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Caring for your retirement and your family

Consumers who have the foresight to plan for the future can help their plans for retirement as well as reduce potential financial burdens on their family by using life insurance.   Two out of three Americans are concerned about having enough money for retirement and more than one out of three are concerned about burdening their dependents if they die prematurely (Durham).  Life insurance can connect retirement plans and the concerns of providing for one’s family.

Family birth certificates, marriage certificate, deeds of ownership, paychecks and retirement accounts have one thing in common: they represent something that most people care about. There is one class of asset that can connect all of them, life insurance.  It provides for your spouse and children as well as paying off financial obligations such as your home mortgage, and it can offer a paycheck at retirement in the right circumstances.

In general there are two types of life insurance, term and permanent.  Term insurance only pays if you die.  It is purchased for one year or more.  If purchased on a year to year basis, the price will increase year by year.  Life insurance that is purchased for a particular period, such as ten-years, may be more expensive than the yearly term; however its cost remains level for the ten-year term of the policy.  Term policies do not accumulate any cash value.

In brief, permanent policies allow consumers to build money year by year until the death benefit equals the cash value of the policy.  When the cash value equals the death benefit, it is called endowing.  In many instances but not all, over a period of years the cost of life insurance is cheaper in a permanent life insurance policy.  Why then does not everyone buy permanent life insurance if it is cheaper in the long run?  The answer is cash flow.  Term life insurance policies are less expensive in the beginning years and become more expensive in years beyond their fixed term.  For those who have the foresight and the cash flow, permanent life insurance can add money to retirement savings if the owner lives in retirement years.

A quick internet search of how to find the best life insurance policy quickly leads to buying the cheapest term life insurance and that may be the best option for some.  However, all of the attention to a one-size-fits-all product has led a large number of consumers to be skeptical.  Thirty-eight percent of people have not purchased life insurance or more of it because they are unsure of how much or what type to buy (Durham).  Life insurance serves many purposes, and several top corporations offer life insurance policies as a part of employees’ compensation.  Last year General Electric paid $314,511 for a $22 million dollar life insurance policy on its CEO, Jeffery Immelt (Melin)

Permanent life insurance (except for variable life insurance) can serve as a long term conservative asset class with significant tax benefits.  Yet the most significant benefit of all life insurance is the tax free death benefit. Over the past 27 years, I have delivered six checks for life insurance death benefits. These were real everyday people: a police officer, a nurse, a flooring store owner, a heating & air conditioning business owner, a manufacturing business owner and my father-in-law. Fifty percent were term insurance, and fifty percent were permanent life insurance. The real key was that even though they did not know what the future would hold, they knew their family would need help without them. A well-planned life insurance policy can pay in the event that the owner dies or be a part of the owners’ retirement.

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Melin, Anders. “GE’s Death Perk for Immelt Is a $22 Million Life Insurance Benefit.” Bloomberg.com. Bloomberg, 20 Aug. 2015. Web. 8 Sept. 2015.

Durham, Ashley. Insurance Barometer Study, Life Happens & LIMRA, 2015. Lifehappens.org, 8 Sept. 2015

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Seven steps to lower your out of pocket medical cost.

dollar sign on heart 2

When you are sick or injured and need to use your insurance, understanding the benefits and out of pocket cost can be very frustrating.  There are so many people involved in the medical care process that it is easy to become overwhelmed.  Here are seven simple steps to help you navigate the care and payment process.

1. Is your doctor still in your network?

Every time you go to your doctor, the first question is “has your insurance changed?”   When you set your appointment, you should ask if your doctor still accepts your insurance plan.

2. Is the lab your doctor uses in your network?

Most doctor visits will involve some sort of lab test.  Check with your insurance carrier to see if they have a preferred laboratory facility.  This can save you hundreds of dollars.  If your doctor takes specimens in their office, ask which lab they use.  If it’s it not a preferred lab with your insurance carrier, request that a preferred lab be used.  Laboratory costs are not usually covered by office charges.  Know before you go to save a lot of money.

3. Are you getting the best prices on medications? 

Pharmacy cost is one of the most significant expenses to medical care.  However most people don’t inquire about the medication cost unless they are paying the actual price of the medication.  It is worth your time to find the lowest price for a medication.  Controlling your cost will not only benefit you now, but it will help keep the cost down on your health insurance plan in the future.    One of the best sources for finding the lowest cost prescription drugs in your area is www.goodrx.com  There is an app available for this service as well.

4. If you need imaging test (MRI, X-ray, CT, etc) are you shopping?

The price difference for imaging is astounding, as much as 100% difference from one location to the next.  If location is important to you and you have time, scout out the location on Google maps.  Most locations will offer a street view with the map.

5. If you need outpatient or inpatient procedure is the surgery center in network?

Doctors work at a variety of different centers for surgery.  After speaking with the doctors representative for payment arrangements, it is important to contact the surgery center and inquire about their network status.

6. Is the anesthesiologist in the network?

Your doctor or the surgery center will be able to tell you who the anesthesiologist is and help you determine if they are in our network or not.  Remember if they are out of your network, you are responsible for 100% of what your insurance carrier will not pay.  That cost difference may be substantial so it’s worth the extra effort to check.

7. Do you need to shop for durable medical equipment (crutches, slings, special recovery items such as a Cryo Cuff).

Many surgical procedures will require special durable medical equipment.  Most doctors require the patient to make arrangement and payment for durable medical equipment prior to surgery.  Two questions for the supply center is do they offer a network discount and will they allow equipment not used after the surgery to be returned and credited to your account.

Healthcare cost tends to follow the 80/20 rule.  Eighty percent of the cost of healthcare can be attributed to twenty percent of those that are insured.  So if you are in that twenty percent population that is using hospital care, it would be in your best interest to try to control your cost.  The seven steps listed could save you thousands of dollars and a lot of grief.

Should you be selling or buying now?

Wall Street a

Years ago I worked with a company that had a cold calling bull pen much like what you see in the in movies.  One of the managers would call clients and say “I have terrible news for you!”  And what followed was an effort to encourage the client to buy or sell.  After a period of time, I recognized that was not the place for me.  I learned a lot about people while at that company.   First, people are moved by fear.  In that time I met with an elderly client that had just lost $10,000 on her investment.  I was young and toting the company line.  I tried to explain why she had lost money and how everything would be OK.  She looked me square in the eyes and said have you ever lost $10,000?  I lived through that meeting to learn that investors have a justified concern to be afraid of investing.  People can and do lose money.  So should investing be avoided?  For some the answer would be yes, some people should not be investing in stock based investments.  But for a great number of people investing in stocks and bonds is still a good idea.

In the past month, stocks and oil have been losing value, so how can I say that investing is still a good idea?    Just as in life, there are no guarantees.  However, history has shown that over many years investing in stocks and bonds can outpace the cost of inflation and yield better results than a fixed account.  To wisely invest takes planning.  You don’t have to be a Wall Street wizard; you just have to employee simple strategies to protect yourself.  Here are five simple ideas that can help you reduce the volatility of investing.

  1. Know why you are investing: retirement, college savings, caring for a disabled child, etc.  My family loved to go to Disney.  We’d spend hours trying how to figure out how we could get the most out of the week we would spend in Orlando.  Most people spend more time planning for a weeklong vacation than they do for retirement that could last more than thirty years.  Make plans and review them every year.
  2.  If you are new to investing, choose a mutual fund.  Avoid single stocks for now.  In a nutshell, mutual funds are pools of stocks or bonds.  Some are professionally managed and some are not such as index funds.  How much you pay for your mutual funds or the fees charged is very important. Generally the level of fees should reflect the level of service you receive.  If you’re new to investing paying a little for advice might not be a bad idea.   If you’re not getting service or don’t need it, lower fees are better. Most mutual funds that are purchased through employer plans will have higher fees.  This does not make them bad.  Employer plans have many more maintenance requirements and sometimes cost more.
  3.  Diversify – don’t put all your eggs on one basket.  If you are going to diversify make certain you are not buying several of the same type of mutual fund.  I once had a client that had 28 different mutual funds.  Yes she was diversified, but half of the funds were similarly invested.  Aggressive individuals will have a larger percentage in stocks.  Conservative investors may have no money in stocks.  Still be cautious not to put all of your money into one type of fund.  If you think that bonds are safe, understand that if interest rates go up, bond values go down.  Determine your investment personality and let that guide you in choosing the percentage of money you invest between conservative and aggressive.  There are funds that will manage the allocation of your investment for you such as lifestyle funds or target funds.  It is your job to review these and see how well the fund is meeting your expectations.
  4.  Dollar cost averaging.  I often am asked “is now the best time to buy?”  I have no idea when the best time to buy is, so I suggest that people buy all the time.  Plans that invest or withdraw money on a monthly basis will give investors a tool that can help them better manage the risk of investing.  Imagine if you bought a stock at $12 and it went down a dollar each month for six months and then back up a dollar a month for the next six months (it ends at $11).  If you invested a hundred dollars a month, did you lose or gain? At the end of the twelve months your $1,200 would be worth $1,529. The average price was $9. This is a simplification, but the idea is you never know when the best time to buy is, so buy all the time.
  5.  Rebalancing is a simple concept that will take some volatility out of investing.  If you make gains over a period of years you will progressively be increasing the risk on your total mix of investments.  By rebalancing you stabilize or lower the risk of investing.  This is very helpful when there are large swings in stock prices over an extended time.

Investing is not a perfect science.  Make a plan and review it every year.  Turn-of-the-century American humorist Will Rogers had a saying that fits here very well.  “Even if you’re on the right track, you’ll get run over if you just sit there.”

The Cost of a Heart Attack in Houston!

The Cost of a Heat Attack in Houston (2)

The public’s fixation on the individual mandate detracts from parts of the ACA that are good, yes good.  This is not a Democrat or Republican issue, this is an American issue.   Healthcare is such complicated problem that the breath of the Affordable Care Act will never get through to the average American.  Congress needs to break it down into smaller portions and make a more reasonable plan of implementation.  The ACA is more than the individual mandate.  One of the major problems today is that the average family pays over 20% of their income for health insurance.  At the current inflation rate of healthcare premiums that same family will be paying over 40% of their income for health insurance within 10 years.  That is an unsustainable rate of increase.  The part of the ACA that is good is it is shining the light on parts of the healthcare system that are causing cost to be out of control. Acting on disclosure requirements of the ACA the Centers for Medicare and Medicaid Services released a document called Medicare Provider Charge Data.  This details cost of medical procedures at hospitals from around the United States. Information from this report shows that if you had a heart attack and were treated at Methodist Willowbrook Hospital in Houston it would cost $72,128.  If you were taken 15 miles away to Memorial Hermann Hospital’s Memorial City location in Houston, it would cost you $31,313.  Both are great hospitals.  Why such a big difference?  The answer we have found in similar situations is unreasonable mark-ups and billing practices.  The Constitution allows Congress to pass tax laws to control commerce.  Control the cost of healthcare and you bring down the cost of health insurance.  Lower cost means more people will voluntarily buy health insurance.  When it comes down to feeding your family or buying health insurance, you feed your family.  The President and Congress need to drop the individual mandate and concentrate on fixing the current system not creating a new one.  But until Congress catches on private enterprise has already begun to fix problems like this by creating health insurance pricing models that are based on cost and a reasonable profit.  We’ve been using this model with a great deal of success thereby reducing cost over traditional pricing models by as much as 30%. For more information on fee model pricing vs. mark-up pricing contact me through LinkedIn at http://www.linkedin.com/in/vanrichards/, or visit our website at http://www.abs-insurance.com

Political, Pragmatic or Panic: Delay of major healthcare provision creates controversy and opportunity

healthcare

In a July 2,2013 Treasury Department blog post, Assistant Secretary for Tax Policy, Mark J. Mazur stated” The Administration is announcing that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin.” In other words the “pay or play” tax has been delayed for one year. Those commenting on sites from the Wall Street Journal to the Washington Post echoed similar sentiments of skepticism about the entire Affordable Care Act. Many people still don’t like the law or don’t think it will work. But there is more to this newest move than the general public can see.

The Austin Statesman brought up an important point, “Democrats are defending 21 Senate seats to the Republicans’ 14, and the GOP had already started to excoriate Senate Democrats who had voted for the health law in 2009.” Couple that with this statement from NBC News, “98 percent of firms with 200 or more employees (already) offered health insurance”. Delaying the “pay or play” tax will appease many business owners. The delay will give politicians up for election the appearance of being empathic to the needs of the public. And the delay will give Health and Human Services, the IRS and the Department of Labor time to focus on implementing the health insurance exchanges. It would be safe to say that this was a pragmatic move on the Administration’s behalf.

But what does this mean for large businesses (those with 50 or more employees). In his blog post, Assistant Treasury Secretary Mazur stated that more details would be coming soon. However he did state that reporting of insurance cost will be strongly encouraged. So employers are still being asked to report the amount of money that is being paid for employees’ health insurance. This will be reported on the employees’ W-2 in box 12.

Ask yourself why in the world the IRS wants to know how much you are paying for health insurance? Here is my opinion. If the IRS knows how much individuals are paying for insurance, that information can be used by the Health and Human Service Department and the IRS to set the “pay or play” tax at a rate that will more strongly encourage employers to offer a level of healthcare that the government sees as necessary. In other words, HHS and the IRS could set the $2,000 annual penalty at a higher rate to more strongly encourage employers to NOT drop healthcare coverage. Some employers see the $2,000 penalty as a cheaper option than paying for healthcare for employees. What if the penalty was $6,000 per employee, would that change the decision of employers to offer healthcare? If the IRS is asking for the cost information now, the government intends on using it for something.

The key opportunity for employers is not to delay decisions for another year. Look for ways to cut and control cost within the limits of the Affordable Care Act now. Use the delay in the “pay or play tax” to your advantage. For more information on cost cutting strategies that work within the limits of the Affordable Care Act now you can contact me through LinkedIn at http://www.linkedin.com/in/vanrichards/

Affordable Care Act Avoidance Strategy that Doesn’t Work

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It was a little surprising this week (6/17/13) to read the insight of the Wall Street Journal’s Affordable Care Act panel of experts.  The WSJ posed this question “We’ve reported that some retailers and restaurant operators are hiring more part-time workers, or limiting part-timers to 29 hours per week, to avoid the insurance mandate.  How prevalent will these sorts of changes be?” None of the three panelist indicated that they understood the actual methodology that the IRS will use to define part-time employees.  The law does define a full time employee as one that averages 30 hours, but there is more to the definition.  David Marini, the managing director of strategic advisory services at ADP stated “there are organizations that are looking to limit the number of hours to below 30”.  Christine Eibner, an economist at RAND Corporation acknowledged “firms do make these types of structural changes to avoid requirements such as mandates”.  Kevin Kuhlman, a manager of legislative affairs at the National Federation of Independent Business said “we hear from members taking steps to reduce employee hours” and his solution was to increase the threshold above 30 hours per week.

Here is the point that they all missed. Part of the avoidance strategy is to avoid having 50 or more employees.  Remember that 50 or more employees is defined as a “large employer” and must comply with the mandate to offer healthcare to employees.   Just limiting employees to 29 hours will not work.  The 30 hour per employee limit is just part of the law.  In order to determine how many full time employees an employer has and what their average annual wages are, all employees are aggregated, full-time, part-time and leased employees, as defined in Code § 414(n).  Seasonal workers who work for the employer for more than 120 days of the year are also included as defined in Code § 45R(d)(5)

The calculation is done at year end but averages monthly.  Here is simplified example of how the calculation will work:

Example:

  • 40 full time employees
  • 50 part time employees working 29 hours a week. (50 x 29 x 4 = 5,800)
  • Total of 5,800 hours for the month/120 (this number is statutorily given)
  • 48.33 equivalent employees + 40 full timers
  • 88 full time equivalent employees for the month (regulations tell us to round down)

There are other strategies to limit an employer’s healthcare expenses that work and limit penalties.  For personalized answers to your company’s healthcare questions you can contact me at www.linkedin.com/in/vanrichards/

Proper timing can keep the “C” Suite out of trouble with new healthcare mandates.

The Buck Stops Here

The sign “The Buck Stops Here” was on President Harry Truman’s desk in the Oval Office.  Truman exemplified the responsibility that is on the shoulders of every corporate executive today. Know what is going on in every department of your company and take responsibility for it.  The Affordable Care Act has increased the responsibility of corporate executives dramatically.  Health Insurance used to be a responsibility delegated down to middle management.  But health insurance is a significant part of an employee’s compensation and workforce compensation represents approximately 43% of the average corporate budget. So selection, implementation, communication and maintenance of employee benefits require proper timing and attention from the highest corporate levels.

Selection

You may be familiar with the new health insurance exchanges.  Currently those exchanges are just for small companies and individuals.  If your company is a large employer (100 or more employees) you may think that the Affordable Care Act does not affect your company very much.  Not true.  All companies must meet many new requirements. The Affordable Care Act requires that employees receive up to fourteen new notices. The first is the new Exchange Notice that employers must distribute to EVERY employee by October 1, 2013.

Healthcare expenditure in the United States represents about 20% of the economy.    With the government trying to control such a large part of the economy, every healthcare plan with every company will be affected.  Savvy executives understand that where there is change, there is opportunity. Private enterprise has developed strategies to compete very well with the new health insurance exchanges and take advantage of the many new regulations that are part of the Affordable Care Act.  Stanford University Professor of Law and Business, Daniel Kessler stated in the June 13, 2013 Wall Street Journal Op-ed “apples-to-apples assessment shows how much higher exchange-plan premiums will be”.  Current trends indicate that the cost of most healthcare plans will go up in price.  Self-insured healthcare plans that allow the employer to share in some of the risk and reward of insuring their group do offer a significant alternative.

Why should you be concerned?

Why should you be concerned about health insurance exchanges if your company is considered a large employer? If you are a large employer and offer a plan that is considered “unaffordable” for your employees AND they apply for insurance through the individual health insurance exchange, your company will pay a $250 per month penalty, per employee accepted to the exchange.  If you consider one of Professor Kessler’s most significant findings you can see one way that private enterprise will compete well with exchanges.  Professor Kessler noted that the first healthcare exchanges to show their plans achieved their lower cost by “designing the plans around much more limited provider networks”.  Self-insured plans allow companies to control the network of providers to better suit their overall employee desires.  Exchanges open on October 1, 2013 and many employees will be looking at how the exchange plans compare to what they have with their employer.  My own families plan is through the Texas Retirement System Active-Care.  This is a plan that covers 477,000 employees and dependents.  Our plan is going up by almost 30% in September!  We’ll be looking at the Federal Exchange.  With such a large expense all options are open for consideration.  If you would like to look at the alternatives available for your large group you can contact me directly through LinkedIn at: www.linkedin.com/in/vanrichards/

The media eye’s new healthcare strategy, and sometimes they miss the point.

http://www.vansblog.net The new healthcare law has left all employers looking for ways to comply. Offering a self-insured plan does offer employers a broader array of solutions. The example given in the May 20, 2013 Wall Street Journal article, Employers Eye Bare-Bones Health Plans Under New Law uses extreme examples of the strategy. But there are some industries that have to take that route to remain profitable. Employers that have low income employees are still doing a service to their employees by offering some sort of plan. Something is better than nothing. But it puts the healthcare system back in the same predicament as they are in now; low income workers go to public hospitals for free care. However, there are two points where the article communicates the wrong conclusion. First if an employee has credible healthcare available from their employer they will not qualify for insurance through the Exchange. If their employer offers coverage, there are only two ways for the employee to qualify for coverage from the Exchange. First, is if premium of the employer’s plan is 9.5% or greater than the employee’s income. The language in the law could be a loophole for the Exchanges if the government chooses to exploit it. The regulation reads as 9.5% of household income. If the government wants to prevent the exchanges from imploding by only covering sick people, they could enforce this language. The other way to be denied Exchange coverage is if the employer’s share of the coverage is greater than 60%. If coverage is less than 60% then the employee would qualify for the Exchange.

The second point that the article does not communicate correctly is in the Kaiser example. It states that the $9 an hour worker would have to pay as much as $90 per month for a midlevel plan. If the employee picked the low level exchange plan, that might meet the affordability requirement. The Affordable Care Act states that the employer can avoid penalties by offering employee only coverage that meets the two criteria, employee only coverage is less than 9.5% of household income and the employers share of the coverage is greater than 60%. If the employee chooses not to take the coverage then the employer does not pay the penalty.

How you explain the Affordable Care Act options to your employees may have a significant effect on your employee retention.

Time is ticking down and the deadline for implementation of the most significant parts of the Affordable Care Act is just around the corner.  Open enrollment begins on October 1, 2013!  This week I’ll discuss the impact of the “pay or play” tax for employers.  Please remember that this is just the highlights.

On May 8, 2013  the Department of Labor issued temporary guidance and forms that every employer must complete for all employees.  At the end of the blog is the link to the sample notices published by the Department of Labor.

There is no doubt that how the tax and the tax credit work is complicated. Rather than trying to just restate the process that each employee must go through, I have created a flow chart that hopefully will simplify the “play or pay tax” options. (Look at the end of the blog for the chart) If you would like the chart in a printable file, please email and I’ll forward it to you.  Prior to the October 1, 2013 open enrollment, your employees will want or need to know if they qualify for the premium tax credit. If they use a tax software or have an accountant do their taxes that will be figured out for them. If you are wondering how the actual dollars and cents of the premium tax credit works, the Kaiser Family Foundation has a subsidy calculator that can give you a good idea of who may qualify and how much credit they will get. Here is the link to the calculator: Kaiser Family Foundation  Subsidy Calculator

Here is why the health care options you offer to your employees will affect their desire to work for your company or a competitor.  If the plan you choose does not favor your employees, they may get a better tax break by working for an employer that offers a health plan that offers them more premium tax credit.  In the context of this blog it is impossible to cover every circumstance that may affect your employee’s choices and the tax benefits available to them.  The important thing to take away is that the plan you choose to offer will affect more than just your employee’s health.  It may affect your company’s future profitability.

There are several factors to consider.

  • The income of your employees. Are they blue-collar, middle management or highly compensated?
  • What is the normal turnover rate of your employees?
  • What portion of the premium will your company pay?

If you need understanding how the pay or play tax will affect your company, give us a call: 713-320-6124 or drop me an email at van@abs-insurance.com

Here are the links to the new DOL forms previously mentioned:

Notice for employers with a health care plan.  

Notice for an employer not offering a health care plan.

To better profit$,

Van Richards

Pay or play chart

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