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Part 3 – Health Insurance – Health Savings Plans

Posted on August 22, 2014 by Comments are off

8-23-14 Video FINAL Transcript

            Part 1

Welcome back again everyone to another edition of All Things Financial. I’m doing a series of shows on how to help make the most and stretch your dollars in the area of healthcare. Under the new healthcare act, under all the different provisions that you have in-network and out of network and how to make the most of your money—how to save money on your healthcare. So the last two shows I’ve been talking about health savings accounts, different opportunities that you have all the way around, but what I wanted to talk about today was a continuation of some of these ideas that I’ve come across to share with those of you watching and listening so that I can help, maybe, stretch your dollars.

So let’s get into the next area and it’s getting help paying your premiums. Now for those of you who have income less than a certain level, there are actually federal subsidies to help you make your premiums and here’s what they are. The modified adjusted gross income—and talk to your tax advisors for what that is—but there’s a modified adjusted gross income number that the government uses for seeing if you’re eligible for these subsidies. And what it is, is it’s 400% of the federal poverty level.

So if you’re four times higher than the poverty level you may still qualify for federal subsidy for your health premiums. So that’s pretty good. If the poverty level is actually four times the poverty level if you’re single and your modified adjusted gross income is $46, 680 or less, you may qualify for some subsidies. If you’re less than $62,920 as a couple in 2014, which is pretty good. You may qualify for a subsidy to help pay your medical premiums.

You can qualify if you buy health insurance coverage on your state health  insurance exchange. Now you can look that up on www.healthcare.gov and that’ll tell you links for how to buy on the exchange and what the prices would be. But there are federal subsidies if you’re under those limits. Now again those limits are $46,680 if you’re single or up to $62,920 for a couple in 2014 of income that you can be making and still qualify for federal subsidies. What’s the website again? www.healthcare.gov and it’ll give you the links because you have to buy the health insurance coverage on the state health insurance exchange to qualify for the subsidies.

All right now let’s take advantage of some cost-sharing subsidies. If you’re—and this is different—if your income is below 250%, not 400% like I just mentioned, so it’s a lower test or a lower limit. But if your income is below 250% of the federal poverty level, which is now $29,175 if you’re single or $39,325 for a couple in 2014. You can also qualify for a cost-sharing subsidy that reduces copayments and other out of pocket expenses.

But this is only available if you buy a mid-level—what they call—silver insurance plan on your state exchange. The silver plan’s more expensive than a bronze but with this extra subsidy the silver plan may be a better deal and it may end up being less expensive than just buying the bronze.

So let me go over all that again. There are subsidies available if your income is below a certain amount. If you’re a family and your income’s below $62, 920, you need to check into this. If you’re single and your income’s below $46,680, you need to check into this. The first subsidy is to pay for your premiums that I mentioned. The second subsidy may be a cost-sharing subsidy to help reduce copayments and other out of pocket expenses in addition to helping you save on the premium on your first subsidy. So they are huge benefits.

All right let’s take a quick break because I know I overwhelmed you there. And we’ll be back in about a minute, I’ll let you get pen and paper if you need to take any notes I’m going through a lot. But wow look at all the dollars I just possibly saved you if your income’s are under those limits. Even if you don’t know how to do it folks, you now know there is something available. And that’s the key to financial planning, not knowing all the solutions but knowing all the potential sources of solutions.

Now that you know if your income’s near or under those limits, you know to pick up the phone, you know to call and go to a competent, qualified planner and ask, “There might be opportunities I’m missing out on, are you competent in the areas of financial planning with healthcare, taxes, and insurance? If you are, can you please help us navigate this quagmire of benefits we think we feel we might be missing out on. And how much do you charge for those services if so?” That’s the next phone call you need to make if your incomes are at or around those levels I’m talking about on the show. So again I’ll take a quick break, let you get pen and paper and we’ll be right back.

Part 2

            All right welcome back again everyone. Now with these subsidies that I’m talking about and they can be like gold for some of you if you get assistance on paying your premiums and assistance on paying your copays and some of your expenses out of pocket expenses.  I want you to avoid—or I want you to be prepared to make sure you can avoid any surprise tax bill if you get a subsidy and here’s what I mean.

If your income changes throughout the year, you need to notify your state health insurance exchange. The reason is the subsidy was based on your income, so if your income changes and it goes down you may qualify for benefits that you didn’t qualify for with your higher income or more benefits than you did with your higher income. But, conversely if your income goes up during the year, you may lose that subsidy and therefore be taxed on that subsidy.

So you don’t want a big surprise tax bill because your income changed. So be careful there. And don’t forget marriage can increase your income and you don’t want a surprise bill at the end or be not a valid subsidy and invalidate the whole subsidy that you already got. So be very careful there if your income changes. Now if you’re close to the cut-off of whether you qualify for subsidy or not, it makes even more difference. If you’re close to a cut-off and you say, “I’m almost there.” Then here’s a strategy: you can maneuver your income slightly by making contributions to a 401(k) or raising contributions to a 401(k) because that reduces your income.

So if you do that, if you see you’re close to a cut-off, it may help you qualify for a subsidy you might not otherwise—not be available to you. So it might otherwise be unavailable, but if you make a contribution to the 401(k), drop yourself under the threshold. Now all of a sudden you qualify for a subsidy, that can be a bonanza for you.

Don’t unintentionally boost your income. What do I mean by that? Sometimes people will say, “I’m going to convert an IRA to a Roth IRA.” And what’ll happen is a tax advisor will do your tax return, they’ll say “That’s a marvelous idea. Let’s do it now.” Not realizing you qualified for a subsidy for these healthcare benefits, that’s an income-test based subsidy. And if you shift IRA money and convert to a Roth IRA, that immediately forces taxable income or raises your income for the year, may push you right through that bracket of no longer qualifying for a subsidy.

So you want to be very, very careful there. That’s why you want to have all your professional advisors working together as a team. You want a certified financial planner, certified public accountant, your attorney, your insurance professionals all working together. You want to try and bind your financial plan  together so that it’s a cohesive unit rather than fragmented parties all working on single components of your plan and interfering with other components which could have worked much more smoothly. So you want to be very careful there to not unintentionally raise your income.

You could borrow money from a 401(k), let’s say at work, and that would be tax free. But if you withdraw money from a 401(k) that would be taxable. So you have to be careful of your otherwise tax strategies or income strategies when you’re applying for these subsidies.

Now you can apply for a subsidy when you retire early or lose your job and I want you to think about this. If you have income only for part of the year or every other year you had full income for that year pushing you past the limit of income that you could qualify for a subsidy, here comes the year you’re retiring and you retire in June. Well now if you worked the whole year, your income might have been too high to qualify for a subsidy. Well what if you only worked five months for the year and now the income for the remainder of the year added to those first five months is under the limit? Enabling you to qualify for the subsidy. Bingo.

You now might qualify for a subsidy in the year that you require because you retired mid-year. Maybe even lost your job mid-year. So I want you to think this through whenever you have an income change. Go to your state’s exchange, the subsidy’s based on your full year’s income, remember. Go to your state’s exchange, here’s how you can find them. You can find links for the state’s exchange at www.healthcare.gov and find out what you qualify for based on your full year’s income especially in those fragmented years.

Now you can also deduct—don’t forget—your health insurance premiums if you’re self-employed under certain circumstances. What are those circumstances? Well if you’re self-employed and not eligible for health coverage offered by employer or an employee’s spouse, or a spouse’s employer and you look at your premiums as being tax deductible on your own health insurance. So if you’re not covered under your own plan, an employer’s plan, or a spouse’s employer’s plan, you have the ability in most cases to deduct your own self-employed health insurance premiums. So that’s important to know.

The key is as long as it doesn’t exceed your self-employment income. So the premiums you cannot deduct that premiums for health insurance to the extent they exceed your self-employed income. All right I’m going to take a quick break, when I come back I’ll help you look at how to compare different types of policies to get the best deal. We’ll be right back.

Part 3

Okay now let’s get into comparing policies and how to buy and purchase the right policy and how to shop. First thing I want you to do is compare overall costs, not just the premium. It sounds obvious but a lot of people don’t think to do that. When they’re shopping they’re just thinking premiums and maybe deductibles. But here’s what I want you to look at and not forget. If you buy health insurance on your own, you could switch policies when open enrollment season for 2015 coverage starts on November 15th of 2014. So this year starting November 15th, you could start shopping for next year’s coverages.

Now most employer plans also have open enrollment in the fall. So compare premiums but also remember compare out of pocket costs for the medicines that you take, for your typical healthcare services. Compare maximum out of pocket expenses, not just the typical, in case you have a major health issue. And also make sure your doctors are still in the network. They may have been in the network last year, you’re assuming nothing changed but things do change. So you need to make sure your doctors are still in the network also when you’re considering staying with the same plan or whether to shop or change plans.

Now you can change your health plan mid-year under certain circumstances. Open enrollment’s closed for 2014 right now beginning November 15th, like I said, you could start shopping for next year which is 2015. But you may qualify for a special enrollment period if you leave your job or retire and lose employer coverage. Even if you’re eligible for Cobra throughout the year or mid-year. Or if you experience, pay attention here, a life-changing event mid-year. Which includes getting married, getting divorced, even having a baby or moving to a new state.

So all of those circumstances might qualify you for being able to change coverage mid-year and not have to wait for open enrollment. And I know most people are unaware of that but those changes are common. So again those changes they consider a life changing event such as, but not limited to, getting married, getting divorced, having a baby, or moving to a new state. Now listen, go to a website www.healthcare.gov, and it’ll give you more information about eligibility on that.

Now here’s another one, the federal law, you know when plans terminate or when your employment terminates, is called Cobra that lets you keep your employer’s coverage for up to 18 months after you leave your job. You’ll usually pay much more for Cobra than you did though for coverage while you were an employee. And even employers typically pay about 70% of the cost of coverage for employees but contribute nothing towards Cobra.

So compare the cost of Cobra with the cost of buying a policy on your own. Because you’re on your own. If you buy a new policy on your state exchange and your income is low enough, like I brought up earlier in the show, you may qualify for a subsidy to help with premiums even further. Shop on and off the exchanges. If you don’t qualify for a subsidy, look for coverage on and off the exchanges for more options.

For example, United Healthcare sold policies in only 12 state exchanges this year but sold policies off the exchanges in 25 states. Policies sold off the exchanges must meet some of the same requirements as those sold on the exchanges including coverage for the 10 essential health benefits. But they may have different premiums and different provider networks. So you want to shop on and off the exchanges to be careful to make sure you’re getting the best plans for yourselves.

Now also remember, pick the best coverage for your kids. We don’t think about that enough. Adult children, because of the new healthcare changes over the last couple years, can stay on most parent’s policies until they turn age 26 now. Whether or not they still live at home and whether or not they are full-time students. So you may not have to pay extra for a policy that covers an adult kid even if you’re already insuring other siblings. Because you may get a family package type discount it may not cost extra.

But if you do have to pay more or if your child lives in another city that isn’t covered by your plan’s in-network providers, and that happens a lot. They’re somewhere else—they’re living somewhere else and they’re not in-network, their providers aren’t in-network. It may be less expensive for him or her to buy a separate policy. That’s especially true if you don’t claim your child as a dependent on your tax return and therefore he or she might qualify for a subsidy on their own.

All right if you pay cash, ask for a discount. If you have a high deductible plan or you go to a doctor that’s out of network, see whether you can get a discount for paying cash. If you can, you might discover that the insurer’s rate that they pay is a lot more than you would pay yourself. If that’s the case, you still may be able to file the claim yourself afterwards so that it can count towards your deductible. So you’re paying cash, getting the lower cost but using a higher amount towards your deductible because you paid for it yourself. So be very careful on asking, “Hey should I pay cash and what’s the difference?” and then still having it apply towards your deductible. Not only the amount you paid cash, but the amount that would have been contributed towards the deductible.

All right now, appeal denials. You may be able to get help from your state insurance department if coverage for a drug you need’s denied by your insurer or you want to go out of network for a special procedure. Find out about your insurer’s appeal process. You could get help from your state insurance department on this too. Go to www.naic.org and it’ll give you links for help there.

Now watch out for common errors on your bills. Another tip is ask for an itemized bill when you have a hospital stay or major procedure and question any unexpected charges. The other thing you need to do then is match your bill with your explanation of benefits coverages. Coverage may be denied if the procedure just wasn’t coded properly and yet it might be covered. So you want to find out if your bills are being billed for unnecessary, duplicate or maybe uncovered claims that really would have been covered and were just coded incorrectly.

All right, compare costs using your insurer’s web tools. So your insurer, themselves, have web tools and tools and apps. This is probably the best way to find the actual price. You’ll pay for procedures based on your insurer’s negotiated rate and your deductible and coinsurance level. Some companies have shown on their websites 10 estimates for your out of pocket costs for a procedure in your area. While other insurers have shown as many as 250 and even yet other insurers beyond that have shown over 500 different medical services and adding online scheduling services and out of pocket cost comparisons.

So you may have cost comparisons that are all across the board just by going on to your own insurer’s websites. So look into that, they’ll provide a lot of the comparisons for you to help you find the lowest cost providers. And finally today, use tools to comparison shop prescriptions not only services. Many of the insurers and employers have tools that help you compare prices for your medications also showing brand name versions, generics, and therapeutic alternatives. They offer smartphone apps in many cases to look up the lowest cost pharmacies before you even leave the doctor’s office.

So these are just a few of the many ways that you actually have control over how to reduce your medical expenses in all these different areas and how to make the most of your dollars that can be used in other areas in your budget. I wanted to share that in this series. I hope you found it helpful. Any questions that you have you can always feel free to call me, you can email us. But I wanted to share this because I’m trying to help you stretch your dollars, make the most in this show called All Things Financial. We’ll be back next week with more on different areas to help you make the most of your money. Thanks again for tuning in.

Source: http://www.kiplinger.com/slideshow/spending/T027-S001-30-ways-to-cut-your-health-care-costs/

Part 2 – Health Insurance – Health Savings Plans

Posted on August 21, 2014 by Comments are off

8-16-14 Transcript

Part 1

            Welcome back again everyone to another edition of All Things Financial. Last week I started discussing areas of how to protect yourself from paying too much on your healthcare costs. Now there are certain things that we can’t control and there are some things that are surprisingly able to control with how much you pay in health insurance, how much you pay for prescriptions, healthcare, surgeries, are a little bit flexible if you know what you’re doing and how to navigate. So I wanted to share with you last week, and I wanted to continue with you this week, different methods of how to manage your healthcare costs. So let’s pick up where we left off last week.

Ideas for how to help save money deal with what is within your control and knowing what those factors are and here’s one of them. You can actually earn cash for some wellness programs offered by employers. So what we want you to do, more than a quarter or large employers surveyed by the Kaiser Family Foundation offered gift cards or cash to any workers who participated in well—you know any type of a welfare program called a wellness program. So when you go through your employer, I want you to ask—if you’re working for a large employer—do you offer any gift cards or cash for wellness programs?

 Large employers surveyed by the National Business Group on Health add in an average of about $350 to an employee’s health savings account for participating in a wellness program. They can’t or won’t do that a lot of times if they don’t know you’re asking them to contribute. So make sure you’re not missing out on special programs available through your employer.

Now I want you to get credit for your deductible especially if you have a high deductible health plan. Make sure you’re getting credit towards the deductible for all of your care. So even when you’re paying out of pocket during the deductible period, you have to file the claim so that you’ll get the rate the insurer negotiated with the provider. You check your explanation of benefits, make sure you receive credit for costs that count towards meeting the deductible and your annual out of pocket spending limit. So the key there is you have to file the claim even while you’re paying out of pocket or it may not be credited towards your out of pocket deductible.

All right now time your procedures carefully, I talked about this a little bit last year and I’ll talk about it again today—or last week rather and I’ll talk about it again today. And that is you time your care if you have a choice on if you’re late in the year. Let’s say consider scheduling procedures near the end of the plan year versus planning your procedures in the beginning of the following year. Here’s what makes the difference. You consider scheduling procedures near the end of the year in years that you’ve already met your deductible. So think about that rather than waiting to the new year where you have to start a whole new deductible all over again.

On the other side where this is an issue where you haven’t met a deductible. You may not want to plan care near the end of the year, start meeting a plan deductible and then have to start all over again in January, meeting a whole new deductible. So weigh these options carefully as long as it does not affect your health you want to weight these options. You want to go through and plan so you’re only  paying a deductible once if you could possibly avoid it.

Now how about enjoying a triple tax break from a health savings account? The way you might be able to do that is this. If your health insurance policy has a deductible of at least $1250, one thousand two hundred and fifty dollars, for an individual or $2500 for a family in 2014. You may be eligible to open a health savings account. Now listen, a health savings account lets you set aside tax deductible money or pre-tax money through an employer if it’s through the employer. If it’s not, it’s after tax, basically tax deductible, money on your own to open up a health savings account that you can use tax free in any year to pay your insurance deductible and other out of pocket medical expenses.

So think about this folks. If you have a deductible of at least $1250 for an individual, or $2500 for a family in 2014, you may be eligible to open a health savings account. That’s very important because now you’re able to set aside dollars that are tax deductible contributions to that health savings account that you can use tax free then in any year to pay your insurance deductible and other out of pocket expenses. Which otherwise would not be tax free as you know and the contribution towards them wouldn’t be tax deductible. So it’s a huge benefit.

Now let me show you something else. In 2014, you can contribute up to $3300 to a health savings account for individual coverage or—get this—up to $6550, six thousand five hundred and fifty dollars, for family coverage. Plus it gets even better, an additional $1000 if you are 55 years or older anytime throughout that year. So that can be as high as $7550 for the year, you can contribute tax deductible money and use on a tax free basis towards otherwise uncovered or what would be self-covered medical expenses. That’s huge folks.

So these high deductible plans that you’re considering when you’re shopping and you say, “Oh wait a minute I don’t want a high deductible plan of,”—you know like I said $1250 for an individual or $2500 for a year for 2014. Reconsider that. Because you’re able to then possibly qualify for opening up a health savings account. Now you can get free health savings account money sometimes from  an employer. Many employers, and again you ask, match health savings account contributions or seed your account after you sign up. And what that means is they’ll match sometimes up to $500 for a single plan, maybe $1000 for family plans.

And you’ll look at this and you’ll say, “I’m missing the boat. I’m not asking the right questions to my employer and I’ve not heard of any of these options that I’m bringing up on the show before.” So that’s why you need to keep tuning in. I keep bringing things in all areas that I can think of, of people’s financial lives and businesses’ financial affairs that I could possibly shed some light on, help you make more of your money. What I’m trying to do is help you make the most of your money in this show. So I bring up different areas on each week’s show. I might be talking life insurance one show, I might be talking taxes the next show, I might be talking asset protection the next show, maybe estate planning after that, maybe saving for college, financial aid, and scholarships.

I discuss all of these things on my shows and it’s because of the things that  I’m running across. Beneficiary designations maybe not matching, all kinds of things that I’m running into I try to share on the show to help everyone benefit, not just certain clients. All right let’s take a quick break and I’ll be back with more health savings ideas in just a minute.

Part 2

Okay let’s get back into some more money-saving ideas with your healthcare and how to be more efficient with your dollars. Let’s look at this health savings account I brought up right before the break. You can boost your health savings contribution limits if you think about it in any year that you started—let’s say an HSA, which I’ll refer to the health savings account—HSA-eligible health insurance policy.

Now let’s say you have that policy on December 1st and you just start that policy but it’s an HSA-eligible policy. That means you can make the full year’s contribution even if you’ve had the plan for only a month. And qualify for the whole year’s worth of contribution if your family, up to that $7550 contribution limit, get a tax deductible contribution for the year and still be able to make tax free distributions to pay the healthcare expenses in the following year.

Now there are a little bit of regulations for that. If you didn’t have the HSA-eligible policy for the full year that you made the contribution, you must keep the plan—the policy—for the entire following calendar year or pay a penalty. So if you  drop the policy, if you picked it up December 1st or let’s say you started on July 1st or started this plan July 1st on your own. You can buy it individually by July 1st, that’s a partial year.

So if you drop the policy the following year, you’ll have to pay income tax. So you lose the tax deduction, you’ll pay that tax savings back and a 10% penalty on the difference between the amount you contributed and the amount you would have been eligible to contribute based on the months you had the HSA-eligible policy. So in other words don’t do it! Don’t cancel a policy the year following the first year you contribute on a partial year and you’ll be safe.

So that’s a very important point there where you can actually maximize the effect because you can put $7550 in, in December and put $7550 again in the following year and—in January let’s say—and still qualify for both year’s tax deductible contributions and tax free payouts on qualified healthcare expenses. Now it gets better than that. You can actually use your health savings account money in retirement. It’s because health savings account don’t have a “use it or lose it” rule. You can keep the money growing in the account and use it tax free to pay for future medical expenses even after you’ve retired. You can’t contribute to an HSA after you sign up for Medicare Part A or B but you can still use the money that you already have accumulated for copayments, deductibles, prescription drugs, vision, dental care, and a portion of your long-term care premiums even.

You can also use the money for Medicare Part B or D or Medicare Advantage but not MediGap premiums. So that’s important because it’s not a “use it or lose it” by the end of the year type of a benefit. Very helpful. You can also contribute to an HSA after you’re age 65. Now remember I said, you can’t contribute after you apply for Medicare Part A and Medicare Part A is typically what we apply for at age 65. But even though you can’t contribute for it after you sign up for Medicare, you may be able to delay Medicare enrollment past 65 without a penalty and keep adding to an HSA instead. Which could be a good strategy if you’re still working and if your employer adds money to your account.

So again one of the exceptions to not having a penalty for contributing to Medicare by the time you’re 65, there’s a penalty of 1% every year you miss that. And I’ve talked about that in prior shows but not if you’re still working, actively employed. That’s one of the exceptions. So it may apply where you don’t apply for Medicare Part A, you’re already over age 65, you’re still fully employed, you’re still contributing tax deductible to an HSA and you’re not in violation of that because Medicare Part A and B enrollment past 65 is an option under certain cases if you’re fully employed.

So check the regulations, see if even though you’re 65, there won’t be a penalty in your particular case. Find out to make sure there isn’t a penalty. And if there’s no penalty, you may be able to extend contributions to an HSA even after that. All right now how about this? You can make a one-time tax free rollover from an IRA to an HSA. Let me repeat that. You can make a one-time, lifetime, once in a lifetime, tax free rollover from an IRA to an HSA.

Most people don’t know about that. If you have an HSA-eligible policy, you can rollover from a traditional IRA to the HSA so you can avoid a tax bill when you withdraw money from what would have been the IRA for medical expenses, you’ve rolled it over to an HSA tax free. And now when it gets pulled out of HSA for medical expenses only, it’s not taxable folks.

That’s a unique strategy most people aren’t aware of. Maybe without listening to the show you wouldn’t have been aware of it either. But you or some friends that you know might need to know that strategy, that might be very helpful. You can make the tax free rollover only once in your lifetime up to the annual HSA contribution limit. That’s the most you can do. Minus any contribution you’ve already made this year into the HSA. So it’s not hundreds of thousands of dollars but it is a tax free rollover you can use. You must be enrolled in an HSA-eligible policy for 12 months after making the transfer to avoid penalties, okay?

So contact a tax professional, your insurance professionals, better yet a certified financial planner who understands all of these different provisions and can help guide you through this. Please do not try to do it yourself, you’re destined to make a mistake. A little bit of knowledge is dangerous.

So in listening to the show, I’m teaching ideas but not applications. I’m teaching ideas that may put light bulbs on in your head, “Hey wait maybe this will work for us. I need to take the next step to find out.” That next step is not researching it on yourself, not trying to do it on yourself. It is contacting a certified financial planner who is skilled and well-versed and well-experienced in all of these different areas to help you coordinate your tax concerns, your health concerns, your IRA concerns, your retirement concerns, and your medical concerns. Help tie all of those together and help you make the best decisions in what’s suitable for you.

All right let’s take a quick break and when I come back, I’m going to talk about the difference between health savings accounts and flexible savings account. And they are very different but offer some of the same benefits and how to choose which to use which might work best in your circumstance. We’ll be right back.

Part 3

Okay let’s get into this difference between health savings accounts as I promised before the break and flexible savings accounts which are also available. If you find from your employer that the health savings account is not available, then you should ask, “Do you offer a flexible savings account?” Otherwise known as FSA as opposed to the health savings account which is HSA. Now if your employer offers one then you have different contribution limits but you’re able to contribute to an FSA that is a flexible savings account.

If they offer it in 2014, you contribute up to $2500 which escapes federal, social security, and Medicare taxes. So it’s very beneficial to you. It’s just very similar in a way to save money, even though a health savings account isn’t available, if a flexible savings account is. So again it helps you escape federal tax, social security tax, and Medicare taxes. And in most cases, state and local income taxes too.

You can use the funds to pay out of pocket expenses for medical throughout the year and many employers—this is important and the major difference by the way between the FSA and the HSA—many employers allow you to carry over $500 in FSA money into the next year. Notice the difference. Remember I said on the HSA, or health savings account, it was not a “use it or lose it” plan. You could carry those funds forward. Any unused funds in the plan could be used up to retirement and even after you retired until those monies were used up. It was not a “use it or lose it” plan.

Unlike the FSA, which really is a “use it or lose it” plan. But most employers can put into their plan documents the ability for employees to have up to $500, be able to be extended into the following year to be used. You know the FSA accounts, you can use that money tax free just like the HSA accounts. You can use it to pay your deductible, copayments, medical and prescription drug expenses that aren’t covered by insurance of course. You can use it as well as eyeglasses, prescription sunglasses, contact lenses, pre-natal vitamins, breast pumps, cold packs for your knee, thermometers, ankle braces, blood pressure monitors. All these different medical expenses that you can purchase tax free rather than after-tax dollars.

So the flexible savings account is quite useful, even bandages, first-aid kits. So you want to know about these plans. If they’re available through your employer and the HSA is not, you want to take advantage of this. Now you can even use some sunscreens as an eligible expense for these flexible savings accounts, on a tax free basis you’re spending on those. Here’s your caveat, you can rollover some of your FSA money into the following year but not all of it. The use it or lose it rule does apply to flexible savings accounts. And it used to be one of the biggest, if not the biggest downside, to using a flexible savings account.

We were always afraid, as advisors, how do we counsel clients on how much to defer from their income to not have to pay tax on that income, which is a benefit, and be able to use tax free for medical expenses. But knowing at the end of the year, if we put aside too much and it wasn’t used for medical expenses, it was lost. Those funds would have been better off having been taxes deducted and paid and taken out as our paycheck and not used as a tax free medical expense. As opposed to the whole amount being lost. So it was always a gamble.

Now there’s a little buffer but only up to $500 if your employer provides that in your documents. And not all do so you have to check with them. But if they provide for it, there’s a buffer of $500 that can be rolled over for the next year. Employers aren’t required to make that change but a lot of employers have made it. So that’s what you need to know: the difference between health savings accounts which are the more preferred, and flexible savings accounts, which are less preferred but still preferred. That’s what I wanted to wrap today’s show up with.

We have more ideas I wanted to share with you. I will do it again on next week’s show. I’ll share with you more ideas on how to save money on your healthcare expenses. Thanks again for tuning in to All Things Financial. We’ll be back again next week.

Source: http://www.kiplinger.com/slideshow/spending/T027-S001-30-ways-to-cut-your-health-care-costs/


Health Insurance – Health Savings Plans – Part 1

Posted on August 21, 2014 by Comments are off


8-9-14 Transcript


Part 1


Welcome back again everyone to another edition of All Things Financial. What I wanted to go over today is something we haven’t gone over a lot on this show and that deals with healthcare, health expenses, and health insurance under the new healthcare act. You have a lot of different options available and I know it’s highly misunderstood as to what element of control you do and do not have in choosing the type of insurance that you have, choosing how to reduce expenses for the levels of care, for prescriptions, for medications. So I thought I’d go through a number of different options that you do have control over to help reduce, potentially, your expenses for healthcare, premiums, deductibles and copays.

So let me get started right away here, the first thing is no matter what type of plan you have, do your best to stay in your network. Whether you have an HMO or a PPO. An HMO is a health maintenance organization. A PPO is a preferred provider organization. The difference is mainly the health maintenance organization almost always requires you to get all of your healthcare from administrators, doctors, facilities within the network.

Most HMOs won’t allow you to go outside the network and still pay. So a lot of times if you have a specific surgery that needs prepared or needs accomplished that’s through a doctor or facility that happens to be outside of your network. It is possible you might be on your own even though you have full health insurance because you have an HMO.

The PPO, on the other hand, or preferred providers organization, typically has an in-network cost program where that’s the most favorable. Where you have the lowest copays, lowest deductibles and maybe no deductibles and operating with your doctors and facilities within your network. But most preferred providers organizations allow you to go outside the network at a higher cost but they will still provide coverage unlike some HMOs where there’s no coverage that will apply in a lot of cases outside the network.

So keep that in mind and look at what you have. Now a lot of people with the HMO say, “Well I’ll just look at the list of doctors and make sure all my doctors are on the list and I’ll be comfortable dealing with the HMO.” My caution as a financial planner is if all your doctors are on there, and then you’re in a car accident and you need a specialized surgery that could lead to general practitioners or the emergency room to direct you to a specific level of care that you’ve never dealt with those doctors or had those needs before. And the best doctor, or the one that’s available at the time, if it’s not an emergency the HMO may say, “No coverage at all.” Where it’s an emergency like I just mentioned, the HMO may say, “There is coverage only due to an emergency.”

But imagine the case where you came down with an illness, a specific illness, that you never have dealt with before. It’s not considered an emergency but it is a specialized condition and now you need a specialist. You look through and there are no specialists that are being recommended or work with your doctors that are in-network. Now you have a problem. You want the best care for yourself and your HMO may prevent you from being able to get it if you need them to pay for it. So be very careful with HMO versus PPO.

Now there’s a price difference. The HMOs are typically built to be a lower premium than the PPOs because of the additional flexibility you might have with a PPO. Okay, now you’ll see higher costs in a PPO in many cases even if they do allow out of network coverage. And it might be 10% copay in-network versus 50% copay out of network so it’s still expensive but you have to be careful with that. That’s the first point I wanted to make today.

The second one is you can actually look and see who’s providing the care when your general physician says, “I want you to get additional tests or I want you to get treatment.” You can actually ask them what providers offer that rather than just going with the first one named. You can ask, “Are there three or four different types of providers that you’re already comfortable with?” And what you want to do is you want to talk with the health insurer and ask, “Are any of those providers what they call super preferred providers?” Especially if you’re in a PPO but even in an HMO.

What’ll happen is even though they’re all in-network, some providers have negotiated pricing with PPOs and HMOs, healthcare insurers, that they offer super discounted fees for the same care that others have not negotiated those discounted fees. So ask for the super preferred providers question or list when you’re looking for those types of treatments.

All right another way you can save. You can save at standalone radiology centers for example. You know there was an example brought up in a Kiplinger’s magazine recently that said among all facilities within 25 miles of New York City, the cost of a knee MRI ranged from $238 at a free standing radiology center to $2000, almost $2200, at a hospital. So you look at that and that was a vice president at United Healthcare that came up with that finding. And what’s happening are you look at these outside standalone providers at so much lower cost and if you’re in a PPO or HMO, you might be paying a lot or all of that cost. That matters dearly to you.

Or let’s take the case of any plan where you haven’t met your deductible yet. And now it’s $2100 at the hospital. Yes you’re meeting your whole deductible maybe if it’s a $2000 deductible but boy wouldn’t it be a lot nicer paying only $238 towards your deductible cause what if no other care was being done for the year? You’d get off saving almost $1700 that you’d never have to pay.

That brings up another point. What happens if you haven’t used your insurance all year, you haven’t needed medical care and you’re near the end of the year. Now some people on these voluntary or elective tests may elect to choose to put it off until January 1st if it’s not a health consideration. So if it’s a knee that’s been bothering you three, four or five years, you’re looking at finally taking it no more and you’re going to look into this and it’s November because the weather got cold. Look and see if you have not satisfied your deductible this year and haven’t even started on it. You may actually want to consider asking the doctor, “Does it matter if I do it in November or whether I do it in January?”

Because then you might as well start your deductible in many cases in the new year while you have the whole year then after you’ve met your deductible to get free benefits or next to free benefits from your plan. Rather than doing a $2000 or $2500 deductible in November and then meeting that all over again starting January for the following year. You could see what a waste of money that might have been. So that’s a little tip for you there.

I also want you to ask your surgeons if you’re looking at elective surgery or mandatory surgery if there’s less expensive facilities. Ask the surgeon if they practice at several different hospitals or facilities and ask them what the cost difference is depending on which facility you have that surgeon operate in. The surgery costs will typically be the same but the facilities costs could differ widely. So you want to ask the surgeon, “I know you’ll be paid the same but which facility is less expensive.” And decide whether you want to go there or you want to go to a different outpatient surgery centers for example might save a lot of money.

Another example, there’s an average cost nationwide let’s say for a GI endoscopy or arthroscopy in a hospital which is $2500 roughly. But the average cost for that same treatment in an outpatient surgery center is $959. And Cigna had come up with those findings. So I want to share these different ideas and strategies with you because many people never evaluate all the different ways that money can be saved. They just take for granted, someone like yourself may be watching or listening to this show, takes for granted I don’t know whatever they charge, that must be what’s right. So I want to share this information as I come across it obviously to help a lot more of your viewers and a lot more of you listeners on the radio.

Okay here’s another one. I want you to research emergency options ahead of time. Now you’ll say, “How do I evaluate or research emergency options ahead of time when I don’t even know what an emergency is. That’s why it’s an emergency!” Well here’s what I mean. As soon as you get your policy, whatever your policy is, I want you to see which nearby hospitals and urgent care centers are covered as in-network providers.

So all I’m asking you to do is line up in advance if I have an emergency and write down for your family in your maybe family records book or whatever, “If I have an emergency, take me here. And if they can’t handle it then take me here.” So that you’ve don the research in advance on where in-network emergency or urgent care will be covered for you without being greatly expensive when it could have been avoided.

All right now it goes without saying, steer clear of the emergency room if you can. Unless it’s a medical issue that you say, “It needs done in an emergency room,” and then for most of us, costs go out the window we want the best care possible. But that being aside, what you want to do is think about this. When you have something that has come up, don’t just run straight into the emergency room. It’s expensive. It’s the most expensive place to get any level of care. So if there are quick centers nearby, urgent care centers, other alternatives, consider those.

It is up to your doctor. You should call your doctor. But if at all possible evaluate the differences in advance so you know where you want your family to take you or where you want to go. You’ll find in a lot of cases on a national average again, you’ll see an emergency room maybe being $1500 roughly for a level of care that might be $135 at an outpatient facility that you might have been able to get it taken care of the same. And that a convenience care clinic that might be as low as $38 or $40 for that same type of care. So keep that in mind.

All right let me take a quick break. We’ll be right back with more ideas on how to help you save money on your healthcare costs and coverages. We’ll be right back.

Okay we’re back again everyone. I wanted to continue sharing with you some ideas I’ve come across, shared with some of my clients and can share with you also, on how to help reduce these medical costs that become so burdensome for us. So let me continue where we left off. The next idea I have for you is basically how to save money on your medical tests.

Now one of the biggest things we find, fees for lab work. There’re all over the map. What happens, for example, the same blood test—and this is all over the country—in the Denver area, United Healthcare said ranges from $10 to $165. And it’s this way all over the country. So when your doctor requests an outpatient test. Ask whether you can get it an independent lab. You and I both probably just take what our doctors say for granted. So they write you up a prescription. They say, “We want to do an outpatient test. Go here.” Wherever it is that they write down and we do it.

And what you need to do is you need to ask them, “Wait a minute, are there any outpatient labs that also can do that test that you would approve, that you would accept and are equally high in quality.” And they might recommend someone like, “Well yes we do go through Quest Labs also.” And you may find your insurer also has discounted fees arrangements with Quest Labs. Now you’re in business.

So you’ve got Quest Diagnostics and a lot of different opportunities available. You don’t have to just run to the first place cause the doctor never thought about price. They were just thinking who might be most convenient.

All right now you look at the generics. When you’re looking at generic drugs, there’s an interesting situation. We all know generics are less expensive than the traditional drug by the makers. There is supposedly a little difference in the chemical makeup so be careful with generics.

But I will tell you if you’re doing the generics, what we’re finding is this. If you take a generic and you pay cash and you go somewhere like Walmart or Target for their generic. You may pay only $4 for a 30-day supply of some drugs. You might pay $10 for a 90-day supply as opposed to if you go through the insurance company for generics. Some companies charge you $10 copayment for a 30-day supply no matter what.

So you’re paying more than the actual cost of the drug if you paid in cash. Because you’re going through insurance and the copay is actually higher than if you just paid it in cash. So most generic medications cost less if you don’t use your insurance. David Belk is a physician in the San Francisco Bay area and he lists drug prices on a web site over there and he says, “Most generic medications cost less if you pay cash and don’t use your insurance.”

So I’m not subscribing to that. I am sharing with you a possibility of that. All you need to is get to these discount outlets, ask them if you pay cash how much for this prescription versus if you go through the insurance and see what your copay is. And you might be pleasantly surprised.

Now when you use preferred pharmacies. Let’s jump over to the pharmacy side. If you use a pharmacy, you want to find out from your insurance companies. Do you have any preferred pharmacies? Interestingly enough, same medication just whichever pharmacy fills it for you can make a big difference.

What we’ve seen is Humana Walmart RX Plan for Medicare Part D, which is prescriptions for instance, charges a $1 copay for a 30-day supply of certain generic drugs purchased at Walmart or Sam’s Club. Or there’s no copayment at all through some of the mail orders. But there’s a $10 copayment, like I just mentioned a minute ago, for the same drugs purchased at non-preferred in-network retail pharmacy. So you’ve got to shop around. You’ve got to be careful here.

The next thing is when you’re talking about prescriptions, ask for a prescription for over-the-counter drugs. Now the reason you want to do that, sometimes, is you can no longer use your tax-free money from a flexible savings account, or a health savings account for that matter, for over-the-counter drugs without a prescription. Except insulin. So to get reimbursed for over-the-counter drugs for a health savings account or a flexible savings account, you have to ask your doctor for a prescription for those medications.

And then what happens is you’re able to take deductions and pay for them out of the flexible savings account or the health savings account or otherwise you’re not allowed to do that without the doctor prescribing those over-the-counter medications. So that’s a good tip there.

Now you can get help from special drug programs. If you go to the National Council on Ageing’s Benefit Checkup Site, and that site is www.benefitscheckup.org, if you go on that site, you can anonymously put information in. Basic information about your income, your assets, medical conditions, and drugs anonymously.

You’ll see whether you qualify for any special programs to help with drug costs such as drug manufacturers, patient assistance programs for low-income patients. You may get discount prices just based on your income, assets, and other medications you have. And don’t even know it. So there may be government programs out there because you can enter that information anonymously, that may help you out. So again that’s www.benefitscheckup.org.

All right now. We talk about preventative care. Insurers are required by law to provide several kinds of preventative care without any cost sharing from you regardless of your deductible. A lot of people don’t know that, I know. But you can see the preventative care page at healthcare.gov or the preventative care section of medicare.gov and find out details for this.

But preventative care, that’s anything—diabetes, cholesterol tests, mammograms, colonoscopies, flu shots, blood pressure, so many things that we do routinely that would not typically be covered under insurance, actually they’re required. If you go to these websites you can find out which types of treatments and different types of visits you have that might actually be able to be covered and be required by law because they’re preventative.

Now the preventative care rule applies only to in-network services. So be careful that you’re dealing with in-network when you get this care. It’s not unusual for instance, for an anesthesiologist involved in a colonoscopy to be out of network. So you’re getting a colonoscopy, it is preventative, colonoscopies are covered, and here you get a bill for an anesthesiologist. Because the anesthesiologist was out of network. So remember everybody has to be in-network for that plan to work.

I know I’m sharing a lot of information with you today and thank goodness. Because otherwise how would you have access to all of this. But I wanted to share a lot of these ideas and try to help as much as I can most of you who have these types of concerns. Now we’re out of time for today and for today’s show I’m going to have to wrap it up here. Next week I’ll continue with more ideas on how to help save money on your health, healthcare, health insurance programs, deductibles, and private pay. Thanks again for tuning in to All Things Financial and we’ll be back again next week.

Source: http://www.kiplinger.com/slideshow/spending/T027-S001-30-ways-to-cut-your-health-care-costs/

Treasury and IRS New July Regulation

Posted on August 21, 2014 by Comments are off

7/30/14 – Transcript

Part 1 

            Welcome everybody to another edition of All Things Financial. I wanted to go over today a latest development in the tax code. We just got wind of this a couple weeks ago, that it was proposed for retirees who were age 70½, who otherwise have to take required minimum distributions from their IRAs, have a little bit of a tax break.

The tax break that’s been awarded now is actually called a longevity type plan for people in retirement where you’re able to reduce in certain cases, if you’re over age 70½, your required minimum distributions by 25% up to $125,000 of an asset. So you can carve out up to $125,000 of IRAs, 401(k)s, or other retirement plans or 25% of the total value of the IRAs, whichever is less. But if you carve out that percentage, or lump sum, you’re able to have special provisions on the required minimum distribution rule.

Now let me refresh your minds on what that required minimum distribution rule is. Many people in retirement, in fact I got the question just today, “Why am I paying tax on money that I saved for my retirement?” I had someone who wanted to take a portion of the money for personal reasons and what happened was the IRS taxes, penalties, turned out to be anywhere from 20-28% or more of whatever they wanted to withdraw. So if they wanted $10,000, they had to withdraw almost $14,000 from the IRA to net after taxes the $10,000 that they really needed.

They were very upset and they said, “Why does anybody have these?” And I said to the client, “You know I can’t tell you how many people in retirement ask me that same question.” Why did anyone put me in these burdensome vehicles like 401(k)s, IRAs, 457 plans, 403(b)s, tax-sheltered annuities, all of these different qualified plans which in essence are a time bomb of shackles on your own money when you’re ready to use it for the intended purpose which was retirement. And here low and behold, it’s a very expensive asset to try and be able to draw from.

So they were very upset they said, “If I want $10,000 or I want $20,000 I may have to pull $25,000 or $28,000?” I said, “Yes.” And they said, “We’re very upset at that.” But I have a lot of younger investors and a lot of younger savers who are asking me, especially business owners, find any way possibly to avoid taxes on my income. So that forces us to dump as much money as we can into these same qualified plans that are tax-deductible and tax-deferred and all the growth is tax-deferred into those same time bomb vehicles that will later turn out to be a nemesis for them also.

So we’re all short-term investors, we’re all short-term tax planners when we’re saying, for your business owners especially, it’s at the end of the year and your accountant says, “Hey you need to go out and buy equipment. You need to go out and buy some tax-deductible expenses because we have to knock your income taxes down.” Well that’s the problem sometimes in these IRAs.

Well now the government has come through with this new ruling and the old ruling, which is the existing ruling right now, says, “Everyone once they attain the age of 70½ has to begin withdrawing from your qualified plan or IRA beginning the year following the year you turn 70½. You have to take out a percentage, not all of the account, but a percentage equal to over your life expectancy what would have drained the account entirely over your projected lifespan.”

Let’s take an example, if I have somebody age 70½, depending male or female, the IRS tables might say your life expectancy is 23 years or 24 years so in essence in a simplistic form, that means you have to take out 1/23rd or 1/24th of the account balance. And then next year take out—you have one year less to live—so it might be 1/22nd and it continues to grow the percentage. It’s really earmarked by the IRS that you would be depleting your money over your life expectancy and it would be finished.

Now that’s not how it works because you don’t ever really deplete that asset just by taking the required minimum distribution. If you’re taking required minimum distributions and don’t need them, please remember you don’t’ have to spend them. All you have to do is take the required minimum distribution that’s taxable, pay the tax, but that doesn’t mean you can’t go right back in, reinvest in an outside tax deductible or tax deferred account. So you can get into a non-qualified account and rebuild those assets back up to where they were before you paid the tax.

So you can reinvest, plant the seeds, let that money continue to grow again if  you don’t need it in your retirement for a rainy day or for long-term care expenses or for any other unexpected expenses or maybe a legacy to your children, you’re building the assets back up that you don’t need. So those are issues that you deal with when we deal with the 70½ distribution.

All right let’s take a quick break and I’m going to come back and deal with some of this new law and how you can reduce the amount further that the government’s saying you must withdraw, especially if you don’t need it or are worried that you might outlive your funds and want to stretch them longer. Let’s take a quick break and we’ll be right back.

Part Two

            Okay let’s dig into this issue. I have many clients and I know many of you are looking at retirement with a number of fears and concerns and trepidation. And one of them is the fear of outliving your assets. But a different one is—there are a lot of people who do not ever need nor want to draw from their IRAs at all. And I use IRAs as a general capture of this whole law because anyone who has assets in a 401(k) and is age 70½ and if they’re still in the 401(k) is subject to the same rules. Same thing with the 457 plan for you police officers, government employees. Same thing for the 403(b)s for hospital employees, some government workers and schools so the school teachers, if you still have a 403(b).

All of these different types of qualified plans have a required minimum distribution rule that says once the participant turns age 70½, if you’ve not been drawing from those IRAs or even if you have, you must begin drawing at least up to a rate or a percentage that equals that asset will be depleted over your life expectancy. So if you’re taking out 1% a year, which would be 1/100th then that would be if you’re going to live 100 years, that asset theoretically would be depleted over 100 years.

Well think about it folks, that’s not necessarily true if your life expectancy is 100 years and you’re taking out 1% which is the correct percentage and it’s earning 3% or 4% interest. Because if you think about that, you realize if I’m drawing 1% that account will not be necessarily depleted over 100 years in fact that account might be triple or quadruple the size 100 years later because it’s earning three to four times the rate that you’re withdrawing. So keep that in mind when you’re planning for your retirement assets.

If you’re required to take the minimum distribution and you recognize in your accounts that your assets are earning a higher rate than the required minimum distribution that says you should be depleting your assets over your life expectancy, then you are lengthening the life of that asset beyond your life expectancy. So do some planning here.

What about those of you who don’t want a required minimum distribution coming out of your IRA at all or other qualified assets. Well there is some help. One of them is this new law. The new law is saying, as I mentioned before the break, you can—in most cases now brand new law—take out or carve out the lesser of 25% of all your qualified assets or $125,000. But remember it’s whichever is lower.

Once you carve those assets out, you’re only allowed to reduce your required minimum distribution if you invest those assets into a longevity annuity and the longevity annuity is prescribed by the government. It is a qualifying longevity annuity contract otherwise known as or going to be known as QLACs. And what’s happening are these longevity annuities are fixed annuities. They are designed to not begin, or not required to begin payments, until a later age.

So those percentage of the assets that you carve out and place in one of these qualified longevity annuity contracts is not required to pull money out of it. And in fact you can defer it taking any required minimum distributions maybe as long as 15 years from age 70 and waiting until age 80 or 85 before you’re required to take any amount out. And what else is nice about that account if you use it is the amount that you’re required to take out then at age 85 is only the then required minimum distribution based on your life expectancy beginning let’s say age 85.

So you’ve opened a new window of at least 25% of your retirement assets or $125,000 again whichever’s less, to not having any required minimum distribution burden on those assets for maybe 15 years. Well think of the benefit that provides. Some of you are on social security, all of us should be on social security by the time we are at 70½.  You know you pay a higher tax, or a higher portion of your social security is taxable based on your taxable income, your otherwise taxable income. So imagine the benefit when you say we have less taxable income. So what would happen in this case might be you might be reducing the amount of social security that’s taxed from 85%, you may drop down to the threshold where only 50% of the social security is subject to tax.

So you can begin to see there are some strategy and planning opportunities as a result of this new law. Now what you’re going to want to do is get to a qualified financial planner who can help you evaluate all of these different scenarios. I can help provide you with reports or guidance in your own individual circumstances if you’d like to call and get some more insight on how this law might affect you directly.

When you have the tax planning strategies that are now apparent because of this law, you have an opportunity now. Maybe you were qualifying for PACE and then just got over that limit due to taxable income and thought there was nothing you could do about it. Now you’re learning wait a minute there is a portion of your asses that are within your control on whether you’re taking taxable distributions or not.

So this is valuable information to be made aware of. What I’m finding this month is most people’s advisors have not apprised them of this so I thought I’d put it on the radio. And I thought I’d share it with most of the listeners and the viewers so that you can see benefits as they come about. And not have to wait a year or two from now when or if your advisor or maybe never, shares this type of information with you. I don’t want you to miss out on good opportunities and maybe fleeting opportunities. Maybe they’re here today and not here tomorrow. So we want to take advantage of opportunities when they arise.

So that’s your qualified longevity annuity contract for all of your retirees who have retirement accounts, you should be meeting with financial advisors now. Everyone with qualified accounts, sitting down with a financial advisor and saying number one, “Why haven’t you brought this to my attention?” And number two, “Are there planning opportunities I should be taking advantage of that I’m about to miss out on?” Especially this tax year that you want to take advantage of.

Alright now, we’ll take another quick break so I’ll let you catch your breath and get some pen and paper if you want to take notes. I’ll get into some more details on how this law might be able to affect you and benefit your retirement plans. We’ll be right back.

Part Three


            Okay welcome back. Now there are a couple of other features I wanted to share with you. Remember this on required minimum distributions: some people do not want them. So we have IRA assets that a person in retirement says, “I don’t want to have to take from that. I don’t like this at all.” Well this new law can help mitigate a little bit of that but I’m going to share something else with you. When you do one of these annuities inside or outside a retirement plan, what a lot of people are choosing to do is try to structure an income in retirement that the person cannot outlive.

So one of the greatest fears in retirement is outliving one’s assets. One potential solution for that is through the annuity world where you put a lump sum of money into a deferred or immediate annuity and in the case of the immediate annuity, you are requesting the insurance company begin making a monthly or systematic payment to you. It might be quarterly, it might be annually, but a series of payments that you cannot outlive and that’s called annuitizing. Typically that is referred to as an immediate annuity. And the way those plans work, you can have an immediate annuity that pays you over your life expectancy or until life or for a specific term.

Now it’s important to this new tax law because if you purchase a fixed annuity, and it’s a paid-for-term—10 years, 20 years,15 years—that will not satisfy the new regulation. If it is an immediate annuity and it is paid over your life, then it  will qualify because it’s paying over your life expectancy. Now there’s a risk here folks and I want to share—well there’s a lot of risks. But one of the risks are where do you place your assets? You’re placing those assets with a financial institution. Is that financial institution sound? Is it an institution you need to check the history of their payment ability—paying ability?

You also want to try to figure out when you’re making these choices of where to play those monies, when you take a life expectancy annuity then what happens if it says they’ll pay you over your whole lifetime and you get hit by a train next month? So where you were thinking oh good now I can’t outlive my money, you ran into a situation where your money outlived you and the insurance company gets to keep it. We don’t like those things to happen and neither does the government.

So this new law allows for a provision number one, when you’re purchasing an annuity and it’s not a fixed term annuity but it’s a life annuity, you are in essence transferring the risk to the insurance company that you won’t run out of the money or the assets won’t underperform what you need because they’ll guarantee you a monthly check based on the credit of the company, etc. So take those guarantees very lightly. Nothing in life is truly guaranteed. Some people would say, or maybe not say or I would think about, “Okay instead of doing this $125,000 or 25% into one company. Why not take 25% or $125,000, cut that into five pieces by five different longevity annuities with five different companies each for 1/5th the total amount that’s allowed and diversify the risk of a company going wrong?”

So there’s just a thought I share with you there to help diversify that risk. But the longevity risk works like this, if you get hit by a train next month and you gave an insurance company $125,000 of your assets and you took a life annuity and it did qualify with this tax law, that money’s gone. Because the trade you make with an insurance company when you switch to a longevity annuity is you’re not taking payments until you’re 85, that’s true but once you start taking payments it’s usually over life. So once that happens, once you start taking payments, get hit by a train next month, it was a life as long as you lived or as short as you lived annuity and there you can see the problem.

So fortunately the government allows return of premium riders to be allowed to be put on as a death benefit and obviously I suggest you do that. Taking advantage of this somewhat reduces the monthly draw or income that you will receive in return for a protection benefit if you die too soon. The remaining premiums that you put in, the amount of purchased premiums, minus what you’ve begun to take will be payable to a named beneficiary of your choice. So you’ve preserved the asset for your family if you die too soon but the risk is on the company if you live too long. So there’s a double-edged benefit there rather than a double-edged sword like we had a minute ago.

Now I want to share one other thing with you, please do not forget I’ve shared with this in other shows. There are other ways to pull money out of IRAs after you’re 70½, beat the requirement—or let’s say meet the required minimum distribution provision—and still not have to pay tax on that distribution. And that is by directly allocating your required minimum distribution once you’re over age 70½ to a designated charity of your choice. It has to be a 501c3 charity, it has to actually be one of the approved charities, non-profits in the IRS tax code and it has to be an approved IRA that you’re drawing from.

So there are provisions on that, $100,000 dollars, you have limits and you also have that you’re over age 70½. But if you direct what would otherwise be the amount for your required minimum distribution directly from the IRA to a designated charity, a qualifying charity, you then have satisfied your required minimum distribution. You have not incurred taxable income which again helps that social security issue I brought up early in the show and you’ve helped a charity by getting that direct contribution. As opposed to if you’re donating to charities anyway and then you’re taking your required minimum distributions separately and paying tax on them. So why not merge those two, great, noble efforts that you have into one?

Be very careful with that strategy. That is a strategy that comes and goes. We have to wait for IRS guidelines every year, sometimes until near the end of the year to see whether that will still be available and this year is no exception. So pay close attention to see if that rule will still exist and you may want to defer your RMDs until closer to the end of the year to make sure all of your options are still open for you. Okay folks, again I appreciate you tuning in. That’s another addition of All Things Financial. We’ll be back again next week.

All Things Financial – Jack Driscoll Discusses How To Do A Life Insurance Policy Review

Posted on August 21, 2014 by Comments are off

7/24/14 – Transcript

Part 1

Welcome back again to another edition of All Things Financial. What we’re starting to do with this show—that I air every week on WWNL 1080AM at 8:30-9:00 AM every Saturday morning—is share this show with all of you who are on our subscriber list for our emails. And the reason we’re doing this is I’m trying to share information that we have accumulated during the week, from week to week, or come across somebody with a problem, solution, different difficulties, or different opportunities that we find and we want to share it with all of you listeners. So that’s why we do this show initially. And that’s why I decided to share the show even further now with all of the subscribers on our email list.

So let’s begin, we were actually starting to get into, the last couple weeks, the discussion on all the different forms of life insurance that are causing people problems in are your life insurance policies from long ago healthy? Or are they financially sick? And some people have a situation right now—a lot of people actually—where their policies are being set up to non-renew over the next 5-10 years without your knowledge. So let me share with you what exactly is going on.

The life insurance industry has a number of different popular products. Term insurance is one, the other one is universal life insurance, the third one is what’s a hybrid called guaranteed universal life insurance, and the fourth one is really whole life insurance. Now each form of insurance has it’s own advantages and disadvantages.

Term, the major advantage with term insurance is it’s inexpensive cost for a large amount of death benefits. Again, any form of life insurance—the death benefit if made payable to a direct beneficiary. Not to your estate, but if you actually name beneficiaries on there and those beneficiaries are individual people the death benefit is paid income tax free. Now that’s important to know because if you set your life insurance policies up properly—it doesn’t matter whether it’s term insurance, universal life, whole life guaranteed, or even group life insurance at work—life insurance death benefits are paid tax free. So it doesn’t matter what form of insurance you have for the death benefit to act to accord with your goals and your wishes.

So why all the different products then? Well normally it’s because of more living benefits that people want as opposed to just a death benefit. What I mean by that is some people like to build up cash value. Some people like to use life insurance as a savings vehicle. Some people like to use life insurance for their whole lives to have death benefit protection. Where other people like to use life insurance just to cover a loan until the loan is paid off. So which form of life insurance do you use depends on what your goals are and what your needs are.

If I have a client who comes to me and says, “I have a business loan and it is $250,000. It’s on a 5-year schedule, it will be paid off in 5 years and I need life insurance to make sure that that loan gets paid off if I don’t survive the 5-year period. I don’t want to saddle my business with that loan.” Then we buy, in many cases, a 5-year term life insurance policy which would be the least expensive way in most cases to satisfy that need. We don’t need in that case, long-term life insurance, the most expensive forms of life insurance, or cash value build up life insurance.

Now I might have another situation with that same business owner in his next request to me and it might say, “If something happens to me, what happens to my business?” And I’ll say, “Whatever plans you’ve made are what’s going to happen to your business.” And he goes, “Say maybe I have no plans.” So my first recommendation in that case would be different. It would be let’s do some long-range planning and short-term planning. What happens if something happens tomorrow or 20 years from now.

And finally what is your exit strategy out of the business if nothing went wrong and you’re just ready to leave the business. In almost all of those cases for the business owner, that leads us to a buy-sell agreement with an attorney drawing up an agreement and then us buying life insurance. So that in the event the owner dies prematurely, we have the cash from the life insurance paid to a beneficiary which is the buyer of the business to be able to buy the business from a spouse, let’s say. And we might actually be able to make the beneficiary the spouse directly and have the buy-sell agreement transfer the business seamlessly to this already determined buyer. So it can be as complicated using life insurance or as simple as we want to make it.

Now for everyone who has a life insurance policy now, we have a situation. And the situation is the life insurance policies that are existence, some are not financially healthy. Others we’re finding are doomed and destined to run out of money shortly. Others might take 5 or 10 years and we have other cases where the total opposite is true. They’re over-funded, extremely healthy, and in fact cash rich.

So what do you do with each? Well the first thing is we do a financial audit, a life insurance policy audit, on every policy that exists today including term life. To see how healthy they are, how healthy the policies are, how appropriate they are for the original needs that you had and how appropriate they are now that your needs may have changed. Are the forms of life insurance you first purchased still the most appropriate for your new, already having changed, needs.

So we look at this as a life insurance policy audit first off, we look at your group life at work, we look at your term life at home, we look at your universal life, your whole life, and your guaranteed universal life. Match those up to your goals and needs today, see how it compares with your goals and needs when you first purchased the insurance and see as an overall package number one, is it most appropriate for you. Number two, if you didn’t have any life insurance now are they the same types of policies you’d buy back again? And number three, are the policies themselves still healthy? That means the cash value side of it on a cash policy but it also means the quality of the company that writes the life insurance.

So somebody might say, “Why are you doing a policy audit on a term life insurance policy when there are no cash values.” And we’ll in turn respond, “We need to check the financial health of the company to make sure the company is as strong as it was when you first bought it and as strong as you would require it to be. Going forward you want to make sure the company is there for you 20 or 30 years from now by the time that policy expires that they’re still as strong as they were. And on the cash side of the policies, to find out if it’s a cash rich, cash poor, or somewhere in between policy.” So that’s what a step number one is on any existing life insurance is we first do a life insurance policy audit.

Now let me take a quick break, I’ll let you get pens and papers for those of you listening on the radio live. And when I come back, I’ll help share with you how to get this life insurance policy audit I talk about and what to do about it once it’s received. So I’ll go through the steps for you. All right let’s take a quick break and I’ll be right back.

Part 2

Okay let’s get into the situation on how to do a life insurance policy audit. It’s very simple to do. What you can do is draft a short note and send it into the insurance company with your policy number on the letter. And what you’re asking for is this, “Please send me an in-force policy illustration,” and it’s that simple folks. So regarding every policy that you have, you send a separate request for them to send an in-force policy illustration.

Now here’s what we’re looking for, we’re looking for any cash accumulation will be shown as a guaranteed side—and it’s called the guaranteed cash value table—and a current assumption. Sometimes they’ll say projected but normally it’s current assumption side, and what you’re looking for is what those two columns look like on your ledger. You’ll see cash value, you’ll see the premiums paid, and you’ll see the guaranteed which is somewhere in between.

Now first, look at the cash value guaranteed column. If you see those numbers showing cash value in your account shrinking and then going to zero, what you need to see is the year they’re going to zero. If it’s when you’re 98 years old, it’s way different than if it’s 5 years from now you’re seeing that go to zero. If you look at the current assumption side, you’ll typically see the cash values lasting far longer. Although I have seen a lot of policies they’ll say the cash value is going to zero in 5 years or 8 years on both the current assumption and the guaranteed side.

Secondly, what I want you to look at is the death benefit column. You will see, especially on a guaranteed universal life policy, cash values ending very early in those contracts. That does not mean that’s a bad thing. If you look at a guaranteed universal life policy, they’re all set up to run out of cash very fast. They’re really scheduled as a permanent term alternative of insurance. Because most term insurance is 30 years., 20 years, 5 years but no longer than 30 years and it expires.

So the life insurance industry came up with an alternative to that and the alternative is guaranteed universal life is a death benefit usually guaranteed to age 100 or even age 120. And the benefit there if you look on your ledger, your in-force policy illustration, I need you to look at the death benefit side on the guaranteed column. You will probably see the cash value runs to zero very early but the death benefit says the same amount of death benefit every single year after that. That’s way different than if you’re looking on a universal life policy.

If you look on a universal life policy, when the cash value goes to zero you will typically look at the column on death benefit also goes to zero. So you have to know how to read these things. It’s easy to request them but it’s not easy to read them. So it’s very easy to misdiagnose the policies. Get to a professional. A professional financial planner, as opposed to a life insurance only professional, can sometimes make all the difference in helping you evaluate your overall financial needs including your life insurance rather than only your life insurance needs, disregarding the rest.

And the reason I say that is when we get to the cash value rich policies, the cash rich policies, you’ll want to be talking to a financial planner. But even the easy differences here, term insurance: zero cash value all the years. And again it doesn’t make it a bad policy at all. Guaranteed universal life insurance: zero after the very early years and it again doesn’t make it a bad policy for you. Because the death benefit, which is the purpose you bought it, probably lasts equally as long as you wanted or maybe even longer. Maybe even up to age 120, that death benefit lasts.

The universal life policy however is more complicated. When you see that go to zero on the cash value side, typically the whole policy went to zero and the whole policy cancelled. That can be a dangerous situation for those of you who are holding older universal life insurance policies that are not healthy. And the only way to find that out is to get the in-force policy ledger or in-force policy illustration, as it’s sometimes called, and look for yourself what does your policy look like in the future.

Now a lot of you will say, “I already have an illustration when I bought the policy. Why would I need to get an in-force policy illustration or even do this so-called life insurance policy audit on a policy that I already have the ledger for when I first bought the policy especially on a universal life?” The answer is this: your original illustration was most likely based on a cash value higher interest rates being earned on those cash value accounts then we can possibly attain today.

You’ll see some of those illustrations when you first bought your policy, illustrated at 8 or 9 or even higher percentage every year. And if that interest rate is not being achieved and the interest rates now might be 4% or 5% then maybe that policy has become unstable. Because universal life policies are a delicate balance. They’re very fragile if the cash value accumulations do not at least equal as high as they were first initially projected, then the policy could be in jeopardy.

You need to know now and earlier is better than later. Some of you listening to the show, already if you do a life insurance policy audit it may be too late to fix it. It might be because you’re too old now where you weren’t too old before. It might be because of the health concerns and considerations that you have now that you didn’t have before. Which is all the more reason why I prompt all of you, especially those of you young enough and healthy enough that have a universal life policy now, that if you find there is something wrong with it and it’s better to find out sooner than later, that you still have the ability—capability—medical health to qualify for something rewritten that is in a better financial situation. And you can even rollover the cash in your current policy and save part of that cash towards a new, more healthy policy if that’s what your needs determine.

Again, contact a certified financial planner is my recommendation. Get these policies looked at by that competent professional and evaluate the form of life insurance and the health of your current contracts. I run across many contracts that are healthy, do not need adjusted, should not be rewritten, should not be touched in anyway.

So you need an ethical planner and an ethical practitioner who’s not just looking to replace everything. So be very careful who you trust to do these life insurance policy illustrations for you, these in-force illustrations. We don’t want someone doing them solely for the purpose of “let’s replace this life insurance with a new life insurance policy,” and here you got rid of an otherwise healthy policy that maybe an unethical or unscrupulous agent made sound like it was not good.

You also don’t want to make the mistake of being afraid of life insurance agents so not getting it checked it all. Where an ethical life insurance or certified financial planner would have been able to analyze and create a good situation for you out of a maybe not so healthy one you’re in right now. The different is finding the provider that you can trust, is looking out for your interests first, and will tell you the truth if your policy is good or if your policy is bad and then act on that information objectively and impartially.

Okay let’s take another break and I’m going to get back to you with a little more details on what to do actually when you find out the answers on whether you’re healthy or not. We’ll be right back.

Part 3

Okay now you’ve gotten your in-force life policy illustration back and now what do you do. We’ve looked at the cash value table, we’ve looked at the death benefit table, now what do you do? First thing, I have seen some of your policies that you get life insurance policy illustrations on that are healthy so what I want to do is share with you how to tell if it’s healthy. If you bought the insurance for a long period of time and let’s say you bought a universal life policy. And you bought a policy that you wanted to outlast you which means last forever in your mind. Then you need to find a cash value on the guaranteed side and a death benefit that lasts at least to age 100.

You and I both know a lot of people that have relatives living well into their 90s. So if you bought life insurance to make sure it is there for you when you pass away, not if you pass away before a certain time, and you bought term insurance you bought the wrong kind of insurance possibly. Universal life insurance, you may or may not have bought the wrong type of policy depending on where those guaranteed cash values and death benefits expire. If they last at least to age 100 on your new in-force policy illustration you received, you’re probably fine. Your policy’s probably healthy.

Now the next thing you do is you go to A.M. Best, what we’re doing is checking the financial rating on your company. So you Google A.M. Best—B-E-S-T—and you get a financial rating on the life insurance company. Please remember some companies have a number of names. So they’ll have Massachusetts and New York Life and some of them are in Texas and you’ll see like traveler’s insurance has 8 or 10 different company names, all traveler’s insurance. State farm, Erie, it doesn’t matter who it is, you’ll want to match the company name to the name on the policy contract on that in-force, that new in-force policy illustration.

The reason I say the new in-force policy illustration is your company names may have changed from when you first bought the policy. It is the company itself may have been bought out or the company may have restructured inside their own corporate headquarters on who handles each life insurance contract. So you want to check the life insurance provider name that matches the new in-force policy illustration.

Now on the A.M. Best rating we are looking for A+, A. We don’t like to see an A-. So if you see a policy and on your illustration it lasts to over age 100 on a universal life contract for example. And then you look at the company rating, which is my next step actually on the policy audit, and you see an A- or a B+. I’m a little worried more than I would be with an A or A+. Why? I’m looking for the strongest financial company I can find as my partner to provide my spouse and my business and my survivors and my heirs the financial security that I no longer can provide which is why we bought the insurance.

We, in essence, transferred the risk from our own selves to an insurance company to bear the risk for us when we pass away that they will be there to pay out that money. So it’s very important the financial strength of the company will be able to outlast us and be financially sound at that time. So that’s the second stage of the life insurance policy audit. So very simply today, what I’ve covered is how to do step one when you have existing life insurance policies, which is the life insurance policy audit. It’s a health exam.

We’re looking to find out if you have cash rich policies, cash poor policies, financially strong companies, financially weak companies, inappropriate policies for your current financial needs, or maybe inadequate limits on the policies that you have which you bought maybe 20 years ago and the limits of insurance you had then were more than adequate. And those same limits today are greatly inadequate for your current needs. So that’s what we’re doing folks. We’re doing a total life insurance policy review. I wanted to teach you how to do step one. It’s to first get a life insurance policy audit.

Now step two, we’ll get into next week. That is programming your needs. We will talk about how to program your life insurance needs, how to figure out how much life insurance you need, or if you need life insurance at all. There are many people who buy life insurance just because they think they’re supposed to own life insurance and in my judgment, don’t need life insurance. There are other people who have group life insurance at work which sounds like a big number: $100,000, $200,000. More than enough to pay off their expenses and be able to handle their final expenses. Also pay off their bills and their mortgage and are left leaving their heirs with no income.

So they’ve woefully inadequately provided for life insurance thinking that number that sounded so big would be more than adequate. And after the bills are paid off and the burial expenses are handled, they’ve really left their family with nothing. So we’ll get into all of that on programming insurance needs on next week’s show. Thanks again for tuning in and we’ll be back again next week.


Are You Strutting Around Naked?

Posted on May 15, 2014 by Comments are off

Do you puff out your chest a bit when the subject of planning for the future comes up? If your job has a plan to which you contribute and you tuck a little away each month toward your child’s college costs, you probably do.

First, kudos to you for thinking ahead! Before you get too proud of yourself though, let’s revisit a common story from childhood. Remember the one about the Emperor’s New Clothes?

So keen was the Emperor on having the finest of things, that he believed the weavers who sold him clothing of the very finest material. Indeed, material so fine that those who are unfit for their position, stupid, or ignorant could not even see it. Of course, the truth was they sold him very expensive air while they laughed at his foolish pride.

Are your shiny future plans much more than a false sense of security? Are you living proud of your planning, when in fact you would leave behind financial devastation? If you were to pass away tomorrow, how long could your family continue in the lifestyle you have planned for them without your income?

The newest smart phone, a late model vehicle, beautifully manicured lawn, these are all nice things to have. They scream to the world, “Look at my fancy new clothes! If you can’t see them, it’s because you are unworthy!”

So, let me be the child screaming simple truth: If you don’t have disability insurance and life insurance, you’re strutting around naked.

Some people have a policy provided by their job and think it is sufficient. If you’re in the same boat, give that a little thought. Insuring your life includes a lump sum to pay for funeral expenses and to pay off existing debt. While valuable, is it enough provide the cash your family needs as monthly income? Not costing your family money is far different than providing for them.

While you are living and working, you bring in an income. To truly insure your life means to insure that income. You probably plan on working at least another ten years, and for many it is likely closer to twenty or even thirty. How much income will you bring home over the course of that time? Whatever the figure is, add that to existing debt and funeral expenses to come up with what would fully insure your life. There are plenty of calculators to help you with this.

It may be much more enjoyable to parade through life like the emperor with no clothes. They do say ignorance is bliss. Envious neighbors and shiny new stuff is kind of fun, let’s be honest. If we’re going to be honest, we may as well broach the fact that it is simply dark and unpleasant to consider your own demise.

The truth is that you probably are naked though, in terms of life insurance. Truly insuring your life for your family will feel far better than those fine but fake clothes ever will. Once they sell that new car and dip into the college fund to make the mortgage and utility payments, those grand things aren’t worth much. It is the difference of a finely-made winter coat that keeps one warm through many winters, or the stylish fad of worthless clothing the emperor was suckered into buying.

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jack driscoll

Hear Jack Driscoll's weekly radio show broadcast offering news and tips on all things financial.