Money Relationship » Insurance

Using a Health Savings Account For Retirement

Adam — Mon, 07 Dec 2009 14:00:13 +0000

A Health Savings Account (HSA) is a tax advantaged account that you can put money into to pay for future medical costs. The money you place in the account is tax-deductible and grows tax-free if you use it for qualified medical expenses. Although many just place a minimum amount into the account for medical expenses, you may want to consider using them as a supplemental retirement savings vehicle.

How Do I Get a HSA?

In order to open a HSA, you must have a high deductible health plan (HDHP), not be eligible for Medicare (be age 65), and not be claimed on someone else’s tax return. A HDHP is a health insurance plan that has at least a $1,150 deductible for individuals or a $2,300 deductible for families. Also, the annual out-of-pocket maximums generally cannot exceed $5,800 for individuals or $11,600 for families. These plans are generally less expensive than more comprehensive plans offered by employers. Actually, many employers are beginning to offer HDHPs in their benefits package in order to cut health care expenses. HDHPs are typically the best choice for individuals who are in good health and do not typically have many out-of-pocket expenses throughout the year. Find an HSA plan that’s right for you (affiliate link).

What Can a HSA Be Used For and How Much Can I Put In It?

As stated earlier, a HSA can be completely tax-free if you use the money for qualified medical expenses. So what are these expenses? These expenses include general medical care, dental and vision care, prescriptions, and over-the-counter items such as aspirin. One thing that is not included on this list is insurance premiums. Premiums are not a qualified medical expense according to the tax law. However, Medicare premiums are deemed qualified and will be discussed in a later section. For 2009 you can place up to $3,000 in a HSA if you have individual coverage or up to $5,950 if you have family coverage. If you are age 55 or older you can place an additional $1,000 into the account.

Why Should I Use a HSA For Retirement Medical Expenses?

Fidelity estimates that a couple will need approximately $225,000 to cover their health care costs if they retire in 2009. That is an extremely high amount that will slowly deplete your retirement accounts. So why not use a HSA to fund this need? As mention earlier, you do not qualify to have a HSA if you are currently on Medicare. However, if you have a HSA prior to age 65 and then become eligible for Medicare, you can still keep the account open and use it for medical expenses although you are no longer able to fund the account. HSA money can be used to pay for Medicare premiums and out-of-pocket expenses including deductibles, co-pays and coinsurance for Part A, B, C or D.

If you remember from earlier, you get a deduction for your contribution to a HSA so you are ultimately placing pre-tax money in your HSA. That money then grows tax-free as long as you use it for qualified medical expenses. So if you save for this portion of your retirement expenses in a HSA, you will be using untaxed money which is always a good thing. If you were to use money from your 401(k) to fund this goal, you would be paying some taxes. As you may already know, money placed into a 401(k) is pre-tax but when you take it out in retirement, you are taxed at your ordinary income tax rate. Some of you may be saying that a Roth IRA would be better. A Roth IRA grows tax-free until retirement just like a HSA. However, a Roth IRA is funded with after-tax dollars where a HSA is pre-tax money. As you can see, as long as the money is used for qualified medical expenses, a HSA combines the tax benefits of a 401(k) with the tax benefits of a Roth IRA. That is one combination that cannot be beat! The fact that there are no tax ramifications means that you can save less to fund this goal than if you were to save for it in a different retirement vehicle.

Using a Health Savings Account For Retirement

How MyRate From Progressive is Saving Me 20% on My Auto Insurance

Adam — Wed, 06 May 2009 12:00:44 +0000

As I mentioned in my post on auto insurance, I am currently insured with Progressive. I switched to them because #1, they were the least expensive and #2, they offer the MyRate program. What is the MyRate program you ask? I’ll tell you!

Progressive MyRate Program

The MyRate program helps out drivers who are safe and drive only occasionally. In my case, I fit both of those classifications. I hardly ever break hard, go over 75 mph, etc. I also only have to drive 2 miles to and from the train station each day. Actually, it seems I am getting ripped off for insurance because I drive so little (I pay around $500 every 6 months). So in other words, I am being “classified” as a typical driver when I am actually not. Here is how the MyRate program works:

1. Plug in the MyRate Device in Your Car

The device that they send you (for free) plugs right into your car. It monitors things such as time spent in the car, speed, breaking, excessive acceleration, etc. So obviously, if you do all of those things in excess, this program is probably not for you.

2. Drive as You Normally Would

The device then wirelessly and securely sends information to Progressive. It’s that easy! You really do not even know it’s there.

3. Log In and See How Well You’re Driving

This is by far the funnest part. I love logging in and seeing how my driving compares to the masses. Here is how I compare to the nation on average per day:

Number of Trips Per Day: Me 3 | Nation 5

Driving Time: Me 0:52 | Nation 1:12 (in hours)

Over 75 mph: Me 0 | Nation 0:42

Mileage: Me 30.7 | Nation 31.1

Sudden Starts: Me 0 | Nation 2

Sudden Stops: Me 0 | Nation 4

Those are some pretty good numbers on my part. You know what that means? I SAVE MONEY!

According to the renewal rate, I will be saving $105 at my renewal. A savings of around 20%! Not to bad for being a good driver.

I think I will be staying with Progressive from now on thanks to this program.

Anyone else using this program or planning to switch after reading this?

How MyRate From Progressive is Saving Me 20% on My Auto Insurance

How to Get Free Auto Insurance Quotes and Purchase Online

Adam — Tue, 10 Mar 2009 09:00:44 +0000

Every six months you can find me surfing the web for auto insurance. Call me weird, but I always need to know I am getting the best price. If I had to guess, I would say that I have changed my auto insurance carrier seven times over the past nine years. Is that bad or am I just a good shopper? Anyway, I thought I would share with you my routine for shopping for auto insurance and things to look for. Currently, I am with Progressive and I have been pleased so far. Please keep in mind that none of these companies paid me to write about this. I also do not receive anything if you visit their site, so please feel free to visit them!

Check Your Current Policy

When six months rolls around (sometimes sooner), I will double-check to make sure that the coverage is still what I would like it to be. If for some reason the company lowered my limits, I make sure to get a new quote for the coverage amounts that I like. Here are the coverage amounts that I currently carry:

Bodily Injury Protection: $100,000 per person / $300,000 per accident

Property Damage: $100,000 per accident

Uninsured Motorist: Same limits as personal protection

Medical: $2,500

Comprehensive: $50 deductible

Collision: $500 deductible

I keep the bodily injury quite high because the cost of medical care is high. It’s that plain and simple. I will never buy less than $100,000 in property damage due to the high costs of vehicles today. For example, if I were in an at-fault accident with two other SUV vehicles, I would have caused damages (considering both were totaled) of around $50,000 if I am lucky. I really do not want to have to pay for any additional amounts out of pocket. I just keep the uninsured motorist coverage the same as my personal coverage due to the same reasons above.

In regards to deductibles, I keep my comprehensive very low because it just does not cost that much more to have it close to $0. Also, why have a $500 comprehensive deductible when you will use it for mostly inexpensive things? In terms of the collision deductible, I would like to have the deductible at $1000 because I could save around 15% on my policy. However, my credit union forces me to have at-the-most a $500 deductible. Anyone else have that problem?

Before you move onto the next section, make sure you obtain a new insurance quote from your current carrier. Their pricing structures may have changed.

Time to Start the Quotes

I typically have several sites that I check every few months for auto insurance. In this section I will list the sites that I visit and my general experience (price, obtaining a quote) with them.

Progressive

As I mentioned before, Progressive is my current carrier. So, far I have had a good experience with them. They were my carrier several years ago as well but of course, they were outbid a few months later so I switched. Obtaining a quote from Progressive is very easy. All you have to do is enter a few bits of information and you are all set for an accurate quote. They even offer to show you the prices of some of their competitors. However, I have never gone off of what they said. Can you really trust another insurance company to give you a quote for another company? I would rather do the digging myself. One of the main reasons I decided to go with Progressive is their MyRate Program. This program is for conservative drivers like myself. You basically install a tracker in your car that measures your distance and time traveled as well as your braking and acceleration. It then compares your driving to others in your rate class and gives you a discount accordingly (that is if you are below the average). My discount so far is about 5% at renewal (I have only been using it for a few weeks). All in all, I would recommend Progressive to anyone.

Geico

Before Progressive, my auto insurance carrier was Geico. They are well known for their commercials with the gecko. When I first purchased a policy from them it was very easy. Their quote system is very similar to Progressive. I only switched from them because Progressive’s quote was about $100 cheaper for six months and I also wanted to try the MyRate program. If you happen to find a cheaper quote with another company, make sure you call your current company first and see if they can negotiate with you on the price. Most companies will be willing to do this with you rather than see you go.

Esurance

Esurance is a fairly new auto insurance company. They are the ones with the animated (which I think are a little corny) commercials. Since the commercials are animated, I guess it allows them to produce cheaper insurance. I used Esurance for a few months and their quotes were quite low compared to some others. However, when I moved to Texas, their rates became more expensive and I could no longer use them. I would encourage you to check them out. They are very competitive right now and it does not hurt to get a quote.

State Farm

I have heard very good things about State Farm and their service. However, every time I get a quote there, they are always way more expensive than some of the others. I am talking about 25% higher. Maybe it is because I am in a strange rate class right now (young male). You may have more luck than me so be sure to check them out as well. Even though I never get a great quote from them, I still check. If you are someone who needs personal service, you may want to purchase from them even though they may be a fraction more expensive. They have many agents that you can see in your area.

Allstate

My first insurer was Allstate. Looking back, I could have probably saved quite a bit of money had I shopped around before I went with them. However, everyone in the family used them and I figured why not. I really did not know much about auto insurance back then. As soon as I went to college and became interested in personal finance, I started shopping around and got some pretty good deals. Allstate has quite a few good features such as accident forgiveness, deductible rewards, etc., but most of them are just a gimmick and add additional costs to the policy. Every time I quote with them now, they are even more expensive than State Farm. However, your circumstances may be different so be sure to at least get a quote from them.

Those are all of the companies that I get a quote from. I know there are probable plenty of other companies, but by the time I am done with quotes for these few, I have reached my maximum utility for auto insurance. There more than likely was a quote that I was comfortable paying for.

Time to Buy!

When you find a quote/company that you like, they make it very easy to purchase. Once you receive a quote, they automatically give you the option to purchase the insurance on the spot. Many companies even give you a discount for buying online.

Other Things to Consider

I figured I would give some additional brief tips to help you save some money on auto insurance.

1. Keep all of your policies with one company. If you have your homeowners, umbrella, renters and auto policy all at the same company, you will receive a discount on all of them.

2. Increase your deductibles. If you are allowed by your finance company (if you finance), raise your deductibles in order in increase your savings.

3. Find some discounts. Many auto insurance companies offer different types of discounts. They range from being a good student to belonging to a union. Make sure you ask your company if you are getting all of the discounts you are entitled to.

4. Drive a low-profile car. Drive a fast car? Chances are you are paying more due to that fact.

Anyone else have a company that they have used in the past? Did you get some good quotes from them?

How to Get Free Auto Insurance Quotes and Purchase Online

Health Insurance: Part 3 – COBRA Coverage

Adam — Tue, 23 Dec 2008 13:00:19 +0000

This is Part 3 of a series on health insurance. Part 1 discussed deductibles. That post discusses how they affect your plan and costs. Part 2 discussed stop-loss provisions and co-insurance.

The Consolidated Omnibus Budget Reconciliation Act of 1985 or COBRA, is a set of provisions that require some employers (those with 20 or more employees) to continue health insurance coverage for employees after termination of employment.

Termination of Employment

Under COBRA, the employer must offer continued health insurance coverage for 18 months from the date of termination or demotion to part-time. If the employee was fired due to “gross misconduct”, COBRA benefits do not have to be offered. COBRA coverage can be terminated before the 18 month period if any of the following occur:

the employer terminates the health plan for all employees
the employee neglects to pay the required premium
the employee becomes covered under a new medical plan (however, if pre-existing conditions are excluded on the new plan, the employee must be allowed to continue COBRA)

The employer is allowed to require the employee to pay for some of the costs of COBRA coverage. However, they are not allowed to charge more than 102% of the cost of the insurance.

Disability

If termination is due to disability, coverage must be allowed to be continued for up to 29 months. All of the requirements set above are still applicable.

Other Options

There are several other events where an employer must offer 36 months of continued coverage to an employee or their beneficiaries. These events include:

death of employee
divorce or legal separation of the employee
employee’s entitlement to Medicare
bankruptcy

Recommendations

COBRA can be a very beneficial for many individuals, especially in these tough times. If you lose your job, check with your previous company about COBRA coverage. The coverage may be more expensive than you are accustomed to, but may be considerably less than if you were to purchase individual coverage. It also allows you to avoid the possibility of having pre-existing conditions placed on your new policy. For example, if you were recently treated for cancer, your new policy may not cover you for those related expenses. COBRA coverage may help ensure that those expenses are covered for a period of time.

Has anyone had a specific COBRA experience they would like to share?

Health Insurance: Part 3 – COBRA Coverage

Health Insurance: Part 2 – Co-insurance and Stop-loss Provisions

Adam — Fri, 19 Sep 2008 00:52:49 +0000

Photo by pixel_bunny

It’s been quite awhile since I wrote the post Health Insurance: Part 1 – Deductibles. In that post I discussed the general idea of deductibles and how they work. In this post, I will be discussing co-insurance and stop-loss provisions and what they mean to you and your wallet.

Once your deductible has been met, many health insurance companies will pay for all of your medical expenses. On the other hand, many companies will pay for medical costs on a co-insurance basis. Many co-insurance provisions are stated in a percentage format such as 80/20, 70/30, etc. The first number is what the insurance company will pay after the deductible and the second number is what you will be responsible for. You will continue to pay that percentage (after the deductible) until you reach a stop-loss provision or out-of-pocket maximum.

The stop-loss provision is the point where the insurance company will begin to pay 100% of a claim. Once your out-of-pocket expenses reach that limit, the insurance company will pay the rest. Without a stop-loss provision, you could be responsible for the co-insurance of an indefinite amount. For example, if you have medical bills of $500,000, your co-insurance clause is 80/20 and you do not have a stop-loss provision, you would be responsible for $100,000 of that particular bill. Make sure that your health insurance has a stop-loss provision for this reason! The higher the stop-loss, the lower the premium.

Let’s look at a comprehensive example for clarification:

Assume that John has an insurance policy with a $1,000 deductible, 80/20 co-insurance and a $5,000 stop-loss provision. Let’s also assume he has a hospital bill for $2,000. How much is he responsible for?

He is responsible for the first $1,000 of the bill due to the deductible. He is then responsible for 20% of the remaining $1,000 bill or $200. His total out-of-pocket expenses for this bill are $1,200.

Now let’s assume he has another bill for $25,000 (due to a surgery) in the same year. Since he has already paid his deductible, he will go straight to the co-insurance. He will be responsible for 20% of the bill or $5,000. However, he has a stop-loss provision of $5,000. Since he already paid $1,200 from a previous bill, he will only be responsible for $3,800 of the surgery bill. This is due to having met his $5,000 stop-loss. The insurance company will now pay any additional bills that come in during the same calendar year. Keep in mind that these provisions and deductibles are on a yearly basis and reset each year. So in this example, if John has the same bills next year, he will have to pay the same amounts again.

Health Insurance: Part 2 – Co-insurance and Stop-loss Provisions

Health Insurance: Part 1 – Deductibles

Adam — Sat, 09 Aug 2008 01:10:30 +0000

This is part 1 of a series on health insurance. I will be explaining several components of health insurance contracts in order to help you make a better decision on your purchase.

Deductibles are a part of health care plans that require you to pay an initial amount before you receive some type of reimbursement. In other words, if you have a $100 deductible, the first $100 is on you and after that your insurance company will reimburse you some or all of your covered payments. Typically, HMOs do not have a deductible although some are starting to have a small one. PPOs typically have some sort of deductible.

If you are considering a PPO, you more than likely have the option to choose your deductible. Typically, the higher the deductible, the lower the cost. This is because you are responsible for a greater amount before the insurance company will have to pay. You should consider your past medical history when choosing your deductible. If you are prone to injury and visit the doctor often, it may not be wise to choose a high deductible because you will have more out-of-pocket. The opposite is true for someone who is very healthy. You may be able to get away with the higher deductible in order to lower your costs.

If you are purchasing a family policy, you typically will also have a family deductible in addition to the individual deductibles. Let’s say for example that you have three family members on your plan. The plan has a $200 individual deductible and a $500 family deductible. If person #1 has an insurance bill of $300, the first $200 is paid in full by person #1 because of the deductible and then the insurance company will pay for part or all of the remaining $100. If person #2 has a $300 bill as well, the same payment structure will apply. If person #3 has a $300 bill, the family deductible applies. Since the already have paid $400 out-of-pocket, only the first $100 of person #3′s bill will be out-of-pocket. The final $200 of their bill will be covered by the insurance company at the appropriate rate.

If you get your health insurance through your employer, you may also have the option of a HSA. I will go over HSAs in a future post but I will give you a quick overview now. An HSA is a health savings account. It is a tax sheltered account that allows you to save pre-tax money for your healthcare bills. As long as you use the money for healthcare expenses, it is tax defered as well as tax-free. These accounts are paired with high-deductible health plans. These plans have higher than normal deductibles. Typically, you should only consider a HSA if you are in good health. Like I mentioned before, I will discuss these in a later post.

Health Insurance: Part 1 – Deductibles

HMO vs PPO: And The Winner Is…..

Adam — Sat, 02 Aug 2008 01:27:59 +0000

…..whatever works best for your current situation!

With open enrollment coming around the corner, I thought it would be nice to give a brief description of the differences between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO).

HMO

First off, a HMO is a prepaid health plan. The doctors that are in the network are already compensated for providing you health care. They get paid regardless. With a HMO you typically choose a primary care physician (PCP). The PCP is the first person that you go to if you are in need of medical care. If you need to see a specialist (such as a dermatologist), you need to go to your PCP first and then they will refer you to a dermatologist in the HMO network. This is one of the nuisances of a HMO that seem to turn people off to them. HMO’s also may have less participating doctors than a PPO. If you like your current doctor and are thinking of switching to a HMO, make sure and ask them if they participate in the HMO. Otherwise you will be stuck searching for a new doctor. Although, HMOs seem more comprehensive, they are typically quite considerably cheaper than their PPO counterparts. I will explain why next.

PPO

A PPO is a network of participating doctors that your insurance company has negotiated discounted rates with. As long as you stay within the network of doctors, you pay lower fees, copayments, etc. The thing that makes a PPO different than an HMO is the ability to choose your doctor. If you do not like any of the doctors in the network, you are free to choose an out-of-network doctor. However, doing this means you will pay more out of pocket. You also do not need a referral to see a specialist. These added freedoms also add to the price. The premiums for these plans are typical double or triple the amount of a HMO. These plans also typically have deductibles, larger copayments, etc.

When you are comparing HMOs vs. PPOs, you need to weight all of the costs. Look at your past bills and see what it would have costed you for each plan you are comparing. I hope to have a future post about all of the options in PPOs and HMOs to help you undertand them better. I also want to do a post on health savings accounts (HSAs) since many companies are now moving toward them to cut costs.

Does anyone have any specific questions that they would like addressed in a future post? Any interesting stories about your health insurance? You can leave a comment or send me an e-mail with a question. I love reading them!

HMO vs PPO: And The Winner Is…..