For years, we have been suggesting to many of our clients that HSAs (Health Savings Accounts) frequently offer more benefits and flexibility than pension plans such as IRA’s. This article from the WSJ appears to agree with that.
We are obviously not suggesting that you replace pension plans with HSAs, but in many instances, you may want to contribute to an HSA before a pension plan, or use the HSA to increase your tax-sheltered contribution limits.
I welcome your comments.
Sincerely,
Phil Lee
Philip W Lee, Lee Health Insurance Services www.health-insurance.com 800-286-7445
Wall Street Journal, Jan. 29, 2016:
HSAs Offer Tax Benefits Beyond 401(k)s
Health-savings accounts can be used to cover medical costs, a major expense, in retirement
Most people overlook health-savings accounts, or HSAs, as a retirement-savings vehicle. A SeniorsPLUS networks representative talks with a Bangor Savings Bank official in Maine. PHOTO: GORDON CHIBROSKI/PORTLAND PRESS HERALD/GETTY IMAGES
By
ANNE TERGESEN
January 29, 2016
When saving for retirement, there is a place to put money that may be even better than your 401(k).
Most people overlook health-savings accounts, or HSAs, as a retirement-savings vehicle. But these accounts, which were authorized in 2003, come with more tax advantages than 401(k)s and individual retirement accounts when used to cover medical costs, which are a major expense in retirement.
“It’s the most tax-preferred account available,” says Michael Kitces, director of financial planning at Pinnacle Advisory Group Inc. in Columbia, Md. “Using one to save for retirement medical expenses is a better strategy than using retirement accounts” to cover those expenses, he says.
As with a traditional 401(k) or IRA, an HSA allows you to set aside pretax money without paying federal or state income tax on it. Most people who contribute through payroll deductions also save 7.65% in FICA tax, which finances Social Security and Medicare.
Money in HSAs grows tax-free and, if used for medical expenses, can also be withdrawn tax-free. In contrast, with a traditional 401(k) or IRA, you pay income tax on your withdrawals.
‘A lot of people don’t think about how to save for health care in retirement, yet it’s one of the major expenses people will have.’
—Roy Ramthun
Due to this combination of tax advantages, HSAs—which are paired with the HSA-qualified health plans available on health-care exchanges and offered by 43% of employers—can even be a better deal than a 401(k) with an employer matching contribution. That is most likely to be the case if you are in a high tax bracket and the 401(k) match is less than dollar for dollar, says Greg Geisler, an associate professor of accounting at the University of Missouri-St. Louis.
For people with a high deductible health plan, “an HSA should be either the first or second place they look to save” for later life, Prof. Geisler says.
To open an HSA, you must be covered by an HSA-qualified health plan. For 2016, these plans have deductibles of at least $1,300 for individuals and $2,600 for a family. In return for exposing policyholders to potentially higher out-of-pocket costs, the plans generally charge lower premiums and offer individuals and families the chance to save up to $3,350 or $6,750 a year, respectively, in an HSA. (Those over 55 can save $1,000 more).
ENLARGE
Because employers save on premiums too with a high-deductible plan, many contribute to employees’ HSAs as an incentive to get them to enroll, says Eric Remjeske, president of Devenir Group LLC, which advises banks offering HSA investment platforms.
The biggest payoff with an HSA comes when the money set aside isn’t all used for current medical bills and instead compounds over time, before being used for qualified expenses. Those expenses can include not just medical bills but also dental and vision-care expenses, Medicare premiums and a portion of long-term-care insurance premiums.
According to Fidelity Investments, a 65-year-old couple who retire today and live another two decades will spend $245,000 on expenses including Medicare premiums and the 20% of medical costs Medicare doesn’t cover—a number that doesn’t include dental and long-term-care expenses.
“A lot of people don’t think about how to save for health care in retirement, yet it’s one of the major expenses people will have,” says Roy Ramthun, president of HSA Consulting Services in Silver Spring, Md.
Once you are enrolled in Medicare you can no longer contribute to an HSA. But you can continue to tap your HSA balance for medical expenses for yourself, your spouse and any dependents you may have.
You can also use your HSA for nonmedical expenses, but you will owe income tax on your distributions—and a 20% penalty if you are younger than 65.
Experts recommend that those who can afford to contribute to both an HSA and a 401(k) kick in the maximum to both. And what if that isn’t feasible? If you don’t incur much in the way of medical bills and can sock away a significant portion of your HSA contributions for retirement, the HSA has an edge, says Mr. Kitces. Some employees may want to allocate enough dollars to a 401(k) to get the company match and then direct the next dollars of savings to the HSA.
Some people go so far as to suggest maximizing the balance in an HSA by opting to pay current medical bills in cash, rather than tapping the HSA. Here, the advice is less clear, says Mr. Kitces.
While the HSA will “get better tax treatment in the future,” you will pay a price for preserving it since you will likely have to pay your current medical expenses in after-tax, rather than pretax, dollars, he says. “You have to decide whether it’s worthwhile to spend more today” on your medical bills “to get more dollars into a tax-free medical account that’s turbocharged for the future,” he adds.
Some people stockpile medical receipts for many years and file for reimbursement in retirement to create tax-free withdrawals to supplement their income in years in which tapping other accounts would push them into a higher tax bracket.
If your goal is to use an HSA to save for medical expenses in retirement, be sure to invest the account in a diversified portfolio of stocks and bonds. (If you don’t like your HSA’s investment options, you can transfer your money tax-free to an HSA elsewhere.) By leaving your contributions in a low-risk option like a money-market fund, you won’t get much return, which limits the tax-free growth that is one of the HSA’s biggest advantages, says Mr. Kitces.
Write to Anne Tergesen at [email protected]
]]>I apologize for this lengthy post. But it contains critical information and links necessary for you to make a decision on which health plan to choose, and to apply to either a Covered California Exchange health plan, or to a plan outside of the Exchange.
It’s been a challenge to communicate such an enormous amount of information to so many people in such a short period of time. But we are determined to help you take care of this before the deadline of Dec. 23rd.
How to apply
(A) On-Exchange (CoveredCA) Plans — Plans that allow tax subsidies.
www.coveredCA.com
Please use these links below for paper applications and instructions on how to apply online.
(If these links do not open automatically when you click, please copy and paste the URL address onto the address line on your browser, and click return.)
(1) Link to, “Fillable Covered CA paper application”. This paper application form allows you to complete by typing in answers and then printing out. This form is much easier and takes one-fifth of the time to complete over the CoveredCA.com online application:
https://www.dropbox.com/s/olamsrnb43cv2xl/Fillable%20CovCA%20Application%20P%20Lee%20Agent.pdf
(2) Link to, “Application Screenshots Covered CA”. Step by Step instructions with screenshots on how to submit an application using coveredCA.com. It shows how to set up a User ID, password and then designate an Agent. You then continue to complete the application yourself:
https://www.dropbox.com/s/9pas1gmsycqdrfx/Application%20Screenshots%20CovCA.docx
(3) Link to Instructions for “Agent Designation ” on CoveredCA.com website. Step by Step Instructions with screenshots on how to designate Philip W Lee, License #0795681, as your Certified Insurance Agent to service your account:
https://www.dropbox.com/s/ckzl7m70h9brnt6/Agent%20Designation%20ScreenShots.docx
Please be sure to enter my agent license number so that we may continue to service your account and receive credit for doing so. (Agent Philip W Lee License # 0795681) There are no fees to you and you do not pay any additional premium for having an agent. You will however receive our ongoing helpful service.
(B) Off Exchange (non-CoveredCA) Plans — Non-standardized plans with no tax subsidies.
Apply by clicking the below links and following the online instructions:
Anthem Blue Cross:
https://brokerportal.anthem.com/ehb/web/bkr/acc/agentconnect/PHILIPLEE_1
Blue Shield: https://www.blueshieldca.com/bsca/ApplyNow?xyz=I%2Bc68ZizpmLi
Health Net: https://www.healthnet.com/portal/consumer/ca/getYourQuote.ndo?region=CA&a=10952
Compare On and Off Exchange Plans
Side-by-Side Comparison Reports
If you have not already received customized side-by-side comparison proposals or reports from us, please ask me (email agent@health-insurance or call 925-284-2000). Please include your name(s), Dates of Birth, Zip Code(s) and email address. There are two reports: (1) On Exchange Proposal comparing plan inside the Covered CA Exchange, and (2) Off Exchange Proposal comparing plans outside of the Covered CA Exchange.
What you need to consider in your decision:
1) Do you qualify for a Tax Subsidy?
You may estimate your health plan premiums and subsidies using the Shop and Compare Tool Calculator on the Covered California website.
https://www.coveredca.com/shopandcompare/#calculator
If you know that you qualify for a subsidy, and want to take advantage of it, then you should apply to Covered CA, naming us as your Designated Agent (Instructions on Agent Designation are above).
If you know that you do not qualify for a subsidy, it will be advisable to consider plans that are outside of the Covered CA Exchange. Plans sold in the Exchange are also available outside of the Exchange at the same prices with the same benefits. But there will be a larger variety of plans to choose from outside. The plans outside the Exchange may have different provider networks and additional carriers.
Applications to plans outside the Exchange will not require you to divulge personal information like income and immigration status to Govt. entities like the IRS, CMS, HHS, DOL, NSA, Homeland Security, etc.
2) Are your doctors and hospitals listed in the Provider Network of the plan that you are considering?
Most Individual/Family plans, except for Health Net and Kaiser, whether in or out of the Covered CA Exchange, will have reduced or “skinny” provider networks. .These plans do not have the same full PPO or HMO networks that you may have been used to with pre-ACA plans. The provider search function in coveredca.com may not have up to date listings. However several of the carriers have posted “provider lists” on their own websites. There are links to these lists below. Please be aware that physicians are still negotiating with the carriers, and that these lists may change daily.
Anthem Blue Cross will only be offering a limited, reduced size provider network for their Individual/Family plans in and out of the Covered CA Exchange. This list is about 40% -60% of their full PPO network.
Blue Shield of CA will be offering a limited provider network for all their Individual/Family metallic plans in and out of the Covered CA Exchange. The new network will have 50% of the doctors and 70% of the hospitals of their previous full network.
Kaiser’s network will be the same in and out of the Exchange, and same as their current network.
Health Net has announced that they will be using the same provider network in 2014 as in 2013, i.e. their full PPO network.
Cigna will also be offering a reduced PPO network call the LocalPlus Net for their Individual plans in 2014. However, Cigna is allowing individuals to enroll (through Dec.14th) onto their 2013 plans. They will then renew these plans for one year on 12/31/13 (with a 5% increase for ACA taxes and fees), thus delaying ACA changes until Dec. 2014. These plans will retain the old provider network and drug formularies until Dec. 2014.
If you are not able to find a satisfactory provider network among the Individual and Family plans inside or outside of the Exchange, please give us a call at 925-284-2000. There may be other options such as small group plans.
To search for Doctors and Hospitals:
Anthem Blue Cross Provider Finder:
http://www.anthem.com/wps/portal/ca/popcontent?content_path=shared/f1/s0/t0/pw_e206382.htm
Blue Shield of CA Provider Finder:
https://www.blueshieldca.com/bsca/ApplyNow?xyz=I%2Bc68ZizpmLi
Health Net Provider Finder:
https://www.healthnet.com/portal/provider/providerSearch.do?region=CA
Cigna Provider Finder:
http://www.cigna.com/ifp-providers
Plans starting in 2013 have the OAP network (expansive)
Plans starting in 2014 will have the LocalPlus Network (narrower)
3) Are your prescription drugs on the Drug Formulary List of the plan that you are applying to?
Please be aware that carriers have told us that they may be reducing some of their prescription drug formulary lists prior to Jan. 1.
Some carriers are starting to post their formulary lists on their websites. But those lists may be updates frequently. Health Net has announced that there will be no change to their drug formulary list in 2014 from 2013.
For your convenience, I have attached a link to the online formulary lists for Anthem Blue Cross and Blue Shield. Please keep in mind that these lists may change.
Anthem Blue Cross Drug Formulary list can be found at:
http://www.anthem.com/ca/CAExchangedruglist4.pdf
Blue Shield Formulary List can be found at:
https://www.blueshieldca.com/bsca/documents/pharmacy/Standard_Formulary.pdf
4) Are you on a grandfathered health plan?
If you are on a grandfathered plan, you would have received a letter from your carrier notifying you of that.
If you don’t know, please call your carrier to find out.
If you do have a grandfathered plan, then it will retain its existing provider network, drug formulary list and benefit design.
If you find that the new ACA-compliant plans for 2014 do not satisfy the provider network, formulary list or pricing that you desire, then you should keep this grandfathered plan.
To recap, apply to Covered CA (with us as your Designated Agent), if:
a) You qualify for a sizable Tax Subsidy
b) Your doctors and hospitals are in the plan’s reduced network.
c) Your prescription drugs are in the plan’s Formulary List and you do not need to obtain prior authorization from the new Exchange plan to continue an expensive prescription medication.
d) You do not want to consider any of the Off-Exchange health plans.
e) You do not want to keep a grandfathered plan which may have a more favorable provider network or drug formulary list.
f) You are comfortable with the fact that Covered CA will be sharing your PII (Personal Identifiable Information), PHI (Private Health Information) and financial information with other government and non-government entities that may include the IRS, Dept. of Homeland Security, Center for Medicare Medicaid Services, US Dept. of Health & Human Services, Dept. of Labor, Dept. of Insurance, Dept. of Managed Health Care, the State of California and Equifax.
g) You are comfortable that the Covered CA website will provide adequate security and protection against hacking and identity theft.
If you are not comfortable with all of the above, you may consider an Off-Exchange plan, or another carrier not on the Exchange like Cigna, or a small group plan.
Documents that Covered California may request from you when you apply to On Exchange plans. (These will not be required for Off Exchange plans.)
• Your W-2 wage statement
• Your Bank Account Statement
• Your IRS 1040 form showing your household AGI income
• Your current health plan information such as ID card, plan summary, billing statement, cancellation notice, notice of mapping, premium increase letter, letter of grandfathered status, etc.
• Drivers License, Passport, Resident Alien ID card or naturalization papers.
Thank you for reading these lengthy emails.
Please call me at 925-284-2000 if you have any questions. You may get updates on my blog at http://www.healthplantalk.com/
Very sincerely,
Phil Lee
www.health-insurance.com
925-284-2000
News this past week (Quite a lot has happened):
• 12 month Delay in Cancellations
Obama’s press conference last week called for a delay of 12 months to the millions of plan cancellations letters that consumers have received. The President vetoed similar bills submitted to him by Congress to remedy this, but preemptively, offered up his own version, an “administrative fix” which did not give him the legal authority to force a delay, but basically passes the problem down to the States and the insurance carriers.
Although many States have instituted this delay, many have not, including California.
• California Cancellations
In California, Dave Jones the Insurance Commissioner was in favor of a delay, but the final decision rested with the head of Covered CA, Peter Lee, who thought otherwise. The Covered CA Board decided yesterday not to follow Obama’s recommendation for a 12 month delay in cancellations. Cancellations scheduled for Dec. 31 and March 31 will go into effect as planned.
• Dec. 15th Application Deadline Extended to Dec. 23rd
It was announced today that the Dec. 15th deadline for enrolling into a health plan with an effective date of Jan. 1st, has now been extended to Dec. 23rd. This new deadline will apply to all individual plans on or off the Covered CA Exchange. You will have one extra week to enroll for a Jan. 1st plan.
• Off Exchange Rates and Benefits Released
Insurance carriers in CA have now released rates and benefits for all their Off-Exchange health plans, i.e. those plans that are outside of Covered CA and not eligible for subsidies. We now have all the information necessary to help you make a decision.
• Annual Open Enrollment Period (AEP) for all individual plans
The AEP for 2014, which was previously scheduled to begin on 10/15/14, has now been delayed to 11/15/14, after the midterm elections.
Important Information to Know:
1. Those Cancellations that were delayed to March
Only some of you, but not all of you, have received letters from your carriers (Anthem Blue Cross, Blue Shield or Health Net) notifying you that your current health plan’s cancellation date has been extended to March 2014. And that if you wish to accept this delay, you must notify them in writing.
This is a tempting delay to accept, but you should understand that you may have to satisfy two deductibles in one year, instead of one. The reason is that you will be satisfying one deductible from Jan. to March, then start a whole new deductible after March. The deductible satisfied in the first 3 months do not carry over to your new plan in April.
For the same reasons, even if the open enrollment period does go to March 31st, you may want to enroll on Jan.1st to avoid the two deductible problem.
2. Although you may apply to Covered CA for a health plan, even if you do not qualify for a subsidy, this is not advisable for these reasons:
a) There are 3 buckets of health plans in the Individual marketplace: On-Exchange plans, Off-Exchange plans and Off-Off-Exchange plans. All the plans offered inside the Covered CA Exchange, the metallic plans, are also available outside of the Exchange at exactly the same premium and same benefits. We call these “mirror plans” of “Off-Exchange” plans. They are similar, but may not use the metallic names of Bronze, Silver, Gold and Platinum. The only difference is that these plans do not have subsidies.
b) Inside the Exchange, you are required to report personal and financial information like your income.
c) Inside the Exchange, your personal and financial information will be shared with government agencies like the IRS, Dept. of Homeland Security, INS, HHS, CMS and their contractor Equifax.
d) Inside the Exchange, you may be subject to retroactive audits and recalculations years down the road, by the IRS, for any errors in reporting.
e) Outside the Exchange, there will be many more plan designs and rate levels available, besides the “metallic plans”.
4. If you do not qualify for a subsidy, then you should consider a health plan outside the Exchange. All plans are guarantee-issue regardless of pre-existing conditions, you will not be asked for any health or financial questions. And your information will not be shared with any government agency.
Next Steps
A. Use the Covered CA Calculator to see if you qualify for a subsidy (See instructions in my piece “Choosing an On or Off Exchange Health Plan”)
B. Ask for a comparison proposal that compares all plans inside and outside of the Covered CA Exchange. Email me at [email protected] or call 925-284-2000.
C. Ensure that your doctors and other providers are on the network of the plan you are applying to. (See instructions in my piece “Choosing an On or Off Exchange Health Plan”)
D. Ensure that your prescription medications, especially Brand Name drugs are on the formulary list of the plan that you have chosen. (See instructions in my piece “Choosing an On or Off Exchange Health Plan”)
Decision
a) If you decide to keep a Grandfathered plan, then you do not need to do anything. Your plan will continue at the rate that the carrier has notified you of.
b) If you are eligible for a subsidy, then you must apply to a Covered CA Exchange plan.
c) If you are not eligible for a subsidy, or you choose to voluntarily forgo any subsidy, and your current plan is being cancelled, then you may apply for an Off Exchange health plan.
d) If you find that your providers are not on any of the 2014 plans, but your current plans is going to be cancelled. There is one possibility. You may apply to a Cigna 2013 Off-Off-Exchange health plan by Dec. 14th for a Dec. 15th effective date. This application requires underwriting and approval. But Cigna will renew your plan on Dec. 31st. They will add a 5.8% increase for ACA-related taxes and fees. Then allow you to keep the plan with full provider network (instead of the narrow 2014 networks up until 12/31/2014. This move allows you to delay your transition to ACA plans until 2015. Hopefully, there may be better options at that time.
Applying for a Covered CA On-Exchange Health Plan:
• Apply online at www.coveredca.com. Set up an ID and password. Find and designate me as your agent (Philip W Lee License #0795681) so that we may help you with this enrollment and continue to service you in the future. Please ask me for my Step by Step Application Screenshot instructions for setting up an account and designating an agent.
• Apply using a Fillable Paper Application. Please ask me for a copy of the fillable paper application where you can simply type you information on the form, print out, and send or fax to us for processing Print and Hand Complete an Application. Please ask me for a copy of the fillable paper application which you may print out blank, handwrite your answers on the form, and return to me. (Fax 925-284-5484 or email [email protected] or mail Lee insurance Services, 935 Moraga Rd., Ste. 240, Lafayette CA 94549)
Applying for an Off-Exchange Health Plan:
• Apply Online at Carrier Website. The following links to the insurers are encrypted with my agent info so that the insurer will recognize that we are helping you so that we may monitor and troubleshoot any problems for you.
Anthem Blue Cross: https://brokerportal.anthem.com/ehb/web/bkr/acc/agentconnect/PHILIPLEE_1
Blue Shield of California: https://www.blueshieldca.com/bsca/ApplyNow?xyz=I%2Bc68ZizpmLi
Health Net:
(Online link pending)
Kaiser:
(Online link pending)
Cigna:
(Online link pending)
Getting Paper Applications to Us
• Fax to us anytime at: 925-284-5484
• Email to: [email protected]
• Mail to: Lee insurance Services, 935 Moraga Rd., Ste. 240, Lafayette CA 94549
• Deliver in Person: We are open on Weekdays (except holidays) from 9 am to 5 PM. After hours, there is a mail slot at the door to our office. If you live nearby and find it more convenient to drop off your application, you may simply slide it through the slot. We will attend to it as soon as our office opens again.
It would give us immense pleasure to see that you are all taken care of before your respective deadlines.
Phil Lee
www.health-insurance.com
www.healthplantalk.com
800-286-7445
See full story, Wall Street Journal:
]]>Single HSA: $3,050
Family HSA: $6,150
Over 55 years old (but under 65): add $1,000 each person, maximum of 2 per family.
© Philip W Lee, www.health-insurance.com, www.healthplantalk.com
]]>Also, the tax penalty has doubled to 20% of the total withdrawal if you use your HSA funds for non-medical purposes.
These reductions in HSA benefits were brought about by the Health Care Reform Act of 2010, also known as PPACA, Patient Protection and Affordable Care Act or Obamacare.
To read more about over-the-counter purchases and how these changes affect your HSA, visit the IRS website at www.irs.gov and look for IRS Notice, 2010-59.
© Philip W Lee, www.health-insurance.com, www.healthplantalk.com
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