What could you buy with $7,680 in your pocket?  Would you buy Cubs or Sox tickets? How about taking a much-needed vacation?  That amount of money could pay for 100 rounds of golf!  Would you invest the money?  Unbelievably, an insurance agent asked a new client of ours to instead spend that much money on her health insurance premiums over the next twelve months.

Jill, who has couple of kids, wanted to replace her current health insurance (through COBRA) with an individual health plan.  The COBRA rate was just over $1,100 per month, and was a huge strain on her finances.  She asked a local insurance agent in her home town for help, and he recommended she apply for a $500 deductible PPO plan with $20 copayments for doctor office visits from a well- respected insurance company.  This copayment plan provided a savings, but still cost $955 per month.  After talking to her friends about this, Jill just did not feel comfortable signing up for this plan, and she was referred to our office.

After reviewing her situation, we looked at an individual plan that would qualify for a Health Savings Account, frequently called an HSA plan.  Jill was initially hesitant because of the conflicting advice she was being given.  The high deductible made her nervous.  The HSA plan we recommended for Jill had a $5,000 single deductible, but a monthly premium of only $315 per month.  The savings over the $500 deductible plan was $640 per month, or $7,680 annually!

Jill was stunned, hopeful, and frustrated all at the same time!  However, she eventually realized that over the next twelve months even if she reached her family deductible of $5,000, she would still have $2,680 “left over” to invest or spend on the kids.  She also knew that her family normally spends less than $1,000 per year for medical costs.  Why hadn’t anyone told her about this type of plan before?

Many people are afraid of HSA health plans simply because of the high deductible.  The concept is a bit confusing.  They are new, and somewhat different from what people are used to, when thinking of health insurance.  However, HSAs are fast becoming a very popular health plan because the savings in premium can be significant.  HSAs can also provide tax savings.

What is an HSA plan?

In order to be considered an “HSA eligible” plan, an insurance plan must have a single deductible of no less than $1,200 per year, or $2,400 per family.  These types of plans are available through most major insurance companies.  Since claims are submitted to the insurance company first, a PPO discount is usually applied before a member pays his or her bill if it is below the deductible.  If there are two or more family members on the plan, then everyone’s claims would apply to the deductible.

The maximum out-of-pocket an HSA plan can have in 2011 is $5,950 for a single person and $11,900 for a family.  Generally speaking, HSA plans do not include copayments for office visits or prescription drugs.  In other words, all medical expenses apply to the deductible.  If a plan meets the HSA plan requirements, the government allows for contributions to a Health Savings Account.

What is a Health Savings Account?

A Health Savings Account is simply a checking account at a bank with a specific purpose.  When a contribution is made to this account, the government allows that individual to deduct that contribution on his or her tax return, similar to a deduction for an IRA.  Unlike an IRA, the funds can be used immediately to pay for qualified medical expenses.

In 2011, the maximum HSA contribution for an individual is $3,050; the maximum contribution for a family is $6,150.  If you are over the age of 55, then the government allows you to contribute an extra $1,000.

The funds in the HSA account grow tax-deferred and the interest is spent tax-free as long as it is used for a qualified medical expense.  The account can grow and increase from year to year.  This account is unique in that it can help pay premiums for a long-term-care policy or a Medicare supplement plan after age 65.  Please note:  If the funds are withdrawn for a non-medical expense, then taxes and a 20% penalty could apply.

This is just a general overview of HSA plans.  However, you should have enough information to start asking questions.  If you don’t see the doctor often and are looking for a way to save money on your health insurance, this type of plan could be right for you!  If your agent hasn’t already talked to you about HSAs, then find someone else who understands how they work.  Put money in your pocket; don’t just give it to the insurance company!

Jill made the right call and enrolled her family in an HSA eligible plan.  She now feels a lot better about her financial situation.  She has a solid health insurance plan, much lower premiums, and is planning a trip to Disneyland with her kids with the money that she is saving!!

Written by John Gotschall, Coaching Financial Concepts

On May 9, 2011, the U.S. Department of Labor (DOL) announced the launch of its first smartphone application, the “DOL-Timesheet” designed specifically for employees.  In a DOL news release that same day, Secretary of Labor Hilda Solis stated that by leveraging “increasingly popular and available technology …this app will help empower workers to understand and stand up for their rights when employers have denied their hard-earned pay.”

To say that this tool could be problematic for small to mid-sized businesses would be an understatement and here’s why employers should be concerned:

1. DOL Adding More Auditors-It is rumored that the DOL has been increasing the number of auditors in the wage and hour division.  Four times as many.  This would make sense since the fasted growing area of employment litigation is in wage and hour violations, out pacing harassment claims by nearly 2 to 1.  But why would the DOL invest in so much in this area.  There are two reasons that make this area so appealing to the DOL.  They are nearly impossible to defend on the part of small employers.  Judgements can be attached personally to the business owners/officers and their assets regardless of corporation or LLC status.
2. Someone Else is Checking Your Work-The app currently provides a timesheet function that allows employees to track hours for multiple employers.  They can then enter the hourly rate of pay and track hours worked, including; break time, meal periods, and overtime hours.  The app also provides the user with information on how overtime pay is calculated, what employee’s rights are, and how to contact the Department of Labor via phone, email, or the nearest local office.
3. Reporting Violations is a Snap-The app can also display reports for each employer on the hours worked and gross pay by day, week and month.  These reports can be exported from the app via email.  Although the app is limited in scope, it has the potential to be significantly more comprehensive in future versions.  Where the DOL may not be outwardly encouraging employees to be junior auditors and help them catch perpetrators in the act, it certainly makes it much easier for them to do so and with greater speed and ease.  Also smaller employers who think they may fly under the radar may have a rude awakening when they receive their first violation notice.

In light of this employers must take greater care in not only how they pay their employees but how they track their hours, manage their record keeping, and set policies within their organizations.

Written by Samuel I. Tanios, Human Elements Consulting

The health care reform legislation that was passed this year is a very hot topic.  There are many moving parts and provisions that are not easy to understand.  The questions that we all need to ask are:  How will the new law affect me?  What are the long-term effects of the legislation?

Starting on October 1, 2010 the law prohibits the following:  lifetime benefit limits, cost-sharing for preventive services, and pre-existing conditions for children.  Dependent coverage up to age 26 is mandated.

The removal of lifetime benefit limits is a good thing.  This means that you can have claims as high as $30 million (or even more) without the worry of bills not being paid after your responsibilities of the deductible and coinsurance are satisfied.  This law provides considerable financial comfort, as coverage is no longer capped at $2 or $5 million.  If you have individual coverage, as long as you pay your premium, your coverage continues.  For those that have group coverage, keeping your coverage is still a function of your continued employment.  If your employment is terminated, COBRA laws or state continuation laws mandate that your coverage can be continued for varying lengths of time.

The elimination of cost sharing for preventive services is more good news.  For plans that did not provide preventive services prior to the law, this coverage will now be mandated and you will be able to see the doctor for an annual physical.  The insurance company will have to pay the preventive claim up to the insurance policy limits and your preventive care will be provided at no cost to you.

Pre-existing condition limitations will no longer be imposed for children under the age of 19.  Prior to health care reform, if you purchased an individual policy, the insurance company had a right to not pay for claims because of an illness or injury that happened in the prior year.  The insurance companies also had a right to exclude certain conditions from coverage on an individual policy.  If you were part of a group plan, the only way the insurance company would not pay for a pre-existing illness or injury was if there was no proof of “creditable coverage” for one year prior to the claim.

In 2009 in Illinois, our infamous former governor passed a law that required insurance companies to provide coverage for dependents up to age 26.  This was accepted nationally and placed into law with the health care bill.

The increase in the age for dependent coverage is a positive thing as well, especially for dependents with pre-existing health conditions.  These dependents will now be allowed to stay on their parents’ insurance plans until age 26.  For children and young adults that are healthy, this provision is not as important to parents as they can probably obtain coverage for their kids at a lower cost.

While you can see that these new laws are generally positive from a risk and benefit perspective, what will the insurance companies have to do to cover these increased benefits?  If the insurance companies have to spend more, do they have to increase premiums?  Absolutely!

From a consumer’s point of view, an increase in premiums will mean less money available for daily living expenses and less money in savings.  It will also probably cause those with health insurance coverage to increase their deductible to keep the premium cost manageable.

From an employer’s point of view, more businesses will have to start passing down the increased premiums for health insurance coverage to their employees.  Many employers will consider dropping coverage altogether.

If the employer no longer offers health insurance, employees will need to purchase an individual plan.  This is fine as long as there are no pre-existing conditions.  If pre-existing conditions exist, this may cause an employee to consider changing jobs, taking less in salary, or even going without health insurance until 2014 when coverage is guaranteed.

Think about this on a national level.  If the cost of health insurance continues to climb higher and your company continues to provide coverage, will the company pay for that increase out of their pockets, or will they somehow pass this cost on to their customers?  If companies are passing on increased costs to their customers, what do you think is coming?  Many financial professionals believe that this will contribute to rapid inflation over the next several years.

While many people will benefit from the health reform changes, almost everyone will feel the effects of increased costs, lower disposable income, and possible loss of jobs, which would then contribute to higher unemployment figures.

In conclusion, the changes that will result from health care reform will cause both individuals and employers to review insurance benefits.  The bottom line is that the long-term effect will be increased costs for everyone.

Written by John Gotschall of Coaching Financial Concepts