Wednesday, March 31, 2010

Health Insurance: A Primer (Part Four of Many)

April is the time our insurance comes up for renewal so I have the handy dandy premium chart from Blue Cross before me. Here are the current numbers.

We have a $7,000 family deductible. No pre-existing conditions. No tobacco. No substance abuse coverage.

Current Yearly Cost= $ 15,060.49
$13,062.00 (Actual Premium) + $ 1,998.49 (FICA/Medicare)

We are pondering raising our deductible to $11,600. In that case, our cost for the year would be $11,767.52.

Here's what Congress did last week to the cost of our health insurance. In two years, the maximum family deductible allowed will be $4,000. We will be in the same pool as tobacco users and substance abusers. Minimally, (not accounting for the fact that the rates will go up since pre-existing conditions must not be denied) when the law goes into effect our premium (I'm looking at the Blue Cross chart) will be: $20,082.95 (taking into account that Congress still charges FICA on the premiums of the self-employed, but not those whose insurance is provided by their employer).

The legislation just passed last week will leave us no choices in terms of coverage and will increase our premium by $5,022.46 each year...until the actuarial tables kick in for all the pre-existing conditions that are added. Then, the sky's the limit.

Lesson 4. The action Congress took last week made health insurance MUCH LESS affordable to millions of Americans.

Wednesday, March 24, 2010

Health Insurance: A Primer (Part Three of Many)

Now I will talk about COBRA.

First of all, it's called COBRA. That should be enough to scare people away.

If that doesn't scare you, then just the length and wordiness of what the acronym stands for should.

Consolidated Omnibus Budget Reconciliation Act. COBRA. Generally speaking, I've found any phrase with the word "omnibus" in it is probably not good. But, I digress.

Here's what the US Dept. of Labor web page says about COBRA:

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.

Basically, if someone gets laid off or chooses to move to a different company, they get to keep their health insurance coverage for a limited period of time while they seek new coverage.

Difficulties arise when someone with a pre-existing condition gets laid off or wishes to take a different job. In the first case, they are now unable to get health insurance. In the second, they are tied to their place of employment because to leave would be to lose needed coverage.

Raise your hand if you know someone in one of those two positions.

So, then, is the solution, to make expensive, freedom limiting, 2,700 page changes in the law that apply all Americans? No, the solution is to have health insurance purchased by the insured and not by their place of employment.

Here's how you do it, Congress. Instead of having the employer pay the employee a salary plus benefits. Have the employer pay the total value of both and let the insured purchase his/her own health insurance.

Then, have two lines on the income tax form. The first line subtracts the cost of health insurance premiums from wages so that the adjusted gross income does not include the cost of health insurance premiums. The second is a credit that would be added back to account for the extra FICA/Medicare that was withheld. (Not sure how the employer gets his matched FICA/Medicare back yet, but I'm working on it!)

So, lesson three. Health insurance should be owned by the insured and not tied to the place of employment. It should also not be taxed.

Monday, March 22, 2010

Health Insurance: A Primer (Part Two of Many)

Now, let’s talk a bit about health insurance premiums, the tax code, and how that relates to people who purchase their own health insurance rather than have it supplied as a “benefit” from their place of employment.

Let’s start with people who get health insurance from their employer. If you are in that category, be sure to thank your employer and thank Congress for the wonderful tax benefit that they have bestowed upon you.

For the sake of argument, let’s say you make $50,000 per year and your employer provides you with $15,000 worth of health insurance. Your taxable income for the year is $50,000. In addition, you pay 6.2% of that $50,000 in FICA and 1.45% of the $50,000 for Medicare. Your employer is required to take that out of your paycheck. In addition, your employer is required to match that contribution. A total of 7.65% is taken out of your check and your employer matches that amount. 15.3% of your salary is sent to the United States Treasury for Social Security and Medicare before any Federal income taxes are taken out.

Bottom line for the person above: $50,000 wages + $15,000 benefits = $65,000 total package. $3,825 is taken for FICA/Medicare for the year. Only the wages are taxed, NOT THE VALUE OF THE BENEFITS.

Stay with me now. This is important.

Here’s how the math works if you are a self-employed, make $50,000, and purchase your own health insurance. First of all, to purchase the same policy as the guy in the above scenario, you would have to make $65,000 in order for you both to have $50,000 to spend after purchasing health insurance. Being self-employed, means you double the FICA portion since you are the employee and the employer. Thus, all self-employed people from the start (before income tax) pay 15.3% of their income for FICA and Medicare.

Here’s the dirty little secret. If you are self-employed, you do get to subtract your health insurance premiums from your taxable income, BUT NOT FROM YOUR FICA/MEDICARE INCOME.

Bottom line: A self-employed person purchasing his own health insurance will pay FICA and Medicare to the tune of 15.3% on their health insurance premiums. For a $15,000 per year policy that translates into $2,295 more in taxes. All that because you are self-employed and purchasing your own health insurance.

In the first situation, the TOTAL FICA/Medicare taxes for the year taken are $3,825. (And, $3,825 is matched by the employer)

A self-employed person pays a TOTAL of $9,945 with the same salary and benefits because not only do they match the FICA, but they have to pay FICA on their health insurance premiums.

It gets even worse for those who are not self-employed and purchase their own health insurance. Not only do they pay FICA and Medicare on the health insurance premiums, they get to pay income tax on that amount, as well.

Lesson Number Two: If Congress really believed small businesses are the backbone of this country and cared about everyone having health insurance, they would have started with the simple fix of correcting the inequalities in the tax code. That fix would be quick and inexpensive. Either they are uninformed about them or they have a different agenda than making health insurance more affordable.

Health Insurance: A Primer (Part One of Many)

Having been the chief procurer of our family's health insurance for the past 27 years, I am somewhat of an expert in the field. Today, I wish to pass on my vast knowledge.

When the hubs started his business in 1983, we needed to buy health insurance. Let's back up a minute, we didn't NEED to buy health insurance, we chose to purchase it because it was the responsible thing to do.

I called around and the broker at Blue Cross gave me some very wise advice. He said, "The purpose of health insurance isn't to pay for all of your health care, but to cover major medical issues (surgeries, cancer, etc.) that would quickly turn into a hardship. "We have lots of plans," he went on, "Your job is to figure out the amount that you could come up with in a year if there was a major illness in your family. If you choose a policy that covers everything, the premiums will be much higher."

We chose a high deductible (I believe around $2,000 at the time). We opted out of maternity coverage. Our last three babies were "cash and carry babies". I stayed one night in the hospital. I could have stayed as long as I wanted, but when you are paying, you think twice.

In order to purchase health insurance, we chose to NOT do other things. We gave up major purchases, drove older cars, took fewer vacations, bought and did less stuff.

So, lesson one. Health insurance is not designed to cover all health care needs. It should be just what it says, insurance for when the tough times come.