Archive for January, 2012

The Need for Self Reliant Health Care

Tuesday, January 24th, 2012

 

I came across one of the best articles I’ve seen regarding Medicare funds or rather, the dissension thereof. For anyone over the age of 40, the issues at hand matter – a lot.

 

The biggest takeaway I got from the article? It is seemingly apparent relying on Medicare to provide like coverage in perpetuity is not very plausible. While it is difficult/annoying/painful for most of us to think 20 and 30 years beyond today, the potential for future health and financial challenges in our lives dictates otherwise.

 

One of the hardest hitting highlights of the article was an example about disbursements made using an average salary of $43,500 per year. A recently retired couple with that salary would have paid in almost $120,000 in Medicare taxes during their working lives. But according to the Urban Institute the medical benefits this couple would receive will average $357,000. Needless to say, this is not a sustainable model.

 

Another cited concern provided that 1 in 5 doctors restrict the number of Medicare patients they will take on at any given time. This number jumps to 31% for primary care physicians. The AMA reasons this is due to low reimbursement rates and that Medicare is deemed to be an unreliable payer by the medical profession.

 

Compounding these exasperating facts and figures is fictitious recipients. In 2010, it is reported that Medicare Part D paid $3.6 million to deceased beneficiaries. Similarly, 142,000 procedures on 5,000 dead people were paid for between 2004 and 2008 to the tune of $33 million.

 

According to the National Health Care Anti-Fraud Association, “The United States spends over $2.5 trillion on health care every year. Of that amount, NHCAA estimates that tens of billions of dollars are lost to health care fraud.” Mismanagement to say the least is costly and cannot be tolerated in any organization let alone one facing financial crisis.

 

Much is also written about “the gap in coverage” regarding prescription drugs. Yet the biggest gap occurs in long term care costs for home care, assisted living and skilled nursing facilities. Ironically, while our current system reimburses the deceased, it does not provide for the most financially devastating expenses the (still) living can incur.

 

This article is a major eye-opener to the current state of a program many of us are depending upon for health care services in retirement. Reading it should at the very least provoke further consideration for yourself and your family. Check out the entire article at Smart Money.

 

Kurt Rusch  CLU, ChFC

Retirement Planning: New Year, New Rules

Saturday, January 21st, 2012

 

A plethora of legislative change became effective on the first of the year. Some of these changes will affect individuals planning for retirement as well as those already retired.

Here, is the short list:

 

1. Social Security checks will be getting larger. Recipients can expect to see their gross check increase by 3.6% with only small increases in their Medicare Premiums.

 

2. Standard Medicare Part B coverage will increase to $99.90 for 2012. This is an increase of $3.50 per month. For Part B enrollees who signed up in 2010 or 2011 and were charged an initial premium of $110.50 or $115.40, their premiums will decrease to the standard $99.90.

 

High Income recipients will continue to pay a higher portion of their Part B premiums with their rates being anywhere from $40.00 to $219.80 per month higher than the standard rate. (High Income Recipients are defined as: an individual with Adjusted Gross Income over $85,000 or couples with Adjusted Gross Income over $170,000.)

 

3. The Part D donut hole gap is shrinking. The biggest complaint about the Medicare Part D is the fear of hitting the donut hole where coverage is limited severely versus coverage prior to and after the hole.

 

Previously, drugs were discounted by 50% for brand name and 7% for generics while in the donut hole. These percentages are rising to reflect a 50% discount for brand name and 14% for generics in 2012. Eventually the donut hole is scheduled to be phased out.

 

4. Income subject to Social Security Taxes will increase. For 2012, Social Security will be incurred on earned income of up to $110,100, up from $106,800 in 2011. However, at least for January and February, Social Security withholding rates for the employee will continue to be 4.2%.

 

5. 401(k), 403(b) and Federal Government Thrift Plan contribution limits will increase. The 2012 limit will be $17,000, up from $16,500. The catch up provision available for employees 50 and older remains $5500.

 

6. IRA contribution limits will remain the same but the threshold for income to make these deductible contributions will increase. Contributions of up to $5000 or $6000 if aged 50 and older, will be fully deductible if the modified adjusted gross income is under $58,000 for individuals or $92,000 for couples.

 

A phase out occurs between $58,000 and $68,000 for individuals and $92,000 and $112,000 for couples where only a portion of a contribution will be deductible. For individuals without a retirement plan at work, the income limits are set at under $173,000 for full contribution to fully phased out at $183,000.

 

7. Roth IRA income limits will also remain the same with contributions of up to $5000 or $6000 for aged 50 and older. However, these will also see an increase in the income limits that will be able to participate. Individuals with adjusted gross incomes of up to $110,000 will be able to fully contribute to a Roth for 2012.

 

There will also be a phase out of the amount of contributions that can be made until no contribution can be made if income exceeds $125,000. For couples, the thresholds are income under $173,000 and phased out until income reaches $183,000 where a Roth IRA will not be a viable option.

 

8. Qualifying income limits for the Saver’s Credit will increase for 2012. This credit which can amount up to $1000 for individuals and $2000 for couples, will now be available to individual taxpayers with an AGI under $28,750, for Heads of Household with an AGI under $43,125, and for couples with an AGI under $57,500. The credit will apply to contributions to retirement plans whether individual or employer based.

 

This overview may provide changes which could affect your planning for this year and beyond. The uncertainty of anyone’s future, combined with changing laws and financial environments, dictates the need for dedicated and diligent review.

 

Kurt Rusch CLU, ChFC

 

Health Insurance: Group Vs. Health

Tuesday, January 10th, 2012

 

A client had the opportunity to participate in a group plan through their employer but was somewhat distressed (shocked, actually) at the cost. I asked if they had ever sought out comparative rates in the individual market. Their immediate response was the assumption that group health insurance was less expensive.

 

This was not the first person that I have spoken to that had that impression. In reality, individual and group insurance are two completely different contracts, subject to different rules and are therefore priced differently.

 

Past Trends

Group insurance obtained through an employer is often thought to be the most economical way to obtain health insurance. Unfortunately, this is not always the case.

 

When employers paid for all or most of their employee’s health premiums, group coverage was the way to go in most cases. That was before the explosion of health care costs and economic downturn.

 

Today, while many companies struggle to keep their doors open, the necessity for cost sharing is a must. Employees are being asked to pay a larger share, if not all, of their health insurance premiums.

 

Bearing this in mind, it is beneficial to understand the moving parts and reasons why it may be beneficial to explore the option of obtaining individual insurance rather than group health insurance.

 

Group Pricing

One of the main benefits of obtaining insurance through the group market is that the insurance is guaranteed issue. This means that you can get covered through the plan regardless of any pre-existing health issues. While this is a tremendous positive for someone who has a pre-existing condition, it can be an extra burden for those without:

 

Insurance companies may assess a rating factor that is equally allocated among the participants of a particular group to actuarially account for the acceptance of individuals who may otherwise be excluded from coverage.

 

Translation: If a group is rated up 40% because someone has a preexisting condition, each and every person who obtains their insurance through that group contract will bear a premium increase by that amount. Herein lays one of the reasons why group insurance may not be as economical as one would think.

 

Typically, insurance companies will also have one set rate for single employees, one for employee and spouse and one for families. A 20 year old will therefore be paying the same individual rate as a sixty year old.  Similarly, if you opt for family coverage, your rate is the same whether you have one child covered in the plan or a brood of 10.

 

Individual Pricing

The main drawback on individual contracts is they have to be underwritten. Insurance companies review medical records and coordinate their findings to a list of standard criteria before individual coverage is offered. The upside to the underwriting process is that the cost of claims tends to be lower and therefore can be reflected in lower premiums to younger, healthy people.

 

One of the most attractive benefits of the individual market is the freedom to tailor a plan to suit your personal needs and budget. More affordable premiums can be had by omitting the types of bells and whistles which are sometimes standard to employer paid and subsidized plans.

 

Individual coverage also provides portability. You can take an individual plan forward with you if you leave your current employer by choice, through downsizing, retirement or any other event. Conversely, group insurance will restrict you to 1 year if your company falls under the jurisdiction of Illinois Continuation or 18 months under COBRA.

 

Wrap Up

Common assumptions are often erroneous regarding today’s health insurance costs.

There is no right or wrong choice between individual and group health insurance.

Current trends now dictate the need for thorough examinations of all market options.

 

Kurt Rusch CLU, ChFC