Have a Pre-Existing Condition? Here’s What to Do Now

May 15, 2017

There’s been a lot of talk in the news this past week about health insurance for people who have pre-existing health conditions. Are you worried about what the American Health Care Act (AHCA) could mean for you or your family’s health insurance should it eventually be signed into law? Here are some ways you can prepare if the current law on pre-existing conditions and health coverage changes.

What We Know

Under the Affordable Care Act (known as “Obamacare”), insurers could not deny coverage for pre-existing health conditions or charge higher premiums for plans beginning in 2014. The AHCA still requires insurers to cover those with pre-existing conditions but allows states to seek a waiver so that insurance plans they regulate could charge higher premiums for those with pre-existing conditions who let their insurance coverage lapse as long as those states meet certain conditions such as setting up a high risk insurance pool. For those with pre-existing health conditions such as diabetes, epilepsy or cancer, this introduces a new level of uncertainty of future, affordable coverage. You couldn’t be denied insurance coverage, but the premiums could be so high you might not be able to afford them. This may put insurance out of reach for those who lose their employer coverage (such as in a layoff or by retiring before Medicare eligibility at age 65).

Note that the AHCA version that recently passed the House of Representatives eliminates the Affordable Care Act penalties for large employers who do not provide affordable health coverage to their employees. For employees of most companies, that is unlikely to have much effect in my opinion. That’s because health insurance is currently considered an expected employee benefit and companies would need to offer it to attract talent.

What We Don’t Know

I don’t pretend to know what’s going to happen with the law. The version passed by the House is not likely to be the version passed by the Senate. Both the House and Senate need to come to agreement on a final version and then the President needs to sign it before it becomes law. If the bill passes as written, we also don’t know if your state would apply for a waiver to allow the insurance companies they regulate to charge premiums that reflect the individual cost of covering pre-existing conditions. If you have strong opinions about it and want to express your views, you can contact your congressperson and senators. You can find their contact information here.

While We Wait For More Information

While we’re waiting to see what finally shakes out, here are a few suggestions for how to put yourself in the best possible financial position in the event you lose your insurance or face significantly higher premiums. Remember that if you are currently covered by your employer’s plan, your risk of that is very low. However, it won’t hurt to be as prepared as you can be in the event you lose your job or plan to retire before age 65.

Max out that HSA if you have one.

If you are currently covered by a high deductible health plan (HDHP) with a health savings account (HSA), bulk up your balance as much as you can. Contributions are pre-tax and distributions from HSAs for qualified medical expenses are always tax-free. If the House version of the AHCA passes, the additional tax penalty for taking distributions for non-medical expenses will be reduced from 20 percent to 10 percent. A robust health savings account can help you to pay future medical expenses and well as insurance premiums under certain circumstances. (See below.)

How much can you put in? Those workers with individual coverage can contribute a maximum of $3,400 and those with family coverage can contribute a maximum of $6,750 for 2017, which includes any money your employer contributes on your behalf. If you are 55 or older, you may contribute an additional $1,000.

Under the House version of the AHCA, contribution limits would increase to $6,550 for individual coverage and $13,100 for family coverage. I know that seems like a lot, but it’s a better alternative than paying health care expenses after tax. Usually, you only change your target HSA contribution amount deducted from your paycheck during open enrollment, but you can write a check directly to your account for the difference.

Here’s the key. Don’t spend the money if you can use other funds to pay your current deductible and out-of-pocket expenses. After you have built a balance greater than your out-of-pocket maximum for the year, consider investing the remainder. The goal is to build as big of an HSA balance as possible while you have insurance.

Seek coverage under your spouse’s insurance if you lose your job.

Losing health insurance due to a layoff can be considered a qualifying event and would generally allow your spouse to add you to his/her group health insurance plan during a special enrollment period. Under most plans, you’ve only got a 30-60 day window to apply for the updated coverage, so contact your spouse’s HR department as soon as possible. If you are married, this is a natural first place to start, whether or not you have any pre-existing health conditions.

Continue coverage under COBRA.

If you lose your job or retire early, you may continue your group coverage under COBRA for 18 months. You will have to pay the full premium yourself (unless you are fortunate enough to have a retiree health plan). Note that if you have funds in your health savings account (HSA), you can use them tax and penalty free to pay for insurance premiums for health care coverage on your existing group plan through COBRA.

Bearing the full cost of coverage under a group plan can be expensive, so don’t be surprised. However, if the law becomes unfavorable for folks with pre-existing conditions, COBRA is likely to be your best bet to continue coverage. As I wrote in a previous blog post, “If you have a pre-existing condition and are retiring within 18 months of when you’ll be 65, COBRA is likely to be your best option in this age of uncertainty. As long as you pay your premiums, you’ll remain covered up until you’re eligible for Medicare. Even if you don’t have a pre-existing condition, choosing COBRA still gives you a little breathing room to figure out your next steps for insurance once it’s clear what happens to the ACA.”

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can also follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

Would You Be a Winner or a Loser Under the Proposed Health Care Law?

March 09, 2017

Regardless of what you think of the newly proposed Republican health care plan to replace the Affordable Care Act, one thing is for certain. As with all new laws, there will be both winners and losers. Here will be some of the individual winners and losers if the bill’s provisions become law:

WINNERS:

High Income Taxpayers: The bill would eliminate the Medicare payroll tax and the net investment income tax on individuals with MAGI over $200k a year and married couples with MAGI over $250k a year.

Tanning Salon Patrons: The bill would also eliminate the 10% excise tax on indoor tanning salons. This should make indoor tanning both cheaper and more available since the tanning industry claimed that nearly half of the nation’s tanning salons closed after the excise tax took effect. (However, it’s debatable whether they’re really “winners” given the health risks of indoor tanning.)

The Voluntarily Uninsured: Those who choose not to purchase health insurance would no longer be subject to a tax penalty. In fact, the law would be retroactive to 2016 so if you were subject to a penalty last year, you could file an amended return and get your money back.

Higher Income People Who Purchase Insurance Through the Exchanges: The ACA income-based premium subsidies would be replaced with new tax credits based on age for those who purchase insurance through the exchanges. The higher income you are, the likelier you are to benefit more from the tax credit. You can calculate the current subsidies here and see a comparison with the proposed tax credits here.

Younger People Purchasing Insurance Through the Exchanges: The law would allow insurance companies to discriminate more on age, which could mean lower premiums for younger people.

People Who Want to Contribute More to HSAs: The HSA contribution limits would nearly double to $6,500 for individuals and $13,000 for families and spouses over age 50 would be able to make additional catch-up contributions. You would also be able to use the HSA for certain medical expenses before the HSA was opened.

LOSERS:

Some Medicaid Beneficiaries: The law would cut funding to the states for Medicaid expansion.

Lottery Winners: Lottery winners would not be able to enroll in Medicaid.

Patrons of Planned Parenthood and Other Abortion Providers: Organizations that provide abortions would be de-funded.

The Involuntarily Uninsured: You would be subject to higher premiums if you neglect to purchase health insurance and later decide to enroll.

Lower Income People Who Purchase Insurance Through the Exchanges: The income-based premiums subsidies would be replaced by age-based tax credits that will be lower for most low income people. You can calculate the current subsidies here and a comparison with the proposed tax credits here.

Older People Purchasing Insurance Through the Exchanges: The law would allow insurance companies to discriminate more on age, which could mean higher premiums for older people.

Of course, no one knows what the final bill will look like after negotiations and whether it will even be passed into law. In fact, it doesn’t look too popular right now. Still, it could be useful to be aware of how the proposed provisions could affect you if any of them do become law. (Incidentally, I would currently be a “winner” under the bill since the only impact I can see on me is being able to contribute more to my beloved HSA.)

What Are Your Health Insurance Options When Retiring Early?

February 20, 2017

Are you considering retiring before age 65 but worried you could lose your access to health insurance due to the new administration’s promise to repeal the Affordable Care Act? There’s a lot up in the air right now, and it’s going to take some time to play out in Congress. Health insurance is expensive, and health care costs are likely to comprise a large chunk of your retirement spending.

Up until now, if you are like most Americans, you have participated in a group health plan with your employer subsidizing the cost. With family coverage, the typical full cost of coverage is over $18,000 per year. If you retire early, you’ll need to find and pay for new health care coverage until you are age 65 and can participate in Medicare. Here are some strategies for making wise decisions in the face of increasing uncertainty about health insurance access and costs.

Don’t Panic

It may feel like the earth is being demolished to make room for an intergalactic freeway, but don’t panic. The health insurance landscape could look a lot different next year than it does now – or it may not. We don’t know very much for sure except that there is uncertainty.

Under those circumstances, it’s helpful to plan for multiple scenarios: health insurance costs more and/or is harder to obtain, waiting periods for pre-existing conditions could be reinstated, or the major provisions of the ACA are not repealed. Prepare an early retirement budget which reflects your projected health insurance costs under each of these scenarios. Remember – you only need to model the changes through age 65, when Medicare kicks in.

Build up your HSA – and don’t spend it

If you are currently covered by a high deductible health plan (HDHP) with a health savings account (HSA), build up your balance as much as you can. Contribute the maximum to your HSA between now and your retirement date. Those with individual coverage can contribute a maximum of $3,400 and those with family coverage can contribute a maximum of $6,750 for 2017. If you are 55 or older, you may contribute an additional $1,000.

Once you’ve contributed those funds, if possible – don’t spend them. Use other available cash reserves to pay for your routine expenses up to the deductible. After you have built a balance greater than your out-of-pocket maximum for the year, consider investing the remainder.

For those retiring early, keep as much of your HSA balance as possible to pay for eligible medical expenses after you retire, including COBRA premiums (see below) as an early retiree and Medicare Parts B, D and Medicare Advantage after age 65. For IRS guidelines on HSAs see here. For more ideas on maximizing your HSA see here.

Increase your cash reserves

The years leading up to an early retirement are a great time to power up your cash reserves. Work towards building short term liquid savings such as a savings account, money market fund, short duration CDs or Treasury Bills equal to several years’ worth of projected maximum out-of-pocket health care costs.

Look for part-time work with access to health care benefits

Many early retirees have discovered that the key to managing health care costs in retirement is to work part-time. Ask yourself if it makes sense to look for part-time work through age 65, either with your existing company or another, such as these companies who offer insurance coverage to their part-time employees. You will probably have to cover all or most of the cost of your health insurance. However, participation in a group plan may offer more comprehensive coverage. It also isn’t going to hurt to have some extra money coming in the door during the early retirement years to help pay health care costs.

Consider COBRA

When you retire, you may continue your group coverage under COBRA for 18 months, paying the full premium yourself (or with retiree health plan dollars if you are fortunate enough to have a retiree health plan). As mentioned above, if you have funds in your health savings account (HSA), you can use them to pay for insurance premiums for health care continuation coverage through COBRA. Your coverage continues during the same period, and you won’t have to change providers or get used to a new procedure for submitting claims. Be aware: there will be some sticker shock as you begin to pay the entire cost of your health insurance premium.

If you have a pre-existing condition and are retiring within 18 months of when you’ll be 65, COBRA is likely to be your best option in this age of uncertainty. As long as you pay your premiums, you’ll remain covered up until you’re eligible for Medicare. Even if you don’t have a pre-existing condition, choosing COBRA still gives you a little breathing room to figure out your next steps for insurance once it’s clear what happens to the ACA.

Price coverage on the private market

If you are in good health, consider pricing your options in the private insurance marketplace. The younger your early retirement begins, the more it could make sense to shop around for the right insurance. The private market offers a wider range of options. Compare plans and prices by using online marketplaces such as ehealthinsurance.com or gohealthinsurance.com or working directly with an insurance broker. Even if you are considering coverage under COBRA or the Affordable Care Act, it’s a good idea to shop around and compare.

Take your chances now with the ACA

The Affordable Care Act is still the current law and the infrastructure which allows consumers to buy insurance is still firmly in place. If you are planning to retire soon, you may consider applying for coverage under the ACA and comparing plans to COBRA and what you found through the private market. Even if you retire outside of the open enrollment period, losing your employer-provided coverage is a qualifying event. Start at Healthcare.gov to see what is available in your state.

Depending on your new family income after early retirement, you may qualify for a subsidy of your insurance premiums. However, that is something which could change quickly, so it’s best not to count on it. In any case, you cannot be turned down for coverage. There are many advantages to the ACA for early retirees if the law remains the same or amended: cost savings, universal access, subsidies for lower income participants, etc. The biggest disadvantage right now for early retirees in buying insurance is not knowing whether the same or similar coverage will be available if the law is repealed.

In conclusion, for those considering early retirement, the uncertainty about what’s going to happen to the Affordable Care Act has added a layer of complexity to pre-retirement preparations. For some employees, they may decide it’s best to delay their planned early retirements until there is more clarity about what happens next. For others, they may choose to forge ahead, hopefully with bigger balances in their HSAs and savings accounts to help manage the risk that comes along with this uncertainty. If you have strong opinions about the ACA and what Congress and the President should do next, you can find information about how to contact them here.

Do you have a question you’d like answered in this column? Please email me at [email protected]. You can follow me on our Financial Finesse blog by signing up here, and on Twitter@cynthiameyer_FF.

How to Evaluate an Early Retirement Offer

November 07, 2016

You’ve received an offer from your employer with financial incentives to retire early. You’ve got to admit you’re intrigued. Should you consider accepting it? Before you say “yes” or “no,” ask yourself these questions:

Am I ready to leave?

Before running any numbers, be honest with yourself. When you received the offer of early retirement incentives, were you excited, somewhat interested or depressed? The more interested you are emotionally in moving on, the less likely you will regret your decision if you decide to accept the offer.

It’s also important to assess the state of the company. If you decide to stay, are there any reasons your job might be in jeopardy in the near future? Be clear-eyed about all the possibilities, and factor them into your decision.

Can I afford to completely retire now?

Run a retirement calculator to see if you could retire now, based on what you’ve saved so far and your estimated income from Social Security and any pensions and/or other investments. Make sure you run the worst case scenario, not just the best case scenario. For example, model scenarios assuming a 2% return, a 4% return and a 6% return, and consider running the scenarios through ages 85, 90 and even 100. If the model shows you can retire with a reasonable lifestyle, keep pace with inflation and not run out of money in old age, you will feel more comfortable that you are ready.

What will I do for health insurance?

Health insurance is expensive. Up until now, you’ve participated in a group health plan, with your employer picking up a large part of the cost. If you have family coverage, the typical full cost of coverage is $17,500 per year. If you accept the offer, you’ll need to find and pay for new health care coverage until you are age 65 and can participate in Medicare. Review your options:

Continue your group coverage under COBRA for 18 months. You would pay the full premium yourself (or with retiree health plan dollars if you are fortunate enough to have one). If you have funds in your health savings account (HSA), you can use them to pay for insurance premiums for health care continuation coverage through COBRA.
Get coverage from your spouse’s employer-sponsored plan, if applicable. A spouse losing their coverage is a qualifying event and they will be able to add you to their insurance.
Seek coverage under the Affordable Care Act. Even if you retire outside of the open enrollment period, losing your employer-provided coverage is a qualifying event. Start at healthcare.gov to see what is available in your state. Depending on your new family income after early retirement, you may qualify for a subsidy of your insurance premiums. In any case, you cannot be turned down for coverage.
Look for coverage on the private market. An insurance broker or online marketplaces such as eHealth or GoHealth are helpful places to start comparing plans and prices. Even if you are considering coverage under the Affordable Care Act, it’s a good idea to shop around and compare.

When will I claim Social Security?

The earliest eligible retirees can claim Social Security benefits is age 62. Most workers receiving early retirement incentive offers now would not be eligible for full Social Security benefits until age 66 to 67, depending on current age. If you claim early, benefits will be reduced based on the longer payout period. Delaying Social Security to full retirement age or even as late as age 70 will increase your monthly benefits. Factors to consider include:

Will you need the money? If you will need the income to make ends meet, you have your answer. However, if you can get by with some additional income from part time work, you’ll be able to receive higher monthly benefits by delaying claiming Social Security.
Is your spouse still working or do you anticipate any employment income? If your spouse is still working, you’ll be taxed at their marginal tax rate on your Social Security benefits. Plus, if your family earnings exceeds $15,720 for 2016, you’ll lose $1 for every $2 you earn above the limit. (Note that the benefit isn’t truly lost. You’ll be able to recoup that once you hit full retirement age).
How’s your health? If you have health issues, you may decide to take Social Security early. If you don’t, delaying may make more sense.
Do you have longevity in your family? Do you have someone in your immediate family who lived to 95 or 100? If folks in your family generally live long lives, consider delaying Social Security benefits
Do you have other assets you can tap? Does it make sense to tap your 401(k), pension, Roth IRA or brokerage accounts first? Model different scenarios to see which offers you the highest total lifestyle in retirement.

As you can see, there are a lot of factors to consider in deciding whether to take an early retirement offer. There is no right or wrong answer for everyone. Just make sure yours is an educated one.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

How To Take Money Out Of Your Accounts In Retirement

September 22, 2016

Updated April, 2018

We typically spend most of our working life putting money in accounts for retirement, but how do we take them out after we retire? I recently received a question from a “long time reader, first time caller,” about how to order which accounts he will withdraw from when he retires soon. The conventional wisdom is to withdraw money first from taxable accounts, then tax-deferred accounts, and then tax-free accounts in order to allow your money to grow tax-deferred or tax-free as long as possible. However, there are a few other things you might want to consider too:

Will you need to purchase health insurance before you’re eligible for Medicare at 65? If so, your eligibility for subsidies under the Affordable Care Act is partly based on your taxable income. In that case, you might want to tap money that’s already been taxed like savings accounts and money that’s tax-free like Roth accounts to maximize your health insurance subsidy (but not so low that you end up on Medicaid instead). You can use this calculator to estimate what that amount would be.

Are you collecting Social Security yet? Withdrawing from tax-free Roth accounts can also reduce the taxes on your Social Security. That’s because the amount of your Social Security that’s taxable (either 0, 50%, or 85%) depends on your overall taxable income plus nontaxable interest (like muni bonds) but not tax-free Roth withdrawals.

How can you minimize your tax rate? First, you’ll want to withdraw (or convert to a Roth) at least about $12k a year from your pre-tax accounts because the standard deduction makes that income tax-free. If you have other deductions, you may be able to have even more tax-free income. Then take a look at the tax brackets and see how much income you can withdraw before going into a higher bracket.

For example, a married couple’s first $19,050 of taxable income is only taxed at 10%, with the next $58,350 is taxed at 12% according to 2018 tax brackets. Any long term capital gains at those levels are taxed at 0%. If you’re about to go into a higher bracket, you may want to use tax-free income to avoid those higher rates. Just keep in mind that pensions and taxable Social Security (see above) will also count as income in determining your tax bracket.

How do you put it all together? Your withdrawal strategy may change and adjust based on the situation. You may tap into savings accounts (including your HSA) and sell taxable investments to maximize your health insurance credits until 65. Then you may withdraw from taxable accounts until you collect Social Security benefits at age 70, which draws down your required minimums at 70 1/2 while maximizing your Social Security payment. At that point, you can continue withdrawing from your taxable accounts to fill in the lower tax brackets and then use tax-free accounts to avoid the next tax bracket.

Of course, this all assumes that you have investments in multiple types of tax accounts. Otherwise, it doesn’t really apply to you. But if you do, you might want to consult with a qualified and unbiased financial planner to help you sort it out and come up with the right strategy. If your employer offers that as a free benefit, it might be a good place to start.

Four Retirement Myths I’m Hearing

September 18, 2015

Answering calls to our Financial Helpline, I’ve heard some myths or assumptions about retirement and I always enjoy hearing the buzz out there from people contemplating retirement. My thought is – if I’m hearing this from a few people, there are potentially thousands or millions who have the same thought. So, for those who believe some of these things, I’ll share some of the myths/assumptions I’ve heard recently and then give you my $.02. Continue reading “Four Retirement Myths I’m Hearing”

Last Minute Tax Savings With An HSA

February 16, 2015

In recent weeks, millions of taxpayers have been realizing the true impact of the Affordable Care Act as they file their tax returns. It’s probably no surprise the individual mandate required most Americans to have health insurance coverage as of January 1, 2014. If you had employer-provided health insurance coverage for most of 2014 or you purchased coverage through a private exchange or directly from an insurance company, the health insurance mandate will not have an impact your taxes. Continue reading “Last Minute Tax Savings With An HSA”

Obamacare Tax Forms Are Coming to a Mailbox Near You

February 09, 2015

I just got done pitching out a foot-high pile of holiday sale catalogs, magazines that I never got to read over the holidays, and donation requests from charities and schools that for some reason didn’t feel like I paid them enough tuition while there as a student. Am I the only one out there who’s looking online for a new smaller mailbox? But just when we thought it’s safe to downsize our mailboxes, the Affordable Care Act (also known as the “ACA” and “Obamacare”) and IRS regulations have added more mail to the winter pile-up, the new series of IRS information forms that support whether you have health insurance that complies with the “Obamacare” rules. These forms started showing up late this January and will every year after. Continue reading “Obamacare Tax Forms Are Coming to a Mailbox Near You”

Start Your 2014 Tax Planning Now

March 19, 2014

As you fill out your 2013 tax return this year, you may notice a few extra lines on the 1040. That’s because the Affordable Care Act created new tax provisions for higher income households. If you were not expecting them then you may have been blindsided, and while it may be a little too late to do anything about them now, you should start thinking about reducing their impact for 2014. So if your household income is $150,000 or more, pay attention. Continue reading “Start Your 2014 Tax Planning Now”

5 Ways to Impact Your Healthcare Expenses

February 17, 2014

Although the Affordable Care Act may not have immediately impacted your healthcare expenses, the insurance landscape is still uncertain and providers may eventually increase rates for coverage. Even if your expenses are already low, it’s still a good idea to try and decrease what you pay for healthcare in order to offset any potential price hikes that may be around the corner. Here’s a look at five ways to keep your medical costs low this year. Continue reading “5 Ways to Impact Your Healthcare Expenses”

Can You “Burp” Away the Medicare Surtaxes?

November 19, 2013

Burping can relieve more than just stomach discomfort. It can actually relieve the pressure of the new 3.8% Medicare surtax, according to Steve Parrish, a Forbes contributor. His idea of “burping income” is that if a taxpayer can discharge some income at certain levels, it avoids an accelerated build-up of further taxes. This analogy can apply to various triggers in the tax code but is particularly appropriate to the Medicare surtax. Continue reading “Can You “Burp” Away the Medicare Surtaxes?”

What Happens Now If You Cannot Afford Health Insurance?

November 18, 2013

Most of the employees that I work with are in a fortunate position to work for large companies that provide health insurance to their employees. But many of the people that I talk with have friends and extended family members that are not covered by an employer-provided plan. One area of confusion these days is what happens when you cannot afford health insurance. Unfortunately, the answer to that question is a little complicated and it depends on a few important factors. Continue reading “What Happens Now If You Cannot Afford Health Insurance?”

Chocolate Treats Aren’t Just for Easter!

March 26, 2013

You can never get too much chocolate and the International Foundation of Employee Benefit Plans (IFEBP) can help feed your sweet tooth when you check out their ACA supply kit, available for next week’s National Employee Benefits Day. Not only does the kit include chocolate treats, but also a talking stress ball and worksheets and fact sheets to implement and celebrate the day. Continue reading “Chocolate Treats Aren’t Just for Easter!”

What’s the Deal with the Double D?

February 26, 2013

Have you had any of your employees question you about the DD in box 12 of their W-2? No, it’s not a battery style or bra size but a new requirement for W-2 reporting as a result of the Affordable Care Act. Effective with 2012 W-2 forms, employers with more than 250 employees are required to report the cost of employer-sponsored health coverage, and have the option of reporting the cost of a group dental or vision plan. Continue reading “What’s the Deal with the Double D?”