FEDERAL PRIVACY RULE PROTECTS HEALTH INFORMATION
Recently, the first-ever federal privacy standards to protect individuals' health-care information went into effect. The
mandate for these standards, collectively known as the Privacy Rule, was in the Health Insurance Portability and
Accountability Act of 1996 (HIPAA).
The Privacy Rule gives individuals access to their medical records and greater control over the use and disclosure of their
personal health information. States are still free to keep or adopt their own policies or practices that are at least as
protective as the new federal requirements.
Who Is Covered
Entities subject to the Privacy Rule include health-care providers, health plans (including insurance companies and
HMOs), and health-care clearinghouses, such as physicians' billing services. The regulations also apply to "business
associates," meaning any organization or person (other than a worker for a covered entity) that receives or accesses
private medical information on behalf of a covered entity. When a covered entity uses a business associate, the two must
enter into a written agreement containing specific protections for the health information used or disclosed by the business
On its face, the Privacy Rule does not directly apply to employers, but that is not to say that employers need not become
familiar with its requirements. Employers frequently interact with covered entities and their business associates. In
addition, employers administering their own group health plans are effectively brought within the reach of the Privacy
Safeguards for Individuals
The Privacy Rule applies to "protected health information" (PHI), defined as all individually identifiable health
information held or transmitted in any form or media, whether electronic, paper, or oral. Individuals generally should be
able to see and obtain copies of their PHI within 30 days of a request. Covered entities must provide a notice to
individuals describing how their PHI may be used and informing them of their rights under the Privacy Rule.
In the interest of promoting quality health care, providers are not restricted in their ability to share information needed to
treat patients. Generally, PHI may not be used for purposes unrelated to health care. However, in the rare cases where it
is allowed, only a minimum amount of protected information may be used or shared. Covered entities may release
medical information to outside businesses such as insurers, banks, or marketing firms only with specific written
authorization from the individual.
The Privacy Rule gives individuals the right to request alternative means or locations for receiving PHI communications.
For example, a patient could ask a doctor to communicate with the patient through a designated telephone number or
address. Another reasonable accommodation might be sending medical information to a patient in a closed envelope
rather than on a postcard.
Policies and Procedures
The Privacy Rule requires covered entities to set up policies and procedures to protect the confidentiality of PHI. Written
privacy procedures must identify staff with access to PHI and describe how such information will be used and when it
may be disclosed. There must be training of employees in privacy procedures and designation of an individual to be
responsible for insuring that those procedures are followed.
Covered entities may continue existing disclosures of health information for certain public responsibilities, subject to
limits and safeguards that are specific to such circumstances. Examples include emergencies, identification of the body
of a deceased person, and public health needs. If there is no other law that mandates disclosure to meet a particular
public responsibility, covered entities may use their professional judgment to decide whether to make disclosures.
The Government may impose civil penalties of $100 for each failure to comply with a Privacy Rule requirement. A
penalty may not exceed $25,000 per year for multiple violations of the same requirement in a calendar year. If a violation
is due to reasonable cause, involved no willful neglect, and is corrected within 30 days of when an entity knew or should
have known about it, no civil penalty may be imposed. A knowing violation of the Privacy Rule could also bring a fine
of $50,000 and up to a one-year prison term. Maximum criminal penalties are higher if the wrongful conduct involves
false pretenses, or use of the health information for commercial advantage, personal gain, or malicious harm.
DEBTORS AND CREDITORS
Personal Guarantees Nondischargeable
Stanley and his wife, Kay, owned and operated a travel agency. To facilitate the business of selling airline tickets, the
agency entered into an agreement with an airline ticket broker. The broker acted on behalf of airline carriers, issuing
tickets and collecting payments from travel agents. The travel agency maintained a trust account for holding customer
payments owed to the broker. Part of the deal was that the couple signed personal guarantees for any debts owed by their
agency to the broker.
When the travel agency began experiencing financial trouble, it also began to fail to deposit the proceeds of ticket sales
into the trust account. As the broker tried to draw from the trust account, the checks started to bounce. The agency's
fortunes continued to decline and it went into bankruptcy. The broker then sued Stanley and Kay on their personal
guarantees, claiming that, because the debtors had violated their fiduciary duty, the debt owed to the broker was not
dischargeable in bankruptcy. The Bankruptcy Code provides that a debt is not dischargeable if it is for failure to meet an
obligation while acting in a fiduciary capacity. In general terms, a fiduciary is one who undertakes to act primarily for
another's benefit, such as in managing money or property.
Stanley and Kay maintained that only their agency had a fiduciary duty to the broker, so that whatever debt they owed
because of the personal guarantees could be discharged in bankruptcy. A federal court disagreed. It was true that, by
itself, the fact that the couple had personally guaranteed the agency's debt to the broker did not put them in a fiduciary
relationship with the broker. The critical factor was that Stanley's and Kay's personal actions had created the debt owed
by the agency to the broker. They had withheld money that should have gone into the trust account and had depleted that
account to the point that checks were returned for insufficient funds. The court refused to allow Stanley and Kay to use
bankruptcy to avoid the consequences of their own misconduct.
HIGHLIGHTS OF THE NEW FEDERAL TAX ACT
On May 28, 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 became law. Much of this federal tax law
applies only to the years 2003 and 2004, after which provisions in the 2001 Tax Act will again become effective.
Nonetheless, the Act contains some significant changes for individuals as well as businesses.
The child tax credit increases from $600 to $1,000, which is an acceleration of a scheduled phase-in that was to have
occurred between 2005 and 2010. In 2005, the credit will fall to $700, but will then gradually rise to $1,000 again by
2010 by virtue of the 2001 Act.
The standard deduction for married couples will double to twice the amount of the standard deduction for single
taxpayers. Married taxpayers filing a separate return will claim the same standard deduction as a single person. Similarly,
for 2003 and 2004, the upper limit of the 15% income tax bracket for married couples will increase to a dollar amount
that is twice that for a single taxpayer.
For 2003, income levels for the 10% tax bracket will increase to $7,000 for single taxpayers and $14,000 for joint filers.
In 2004, these levels of income will be indexed for inflation. Retroactive to January 1, 2003, the new tax rates for
individuals are 10%, 15%, 25%, 28%, 33%, and 35%. For transactions taking place from May 6, 2003 to December 31,
2007, the maximum capital gain tax rate has dropped from 20% to 15%, and from 10% to 5% for lower-income
To reduce the double taxation of corporate earnings, dividends received by an individual shareholder from a domestic or
qualified foreign corporation will be taxed like capital gain income. This means a rate of 15% for most taxpayers and 5%
for those at lower-income levels, assuming the stock is held for at least the holding period set by law. Dividends from
certain corporations are not eligible for this new treatment, such as those from tax-exempt charities, farmers'
cooperatives, and particular foreign companies.
The Act increases the amount of investment that may be deducted immediately by small businesses from $25,000 to
$100,000. The amount of this deduction is reduced by the amount that the cost of the business assets exceeds $400,000.
Under prior law, this phase-out of the deduction began at $200,000.
The additional first-year bonus depreciation deduction is increased from 30% to 50% for investments acquired and put
into service between May 5, 2003 and January 1, 2005. Qualifying property still must be brand new, with a class life of
20 years or less.
TELECOMMUTING AND UNEMPLOYMENT
Maxine worked in New York for a financial information services provider. When she moved to Florida, her employer
agreed to allow her to telecommute. Maxine was responsible for the same tasks that she had handled in New York, only
now from her laptop in Florida she logged onto her employer's mainframe computer each workday.
Two years into the telecommuting arrangement, Maxine's company decided to end it. When she turned down an offer to
return to New York, Maxine was without a job. She was denied unemployment benefits in Florida following a ruling that
she had voluntarily quit her job without good cause. However, the Florida agency advised Maxine that she might be
eligible to receive unemployment benefits in New York.
In what may be the first court decision of its kind on interstate telecommuters, New York's highest court also ruled that
Maxine was ineligible for benefits, but for a different reason. Under New York law, a threshold requirement for
eligibility is that the employee's entire service for the employer, except for incidental work, must be "localized" in New
York. Maxine argued unsuccessfully that her services were localized in New York, at her employer's mainframe
computer, notwithstanding that she initiated this service on her laptop in Florida. The court ruled instead that the
physical presence of the employee determines in which state a telecommuter is located. For work done while she was
located in Florida, Maxine was not eligible for unemployment compensation in New York.
When the new economy met the old unemployment insurance system in Maxine's case, the court stayed with principles
that predate the age of computers. The outcome was dictated by two rules that are uniformly recognized: All of an
individual's employment should be allocated to one state, which should be solely responsible for paying benefits; and
that state should be the one in which it is most likely that the individual will become unemployed and seek work.
Unemployment has the greatest economic impact on the community in which the unemployed individual resides, and
benefits generally are linked to that area's cost of living. Legislators and judges from previous generations could not have
foreseen today's world of interstate telecommuting, but the rules they created are still valid. For better or worse, Maxine
was tied to Florida, where she was physically present, and she could not look to New York for unemployment benefits.
ESTATE PLANNING WITH LONG-TERM CARE INSURANCE
Longer life expectancies and the coming surge in the retirement-age population have increased the demand for long-term
care, as well as for insurance as one means of paying for that care. Long-term care encompasses a broad range of services
for those with a prolonged illness, disability, or mental disorder. Unlike the focus of traditional medical care exclusively
on certain medical problems, the goal of long-term care is the maintenance of an individual's level of functioning.
Types of Care
The two main types of care are skilled care, provided by medical personnel for medical conditions according to a
treatment plan, and personal care. Personal care, sometimes called custodial care, is assistance with the activities of daily
living that can be provided in many settings, including nursing homes, adult day-care centers, or the individual's own
Whether the purchase of long-term care insurance makes sense for a particular individual depends on age, health status,
overall retirement objectives, and income. As with any type of insurance, it is critical to understand what is and is not
covered among the types of long-term care services that are available. Exclusions and limitations are common. Equally
important is knowing where services are covered. Some policies cover care in any state-licensed facility, but others may
specifically include or exclude particular types of facilities.
Since the amount of coverage is dictated by the type of service, coverage amounts will vary depending on the service.
Most policies have a "total lifetime benefit" for the duration of a policy. In addition, benefits are often payable up to
maximum amounts per day, week, month, or year.
A provision on when benefits are payable, sometimes called a "benefit trigger," is another key feature that can vary
significantly among policies. Some states have legislated benefit-trigger requirements, making it a good idea to check
with state insurance departments. Typically, benefits become payable because of the insured's inability to perform a
certain number of the activities of daily living. Policy language on mental incapacity also allows for benefits when the
insured fails mental functioning tests. Such a benefit trigger is especially important for those afflicted with Alzheimer's,
even though most states prohibit the outright exclusion of coverage for that disease.
Although they can add to the cost of a policy, there are optional policy provisions that can help to tailor a policy to
individual circumstances. Third-party notification authorizes the insurer to notify a designated third party, such as a
relative or friend, if the policy is about to lapse for nonpayment of the premium. A waiver of premium clause allows the
insured to stop paying premiums once he or she is in a nursing home and the insurer has begun to pay benefits.
Nonforfeiture benefits return some of the investment in the policy if coverage is dropped. If an insured has paid
premiums for a certain number of years, some policies allow a death benefit to the estate consisting of a refund of
premiums, minus any benefits the company has paid.
Premiums paid for long-term care insurance are deductible as a medical expense, as long as all medical expenses exceed
7.5% of adjusted gross income. Since premiums on average increase more than tenfold between the ages of 40 and 70,
this deduction increases substantially with age. The maximum long-term care premium you can add to your other
deductible medical expenses is based on your age at the end of each tax year.
Employer contributions to long-term care insurance for their employees are tax deductible for the employer, and
premium payments are not taxable income to the employees. Benefits from a long-term care plan are excluded from
income up to the lesser of the actual costs incurred or $63,875 per year. The annual limitation will increase with inflation
in future years.
"JUST SAY NO" TO UNSOLICITED CREDIT-CARD OFFERS
If you want to stop the flow of unsolicited credit-card offers, there is a way. Under the federal Fair Credit Reporting Act,
consumers have the right to stop credit bureaus from providing their names and addresses for marketing lists.
As required in the federal legislation, the major credit bureaus have set up a toll-free number
(888-5-OPT-OUT--888-567-8688) that is required to be provided with the offer of credit. When you call, you can either
opt out by telephone for two years or request a form you can use to opt out permanently. By calling the same number,
you can also be put back on marketing lists after having been removed from them. In cases of joint credit, both parties
may be required to opt out before the solicitations will stop.