Q&A: Health insurance subsidies

Dear Liz: We’re living on a very tight budget and often have to put groceries and unexpected expenses on a credit card that’s in my husband’s name only. I have no personal income. My husband is on Medicare, but I’m too young to qualify and need to find low- or no-cost healthcare, (I haven’t had any insurance since 2007.) They are using my husband’s total income and coming up with high rates that are supposed to be lowered by tax credit, but we don’t pay income tax because our income is too low. Should they be using what the IRS considers our income to be? Or could I apply using my zero personal income?

Answer:
By “they,” you presumably mean a health insurance marketplace where you shopped for policies offered by private insurers. HealthCare.gov is the federal marketplace and many states, including California, offer their own. When you shop for a policy through a marketplace, you can qualify for subsidies that can dramatically lower the cost of your coverage.

This subsidy, also known as a premium tax credit, is based on your household income, not your individual income. The tax credit is refundable, which means you get it whether or not you owe federal income taxes, and you can opt to have the subsidy paid in advance to the health insurer to lower your premiums. You don’t have to wait until you file your taxes to get the money back.

You’ll want to act quickly, though, because the penalty for not having coverage is rising. The penalty for 2016 is the greater of $695 per adult or 2.5% of income. You still have a short window to avoid that hit: The enrollment deadline is Jan. 31.

Q&A: Shopping for insurance

Dear Liz: I pay about $670 per month for insurance for four cars, our home and a $1-million umbrella policy. We’ve been with the same well-known national insurance company for over 30 years. About five years ago, I checked with another well-known national insurance company about the estimated total premium, which was not significantly different from what I paid.
We filed a claim for a very minor accident about two years ago. My 21-year-old son, 17-year-old daughter, my wife and I drive these cars.

Should I have my coverage reviewed by another company?

Answer: Of course you should. And you should check with more than one.

Premiums can differ dramatically, particularly for younger drivers. A recent Consumer Reports investigation found that although some companies doubled or even tripled auto insurance rates for a teen driver, others barely budged.

Premiums also can change over time as insurers try to build or protect their profits. Insurers will lower premiums to attract more business and raise them to cut losses.

Price isn’t the only thing you should consider. Customer service is important too, so review your state’s complaint survey to see which insurers tend to draw customer ire.

Shopping for insurance isn’t fun, but saving hundreds or even thousands of dollars is. You should make the effort at least every few years.

Q&A: Co-pays and collections

Dear Liz: My primary care physician referred me to a gynecologist for a medical issue. I called the office three times and asked that the appointment be made as an annual exam.
During the appointment, the doctor was rude and critical of my body and lifestyle. (I am obese.) I left the appointment in tears before it was over.

Five months later, I got a $160 bill for the appointment. My insurance denied the claim twice, saying the doctor was double charging, but the office fought back, saying the charge was for the referral, not the annual exam.

I have tried to work with the doctor’s office and my insurance, but now the bill has gone to collections. It’s knocked my FICO score from 780 to 680 in a matter of months.

Part of me does not want to pay the bill because of the abuse I received from the doctor. However, this is affecting my finances. Would it help my FICO score if I negotiated with the bill collector and then repaid a part of the bill? What are my options?

Answer: Your best option is to ask the doctor’s office, politely, to take back the collection account in exchange for your paying the bill in full.

The doctor should not have been rude to you. But you shouldn’t have tried to get a referral for a medical issue treated as an annual exam. You were probably trying to avoid a co-pay, because health plans typically cover this type of preventive care, but that’s not why you were there.

You could ask whether the bill collector will delete the account from your credit reports. You would almost certainly have to pay the bill in full to win this concession, and even then the odds are against it.

That’s why it’s better to ask the medical provider to take back the account. In many cases, medical providers place accounts with collectors on assignment and have the ability to pull them back if they want.

The latest version of the FICO credit scoring formula ignores paid collections and treats unpaid medical collections less harshly than other collections. But that formula is just starting to be adopted, and the more commonly used previous version, FICO 8, ignores only collections worth less than $100.

As you’ve seen, even one dispute can lead to a big drop in your scores. If you feel an issue is worth pursuing, it often makes sense to pay the disputed bill and then seek justice in Small Claims court.

Q&A: Term life insurance

Dear Liz: My husband doesn’t qualify for term life insurance because he is overweight and pre-diabetic. Although he’s working on getting in shape, I’m afraid something might happen. I should add we have a 3-year-old daughter, and he is the main breadwinner.

What would you suggest we do to ensure we are covered if something were to happen?

Answer: Just because your husband was turned down by one insurer doesn’t mean others won’t accept him. Even people who are obese or who have diabetes can find coverage, so your husband shouldn’t accept that he’s uninsurable.

Look for an independent agent or broker who works with several companies rather than a captive agent who works for just one or two. A fee-only financial planner may be able to help you find a good agent. The planner also could recommend an appropriate amount of coverage.

Your husband also should investigate any coverage he might have through his job. Many employers provide a base amount of coverage as a benefit (frequently $50,000 or one year’s pay) and often allow workers to buy additional coverage without requiring medical exams.

The downside of employer-sponsored group life insurance is that he may not be able to buy as much coverage as he needs. He may need 10 times his annual salary, for instance, but his group policy may max out at five times his salary. Also, the policy may not be portable — it may end if he’s laid off or quits, for example.

The best strategy will depend on the costs he faces. But one approach may be to buy as much employer-provided coverage as possible and supplement it with an individual term policy purchased on his own.

If his health improves, he could boost his individual coverage while buying less of the employer-provided kind.

Q&A: Surviving on Social Security Disability

Dear Liz: I’ve been on disability for over 10 years, and I currently receive $1,527 a month in Social Security Disability Insurance. My rent starting in March will be $1,400. I’m not opposed to moving, but after checking literally thousands of listings, I found that what I’m paying is not unusual for my area. I’m living on savings now. I’d like to have a job but am hard-pressed to find work. What should I do?

Answer: You don’t have to do anything if you have enough savings to last the rest of your life. Assuming that’s not the case, you need to do something to dramatically lower your cost of living.

You may qualify for housing assistance. You can use federal government sites such as Benefits.gov or HUD.gov to explore your options, or search for the name of your community and “rental assistance programs.”

You may discover that your low income is still too high for the available programs or that there’s a massive waiting list. If that’s the case, you still have options.
If your disabilities allow, you could earn low or even free rent by working as an apartment manager, a companion to an elderly person, a babysitter for a family with young children or a caretaker for a home or estate.

If your apartment is in a desirable area, you may be able to rent it out a few days a month on Airbnb, Homeaway or another vacation rental site to offset your cost. (Check with your landlord first.)

You could look for a roommate or other shared housing in your community, or consider moving to a less expensive area. You may need to move only a few miles to find a more affordable place, or you may have to consider transferring to a different city or state.

If you’re willing to be truly mobile, you could do what some retirees on limited incomes do and live full-time in a recreational vehicle. Some get jobs as camp hosts or other campground workers in exchange for a free site.

In general, you shouldn’t pay more than about 30% of your gross income for housing. Limiting your rent to 25% is even better, since it will give you more wiggle room to afford the rest of your life.

Q&A: Social Security disability insurance and survivor benefits

Dear Liz: My first wife died six years ago at age 60. I was 52 and we had been married 27 years. My wife was on Social Security disability for 15 years before her death. My only dealing with Social Security after her death was to cancel her payments. I received no benefits of any kind. I am now remarried. Were there any Social Security benefits that I failed to request? Is there any effect on my future retirement?

Answer: You may have been eligible for a one-time payment of $255, but that’s likely all.

We’ll assume your wife was receiving Social Security Disability Insurance payments, which are disability checks paid to workers who have enough work credits in the Social Security system. SSDI is different from Supplemental Security Income, or SSI, a need-based federal program for low-income individuals who are disabled, blind or over the age of 65. Survivor benefits aren’t available under SSI, but they are under SSDI.

The rules for SSDI survivor benefits are similar to those under regular Social Security. Survivor benefits typically are available starting at age 60. Survivors who are disabled can begin receiving the benefits starting at 50, and survivors at any age can qualify if they’re caring for the deceased person’s child who is under 16. When you remarry before age 60, you can’t claim survivor benefits based on your first wife’s Social Security record unless the subsequent marriage ends in death or divorce.

Q&A: Terminating private mortgage insurance

Dear Liz: I bought my first home about a year ago. Because I had very little money for the down payment, I have to pay private mortgage insurance, which is a whopping $385 each month. My burning question about this is: How can I get rid of it? There must be a way to pay the loan quicker or pay more each month or something to make it go away.

Answer: Mortgage insurance protects the lender in case you default on your loan. Since loans with small down payments have a higher risk of default, mortgage insurance is typically required until your balance falls to 80% of the original value of your home. At that point, you can request in writing that the mortgage insurance be canceled. If you don’t make the request, the lender is still typically required to terminate PMI when your balance reaches 78% of the home’s original value.

To speed that day, you can pay down your principal, but do it the right way. Call your mortgage servicer and ask how to be sure the extra money you submit is reducing your mortgage balance. Otherwise, your extra money may just be applied to the next month’s payment, which won’t help reduce your balance much.

Q&A: VA health coverage and the Affordable Care Act

Dear Liz: My brother is a Vietnam veteran. Every month since his separation from the Navy in 1969, he has had a monthly premium deducted from his pay and sent to the Veterans Administration for his medical insurance coverage. Last month he received a notice from his employer stating that if he doesn’t sign up and pay premiums under the Affordable Care Act, he will be fined for not having medical insurance. How can this be? He goes to the VA for all of his medical needs. Can this truly be correct?

Answer: People enrolled in VA healthcare don’t have to sign up for additional health insurance or pay additional premiums. Their VA coverage meets the Affordable Care Act’s requirements for coverage.
Your brother’s employer may have sent out a general notice to all employees about the law, rather than one that reflects his individual situation. If the employer believes that VA coverage doesn’t qualify, it should be alerted to this page on the VA site: http://www.va.gov/health/aca/.

Q&A: The effects of a property sale on Social Security

Dear Liz: I sold a rental property this year and will have a long-term capital gain of about $100,000. My normal income usually puts me in the 10% tax bracket and my Social Security is not taxed because my total income is under $25,000. I pay $104 per month for Medicare. Will the sale of the rental property count as income and make my Social Security benefits taxable? Will I suddenly be deemed “rich” enough to pay more in Medicare payments? If so, will the Medicare payments go back to normal because I will have total earnings under $25,000 after 2014? I am 66, single and by no means rich.

Answer: This windfall will affect your Social Security taxes and your Medicare premiums, but the changes aren’t permanent.

The capital gain will be included in the calculation that determines whether and how much of your Social Security checks will be taxed, said Mark Luscombe, principal analyst for CCH Tax & Accounting North America. That will likely cause up to 85% of your Social Security benefit in 2014 to be taxable.

Your Medicare premiums are also likely to rise based on your higher modified adjusted gross income, said Jay Nawrocki, senior healthcare law analyst for Wolters Kluwer Law & Business. The income used to determine Medicare premiums is the modified adjusted gross income from two years earlier, so your premiums shouldn’t increase until 2016. If your income reverts to normal in 2015, your premiums should also revert to normal in 2017, Nawrocki said.

The exact amount you’ll pay can’t be predicted, but people with modified adjusted gross incomes under $85,000 paid $104.90 per month in 2014. Those with MAGI of $85,000 to $107,000 paid $146.90, while those with MAGI of $107,000 to $160,000 paid $209.80. If your income for 2014 puts you in that last group, you should count on your premiums roughly doubling in 2016.
There is some good news. You’ll qualify for the 0% capital gains rate on the portion of the gain that makes up the difference between your income and the top of the 15% tax bracket (which is $36,900 in 2014 for a single person). If your income is $24,000, for example, then $12,900 of your capital gain wouldn’t be taxed by the federal government. The remaining $87,100 would be subject to the 15% federal capital gains rate. You may owe state and local taxes as well, so consult a tax pro.

Q&A: Maximizing retirement benefits

Dear Liz: I don’t know where to turn. My husband is 76. He has a federal government pension and collects Social Security but he has only a $17,000 life insurance policy. We still have a $229,000 mortgage and no savings other than my small 401(k). I am 59 and also a federal worker. Do you have any suggestions or guidance for me? Is there such a thing as an insurance policy that could pay off the mortgage if he passes before me?

Answer: Buying a life insurance policy on your husband that would pay off your mortgage isn’t necessarily impossible, but it would be expensive and might not be the best use of your funds. You can explore that option, of course, but you also should research your own retirement resources and what’s likely to remain after he’s gone.

Will your husband’s pension make payments to his survivor or will it end when he dies? How much will your own federal pension pay you when you retire? How much will Social Security pay you, and how does that compare with your survivor’s benefit (which is essentially equal to what your husband is receiving when he dies)? What are your options for maximizing those benefits?

You also need to know if your Social Security benefits could be reduced because of your public pensions. Some federal employees and employees of state or local governments receive pensions based on earnings that were not subject to Social Security taxes. When that’s the case, their benefits could be reduced by the Windfall Elimination Provision or the Government Pension Offset. Most federal employees hired after 1983 are covered by Social Security, but just in case you should check out the information at http://www.ssa.gov/gpo-wep/.

Once you have an idea of your income as a widow, you can compare that with your expected expenses and see whether continuing to pay your mortgage will pose a burden. If that’s the case, you might consider downsizing now to a place you could afford to buy with cash or a much smaller mortgage. Reducing your expenses also could help you build up that 401(k), which will help provide you with a more comfortable retirement.

Establishing a relationship with a fee-only planner now will help you prepare for the future and give you someone to turn to for financial advice should you be left on your own.