q&a

Q&A: Medicare Advantage plan downsides

September 27, 2021 By Liz Weston

Dear Liz: You recently wrote about Medicare Advantage plans, which often cover things like dental care, hearing and vision that traditional Medicare does not. You mentioned that the plans have networks of providers, but people should know that those networks don’t always include the experts they may need if they develop serious health issues. The plans themselves can have copays that make it expensive to get sick. If people want to switch to traditional Medicare and get a supplemental Medigap policy, they may face medical underwriting that could increase their costs.

Answer: Medicare Advantage plans are sold by private insurers as an all-in-one alternative to traditional Medicare. The plans are certainly popular — the percentage of Medicare beneficiaries who sign up for Medicare Advantage has been steadily increasing over the years, in part because these private plans seem to cover more. But the plans can vary widely in the breadth of their networks and how they share costs with beneficiaries.

Once you’ve signed up for Medicare Advantage, switching to traditional Medicare can be problematic, as you noted. Insurers aren’t required to cover you the way they are when you first enroll. Some may decline to offer you a Medigap policy or may charge you more, based on your health.

Q&A: Why you need a credit score even if you don’t like debt

September 27, 2021 By Liz Weston

Dear Liz: As I counsel my teenage kids about their personal finances, I am wondering if they can live without a credit score. It is puzzling that to get a good credit score, you need to have debt, or at least a credit card. Wouldn’t living debt free be best? With FICO scores becoming de rigueur, is it reasonable for anyone to get away with no credit score at all, especially if the only debt they would consider is a mortgage someday? Also, the credit reporting companies now have some adjunct services that provide reporting based on payments for rent and utilities that might be helpful. How effective are those reports?

Answer: Credit scores aren’t meant to gauge how well you manage money. They’re meant to gauge how well you handle credit. If you don’t have and use credit, you won’t have scores, and lenders will be reluctant to extend you credit when you want or need it.

You also may have to pay higher deposits for utilities, miss out on the best cellphone deals and have trouble renting an apartment. In most states, credit information helps determine property insurance premiums as well. In fact, your credit may matter more than your driving record in determining auto insurance premiums.

It’s a myth that you must be in debt to have good credit scores. You just need to have and lightly use a credit card, and you should pay it in full every month. Another option is a credit builder loan, through which the money you borrow is placed in a savings account or certificate of deposit for you to claim when you’ve finished making 12 monthly payments.

There are services that will add rent and utility payments to your credit reports. The most commonly used versions of the FICO score, however, don’t include that information in calculating scores.

Q&A: Credit reports vs. credit scores

September 20, 2021 By Liz Weston

Dear Liz: I recently downloaded both my wife’s and my own credit reports. I noticed that, for a number of reasons, her report has much less information than mine. The probability is that I will die before her, so my question is whether you can suggest any ways to be sure she has a good credit rating after I’m gone. Do the credit reporting agencies give any weight to a spouse’s score?

Answer: They do not, unless the spouse is alive and a co-applicant.

The amount of information in a credit report doesn’t dictate someone’s scores, however. People can have good scores with only a few credit accounts, or bad scores with lots of accounts. Your wife should find out what some of her scores are to decide next steps. Her bank or credit card issuer may supply her with scores, or she could get free scores from one of the many sites that offer those. (FICO is the formula most often used by lenders, but VantageScore can give her a good idea how lenders view her, as well.)

If her scores are less than excellent (generally 740 and up), she could look for ways to improve them such as making all credit payments on time, using only a small fraction of her available credit and perhaps adding an account or two. Credit builder loans from credit unions can be a good way to build or rebuild credit.

Q&A: Financial aid and 529 plans

September 20, 2021 By Liz Weston

Dear Liz: As a grandparent who has established 529 accounts for each of my grandchildren, I was particularly interested in your advice to the writer who asked you how to use money that’s left in the 529 account to pay off a loan debt. Although it seems that “the horse had already left the barn,” why didn’t the niece use all the funds in the 529 account before accruing student loan debt? Am I missing something?

Answer: It’s possible the withdrawals could have reduced the niece’s financial aid, so she opted to take out loans instead.

In the past, the federal financial aid formula heavily penalized withdrawals from 529 college savings accounts held by people other than the beneficiary’s parents. The accounts themselves weren’t counted by the formula, but any withdrawals were treated as untaxed income to the student. The standard advice was to wait until the last financial aid form had been filed to begin taking withdrawals.

That’s going to change, although not as soon as originally expected.

The Consolidated Appropriations Act of 2021 required the Free Application for Federal Student Aid, or FAFSA, form to be simplified, removing several questions including one about whether the student got money from people other than parents.

The new FAFSA form was supposed to be released next year, but the Department of Education announced in June that the proposed changes would be delayed but implemented in time for the 2024-25 award year. Until the form has been updated, you’d be smart to hold off on tapping the 529s if your grandchildren will need financial aid.

Q&A: Medicare is complicated. Here’s how it works

September 20, 2021 By Liz Weston

Dear Liz: My husband and I are in our 50s and have widowed moms in their 80s. We always understood that when you begin taking Medicare, you are required to choose a plan such as SCAN or Blue Shield and to follow that plan’s benefits and limits. However, my friend who works in a hospital told me that you can elect to have straight Medicare and have no plan limits. Can you explain this?

Answer: What you’re asking about is known as traditional or original Medicare, which consists of two parts. Part A is usually premium-free and covers hospitalization. Part B covers doctor visits and has a standard monthly premium of $148.50.

Traditional Medicare is administered by the federal government and is accepted by the vast majority of medical providers but doesn’t cover everything. For example, beneficiaries must pay deductibles, 20% of Part B services and a portion of hospital stays. For that reason, many people with traditional Medicare also buy supplemental or “Medigap” policies from private insurers to cover these costs. Most Medigap plans, like traditional Medicare itself, don’t have out-of-pocket limits.

By contract, Medicare Advantage plans, also known as Medicare Part C, do have out-of-pocket limits. Medicare Advantage plans are “all in one” coverage provided by a private insurer rather than the government. These plans provide everything covered by Parts A and B of traditional Medicare, and may cover other costs such as vision, hearing and dental that traditional Medicare doesn’t. The plans typically have networks of doctors and other medical providers. If you get care outside that network, you would pay more and sometimes all of the cost.

The final part of Medicare is Part D, prescription drug coverage. That’s purchased from private insurers and may be included in Medicare Advantage plans.

Obviously, Medicare can be complicated, but you can educate yourself at Medicare.gov and download or request the handbook “Medicare & You.”