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Understanding Your Health Care Options
February 15, 2010

It seems that few topics are the subject of more discussion and debate today than our health care system. It is a highly complex arena—one replete with jargon and technical language. Though it may be subject to dramatic changes in the future, many people struggle to interpret the current system and determine the best and most cost-efficient health care options to fit their unique circumstances. If your medical bills leave you scratching your head about the difference between copayments and coinsurance, keep this basic guide in mind.

Footing the bill

Paying for healthcare is not as simple as buying groceries, a new TV or a car. The cost to you can come in different forms:

Insurance premiums – this is the dollar amount that people tend to pay the most attention to, because it represents the out-of-pocket cost (usually monthly) for a health insurance plan. However, premiums are just the beginning of the costs involved.

Deductibles – the out-of-pocket cost an individual or family must pay directly to a provider for health services. Many insurance plans require that several hundred to several thousand dollars in costs be incurred first by the policyholder before the insurance company begins to cover expenses. This represents the deductible amount.

Coinsurance – this is the amount of medical expenses that must be paid by the individual after the deductible amount has been satisfied. For example, after paying the deductible, an individual often will have to pay 20 percent of expenses up to another dollar amount for any medical services incurred.

Copayments – some plans require that those who use medical services contribute a flat amount for each visit to a medical provider. Typically, this payment is made at the time services are provided.

Different types of plans

There are a variety of health coverage options available. Not only can you choose from different insurance companies, but also from different types of plans. Most people today participate in one of three types of managed care plans that try to emphasize preventive medicine and wellness as a way to keep treatment costs down. Those plans include:

HMOs – Health Maintenance Organizations are plans that generally require individuals to utilize doctors, clinics and hospitals that are part of their approved network of providers. Typically, these plans do not require deductibles, but often include co-payments for medical services.

PPO – Preferred Provider Organizations are another form of managed care that share many of the characteristics of HMOs, but also some important differences. They encourage individuals to use a specified network of providers, but also allow patients to choose to seek service “out of network.”

POS – Point of Service plans are a managed care option designed to keep costs down by having a primary physician manage referrals as needed, typically within the same network of providers.

Moving away from managed care

Those who prefer fewer restrictions on their ability to choose providers may opt for a private fee-for-service plan. This is a more traditional approach to insurance where premiums are more competitive and healthcare costs are shared by policy owners and the insurance company.

Another approach to health insurance that is attracting more interest is referred to as a “consumer-directed” solution. It centers on the combination of a health insurance plan that includes high deductibles and lower premiums and regular investments in a Health Savings Account. Coverage for current health costs comes from the high-deductible insurance policy. Additional money is then saved in an HSA, and the amount that accumulates can be used to help pay deductibles and any other out-of-pocket medical expenses. Contributions made to an HSA are tax-deductible, any earnings generated by the account are not taxed and withdrawals to pay for qualified expenses are tax-free.

The money saved in an HSA can be used to help pay for current and future medical-related costs. By putting the money under your control, an HSA can give you greater choice in the health coverage you choose. An HSA is also portable, meaning that it goes with you if you lose your job or change employers.

The increasing role healthcare expenses play for most Americans today will continue to be a hot topic, and the system may undergo changes in years to come. But understanding the basics of the system as it stands today is important for you to get the most out of your current and ongoing healthcare investment.

Not the same old tax return – new rules for this year’s tax season
February 4, 2010

Few things induce more anxiety this time of year than the looming April 15 tax return file deadline. As you begin the process this year, keep in mind that changes to the tax rules could affect your tax liability and possibly make you eligible for new tax reduction opportunities. More details can be found at the Internal Revenue Service website (www.irs.gov) or by talking to your tax advisor. Here are some of the more prominent changes that could affect your final 2009 tax bill:

Homebuyer Tax Credit -- This has been one of the most highly publicized changes of the past year. First-time homebuyers—i.e. those who have not owned a principal residence for the three years prior to purchase—may be eligible for up to an $8,000 tax credit. (A credit is a dollar-for-dollar reduction of your tax bill). Generally, the purchase must have been completed in 2009 to qualify for the tax credit on your 2009 return. However, the credit will continue to be available for new home purchases under written contract by April 30, 2010 and closed by June 30, 2010. A special election exists to claim the 2010 purchase on your 2009 tax return. A similar credit of up to $6,500 is available for existing homeowners who purchased a replacement home. This credit applies only for purchases made after November 6, 2009 and by the above deadlines. To qualify, existing homeowners must have owned and used the same home as their principal residence for five consecutive years in the eight-year period prior to the purchase of a new home. Note that income and other limits apply to qualify for both credits. If your tax liability is less than the amount of the credit, you still qualify to receive the entire credit in the form of a refund.

Tax Credit for Post-Secondary Education -- A tax credit of up to $2,500 per student attending a four-year college is available (for taxpayers who meet income and other requirements). If the credit is more than your income tax liability in 2009 and 2010, 40 percent of it can be returned as a refund. To learn more about the American Opportunity Tax Credit, visit www.irs.gov.

Making Work Pay Tax Credit -- Many employees saw a slight reduction in the amount of tax withholding from their paychecks earlier in the year, an adjustment made due to the Making Work Pay Tax Credit. The credit amount is 6.2 percent of the taxpayer’s earned income up to a maximum of $400 for a single tax filer and $800 for married couples filing a joint return. The credit must be claimed on your tax return. If the credit has not already been reflected in your paycheck or if you are self-employed and have not accounted for the credit, you will adjust the amount of your tax liability as you complete your 2009 tax return. Income limits apply to qualify for the credit.

Sales Tax Deduction for the Purchase of New Vehicles -- If you purchased a new car, motor home, light truck or motorcycle between February 16, 2009 and December 31, 2009, the sales or excise tax amount you paid can be deducted from your income even if you do not itemize deductions (a deduction reduces your taxable income and, as a result, the amount of tax you pay).

Energy Tax Credits -- Various credits tied to making homes more energy efficient are available. These include a tax credit valued at 30 percent of the amount paid for qualified solar water heating equipment, solar electric equipment, small wind energy property, or geothermal heat pumps installed in your U.S. residence. A similar credit with maximum credit limits exists for the installation of qualified fuel cell property in your principal residence. Also, 30 percent of the cost, up to an aggregate of $1,500, is provided for energy-saving home improvements such as qualified windows, outside doors, insulation, roofing, high-efficiency furnaces, water heaters, heat pumps, biomass fuel stoves, air circulating fans, and central air conditioners that are placed in your U.S. principal residence in 2009 and 2010.

Other pointers as April 15 approaches
As you prepare for the tax filing deadline, here are a few things you can do today to help make the process easier:
• Gather your records – if you haven’t already, you should be receiving statements from banks, investment firms and mortgage companies with tax information. Keep it filed in one safe place. Make sure you receive W-2s or 1099s (reporting income received) from employers or firms you may have contracted with.
• Determine your most efficient way to complete a return – there are numerous software programs available, many of which are accessible online, to complete the job. Or make sure you have your accountant or tax preparer in place and ready to deliver a timely return.
• Take more time if you need it, but let the IRS know – you can receive an automatic six-month extension by filing form 4868 with the IRS by the April 15 deadline to avoid interest and potential penalties. You must make payment for any tax that may be due by April 15.

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