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Posts Tagged ‘open enrollment’

November is around the corner. Besides worrying about turkey dinners and seating arrangements for Thanksgiving, it’s that time of year again to review your health care options.

If you’re retiring, already retired or have an elder parent in this category, you should get familiar with the options available for health coverage.  Since most health care dollars are used by seniors for doctors, medical services and prescriptions, it’s important to get this right to avoid burning a hole in your pocket.

Most seniors are familiar with Medicare.  For a small monthly premium, the government-managed plan will cover a range of medical and doctor services.  This is usually through Medicare Parts A and B.  Some seniors also enroll in Medicare Part D (for Drugs or for Donut hole) which covers the cost for prescriptions (at least those outside of the dreaded donut hole.

Medicare Advantage (MA) is Medicare Part C.   These are plans offered by private insurance companies and are approved with Medicare to provide consumers with all Medicare services. The government pays the insurer a set amount to provide the services of Medicare Parts A and B.  Many of these plans also offer drug coverage.  In this combination, you will not need to buy separate drug plans or a Medicare supplement known as MediGap.

Beginning now and going through December 31, you (or your parents) have an opportunity to enroll or change coverage.

Things to Consider

  • Medicare Advantage May Cost Less:  These plans must cover the same services that traditional Medicare offers.  In many cases, there are additional services offered in Medicare Advantage.  Usually this includes vision and dental coverage. The premium for many plans averages around $40 per month which is less than the $96.40 for standard Medicare Part B.
  • There are restrictions: Some plans offer extra services that you may never use (such as gym memberships).  These plans operate like HMOs or PPOs and require that you follow the rules about referrals from your Primary Care Physician (PCP) or using doctors, labs and hospitals that are within the network.  Otherwise, you could be responsible for higher out-of-pocket costs.
  • Compare plans: Use the services available at www.medicare.gov and click on “Compare Health Plans.” If you’re considering a plan that includes drug coverage, it’s helpful to have a list of your prescriptions and the formulary from your current Part D provider available to help with the comparison.
  • Health Care Reform: One of the ways that the government expects to pay for health care reform is by reducing the amounts that are paid out to Medicare Advantage plan sponsors which have typically been receiving an average of 14% more for each enrolled beneficiary than it costs using traditional Medicare.  While this may impact future services offered by some MA providers, your coverage cannot change in mid-year no matter what.  And you can always re-enroll with a traditional plan at the next annual enrollment period.
  • Restrictions for Those with Kidney Disease and Using Dialysis: If you have end-stage renal disease (ESRD), you typically cannot join a Medicare Advantage plan.  There are exceptions for those who have been enrolled in a MA before diagnosis.
  • Remember What’s Not Covered: Long-term care or “custodial care” is not covered by Medicare and most health insurance plans.  If you’re living abroad, Medicare will not cover you either. Under limited circumstances, it may pay for medical services while you are traveling.  You should check with the Medicare resources website at www.medicare.gov.

For more help on this topic, send me an email (steve@ClearViewWealthAdvisors.com) or call 617-398-7494.

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Both dependent care and medical flexible spending accounts are funded with pre-tax deductions from your paycheck. Both have a “use or lose” policy if the funds deducted are not used in the calendar year for which the election was made.

Typically, a person can only make the election to have these deductions taken at the time of their hiring or during the annual enrollment period every company offers for their employees to make changes to their health and welfare benefits. (There are other times as well during certain “life events” such as marraige or birth of a child when benefit elections can also be changed.)

Since the election to make these deductions are made for a full year, one must be very cautious about the amount chosen. If you don’t use the funds towards eligible expenses in the time period allowed, you cannot get the money back.

For those with young children or elder parents needing day care, the dependent care FSA can be useful.  The maximum amount that can be set aside is pegged at $5,000 each year. With the costs of child care and adult day care being what they are, it is not likely that an employee will end up not using the full amount set aside so maxing out makes sense.

However, the dependent care program only allows a person to receive funds already in their FSA account, regardless of how much the person has already paid out in dependent care expenses. For example, if a person elects the $5,000 maximum to be withdrawn over the course of the year, after 3 months there is only $1,250 in the account. Even though the person has already paid more than that to the child care provider, they can only receive the balance.

With the medical flexible spending account, however, a person can be reimbursed at any time during the year up to the annual
amount elected to have withdrawn
.  Thus, the person can receive funds from the FSA prior to the funds actually having been withdrawn from their paycheck.

Let’s assume you know you are going to have a surgical procedure in January and your cost will be about $5,000, so you elect to have $5,000 deducted towards the medical FSA during the open enrollment period. In February, you pay your $5,000 portion. Even though you have only about $800+ in your FSA account, you can submit a reimbursement claim for the full $5,000 that you paid out.

It is prudent to review what your expected medical expenses may be in the upcoming year, verify that they are eligible FSA expenses with your employer’s FSA administrator, and then make the election. It can’t hurt to underestimate, so you may have to pay some expenses with after tax dollars, but that’s still much better than giving away money because you overestimated and you lose what you had deducted and not used.

Some examples for using a medical FSA are when you incur orthodontia expenses and dental procedures for which you have a high deductible and/or co-pay. Regular doctor office visit co-pays, which are not usually exceptionally expensive, are eligible for FSA reimbursement. If you go often enough, even saving a few tax dollars can be beneficial.

Using the FSA is a great tool to enforce a disciplined savings program to cover expenses that are expected to be incurred anyway during the year.  And by doing it through a tax-deferred program at work, you’re ultimately reducing the cost by your marginal income tax rate so that your savings stretch out to buy you more services. (For someone in the 20% marginal tax bracket, for example, one would have to earn $1.25 to have enough cash to pay for $1.00 of services after the impact of taxes.)

By taking some time to project your personal expenses, you can ultimately benefit with Uncle Sam’s help.

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