHC or FQHC patients even though a participating HHA is in the area; or
- There are patients whose homes are not within the area serviced by a participating HHA; or considering the area's climate and terrain, whose homes are not within a reasonable traveling distance to a participating HHA.
If your RHC or FQHC is located in an area that has not been determined to have a HHA shortage, you must make a written request to the CMS RO along with justification that the area you serve meets the required conditions in order to seek reimbursement for visiting nurse services.
The current evaluation and management codes for home health visits are not billable by RNs or LPNs furnishing RHC or FQHC home health visits. However, effective October 1, 2016, Healthcare Common Procedure Coding System (HCPCS) code G0490 has been added as a stand-alone billable visit for RHCs and FQHCs. For dates of service on or after October 1, 2016, HCPCS code G0490 will be paid as a visit:
- Under the RHC all-inclusive rate payment system when reported on a RHC claim with revenue code 052X and modifier CG,' or
- Under the FQHC Prospective Payment System when reported on a FQHC claim with revenue code 052X and HCPCS code G0466 or G0467.
Unfortunately, lack of proper medical care is a common problem among the elderly. This could be due to a number of factors, including lack of transportation, physical limitations, or a shortage of home health services in the patient's area. Each of these barriers could be mitigated with this change, which would allow more patients to receive the care they need and deserve.
If you have questions or need further information, feel free to contact Bill Matheney (email@example.com), Martha Calfee (firstname.lastname@example.org), or Meredith Cate (email@example.com). You may also reach us by phone at 800-556-1076.
CMS published Change Request 9648 on July 15, 2016 with the updates for FY 2014 SSI percentages (https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R1681OTN.pdf). There are links within the change request for the ratios for the IPPS Hospitals, Inpatient Rehabilitations Facilities, and the Long Term Care Hospitals.
Additionally, this change request provides guidance for accepting FY 2014 amended cost reports for hospitals requesting to revise the worksheet S-10 as the CMS FY 17 proposed rule indicates that they will begin using worksheet S-10 to determine uncompensated care payments starting in FY 2018. In order for the revised information to be considered for the FY 18 computations, amended cost reports must be received by the MAC by September 30, 2016. Submissions for data revisions to FY 14 cost reports received on or after October 1, 2016 will not be accepted
There are some providers who do not claim bad debts on the Medicare cost report. Whether due to a lack of personnel to track and report bad debts or a lack of full understanding of how to claim bad debts, many providers are not recouping bad debt reimbursement that is due them. The purpose of this blogpost is to help providers to understand how bad debts can be claimed on the cost report and how to obtain the maximum reimbursement allowed under CMS regulations.
An allowable bad debt is a bad debt that results from uncollectible Medicare deductible and coinsurance amounts from the provider's Medicare beneficiaries. Medicare bad debts can be classified as Medicare only (non-crossover) bad debts for beneficiaries who have Medicare coverage only, dual eligible (crossover) bad debts for beneficiaries who also qualify for Medicaid, or charity bad debts which the provider determines as indigent. Per CMS Pub. 15-I, Section 314, uncollectible deductibles and coinsurance amounts are recognized as allowable bad debts in the reporting period in which the debts are determined to be worthless. Uncollectible deductible and coinsurance for Medicare Advantage (i.e., Part C) beneficiaries cannot be claimed on the Medicare cost report. Additionally, anything paid under a fee-schedule (i.e., Ambulance, therapies) cannot be included on the Medicare bad debt listing.
Per CMS Pub. 15-II, Section 1102.3, to be considered as allowable, the Medicare only (non-crossover) bad debts must meet the following four criteria:
- The debt must be related to Medicare covered services and derived from Medicare deductible and coinsurance amounts.
- The provider must be able to establish that reasonable collection efforts were made. Providers must issue bills, collection letters, and telephone calls or personal contacts which constitute a genuine, rather than a token, collection effort.
- The debt was actually uncollectible when claimed as worthless. If after the provider applied reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible.
- Sound business judgement established that there was no likelihood of recovery at any time in the future.
Reasonable Collection Efforts
The second of the four criteria for Medicare only (non-crossover) bad debts relates to reasonable collection efforts. Reasonable collection efforts begin by issuing a bill shortly after the discharge or death of the patient. This bill should be followed by subsequent billings, collection letters, and telephone calls or personal contacts. These efforts should amount to a genuine, rather than token, effort to collect the debt. The provider must employ the same level of effort that it puts forth to collect comparable amounts from non-Medicare patients.
A bill is deemed uncollectible if reasonable collection efforts have been pursued for more than 120 days. If the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may then be claimed on the bad debt listing. For bad debts that are claimed in 120 days or less from the date of first bill, the provider must be prepared to demonstrate that the debt was genuinely uncollectible.
For every Medicare only (non-crossover) bad debt claimed, a provider must be able to document that it pursued reasonable collection efforts. The provider must also document that a debt is actually uncollectible when claimed 120 days or less after the date of the first bill. This documentation must decidedly support that the debt was uncollectible and would remain uncollectible even if collection efforts were sustained for more than 120 days from the first bill.
CMS deems the use of a collection agency to be part of the provider's ongoing collection effort, and as long as the debt remains with a collection agency (even if more than 120 days), the debt cannot be deemed as uncollectible. Therefore, the bad debt must be returned from the collection agency before the bad debt may be claimed on the Medicare cost report. In short, all collection efforts must have ceased before you can claim the Medicare bad debt on the cost report.
Further information on reasonable collection efforts may be found in CMS Pub. 15-I, Section 310.
Bad debts claimed on the cost report for Medicare beneficiaries who also qualify for Medicaid are considered to be "dual eligible" or "crossover" bad debts. Because a Medicaid patient is considered indigent automatically, reasonable collection efforts for these bad debts may be waived.
The provider may also develop a methodology for determining indigence for those Medicare beneficiaries that do not qualify for Medicaid. The bad debts for these beneficiaries may be written off and claimed upon discharge or upon the determination of indigence, whichever is later. Information to support the indigence determination should be available for the audit, if requested.
See CMS Pub. 15-I, Section 312 for the factors which should be incorporated into the provider's indigence guidelines.
Bad debts cannot be considered for reimbursement unless the provider submits a bad debt listing with the cost report submission that contains the following criteria:
- Beneficiary Name
- Beneficiary HIC Number
- Dates of Service (Admit Date and Discharge Date)
- Indigence Indicator for Indigent and Medicaid beneficiaries (included Medicaid number)
- Date of First Bill
- Medicare Paid Date (Medicare Remittance Advice Date)
- Date of Write-off and/or date the collection efforts cease
- Amount of Debt
- Medicare Deductible and Coinsurance Amount
- Other patient payment amounts (i.e., Medicaid, other insurance, patient payment.
Inpatient and outpatient bad debts are reported on separate cost report worksheets and there are separate lines on these worksheets for identifying, for informational purposes, bad debts related to dual eligible beneficiaries. Therefore, we recommend completing separate bad debt logs for each bad debt type, e.g., a Medicare only (non-crossover) inpatient log, Medicare dual eligible (crossover) inpatient log, and an indigent inpatient log. Separate logs should also be maintained for outpatient beneficiaries. In like manner, separate logs should be kept to identify Medicare bad debt recoveries. For an example bad debt listing blank form click here. Also, please feel free to contact us at any time if you need help with bad debt determinations or data collection.
For more information on reporting bad debts, see Chapter 3 of CMS Pub. 15-I on the www.cms.gov website by clicking on the "Regulations & Guidance" tab.
For more information please contact us at firstname.lastname@example.org.
On Friday, May 20, 2016, Tennessee Governor Bill Haslam signed into law a bill that reduces Tennessee's Hall Income Tax from 6 percent to 5 percent for 2016 (tax returns due on April 15, 2017) and eliminates the tax in 2022. The legislation is House Bill 813/Senate Bill 47 and its sponsors are Senator Mark Green (R-Clarksville) and Representative Charles Sargent (R-Franklin). The senate voted for the bill with a 29-1 vote. The only "no" vote was from Senate Minority Leader Lee Harris (D-Memphis). The House later voted for the bill with a 66-17 vote. The bill was then forwarded to Governor Haslam for his signature on Friday, April 22, 2016.
The new law contains "legislative intent" to reduce the tax an additional 1 percent per year until fully repealed in 2022. However, additional reductions for years 2017-2021 will require the passage of additional legislation. Future legislators can refuse to honor the wishes of the 2016 Legislature and not pass any future rate reductions. Therefore, the tax rate could, theoretically, remain at 5 percent until January 1, 2022. However, with Governor Haslam's signature, the tax is eliminated on January 1, 2022 regardless of any future reductions to the tax rate. Mathematically, a 1 percent reduction per year would eliminate the tax completely by the year 2021, so future legislators will, of necessity, have to be creative with future percentage tax rate reductions.
The repeal of the Hall Income Tax will become the largest tax cut in state history, returning more than $300 million a year to taxpayers when fully implemented. Accordingly, the intended purpose of annual percentage reductions is to give local governments time to gradually adjust their budgets for the lost revenue, rather than all at once. The tax generated total revenue of $303.4 million in fiscal year 2015. Of this amount, $197.9 million was retained by the state and $105.5 million went to the town or city where the taxpayer lived or the county if the taxpayer lived in an unincorporated area. The top ten recipients in 2015 were:
- Nashville-Davidson County - $16.5 million
- Memphis - $15 million
- Knoxville - $10 million
- Brentwood - $4.2 million
- Chattanooga - $4.2 million
- Franklin - $3.7 million
- Knox County - $3.3 million
- Germantown - $3.1 million
- Belle Meade - $2.1 million
- Shelby County - $1.5 million
History and Background
The Hall Income Tax was enacted in 1929 and is named for state Senator Frank Hall of Dickson, TN, who was the sponsor of the legislation. The tax is only levied on investment income such as dividends from stock, income from investment trusts and mutual funds including capital gain distributions, and interest on bonds. Income that is exempt from the tax includes interest earned on savings accounts, certificates of deposit, government bonds, credit unions, and bank money market accounts. Dividends from bank stock, insurance companies, and credit unions are also exempt.
Tennessee is one of two states, the other being New Hampshire, that do not impose an income tax on earned income, or wages and salaries, but impose an income tax on investment income. Therefore, Tennessee and New Hampshire are often referred to as the "asterisk states" because of the asterisk that always appears by their names in any article, report, or map that reports state income tax rates for all 50 states. The Nashville-based Beacon Center, an independent tax policy research organization, even calls it the "Asterisk Tax". Due to the nature of the tax, many in Tennessee do not even know it exists. Justin Owen, president and chief executive officer of the Beacon Center, stated that their own polling showed that only 17 percent of Tennesseans even knew the tax existed. In writing online for The Daily Signal, he quips, "It's bad enough when government raids your nest egg, it's even worse when it does it in the dark of night."
When the repeal of the tax takes place in 2022, Tennessee will join only seven other states that do not impose an individual income tax Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Tennessee will also be only one of two states to ever repeal an income tax, the other being Alaska in 1980.
The state Department of Revenue claims that 204,944 Hall income tax returns were filed for tax year 2014, the last year for which full results are available. The average tax liability per 2014 return was $1,446 but the median was $266, which means that half of the returns had a liability of $266 or less.
The tax does not apply to the first $1,250 of investment income reported on each individual return or the first $2,500 of investment income reported on a jointly filed return. A person who is legally blind is exempt from the tax and the taxable income that is derived from circumstances resulting in an individual becoming a quadriplegic is exempt. Any person 65 years of age or older having a total annual income from any and all sources, including social security, below certain limits is exempt. These limits are, as follows:
Tax Year(s) Single Filers Joint Filers
2000-2011 $16,200 $27,000
2012 $26,200 $37,000
2013-2014 $33,000 $59,000
2015 and After $37,000 $68,000
Rationale for Repeal
The simple rationale for the repeal of the Hall Income Tax is twofold: to make Tennessee more economically competitive and to grant financial relief to Tennessee taxpayers.
The Tax Foundation, the nation's leading independent tax policy research organization, projected in 2014 that Tennessee's rank on their State Business Tax Climate Index would improve from 15th to 11th place in the country if the Hall Tax was repealed. According to Andy Ogles, state director of Americans for Prosperity-Tennessee, Tennessee would move from roughly 14th place to roughly 8th place as an attractive state to which to move or relocate. He says that Tennessee will now be an even more attractive destination for retirees and owners of Subchapter S corporations. He even cited one specific example of a Subchapter S corporation relocating to Alabama instead of Tennessee simply to avoid paying the Hall Income Tax, meaning 40-50 jobs that could be in Tennessee are now in Alabama.
Mr. Owen, of the Beacon Center, states that the Hall Income Tax is particularly harmful to retirees, who live on fixed incomes and disproportionately rely on their savings to make ends meet. He goes on to assert that the tax has, "â€¦driven wealthier residents and retirees out of our state or discouraged them from ever moving here in the first place. By making Tennessee a haven for hardworking, job-creating residents, we can actually increase other sources of tax revenue. Those staying in Tennessee or moving here will purchase homes and pay property taxes. They will purchase cars and other items and pay sales taxes."
Many local governments fear the loss of revenue from the Hall Income Tax. However, in 2012, the tax only provided 0.9% of Tennessee's state and local tax collection, per the following analysis by The Tax Foundation:
General Sales Taxes 42.6%
Property Taxes 25.7%
Other Taxes 24.6%
Corporate Income Tax 6.1%
Hall Income Tax 0.9%
The additional sales and property taxes that will be generated over time, mentioned earlier by Mr. Owen, will go a long way to replace any lost revenue from the repeal of the Hall tax.
One thing both legislators and pundits agree on is that Governor Bill Haslam has led a fiscally responsible state since taking office in January 2011. He has balanced the budget every year and the total tax cuts during his time in office are approaching $2 billion. The most significant cuts have come from a full repeal of the state's death and gift taxes, as well as a substantial reduction in the sales tax on food. He now adds the largest tax cut in state history to his list of fiscal accomplishments.
In an online "Viewpoint" for The Chattanoogan.com, state representatives Dan Howell District 22 and Kevin Brooks-District 24 along with state senators Mike Bell District 9 and Todd Gardenhire District 10, all shared the same perspective that by repealing the Hall Income Tax, "â€¦we are helping preserve the nest eggs of retirees, removing barriers that negatively affect economic growth, inspiring our job creators to take new risks in the market and attracting new companies to our state by showcasing our friendly business environment."
For more information about the Hall Income Tax, please visit the Tennessee Department of Revenue website at https://www.tn.gov/revenue/topic/hall-income-tax.
On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department of Labor (DOL), headed by Secretary of Labor Thomas E. Perez, to update the overtime regulations contained in the Fair Labor Standards Act (FLSA). The Department of Labor spent more than two years in discussions with employers, workers, and unions and received more than 270,000 comments from the public during this time. On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor's Final Rule that updates the overtime regulations. The effective date of the Final Rule is December 1, 2016.
The purpose of this blog post is to give the reader an overview of the Final Rule, examine the three tests that must be met in order for each exempt professional employee type to qualify for the white collar exemption, and give the reader some options on how to respond to the Final Rule's increased salary thresholds. Although not intended as an opinion piece on the subject, the blog will conclude with objections to the Final Rule from two important authorities.
The blogger has made every attempt to summarize the information in a logical and coherent format as a service to our clients and other readers. Please keep in mind that this blog does not carry the force of law or legal opinion. The United States Code, the Federal Register and the Code of Federal Regulations remain the official sources for statutory and regulatory information.
According to the Department of Labor website, the Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative, and Professional workers to be exempt from the overtime rules. These workers are exempt if they are employed in a "bona fide" executive, administrative, or professional (EAP) capacity, as those terms are defined in the DOL's regulations at 29 CFR part 541. Certain computer professionals and outside sales employees are also included in the exemption and therefore excluded from the minimum wage and overtime requirements. This exemption from the FLSA is sometimes referred to as the "white collar" or "EAP" exemption. The following are the key provisions of the Final Rule:
- Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South: $913 per week or $47,476 annually for a full-year worker. The current rates, set in 2004 are $455 per week or $23,660 annually. The "40th percentile" means that, according to the Census Bureau and Bureau of Labor Statistics' figures, 40 percent of the full-time salaried workers in the region earn at or below that amount. The regulations provide a lower special salary level requirement for American Samoa of 84 percent of the standard salary level, or $767 per week. In addition, the regulations establish a special base rate threshold of $1,397 per week, or a prorated amount based on the number of days worked, for employees in the motion picture industry.
- Increases the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test from $100,000 to $134,004. The new amount is equal to the 90th percentile of full-time salaried workers nationally.
- Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the percentiles noted herein and to ensure that they continue to provide useful and effective tests for exemption. The next automatic update to the salary and compensation levels will be on January 1, 2020.
- Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. Nondiscretionary bonuses and incentive payments (including commissions) are forms of compensation promised to employees to induce them to work more efficiently or to remain with the company. Examples include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula. Discretionary bonuses, alternatively, are those for which the decision to award the bonus and the payment amount is at the employer's sole discretion and not in accordance with any preannounced standards. An example would be an unannounced bonus or spontaneous reward for a specific act. If an employee does not earn enough of a nondiscretionary bonus or incentive payment in a given quarter to meet the standard salary level, an employer may make a "catch-up" payment no later than the next pay period after the end of the quarter. Any such "catch-up" payment counts only toward the prior quarter's salary.
There are some important qualifications to the Final Rule:
- There will be a time-limited non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. This non-enforcement policy will be in effect from December 1, 2016 until March 17, 2019.
- Neither the FLSA nor the Department's regulations provide an exemption from overtime requirements for non-profit organizations.
- Schools and institutions of higher education are generally covered by the FLSA's minimum wage and overtime provisions. However, several provisions apply to many employees at these institutions that exempt them from the Final Rule, especially teachers. (Teachers are defined in detail on the DOL website and discussed later within this blog under the "Teachers" section.)
- Private employers cannot satisfy their overtime obligations by providing compensatory time ("comp time").
- The use of comp time instead of overtime pay is limited by the FLSA to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency, under specific circumstances. (Some public universities or colleges qualify as public agencies.)
- Overtime-eligible workers are not required to punch a time clock. As long as they are complete and accurate, employers may use any method they choose for tracking and recording hours.
- The FLSA does not require minimum or maximum hours for a shift, or prohibit split shifts.
- The FLSA does not prevent a state from establishing more protective standards. If a sate establishes a more protective standard than the provisions of the FLSA, the higher standard applies in that state.
- Job titles never determine exempt status.
- For the EAP exemption to apply, a white collar employee's specific job duties must meet the duties test even if the employee's salary exceeds the standard salary level.
- The salary level is not a minimum wage requirement, and no employer is required to pay an employee the salary specified in the regulations, unless the employer is claiming an applicable white collar exemption.
THREE CRITERIA FOR CLAIMING WHITE COLLAR EXEMPTION
There are three criteria, or tests, that must be met in order to claim a white collar or EAP exemption: the salary basis test, the standard salary level test, and the standard duties test. These tests are slightly different depending on whether an employee falls into the executive, administrative, professional, outside sales, computer employee, or highly compensated employee (HCE) category. Therefore, we will examine each category separately.
Salary Basis Test Employee must be paid on a salary basis. Up to 10% of the salary level may be satisfied with nondiscretionary bonuses or incentive payments.
Standard Salary Level Test - $913 per week or $47,476 per year for a full-year worker.
Standard Duties Test The employee's "primary duty" must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. Additionally, the employee must customarily and regularly direct the work of at least two other full-time employees or the full-time equivalent (FTE) thereof. The employee must also have the authority to hire or fire other employees or the employee's suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
Additional information related to the Executive exemption may be found at 29 CFR 541 Subpart B or WHD Fact Sheet 17B. (WHD Wage and Hour Division of the United States Department of Labor)
Salary Basis Test Employee must be paid on a salary or fee basis. Up to 10% of the salary level may be satisfied with nondiscretionary bonuses or incentive payments.
Note: If the employee is paid an agreed sum for a single job, regardless of the time required for
its completion, the employee will be considered to be paid on a "fee basis". A fee payment is generally paid for a unique job, rather than for a series of jobs repeated a number of times and for which identical payments are repeatedly made. To determine whether the fee payment meets the minimum salary level requirement, the test is to consider the time worked on the job and determine whether the payment is at a rate that would amount to at least $913 per week if the employee worked 40 hours.
Standard Salary Level Test - $913 per week or $47,476 per year for a full-year worker. Academic administrative personnel may qualify with a salary at least equal to the entry salary for teachers at their educational establishment.
Standard Duties Test The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers. Additionally, the employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.
Additional information related to the Administrative exemption may be found at 29 CFR 541 Subpart C or WHD Fact Sheet 17C.
There are four different types of exempt professional employees: "learned professionals", "creative professionals", teachers, and employees practicing law or medicine.
Salary Basis Test - Employee must be paid on a salary or fee basis. Up to 10% of the salary level may be satisfied with nondiscretionary bonuses or incentive payments.
Standard Salary Level Test - $913 per week or $47,476 per year for a full-year worker.
Standard Duties Test The employee's primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning, including law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical, and biological sciences, pharmacy, and other occupations that have a recognized professional status and are distinguishable from the mechanical arts or skilled trades where the knowledge could be of a fairly advanced type, but is not in a field of science or learning. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction, which means specialized academic training is a standard prerequisite for entry into the profession.
Salary Basis Test - Employee must be paid on a salary or fee basis. Up to 10% of the salary level may be satisfied with nondiscretionary bonuses or incentive payments.
Standard Salary Level Test - $913 per week or $47,476 per year for a full-year worker.
Standard Duties Test The employee's primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. This includes such fields as music, writing, acting, and the graphic arts.
Salary Basis Test Does not apply.
Standard Salary Level Test Does not apply.
Standard Duties Test Teachers are exempt if their primary duty is teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment. Exempt teachers include, but are not limited to, regular academic teachers; kindergarten or nursery school teachers; teachers of gifted or disabled children; professors; adjunct instructors; teachers of skilled and semi-skilled trades and occupations; teachers engaged in automobile driving instruction; aircraft flight instructors; home economics teachers; vocal or instrument music teachers; and, under certain circumstances, athletic coaches and assistant coaches. Preschool employees whose primary duty is to care for the physical needs of the facility's children would not meet the requirements for the exemption as a bona fide teacher. Graduate and undergraduate students who are engaged in research under a faculty member's supervision in the course of obtaining a degree are not entitled to overtime because of an educational relationship rather than an employment relationship. Also, the administrative personnel that help run higher education institutions and interact with students outside the classroom, such as department heads, academic counselors and advisors, intervention specialists, and others with similar responsibilities are subject to a special salary threshold that does not apply to white-collar employees outside of higher education. Instead, they are not eligible for overtime if they are paid at least as much as the entrance salary for teachers at their institution.
Doctors and Lawyers
Salary Basis Test Does not apply.
Standard Salary Level Test Does not apply.
Standard Duties Test An employee holding a valid license or certificate permitting the practice of law or medicine is exempt if the employee is actually engaged in such a practice. An employee who holds an academic degree for the general practice of medicine is also exempt if the employee is engaged in an internship or resident program for the profession.
Additional information related to the Professional exemption may be found at 29 CFR 541 Subpart B and WHD Fact Sheet 17D.
Salary Basis Test Does not apply.
Standard Salary Level Test Does not apply.
Standard Duties Test The employee's primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer. "Sales" includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. Also, the employee must be customarily and regularly engaged away from the employer's place or places of business.
Salary Basis Test Employee must be paid on a salary or fee basis unless the employee is paid on an hourly basis and receives at least $27.63 per hour. Up to 10% of the salary level may be satisfied with nondiscretionary bonuses or incentive payments.
Standard Salary Level Test - $913 per week or $47,476 per year for a full-year worker or at least $27.63 per hour.
Standard Duties Test The employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field. The employee's primary duty must consist of:
- The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.
- The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.
- The design, documentation, testing, creation or modification of computer programs related to machine operating systems, or
- A combination of the aforementioned duties, the performance of which requires the same level of skills.
Highly Compensated Employees
Total Annual Compensation Requirement - $134,004 in total compensation, including payment of at least $913 per week.
Salary Basis Test 100% of the standard salary level of $913 a week or $47,476 annually must be paid on a salary or fee basis. The remainder of the HCE total annual compensation requirement may be paid in nondiscretionary bonuses or incentive payments (including commissions).
Standard Duties Test The employee's primary duty must be office or non-manual work. The employee must customarily and regularly perform at least one of the exempt duties of a bona fide executive, administrative, or professional employee, as described in the regulations. An employee who performs such exempt duties on an isolated or occasional basis will not satisfy this minimal duties requirement.
OPTIONS FOR EMPLOYERS
Employers have several options for implementing the updated salary level requirement established in the Final Rule:
- Pay current salaries, with overtime pay after 40 hours.
- Increase the salary of an employee who meets the job duties test to at least the new salary level in order to retain the employee's exempt status.
- Adjust wages by reducing the amount of pay allocated to base salary (the employee would still have to earn at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek. This action would hold total weekly pay constant.
- Reorganize workloads, adjust schedules, or spread work hours in order to manage overtime hours.
- Limit workers' hours to 40 per week.
- Hire more entry-level employees, part-time workers, freelancers, and/or independent contractors.
OBJECTIONS TO FINAL RULE As with any new rule or regulation, there are always objections. We felt that two of the most noteworthy objections should be noted for the reader.
First, Speaker of the United States House of Representatives, Paul Ryan (R-WI), said in a statement, "This regulation hurts the very people it alleges to help. Who is hurt most? Students, nonprofit employees and people starting a new career. By mandating overtime pay at a much higher salary threshold, many small businesses and nonprofits will be unable to afford skilled workers and be forced to eliminate salaried positions, complete with benefits, altogether. For the sake of his own political legacy, President Obama is rushing through regulations-like the overtime rule-that will cause people to lose their livelihoods. We are committed to fighting this rule and the many others that would be an absolute disaster for our economy."
Secondly, since our firm is a member of the American Institute of CPAs (AICPA), we would be remiss if we did not include the objection from AICPA president and CEO Barry Melancon: "The AICPA has clearly and consistently outlined its concerns that the Department of Labor proposed rule will increase the administrative burden in complying with the regulations while dramatically increasing employers' payroll costs. The proposed revisions fail to modernize or streamline the regulations, are not reflective of the realities of the modern workplace and a changing workforce, and would adversely affect both employees and employers. DOL's modifications to the rule did little to lessen the likelihood that CPA firms and countless other businesses will be forced to curtail hiring-and may even have to reduce the size of their workforce. The changes would have an especially negative impact on smaller accounting firms and the millions of small business clients they represent that simply cannot afford to raise their salaries for exempt employees above the new proposed threshold but also cannot afford to pay overtime to exempt workers. As a member of the Partnership to Protect Workplace Opportunity-a diverse group of stakeholders including businesses and associations that represent millions who could be impacted by the proposed rule-we urge Congress to intervene in the process so that regulations governing overtime pay reflect the evolving workplace in a manner that is not economically counterproductive."
For more information on the Final Rule, please visit the DOL website at:
One of the most talked about financial issues in 2016 is the implementation of negative interest rates by foreign central banks for the purpose of stimulating their stagnant economies. This deviation from historical monetary policy has caused many to scrutinize the reasons behind the move, opine about future ramifications, and speculate whether negative interest rates might be utilized in the United States.
A negative interest rate is when a bank depositor pays interest to the bank for holding his/her deposits instead of the bank paying the depositor interest on the account balance. Negative Interest Rate Policy (NIRP) is determined by a country's central bank. The central bank manages the nation's currency, money supply, and interest rates and normally prints the national currency.
The Riksbank in Sweden was the first central bank to utilize negative interest rates in 2009. The European Central Bank (ECB) implemented negative interest rates on June 5, 2014. The ECB further cut rates on September 4, 2014 and December 3, 2015. On March 10, 2016, the ECB reduced rates again, charging banks 0.4 percent to hold their cash overnight. The Swiss National Bank (SNB) implemented negative interest rates on December 18, 2014. And now, the Bank of Japan (BOJ) has joined them, announcing negative interest rates on January 29, 2016. Denmark and Switzerland are also experimenting with negative interest rates, with Sweden lowering its bank lending rate from a negative 0.35 percent to a negative 0.5 percent on February 11, 2016.
Arguments for Negative Interest Rate Policy (NIRP)
Some of the reasons foreign nations are experimenting with negative interest rates are to:
- Stimulate an economy when other options have failed or produced lackluster results
- Hold back the downward spiral of deflation
- Lower borrowing costs for businesses and individuals, thereby increasing the demands for loans
- Encourage investment in private sector businesses
- Encourage consumer spending
- Increase the value of the stock market
- Devalue a nation's currency so that exporters will be more competitive
- Create expectations of higher inflation, howbeit at a manageable level, which will motivate consumers to spend money now
Arguments against NIRP
Despite the arguments offered for negative interest rates, there are many more arguments that are against them. In a recent Bloomberg.com QuickTake, Jana Randow and Simon Kennedy indicated the following:
- It's an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire.
- "Negative interest rates are an act of desperation. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders.
- "If banks make more customers pay to hold their money, cash may go under the mattress instead, robbing lenders of a crucial source of funding. But, there's mounting concern that when banks absorb the cost of negative rates themselves, that squeezes the profit margin between their lending and deposit rates, and might make them even less willing to lend.
Charles Kane, a senior lecturer in international finance and entrepreneurial studies at the MIT Sloan School of Management, in writing for fortune.com, notes that even a 0.1 percent negative rate on billions of dollars of deposits could mean the difference between profit or loss for a major commercial bank. He points out that the European banks, especially the German banks, are already objecting to current negative interest rate levels. His conclusion on negative interest rates: In the face of continually lowering growth estimates, persistently high unemployment, and a possible Brexit, this is the last thing Europe needs (Brexit is a slang term that refers to the possibility that Britain will pull out of the European Union).
Another argument against lowering interest rates below zero is that negative interest rates is just a euphemistic way of introducing a tax and, in effect, confiscating savings. Christopher J. Waller, Executive Vice President and Director of Research for the Federal Reserve Bank of St. Louis calls it taxes in sheep's clothing. He states that the tax has to be borne by someone in one of the following three ways:
- The banks can choose not to pass it on and just have lower after-tax profits. This will depress the share price of banks and weaken their balance sheets by having lower equity values.
- The banks can pass the tax onto depositors by paying a lower interest rate on deposits or charging them fees for holding the deposits. In either case, depositors have less income to spend on goods and services.
- The bank can pass the tax onto borrowers by charging them a higher interest rate on a loan or higher fees for processing the loan. In either case, it is more costly to finance purchases of goods and services by borrowing.
Mr. Waller concludes by stating, None of this sounds very stimulative for consumer spending. But then, no tax ever is.
In an online piece for the New York Times, Neil Irwin warns that negative interest rates could cause damage to the very architecture by which money and credit zoom through the economy, and in turn inhibit growth. Banks could cease to be viable businesses, eliminating a key way that money is channeled from savers to productive investments. Money market mutual funds, widely used in the United States, could well cease to exist. Mr. Irwin goes on to quote Herve Hannoun, the former deputy general manager of the Bank for International Settlements, who in a speech last year stated that negative interest rates could over time encourage the use of alternative virtual currencies, undermining the foundations of the financial system as we know it today.
The most extreme consequence of negative interest rates could be the potential elimination of cash itself. The case for 100 percent electronic transactions is usually sold to the public as a cure for criminal behavior or terrorism, increased cash flow efficiency, lower costs, and preventing tax evasion. Some even outrageously tout the public health benefit of not touching viruses and bacteria that cling to cash bills. Satyajit Das, a former banker and author of The Age of Stagnation (Prometheus Books), in an article at marketwatch.com claims that abolishing cash would require a revolutionary change because cash is still extensively used throughout the world and cash use is especially high among both poor and older people. He also points out that security and operational risks, such as counterfeiting, cyber-hacking, and disruptions due to technology failures would be considerable.
Jason Scheurer, writing for breitbart.com, point blank states, You can have cash or you can have negative interest rates, but you can't have both. He includes a graph that shows global debt has increased by over 57 trillion dollars since 2007, outpacing world Gross Domestic Product (GDP) growth. He states that, The cold reality is that just paying the annual interest cost would be next to impossible for the majority of the world's governments. And, Rather than dealing with the debt and slowing its growth to levels below the rate [of] inflation, the central bankers' solution is to instead destroy physical cash and punish savers. He concludes this line of thought with, It is simply much easier for governments to reduce borrowing costs to below zero, eliminating those constraining interest payments, than admit they were wrong and reverse course. He then includes six steps that have been taken to force the world into a cashless environment:
- It is illegal to buy anything in France costing more than 1,000 euros with physical cash. This number is down from 3,000 euros just a few years ago.
- Spain has banned cash transactions above 2,500 euros.
- Italy banned cash transactions above 1,000 euros.
- Germany's Deputy Finance Minister, Michael Meister, wants a 5,000 [euro] cap on cash transactions.
- Former Treasury Secretary, Larry Summers, is calling for ending the $100 bill, and wants Europe to retire the 500 euro [note]. This would effectively remove over 50% of all physical currency currently in circulation in Europe and the U.S.
- The head of the European Central Bank, Mario Draghi, along with a growing list of former and current banking officials, is calling for ending the 500 euro [note].
Negative Interest Rates in the United States
With all the what-ifs related to the issue of negative interest rates, the burning question on everyone's mind is, Will the United States follow the world's lead and include negative interest rates in its monetary policy
Janet Yellen, the Federal Reserve chairwoman, in November 2015 stated that negative interest rates could be on the table should economic circumstances dictate. However, the Fed raised short-term rates from a range of 0% to 0.25% to a range of 0.25% to 0.5% in December 2015 after rates had remained at almost zero since December 2008, citing the improving health of the economy. Later, during congressional testimony on February 10-11, 2016, regarding negative interest rates, she stated, We are taking a look at them again. But, Ms. Yellen did note two major issues that would need to be investigated. One, the legality of negative interest rates "remains a question that we still would need to investigate more thoroughly. Second, It's also a question of could the plumbing of the payment system in the United States handle it? Ms. Yellen further stated, "Is our institutional structure of our money markets compatible with it? We've not determined that."
Jared Dillian, a contributor to Forbes.com, thinks that negative interest rates are possible, but unlikely. He notes that former Federal Reserve Chairman Ben Bernanke also wonders about the legal implications of negative interest rates. He notes the Fed is required to pay interest rates to member banks. So, could the Fed get away with paying negative interest rates? Mr. Dillian thinks the issue is not that simple and could even end up in court for years.
In determining the will they or won't they/should they or shouldn't they debate regarding negative interest rates, the two opinions in the following paragraph seem to have the proper perspective.
Dan Celia, host of the nationally syndicated radio talk program "Financial Issues", in a commentary for cnsnews.com, stated, "We must have an economy built on strength and consumer confidence. And the only way this can happen is for Central Banks and governments to stay out of it. The government's only responsibility should be creating an environment that is good for the country." He further states that, "We need to create an environment where the government or a Central Bank is not propping up anything." Louis Rouanet, a student at Sciences Po Paris (Institute of Political Studies) seconds the argument in his mises.org blog asserting, "The allegation that negative interest rates are somehow natural or answering to the needs of the economy is absurd, and without the interference of central banks and governments, the negative interest rate topic would be non-existent."
The Centers for Medicare & Medicaid Services (CMS) has notified us that form CMS-224-14 has been approved. Freestanding Federally Qualified Health Centers (FQHC's) with a cost reporting period beginning on or after October 1, 2014, must complete the new form for cost report submissions.
CMS approved an extension of the due dates for the impacted cost reports. The original due dates and the revised due dates are included in the chart below for your information.
Form CMS 224-14 Cost Report
Schedule of Due Dates For Cost Reporting Periods
Cost Reporting Periods Beginning On or After October 1, 2014 and Ending on or Before:
Revised Due Date
10/01/2015 through 10/31/2015
11/01/2015 through 11/30/2015
12/01/2015 through 12/31/2015
01/01/2016 through 01/31/2016
02/01/2016 through 02/29/2016
03/01/2016 through 03/31/2016
FQHCs that previously filed as part of a SNF facility healthcare complex (Form CMS-2540-10) or a HHA healthcare complex (Form CMS-1728-94) must now complete the FQHC form CMS-224-14.
In addition to this notice, Cahaba will send out a separate cost report reminder letter identifying the specific due date for your health center.
If you do not have a cost report prepare or would like to change please contact Bill Matheney email@example.com or Meredith Cate firstname.lastname@example.org to discuss what we can do for you. We can also be reached at 423-894-7400 or 800-556-1076 extensions 105 and 112 respectively.
There has been much focus on the Patient Protection and Affordable Care Act (ACA), commonly referred to as Obamacare, since its passage in March 2010. A Kaiser Health Tracking Poll in 2013 found that just 37 percent of Americans viewed Obamacare favorably. However, there is one exemption or loophole in the federal legislation that almost gets no attention: Congress allowed healthcare sharing ministries to continue as an alternative to the insurance mandate. The House did not intend to recognize sharing plans, but the provision was contained in the Senate version of the bill. The House rushed to adopt the Senate bill to avoid further debate. Therefore, the provision remained in the final version of the bill.
The legislation defines healthcare sharing plans as tax exempt, 501(c)(3) organizations whose members share a common set of ethical or religious beliefs and share medical expenses without regard to residence or employment. The plans must also have been in continuous existence since December 31, 1999.
The three largest Christian plans are:
- Christian Healthcare Ministries (CHM) of Barberton, OH. Operations began in 1982.
- Christian Care Medi-Share (CCM), a program of Christian Care Ministry, of Melbourne, FL. Operations began in 1993.
- Samaritan Ministries International of Peoria, IL. Operations began in 1994.
All three plans have seen a dramatic increase in participating members since passage of Obamacare. Many of the reasons given for joining include: government interference in healthcare, rising cost of insurance premiums, concern over paying for plans that cover birth control and abortifacients, the astronomical cost of COBRA upon loss of employment, and the requirement to purchase insurance or pay a fine. There also seems to be an increased desire among Christians to meet one another's medical needs.
All three plans require members to sign a statement of faith, use no tobacco products or illegal drugs, abstain from sex outside the confines of biblical marriage, and live by biblical principles in other aspects of life. There are differing costs associated with differing options and there are rules on preexisting conditions. For example, CHM offers individual and family plans from which a member may choose either a gold, silver, or bronze level of participation. Gold level is most expensive with most coverage and bronze, likewise, is least. (Disclosure: Blogger is a Gold Level individual member.) There is also a Brother's Keeper plan for catastrophic medical bills that exceed the $125,000 per illness sharing limit. Ongoing bills from pre-existing conditions do not qualify for sharing, but members with these types of medical bills are placed on the Prayer Page of CHM's monthly newsletter. Members may then give tax-deductible contributions over and above their monthly gift (premium) amounts to CHM to help cover these medical needs.
If you want more information on healthcare sharing plans, please visit the plan websites listed below:
Also, two articles of interest regarding healthcare sharing plans: