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

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Preserving the Family Vacation. Top Tips to Keep Spending in Check

As the economy continues its climb out of recession, many families might be thinking twice about what they spend on the annual summer vacation. But there are ways to preserve the tradition by being smart about spending. Some ideas:

Get on the mailing list: For any possible destination you can think of, go to their Web sites early and get on their mailing list. You might get plenty of endless chatter from the hotels, amusement parks and other destinations you.re interested in, but you might also find coupons to those locations and other linked businesses that could save you money. Also go to travel magazines to see whether signing up might deliver similar money-saving offers. Most important, go to the tourism Web sites of the states you.re planning to visit to take advantage of coupons and specials. You might also find events and activities to attend that aren’t publicized anywhere else.

Weigh the value of driving vs. flying: Even though energy prices might not approach the stratospheric levels of 2008 this summer, you might find that driving vacations aren’t necessarily the cheapest alternative. If you haven’t measured the gas mileage lately on your car, do so after your next fill-up and see what it would really cost you to drive to your desired destination and don’t forget wear and tear on the car (roughly 10 to 20 cents a mile), meals or hotels on the road. If you plan significantly ahead of time, traveling by air might not only get you there faster, but cheaper. At the same time, if you fly and need a rental car, don’t forget to figure in that cost. Go to the Web sites of the airlines you fly the most and sign up to get advance notice of cheap fares.

Make your reservations online: Tourism businesses save money when you reserve online, that’s one less human they have to pay to handle your call. So chances are good you might get a slight discount for using that option. If you.re not a regular user of the Internet, you should know that airlines and hotels particularly have migrated more of their deals for rooms and meals to their websites because visitors can complete the whole reservation process themselves. That saves airlines, hotels and rental car companies considerable labor cost.

Go for the package deal: Online travel sites make it easy to combine hotel, airfare and rental car at a cheaper rate. And remember the days and times that are typically cheaper to fly, Tuesdays, Wednesdays and Saturdays if you.re willing to fly early in the morning or late in the evening.

Know when to use travel agents: A good travel agent can be a great money saver, particularly for lengthy or complex trips. It’s OK to compare prices yourself, but consult a travel agent if you are going to remote destinations, they’ll know the territory, and if you have to make changes, they might be able to help you do so without paying a lot of extra money. Don’t be afraid to consult the company travel agent since their status may make them a destination for deals that non-affiliated travelers wouldn’t get.

If you’re going abroad: Do a review of currency rates before you go to see how much money you’ll really have to spend on the trip. Also, see if there are specific ways you can save money for dining, lodging and shopping in that country. Also, check in with your credit card company before you go, some might charge high currency conversion fees, and you can either negotiate them downward or apply for a card with a lower conversion rate that you’ll use only for this kind of travel.

Make sure phoning home is affordable: Make sure you can use your cell phone affordably wherever you go. Check with your wireless provider to make sure your destination has adequate network strength for your phone, and  particularly check what it will cost to call home or other destinations abroad if you.re overseas. There’s nothing like the shock of a wireless bill with unchecked charges. You might also check with your arriving airport to see if local stores rent or sell disposable cell phones at a significant savings.

Check on car insurance: We.ve all heard how buying rental car insurance is a bad deal, but not so fast. For domestic trips, double check whether your own car insurance policy is likely to pick up the bill if you crash your rental car. For overseas trips, check with your rental agencies, as well as your credit card company to see what insurance options you have. Don’t think only in terms of accidents. Think about blown transmissions in small towns with only one mechanic who doesn’t speak English. Also, if you’re driving to Canada or Latin America in your own car, be very sure you have adequate coverage required in every country. You might have to buy supplemental coverage.

Consider travel insurance: There is insurance coverage available for travelers who face sudden cancellations as well as medical needs. Trip cancellation can reimburse you for non-refundable costs in the event of things like an illness for you or a family member that causes you to cancel your trip. Look into what your current health insurance covers at your destination, so that you can understand your risk exposure and weigh it against the cost of supplemental insurance. It’s important to realize that health insurance issues crop up on domestic trips as well as those overseas. For instance, your health insurer may not cover claims in other parts of the country. Always check. Also, if you’re on a business trip, make sure your company health plan will cover you in an emergency, and if your work takes you to a dangerous country, ask if your employer carries kidnapping and ransom insurance. Don’t laugh. According to the Insurance Information Institute, kidnapping is on the rise internationally.

Prevent theft at home and abroad: Photocopy your driver’s license and passports and keep the originals with your valuables in the hotel safe. Also, don’t forget to hold your mail and pay all your bills before leaving town so identity thieves aren’t attracted. 

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Tim Madison, CFP, ChFC, CASL, who can be reached at 770-777-8979

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