Pitfalls of Purchasing a Business

By: Kyle Jensen, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

Acquiring an established and successful business may appear to be an attractive and low risk proposition for both experienced or novice entrepreneurs; however, there are numerous issues a prospective buyer should consider and pitfalls to avoid before purchasing a business. Asking the right questions and conducting proper due diligence can save the buyer significant time and money and put the buyer in a strong position to succeed once it purchases the business.

Generally, there are two basic ways businesses are sold. The first is the sale of the ownership interests of the business. The second is the sale of the assets of the business. Each avenue provides various benefits and detriments, and a prudent buyer will consider all factors before determining how it will acquire the business. For example, purchasing the ownership interests of the seller allows for a smooth transition of the business, but may also expose the buyer to significant liabilities. Further, purchasing the assets of the seller may, but not always, allow the buyer to avoid certain liabilities of the seller, but may also require the buyer to renegotiate advantageous contracts with the seller’s vendors and customers.

Regardless of whether the buyer is purchasing the seller’s ownership interests or the seller’s assets, the buyer should determine the potential liabilities the buyer may be exposed to after the purchase, such as whether there are any (i) outstanding lawsuits against the seller, (ii) outstanding taxes due, or (iii) security interests filed against the seller’s assets. It is vital that the buyer ascertain its exposure to potential liabilities and either adjust the purchase price of the business accordingly or walk away from the deal.

Other issues the buyer should consider relate to the operation of the business once purchased. For example, the buyer may want to obligate certain owners or employees of the seller to assist the buyer with the transition and operation of the business after closing. The buyer may also want to impose a non- compete on the seller and its owners, prohibiting them from competing with the buyer in its business. Lastly, if the seller is renting the premises where it operates, then the buyer should carefully review the lease to confirm the terms are agreeable to the buyer and that the seller can assign and the buyer can assume such lease. It is always prudent for the buyer to require the seller to obtain the landlord’s consent to such assignment.

The above items are just a few of the numerous issues a buyer must consider when purchasing a business. Accordingly, it is often in the best interest of a buyer to retain an experienced business attorney to assist them with purchasing a business.

Kyle Jensen is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

A Starting Guide to Non-Conforming Uses

By: Zachary H. Brown, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

Question: If I’m operating a business in a zoning district that my business is no longer eligible to operate in, what can I do?

Property owners have been experiencing issues revolving around zoning since the concept was first implemented in the 1920’s. For example, local governments have zoned property that was historically used for commercial or industrial purposes to something more in character with the surrounding neighborhood, such as residential or office. While some property owners thought that this was an overreach of governmental power, the Supreme Court of the United States ruled that local governments had this authority under the Constitution. Local governments now use this tool regularly to effectively plan their cities.

So, what are the options available to property owners whose ability to use the land has been severely limited as a result of a zoning change? One option available involves continuing to use the land under its current use under a common exemption that deems it “non-conforming.” Non- conforming uses are a way local governments “grandfather” in properties that no longer adhere to the local zoning regulations.

Non-conforming properties are typically properties that, at one time, were not prohibited under the zoning laws of whatever local government the property is situated in, but as zoning laws have changed the property can no longer operate as it has historically. In addition, “non-conforming” does not only apply to the use of the property itself, but also to structures and lot regulations that are associated with the property.

Local governments are wary of non-conforming uses because the property is being used in such a way that makes it inconsistent with the government’s planning purposes. As a result, many local governments will put caps on when a use can be discontinued and then continued again. For example, in the City of Lakeland if a property owner ceases operating a property as a non- conforming use for 365 days, then local law prohibits you from continuing the operation of that property as a non-conforming use. It is important that if the property owner is operating a business as a non-conforming use, that they continue to do so, or risk losing that prerogative indefinitely.

Local governments are also likely to place restrictions on non-conforming uses that limit the expansion of the structure or use that is deemed non-conforming. This is a result of the local government trying to keep the non-conforming use limited to what it was prior to the zoning change in hopes of discouraging expansion of that use, so as to fit the local government’s planning purposes. This is also included in the City of Lakeland’s Land Development Code, with the only exception to this being alterations to structures that are seen as maintenance or repair.

Conclusion: Local governments have become creative in the planning of municipalities, but sometimes this creativity comes at the expense of local property owners. If such a situation has come about, or if you are currently associated with a property that is non-conforming, the best course of action is to consult with a local attorney about your best options to maintain the property as it is and to keep the non-conforming designation.

Zach Brown is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

Defect Disclosure Requirements for a Residential Sale

Historically, when real property was being bought and sold the doctrine of caveat emptor or “let the buyer beware” controlled. Under this doctrine, it was the buyer’s sole responsibility to determine if any defects were affecting the property and the seller had no obligation to bring such defects to the buyer’s attention.

Many jurisdictions, including Florida, have abandoned the doctrine of caveat emptor to an extent and have created a duty for sellers to disclose certain defects. In a Florida residential sale, where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer. If the seller fails to disclose latent defects, then the buyer can bring a lawsuit against the seller for damages relating to any such defect.

Importantly, selling a house “as-is,” or including an “as is” clause in a residential sales contract does not excuse the seller’s duty to disclose latent defects. An “as-is” sale is a sale in which the seller has no obligations to make repairs to the property but the seller still must disclose any known latent defects.

When selling your home, it is important to make any disclosures regarding potential latent defects in writing. If you make disclosures regarding latent defects orally you may have difficulty proving at a later date that you made the disclosures. If a buyer then brings a lawsuit against you for failing to disclose a latent defect, you might not be in as strong a position as if you had made the disclosure in writing at the outset. As a best practice, when disclosing latent defects, do so in writing.

A seller is only responsible for disclosing latent defects which the seller has actual knowledge. A seller’s obligation to disclose latent defects does not turn the seller into a guarantor as to every condition of the house being defect-free. If a buyer purchases a home and discovers a latent defect, he or she will not be able to hold the seller liable unless the seller knew of the defect and the defect materially affects the value of the property. This protects sellers from being in the almost impossible position of being responsible for any latent defect in a home that becomes known to a buyer after the sale.

The Florida statutes make certain exceptions regarding disclosure of some latent defects which certain buyers may consider to be material. For example, a seller has no obligation to disclose that an occupant of the property is infected with HIV or AIDS; or that the property was the site of a homicide, suicide, or death.

If you have purchased a home and discovered a latent defect for which you believe the seller had actual knowledge and failed to disclose, you should promptly consult with an attorney to explore any legal options you might have. Similarly, if you are a seller who

has been contacted regarding a claimed latent defect in a house you sold, you should promptly contact an attorney to discuss your legal options.

Matt Kelly is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

Are Peanuts and Crackerjacks at the Ballpark Still Deductible for a Business?

By: Kevin R. Albaum

The Tax Cuts and Jobs Act of 2017 (“TCJA”) lowered tax rates for businesses.  However, certain business deductions of the past were eliminated as well.  This article will address entertainment expenses and business meals under TCJA.

Under TCJA, entertainment expenses incurred on and after January 1, 2018 became non-deductible (previously they were 50% deductible).  That leads to the question…well what is considered entertainment to the IRS?  The Internal Revenue Code (“The Code”) defines entertainment as follows:

“Entertainment” means any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family. The term entertainment may include an activity, the cost of which is claimed as a business expense by the taxpayer, which satisfies the personal, living, or family needs of any individual, such as providing food and beverages, a hotel suite, or an automobile to a business customer or his family.

The Code’s definition of entertainment was not changed in TCJA so the old definition remains in place.  Note that the definition for entertainment includes “providing food and beverages”.  This has led to confusion in the tax community as business meals have generally been 50% deductible since 1993. Additionally, TCJA did not change or reduce this 50% deduction for business meals.

We know that business meals are a 50% deduction and that entertainment is no longer a deduction. We also now know that the Code’s definition for entertainment includes food and beverages.  Are food and beverages at an entertainment event with current or prospective clients still deductible? The IRS has now issued some guidance on that question in a notice released on October 3, 2018.

For a business meal to be deducted in an entertainment setting, it must meet the following requirements:

  1. The expense is an ordinary and necessary expense paid or incurred during the tax year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. The food and beverages must be purchased separately from entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

Here are a couple of examples:

Example 1:  A business owner takes a prospective client to a professional baseball game and buys two (2) suite tickets that include food and beverages.

Result:  The full amount paid is not deductible as a business expenses because no invoice, bill, or receipt was obtained that separated the cost of food and beverage from the cost of the overall ticket.

Example 2:  A business owner takes a prospective client to a professional baseball game and buys two (2) suite tickets that include food and beverages.  The business owner requests and obtains an itemized receipt showing the food and beverages expense was $200 and the game experience expense was $800.

Result:  The food and beverage expense is entitled to a 50% deduction but the $800 games experience expense is a non-deductible entertainment expense.

This guidance provided by the IRS is helpful, and it is a good idea to always obtain itemized receipts, invoices, or bills for food and beverages in any entertainment setting. However, if you are unsure whether a food or beverage deduction is allowed, it is recommended that you consult with your tax professional.

Kevin Albaum is an attorney in the Elder Law Practice at Clark, Campbell, Lancaster & Munson, P.A. Questions can be submitted online to thelaw@cclmlaw.com.

Employer Access of an Employee’s Personal Information on a Work-Device

Clark, Campbell, Lancaster & Munson, P.A.

Question: What information may an employer access from an employee’s employer-issued mobile device?

Answer: If proper procedures are followed, employers are entitled to recover any information an employee has stored on an employer-issued device.

Interception of Electronic Communications and the Cloud
As technology advances, sometimes the law is painfully slow in keeping up with it. While many people still don’t quite understand how “the cloud” works, it has been a way for people to store their information without having to plug a phone into a computer to keep it backed up. This process ensures users that should a phone become lost, damaged, or replaced, the cloud allows customers to easily access old information and provides a seamless transition to a different device that includes all of the messages, photos, contacts, and music that was on the previous device. While most people frequently use this type of technology with regards to cell phones, it is equally common to connect laptops and tablets to the cloud.

The cloud becomes complicated when it comes to employer-issued devices because the line between what is work and what is personal to the employee begins to blur. If an employee sets up a cloud account on an employer-issued device and receives personal text messages on that device, can an employer use that information in any future lawsuit stemming from the employer- employee relationship? If certain procedures are followed, then the answer is probably yes.

The federal government has enacted the Electronic Communications Privacy Act (commonly referred to as the “Wiretap Act”) which prohibits the unauthorized interception or access to electronic communications. The Wiretap Act imposes civil and criminal penalties on any potential offender. Similarly, the federal government has enacted the Stored Communications Act, which prohibits the unauthorized access of stored wire and electronic communications and transactional records held by third-party internet service providers (ISPs). The State of Florida has adopted provisions that mirror its federal counterparts.

Collectively, these laws would seem to hinder employers from accessing information that is received by, or is stored on, an employer-issued device. While the law is not fully up to date with regards to cloud technology, there two critical trends in the law that allow employers to access information on a employer-issued device.

First, the Wiretap Act has an intentionality requirement that means it will not apply to many employers. This means that if an employee downloads his or her cloud account onto an employer-issued device, the employee is the one who caused that information to be stored on that device, not the employer. In a recent federal case, an employer sued a former employee for violating the employee’s contractual non-compete clause, using texts the employer had received on a work iPhone because the employee set up an Apple iCloud account. The court ruled that the employee was at fault for setting up the cloud account, and the employer did not violate the Wiretap Act because the employer did not intercept the communications intentionally.

Second, both the Wiretap Act and Stored Communications Act have consent provisions that exempt certain parties from the law. While most employees don’t realize it, employment policy handbooks or manuals that are given to new employees may contain a consent provision that allows an employer to store and monitor communications on an employer-issued device. Several courts have found that these consent provisions, with regards to using an employer-issued device, are enough to overcome liability that may be imposed by the Wiretap Act and Stored Communications Act.

Conclusion
Provisions in employer-issued employee manuals may address what information the employer is entitled to access and monitor on employer-owned devices. As long as the employer is not taking proactive steps to confiscate personal messages from an employee, it is unlikely that any criminal or civil liability will arise. The employer may be able to use information stored on an employer-issued device in a dispute should an employee or former employee decide to initiate litigation against them. In any case, consulting with an attorney is the best course of action before using any information on an employer-issued device.

Questions can be submitted to thelaw@cclmlaw.com.

Construction Liens – Timing is Key

By: J. Matthew Kelly, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

Under Florida law, certain individuals and entities who provide labor, work, or materials for the improvement of real property may have a lien on the real property for the value of the labor or materials supplied. These liens are known as construction liens and are governed by Sections 713.001-713.37 of the Florida Statutes. These potential lienors may use construction liens to secure payment in the event they are not paid for their services. Even in cases where a contractor is paid in full, a supplier or subcontractor who has not been paid may still have lien rights against the property.

The process is different depending whether a potential lienor directly contracted with the property owner or whether the potential lienor is a subcontractor or supplier who contracted with the general contractor. In the latter case, the process for securing a lien includes the following:

The first step requires potential lienors to provide a “Notice to Owner”. A Notice to Owner is generally required to be served within 45 days of the potential lienor commencing to furnish his or her labor, services, or materials. The Notice to Owner statutory form can be found in Section 713.06(2)(c) of the Florida Statues. The Notice to Owner notifies the owner of the real property that the potential lienor has provided materials or services, describes the materials or services, and informs the owner that the potential lienor is entitled to a construction lien on the real property. Depending on the circumstances these notices must be served upon the owner, general contractor, designated person, and/or the lender for the project.

Following the Notice to Owner, a “Claim of Lien” may be recorded at any time during the progress of the work or thereafter but not later than 90 days after the final furnishing of the labor or services or materials by the lienor, or no later than 90 days after the termination of the contract between the general contractor and the owner. The Claim of Lien should be recorded in the clerk’s office for the county in which the property is located. The statutory template for a Claim of Lien can be found in Section 713.08(3) and must meet certain requirements as enumerated within the statute. The Claim of Lien must be served on the owner prior to recording or within 15 days after the recording of the Claim of Lien.

Constructions liens are generally valid for a period of one year after the claim of lien has been recorded. Any lienor who intends on enforcing his or her construction lien must file a lawsuit to foreclose the lien within the one-year period. An owner may shorten the one-year period from one year to 60 days by recording a “Notice of Contest of Lien.” The owner must also service the Notice of Contest of Lien on the lienor. If a lienor is served with this notice and fails to initiate a suit on the lien within 60 days, its lien will be extinguished.

Florida’s construction lien law framework can be very complicated and nuanced. It contains many pitfalls related to who is qualified to lien, notices and documents required to be served and recorded, and many strict deadlines. If the specific timeline and structure is not followed it can result in the loss of lien rights. To avoid these pitfalls and ensure your rights are protected, I recommend working with an attorney when dealing with Florida’s construction lien process.

J. Matthew Kelly is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

Overview of Undue Influence Will Contests

By: Kevin R. Albaum, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

The term “Undue Influence” is a legal cause of action that can be brought in court when it is believed that a deceased person’s Last Will and Testament (trust, deed, beneficiary designation, etc.) was the product of another person’s over-persuasion, duress, force, coercion… to such a degree that the person who signed the document did not use their own free will power in executing the document.  The person filing the lawsuit also needs to have been negatively impacted as a result of the alleged Undue Influence.

Undue Influence is often not discovered until after a person has died and (in the typical scenario) their Last Will and Testament is presented to the court for probate administration (the legal process of transferring assets from a person’s estate to the proper beneficiaries).   When a person submits a Last Will and Testament to probate, the person who files the probate case is only required to serve notice of the proceedings to the following people: decedent’s surviving spouse, beneficiaries, persons who may be entitled to exempt property, and trustees of any revocable trust (if the decedent had a trust).  Therefore, if a person who has exerted Undue Influence in the creation of the deceased person’s Last Will and Testament, those who were improperly disinherited may never even be notified by the wrongdoer.

If a person receives a “Notice of Administration” document in a probate proceeding, they only have three (3) months in which to bring a challenge before they are time barred.  If a person does not receive the requisite Notice of Administration document, the general rule is that you would have up to four (4) years from date of death to bring a challenge before it becomes time barred.   However, a recent case which is binding on the 2nd Circuit Courts of Florida found that the “Delayed Discovery Doctrine” applied to the specific facts of a certain case and therefore the person who was improperly disinherited was able to bring the legal cause of action after the four (4) years had expired. The Delayed Discovery Doctrine is merely an exception to the general four (4) year rule. It means that in specific circumstances, the statute of limitations will be extended by the court to give the plaintiff more time to file the lawsuit (up to a maximum of twelve (12) years) if the plaintiff didn’t know of (or reasonable should have known) of the circumstances that gave rise to their legal cause of action.

Determining whether Undue Influence has occurred is a question of fact for the judge or jury to decide. However, common factors the court will consider in making that determination are as follows:

  • The presence of the beneficiary at the execution of the testamentary document;
  • The safekeeping of the testamentary document by the beneficiary after execution;
  • The procuring of witnesses to witness the execution of the testamentary document by the beneficiary;
  • The beneficiary instructing the preparing of the testamentary document to the drafter;
  • The beneficiary knowing the contents of the testamentary document prior to the document’s execution;
  • The beneficiary recommending or selecting the attorney; and
  • The beneficiary’s presence on occasions when the now deceased person had expressed a desire to make the testamentary document.

This list is not all inclusive but are some of the key factors to be considered in determining whether or not a document was the product of Undue Influence.

If you believe you may have a valid claim of Undue Influence, you should speak with a knowledgeable probate attorney to ensure you understand your legal rights and when the statute of limitations on your possible cause of action will expire.

Kevin Albaum is an attorney in the Elder Law Practice at Clark, Campbell, Lancaster & Munson, P.A. Questions can be submitted online to thelaw@cclmlaw.com.

To Survey or Not To Survey

By: Kyle Jensen, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

Q: Should I obtain a survey for real property I am purchasing?

There are many issues a buyer must consider and pitfalls a buyer must avoid when purchasing real property, regardless of whether the buyer is acquiring a large commercial center or the buyer’s first home. Accordingly, an experienced buyer will thoroughly investigate prospective real property to determine whether such real property is suitable for the buyer’s intended purposes. One of the most important steps buyers often take when investigating real property is to obtain a survey.

A survey of real property is, in part, a depiction of the real property that portrays its boundary lines and dimensions and all of the improvements, easements, and other attributes located within the real property. The survey allows the buyer to, among other things, confirm the actual boundaries and dimensions of the real property, confirm none of the neighboring properties’ improvements encroach upon the real property, and confirm none of the improvements located on the real property encroach upon any easements or encroach into any adjacent property.

Once a survey is obtained, the buyer should thoroughly review the survey, with the assistance of a knowledgeable real estate attorney if possible, to determine there are no major defects on the real property, and that the real property is suitable for the buyer’s intended uses. For example, if a buyer purchases a residential home with the intention of constructing a porch on the back of the home, the buyer should confirm there are no easements or other encumbrances running behind the home that would prevent the buyer from constructing such porch; or if a buyer purchases a commercial property within a busy commercial center, the buyer should confirm none of the improvements located within the real property, such as the building sign, encroach upon the adjacent property.

The failure to obtain, or thoroughly inspect, a survey of real property can cause significant problems for the buyer after closing. In the examples above, the buyer of the residential property may be prohibited from constructing a porch in his or her back yard because the buyer failed to discover a utility easement in favor of a local utility company running behind the home; or the buyer of the commercial property may be required to demolish and rebuild its sign because it failed to discover the sign was actually located on adjacent property.

Therefore, while it may be tempting for a buyer to forego obtaining a survey in an attempt to save money, failure to obtain a survey can actually cost a buyer money in the long run, and, in the most severe of situations, may result in the buyer being unable to utilize the real property for the buyer’s intended purposes.

Kyle Jensen is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

Are salaried employees exempt from overtime pay?

By: J. Matthew Kelly, Esq.
Clark, Campbell, Lancaster & Munson, P.A.

The Fair Labor Standards Act (the “FLSA”) is a federal law which regulates, among other things, minimum wage and overtime pay. The FLSA generally sets a workweek at forty hours and requires that employees receive overtime pay for any excess work hours over forty.

However, not every employee is covered by the FLSA. While the FLSA has expansive coverage, it does have certain requirements that must be met in order for employers and individuals to be covered. The FLSA generally covers companies that have revenue in the amount of $500,000.00 or more, as well as federal and local government employers. An individual can be covered, regardless of the revenue of the company they work for, if they are involved in interstate commerce. Interstate commerce is interpreted broadly under the FLSA and may include individuals who make telephone calls outside of their home state, process payments from out of state, and produce goods that will be sent out of state.

One common misconception under the FLSA is that salaried employees are exempt from the overtime pay requirements of the FLSA simply because they are paid a salary rather than on an hourly basis. While in many cases a salaried employee is an exempt employee under the FLSA, they still must meet one of the exemptions created by the FLSA to be exempt from the overtime requirements. Generally, for a salaried employee to be exempt from overtime pay they must meet one of the following “white collar” exemptions: the executive exemption, the administrative exemption, the professional exemption, the computer employee exemption, the outside sales exemption, or the highly compensated employee exemption.

Each of these exemptions requires that the employee make at least $455 per week in compensation. Beyond the salary requirement, each exemption requires that the employee have certain job duties. It is not enough to pay someone $455 per week and give them a certain job title. The employee’s duties must meet certain requirements. For example, to qualify under the administrative exemption, the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and this primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. Each exemption has specific duties and requirements that must be met by the employee for an exemption to apply.

“Blue collar” workers, or those workers who perform manual work with their hands, physical skills, and energy are not exempt from the overtime requirements no matter how highly they are paid or how they are compensated. Police, firefighters, paramedics, and other first responders are not exempt from the overtime requirements of the FLSA. In

many instances employees working in agriculture as defined by the FLSA are actually exempt employees even though it may seem like they would be included with those workers who work with their hands and physical skills.

The important takeaway when dealing with exemptions is that just because someone has a salary or a certain job title does not exempt them from overtime. The real focus should be on the duties of that employee to determine if their job function meets the requirements for an exemption under the FLSA.

The FLSA is a complex federal law with many nuances that have not been specifically addressed in this article. When determining whether an employee is exempt under the FLSA I recommend that you have an attorney participate in the analysis and advise you as to that employee’s status under the FLSA. Treating a non-exempt employee as an exempt employee can be a costly mistake resulting in litigation and the awarding of damages. Damages awarded can be double the amount of the actual unpaid wages owed as a result of treating a non-exempt employee as an exempt employee.

J. Matthew Kelly is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

The Basics of Medicare

By: Kevin R. Albaum, Esq.

Medicare is government health insurance that is administered by the Centers for Medicare and Medicaid Services (“CMS”). As a general rule, anyone is who is sixty-five (65) years old and is either a U.S. citizen or a permanent resident (who has lived in the United States at least 5 years) may receive Medicare health insurance coverage. Additionally, individuals under age sixty-five (65) who have been receiving Social Security Disability benefits for 24 months may also be eligible for Medicare benefits. In the typical scenario, a person becomes first eligible to enroll in Medicare three (3) months before their 65th birthday and then has seven (7) months after their initial eligibility date to enroll in Medicare coverage options discussed below.

Medicare consists of 5 different types of coverages as follows:

Part A- Hospital Coverage: This coverage pays for room and board in the hospital or skilled nursing care (for a short period of time). Cost: In most instances, there is usually no premium as long as you or your spouse has worked 10 years in the U.S.

Part B- Outpatient Coverage: This coverage pays for things like lab work, doctor visits, surgeries, medical equipment, etc. Parts A and B combined are considered “Original Medicare”. Cost: The premium is generally $134 per month unless you are a “high-income earner”, in which case the premium may be higher. If you are already receiving Social Security retirement benefits, the premium may be deducted automatically from your monthly benefits.

Part C- Medicare Advantage Plans: Medicare Advantage Plans or “MA Plans” are an alternative to a combination of Original Medicare (Parts A and B). These “all-inclusive” plans are administered through private insurance companies instead of the government-run Original Medicare. They were created to provide a lower-cost alternative to Original Medicare, and MA Plans often create cost savings by offering the subscriber lower premiums along with higher shares of costs as you need medical services. There are a variety of these plans offered. Most of them are either Preferred Provider Organization Plans (“PPOs”) or Health Maintenance Organization Plans (“HMOs”). These PPOs and HMOs have health care providers “in network”, and you may be required to use in-network providers if you want to keep your co-pays and deductibles low for medical services. The benefits offered by the different plan options vary in coverage and cost, but they are required to provide at least the same level of coverage as Original Medicare. MA Plans may also offer other options for dental, vision, drug coverage and some other benefits.

Part D- Prescription Drug Coverage: If you choose Original Medicare, you will likely also want to also enroll in a prescription drug coverage plan. A prescription drug plan will be purchased from a private insurance company and will enable you to purchase prescription drug prices for much lower than retail prices. Cost: The average national premium is averages $35 per month for a Part D plan. The Medicare website allows you to search and compare available Part D plans in the region where you live. Before you choose a Part D plan, it is recommended to carefully examine the company’s formulary drug list under the plan to make sure it provides for your current drugs. If the drug is not provided under the plan, you may be subject to a higher price.

Medigap Coverage a/k/a Supplemental Plans: Medigap plans cover what Medicare Parts A and B do not cover, such as deductibles, coinsurance, copays, foreign travel emergencies, etc. The point of Medigap coverage is to pay a monthly premium to avoid being hit with an astronomically large bill as medical needs occur. Medigap plans are on average more expensive than MA Plans. because Medigap plans offer more inclusive coverage. Under Medigap plans the subscriber may not be required to pay co-pays for certain medical services. The subscriber may also have more freedom to choose providers than if they were in a MA Plan with in-network restrictions.

A retired person without any employer coverage should either have a MA Plan (from a private insurance company) that covers hospital coverage, outpatient coverage, and prescription coverage or a combination of Part A and Part B (from the Government) and Part D and a Medigap plans (from private insurance companies).

Open Enrollment

Each year there is an annual election period when you can switch your Medicare Insurance options. That period begins October 15th and ends December 7th of each year. This means that during this period you can switch MA plans, switch prescription and Medigap plans. If you miss enrolling for Medicare when first eligible, there is another general enrollment period from January 1st through March 2st1 each year. During this period, you may have to pay a late-enrollment penalty (unless you qualify for an exception such as having your employer’s insurance end).

What if I am still working?

If you are sixty-five (65) years old and still working, you will likely have options between Medicare coverage and employer insurance. You can either keep your employer insurance and incorporate Medicare coverage as well or you can drop your employer insurance and obtain solely Medicare coverage. You decide when to leave your employer’s health insurance to join Medicare. It is illegal for your employer to force you to choose Medicare versus remaining on the employer’s health insurance coverage.

If you work for an employer with 20 or more employees, your employer insurance will be primary and Medicare will be secondary coverage. Part A is free if you worked 10-plus years Therefore, there would be no reason not to enroll in Part A upon turning age sixty-five (65). Part B has a premium of around $134 a month, so it may make sense to contact CMS and delay enrolling in Part B if your employer insurance coverage is sufficient for outpatient services. Part D also has a premium, and therefore, if your employer insurance has suitable prescription drug coverage, you may wish to delay enrolling in Part D. Once you retire and are sixty-five (65) and older, your employer’s insurance plan will mail you a credible coverage letter allowing you to enroll in Parts B and D without any penalty.

If you work for an employer with less than 20 employees, Medicare is your primary insurance coverage when you become eligible to apply you will need to enroll in Medicare Parts A and B and your employer coverage will become secondary coverage. In this case, people often decide to drop their employer coverage (if it is not paid for by the employer) and have Medicare only. If you elect to keep your employer coverage, however, you need to consider whether your employer’s insurance offers suitable drug coverage. If so, you may wish to delay enrolling in Part D until you retire as you are required to only enroll in Parts A and B in this scenario.

Kevin Albaum is an attorney in the Elder Law Practice at Clark, Campbell, Lancaster & Munson, P.A. Questions can be submitted online to thelaw@cclmlaw.com.