Look Backward to Plan Forward

Look Backward to Plan Forward

We have entered Open Enrollment season and that means you and everyone in your office are probably reading through enrollment guides and trying to decipher it all. As you begin your research into which plan to choose or even how much to contribute to your Health Savings Account (HSA), consider evaluating how you used your health plan last year. Looking backward can actually help you plan forward and make the most of your health care dollars for the coming year.
Forbes magazine gives the advice, “Think of Open Enrollment as your time to revisit your benefits to make sure you are taking full advantage of them.” First, look at how often you used health care services this year. Did you go to the doctor a lot? Did you begin a new prescription drug regimen? What procedures did you have done and what are their likelihood of needing to be done again this year? As you evaluate how you used your dollars last year, you can predict how your dollars may be spent next year and choose a plan that accommodates your spending.
Second, don’t assume your insurance coverage will be the same year after year. Your company may change providers or even what services they will cover with the same provider. You may also have better coverage on services and procedures that were previously not eligible for you. If you have choices on which plan to enroll in, make sure you are comparing each plan’s costs for premiums, deductibles, copays, and coinsurance for next year. Don’t make the mistake of choosing a plan based on how it was written in years prior.
Third, make sure you are taking full advantage of your company’s services. For instance, their preventative health benefits. Do they offer discounted gym memberships? What about weight-loss counseling services or surgery? How frequently can you visit the dentist for cleanings or the optometrist? Make sure you know what is covered and that you are using the services provided for you. Check to see if your company gives discounts on health insurance premiums for completing health surveys or wellness programs—even for wearing fitness trackers! Don’t leave money on the table by not being educated on what is offered.
Finally, look at your company’s policy choices for life insurance. Taking out a personal life insurance policy can be very costly but ones offered through your office are much more reasonable. Why? You reap the cost benefit of being a part of a group life policy. Again, look at how your family is expected to change this year—are you getting married or having a baby, or even going through a divorce? Consider changing your life insurance coverage to account for these life changes. Forbes says that “people entering or exiting your life is typically a good indicator that you may want to revisit your existing benefits.”
As you make choices for yourself and/or your family this Open Enrollment season, be sure to look at ALL the options available to you. Do your research. Take the time to understand your options—your HR department may even have a tool available to help you estimate the best health care plan for you and your dependents. And remember, looking backward on your past habits and expenses can be an important tool to help you plan forward for next year.

Affordable Care Act Update

Affordable Care Act Update

Recently, the President signed a bill repealing the Affordable Care Act’s Individual Mandate (the tax penalty imposed on individuals who are not enrolled in health insurance). While some are praising this action, there are others who are concerned with its aftermath. So how does this affect you and why should you pay attention to this change?
First, as an individual, if you do not carry health insurance, you are currently paying a penalty of $695/adult not covered and $347.50/uninsured child with penalties going even as high as $2085/household. These penalties have been the deciding factor for most uninsured Americans—go broke buying insurance but they have insurance, or go broke paying a fine and still be uninsured. With the repeal signed in December 2017, these penalties are zeroed out starting January 1, 2019.  While it seems that the repeal of the tax penalty should be good news all around, it does have some ramifications. Without reform in the healthcare arena for balanced pricing, when individuals make a mass exodus in 2019, we can expect higher premiums to account for the loss of insured customers.
As a business, you are still under the Employer Mandate of the ACA. There have been no changes to the coverage guidelines and reporting requirements of this Act. However, with healthy people opt-ing out of health insurance coverage, the employer premiums can expect to be raised to cover the increased expenses of the sick. Some do predict the possibility of the repeal of some parts of the Employer Mandate —specifically PCORI fees and employment reporting. The Individual and Employer Mandates were created to compliment each other and so changes to one tend to mean changes to the other.
So, why should you pay attention to this change? Because the balance the ACA Individual Mandate was designed to help make in the health insurance marketplace is now unbalanced. Taking one item from the scale results in instability. Both employers and employees will be affected by this tax repeal in one way or another.

Using Your Health Savings Account

Using Your Health Savings Account

According to recent estimates by Fidelity Investments, a couple will incur an estimated $280,000 worth of medical expenses after turning 65 years of age. They estimate this cost every year and when they publish it, I can’t help but have an anxiety spike as I ponder the reality of that number. Even if they are off and have over-estimated by 50%, the remaining number is still very hard for me to swallow. And, as anxiety has habit of doing, it sends me into panic mode and I scramble to reevaluate my retirement planning in an attempt to ward off the eventual doom and gloom that has settled on the far horizon of my life.
After a few deep breaths, I settle down and remind myself that I have a health savings account (HSA) that I have faithfully been contributing to over the past several years and that I plan to continue contributing to as long as I am eligible to do so. HSAs are a great way to plan for medical expenses, either in the future when you retire, or now when you or a member of your family incurs qualified medical expenses. Here’s the run down on how they work.
HSAs are a savings account option that allows individuals that are covered by a high deductible health plan (and that are not covered by any type of insurance other than a high deductible health plan), to set aside a certain amount of their income on a pre-tax basis to pay for medical expenses that arise. Unlike health flexible spending accounts that are similar in that individuals can set aside pre-tax dollars to pay for qualified medical expenses, funds put into an HSA are not forfeited at the end of the year if you don’t spend them. Said differently, HSAs don’t have the “use it or lose it” component. If you don’t use it, you keep it, and if you do that year after year, the balance in your HSA can grow exponentially!
An HSA works essentially like this. Each year the government sets a maximum amount that qualified individuals are able to put into an HSA on a pre-tax basis. For 2018, this amount is set at $3,450 for individuals that have single coverage under a high deductible health plan (HDHP) or $6,900 for individuals with family coverage under an HDHP plan. Then, these funds can be used to pay for qualified medical expenses that are incurred. This would be for out-of-pocket expenses that aren’t covered by their health plan such as copays, deductibles or qualified expenses not covered by the plan.
The concept for HDHPs is that they are a type of consumer-driven health plan that results in individual consumers having more “skin in the game,” leading them to be more conscientious consumers of health care, thereby helping to control the rising costs of health care. To assist individuals to pay for the higher costs they are responsible for prior to meeting the higher deductible, the government was willing to also have more skin in the game by forfeiting tax dollars and allowing HSA contributions to be made on a pre-tax basis to pay for these costs. Employers who allow employees to contribute to HSAs on a pre-tax basis also benefit by reducing the amount of FICA taxes that they are required to pay.
The goal of the HSA was not only to help pay for these higher, pre-deductible expenses, but also to provide a mechanism for individuals to save for medical expenses once they reach retirement. After all, discussions and debates continue regarding whether or not Medicare will continue to exist in the years to come.
If you contribute to an HSA and then use those funds for qualified medical expenses, you pay no taxes on those funds. In essence, you are lowering your expense by the amount of taxes you save. If, however, you dip into your HSA to pay for non-qualified expenses, then you are subject to taxes on those funds plus a 10% tax penalty.
Some individuals balk at contributing to an HSA because they feel they will not incur qualified medical expenses in the coming year. Other individuals limit their HSA contributions to the amount of qualified medical expenses they expect to incur in the coming year. Still others try to contribute the maximum amount each year regardless of what they anticipate their costs being. Why?
In addition to contributing dollars on a pre-tax basis, many banks that offer HSAs also offer investment options for those accounts, so that you can increase your funds through investments on top of the on-going contributions that you deposit. And, this investment growth is also available to you on a tax-free basis as long as the funds are used for qualified medical expenses! I find this refreshingly reassuring as I peek into my account and see that it is growing, and it not just because I’m dumping money into it. So max-funding an HSA and investing those dollars allow you to earn even more dollars on top of the pre-tax dollars. I look at this as free money!
Because of this growth potential, leaving funds in the account even when you do have qualified medical expenses can be an advantageous investment maneuver. What? Not use the funds when you have a qualified expense? Yep. You are not required to take funds out of your HSA at the time that a qualified expense occurs. You can leave that money in your HSA and, as long as you keep your receipts showing that you paid for those qualified expenses, you can wait to reimburse yourself for that expense at any time in the future, even if you are no longer covered by an HDHP when you decide to reimburse yourself. You see, although you are only eligible to contribute to an HSA when you are covered by an HDHP, you can take the money out for qualified expenses at any time in the future. I love this option. I put as much money into my HSA as I can, and as long as I have the funds in my personal operating account, I pay for qualified medical expenses with that money. I save all of those receipts and if in the future I’m short on money in my operating account for whatever reason, I can then reimburse myself for prior qualified medical expenses from my HSA. If I never need to do this, good for me; I leave the funds in the HSA and I continue to reap investment growth. There’s that free money again!
But what if I reach retirement and I’m still healthy? What if I manage to accumulate $140,000 in my HSA and I end up NOT having $140,000 in medical expenses? Will I encounter a “use it or lose it” option at this point? Nope. If I’m fortunate enough to be healthy with minimal medical expenses after turning 65, the funds in my HSA can operate exactly like my 401(k). Meaning, if I withdraw the funds for non-medical expenses after turning 65, those funds are subject to taxes, but they are no longer subject to the 10% tax penalty that I would have incurred if I used the funds for non-medical expenses prior to turning 65. And, just like a 401(k), the anticipated tax rate after I turn 65 is expected to be lower so I won’t pay as much in tax as I would have if I had taken those funds in my paycheck back when I was younger. Although my goal is to contribute to both my 401(k) and my HSA, I try to max-fund my HSA first and then I fund my 401(k) with as much as I can after that. Why? Because, once I reach 65 my HSA performs just like my 401(k) if I choose to spend the dollars on non-medical expenses. However, if I do have medical expenses, the funds I take from my HSA to pay for those expenses are “tax-free.” If I had to use money from my 401(k) for medical expenses, that money would be taxed!
By Vicki Randall
Originally Published By United Benefit Advisors