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Medicare HMO’s Aren’t Always What They’re Cracked Up To Be

Question: My female friend and I -- she is 63 and I am 68 -- decided not to get married for a lot of reasons, but we still want to be able to have each other handle our assets and affairs should the other become ill and to leave each other assets in our

Question (by email): My husband and I joined a "Medicare HMO" several years ago based on promises of better care, more benefits, and lower cost. In the process, we dropped our Medicare Supplement policy. Last November, we received notice from the administrator of our HMO that as of January 1, 1999, they would no longer be offering their service to its members in our area. They sent us what we considered to be very complicated instructions about finding other coverage. We have now learned that we can not get back our Medicare Supplement policy. We feel that we have been taken advantage of and are now left stranded. Why does the government create these options only to allow them to be taken away and how can we protect ourselves?

Answer: We agree. Unfortunately, you and nearly a half million Medicare recipients are in the same boat. Due to reduced governmental reimbursements and rising medical costs, the same HMO’s which scrambled for you and other over 65 members several years ago are finding out that they can’t make the money they made several years ago. For that reason, they are getting out of this business in certain parts of the United States.

The complicated instructions you received from your HMO is their way of fulfilling their legal obligation to inform you of your options which, are basically as follows: (1) Either join another HMO – where you go to their doctors and pay no deductibles or co-payments -- or (2) go back to "traditional Medicare" which means you go to the doctor of your choice, pay deductibles, and pay the 20 percent co-payment where applicable.

If you don’t want or can’t find another suitable HMO, you will be covered under traditional Medicare; however, your Medical Supplement – or "Medigap" is quite another story: If you did not stay enrolled with your HMO through December 31, 1998, then you will be considered to have voluntarily withdrawn and your ability to get Medigap will be jeopardized. On the other hand, if you were enrolled through December 31, you will have access to Medigap plans A, B, C, and F. Of all Medicare recipients, nearly 40 percent don’t have a Medigap policy which, in our view, is a mistake because these policies pay some of the co-insurance and deductibles that Medicare doesn’t.

Bottom Line: While Medicare HMO’s may have seemed to have been heaven-sent several years ago, the old adage -- "If it sounds too good to be true, it probably is" – rings true today.

Question: Three of our five grandchildren are now in college and professional schools at tremendous expense to our daughter and her husband. Because we are financially secure and wish to help, my wife and I have been giving $20,000 to each of these children each year as gifts; however, since all of them are in out-of-state schools, all of their school and living expenses aren’t getting covered. We understand that if we give more to each child, we will have to pay gift taxes. Is this correct? And if so, how can we give extra help legally so our daughter and her husband won’t have to go into debt?

Answer: While there is no limit on the amount you can give to any individual during a calendar year, if you or your wife give more than $10,000 per person, you will be required to file a gift tax return. While no gift taxes are due, the amount in excess of $10,000 will reduce your "unified credit"--– now $650,000 per person --– which is the amount you and your wife can each give tax free either during your life or at your death.

But there are ways in which to deliver more economic benefits to your grandchildren. Since there is no limit on payments you make for the education or health care of another, you and your wife can pay each grandchild’s school tuition provided you pay it directly to the school and still give $10,000 each to each child. It seems to us that with tuition paid and $20,000 tax-free in their hands, your grandchildren should be able to make it.

Jan Collins Stucker is an award-winning writer and editor. Jan Warner is a matrimonial, tax, and elder law attorney. Both are based in Columbia, South Carolina. NextSteps is distributed nationally by Knight-Ridder/Tribune Service and is on the internet at

Please email your questions to or mail to P.O.Box 11704, Columbia, S.C. 29211. Questions can be answered only in the column.



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