Archive for February, 2011

Medicare Mix: Costs Affect Us All

Friday, February 25th, 2011

My mother-in-law received a $250 check in the mail from Medicare last month. It was her “onetime rebate” for reaching the doughnut hole in her prescription drug coverage – that was for 2010. This year she’ll get a 50% reduction in the cost of brand-name scripts when she reaches the hole. An escalating discount to 75% by 2020 will ensue.

This new provision is brought to us by Obamacare and while the current and not too distant senior population will benefit from it, other seniors will ultimately be paying for it. Specifically, those most commonly reported now as the “richest” and “most affluent” seniors.

How much affluence do you have to have to be hit? The answer to that question actually began in 2007, when new provisions dictated that higher income Medicare recipients would be charged more for Medicare Part B premiums. As of January 2011, the new healthcare law extends the income concept to Medicare Part D. The law also freezes the higher income thresholds through 2019 which does not take inflation into consideration; a pitfall which many forecasters say will put more and more seniors into the higher end category.

In 2011 Medicare Part B premiums will average around $115 per month. Higher income seniors will pay between $162 and $372 per month. The Part D premium average is $32 per month while affluents will pay between $44 and $101. The premise behind these changes is one of “means-testing” – those that have the means will pay more to help others that don’t.

The CMS (Centers for Medicaid & Medicare Services) currently provides that less than 2 million seniors will be paying the higher premium for Part B in 2011, and less than 1 million will be affected by higher Part D costs. Further estimates provide that by 2019, 20% of new Part B enrollees will pay higher premiums.

Current debates on the subject question whether the ‘richest’ seniors will make a mass exodus to the private sector if they begin paying $400 or more per month for Medicare coverage. While that, and a likely advent of new products specifically designed for this senior niche could occur, high income seniors would also have to consider the lost values of guaranteed issue.

There is another extremely important point to consider in this Medicare mix: How can less than 3 million high income seniors, roughly 16% of the total senior population, sufficiently subsidize these provisions?

A 2007 study done by the National Center for Policy Analysis further provides, the ratio between Medicare premiums and Social Security checks will be beyond astounding if deficit challenges prevail as noted below:

Medicare premiums consumed less than 10% of the average new retiree’s Social Security check in 2006.

By 2030, if Medicare deficits are covered by increasing premiums, premiums will consume more than half of the average retiree’s Social Security check.

By the 2070, premiums will almost consume the entire Social Secu­rity check of an average new retiree.

One final thought… all wage earners, regardless of age, contribute to the funding of Medicare through taxation. The NCPA study suggests that Medicare payroll taxes could reach double digit rates if the current situations remain un-remedied.

Kurt Rusch  CLU, ChFC

Debt & Income Insurance

Wednesday, February 23rd, 2011

In the world of insurance, there are two kinds: debt insurance and income insurance. Most consumers don’t think of it in that way, but it is important to understand what these classifications really mean and what they can provide to you.

Debt Insurance

Medical Insurance – pays for your medical bills so your family will not incur the debt of a medical procedure.

Automobile Insurance – pays for expenses incurred as a result of owning a car. The expenses covered will not only include the physical damage to your car but the liability that may incur to others as a result of you operating your car. This coverage is mandated by the states as well as physical damage coverage if the car is financed.

Homeowners Insurance – pays for physical damage to the home as well as liability that may arise while living in the home subject to policy limitations. And, as we all know, homeowners is also mandated when homes are mortgaged.

Long Term Care Insurance – pays for the cost of daily care when a person is no longer able to take care of themselves.

The common thread among these contracts is that all of them ultimately will pay someone else: mechanics, builder, caregivers, doctors and so on. Simply put, debt insurance helps us navigate emergencies and avoid life altering debt as much as possible. What debt insurance does not provide is protection of our income lifelines.

Income Insurance

The way to insure one’s income is by securing the proper amount of Disability Insurance. Debt insurance provides coverage of expenses incurred; disability insurance provides the money needed for your family to live on if you become sick or injured and unable to perform your job.

Many people mistakenly assume disability insurance is unnecessary because the Social Security system will provide for us in the event of a disability. While there is some truth to this, there are gaping holes which exist in actual benefit redemption.

First, the vast majority of claims that are filed with the Social Security Administration for disability are denied. 65% of initial claim applications were denied in 2009.* Secondly, the definition that social security uses for disability is vastly different than the verbiage commonly used by private providers. Over 51 million Americans classify themselves as fully or partially disabled. Only 8 million disabled wage earners were receiving Social Security Disability (SSDI) benefits as of June 2010.* Finally, the amount that you qualify for can vary greatly from the amount you may qualify for on a private contract. The average SSDI monthly benefit payment in 2010 was $1,065 per month. 52% of claimants received less than $1,000 per month.*

* Statistics as reported by the Council for Disability Awareness

In the world of consumer choices, there are two kinds: what you want and what you need. Evaluate your needs at a deeper level than face value; what do you really need to do to protect and provide for yourself and your family?

Kurt Rusch  CLU, ChFC

Protection 101

Tuesday, February 15th, 2011

Today marks the first day of a new job duty for me, blogging. (In my wildest imagination never did I think I would become a blogger). Naturally, my first challenge was to decide what to write about. When it comes to basic financial planning, what has the most impact on most people?

The answer is property insurance. Glamorous, it’s not, but protection of our automobiles, homes (whether personal residence, seasonally lived in, or rented out), boats, recreational vehicles, and additional liability policies, such as umbrella policies, is a core element in having a financially secure foundation.

Premium vs. Protection When I review property protection policies with clients, it is acutely evident that most people have no idea what exactly is or is not covered by their policies. My observations are that people typically know their premium and deductible and that’s about it. While having a good grip on expense is good thing, a lack of understanding for proper coverage can actually put your financial future at risk for a couple of dollars in saved premium.

But here’s the good news, in many cases, rearranging where the premium dollars are allocated, can ensure more appropriate coverage for no additional premium outlay. This is why it is so important to  discuss what the best options are for you, your business and/or your family with a licensed professional. Steer clear of  do-it-yourself online issue and toll free numbers to save a buck; they are void of the personalization needed to get the best coverage at the best price.

Auto Liability Some of the most common misunderstood concepts relating to auto insurance are the liability amounts. What people should have to be well covered and what is mandated by the government are two drastically different amounts. The State of Illinois mandates minimum bodily injury liability coverage of $20,000 per person and $40,000 per accident, and $15,000 for property damage – this is where the problem starts.

Unfortunately, government mandated amounts such as these, won’t go very far in the real world. How many people have you known who were hospitalized that left with a bill of less than $20,000? How often do you think that totaled cars would be worth more than $15,000? Both of these situations illustrate why it is so important to really understand the coverage you pay for before you need it.

Consider further, what happens if you get into an at fault accident without proper liability coverage. The other party can come after you for the amount over and above the covered amount. If you don’t have the ability to pay, they can seize your home, other assets and/or have your wages garnished. Is this the type of exposure you really want to put yourself or your family through to save a few bucks?

Water Claims A common item neglected in the Chicago area has to do with homeowners insurance; specifically, water claims. There is a difference between flood insurance and water backup insurance. Flood insurance covers damage relating to a body of water leaving its banks and causing damage to your property. This is a separate policy that would be available for purchase if you live in a floodplain. Typically, if you have a mortgage and live in a floodplain, the mortgage company will require this coverage be in place.

In contrast, water backup coverage describes a claim arising from water backing up through the plumbing system in your home. This coverage typically comes in the form of a rider that can be added to an existing homeowner’s policy for an additional fee. In the absence of this optional rider, there is no coverage on a typical homeowner’s policy for any water claim. The exception to this statement is if the homeowner has purchased an all perils policy.

Premium costs, auto liability and water claims are just a couple examples of how underestimating and misunderstanding property coverage can send you into financial peril. Reviewing and weighing all the options available for each type of insurance you may need is imperative in choosing what coverage is appropriate for you and yours.

Kurt Rusch CLU, ChFC


Friday, February 11th, 2011

Welcome! Our goal is to create a public friendly blogosphere on where people can stay current on the news and trends in the financial services industry which may impact our personal and business lives. Please feel free to send specific questions and subjects of interest you would like addressed. (Consumer input is often a better gauge of what is on people’s minds than what I think is important – my wife reminds me of this all the time.) If you would prefer not to stream your suggestions, feel free to use the Review or Quote request links to contact me personally. We also have Facebook Fan Page.

Our goal is to post as often possible during the work week and naturally, some weeks will be more populated than others. I look forward to honing my blogging skills and communicating with you.

Kurt Rusch CLU, ChFC

P.S. If you would like to know more about me, please read the Philosophy & Ethics page on our site.