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Health-Care Reform: Credits and Subsidies

Included in the Affordable Care Act (ACA) is the creation of a Health Insurance Exchange or Marketplace through which individuals and families can compare health insurance policies and purchase coverage. The ACA also provides premium tax credits and cost-sharing subsidies to help reduce the cost of premiums and out-of-pocket expenses for health coverage.

Tax credits available through Health Insurance Marketplace
Eligible individuals and families purchasing insurance through a Marketplace may be entitled to a premium tax credit (PTC) that can reduce the cost of insurance. If you qualify, you can elect to have the credit amount paid to your insurance company to decrease monthly premiums, or you can claim the PTC on your tax return.

Eligibility for tax credits
Eligibility for the PTC is based on the following requirements:

  • You must be a U.S. citizen or have proof of legal residency and you must buy health insurance through a Marketplace
  • Your household modified adjusted gross income is within a certain range based on the Federal Poverty Level (FPL)
  • You are not eligible for minimum, qualifying insurance coverage through your employer or a government program such as Medicare or Medicaid
  • If you are married, you and your spouse file a joint tax return
  • You are not claimed as a dependent by another person

Tax credits and the federal poverty level
Whether you qualify for a PTC depends on your household income and family size. Income limits are based on a percentage of the FPL. Household income is your modified adjusted gross income (MAGI) plus the income of every other individual in your family who files an income tax return and for whom you claim a personal exemption deduction. MAGI is essentially your adjusted gross income plus any excluded foreign income, nontaxable Social Security benefits, and tax-exempt interest.
 
If your MAGI falls between 100% and 400% of the FPL, you may be entitled to a PTC. The following table illustrates the relationship between income as a percentage of FPL and household size. Incomes that qualify for tax credits are higher in Alaska and Hawaii.
 

Household Size 100% of FPL* 400% of FPL*
 
1 $11,770  $47,080
2 $15,930  $63,720
3  $20,090 $80,360
4 $24,250 $97,000
5 $28,410 $113,640
6  $32,570 $130,280
7 $36,730 $146,920
8 $40,890 $163,560

If your income falls within the FPL parameters, the premium you're required to pay for insurance purchased through a Marketplace is reflected as a percentage of your household income. So based on the table above, if you have a family of three and your household income is between $20,090 and $80,360, you will be eligible for a PTC. The actual PTC amount is based on the premium for the second-lowest-cost Silver plan available through the Marketplace. If you elect to buy more expensive coverage, such as a Gold or Platinum plan, you'd be responsible for the additional premium.
 
What if your family size or income changes?
It's possible that after you purchase insurance through a Marketplace, your estimated PTC amount may change during the year due to changes in your family size or income. If your actual PTC is less than the estimated PTC, the difference will be subtracted from your tax refund or added to the tax due. And if your actual PTC is more than the estimated PTC, the difference will be added to your refund or subtracted from the tax due. If, during the policy year, you think your PTC will change, it's probably a good idea to notify the Marketplace, which can then make the adjustment instead of waiting until the end of the year.
*2015 FPL numbers are used to calculate PTCs for 2016.

When you apply for insurance through a Marketplace, they will estimate the amount of your PTC based on information you provide. Before you actually apply for insurance, you can get an idea of whether you'll qualify for a PTC and, if you qualify, the approximate amount of the PTC by referring to the Kaiser Family Foundation calculator. This will show you the average cost of insurance for the second-lowest-cost Silver plan in a Marketplace and the amount of the credit. To apply the credit to other plans besides the Silver plan, you can get an estimate of the premium cost for insurance purchased through a Marketplace by going to the government website. The following table shows the maximum amount of premium you're required to pay (for a Silver plan), based on your income.
 

Income Premium Limit
Up to 133% of FPL  2.01% of income
 
133% to 150% of FPL 3.02% to 4.02% of income
150% to 200% of FPL 4.02% to 6.34% of income
 
200% to 250% of FPL 6.34% to 8.10% of income
250% to 300% of FPL 8.10% to 9.56% of income
 
300% to 400% of FPL 9.56% of income

Example:  An $85,000 income for a family of four is between 300% and 400% of FPL (it's about 350% of FPL). Presume the premium for the second-lowest-cost Silver plan is $9,360/year ($780/month). The family's out-of-pocket cost for the Silver plan will be no more than 9.56% of household income, or $8,126 ($677/month). The PTC is $1,234/year ($102.80/month) and can be used to offset the cost of insurance.

Cost-sharing subsidies
In addition to PTCs, the ACA also provides additional assistance to lower-income individuals through tax subsidies that reduce cost sharing by lowering point-of-service costs such as deductibles and co-payments. This is done by allowing families with incomes at or below 250% of FPL to be eligible for insurance with higher actuarial values, meaning the plan will pay for more of the covered benefits.
 
According to the government website, www.healthcare.gov, those eligible for cost-sharing subsidies must purchase a Silver plan through a Marketplace. However, the benefits covered by the plan will be comparable to either a Gold or Platinum plan, which pays for more of the covered benefits, reducing the out-of-pocket costs for the insured family. The percentage of benefits for which the plan will pay is as follows:

  • For income between 100%-150% of FPL, the plan will pay 94% of covered benefits and the individual pays 6%
  • For income between 150%-200% of FPL, the plan will pay 87% of covered benefits and the individual pays 13%
  • For income between 200%-250% of FPL, the plan will pay 73% of covered benefits and the individual pays 27%

Out-of-pocket limit
The ACA limits the total amount people must pay for essential benefits covered by plans purchased through a Marketplace. These limits are based on the maximum out-of-pocket limits for Health Savings Account plans. For 2015, the limits are $6,600 for an individual plan and $13,200 for a family plan. These limits do not include premium costs or the cost for services not covered by the insurance plan.

The out-of-pocket limit may be reduced further based on your income. The out-of-pocket limits are reduced from the maximum limits just mentioned as follows:

  • For income between 100%-200% of FPL, the out-of-pocket limit for an individual/family is $2,250/$4,500
  • For income between 200%-250% of FPL, the out-of-pocket limit for an individual/family is $5,200/$10,400

This means the maximum amount of out-of-pocket expenses for an individual with a household income of 150% of FPL ($17,505 in 2015) is $2,250.

Plans available through the Marketplace
There are five categories of health plans offered through the Marketplace, based on the percentage of the average overall costs for essential benefits the plan covers. You are responsible for the balance of the costs of benefits. The percentage of the cost for essential benefits paid by each plan is as follows:

  • Bronze plan--60%
  • Silver plan--70%
  • Gold plan--80%
  • Platinum plan--90%

Marketplaces also provide a Catastrophic plan, which meets all of the requirements of the other marketplace-based plans, but only provides coverage after the plan deductible is met, except for covering three primary care visits per year. These plans are only available to individuals under age 30 or those eligible for a "hardship exemption."

Conclusion
The combination of PTCs and cost-sharing subsidies is intended to reduce the cost of insurance and increase the value of coverage available to individuals and families with moderate to low household incomes who don't have qualifying insurance coverage available through an employer.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015.
 

 

Retirement Planning With Health Care Expenses in Mind

It is only wise to consider what Medicare won’t cover in the future.
 
As you save for retirement, you also recognize the possibility of having to pay major health care costs in the future. Is there some way to plan for these expenses years in advance?
  
Just how great might those expenses be? There’s no rote answer, of course, but recent surveys from AARP and Fidelity Investments reveal that too many baby boomers might be taking this subject too lightly.
 
For the last eight years, Fidelity has projected average retirement health care expenses for a couple (assuming that retirement begins at age 65 and that one spouse or partner lives about seven years longer than the other). In 2013, Fidelity estimated that a couple retiring at age 65 would require about $220,000 to absorb those future costs.1 
 
When it asked Americans aged 55-64 how much money they thought they would spend on health care in retirement, 48% of the respondents figured they would need about $50,000 apiece, or about $100,000 per couple. That pales next to Fidelity’s projection and it also falls short of the estimates made back in 2010 by the Employee Benefit Research Institute. EBRI figured that a couple with median prescription drug expenses would pay $151,000 of their own retirement health care costs.1
 
AARP posed this question to Americans aged 50-64 in the fall of 2013. The results: 16% of those polled thought their out-of-pocket retirement health care expenses would run less than $50,000 and 42% figured needing less than $100,000. Another 15% admitted they had no idea how much they might eventually spend for health care. Unsurprisingly, just 52% of those surveyed felt confident that they could financially handle such expenses.1
  
Prescription drugs may be your #1 cost.
In fact, EBRI currently says that a 65-year-old couple with median drug costs would need $227,000 to have a 75% probability of paying off 100% of their medical bills in retirement. That figure is in line with Fidelity’s big-picture estimate.2
 
What might happen if you don’t save enough for these expenses? As Medicare premiums come out of Social Security benefits, your monthly Social Security payments could grow smaller. The greater your reliance on Social Security, the bigger the ensuing financial strain.2
 
A positive note: EBRI and Fidelity both reduced their estimates of total average retirement health care expenses from 2012 to 2013. (Who knows, maybe they will do so again this year.)1
 
The main message: save more, save now. Do you have about $200,000 (after tax) saved up for the future? If you don’t, you have another compelling reason to save more money for retirement.
 
Medicare, after all, will not pay for everything. In 2010, EBRI analyzed how much it did pay for, and it found that Medicare covered about 62% of retiree health care expenses. While private insurance picked up another 13% and military benefits or similar programs another 13%, that still left retirees on the hook for 12% out of pocket.1 
  
Consider what Medicare doesn’t cover, and budget accordingly. Medicare pays for much, but it doesn’t cover things like glasses and contacts, dentures and hearing aids – and it certainly doesn’t pay for extended long term care.2 
 
Medicare’s yearly Part B deductible is $147 for 2014. Once you exceed it, you will have to pick up 20% of the Medicare-approved amount for most medical services. That’s a good argument for a Medigap or Medicare Advantage plan, even considering the potentially high premiums. The standard monthly Part B premium is at $104.90 this year, which comes out of your Social Security. If you are retired and earn income of more than $85,000, your monthly Part B premium will be larger (the threshold for a couple is $170,000). Part D premiums (drug coverage) can also vary greatly; the greater your income, the larger they get. Reviewing your Part D coverage vis-à-vis your premiums is only wise each year.2,3
 
Underlying message: stay healthy. It may save you a good deal of money. EBRI projects that someone retiring from an $80,000 job in poor health may need to live on as much as 96% of that end salary annually, or roughly $76,800. If that retiree is in excellent health instead, EBRI estimates that he or she may need only 77% of that end salary – about $61,600 – to cover 100% of annual retirement expenses.1
              
 

05282014-WR-1035
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members.
Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.
   
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
     
Citations.
1 - washingtonpost.com/news/to-your-health/wp/2014/03/31/guess-how-much-you-need-to-save-for-health-care-in-retirement-wrong-its-much-more/ [3/31/14]
2 - money.usnews.com/money/retirement/articles/2013/06/17/how-to-budget-for-health-costs-in-retirement [6/17/13]
3 - medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html [4/30/14]
 

 

IS IT TIME FOR LIFE INSURANCE?

Important life events may call for it.

Just as many people between the ages of 30 and 50 lack a will, many also lack life insurance. A March 2011 survey from Genworth Financial and the University of Virginia’s Darden School of Business found that almost 70% of single parents and 45% of married parents were living without any coverage.1

Why don’t more young adults buy life insurance? Shopping for life insurance may seem confusing, boring, or unnecessary. Yet when you have kids, get married, buy a house or live a lifestyle funded by significant salaries, the need arises.

Finding the right policy may be simpler than you think. There are two basic types of life insurance: term and cash value. Cash value (or “permanent”) life insurance policies offer death benefits and some of the characteristics of an investment – a percentage of the money you spend to fund the policy goes into a savings program. Cash value policies have correspondingly higher premiums than term policies, which give you death benefits only and have terms of 10 years or longer. Term is a great choice for many young adults because it is relatively inexpensive. There is an economic downside to term life coverage: if you outlive the term of the policy, you and/or your loved ones get nothing back. Term life policies can be renewed (though many are not) and some can be converted to permanent coverage.2

The key question is: how long do you plan to keep the policy? If you don’t want to pay premiums on an insurance policy for more than 10 years, then term life stands out as the most attractive option. If you are just looking for a short-term hedge against calamity, that’s the whole reason behind term life insurance. If you’re getting into estate planning, then permanent life insurance may prove a better choice.

It may be cheaper than you think. Premiums on 10-year level guaranteed term policies are startlingly affordable. Just to give you a ballpark example, a 40-year-old woman could potentially line up $250,000 in coverage through one major insurer for a premium of $16 a month in August 2011.3

Confer, compare and contrast. Talk with a financial or insurance professional you trust before plunking down money for a policy. That professional can perform a term-versus-permanent analysis for you and help you weigh per-policy variables.

Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 800-369-2862. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

 

THE INS AND OUTS OF LIFE INSURANCE

If you’re just starting to look into life insurance, the myriad of choices can be confusing.

Man is Mortal. That makes life insurance a little unique and interesting, doesn’t it? We purchase things like health insurance, car insurance and home insurance, then hope we never have a need to use them. Life insurance is different, because it’s a widely accepted fact that sooner or later, each one of us will die.

So many choices. When it comes to life insurance, there are many options. You may have heard terms like “whole life insurance”, “term insurance” or “variable insurance” … but what does it all mean? And what are the differences? Well, first let me point out what they have in common: all life insurance policies provide payment to a beneficiary in the event of your death. Except for that basic tenet, the differences between policies can be major.

Whole life insurance. This type of insurance covers your entire life (not just a portion or a “term” of it). Insurance companies tend to be cautious when selecting their investments, so the benefits could be lower than if you invested on your own. Whole life policies also tend to cost more than “term” policies. This is both because they grow what is known as “cash value”, and because after a time you will be able to borrow against or withdraw from your whole life benefits.

Term insurance. Rather than covering your whole life, “term” insurance covers a pre-determined portion of your life. If you die within that term, your beneficiaries receive a death benefit. If not, generally you get nothing. To put it simply, term insurance allows you to purchase more coverage for less money. Basically, you are betting on the probability of your death occurring within that specified “term”.

Variable life insurance. Variable life insurance is a permanent insurance. However, unlike whole life insurance, variable insurance allows you to invest the cash value of your policy in “subaccounts” (which can include money market funds, bonds or stocks). Variable insurance offers a bit of control, as the value and benefit depend upon the performance of the subaccounts you select. However, that means there could be significant risk involved, since the performance of your subaccounts cannot be guaranteed.

Universal life insurance. With universal insurance, it all comes down to flexibility. It is permanent life insurance that provides access to cash values that build up tax-deferred. You can choose the amount of coverage you feel is appropriate, and you retain the ability to increase or decrease that amount as needs change (subject to minimums and requirements). You also have some flexibility in determining how much of your premium is goes towards insurance, and how much is used within the policy’s investment element.

So, which is right for you? Many factors come into play when deciding what type of life insurance will best suit your needs. The best thing to do is speak with a trusted and qualified financial professional who can assist you in looking at all the factors and help you to choose the policy that will work best for you.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members.
Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information. 
 

 

 

 

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