from the finance guy

Is the dollar going to keep sliding?

2007-12-28T14:02:00.000-07:00

In case you haven't heard, supermodel Giselle Bundchen requested her multi-million dollar paycheck in euros, in response to the declining dollar. You can read the whole story here news.bbc.co.uk/1/hi/business/7078612.stm . When supermodels say that the dollar is no longer fashionable, is that an indication that it has hit bottom? Maybe...
In today's news, the dollar is rebounding www.breitbart.com/article.php?id=D8TQIQ7O1&show_article=1&catnum=4.

What is an HSA anyway?

2007-12-28T13:50:00.000-07:00

If you or someone you know has been shopping for health insurance recently, you probably have come across the term HSA. A Health Savings Account, in conjunction with a High Deductible Health Plan, is an extremely effective way to lower your health care costs. People often refer to their health plan as an "HSA" if it only has an HSA attached. It's important to realize that an HSA is merely an account to hold and accumulate funds for medical expenses, it's not insurance. Most individuals don't want a deductible of $1,100 or more, and most families can't afford a $2,200 or higher deductible. So why would I advocate these types of plans? Stick with me, first I'll explain what an HSA is, then I'll explain how it saves and even makes you money.

HSAs are the best cash accumulation vehicle for the average American. First, they are tax-deductible. Contributions to an HSA are 100% tax deductible up to the legal limit ($2,900 for individuals and $5,800 for families per year [for 2008], with an extra $900 contribution allowed as a "catch-up" if you are over age 55). Withdrawals for qualified medical expenses are tax free. As long as the HSA funds are used for qualified medical expenses, the funds are NEVER TAXED. Ever. HSA funds also belong to the account holder. Forever. Unlike a flexible spending account (FSA) offered through many employers, HSA funds rollover year to year. It's never "use it or lose it". In fact, if you never use your HSA funds, you can roll them into an IRA (tax laws change at that point). For more information, check out www.hsacenter.com. As a disclosure, the site was put together and is maintained by United Healthcare, Underwritten by GoldenRule. I've found the site to be accurate and unbiased, though, despite that fact.

To backpedal a bit, there are two main types of health insurance being sold today--copay plans and "self-directed" or HDHPs with HSAs. Both types can be HMO, POS, or PPO plans. Copay plans usually have a low deductible and waive the deductible for doctor visits. High deductible health plans have high deductibles ($1,100 or more for individuals and $2,200 for families) and cover doctors visits only after the deductible is met. The reality is, the majority of health insurance claims originate from doctor's offices. A huge portion (40-50%) of your medical insurance premium is used to cover $120 office visits when the average person goes to the doctor only 2-3 times per year. The average family's health insurance premium in Colorado for 2007 was $1,066 per month (this includes any portion an employer might pay). The average family of four will visit the doctor 10 times in a year. Without insurance, the average family would pay $1,200 for those visits. With a copay plan, that same family (or family and employer) would have paid $5,117 ($1,066 x 12 months x 40%) for the same 10 visits. Even if your employer covers 80% of that family’s health premium, they would spend $1,023, a negligible difference. Insurance was always meant to cover large unforeseen expenses. Can you imagine if your auto insurance worked the same as copay plans? Oil changes, tire rotations, new wiper blades, windshield washer fluid, and the like would all be covered. But at what cost?! Since Jiffy Lube and Auto Zone would have to employ claims personnel and wait 90-120 days for reimbursement, oil changes would cost $50-$70 and wiper blades $20-25. These are obviously everyday expenses that the average motorist can afford to cover themselves. Also, because we as drivers have to pay out of pocket for these expenses, we tend to look for a good deal. When patients have to pay out of pocket for doctor's visits, they tend to examine whether or not a visit is warranted. Could that cold be treated with lots of fluids and rest, or is a run to the doctor necessary at the first sign of a sore throat and cough?

This is where an HSA kicks in. When a high deductible health plan is started, the insured should start an HSA, too. Because an HDHP will cost 40-50% less than a copay plan, it’s easy to direct the savings, or at least a portion of those savings, into an HSA. Once the HSA has been funded at least to the level of the deductible the insured has chosen, contributions can be reduced or stopped. I always recommend funding the HSA as much as you can afford every year, up to the legal limit, if possible. If a catastrophic event happens and an insured needs to cover the deductible, or the family comes down with the flu at the same time, funds are readily available to cover those expenses. Many high deductible medical plans offer riders which offer coverage to fill in the deductible gap during the first year while the HSA is being funded, and many more plans offer supplemental accident riders which pay a set benefit to pay for broken bones and other ailments, to help cover that gap. Check with an independent broker to see which plan meets your needs the best.

Many HSAs offer different investment options, as well. This is how an HSA can MAKE you money in addition to saving you money on your tax bill. Most HSAs are paying an interest rate of 3-5%. That alone is better than having the money sit in your savings account at the bank. Many HSAs also will allow you to invest in mutual funds, money market accounts, and even ETFs. My advice is to keep the amount of your deductible safe from exposure to market loss by keeping it in fixed interest, then invest the rest in other investment options with greater possible returns. Shop around a bit to find the best HSA administrator. Your bank or credit union may even offer a health savings account. Some HSAs require minimum monthly contributions or direct withdrawals from your checking account. All HSAs have fees, so check and see what those fees are. If it appears not to have fees, run. Fees are always charged, and an HSA like that will undoubtedly have some expensive back-end fees. Some HSAs don’t charge fees once you attain a certain amount of money in the account, usually $2,500. I highly recommend HSAs from Health Equity (www.healthequity.com). In addition to being a great place to have an account, Health Equity offers other tools, such as free online bill pay, debit cards, a 24/7 customer support team that will give you advice and help you shop for the best healthcare deals and cheaper prescription alternatives. I know that read like an ad for Health Equity, but they truly do a great job for their clients. Another company worth mentioning, Pharma Futures, Inc. in conjunction with HealthTrans offers free prescription drug discount cards that provide an average savings of 33% on prescription drugs. In the interest of full disclosure, I work for Pharma Futures, Inc., but I do not benefit financially from recommending the cards. Again, they are absolutely free and are accepted at 55,000 pharmacies across the US. You can go to www.pharmafutures.net for more information on how to obtain a card.

The next time you shop for health insurance, check out an HSA-qualified plan. Many employers are switching to these plans, as well, and some of them will match an employee’s HSA contribution, or even fully fund the HSA to the legal limit for the year.

Health Insurance, Simplified, Part 2. Today: Managed Care Plans

2007-09-26T19:18:00.001-06:00

In the last couple of decades, managed care health plans (not "insurance" in the truest sense of the word, but the idea is the same) have become the norm. There are 3 main types of plans: Health Maintenance Organizations or HMOs, Preferred Provider Organizations or PPOs, and Point of Service or POS plans. These types of plans attempt to encourage medical care providers to keep costs low by paying a provider based on a pre-negotiated fee schedule. Therefore, these plans are generally much less expensive than traditional indemnity plans as an insured can take advantage of the economy of scale by being part of a large organization. I'll explain how each of the different plans work today.

HMOs: This was the first type of managed care plan used on a large scale. They are organized health care systems that provide care to "members" who live within a geographic region. They are like insurance companies in that they finance health care, but, unlike insurers, they also provide medical care. An HMO can be owned by an insurance company, by physicians, consumer groups, hospitals, etc. If you have ever had to choose between different medical plans at a large employer, you may have seen a PPO plan and an HMO plan offered by the same insurance company. HMOs encourage preventative care to keep costs low. These plans require enrollees to use salaried physicians that are often HMO employees. This also helps keep costs low as doctors are not incentivized to prescribe additional, more costly (and possibly unnecessary) care. However, this can work against the member, too. HMO docs often receive bonuses for keeping costs low. This puts an incentive for physicians to sometimes NOT prescribe necessary treatment or tests, thus putting the patient at risk. The only time a member can go outside the HMO is for emergency care. Plan providers file the claims.

PPOs: These plans became a middle ground between the extremes of traditional insurance and HMOs. They are generally more expensive than HMOs and much less expensive than traditional medical insurance. The PPO operates very much like a traditional plan, but uses the benefit of a provider network. The network doctors and facilities are paid based on a prearranged fee-for-service schedule. This fee is less than what a provider would charge a patient who was not on a PPO (or even a POS). Benefits are substantially reduced if a member is treated outside the network. Doctors like being in the network because vast numbers of insureds are incentivized to use network services. Subscribers like these plans because the premiums are relatively low while the plan still provides some choice in providers. These plans annual deductibles and usually copays. The deductible will be lower for in-network versus out-of-network care, $500 in-network and $1,000 out, for example. The copay allows the patient to see the doctor for a small fee of $15-30, depending on the plan, without worrying about satisfying the deductible. Providers file claims, except for out-of network situations, where the covered person files the claim.

POS Plans: This is a hybrid of a PPO and an HMO. There's really nothing new here that hasn't been discussed. It's a PPO that calls for more managed care than a regular PPO, and it's an HMO that allows subscribers to have flexibility in the choice of healthcare providers. It is typically more expensive than an HMO and less expensive than a PPO. The deductibles and copays work the same as a PPO. Providers file the claims for in-network, the member for non-network services.

This sums up how health insurance worked, and continues to work, today. 2004 brought some changes very quietly, changes that may revolutionize the industry within the next couple of decades. Next time, I'll discuss those changes and how you can benefit from them.

- finance guy

Health Insurance, Simplified. Part 1.

2007-08-04T11:47:00.000-06:00

Someone asked me the following question the other day:

"I'm starting a new job and have to choose between 20 different health insurance plans and I'm very confused. What should I look for?"

My answer to him started with an explanation of the different types of plans available.

Health Insurance, Simplified. Part 1. Today: Traditional Major Medical Plans.

The world of health insurance is getting ever-more confusing. As an aside, I'm totally against a socialized health care plan. The government simply can't be trusted to administer such a plan with competency, quality, or cost-efficiency. However, I do believe something has to change. The current system is far too costly and confusing. It is, though, better than socialized medicine. Since it's the system we're stuck with now, let's try to cut through some of the confusion.

There are 4 basic types of health insurance plans available--traditional major medical indemnity, PPO, POS, and HMO. Today I'll discuss the traditional plans.

Traditional Major Medical Indemnity: One of the first types of medical insurance ever offered, this is a type of plan that is difficult to find today. It was the most popular type of plan until around 1980. These plans pay for catastrophic losses, typically never doctor or specialist visits. It works by reimbursing a claimant losses after a deductible is satisfied. The insured also pays a portion of the charges, called co-insurance, up to a specified maximum. For example, Jim gets hit by a bus and fractures 14 bones. He has a major medical plan with a $500 deductible and an 80/20 split with a $2,000 maximum out of pocket expense. His bills total $9,000. His plan would cover $6,800 (which is 80% of the total bills minus the deductible, or $8,500). He pays the balance of $2,200 ($500 deductible plus his 20% share of the remaining $8,500, or $1,700.)

One of the main attractions of this type of plan is that the insured is free to choose any doctor or hospital he or she wants, as this is an "indemnity" contract. Indemnity is the compensation for a loss sustained. Thus, the medical provider will not file a claim for the insured, the insured is responsible for filing claims, and will be the one to receive the check (beneficiary). Claims are processed quickly and efficiently as the coverage is usually black and white as to which conditions are covered and which are excluded. Claims are rarely turned down.

These types of plans do little to curb unnecessary medical costs, put a check on quality of care, or encourage preventative health care. As a result, these plans started to die off in the 70s and were largely replaced with managed care plans. 90% of medical plans in the US are some type of managed care plan. I'll try to simplify those for you tomorrow.

- finance guy

Tomorrow: Health Insurance, Simplified. Part 2: The Rise of Managed Care.