Medical Expenses

Unfortunately as with other aspects of retirement planning, covering the rapidly accelerating costs of medical insurance and health care in general is up to you - "You're On Your Own." Many employers are reducing health care benefits or making employees cover a higher portion of the premiums. Others are dropping medical coverage as a benefit altogether. States and municipalities are pushing unions to reduce health care and other benefits to reduce their deficits. It is truly a nightmare for anyone planning for retirement.

Healthcare Coverage Review

While we do not sell or recommend any specific medical insurance policies, we do make sure that clients include this important topic in their planning. We assist in reviewing the various types of coverage and help client find sources for the coverage they select.

The biggest concern we encounter frequently is with those leaving work prior to age 65 when Medicare kicks in. Assuming the person left a company that had group medical coverage on good terms they may be eligible for COBRA coverage. That stands for the Consolidated Omnibus Budget Reconciliation Act health benefit provisions in 1986.  The law amends the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.

There is no simple way to discuss the various methods for covering medical expenses, but below is a brief outline of most of the available types:

1. Commercial Insurance
   1. Employer/Group Provided
      1. Generally better coverage
         1. Lower deductibles
         2. Lower co-pays
         3. More conditions covered
      2. Little or no underwriting (medical reports, physicals, pre-exiting conditions)
      3. Premiums generally lower (negotiated by group)
      4. Good portability
   2. Individual/Family Policies
      1. Generally less coverage than group
      2. Requires underwriting (medical reports, physicals, exclude pre-exiting conditions)
      3. Less portability
   3. COBRA Coverage
   4. Health Savings Account (HSA) -Individual/Family
      1. Limitations set by the IRS
      2. Requires High Deductible Health Plan (HDHP)
         1. Must be insurable because it requires underwriting
         2. Premium costs vary, but can be high
      3. Must deposit money into your own HSA investment account
         1. IRS has strict rules for the tax-deductible amount invested
         2. IRS has rules as to how the funds may be spent for medical expenses - non-eligible payments may be subject to a 20% penalty
         3. You must manage your own account - you may lose money
      4. You are responsible for withdrawals
         1. You pay your own (eligible) medical expenses out of your HSA until you meet the high deductible with tax free dollars
         2. HDHP pays expenses above the deductible (subject to limitations)
         3. Unspent funds remain in your HSA
         4. At age 65 (when you go on Medicare A) you must stop contributing to an HSA
         5. After 65 you can continue to use the HAS funds for qualified medical expenses tax free
         6. After 65 you can take the funds for no-qualified purposes, but the withdrawals will be taxable
2. Government Provided Coverage
   1. Medicaid and Children’s Health Insurance Program (CHIP)
      1. Intended for certain indigent or disabled adults or dependent children
      2. Strict requirements for qualification
      3. Is administered by the individual states
      4. Costs are borne jointly between the states and the federal government
   2. Medicare
      1. Provides coverage for persons 65 and older and certain younger people and those with certain physical conditions
      2. Part A is available to all age 65 and over, Parts B and D are option at a cost to the participant
      3. Premiums for Part B and Part D vary based on the Adjusted Gross Income of participants
      4. Administered by the Social Security Administration
   3. High-Risk Insurance Pools
      1. Many states offer programs to uninsurable people in conjunction with other organizations or the federal
      2. government
      3. Each state is different
      4. Costs for coverage can be very high
      5. This is scheduled to change due to recently passed federal legislation

Long Term Care Expenses

According the AARP, this year, about 9 million Americans over the age of 65 will need long-term care services.

By 2020, that number will increase to 12 million. While most people who need long-term care are age 65 or older, a person can need long-term care services at any age. Forty (40) percent of people currently receiving long-term care are adults 18 to 64 years old.

We will cover what long-term care covers, who needs it and how to plan and pay for the costs.

The cost for a private nursing home room in Ohio has risen 3.9% annually over the past six years, and 4.4% nationally. The median annual rate in Ohio for a private nursing home room is $76,650 per year, compared to the national rate of $77,745 per year.

Q: What is Long Term Care?

A: Long-term care is a variety of services and supports to meet health or personal care needs.

Q: Who Needs Long Term Care?

Long-term care is needed when you have a chronic illness or disability that causes you to need assistance with Activities of Daily Living. 

Q: Why should I plan?

1. Planning is necessary because, at least 70 percent of people over age 65 will require some long-term care services at some point in their lives. 
2. Factors that increase your risk of needing long-term care are age, marital status, gender - women, health and family history.

Q: How do I pay for Long Term Care?

An important part of planning for long-term care is deciding how to pay for services. This is because long-term care is very expensive.

I. Long-term Care Insurance

1. Long-term care insurance is a type of insurance developed specifically to cover the costs of long-term care services, most of which are not covered by traditional health insurance or Medicare.
2. Long-term care insurance policies have a benefit period or lifetime benefit maximum, which is the total amount of time or total amount of dollars up to which benefits will be paid.
3. With long-term care insurance, you pay premiums in amounts you know in advance and can budget for, and the policy pays - up to its coverage limits - for the long-term care you need when you need it..

II. Self Pay

1. Unless you are very wealth this is not an option.
2. Create a Trust. A trust is when a person (the trustor) transfers something of value (the asset) to another person (the trustee).
   1. A Charitable Remainder Trust allows you to use your own assets for long-term care with the added benefit of reducing taxes. This type of trust is typically used by wealthy people with specific types of assets that they donate to a public charity at fair market value.
   2. What Is a Medicaid Disability Trust? The purpose of a Medicaid Disability Trust is to enhance the quality of life of an individual with a disability who also qualifies for public benefits. Medicaid Disability Trusts are limited to disabled persons under age 65.

III. Medicaid

Medicaid is a joint Federal and state government program that helps pay medical costs for some people with limited incomes and resources. People with Medicaid may get coverage for services such as nursing home and home health care, if they meet the eligibility requirements for Medicaid.

Sometimes you must spend down (or use up) your personal resources (assets) before you qualify for Medicaid.

IV. Annuity

Deferred Long Term Care Annuity. This type of annuity is available to individuals up to age 85.

Immediate long-term care annuity - A single premium payment you make to an insurance company, you receive a specified monthly income.

V. Sell or Stay at Home?

One of the most difficult decisions you may face as you age is whether it is time to leave your home and move to a more supportive setting such as an assisted living facility or nursing home.

1. If you sell your home, you will not be able to pass it on to heirs.
2. The sale price may not be enough to pay for your long-term care.
3. Market conditions will affect the selling price of your home.

VI. Home Equity Conversion.

There are three types of reverse mortgages. These include:

1. Home Equity Conversion Mortgage (HECM) - This program is offered by the Department of Housing and Urban Development (HUD) and is insured by the FHA. HECMs are the most popular reverse mortgages, representing about 90 percent of the market.
2. Fannie Mae Home Keeper Loan - Borrowers may receive more cash from these loans than with a HECM since the loan limit for these loans is higher.
3. Financial Freedom Cash Account Loans - These loans are designed for seniors who own expensive homes.

VII. Life Settlements

Life Settlements give you the ability to raise cash by selling your life insurance policy. With a Life Settlement, you sell your life insurance policy for its present value. This option is usually only available to women age 74 and older and to men age 70 and older.

Universal Life Insurance Policy with a long-term care benefit riderLincoln Financial offers this kind of policy which will help protect your assets, your family and your financial independence.

Q: Is Long Term Care Worth the Price?

Premiums for 2011 are increasing from 20% of 60%.

Q: What’s going on?

1. People are living longer and using more benefits than anticipated.
2. Rock- bottom interest rates exacerbate the problem, since insurers rely on bond income to pay claims.
3. If you have a policy, and been notified of an unbearable increase? Ask for a better deal. Your age at the time of purchase plays a huge role in policy pricing. But if you bought within the past two years and haven't developed new health issues, shop around, Insurers’ price differently for risk, and their criteria change regularly.