Friday, November 24, 2017

Money the IRS Never Sees

As far as I can tell, none of the versions of tax reform introduced recently in Congress propose to make any changes to a couple of very useful tools for saving money to pay for medical expenses, and that is a very good thing.  By following a few simple rules it is possible to save, invest, and spend thousands of dollars tax-free for your health care expenses.
A medical Flexible Spending Account (FSA) allows an employee to have as much as $2550 deducted pre-tax (i.e. it is not taxed before it goes into the account) from his earnings each year to pay for medical bills not covered by his insurance.  It may be spent to cover such costs as co-pays and deductibles for doctor visits and prescriptions; dental exams; eyeglasses and contacts; even over-the-counter drugs that a physician prescribes.  When the money is withdrawn and spent on qualified medical expenses, it is not taxed then, either.
The catch is that the FSA is a use-it-or-lose-it account. If the owner doesn’t incur enough expenses to drain the account in the 12-month period, he will forfeit what he hasn’t spent.  (Some plans will allow the account owner to carry over as much as $500 to the next year.)  So anyone funding an FSA should carefully estimate his annual expenses when deciding how much to deposit.  One other benefit of the FSA: it is pre-funded.  For example, if a worker is having $100 withheld each of the 24 paychecks in a calendar year, the entire $2400 is available to him on day one, before he has actually deposited the money into the account.
Ironically, a Health Savings Account (HSA) offers a bit more flexibility and some better benefits than an FSA but comes with some more stringent rules for qualifying to own one.
First, the HSA is only available to people who are covered by a high-deductible health insurance plan.  “High” is currently defined as a minimum $1300 deductible for an individual plan, with a maximum combined deductible/out-of-pocket limit of $6550.  It’s $2600/$13,000 for a family plan.  As with an FSA, contributions may be made by the owner via payroll deduction and are pre-tax.  And again, if spent on qualified medical expenses, the tax man never touches that money.
Unfortunately, the HSA is not pre-funded.  The owner can only spend what is actually on deposit.  On the other hand, the contribution limits are higher: $3400 for an individual, $6750 for a family.  And unlike the FSA, money in an HSA can roll over year-to-year and is available to cover any qualified expense incurred after the account was opened.  So if someone had some big expenses early in the year and had to pay with cash or credit card, he can reimburse himself later when the account balance grows large enough.  
The account can even follow the owner into retirement.  Being on Medicare disqualifies a person from contributing further to an HSA, but any money saved while qualified still belongs to the owner to offset future medical bills.
If you anticipate spending anything on medical or dental care over the course of a year, you should at least fund an FSA if your employer offers it.  But if you employer offers a health insurance plan that qualifies as high-deductible, give some thought to choosing that and opening an HSA. 
Next week we will examine who can benefit most from funding an HSA and maybe run through a couple of hypothetical situations.

Until next week,


“Ants don’t have leaders, but they store up food during harvest season.” Proverbs 6:7, 8 (CEV)

Friday, November 17, 2017

You Didn't Know You Had It So Bad

This week has been a public health disaster for America.  Millions of adults across the country who went to bed healthy Sunday night found themselves Monday with high blood pressure and at higher risk for heart disease.  They didn’t all go to the doctor that day for a check-up or have an at-the-workplace blood pressure check as part of a national screening day.  No, Monday was the day the American Heart Association and the American College of Cardiology released new guidelines that define hypertension as pressure of 130 systolic over 80 diastolic, or higher.  The previous standard was 140/90.  The experts estimate that an additional 31 million adults in the U.S. are now classified as having high blood pressure. 
 The new standard is based largely on a 2015 study which showed that older adults aggressively aiming for a 120 systolic pressure reading rather than 140 cut their comparative risk of heart attack and stroke by one-third.
I freely acknowledge Americans need to improve their diets and get more exercise, both conservative means to lower blood pressure.  I also know cardiovascular disease remains the nation’s biggest killer.  But if this recommendation from the experts causes more stress for patients, is it worth it?  If to get down to the prescribed level a person has to take three, instead of one, medications, will they suffer new side effects like compromised kidney function?  Nephrologists are warning against that very thing.  What is a patient to do?
 But health care is not the only field where experts issue dire warnings and set standards that may be a stretch for many of their patients/clients.  I refer (as if you didn’t already guess) to financial planning.  I’ve listed here a few recommendations from “experts” that I think fall into that “maybe, but maybe not” category.  I believe financial planning is an intensely personal exercise, that it is not formulaic.  These recommendations may be appropriate for many or even most people; but just as you know your own body better than anyone else, so also you know your family history, your spending and saving habits, your goals, your dreams, your values, even your politics….everything that plays into how you approach and plan your financial future.  You must decide for yourself if any given piece of financial advice is really appropriate for you.
I offer no opinion on these recommendations in this posting.  For now they are purely illustrative of a point.  As one doctor told an interviewer, he’s not going to stress out his patient or himself trying to get that patient with a 180 systolic down to 120.  He’ll just do his best.  Take these in the same spirit, and don’t stress over them.
 You need to have at least a million dollars saved for retirement if you want to be financially secure.
 Cut up all your credit cards.
 You must save 15% of your earnings each year for retirement.  (It used to be 10%.)
 Social Security will not be there for you in retirement; do not count on that income.
You must have long-term care insurance.
You must have a Roth account as part of your retirement planning strategy.
You must plan to make your retirement savings last as if you’ll live to be 100.
You must own a home to build wealth.
Pay off all debt before you retire.
Don’t rush to pay off your house; it’s a great tax deduction.
Depressed?  Then you have some inkling of how those 31 million newly hypertensive Americans feel.  Just remember that doctors want to look like they’re contributing to longer and better lives, so they push more aggressive goals.  In the same vein, financial planners don’t want to be responsible for someone not living a grand and financially secure life, so they are going to push their own aggressive ideas and standards for you.  After all, if your client didn’t save a million dollars like you told him to, how can he blame you if he runs out of money when he’s 95?

 Happy Thanksgiving.  Until next time,


“Enter His gates with thanksgiving and His courts with praise.”  “Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God….for I have learned to be content whatever the circumstances.”  Psalm 100:4 and Philippians 4:6, 11 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.

Friday, November 10, 2017

Interred With Your Bones?

In William Shakespeare’s play, Julius Caesar, Mark Antony tells the crowd at Caesar’s funeral, “The evil that men do lives after them; the good is oft interred with their bones.”

I can’t think of a better classical quote than that to describe the modern obsession with social media.  Forget the obvious narcissism for a moment; think about the way Twitter, Facebook, and a host of other sites have become the means for attacking people we don’t like and even people we haven’t met.  Someone posts an ill-advised comment, joke, picture, or opinion online, somehow it spreads across the globe, and out of nowhere comes a horde of critics on social media who vilify that individual, call him or her very unsocial names, and even make threats that border on criminal.

 Author Jon Ronson addressed this phenomenon in his book So You’ve Been Publicly Shamed (Riverhead Books, copyright 2015 by Jon Ronson) documenting the cases of people who created a regrettable post and suffered the resulting public humiliation that often ended in the person losing his job and otherwise having his life ruined.  Decent people convicted by a mob.  One mistake defines their life.  One strike and they’re out.  As Ronson wrote, “[W]e’ve created a stage for constant artificial high drama.  Every day a new person emerges as a magnificent hero or sickening villain.” (pp. 78-79).

We tend to keep our financial lives to ourselves, except for the bragging (online and elsewhere) about our purchases of fancy cars, gadgetry, houses, vacations, boats—all, by the way, probably financed by a boatload of debt.  So your worst critic in that arena may be you.  Perhaps you are racked by guilt because you made an awful financial gamble that cost you thousands of dollars.  Or failed to start saving early for retirement.  Or spent too much on a large purchase.  Or started a business that went bust.  Or took what seems to be the wrong career path.

I urge you not to let that one thing define your life.  Yes, there may be some uncomfortable financial fallout from it, but there is redemption.  The joy you or a loved one experienced through it; living a dream, even a short-lived one, through your “mistake”; creating a memory that you will always fondly cherish—these are things that even money seemingly poorly spent or even lost may still yield as dividends.  And even if you find no redeeming value in your error, it is not the total sum of you.  You are much more than that.  Life consists of many choices and ever-changing scenes, and you can use the decisions and experiences of the past to inform your choices now to create a better future and ensure that the “good” of your life—friends, family, and the love and nurture for which you are known—will live after you.

Until next time,


“Even the hairs on your head are counted.  So don’t be afraid!  You are worth much more…” Luke 12:7 CEV

Friday, November 3, 2017

Don't Do "eeny meeny"

Trees painting the outdoors with their leaves, chillier nights, shorter days—you know what that means.  It’s Medicare open enrollment season.

Okay, maybe that’s not what came to your mind first.  But working as I do (at least tangentially) with the Medicare program, I know October 15 to December 7 to be the annual opportunity for the Medicare-eligible population to choose their coverage for next calendar year.  But it’s also the time of year in which many employers have their own open enrollment for workers to select their health care plan or other benefits for the next twelve months.  And this week many Americans began shopping on the various insurance exchanges for their 2018 health insurance under the Affordable Care Act (ACA).

If you fit into any one of those categories, here are a few tips to making your selection.

Cost is about more than the monthly premium.  An insurance policy with lower premiums may not be a bargain. Your co-pay (the amount you have to pay at each health care encounter), your co-insurance (the percentage of the cost of a service that you are responsible for paying), and your deductible (the dollar amount of your expenses you are responsible for paying before your insurance even kicks in its first dollar of coverage) could all be much higher and more than erase whatever you save in monthly premiums. 

The deductible can be the real killer.  When I’ve called on doctors’ offices as part of my job, their main complaint about the ACA has been some of the plans’ high deductibles.  Patients come into their office, excited to finally have health insurance, only to learn it covers $0 of the first $5000, or even $10,000, of medical expenses.  Essentially, they just have catastrophic health insurance.  To avoid that trap, read the policy description thoroughly and try doing a little math based on the number and cost of your (and your family’s) doctor, urgent care, lab, radiology, and hospital encounters over the past year.  Will you likely meet the deductible early in the year?  Not at all?  If you or a member of your family suffer from a chronic condition or are otherwise a frequent user of physician or hospital services, then paying a higher premium to ensure the insurance company starts paying for services earlier might well be worth it.  Take note of the out-of-pocket limit, the maximum amount you would be responsible for paying before the insurance company begins paying at 100%.

Are your providers “in network” with the insurer?  Many health insurance plans have a limited universe of providers who are considered in their network.  It is important that you determine if your preferred doctors—both primary care and specialists—as well as the local hospital and pharmacy and the nearest full-service large medical center are considered “in network” with the plan you are contemplating buying.  Using in-network providers keeps your costs lower.

The insurer’s website is usually the best source for determining who is in their network. Be certain you select the correct plan on the website, because they are likely to have several plans, each with its own network of doctors.  

But I’ve found that those online listings can be out-of-date.  I recommend you also call your doctors’ offices and speak with either the insurance clerk or the office manager to double-check.  Let me stress that when you call that you do NOT say, “Do you accept XYZ Insurance?”  You SHOULD directly ask, “Are you in XYZ’s network of approved providers?”  The difference can be critical.  A provider may “accept” any insurance, in the sense that they will file a claim to any company.  But if they are not in-network then they will be paid less, and you will be responsible for more of the bill, if not all of it.

Investigate the reputation of the insurance company.  This can be easier than it sounds.  If you are shopping for a Medicare Advantage plan (also known as a Part C plan), the government rates them on a star system:  one star for poor customer service, up to five stars for superior service.  For other insurances, there is not an equivalent rating system; but friends or even co-workers can make recommendations based on their experiences.  And again, your physician’s office can be good source of intelligence.  I have found that the back-office staff freely discusses what insurance companies are better than others, which ones are reliable payers, and which they like more than others.  You might be surprised to learn that insurance companies that advertise the most and are best known by the public do not enjoy a good reputation among the providers I know. Just remember, a physician’s contracts with the insurance companies most likely restrict him and his staff from recommending one company over another, so don’t ask them to tell you which to choose. 

Happy Open Enrollment.  And until next time,


And perhaps the best way to save money on health care in 2018:

“Dear friend, I pray that you may enjoy good health and that all may go well with you, even as your soul is getting along well.” III John 2 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.