NC State Grange Agents

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• NC State Grange Agents
• Health Savings Accounts School
• November 2007

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Health Insurance Financial PlanningIntroduction
to Individual Policies andHealth Savings
Accountswritten byProfessor Paul Zane Pilzer

• Overview
• Health Insurance The Largest Gap in Financial
  Planning
• Introduction to Individual Health Insurance
  Policies
• Medical Uninsurable Preexisting Conditions
• Health Savings Accounts (HSAs) for Individuals
• State by State Guide to Individual/Family Health
  Insurance Cost
• Review Questions

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Health Insurance The Largest Gap in Financial
Planning

• Million Americans lack any form of health
  insurance.
• 2 reasons they do not have insurance not
  provided by employer and do not know that
  affordable individual/family policies are
  available

80 of these people are employed and 16 Million
earn MORE THAN 40,000 per family. 81 of these
workers are employed by companies without a
sponsored health plan
15 Million of these are age 19 30 typically
consume very little healthcare expenses hence
not seeing the need to purchase it
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Health Insurance The Largest Gap in Financial
Planning
Up to 1 million mostly middle and upper-middle
class families file bankruptcy each year due to
medical bills they can not pay ¾s of these had
employer sponsored group health insurance when
they first became ill Medically Bankrupt
accounts for about 50 of all Bankruptcy filings
Cost of health benefits now exceeds profits for
most of the Fortune 500 Millions of
Self-Employed and independent contractors go with
out health insurance because the do not realize
it has recently became affordable and tax
deductible
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Health Insurance The Largest Gap in Financial
PlanningWhat happen if your Client became ill
and could not work?
Causes of Illness Outdoor Activities Home
Accidents Most likely place of
occurrence Commuting/Driving - gt 3 Million/year
injured High BP 65 Million among Americans
over age 20 Overweight/Obese 67 of Americans
are considered overweight/obese 18 Million
have Diabetes 41 Million over the age of 40
are pre- diabetes 65 of diabetics die from
heart disease or stroke Cancer, Heart Attack,
or Stroke 1 in 4 men 1 in 5 women will
develop at least one of these prior to age 65.
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Health Insurance The Largest Gap in Financial
PlanningGaps in Coverage Loss of Job / Change
of Job
COBRA short-term extension of employer health
Insurance up to 18 months Former employee pays
100 of cost Plus 2 admin fee 2006 average
cost 700 / individual 1,400 / family 5
million on Cobra at any given time Employer
must offer w/in 14 days of term keep offer
open for 60 days
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Health Insurance The Largest Gap in Financial
PlanningPitfalls of Employer Sponsored Health
Plans

• Most people change jobs every 1-4 years vs. 25
  yrs seen in the 60s
• Some employees pick their next job based on
  near-term medical needs
• US Healthcare cost rising _at_ 15/yr 4 times the
  projected growth rate for the US gross domestic
  product
• Most employee groups are too small to absorb the
  risk of a few catastrophic illnesses

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Health Insurance The Largest Gap in Financial
PlanningHow We Are Getting Out of This Mess

• Individual / Family health insurance has became
  cheaper safer than traditional employer Health
  Insurance about 1/3 of group coverage cost
• Beginning in 2003 Self Employed like employee
  sponsored plans became 100 tax deductable
• NEW HEALTH REIMBURSEMENT ARRANGEMENTS (HRAs) are
  now available for individual/family health
  insurance IRS now allows HRAs whereby employers
  can reimburse their employees tax-free for
  amounts spent on individual or family health
  insurance premiums (Sec 213(d) of the IRS Code)

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Health Insurance The Largest Gap in Financial
Planning

• Three factors changing the US Healthcare Delivery
  System
• Consumer-Directed Health Care Individual
  patients choose their Medical provider/service
  Keep s not spent for future medical /
  retirement expenses
• Individual / Family insurance is replacing
  employer-sponsored plans
• Employer plans projected to continue to decline
  over the next 10 years and eliminated w/in the
  next 20 years Employees given tax-free s to
  purchase their own individual/family health
  policies
• Defined Contribution plans are replacing Defined
  Benefit plans

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Individual Health Insurance PoliciesIntro

• Individual/Families policies growing as a result
  of new legislation/developments resulting in an
  alternative to traditional employer health
  insurance
• An Individual policy is purchased directly from
  an insurance company or governmental entity
• Individual Policies deemed safer than employer
  sponsored plans due to portability, larger risk
  pool and being guaranteed renewable
• Individuals choose who provides their service
  instead of employer
• Individuals/Families are underwritten for risk
  vs. employer groups must accept all regardless
  of health or age
• Uprating (or tiering) for increased health risk /
  Exclusions to except certain conditions
  Generally 80 accepted w/out rating/exclusions
• Five states require acceptance w/out increased
  prices Community Rated no turn downs
  Guaranteed Issue NY, NJ, Mass, Mn, Vt
• In 2004 13 Million / 4 of US Population
  covered by Individual/Family Policies

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Individual Health Insurance PoliciesIndividual
vs.. Traditional Employer Sponsored Plans

• Employer Policies can cost up to three time that
  of the Individual plan average 14K/family
  4.5K/individual group cost
• Employee typically pays 50 to 100 of dependent
  coverage
• Many Employer plans are being reduced this
  trend is expected to continue of the next 10
  years and possible elimination of employer
  sponsored plans within the next 20 years.

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Individual Health Insurance PoliciesIndividual
Plans

• Age is the biggest factor in determining cost
• Must be purchased from a carrier willing to meet
  the requirements and laws of the state of
  residence
• Reasons for not previously purchasing Individual
  Policy
• Unaware of availability
• Employee sponsored plan
• Thinking it cost more than Employee Sponsored
  Plans
• US Tax laws did not encourage it

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Medically Uninsured / Preexisting Conditions

• Easiest way to find coverage for the impaired is
  thru Employee Sponsored plans
• Each State has a state-guaranteed coverage via
  state risk pools or their equivalent
• State guaranteed coverage available for those who
  are uninsurable and can not get coverage in the
  private market
• 250,0000 are estimated to receive
  State-Guaranteed coverage
• Eligible for State-Guaranteed plans by either -
  denied private coverage rateup or exclusions

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Medically Uninsured / Preexisting Conditions

• State Guaranteed Coverage to HIPAA Eligible
  Individuals
• State Risk Pools
• Conversion Coverage (Fla, Ohio, Ca) Group
  Coverage to Individual w/out exclusions _at_ no more
  than 200
• Guaranteed Issue From Private Carriers must
  offer at least 2 choices traditional low
  deductible high deductible no more than 200
  rate increase

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Medically Uninsured / Preexisting Conditions

• Medicaid
• Strictly Income Based
• Approximately 38,000,000 individuals are
  receiving Medicaid

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Health Savings Accounts (HSAs) for Individuals

• HSA represent the biggest change in Health
  Retirement care since Social Security Medicare.
• HSAs allow individuals to save hundreds of
  thousands of dollars
• TAX FREE, for future medical expenses/retirement
  while financially reforming the entire US
  Healthcare System

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HSAs for Individuals

• Some Advantages of an HSA
• Rewards consumers for making financially smart
  but medically sound choices
• HSA can provide employees w/financial health
  coverage buffers between jobs
• HSA significantly reduce the 28 of the 2.0
  trillion US Healthcare budget that goes into
  paperwork
• Provides a tool to baby boomers to have the
  necessary funds to supplement Medicare during
  their retirement
• Provides consumer directed choices in Medical
  care/services
• Promote proactive preventive care and wellness
  care instead of offering reactive sickness
  medicine

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HSAs for Individuals

• A survey of the first 1 million HSA sold within
  the initial 14 months HSAs were offered revealed
• Majority (52) were 40 years old or older
• Nearly one half (49) were families with
  children
• 2/5s (41) had incomes of LESS than 50K
• 30 had previously been uninsured

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HSAs for Individuals

• Retirement Savings
• 45 million households have an IRA and 42
  Million have a 401(K)
• IRAs 401(K)s combined hold 5.1 trillion
  
• ½ of all US Retirement assets
• HSAs receive all the same benefits of a
  traditional IRA/401(K)
• EXCEPT there is NEVER any taxes paid on
  distributions used for qualified medical
  expenses before or after age 65

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HSAs for Individuals

• Triple Tax Advantages for HSAs
• Contributions are Tax Deductible going in
• Appreciations/Gains are Tax Free
• Withdrawals are Tax-Free when used for qualified
  medical expenses
• Client MUST have a HSA Qualified Health Plan to
  open an HSA (savings account portion) at a
  financial institution and receive its tax
  benefits
• An HSA is the only tax-advantaged investment
  vehicle that offers PERMANENT rather than
  temporary escape from (some)state and federal
  income taxes

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HSAs for Individuals

• Safety Net between Jobs
• Ability to withdraw funds w/out penalty or taxes
  to pay qualified medical expenses
• Ability to pay ALL health insurance premiums
  when an individual is collecting federal or state
  unemployment benefits or is on COBRA - w/out
  penalty or taxes
• HSA account can act as an emergency fund for
  nonqualified withdrawals - subject to 10
  penalty if under age 65 normal income taxes
• Assuming the client has not reimbursed themselves
  for past medical expenses and keeps a record the
  qualified expenses may be able to withdraw tens
  of thousands from their HSA account for
  Non-Medical purposes w/out penalties or taxes

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HSAs for Individuals

• HSA-Qualified High Deductible Health Insurance
  Plan Highlights
• Deductibles OOP Maximums
• Individual 1,050 5,250
• Family 2,100 10,500
• OOP Max Annual out-of-pocket Maximum
• amount paid for co-insurance, deductibles, and
  exclusions

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HSAs for Individuals

• Items Allowed OUTSIDE of the Minimum High
  Deductibles for First Dollar Coverage for the
  Insured
• Periodic Health Evaluations i.e. annual
  physicals
• Screening Services i.e. mammograms
• Routine prenatal and well-child care
• Child and adult immunizations
• Tobacco Cessation Programs
• Obesity and weight loss programs
• Preventive care
• (Preventive care does not include treatment of
  an existing condition, but does include drugs and
  medications designed to prevent a disease that
  has not yet manifested itself or to prevent
  reoccurrence of a disease such as
  cholesterol-lowering medication for people with
  high cholesterol (pg 38)

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• Some, but not very many, prescription drugs can
  be covered as preventive care under your
  policy.
• Two examples of types of drugs that may be
  covered as preventive care
• are drugs known as
• 1. Statins that lower your cholesterol levels to
  prevent heart disease (e.g., Lipitor, Crestor,
  Mevacor, Zocor, Cholestin, Pravachol, etc.).
• 2. Angiotensin-converting Enzyme (ACE)
  inhibitors that can help prevent (or prevent
  reoccurrence of) a heart attack or stroke (e.g.,
  Capoten, Lotensin, Vasotec, Altace, Zestril,
  Accupril, etc.).
• NOTE Birth control pills and devices are not
  considered preventive care for HSA-qualified
  plans.
• (from Guide to HSA)

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HSAs for Individuals

• Managing the HSA Savings Vehicle
• Choosing the Institution
• Much like choosing your bank
• Watch for minimum requirements / maintenance
  fees / withdrawal fees / debit card fees / etc
• Can have unlimited number of accounts at
  unlimited number of institutions - with
  balances being transferred freely directly
  between them
• Unlike your local checking / savings account
  typically there will be few direct cash
  deposits/withdrawals so distance from the
  institution becomes less important as compared to
  the investment/growth tools that are made
  available to the client.

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HSAs for Individuals
Making Contributions to the HSA Savings
Vehicle Maximum Annual Amounts Individual 2,700
Family 5,450 Maximum Contributions adjusted
annually for inflation. Pay fees outside of
Contributions to maximize tax benefits Interest/Ga
ins appreciated inside the HSA are not counted
toward the maximum annual contribution amount If
your HSA-qualified coverage begins in any month
other than January, you can still make the full
HSA contribution for the calendar year
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HSAs for Individuals

• Employer contributions from employer-sponsored
  HSA Plans
• Paid directly to the HSA by Employer into the
  Employees designated account
• Contributions can be either a fixed amount or
  of salary
• Employer contributions are subject to ERISA
  nondiscrimination rules for employees of a given
  class
• TAX Benefit(s)
• Employee receives funds not subject to income
  taxes or FICA
• Employer gets full income tax deduction and does
  not pay FICA or FUTA on the contributed amount

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HSAs for Individuals

• Employer contributions in lieu of salary
• Contributions are made under a Section 125 plan
  a reduction of their pre-tax salary
• Ensures regular contributions to the HSA savings
  vehicle
• Great way for employers to bring an additional
  benefit to the employees at very little if any
  net cost to the company considering FICA savings
  the company will gain
• Tax Benefit
• Individual get the money into the HSA and pays
  no income tax or FICA on the contribution
• Employer gets the full deduction for the
  contribution for income taxes and FICA

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HSAs for Individuals

• Self Contributions
• Made directly by the individual or anyone else on
  their behalf
• May be made at any time (up to 4/15 for preceding
  tax year)
• No minimum amount (subject to institutions
  requirements)
• Tax Benefits
• Client receives an Above the Line deduction
  for 100 of the contribution regardless of who
  make the HSA contribution

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HSAs for Individuals

• Catch-Up Contributions
• Ability to make an additional contribution for
  each individual over the age of 55 until they
  enroll in Medicare, over and above the annual
  contribution limit
• The amount for 2007 is 800
• The amount for 2008 is 900
• For 2009 and thereafter the amount increases to
  1,000/year

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HSAs for Individuals

• Making Withdrawals
• There is not time limit on how long an
  individual can wait to reimburse themselves with
  funds from their HSA, as long as the medical
  expense was incurred after they opened their HSA
• So if possible, pay for medical expenses with
  non-HSA funds until after retirement to maximize
  HSA growth
• If one can not contribute to their HSA in a
  given year, prior to filing taxes, calculate the
  total qualified medical expenses and make a
  contribution to the HSA in that amount and then
  immediately reimburse themselves to achieve an
  above the line deduction

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HSAs for Individuals

• Qualified Medical Withdrawals
• Include
• Prescriptions
• Doctor Visits
• Dental
• Chiropractic
• X Ray/other Medical Procedures
• Over the Counter Medications
• Eyeglasses, Contacts, LASIK, and other Vision
  Care
• Hearing Aids
• LTC premiums and expenditures

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HSAs for Individuals

• Qualified Medical Withdrawals
• Include
• Prescriptions
• Doctor Visits
• Dental
• Chiropractic
• X Ray/other Medical Procedures
• Over the Counter Medications
• Eyeglasses, Contacts, LASIK, and other Vision
  Care
• Hearing Aids
• LTC premiums and expenditures

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HSAs for Individuals
Qualified Medical Withdrawals Your HSA account
funds can be used to pay for not only your
qualified medical expenses, but also the
qualified expenses incurred by your spouse and
dependents. Your spouse and dependents do not
need to be covered by your HSA-qualified plan
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Health Insurance Financial PlanningIntroduction
to Individual Policies andHealth Savings
Accountswritten byProfessor Paul Zane Pilzer
Review Questions
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HSAs for Individuals
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HSAs for Individuals
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HSAs for Individuals
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