Insurance

Q&A: Health savings accounts can supercharge retirement funds, but not for this guy

May 22, 2017 By Liz Weston

Dear Liz: Prior to retiring in 2015, I contributed to a health savings account. At the time my spouse and I were enrolled in my employer-provided high deductible health insurance plan. After I retired, I enrolled in an HMO plan my employer provided, which is not high deductible, and my wife enrolled in a Medicare supplemental plan. Can I make a one-time IRA rollover of $8,750 into the HSA? If not the $8,750, can I make any one-time contribution to the account while I am enrolled in the Kaiser health insurance plan? I have only $53 in the HSA. Are there any reasons to keep the account open or should I close it?

Answer: You did have the option, while you were enrolled in the high-deductible plan, to make a one-time rollover from your IRA to your HSA. The amount you could roll over is capped to the HSA contribution limit. The limit in 2015 would have been $7,650 ($6,650 for a family, plus a catch-up contribution of $1,000 for those 55 and over). You would have had to subtract from the rollover any amounts already contributed to the account that year.

Since you no longer have the high-deductible plan, though, rollovers and new contributions aren’t allowed. There’s no reason to keep open a plan with just $53 in it because most HSA providers charge monthly fees that will quickly eat up such a small balance. (Your employer may have paid these fees while you were working and covered by the high-deductible plan.)

That’s too bad, because a properly funded HSA can be an excellent way to save for medical expenses in retirement. HSAs offer a rare triple tax break: Contributions are pre-tax, the money can grow tax deferred and withdrawals are tax free when used for qualifying medical expenses. HSAs are meant to cover the considerable out-of-pocket expenses that come with high-deductible health insurance plans, but the money in the account can be rolled over from year to year and even invested so it can grow.

Q&A: Getting cash to pay medical bills

March 20, 2017 By Liz Weston

Dear Liz: I am 63 and retired from my full-time job last year since I have bad health. I work part time now and have tons of medical bills because of stage one cancer. I need additional cash. Is there some way I can get an advance using my pension check as collateral? In addition, is there any way to get an advance from those insurance people who pay people who may die in less than five years? I can’t say when I’m going to kick the bucket but any suggestions you may have that will allow me to get some immediate financial assistance will be greatly appreciated.

Answer: Let’s reinforce what you just said: You don’t know when you’re going to die. A stage one cancer diagnosis is far from an immediate death sentence. You could live for decades, so the mistakes you make now could haunt you for a long time.

Yes, there are some companies that will give you a lump sum in exchange for the next five to 10 years of your pension payments. You should avoid them like the plague. The effective interest rates they charge can be astronomical and you’ll probably be much worse off. If you’re having a hard time making ends meet now, losing a source of income won’t help.

Even if you were going to die soon, no one would hand you money just because of that fact. Those “insurance people” are actually investors who buy cash-value life insurance policies, often from the terminally ill. If you had such a policy, you might be able to sell it for an amount somewhere between the surrender value (what you’d get from the insurer by cashing it in now) and the face value (the dollar amount for which you’re insured). These transactions are called life insurance settlements. If you did have such a policy, though, you probably would be better off just borrowing the amount you need from its cash value.

Consider consulting an experienced bankruptcy attorney if you have more bills than you can pay. Medical bills, along with credit card balances and other consumer debt, can be erased in a Chapter 7 bankruptcy filing. Once the debt is gone, you can start rebuilding your finances for what may be a longer life than you expect.

Q&A: Claiming an adult child as a dependent

December 19, 2016 By Liz Weston

Dear Liz: I am paying rent for my adult son in another state. He gets occasional help from various services, but if I don’t want him to sleep on the street, I have to pay his rent and send some emergency food. I don’t see this changing. Can I claim him as a dependent or would that make me responsible for his health insurance, which I cannot afford?

Answer: Yes, you would be responsible for your son’s health insurance coverage if you claimed him as a dependent, said Carolyn McClanahan, a certified financial planner with Life Planning Partners in Jacksonville, Fla. That would mean either paying for coverage or paying the fine for not having coverage. The fine for 2016 is $695 per adult or 2.5% of your household adjusted gross income, whichever is greater. The penalty is capped at $2,085, which is likely much more than what you’d save with an additional exemption. If you’re in the 25% tax bracket, a $4,050 personal exemption is worth a little over $1,000.

The IRS has many rules about dependents, and standards for claiming adult children are much higher when they’re over 19 (or over 24 for full-time students). To qualify, your son would have to earn less than the amount of the personal exemption ($4,050 in 2016) and you must have provided more than half of his support, among other rules. The IRS has an interactive tool to help people determine dependents’ eligibility at https://www.irs.gov/uac/who-can-i-claim-as-a-dependent.

Q&A: Life insurance for people over 65

November 7, 2016 By Liz Weston

Dear Liz: Can you give us some direction on how to get good term life insurance when you’re over 65? We had 25-year term policies and the premiums skyrocketed, so we are looking. Will getting a group plan (such as the one offered by AARP) help me? I’ve had two heart valve surgeries and knee and hip surgeries but don’t drink or smoke. We are concerned that we may not have enough saved. My wife is still working, but I have not been able to find employment since I lost my job due to a downsizing.

Answer: The options available to you are likely to be limited or expensive or both.

The life insurance program offered through AARP provides up to $100,000 in term coverage that ends at age 80 or $50,000 in permanent life insurance that can extend through your life. There’s no medical exam but you do have to provide health information.

Life insurance with higher limits may be available but you’re not going to like the price, said Delia Fernandez, a fee-only Certified Financial Planner in Los Alamitos. Life insurance after 65 is usually expensive in any case, but those heart valve surgeries could make it much more so, depending on how long ago you had them, how successful they were and what medications you’re on.

Fernandez recommends consulting with an independent life insurance agent so you can get a better idea of what’s available and what it will cost. Once you have an idea of the premiums, you’ll have to weigh whether you’d be better off investing that money instead.

As a general rule, you don’t want to be worth more dead than alive — and not just because you don’t want your spouse contemplating ways to collect. More importantly, insurance coverage that exceeds your income-generating capacity signals that you may be spending too much for insurance and need to consider alternatives.

Q&A: How to negotiate the medical bill maze in search of a better deal

May 30, 2016 By Liz Weston

Dear Liz: My husband and I have run into some serious medical bills recently. We have insurance, but one provider is out of network with a huge deductible and low payout, while another claim was flat-out denied. We’re looking at around $16,000 in bills, assuming nothing else is denied. What can we do to get these bills lowered?

Answer: Act fast, negotiate hard and don’t pay the “sticker price” for healthcare if you can possibly avoid it.

Start by reviewing your bills for errors such as duplicate charges, fees for services you didn’t receive and charges that seem excessive. A medical billing advocate may spot more subtle overcharges, such as separate, higher fees for procedures that should have been billed together as one bundle. The National Assn. of Healthcare Advocacy Consultants and the Alliance of Claims Assistance Professionals can offer referrals.

You may be able to resolve the errors with a call to your insurer, but you’ll still want to ask how to file a formal appeal so you can challenge the claim denial.

Look for other ways to reduce the bills. Some medical providers have charity programs that may help, and they aren’t just for low-income people: Partial relief may be available for those earning up to 400% of the poverty level for their areas.

Even if you don’t qualify, don’t assume that the numbers on your bills are what you actually have to pay. As you know from previous medical bills, the amounts providers charge bear little resemblance to the amounts they’re willing to accept from insurers. Ask to be charged the same amount that the provider would accept from Medicare, or from the largest insurer in its network.

If you can pay your bill all at once, ask for another discount for paying in cash. If you can’t pay, ask for a no-interest payment plan. Providers may push you to pay the bill with a credit card, but resist doing so unless you get a significant discount and can pay off the bill quickly.

Q&A: Healthcare coverage should be part of retirement planning

May 30, 2016 By Liz Weston

Dear Liz: You’ve been writing about how much to save for retirement, including how much of our incomes we should aim to replace with our savings. Two additional reasons to shoot for a higher replacement rate is the possibility that medical needs will be higher the older one becomes (even with Medicare and a supplemental plan) and the possibility that long-term care will take a huge bite out of savings if one self-insures for this. My wife and I took these into account when we saved as much as we could afford during our working years.

Answer: Many people erroneously believe that Medicare will take care of their healthcare costs in retirement. In reality, Medicare generally pays for about 60% of typical healthcare services, according to the Employee Benefit Research Institute. Fidelity Investments estimates the typical couple at age 65 can expect to spend $245,000 on healthcare throughout retirement. That figure doesn’t include the costs of nursing homes or long-term care, which also aren’t typically covered by Medicare. Anticipating and saving for these expenses was a smart move on your part.