Archive for September, 2011

Mature Health: Time Sensitive Changes

Friday, September 30th, 2011


This is a MUST READ for Adults 65 & Up, Caregivers, Adult Children and Estate Managers!

 

New Changes to Part D Enrollment Period

 

The Annual Enrollment Period (AED) has changed for Medicare Part D plans. This is a big deal for anyone 65 and older because failure to make changes within this period will result in Part D benefits remaining the same as were elected in 2011. While this may not affect some people, it will be vital to others.

 

Historically, the Part D Annual Enrollment Period ran from November 15th through December 31st each year. However, plan changes with an effective date of January 1, 2012 must be executed within the new AED time frame: October 15th through December 7th.

 

 

EHealthInsurance reports that 65 percent of seniors are not aware of these enrollment date changes. It is imperative to review and revise any and all Part D information within this time frame to assure that current plans are still preferable or amended accordingly.

 

 

 

 

Medicare Advantage Premiums

 

The Department of Health & Human Services announced that enrollees will see their Medicare Advantage premium shrink 4 percent next year. Prescription drug premiums will not change.

 

Drug Deductibles

 

Part D Deductibles will increase by $10 from $310 to $320 in 2012. It is also important to keep in mind that the lists of formulary drugs are constantly changing. There is no safe assumption that  prescriptions will continue to be treated in the same manner from one year to the next.

 

Cost of Living Adjustment

 

The Annual Cost of Living Adjustment (COLA) for Social Security is predicted to rise in 2012 by a few percent; this would be the first increase in three years. If the increase does come through as expected, it may not automatically translate into additional pocket dollars for beneficiaries.

 

The links between changes in Social Security and Medicare each year are complex – that’s putting it mildly. There are numerous factors involved. For example, your annual income and the date when you began Medicare, could ultimately squash much or all of the COLA gains from higher Medicare premiums. (Help Link: 10 Ways to Boost Your Social Security Checks.)

 

The many moving parts within the machinations of Medicare, Supplements, Part D and Social Security, must be reviewed annually. This is not an option, but a necessity to assure consistent and proper coverage. Please feel free to contact me for assistance in maneuvering the healthcare minefield.

 

Kurt Rusch, CLU, ChFC

 

 

 

 

 

What if you couldn’t work and pay bills?

Wednesday, September 21st, 2011

 

 

According to statistics provided by the Social Security Administration, 3 in 10 workers entering the workforce today will become disabled before they retire. If that stat isn’t staggering enough, consider the fact that 71% of Americans would find it very difficult or somewhat difficult to meet their current obligations if their paycheck was delayed by just one week. This is a potential recipe for disaster.

 

A full 64% of wage earners believe that they have a 2% or less chance of becoming disabled when the actual percentage is more like 30%. Another misconception is that Social Security will pay disability benefits. While this is possible, it is only true to a small extent; 65% of new disability claims with Social Security were denied in 2009. For the fortunate 35% who were able to receive benefits, the average monthly payment was $1065.

 

Consider further the fact that 90% of disabling events happen outside the workplace, where Workers’ Comp does not apply, and we are looking at major gaps in one’s financial plans. Bottom line? There is a gross underestimation of the chances of becoming disabled over one’s working lifetime.

 

Biggest challenge? Being able to initiate and continue funding a financial plan. In the event of a disability, you will potentially lose anywhere from a month to a lifetime of future income that will make funding any other hopes and dreams for your future difficult if not impossible.

 

Overcoming Obstacles & Putting the Pieces Together

 

The common argument against additional planning is that there is no money left after allocating standard premium dollars for car, house, health and life insurance. The good news is that often, by simply changing the terms of your current contracts, you can obtain protective coverage with little or no additional out of pocket expense. While statistics show this is too important to ignore, 67% of workers in the private sector still have no provisions for long term disability.

 

More than worthy of further investigation, there are numerous variables that will influence the amount premium paid for disability contracts. Firstly, your current health is a big factor to qualify for this contract. Influences include height/weight ratio, chronic conditions including not only medical issues but injury history as well. The usual readings for blood pressure, cholesterol and the like will also influence the situation.

 

Next is occupation. Since the likelihood of becoming disabled in a physical pursuit such as a mechanic is much more likely than it would be for an accountant, the rates will be reflected accordingly.

 

The monthly benefit amount received will be very important in determining the premium. Insurance companies will typically limit you to about 65% of your current income which approximately reflects your current take home pay. The reason for this is that the insurance company does not want you to be better off financially on disability than working nor support a financial disincentive to get back to work.

 

One key point to keep in mind when considering how much coverage you desire: personally paid for disability insurance benefits are not subject to Federal Income Taxes. That provides savings at a time when you will need it the most.

 

The benefit period you choose is also of paramount importance. You can select a 1 year policy all the way up to a lifetime policy which will typically pay your benefit until the time that you typically would be retiring from work.

 

Finally, the elimination period for disability insurance is like a deductible. This reflects the time after you are unable to work before you can begin to collect benefits. The longer you wait before you begin to collect benefits, the lower the premium.

 

Putting all these pieces together in a strategic manner should be your main objective. It is highly possible to customize a plan that will not only provide security to you and your family but also work within the parameters of your budget.

 

Kurt Rusch  CLU,ChFC

Online Auto Insurance

Thursday, September 15th, 2011

 

Do-It-Yourself is big online today. Consumers like to pick out what they want and get quotes from the anonymity of their own computers. Except, of course, for those annoying vendors who call incessantly once you hit “submit”, people can shop incognito most of the time.

 

The insurance industry offers equal accessibility. Who doesn’t like the thought of not having to talk to the Boogeyman (aka insurance agent) when looking for a good deal online? There is no doubt that D-I-Y is convenient, but getting a good deal does not translate to getting good coverage in the insurance biz. More often than not, it’s more like D-Y-I: Do Yourself In.

 

Cyber Gap

 

The most common insurance market being hawked online by companies today is automobile insurance. My personal observation: consumers really don’t understand what they are purchasing. For example, let’s take a look at Joe Blow. He has a $400,000 home and just switched his auto insurance (online) to save $400 a year keeping the same deductible.

 

Joe saved premium by dropping the liability coverage on his three vehicles from $250,000/$500,000/$100,000 to the state minimum: $20,000/$40,000/$15,000 (in Illinois). What Joe did in saving that extra $400 per year was expose himself, his paychecks, savings and home.

 

Many people don’t understand the significance of this switch. When Joe switched to minimum liability coverage, in reality he agreed to the following if at fault in an accident:

 

1. He will be personally responsible for any injuries caused over $20,000 per person.

 

2. He will be personally responsible for any personal injuries totaling over $40,000 for all passengers in the other vehicle.

 

3. He will be personally responsible for any property damage over $15,000.

 

The shortcomings here are obvious; medical costs are exorbitant and low end new cars are selling for more than $15,000 these days. That $400 a year won’t do much towards replacing property or paying doctors’ bills. Add to this what could happen to Joe in the worst case scenario: causing someone else’s death. A wrongful death lawsuit stemming from an auto accident could have you working for the decedent’s family for the rest of your life.

 

Lesson Learned

 

Simply put, when consumers opt for the lowest price with disregard for the very benefits they’re buying, they open themselves up to a plethora of problems down the road.

 

Tread very carefully before you cyber drive insurance. Be armed with the knowledge of what is and is not covered and do your homework before you make a decision – don’t jeopardize your lifestyle.

 

Alternatively, work with an insurance broker, (yes, I am one), who has access to numerous carriers to draw from in finding coverage appropriate to your cost and benefit standpoint.

 

Kurt Rusch  CLU, ChFC

Pension Plans: Who’s Funding Who?

Wednesday, September 7th, 2011

 

According to studies by the Government Accountability Office (GAO), a growing number of DFP’s (Defined Benefit Plans, better known as pension plans) are funding their obligations by purchasing Hedge Funds and Private Equity Funds. While the prevalence of this usage funding is constituted in larger pension funds, their usage is not forbidden in smaller plans.

 

So, you might be thinking, “Thanks for the tidbit Kurt, who cares?” I’ll tell you exactly ‘who’: anyone. This affects any and every person who has a pension plan.

 

Hedge & Private Equity Funds

 

Stories of hedge fund disasters are regular features on the news, the most notable of which involved the former head of NASDAQ, Bernie Madoff. This is not to say that every Hedge Fund and Private Equity Fund are being run fraudulently, because the vast majority are ethical and well run. However, the valuation issues stemming from the lack of a regular market for these issues, combined with the challenge of transparency further magnifies their unpredictable nature.

 

Due to the rapid increase in the usage of these types of investments, (60% of large pension plans used hedge funds in 2010 compared to only 11% which used them in 2001), further scrutiny of their attributes is necessary. Private Equity Funds, which typically provide working capital for expansion, product development and restructuring to other entities, were utilized by 92% of large pension funds in 2010, up from 71% in 2001. This is a trend that shows no signs of reversing anytime soon.

 

Equally prevalent in the news these days are the horror stories regarding underfunded pension plans. Scads of separatist managed plans for fire, police and even now, teachers, are coming to light as being incapable of living up to the payout demands promised to their populations. And that is, scary – very scary.

 

The lack of transparency and illiquid nature makes overseeing these kinds of investments also more laborious (and perhaps neglected?) versus the management of stocks, bonds, cash and other easily valued asset portfolios in kind. Hedge Funds and Private Equity Funds often fly under the radar.

 

Diversify, Diversify, Diversify!

 

Today, perhaps more than ever before, alternative pension planning is imperative. We need to plan for the possibility that full pensions may not be received as expected whether due to fund performance, mismanagement or any other unforeseen factors. Alternatively, look to the following: 1) Additional funding to an IRA, Roth IRA, annuity or any other tax qualified product. 2) Investing additional funds in stocks, bonds, mutual funds, CD’s, etc.

 

There is safety in diversification. If you count on your pension 100% and it is no longer there or not to the extent expected, you will have serious problems. If, on the other hand, there are problems with your pension but you have done alternative planning with provisional investments in other asset classes, the impact will be lessened.

 

Kurt Rusch CLU, ChFC

 

COBRA Subsidy Goes Bye Bye

Thursday, September 1st, 2011

 

As part of the American Recovery and Reinvestment Act (ARRA) passed in 2009, the Federal Government granted a 65% subsidy for COBRA payments for workers who were laid off between September 1, 2008 and May 31, 2010. This subsidy ends today, September 1, 2011.

 

What does this mean for those on COBRA? The change will most affect those laid off toward the end of  the COBRA Subsidy period. People who fall into this category, will now be responsible for 100% of their COBRA costs as opposed to the 35% subsidize share they were paying.

 

The magnitude of these changes will vary depending on certain factors:

 

State of Health – If you and your family are healthy and qualify for individual coverage, this certainly would be a great option to explore. The Kaiser Foundation found that the average family in the United States could obtain family coverage for $410 per month on an individual basis versus $1137 per month to cover your family on a group basis. (Please note that these are national averages and not Illinois rates.)

 

What is consistent is the percentage difference. The individual coverage will be just a little over 1/3 of the cost of group coverage. The main reason for this is the difference in underwriting between individual and group coverage. Insurance companies are required to accept all active employees for group insurance regardless of their health conditions, while individual underwriting can accept or reject based on their particular merits. This allows individual insurers a relatively healthier group at least when they first enroll for coverage.

 

Employment Situation  –  Many people elected to opt out of coverage at their new employer because the amount that they would pay under COBRA with the subsidy was less than the amount that would be required to contribute to the new company’s insurance plan. Post subsidy, a trip to the HR Department will likely remedy the situation and possibly save the employee some money.

 

Unemployed With Health Issues  –  Needless to say, this is not a great situation but coverage is available in the state of Illinois through a program called CHIP (Comprehensive Health Insurance Plan). This plan is guaranteed issue and available for people who are not eligible to obtain coverage through the private market. The plan is higher priced than conventional market coverage, but it is subsidized, so the full impact of the actuarial risk is not reflected in the pricing.

 

The plethora of trickle down effects such as these that the Affordable Care Act will have is consistently on the front burner of political discussions. The provisions of the legislation are not scheduled to kick in until 2014, but the actual machinations of how it will work are still being developed.

 

If you find yourself in this situation, the best plan of attack is not to prejudge your situation. Speak with someone (preferably me) regarding your individual needs, conditions, and budget to explore which companies would best fit your personal situation.

 

Kurt Rusch  CLU, ChFC