Accounting News and Notes

Healthcare Planning: Pratical Considerations for a “Graying” America

Modern medicine has made great advances, giving a child born in the U.S. in 2000 an average life expectancy nearly 30 years longer than one born in 1900.¹ But healthcare has no cure for old age. 

Today, more than 36 million Americans are 65 years of age or older, making up approximately 12% of the total population. And by the year 2030, that number could grow to 71 million, a staggering 20% of the population. ² Yet as this tidal wave of Baby Boomers prepares to enter retirement, both employers and the government are cutting back on low-cost healthcare benefits.

More and more, responsibility for America’s healthcare price tag is shifting to individuals and families. Medicare faces constant cost pressures, and some people are concerned that the program may eventually become insolvent. Premiums for employer-sponsored insurance have increased 87% cumulatively from 2000-2006, compared to a 20% increase in wages and an 18% increase in overall inflation.³ In addition, employers are moving to limit the benefits and coverage they will offer to current and future retirees. 

With maturing Americans living longer, more vital lives, how will they afford the growing cost of healthcare—especially for situations involving long-term care? While various forms of insurance typically cover routine doctor visits and emergency medical situations sufficiently, coverage for ongoing long-term healthcare needs is often limited and restricted. Paying for long-term care needs can quickly deplete even substantial savings. 

Many Americans are rightfully concerned, and there are indications that rising healthcare costs are hurting their household finances.  Even wealthy individuals view this issue as a major threat to their family’s long-term financial well-being. According to a Citigroup Smith Barney Affluent Investor Poll (May 2006), about seven in ten of those surveyed had concerns about being able to pay the cost of long-term care in their retirement years. 

Whatever form governmental healthcare financing may take in the future, we will all shoulder some part of the costs. Wise planning now can make a great difference in how financially prepared you will be to handle the medical needs of retirement. This series of articles provides a brief introduction to some of the major programs and issues you should consider when planning your healthcare finances—both now and for retirement.  

Employer-Sponsored Health Insurance: The first line of defense

If you belong to an employer-sponsored healthcare program, regardless of your age or health, keep it! The premiums, deductibles, prescription drug and co-pay charges available through a group health plan can be a bargain in comparison to individual health insurance. If you are changing employers, sign up for the new employer’s plan as soon as you join the company (generally within the first 30 days). Many large plans will have no limitations on pre-existing conditions, but that may only apply if you sign up immediately upon becoming an employee. If you wait and do not have proof of existing coverage from another source, additional charges or limitations may apply. 

The government’s COBRA legislation (Consolidated Omnibus Budget Reconciliation Act of 1985) instituted a variety of safeguards for workers and their immediate family members to maintain healthcare coverage if a “qualifying event” occurs. These include death of covered employee; termination or reduction of hours (whether resignation, discharge, layoff, strike, or other cause); divorce, which normally terminates an ex-spouse’s eligibility; or a dependent child reaching an age or status for which coverage is excluded. In 1996, the government added further healthcare coverage and protections under the Health Insurance Portability and Accountability Act. While these are helpful, they generally place a greater burden of cost upon the individual. 

Health Savings Accounts: A new tax-favored strategy for healthcare savings

If you are currently employed, you might consider a Health Savings Account (HSA). The Federal government introduced these accounts in 2004 to help people save for both current and future medical expenses. To qualify, you need to have medical coverage under an HSA-approved high deductible health plan (HDHP). Check with your employer’s benefits department to see if they offer an HDHP alternative, which typically charges lower premiums than the regular group coverage and may, for some, balance out the higher deductible.  If not, you can also contact your state insurance department to find insurance companies qualified to sell these plans in your state of residence. 

There are significant advantages to HSAs. They are triple tax-favored: annual dollars you are allowed to contribute are deductible on your Federal tax return even if you don’t itemize; assets in the account can be invested and the earnings grow tax-free; and withdrawals from the account for qualified medical expenses are also tax-free. HSAs are fully portable, meaning you can keep your account even if you change jobs or medical coverage, become unemployed, move to another state, or change your marital status.  

Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.  © 2009 Morgan Stanley Smith Barney LLC.  Member SIPC.

John Dillard is an Christian Speaker/Author and Certified Public Accountant in Duluth, GA. To See how he takes Christ along with him to work visit http://www.hiscpa.com/ and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and a Voice of One: Nehemiah’s Prayer visit http://www.john-dillard.com/ or call John Dillard CPA today at 770.814.9304 (All Rights Reserved) Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it

Atlanta CPA on Using Health Savings Accounts

During this economic times it is wise to consider every tool in the financial toolbox to limit your individual tax bill as much as possible. Health Savings Accounts (HSA’s) are a relative newcomer to the many options available to individual taxpayers to further limit their tax bill. Contributions, other than those from an employer, are deductible on an individual personal income tax return and are able to be deducted, whether or not a taxpayer itemizes deductions. Distributions from an HSA that are incurred and expended to pay qualified medical expenses are not taxable.

A Health Savings Account is a tax exempt trust/custodial account that you set up with an institution that is set up as an eligible qualified HSA trustee to pay/reimburse qualified medical expenses incurred. No permission or authority is required from the IRS to set up an HSA as long as you qualify and work with a qualified trustee, which is most often a bank or insurance company.

Benefits of an HSA.

-You can obtain a tax deduction for qualified expenses, even if you do not itemize.

-Contributions made by an employer to your HSA may be excluded from your gross income.

-Unused contributions remain in your account and can be used in subsequent years, unlike in a Section 125/Cafeteria Plan where they are forfeited if not used in the current calendar year.

-Distributions are tax free as long as used to pay qualified medical expenses.

-HSA’s belong to you and to not an employer and thus they stay with/belong to you regardless of where you work, as long as you otherwise continue to qualify.

To Qualify for an HSA. You must meet all of the following requirements:

-You must be insured under a high deductible health insurance plan.

-You have no other insurance coverage.

-You are not enrolled in Medicare.

-You cannot be claimed as a dependent on another taxpayers return.

Health Savings Accounts are required to only be used in conjunction with a High Deductible Health Plan (HDHP).  In general a HDHP has a higher deductible than typical health plans and has a maximum limit on the total of the annual deductible and out-of-pocket medical expenses that you can pay. These out-of-pocket expenses include copayments but do not include monies paid for medical insurance premiums. The limits for the minimum annual deductible amount for 2009 for an individual plan is $1,150 and $2,300 for a family. The 2009 Maximum Annual Deductible and Other Out-of-Pocket expense are $5,800 and $11,600 for an individual and family respectively.

Annual Contribution Limits. The limit on what you can contribute to your HSA depends upon the type of HDHP coverage obtained, your age and dates of eligibility. The 2009 maximum limits you can contribute are $3,000 if you cover yourself only and $5,950 for a family plan.

Utilizing a HSA is a great planning tool to take full legal advantage of tax law to limit your tax bill accordingly. It is widely suggested and encouraged that you utilize your medical insurance lines agent assistance to also assist in setting up your HSA to ensure all of the rules and regulations are followed.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta  CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry visit http://www.john-dillard.com/ To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.

“Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!” What, then, shall we say in response to this? If God is for us, who can be against us? Romans 8:31

Why are these verses here? Learn how HIS CPA became a Christian Accounting firm visit http://www.hiscpa.com/christian-CPA.html