Monthly Archives: November 2018

Disability, Poverty, and the Policy Behind the ABLE Act

November 2, 2018


By Nancy Susan Germany, Esq.

I. Introduction

The Achieving a Better Life Experience (ABLE) Act enables independence and self-reliance for
persons with disabilities. The act created the ABLE account, a powerful tool to help persons
with disabilities save money and control their own future. The ABLE account has become
enormously popular. States that have implemented ABLE programs report thousands of participants and millions of dollars being saved by persons with disabilities. Ohio opened the first ABLE program on June 1, 2016. Since then more than 34 states have started ABLE programs, with more states joining on a regular basis.

ABLE accounts allow persons with disabilities to save money without jeopardizing their
eligibility for public benefits. ABLE account income grows tax free and if spent on qualified
disability expenses (QDEs) remains tax free. Persons with disabilities are in control of theirown accounts, thus giving them more self-determination in their financial futures. This freedom to control their own money is a first for many persons with disabilities.

The ABLE account has rare bipartisan support and indicates Congress’s attempt to address the situation of people with disabilities who live in poverty, survive on meager incomes, and face asset limitations in an effort to maintain public benefit eligibility. The use of ABLE accounts will likely be expanded in the future.

Strict limitations apply to ABLE account use. An ABLE account can only be used by persons disabled prior to age 26 and must be funded with cash. The maximum funding amount each year is limited to the annual gift tax exemption amount ($15,000 in 2018). For Supplemental Security Income (SSI) eligibility purposes, an ABLE account is exempt up to $100,000; for Medicaid-only eligibility purposes, it is exempt up to a state’s 529 plan limit. If ABLE account income is spent on non-QDEs, it is taxed, and a penalty is assessed, and on the death of the person with a disability, payback to the state Medicaid agency applies. Due to these limitations, the ABLE account is not enough to break the cycle of poverty for many persons with disabilities. It does, however, provide some relief and can be used as part of an effective special needs plan.

This article reviews how the ABLE account came into existence, compares ABLE accounts with special needs trusts (SNTs), and discusses ABLE account legal requirements, how various federal agencies have interpreted ABLE accounts, and the options available in states’ ABLE programs.

II. ABLE Accounts Are the Latest Attempt to Reduce Historic and Systemic Poverty for Persons With Disabilities

A. Disability and Poverty
Persons with disabilities live in poverty and are unemployed and underemployed at a far higher rate than people without disabilities. One study concludes, “Disability and poverty are intricately linked as both a cause and consequence of each other.”1 The number of people with disabilities increased from 11.9 percent in 2010 to 12.8 percent in 2016.2In other words, in 2016, 40,890,900 of the 319,215,200 individuals of all ages in the United States reported having one or more disabilities.3

The number of people with disabilities, which depends on how the term “disability” is defined, is sometimes difficult to assess. The World Health Organization (WHO), which has conducted numerous studies on this issue, defines disability “not necessarily by a person’s defined medical condition, but by an environment that erects barriers to [his or her] participation in the social and economic life of their communities.”4 The Cornell University Yang-Tan Institute on Employment and Disability obtains its information on persons with disabilities from three data sources: the American Community Survey, Current Population Survey, and 2000 Census.5

People with disabilities have a high rate of unemployment. In 2016, the employment rate for working age people with disabilities was 36.2 percent versus 78.9 percent for persons without disabilities.6 In 34 states, an employment gap of 40 percent or higher exists between employed people without disabilities and employed people with disabilities.7 People with disabilities also work full-time at a much lower rate (23 percent) than persons without disabilities (59.4 percent).8

The number of people with disabilities living in poverty is staggering. In 2016, 5,323,500 persons with disabilities were living in poverty and at a significantly higher rate than those without disabilities.9 From 2009 through 2016, the percentage of people with disabilities living in poverty ranged from 20.9 percent to 23 percent.10 The percentage of people without disabilities living in poverty ranged from 13.1 percent to 15.1 percent.11 The percentage of working age persons with disabilities living in poverty was 26.6 percent, while the percentage of those of the same age without disabilities living in poverty was 10.9 percent.12 In 2016, the median earnings of Americans with disabilities ages 16 and older was $21,572; the median earnings of those without disabilities was $31,874.13

Because so many people with disabilities are living in poverty, are unemployed, or are unable to work, they rely on public benefits to help them pay for food, shelter, and medical care.

B. Public Benefit Programs’ Income and Asset Limits Make Saving Money Difficult for Persons With Disabilities

Many people with disabilities use SSI to help pay for their food and shelter. In 2016, 3,858,100 working age persons with disabilities used SSI to meet their primary needs.14 The issue with SSI is that for an individual with a disability to qualify, his or her countable assets cannot exceed $2,000; this amount is $3,000 for a couple.15 This limit has not changed since 1989 and is not indexed for inflation.16

Given the resource and income limitations imposed by means-tested public benefit programs, there has long been a need for a program that offers options for people in the disability community to have access to or save assets and not be forced to spend down every month in order to retain benefits eligibility. The issue was described in an earlier NAELA Journal article:

After all, a $2,000 limit on resources makes it virtually impossible to save in order to fix a roof, deal with a plumbing emergency, or repair a car without running afoul of these asset limits. Requiring individuals to spend down virtually all of their resources before they can qualify for needed long-term services and supports takes away the minimal safety net that anyone living in the community requires. It raises the specter that even a small emergency or unplanned expense can cascade into a crisis, potentially forcing an individual to move into an institution or worse, become homeless. The limit also discourages responsible planning. Advocates frequently report cases in which an individual, seeking to do the right thing, saves up from his or her minimal income for an anticipated expense and instead ends up losing coverage or facing an overpayment requirement.17

C. The ABLE Act Was Designed to Help People With Disabilities

The ABLE Act recognizes the special financial burdens on persons with disabilities and the struggles they face in achieving and sustaining a meaningful quality of life. The stated purpose of the ABLE Act is as follows:

(1) To encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life.

(2) To provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, the Medicaid program under title XIX of the Social Security Act [42 U.S.C. 1396 et seq.], the supplemental security income program under title XVI of such Act [42 U.S.C. 1381 et seq.], the beneficiary’s employment, and other sources.18

Simply put, this act is intended to improve the quality of life for persons with disabilities and their families who depend on various forms of public benefits to provide income, health care, food, and housing assistance. As described previously, eligibility for these public benefits typically requires the person with a disability to have less than $2,000 in countable assets. For the first time, legislation, in the form of the ABLE Act, recognizes the significant hardships of living with a disability. These hardships include paying the costs related to raising a child with a disability and the costs a working age adult with a disability must pay for accessible housing, reliable transportation, personal assistance services, assistive technology, and health care not otherwise covered.

For the first time, eligible individuals and their families have the opportunity to establish ABLE accounts, which will not affect their eligibility for SSI, Medicaid, and other public benefits. An ABLE account is a tax-advantaged savings plan for people with disabilities who were disabled or blind prior to age 26.19 The person with a disability is the ABLE account owner, and income earned by the account is not taxed. Contributions to the account may be made by any person (e.g., person with a disability, family member, friend, SNT trustee) using after-tax dollars. The contributions are not tax deductible, although some states may allow for state income tax deductions.20

As a result of these features, ABLE accounts have become very popular for persons with disabilities. In the fourth quarter of 2017, the number of ABLE accounts grew by 31 percent. As of this writing, 17,314 accounts exist, with $72 million in assets.21 This number is expected to significantly rise as more states open ABLE programs.

III. The ABLE Act’s History

On December 19, 2014, President Obama signed the Stephen Beck Jr. Achieving a Better Life Experience (ABLE) Act of 2014 into law as part of the Tax Increase Prevention Act of 2014. The ABLE Act was initially sponsored in 2007 by Rep. Ander Crenshaw, R-Fla. At that time, it was called the Financial Security Accounts for Individuals With Disabilities Act of 2007 (H.R. 2370). It underwent many changes. The second version of the bill, later known as H.R. 1205, became the ABLE Act and was introduced in February 2009 with bipartisan support of 203 members of Congress. However, without any action, H.R. 1205 died at the end of the 111th Congress.22 In the 112th Congress, the ABLE Act of 2011, H.R. 3423, was introduced in November 2011 and gained the support of 235 House members. However, it did not have enough support to go to committee or the House floor.

In its third round, in February 2013, the final draft of the ABLE Act was reintroduced in the 113th Congress as the ABLE Act of 2014, H.R. 647. The final version included minor changes, and H.R. 647 gained 380 co-sponsors in the House (194 Republicans and 186 Democrats).23 Its Senate counterpart, Sen. 313, gained 76 Senate co-sponsors (29 Republicans and 47 Democrats).24 The bill passed the House in December 2014 by a vote of 404 to 1725 and in the Senate by a vote of 76 to 16.26

In more recent legislation, under the 2017 Tax Cuts and Jobs Act,27 funds from a 529 plan can now be rolled over into an ABLE account.28 This rollover counts toward the $15,000 funding limit. The new law also gives an account owner who works the right to contribute up to $12,060 in earnings above the $15,000 funding limit.29 Finally, the new law allows ABLE account owners who contribute to their own accounts to take advantage of the Retirement Savings Contributions Credit, which provides a special tax break to low- and moderate-income taxpayers who are saving for retirement.30

IV. ABLE Account Legal Requirements

The ABLE account was established under § 529 of the Internal Revenue Code and in some ways is similar to the traditional 529 college savings account. However, there are significant differences, as described below.

A. ABLE Account Age and Disability Requirements
An ABLE account is started and owned by a designated beneficiary, who is a qualified person with a disability that occurred prior to age 26.31 The designated beneficiary can establish disability in one of two ways:

1. By showing, based on a disability that began before age 26, that he or she is currently eligible for Social Security Disability Insurance (SSDI) or SSI disability benefits; or

2. By certifying, or having a parent or guardian certify, that he or she has a medically determinable impairment that “results in marked and severe functional limitations” that has lasted or is expected to last for 12 consecutive months or is likely to result in death, with the disability or blindness occurring before age 26.32

If an individual is not already receiving SSI or SSDI, he or she must meet the Social Security Administration (SSA) definition of “disability”:

[A] medically determinable physical or mental impairment or combination of impairments that causes marked and severe functional limitations, and that can be expected to cause death or that has lasted or can be expected to last for a continuous period of not less than 12 months.33

For persons who are not already receiving SSI or SSDI, the ABLE Act requires that the certification of disability be filed with the Treasury secretary.34 The proposed regulations defined this requirement to mean that the individual, his or her agent under power of attorney, or his or her parent or guardian must certify under penalty of perjury that he or she has a “signed physician’s diagnosis” documenting the disability and will provide it if requested by the ABLE plan administrator or the IRS.35 This means that eligible individuals with disabilities will not have to provide the written diagnosis when opening an ABLE account and ABLE programs will not have to receive, retain, or evaluate detailed medical records. It also means that submission of a doctor’s letter is not necessary unless requested.

B. Opening and Contributing to an ABLE Account
An individual opens an ABLE account by joining a state ABLE program.36An account may be opened by the designated beneficiary or his or her agent, guardian, or parent (if a minor).37 There is no minimum age for setting up an ABLE account; therefore, even very young children may have one. However, the ABLE account is always owned by the designated beneficiary.38 Moreover, a designated beneficiary is permitted to have only one ABLE account.39 If more than one account is opened, the subsequent account is considered countable by the public benefit agency and provides no tax benefit to the person with a disability.40 However, if all amounts contributed to a subsequent ABLE account are returned in a timely manner, the account is treated as if it had never been opened.41

An ABLE account can only be funded with cash.42 If, however, funds are rolled over from one ABLE account to another for the benefit of the designated beneficiary, the rollover amount is considered an in-kind contribution and thus is not taxed.43 Any person can contribute to an individual’s ABLE account, including the person with a disability.44“Person” is defined to include a trust or estate.45 At this time, there is no prohibition on an SNT funding an ABLE account.46 The contribution to an ABLE account is also deemed a completed gift for gift tax purposes.47

There is no federal income tax deduction on ABLE account contributions, but some states’ programs authorize a state income tax deduction.48 As different states implement ABLE programs across the nation, some states have enacted laws that allow state tax deductions for contributions to ABLE accounts for their residents.49 For example, in Iowa, the maximum deductible account contribution is $3,128, and in Michigan, the amount is $5,000 for individuals and $10,000 for joint filers.50

Each year, an ABLE account can only be funded up to the single annual federal gift tax exclusion amount (as set forth in I.R.C. § 2504(b)), which is currently $15,000.51 This annual limitation applies to the total annual amount contributed to the account on an aggregate basis. This amount is expected to increase every few years because it is adjusted for inflation.

The original ABLE Act required beneficiaries to open ABLE accounts in their home states only. However, when Congress amended the ABLE Act in December 2015 as part of the tax extenders package, it eliminated the home state residency requirement.52 Now, an individual can open an ABLE account in any state that offers a nationwide ABLE program. To determine which state ABLE programs are accepting out-of-state enrollment, see the individual state pages on the ABLE National Resource Center website.53 State ABLE programs accepting enrollment nationwide include Ohio and Nebraska. Florida is an example of a state whose ABLE program accepts in-state residents only.

C. ABLE Account Size Limit
The limit on the size of an ABLE account is based on the needs-based public benefits the individual is receiving. The funds in an ABLE account are not counted toward the resource limit for any federally funded benefit that has at least one financial criterion for eligibility.54 If the designated beneficiary receives SSI, the ABLE account may grow up to $100,000 and is not counted as a resource for SSI eligibility.55

If an ABLE account grows to more than $100,000, the designated beneficiary’s SSI benefits are not terminated. Rather, the SSI benefits are suspended until the ABLE account balance drops below $100,000, at which point the SSI benefits resume.56 A suspension of SSI benefits due to too much money in an ABLE account does not mean an immediate loss of Medicaid benefits.57 Medicaid eligibility and benefits will continue uninterrupted.

The Social Security Program Operations Manual System (POMS) provides an example:

EXAMPLE: Excess resources — recipient is suspended but retains eligibility for Medicaid

Paul is the designated beneficiary of an ABLE account with a balance of $101,000 on the first of the month. Paul’s only other countable resource is a checking account with a balance of $1,500. Paul’s countable resources are $2,500 and therefore exceed the SSI resource limit. However, since Paul’s ABLE account balance causes him to exceed the resource limit (i.e., his countable resources other than the ABLE account are less than $2,000), Paul’s SSI eligibility [is suspended] and his cash benefits [are stopped], but he retains eligibility for Medicaid in his State.58

Under the ABLE Act, if the designated beneficiary is receiving Medicaid only, not SSI, the ABLE account may grow up to the state’s limit under its qualified state tuition program (i.e., 529 plan).59 The dollar limits of what can be retained in an ABLE account vary by state. For example, Nebraska’s account limit is $400,000; Nevada’s limit is $370,000; and Michigan’s limit is $500,000.60

D. The ABLE Act’s Payback Requirement
The ABLE Act states that when a designated beneficiary with assets in an ABLE account dies, the assets are subject to “payback” to the state Medicaid program, up to the value of the Medicaid services provided to the beneficiary from when the account was opened to the filing of a claim by the state.61 The state is considered a creditor of the ABLE account and not a beneficiary.62

The payback amount is calculated after:

• All outstanding QDEs for the designated beneficiary are paid,

• Funeral and burial expenses for the designated beneficiary are paid, and

• Medicaid premiums paid by the beneficiary are subtracted.63

Despite the federal law, several states have passed laws stating that the state will not seek payback from an ABLE account on the death of a designated beneficiary.64 At this point, it is not known whether these laws will be successful.

E. ABLE Account Tax Treatment and Qualified Disability Expenses
An ABLE account receives tax treatment similar to that of a traditional 529 college savings plan. Income earned in an ABLE account grows tax free.65Distributions from an ABLE account for the payment of QDEs are also not taxed.66 The ABLE Act defines QDEs as “expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary.”67 It then lists a range of categories of potential uses for funds set aside in ABLE accounts, including the following:

education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of this section.68

In the proposed regulations released in June 2015, the IRS stated that QDEs should be “broadly construed to permit … basic living expenses and should not be limited to expenses for which there is a medical necessity or which provide no benefits to others” and should include any benefit related to the designated beneficiary “in maintaining or improving his or her health, independence, or quality of life.”69 A new computer with adaptive technology that could improve the beneficiary’s general well-being is a good example of a potentially allowable expense. It is important to note that distributions for recreation appear limited and distributions for housing must be administered very carefully, as detailed later in this article.

A penalty is incurred if an ABLE account recipient makes a distribution for non-QDEs. Distributions for non-QDEs are considered gross income and subject to a 10 percent penalty.70 Following are a few exceptions to incurring the penalty:

• The penalty does not apply to any distribution made from an ABLE account on or after the designated beneficiary’s death to the designated beneficiary’s estate, heir or legatee, or creditor.71

• The penalty does not apply if the ABLE account refunds excess account contributions.72

F. ABLE Account Investment Options

Similar to state 529 college savings plans, states offer qualified individuals and families multiple options for establishing ABLE accounts with varied investment strategies.73 People with disabilities and their families need to project future needs and costs over time and to assess their risk tolerance when selecting investment strategies. The ABLE Act limits account contributors and designated beneficiaries from changing the way their money is invested to two times per year.74

G. ABLE Administrator Reporting Requirements
ABLE administrators are required to report monthly to SSA and Medicaid regarding any ABLE account distributions made for QDEs. When an ABLE account is established, the following information must be provided to the SSA:

• Name of the designated beneficiary

• State ABLE program administering the account

• Name of the person who has signature authority (if different from the designated beneficiary)

• Unique account number the state assigns to the ABLE account

• Account opened date

• First-of-the-month account balance or information sufficient to derive a first-of-the-month balance75

Reporting to SSA is required monthly; however, it is unclear how SSA will monitor these reports, given the number of ABLE accounts and the staffing necessary, or whether accounts will be subject to random auditing.

V. Federal Administrative Guidance for ABLE Accounts

Department of the Treasury ABLE account regulations state that, in general, neither the ABLE account nor distributions from the account will be treated as income or resources in determining a designated beneficiary’s eligibility for any federal benefit program. Several federal agencies have provided guidance on the use of ABLE accounts, including SSA, the Centers for Medicaid & Medicare Services (CMS), and the U.S. Department of Agriculture (USDA). Although other agencies have not provided guidance, an ABLE account should be exempt for any federal program that has an income or resource eligibility standard.

A. SSA POMS Guidance on ABLE Accounts
The most comprehensive guidance on ABLE accounts issued thus far is the SSA POMS. The POMS is a primary source of information SSA employees use to process claims for Social Security benefits, including SSI. While the POMS does not have the force of law, courts do defer to SSA’s interpretation of the law.76 SSA issued POMS SI 01130.740 (Achieving a Better Life Experience (ABLE) Accounts) and updated it on March 7, 2018.77 It provides a thorough overview of how SSA treats ABLE accounts for SSI eligibility purposes.

The ABLE POMS is organized as follows:

A. What is an ABLE Account?

B. Definition of ABLE terms

C. When to exclude ABLE account contributions, balances, earnings, and distributions

D. When to count ABLE account balances and distributions

E. How to verify, document, and record ABLE account balances

F. How to verify, document, and record ABLE account distributions

G. Handling and recording ABLE prepaid debit card information

The POMS makes several interesting clarifications concerning the use of ABLE accounts, stating that contributions to an ABLE account are exempt, even if made from a trust.78 Thus, an SNT trustee is authorized to make contributions to a beneficiary’s ABLE account. Factors a trustee should consider when making such a contribution are discussed below.

The POMS states that all distributions from an ABLE account will not be treated as public benefit “income.”79 Instead, it will be treated as a conversion of a resource. This is an important distinction, because if a distribution is made from an ABLE account, even if not for a QDE,80 the SSI recipient will not be penalized by SSA’s income rules for public benefit eligibility purposes. These rules can be difficult to understand because many people confuse the word “income” with how the IRS defines the word. The definition of income is different for SSI eligibility purposes. In general, SSA will reduce the SSI recipient’s monthly check by the receipt of SSA income.81 Income is generally defined for Social Security benefit purposes as either earned82 or unearned.83 For example, any money received by the beneficiary directly will be considered unearned income to the beneficiary under the SSI rules, and, after a set-aside of the first $20 each month, will reduce his or her SSI benefits on a dollar-for-dollar basis.84 For example, if an SNT trustee distributes $500 from the trust directly to a beneficiary who is an SSI recipient, the recipient would lose $480 from the monthly SSI check. If instead, the SSI recipient receives $500 from an ABLE account, there would be no reduction of the monthly SSI check as unearned income because it would be treated as a transfer of a resource, not income. As stated in the POMS:

Do not count distributions from an ABLE account as income of the designated beneficiary, regardless of whether the distributions are for a QDE not related to housing, for a housing expense, or for a non-qualified expense.85

Thus, as another example, if an SNT trustee pays for a recipient’s food, a penalty is triggered under SSA’s in-kind support and maintenance (ISM) rules (described below). However, because ISM is a type of SSI income, if an ABLE account pays for food, there is no ISM penalty. As discussed below, there may be a resource issue, but there is no SSI income issue even if the distribution is made for a non-QDE.

The POMS also provides a unique treatment of paying for housing expenses from an ABLE account. The POMS defines “housing expenses” the same way it defines “shelter,” with the exception of food.86 To understand the distinction, a brief discussion of how SSA treats the receipt of food or shelter by an SSI recipient is necessary.

If an SSI recipient receives “food or shelter, or something the recipient can use to get one of those [two] items” from another person, the recipient will have income in the form of ISM.87 SSA will penalize the SSI recipient for receipt of such income.88 The recipient’s SSI benefits will be reduced by (1) the lesser of one-third of the federal benefit rate (FBR) plus the $20 general income exclusion or (2) the actual value of what was received.89Thus, in 2018, if an SNT trustee pays the SSI recipient’s rent in the amount of $1,000 per month, SSA will reduce the recipient’s monthly SSI check by $270 per month.90 However, if the rent is paid out of the ABLE account, there is no ISM penalty. Therefore, an SSI recipient whose monthly rent is paid by someone else could instead transfer that money to an ABLE account, pay his or her monthly rent, and have an additional $3,240 per year to spend on other items. However, as described in the following example, the rent payment must be made in the same calendar month as the ABLE account disbursement or SSA will count it as a resource.

Ellie, a 24-year-old woman who has Down syndrome, has lived with her parents her entire life. Recently, the family moved from Ohio to Denver. When the family lived in Ohio, Ellie’s parents opened an ABLE account for her.

Recently, Ellie, who receives SSI and Medicaid, got a part-time job at Target. Therefore, she has to abide by strict income and asset requirements to maintain her SSI and Medicaid eligibility. Through her job coach, Ellie made two very close friends, Sally and Linda, who also receive public benefits. Like Ellie, both Sally and Linda work part-time. The women decided that they would like to move into an apartment together near where they work. Currently, Ellie receives $735 per month from SSI and approximately $370 per month from working at Target. Unfortunately, rent in Denver averages $2,900 per month for a three-bedroom apartment.

Ellie’s parents settled a third-party SNT when Ellie was 12 and have been contributing to it ever since. Recently, they closed Ellie’s Ohio ABLE account and opened an account in Colorado. To afford Ellie’s share of the rent, Ellie’s parents set up a plan in which, as trustees of Ellie’s SNT, they transfer $1,000 per month from her trust account into the ABLE account on the first of every month (her rent is due on the third of the month). On the second of the month, they help Ellie pay her rent from her ABLE account. There is no reduction in Ellie’s SSI check, and she has a safe place to live.

The POMS provides an interesting analysis of how ABLE account distributions are treated. SSA treats distributions depending on whether they are for QDEs, housing expenses, or non-QDEs. In general:

• Disbursements made for QDEs (except housing expenses) will remain exempt even if retained by the recipient after the month of disbursement as long as the disbursement is later made for a QDE (that is not a housing expense).91

• Disbursements made for a QDE that is a housing expense will be exempt in the month made, but if the disbursement is retained by the recipient beyond the month of disbursement, it will be treated as a countable resource, even if later used for housing expenses.92

• Disbursements made for a non-QDE will be exempt in the month made, but if retained by the recipient beyond the month of disbursement will be treated as a countable resource.93

For example, if the SSI recipient takes an ABLE account distribution of $20,000 to pay for a wheelchair in March and holds the money in his or her checking account until June — and then pays for the wheelchair — the entire $20,000 is exempt for all months it was held. The funds do not need to be segregated; the ABLE account disbursement can be commingled with the SSI recipient’s other funds.94

If instead the SSI recipient takes an ABLE account distribution of $2,000 to pay for rent and utilities in March and uses $1,000 to pay for rent and utilities in April, the entire $2,000 will be counted as a resource for the month of April (thus disqualifying the SSI recipient from April’s SSI check). If the SSI recipient uses the remaining $1,000 to pay for May rent and utilities, this $1,000 will be counted as a resource for May. If the SSI recipient’s other countable resources add up to more than $2,000, he or she will lose May’s SSI check. The lesson here is that if the SSI recipient had used the entire $2,000 in March, there would have been no loss of SSI. It is important that an ABLE account disbursement to pay for housing expenses be used to pay those expenses in the same calendar month of the disbursement.

The distribution from an ABLE account for a non-QDE is also interesting. For example, if a $10,000 disbursement is made from an ABLE account in April to be used for gambling in Las Vegas and the entire amount is used in April, there is no penalty of loss of SSI.95 An IRS income tax penalty of ordinary income plus 10 percent96 could be assessed — with no effect on the SSI check. If, however, $3,000 remains on May 1, the $3,000 would be counted as the SSI recipient’s resources and would disqualify the recipient from his or her SSI check for that month.

The SSA POMS treats a disbursement made for a QDE and retained by the SSI recipient differently if the intent behind the disbursement changed. For example, as stated in the SSA POMS:

In June, Jennifer takes a $7,000 distribution from her ABLE account to pay an educational expense that is a QDE. Her educational expense is due in September. In August, Jennifer gets a job offer and decides not to return to school. The $7,000 becomes a countable resource in September because she no longer intends to use it for an educational expense that is a QDE, unless Jennifer re-designates it for another QDE or returns the funds to her ABLE account prior to September.97

B. Director’s Letter on ABLE Accounts
The CMS Center for Medicaid and CHIP (Children’s Health Insurance Program) Services director issued a letter to state Medicaid directors, Implications of the ABLE Act for State Medicaid Programs, which addresses individuals whose Medi­caid eligibility is determined by their modified adjusted gross income (MAGI) and those whose Medicaid eligibility is determined by non-MAGI sources.98 The letter states that even for Medicaid without resource limitations, ABLE account earnings and distributions will have no impact on the income calculation for eligibility for MAGI-based Medicaid. However, if distributions are made for non-QDEs, those disbursements may be counted as income when calculating Medicaid eligibility.99

The letter also makes it clear that SNT contributions to an ABLE account will be treated as qualifying contributions and not count against the SNT beneficiary. As stated in the letter:

Some ABLE account beneficiaries may also be a beneficiary of a special needs trust (SNT) or pooled trust, as described in section 1917(d)(4) of the Act. Distributions from such trusts made on behalf of the trust beneficiary to the beneficiary’s ABLE account should be treated the same as contributions to ABLE accounts from any other third party. Thus, while disbursements from an SNT or pooled trust can be considered in some circumstances income to the trust beneficiary, disbursements from an SNT or pooled trust to the ABLE account of the trust beneficiary are not counted as income under section 103. Therefore, states should disregard as income a distribution from an SNT or pooled trust that is deposited into the ABLE account of the SNT or pooled trust beneficiary.100

C. USDA’s Treatment of ABLE Accounts for Determining Supplemental Nutrition Assistance Program Eligibility
The director of the Program Development Division, Supplemental Nutrition Assistance Program (SNAP), initially issued a letter to regional directors stating that ABLE accounts are exempt for purposes of determining eligibility for SNAP, historically known as the food stamp program.101 Regulations were then issued in January 2017 stating that ABLE account assets are also considered excluded resources for determining SNAP eligibility.102

VI. Comparing ABLE Accounts With Special Needs Trusts

It is important to compare ABLE accounts with SNTs to understand the differences between them. Some people believe that an ABLE account is an SNT replacement; however, this belief is incorrect. An ABLE account is an additional planning tool, but it does not offer the same level of protection for persons with disabilities as SNTs.

For many years, the SNT has been the primary planning tool for persons with disabilities.103 Through the years, special needs planners have created a variety of ways to allow persons with disabilities to lead more than a subsistence existence, including various trusts to hold money for the benefit of persons with disabilities. These trusts came of age when Congress passed the Omnibus Budget Reconciliation Act of 1993 (OBRA 93), which provided exceptions to transfer penalties and eligibility rules for Medicaid for three unique trusts:104

1. A trust that contains the assets of a disabled individual under age 65, established for the benefit of the individual by the individual, a parent, a grandparent, a legal guardian, or the court, in which the state Medicaid agency receives all amounts remaining in the trust on the beneficiary’s death up to the amount of benefits paid.105 This trust is commonly known as a “(d)(4)(A) SNT.”

2. A trust that is composed only of pension, Social Security, and other income in a state that does not allow income “spend-down.”106 This trust is commonly known as a “Miller trust” (after Miller v. Ibarra, 746 F. Supp. 19 (D. Colo. 1990)).

3. A trust containing the assets of a disabled individual (a) established and managed by a nonprofit corporation and in which separate accounts of pooled assets are maintained; (b) established by a parent, a grandparent, a legal guardian, the individual, or the court; and (c) in which the state, on the beneficiary’s death, receives all amounts remaining in the beneficiary’s account (unless the account is retained by the nonprofit corporation) up to the amount of Medicaid benefits paid.107 This trust is commonly known as a “pooled SNT.”

The same trust exceptions were expressly adopted for SSI in 1999.108 The statute also created an exception for trusts set up using other people’s assets, typically assets from an inheritance. This trust is commonly called a third-party SNT.109

SNTs have many benefits. SNTs can be funded with any amount and preserve an individual’s eligibility for public benefits. SNTs can hold all types of assets, including real estate and other noncash assets. For persons who lack capacity or have diminished capacity, SNTs provide additional protection. For example, an SNT requires the trustee to follow a discretionary standard when making distributions. A good trustee provides a great deal of oversight and consideration of public benefit eligibility requirements prior to making distributions from an SNT. Due to the nature of the SNT, there is also spendthrift and creditor protection, frequent accountings, and possible asset protection. The protection afforded by an SNT provides a barrier between potential financial predators and the beneficiary’s assets.

An SNT, however, can have significant costs associated with establishing and administering it. It may require paying an attorney to assist in its establishment and certified public accounts and other professionals to assist in its administration. Plus, persons with disabilities cannot be in control of their own SNTs, even if they have the capacity to manage their own financial affairs.

In comparison, ABLE accounts are relatively simple and inexpensive to set up. They give persons with disabilities the autonomy to control their own finances, and persons over the age of 65 can use them without incurring a penalty or losing public benefits. However, use of ABLE accounts is limited to persons disabled before age 26 (which precludes a substantial number of persons with disabilities from using them). An ABLE account can only own cash and can only be funded up to $15,000 per year. If a person with a disability has countable real estate, other noncash assets, or assets greater than $15,000, an SNT still needs to be used.

An ABLE account also has little to no oversight on distributions and lacks a discretionary distribution standard. The person with a disability, therefore, can request the funds for any purpose, even for non-QDEs. Plus, if the person with a disability is subject to undue influence, there is no barrier protecting his or her funds from potential predators. There also is no creditor protection for an ABLE account. Unlike a discretionary spendthrift trust, an ABLE account is an asset belonging to the beneficiary and therefore can be fully attached by creditors and even ex-spouses. The $15,000 per year aggregate contribution limit may be difficult to manage because multiple contributors must coordinate their efforts to avoid exceeding the contribution limit.

Funding an ABLE account is not always in the best interest of an SNT beneficiary. An SNT beneficiary with diminished capacity may be unable to manage the money or be vulnerable to financial predators. An ABLE account may be the first time a beneficiary has ever had to manage money. It may be difficult for him or her to recognize the need for keeping accurate records, spending prudently, and following the rules.

Special needs planners should, depending on the circumstances, consider additional tools to assist in the administration of ABLE accounts, such as the use of guardians, conservators, agents, professional bookkeepers, other fiduciaries, and case managers. This will ensure increased transparency and communication with the person with a disability regarding the use of his or her ABLE account distributions and help avoid issues with fraud, exploitation, and public benefit ineligibility.

VII. Comparing ABLE Programs
State ABLE programs vary widely in investment opportunities, ease of use, and cost. It is important for the special needs practitioner to know how to compare the different ABLE programs. The best way to do this is to use the ABLE National Resource Center’s website, which has a tool for comparing programs.110 It can evaluate up to three programs at a time, providing answers to the following questions, which, according to the center, are important questions that should be asked:

• Opening an Account

» Is there a minimum contribution to open an ABLE account?

» Is there a fee to open an account and, if so, how much is it?

» What proof does the ABLE program require for opening an account or showing that disbursements are qualified expenses?

» Maintaining the account and fees

» What type of fees are associated with the account?

» Are there restrictions on how often withdraws can be made?

• Investment Opportunities

» What investment options does the state ABLE program offer?

» Does the program offer any unique or value-added elements to help beneficiaries save, contribute to the account, grow the account, and manage the investments (e.g., a match or rewards program, financial literacy information or program for beneficiaries)?

• Unique to State

» Does the state offer a state income tax deduction for contributions to the account?

» Does the program offer a debit card/purchasing card? If so, are there added costs for this?

VIII. Conclusion

An ABLE account provides unique options for planning that were not possible before. However, special needs planners need to approach these accounts prudently, thoroughly evaluating how these accounts may be used and how they complement other aspects of a special needs plan. It is crucial for planners to fully educate clients about the advantages and disadvantages of ABLE accounts and to provide their professional support and oversight as part of an effective special needs plan.

The future of ABLE accounts looks bright. These accounts offer people with disabilities and their families an exciting, affordable prospect for planning and saving.

1 Jeanine Braithwaite & Daniel Mont, Disability and Poverty: A Survey of World Bank Poverty Assessments and Implications, 3(3) ALTER – European J. Disability Research 219, 220 (2009).

2 L. Kraus et al., 2017 Disability Statistics Annual Report (U.N.H. 2018).

3 W. Erickson et al., 2016 Disability Status Report: United States (Cornell U. Yang-Tan Inst. on Employment & Disability 2018).

4 Braithwaite & Mont, supra n. 1, at 220.

5 See Cornell U., Disability Statistics, June 13, 2018).

6 Id. at 29.

7 Kraus et al., supra n. 2, at 18.

8 Erickson et al., supra n. 3, at 35.

9 Id. at 42.

10 Id. at 23.

11 Id.

12 Id. at 41.

13 Kraus et al., supra n. 2, at 3.

14 Id. at 43. In 2016, the percentage of working age people with disabilities receiving Supplemental Security Income (SSI) payments was 19.2 percent, or 3,858,100 people.

15 20 C.F.R. § 416.1201(a). Certain assets are not counted, such as a principal residence, one automobile, household items, and a few other items. See 42 U.S.C. § 1382b(a).

16 “When the SSI program began in 1974, the asset limits were $1,500 per individual and $2,250 per couple. Asset limits were last revised over twenty years ago to $2,000 per individual and $3,000 per couple as specified in the law’s schedule of increases. That means that since 1989 no adjustments have been made for inflation or cost of living. If the 1974 limits had been even moderately adjusted for inflation, the 2010 limits would be $6,592 and $9,889 respectively.” Karen Harris & Hannah Weinberger-Divack, Accessible Assets: Bringing Together the Disability and Asset-Building Communities, 44 Clearinghouse Rev.: J. Poverty L. & Policy Clearinghouse 4 (May/June 2010).

17 Georgia Burke et al., Medicaid and Supplemental Security Income Eligibility: Time for a Tune-Up, 12 NAELA J. 1, 6 (2016).

18 ABLE Act of 2014, Pub. L. No. 113-295, div. B, tit. I, § 101, 128 Stat. 4056 (2014).

19 26 U.S.C. § 529A; Social Security Program Operations Manual System (POMS) SI 01130.740(A); H.R. 647, 113th Cong. (Dec. 2014); Ltr. From Brian Neale, Dir., Ctrs. for Medicare & Medicaid Servs., Ctr. for Medicaid & CHIP Servs., to St. Medicaid Dirs., SMD 17-002, RE: Implications of the ABLE Act for State Medicaid Programs, (Sept. 7, 2017) [hereinafter Neale Ltr. to St. Medicaid Dirs.].

20 Id.

21 See ABLE Alliance for Fin. Empowerment, ABLE Accounts Continue to Grow in Popularity, (Feb. 16, 2018).

22 John M. Ariale, Realizing the Full Value of ABLE: A Legislative Update & the ABLE Alliance for Financial Empowerment (AAFE) 3 (Cloakroom Advisors 2016).

23, H.R. 647 – ABLE Act of 2014, 113th Congress (2013–2014), Co-Sponsors, (accessed May 21, 2018).

24, S. 313 – ABLE Act of 2013, 113th Congress (2013–2014), Co-Sponsors, (accessed May 21, 2018).

25, H.R. 647 – ABLE Act of 2014, 113th Congress (2013–2014), All Actions, (accessed May 21, 2018).

26 GovTrack, H.R. 5771 (113th): Tax Increase Prevention Act of 2014, (accessed May 21, 2018).

27 Pub. L. No. 115-97.

28 Id. at § 11025.

29 Id. at § 11024(a).

30 Id. at § 11024(b).

31 26 U.S.C. at § 529A(b)(1)(B); 26 C.F.R. § 1.529A-1(b)(4).

32 26 U.S.C. at § 529A. See proposed regulations, 26 C.F.R. § 1.529A-2(e)(2), noting that the phrase “marked and severe limitations” means the standard of disability for children under 18 claiming SSI benefits based on disability.

33 20 C.F.R. at § 426.906.

34 26 U.S.C. at § 529A(e)(1).

35 26 C.F.R. at § 1.529A-2(e). See also IRS, New IRS Guidance to Simplify ABLE Program Administration, (Nov. 20, 2015).

36 For example, see Ohio’s ABLE program at Josh Mandel, Treas. of Ohio, STABLE Account, (accessed June 13, 2018).

37 26 C.F.R. at § 1.529A-1(b)(4).

38 Id.; 26 U.S.C. at § 529A(e)(3).

39 26 U.S.C. at § 529A(b)(1)(B).

40 Id. at § 529A(c)(4).

41 26 C.F.R. at § 1.529A-2(c)(2)(ii).

42 26 U.S.C. at § 529A(b)(2)(A); 26 C.F.R. at § 1.529A-2(g)(1).

43 26 C.F.R. at § 1.529A-1(b)(17).

44 26 U.S.C. at § 529A(b)(1)(A); 26 C.F.R. at § 1.529A-2(a)(4).

45 26 U.S.C. at § 7701(a)(1) (defines “person” to include an individual, trust, estate, partnership, or corporation); POMS SI 01330.740.B.2; Neale Ltr. to St. Medicaid Dirs., supra n. 19, at 4 n. 1.

46 POMS SI 01130.740(B)(2).

47 26 C.F.R. at §§ 1.529A-3(b)(2), 1.529A-4(a)(1).

48 To determine whether a state provides an income tax deduction and if so, how much, see ABLE Natl. Resource Ctr., Shop the States to Choose the Best ABLE Program for You! June 7, 2018).

49 Id.

50 Id.

51 26 U.S.C. at § 529A(b)(2)(B); 26 C.F.R. at § 1.529A-2(g)(2).

52 Pub. L. No. 114-113 (H.R. 2029) (2015); POMS SI 01130.740(A).

53 ABLE Natl. Resource Ctr., What We’re About,, scroll down to Which state has the best program for you? (accessed June 7, 2018).

54 128 Stat. at § 103(a).

55 POMS SI 01130.740(C)(3).

56 POMS SI 01130.740(D)(1)(a).

57 128 Stat. at § 103(b)(2); POMS SI 01130.740(D)(1)(a).

58 Id.

59 26 C.F.R. at § 1.529A-2(g)(3).

60 For a list of all states’ 529 plan limits, see, Compare by Features,[]=308&page=compare_plan_questions (accessed June 1, 2018).

61 26 U.S.C. at § 529A(f).

62 Id.

63 26 C.F.R. at §§ 1.529A-2(p), 1.529A-3(b)(4).

64 Pennsylvania and California have already passed laws. See Pennsylvania Achieving a Better Life Experience Act, Act 17, § 503 (2016), and Cal. Welf. & Inst. Code § 4885(b) (2018). Oregon and Illinois have also indicated that they will be passing similar laws.

65 26 U.S.C. at § 529A(a).

66 Id. at § 529A(c)(1)(B); 26 C.F.R. at § 1.529A-3(a).

67 26 U.S.C. at § 529A(e)(5).

68 Id.

69 26 C.F.R. at § 1.529A-2(h)(1).

70 Id. at §§ 1.529A-3(a), (d)(1); 26 U.S.C. at § 529A(c)(3)(A).

71 26 C.F.R. at § 1.529A-3(d)(2)(i).

72 Id. at § 1.529A-3(d)(2)(ii).

73 A review of each state’s investment options appear at ABLE Natl. Resource Ctr., supra n. 48.

74 26 U.S.C. at § 529A(b)(4).

75 Id. at § 529A(d).

76 Draper v. Colvin, 779 F.3d 556, 559–563 (8th Cir. 2015).

77 The POMS is located at Soc. Sec. Administration, POMS Home, (accessed June 1, 2018).

78 POMS SI 01130.740(B)(2).

79 POMS SI 01130.740(C)(4).

80 The POMS states that qualified disability expenses (QDEs) are expenses related to the blindness or disability of the designated beneficiary that are paid for the benefit of the designated beneficiary. In general, QDEs include expenses for education, housing, transportation, employment training and support, assistive technology and related services, personal support services, health, prevention and wellness, financial management and administrative services, legal fees, ABLE account oversight and monitoring, funeral and burial, and basic living. POMS SI 01130.740(B)(8).

81 The monthly SSI payment is computed by reducing the federal benefit rate (FBR) plus any state supplemental payment (SSP) by the amount of countable income and any deductions due to a prior overpayment.

82 20 C.F.R. at §§ 416.1104, 416.1110–416.1112 (earned income).

83 Id. at §§ 416.1120–416.1124 (unearned income).

84 Id. at § 416.1124(c)(12); POMS SI 00810.
420, 01120.200(E)(1)(a).

85 POMS SI 01130.740(B)(4).

86 Housing expenses for purposes of an ABLE account are similar to household expenses for in-kind support and maintenance (ISM) purposes, with the exception of food. Housing expenses include mortgage expenses (including property insurance required by the mortgage holder) and expenses for real property taxes, rent, heating fuel, gas, electricity, water, sewer, and garbage removal. POMS SI 01130.740(B)(9).

87 ISM consists of food and shelter provided directly to the recipient or paid for by a third party. 20 C.F.R. at § 416.1102. ISM reduces an SSI recipient’s SSI benefits, but not dollar for dollar as does unearned cash. Instead, depending on the recipient’s living arrangements, the maximum reduction is subject to either (1) the one-third reduction rule (also referred to as the value of the one-third reduction (VTR)) if the SSI recipient is living in the household of a person who provides both food and shelter or (2) the presumed maximum value (PMV) rule in all other situations in which the SSI beneficiary is receiving countable ISM. 20 C.F.R. at § 416.1130(c); see generally 20 C.F.R. at §§ 416.1130–416.1148. VTR is defined as one-third of the FBR. 20 C.F.R. at § 416.1131(a). PMV is defined as one-third of the FBR plus the general income exclusion of $20. 20 C.F.R. at § 416.1140(a)(1).

88 POMS SI 01120.200(E)(1)(b).

89 20 C.F.R. at § 416.1140.

90 This amount is calculated by taking one-third of the 2018 FBR of $750 ($250) and adding $20. 20 C.F.R. at § 416.1140(a)(1).

91 POMS SI 01130.740(C)(5).

92 POMS SI 01130.740(D)(2).

93 Id.

94 POMS SI 01130.700(B)(1).

95 POMS SI 01130.740(D)(2).

96 26 U.S.C. at § 529A(c)(3)(A); 26 C.F.R. at § 1.529A-3(a), (d)(1).

97 POMS SI 01130.740(D)(3)(c).

98 Neale Ltr. to St. Medicaid Dirs., supra n. 19.

99 Id. at 5–6.

100 Id. at 4.

101 See Ltr. From Lizbeth Silbermann, Dir., Program Dev. Div., Supp. Nutrition Assistance Program, to all SNAP Regl. Dirs., Treatment of ABLE Accounts in Determining SNAP Eligibility, (Aug. 4, 2016).

102 7 C.F.R. 273.8(e)(2)(ii).

103 42 U.S.C. at § 1396p(d)(4).

104 The safe-harbor trust exceptions in 42 U.S.C. § 1396p(d)(4) apply to Medicaid eligibility rules. The federal special needs trust (SNT) statutory exception was the first congressional policy permitting SNTs and continuing eligibility for Medicaid for persons with disabilities. Before then, there was much litigation involving common law SNTs between applicants and the states. Many states opposed such trusts on policy grounds.

105 42 U.S.C. at § 1396p(d)(4)(A).

106 Id. at § 1396p(d)(4)(B).

107 Id. at § 1396p(d)(4)(C).

108 Id. at § 1382b(e)(5) (SSI financial eligibility is preserved if assets are held in a qualifying trust). 42 U.S.C. § 1382b(e)(5) refers to the Medicaid safe harbor trust rules in 42 U.S.C. § 1396p(d)(4).

109 For Medicaid, a third-party SNT established on or after August 11, 1993, is not affected by the OBRA 93 trust rules. See 42 U.S.C. at § 1396p(d)(2)(A). For SSI purposes, the regulations allow third-party SNTs. See 42 U.S.C. at § 1382b(e)(3)(A); 20 C.F.R. at § 416.1201(a)(1). Some people use the phrase “supplemental needs trust” to distinguish a third-party SNT from a first-party SNT.

110 ABLE Natl. Resource Ctr., What Are ABLE Accounts? (accessed June 7, 2018).

About the Author

Nancy Susan “Susie” Germany is an attorney with The Germany Law Firm, PC, Denver, Colorado,
and a Deputy Public Administrator for the 17th Judicial District. Her practice focuses in the areas
of special needs planning, elder law, guardianships and conservatorships, trust and estate
planning, fiduciary representation, and probate and trust administration. Ms. Germany is a
member of the Alaska Bar Association and the Colorado Bar Association, and is a past co-chair of
the Elder Law Section of the Colorado Bar Association. She is also a director for Front Range
Hospice and former president and director for the Colorado Fund for People With Disabilities. She
serves on the board of Cultivate, an organization providing yardwork and grocery delivery to low
income seniors in Boulder County. Ms. Germany often teaches continuing legal education courses
and gives presentations on special needs planning, elder law, financial exploitation, and probate


Day-Tripping To The Dispensary: Seniors In Pain Hop Aboard The Canna-Bus

November 1, 2018

Shirley Avedon, 90,­­ had never been a cannabis user. But carpal tunnel syndrome that sends shooting pains into both of her hands and an aversion to conventional steroid and surgical treatments is prompting her to consider some new options.

“It’s very painful, sometimes I can’t even open my hand,” Avedon said.

So for the second time in two months, she’s climbed on board a bus that provides seniors at the Laguna Woods Village retirement community in Orange County, Calif., with a free shuttle to a nearby marijuana dispensary.

The retired manager of an oncology office says she’s seeking the same relief she saw cancer patients get from smoking marijuana 25 years ago.

“At that time [marijuana] wasn’t legal, so they used to get it off their children,” she said with a laugh. “It was fantastic what it did for them.”

Avedon, who doesn’t want to get high from anything she uses, picked up a topical cream on her first trip that was sold as a pain reliever. It contained cannabidiol, or CBD, but was formulated without THC, or tetrahydrocannabinol, marijuana’s psychoactive ingredient.

“It helped a little,” she said. “Now I’m going back for the second time hoping they have something better.”

As more states legalize marijuana for medical or recreational use — 30 states plus the District of Columbia to date — the cannabis industry is booming. Among the fastest growing group of users: people over 50, with especially steep increases among those 65 and older. And some dispensaries are tailoring their pitches to seniors like Avedon who are seeking alternative treatments for their aches, pains and other medical conditions.

On this particular morning, about 35 seniors climb on board the free shuttle — paid for by Bud and Bloom, a licensed cannabis dispensary in Santa Ana. After about a half-hour drive, the large white bus pulls up to the parking lot of the dispensary.

About half of the seniors on board today are repeat customers; the other half are cannabis newbies who’ve never tried it before, said Kandice Hawes, director of community outreach for Bud and Bloom.

“Not everybody is coming to be a customer,” Hawes said. “A lot are just coming to be educated.”

Among them, Layla Sabet, 72, a first-timer seeking relief from back pain that keeps her awake at night, she said.

“I’m taking so much medication to sleep and still I can’t sleep,” she said. “So I’m trying it for the back pain and the sleep.”

Hawes invited the seniors into a large room with chairs and a table set up with free sandwiches and drinks. As they ate, she gave a presentation focused on the potential benefits of cannabis as a reliever of anxiety, insomnia and chronic pain and the various ways people can consume it.

Several vendors on site took turns speaking to the group about the goods they sell. Then, the seniors entered the dispensary for the chance to buy everything from old-school rolled joints and high-tech vaporizer pens to liquid sublingual tinctures, topical creams and an assortment of sweet, cannabis-infused edibles.

Jim Lebowitz, 75, is a return customer who suffers pain from back surgery two years ago.

He prefers to eat his cannabis, he said.

“I got chocolate and I got gummies,” he told a visitor. “Never had the chocolate before, but I’ve had the gummies and they worked pretty good.”

“Gummies” are cannabis-infused chewy candies. His contain both the CBD and THC, two active ingredients in marijuana.

Derek Tauchman rings up sales at one of several Bud and Bloom registers in the dispensary. Fear of getting high is the biggest concern expressed by senior consumers, who make up the bulk of the dispensary’s new business, he said.

“What they don’t realize is there’s so many different ways to medicate now that you don’t have to actually get high to relieve all your aches and pains,” he said.

But despite such enthusiasm, marijuana isn’t well researched, said Dr. David Reuben, the Archstone Foundation professor of medicine and geriatrics at UCLA’s David Geffen School of Medicine.

While cannabis is legal both medically and recreationally in California, it remains a Schedule 1 substance — meaning it’s illegal under federal law. And that makes it harder to study.

The limited research that exists suggests that marijuana may be helpful in treating pain and nausea, according to a research overview published last year by the National Academies of Sciences, Engineering and Medicine. Less conclusive research points to it helping with sleep problems and anxiety.

Reuben said he sees a growing number of patients interested in using it for things like anxiety, chronic pain and depression.

“I am, in general, fairly supportive of this because these are conditions [for which] there aren’t good alternatives,” he said.

But Reuben cautions his patients that products bought at marijuana dispensaries aren’t FDA-regulated, as are prescription drugs. That means dose and consistency can vary.

“There’s still so much left to learn about how to package, how to ensure quality and standards,” he said. “So the question is how to make sure the people are getting high-quality product and then testing its effectiveness.”

And there are risks associated with cannabis use too, said Dr. Elinore McCance-Katz, who directs the Substance Abuse and Mental Health Services Administration.

“When you have an industry that does nothing but blanket our society with messages about the medicinal value of marijuana, people get the idea this is a safe substance to use. And that’s not true,” she said.

Side effects can include increased heart rate, nausea and vomiting, and with long-term use, there’s a potential for addiction, some studies say. Research suggests that between 9 and 30 percent of those who use marijuana may develop some degree of marijuana use disorder.

Still, Reuben said, if it gets patients off more addictive and potentially dangerous prescription drugs — like opioids — all the better.

Jim Levy, 71, suffers a pinched nerve that shoots pain down both his legs. He uses a topical cream and ingests cannabis gelatin capsules and lozenges.

“I have no way to measure, but I’d say it gets rid of 90 percent of the pain,” said Levy, who — like other seniors here — pays for these products out-of-pocket, as Medicare doesn’t cover cannabis.

“I got something they say is wonderful and I hope it works,” said Shirley Avedon. “It’s a cream.”

The price tag: $90. Avedon said if it helps ease the carpal tunnel pain she suffers, it’ll be worth it.

“It’s better than having surgery,” she said.

Precautions To Keep In Mind

Though marijuana use remains illegal under federal law, it’s legal in some form in 30 states and the District of Columbia. And a growing number of Americans are considering trying it for health reasons. For people who are, doctors advise the following cautions.

Talk to your doctor. Tell your doctor you’re thinking about trying medical marijuana. Although he or she may have some concerns, most doctors won’t judge you for seeking out alternative treatments.

Make sure your prescriber is aware of all the medications you take. Marijuana might have dangerous interactions with prescription medications, particularly medicines that can be sedating, said Dr. Benjamin Han, a geriatrician at New York University School of Medicine who studies marijuana use in the elderly.

Watch out for dosing. Older adults metabolize drugs differently than young people. If your doctor gives you the go-ahead, try the lowest possible dose first to avoid feeling intoxicated. And be especially careful with edibles. They can have very concentrated doses that don’t take effect right away.

Elderly people are also more sensitive to side effects. If you start to feel unwell, talk to your doctor right away. “When you’re older, you’re more vulnerable to the side effects of everything,” Han said. “I’m cautious about everything.”

Look for licensed providers. In some states like California, licensed dispensaries must test for contaminants. Be especially careful with marijuana bought illegally. “If you’re just buying marijuana down the street … you don’t really know what’s in that,” said Dr. Joshua Briscoe, a palliative care doctor at Duke University School of Medicine who has studied the use of marijuana for pain and nausea in older patients. “Buyer, beware.”

Bottom line: The research on medical marijuana is limited. There’s even less we know about marijuana use in older people. Proceed with caution.

Jenny Gold and Mara Gordon contributed to this report.

This story is part of a partnership that includes NPR and Kaiser Health News.

A Closer Look — through the eyes of an experienced actuary — At Long-Term Care Insurance

November 1, 2018

By Katherine C. Pearson, Dickinson Law, Penn State

Jack Cumming, a California CCRC resident, frequently comments on Elder Law Prof Blog posts, bringing to bear his deep expertise in financial planning matters and his equally engaged commitment to historical accuracy in a wide variety of issues. Jack is a Fellow of the Society of Actuaries, and a Certified Aging Services Professional by Examination. During what I might call Jack’s “official career” as a professional actuary, he served as an independent consulting actuary for life and health insurance operations, and before that as a corporate officer and chief actuary for insurance companies.

I first came to know Jack during what I’ll call his “second” career.  Jack helped many, including me, understand concerns about actuarial soundness issues in Continuing Care Retirement Communities. He came to his specialized expertise in CCRCs in a unique way, by moving to a California CCRC with his wife and discovering issues that can benefit from actuarial analysis. Over the last 12 years, Jack has advised CCRC residents and providers, as well as their organizations across the nation.

Jack recently commented on an item I posted on September 12, that described a particular history of poor actuarial decisions contributing to failure of a large Pennsylvania long-term care insurance company. In that post, I also reported on a new hybrid type of long-term care product, announced by New York Life Insurance Company.  Jack’s response was, as usual, so insightful that, with Jack’s permission, I am posting his commentary here, elaborated by him, as a blog post in its own right. 

Jack writes:
A number of thoughts come to mind when reading the recent Elder Law Prof Blog post on long term care insurance (LTCi).  The Elder Law post lists a perfect storm of what turned out to be foolhardy expectations.  Morbidity was underestimated, so were contract lapse rates and mortality.  Anticipated investment returns turned out to be overstated, medical and care costs escalated, and efforts to raise premiums without triggering shock lapses proved insufficient.  The result for the industry has been devastating, as anyone who has been close to LTCi, is well aware.  Fortunately, LTCi was a small part of the business of many insurers offering the product, so losses were absorbed.  Penn Treaty, an LTCi specialist company, was not so lucky.

Now, with the benefit of hindsight, it thus appears that there were significant and material optimistic misjudgments made in bringing LTCi to the market.  First, the data used for the initial pricing were not sufficiently vetted. Pricing actuaries used what data they could find but, for the most part, they failed to take into account the fact that the very existence of such insurance, then being introduced for the first time, would make it more likely that people would use the benefits.

Moreover, the opportunity for LTC providers to receive payments promoted the growth of the provider industry to deliver services that the insurance would cover. Thus, historical data from the time before there was insurance was misleading.   Since the products lacked incentives for policyholders, or those offering services to them, to restrain their use, it was predictable that people would seek to make the most of their coverage.  And they did and continue to do so.

Long Term Care Insurance developed originally to give the sales agents of the large life insurance companies a product that they could sell as part of a product portfolio centered on the sale of life insurance.  Such a portfolio, in addition to life and long term care insurance, often included disability income and health insurance.  Most of the pricing actuaries who were involved in the early development of LTCi products were life insurance specialists influenced by life insurance concepts. There’s little discretion or volunteerism about dying, so mortality data used in setting life insurance premiums tend to be relatively stable and predictable. The consequence is that underwriting and claims in large life insurance companies are principally administrative, e.g. for claims, confirm the death and send a check. More subjective risks, such as disability income (DI) insurance and LTCi, require active management over the duration of a claim by highly skilled executives experienced and specialized in those particular undertakings.

Pricing LTCi merely by taking a table and developing rates, as is sufficient for life insurance, is not adequate for subjective risks.  In the beginning, life insurer corporate managements tended to believe that they knew insurance and had actuaries on staff, so executives responded to pleas from their sales agents and deployed LTCi products into the market. The result of that cavalier beginning is that both DI and LTCi have proven to be highly challenging and largely unprofitable for most companies offering the products. These are products that call for active management, and continuous awareness of developing trends, beyond the administrative capabilities inherent in traditional life insurance.

Genworth has been a prominent insurer specializing in LTCi, and they appear to have made a go of it.  Genworth’s motivations for agreeing to be acquired by China Oceanwide Holdings Group Co., Ltd. are somewhat obscure, though.  Recently, Genworth has been pushing LTCi rates higher in order to maintain the financial health of the business.  The danger is that if rising rates drive the healthier insureds to lapse their policies, an accelerating upward loss ratio spiral can result.  There is one company that does specialize very effectively in LTCi and that is Lifecare Assurance.  Lifecare is notable because it is able to provide a product to be marketed under the brands of other primary insurance companies, providing a full turnkey operation and exceptional expertise.  That approach can allow companies that might otherwise struggle with LTCi to offer a product for their sales agents with little or no financial exposure for the “private label” insurer to have to absorb.

The recent Elder Law Prof Blog post mentioned a fresh New York Life product [outlined as a new “long term care option” here].  To develop the product, New York Life hired Aaron Ball from Genworth to rethink its LTCi approach and the My Care product is the result.  If Mr. Ball is able to hone and motivate the needed specializations within the larger New York Life operation, then New York Life’s approach may be an exception to the traditional struggles of life insurance companies with the product. That will depend on whether those who are able to manage the business are allowed to build their careers exclusively within LTCi as it grows as a demanding business within the larger corporate structure.  Since life insurance is a sales-driven business, support for sales tends to take precedence in a life insurance company over other predictors of financial success.  That approach does not work well for subjective risks like LTCi.

More recently, the Continuing Care Retirement industry has been exploring Continuing Care at Home (CCaH), which allows people to receive in home LTC benefits without having to move onto a campus. While CCaH is essentially the same as LTCi, often with case management built in, state insurance departments have not required that CCaH providers be licensed or capitalized as insurance companies. That may portend future financial problems as claims experience develops and as the insureds age.  With a product like CCaH or LTCi, early experience tends to be favorable, and may seem to confirm the developers’ optimism, only to have neglected undercurrents surface later.

Any insurance enterprise can show favorable early results unless sufficient account is taken of the potential for deferred claims later as the book of business matures. There is much to be said for the case managed model for a product like LTCi. It can give the financial guarantor, the insurance company in the case of LTCi, an edge in seeking to manage risk exposures and benefit responses to expectations. The challenge is that others may push back against reasonable limits on claims abuse since the providers of services stand to benefit from accelerating claims rates and durations.  The plaintiffs’ bar has been quite successful in curbing insurance company efforts to manage covered risks.

Thus, it seems unlikely that a healthy CCaH market can develop as a standalone venture, as is the model for some CCaH variants of LTCi. Linking CCaH to bricks and mortar CCRCs helps to dampen the financial failure risk.  Conventional LTCi insurers are also tying some LTCi products to related asset products like annuities to temper the insurer’s exposure. This can also help to ensure that policyholders have incentives to try to contain claims within what is reasonably needed.

As mentioned, the plaintiffs’ bar can be a challenge for LTCi.  A major step forward could be made toward viability of both DI and LTCi if the American legal system could be changed to require that unsuccessful plaintiffs pay defendants’ legal fees and other expenses. There is also a question whether contingent fee legal representation is as ethical as we would hope that our justice system might be.  Another intriguing legal question concerns where the responsibility of regulators leaves off and where the liability exposure of long term care service purveyors should begin. I’d love to know how law students think about questions like these, which are fundamental to today’s practice of law.