You can Protect Your Assets from Catastrophic Medical Expenses
It is a personal nightmare. You are sick, really sick and need time off to get well and whole again. You feel vulnerable, scared, ache and you are physically exhausted, unable to function. Your friends and family are really worried about you.
Money. You think about money. You need money for medical bills that keep mounting. You need living expenses and bills are getting past due. You wonder if you can afford to get well. Without looking tell me what is your maximum out of pocket limit on your health insurance for covered services including deductibles and co-pays in addition to your premiums? $2,000? $10,000? $20,000? Do you have it set aside or available somewhere for this medical need?
Where is your income coming from if you are not earning it to pay installment debts and living expenses? Did you ever put that disability coverage in place? Sadly, some of you will not have a job to go back to when you are well again. Nearly 48% of all personal mortgage foreclosures are income and health related.
You honestly do not want to think about this, because it only happens to “other” people, not you, right? Wrong! Did you know that in the last ten minutes 390 Americans became disabled? 30% of all employees in the US between the ages of 35-65 will suffer a disability and will be out of work at least 90 days. 1 in 7 of all employees in the US will be disabled for 5 years at some point. These statistics are not meant to use scare tactics to be the catalyst for action on your part, merely factual information you need to know according to the Health Association of America. But if scare tactics are necessary, read this paragraph again.
CQ Healthbeat recently reported a “typical” insured family of four in the US will spend about $13,382 this year on medical care. That figure represents only out of pocket costs and premiums. That was a 9.6% increase over last year. Overall, medical costs have increased an average of 10% annually the last five years, so it is this author’s opinion this inflationary trend will not likely decrease and you should plan for these kinds of budget increases going forward.
The difference between you and one of these sobering statistics above is a five part solution designed to control your out of pocket costs, limit your overall financial exposure, reduce your income taxes, provide an income stream for illness or injury and secure peace of mind on the issue millions of American’s are lacking, controlling catastrophic illness costs.
Step one: Secure a Health Savings Account Qualified (HSA) medical plan that pays 100% of covered expenses after the deductible is met. For a single person this could limit your medical expense exposure to a maximum of only $2,650 annually, or an annual maximum for a family of only $5,250 regardless of the number of family members covered by the plan. The eligible deductible amounts are indexed annually for inflation.
Step two: Fund the tax deductible HSA to the maximum allowed by law to have tax free monies ready to pay medical expense as needed, up to your maximum exposure. This will save you money by lowering your income tax bills.
Step three: Purchase a critical illness product that is triggered to pay a $100,000 tax free cash lump sum benefit upon any one of 15-20 occurrences such as heart attack, cancer, blindness, etc.
Step four: Purchase a Long Term Care (LTC) policy that pays benefits when you cannot perform two adult daily living activities, or have a cognitive, or Alzheimer’s loss. These differ from the older reimbursement plans in that receipts for every daily service, from every provider do not need to be submitted for reimbursement, a time consuming task for someone else if you cannot manage all this paperwork yourself. You either qualify or you don’t for payment based on the inability to perform two adult daily living activities to trigger benefits, a much simpler and less costly insurance plan to administrate, which results in significant premiums savings to you, the insured.
Portions or all LTC premiums could be deductible to you if you meet tax guidelines. Most states give tax breaks to residents to who purchase LTC policies.
Individual Disability plans could provide the income stream, although depending on your age and occupation may be more expensive than a similar monthly benefit provided by a LTC policy as an alternative. Disability premiums are not tax deductible.
Step Five: Set aside an emergency cash cushion equal to your elimination period on your LTC plan. Some creative ways to help reach this goal while you build the actual cash reserve amount could be to earmark a portion of cash values in life insurance, ROTH IRA contributions (not earnings), identify an asset that could be sold quickly, etc.
The next natural question: “Is this affordable?”. Most likely the answer will be “Absolutely! Yes!” if you work with qualified agent who will search the market for the best fit for your needs, existing resources and preferences.
Here is a real life example. For a family with a Male age 48, female age 44 and four children, not the “typical” family of four, a family of six with $5,250 HSA plan in place:
Monthly policy premiums on HSA Plan $260 x 12 $ 3,120
Annual Family Deductible $ 5,250
Co-pays after deductible 0% ZERO
25% estimated tax savings on HSA + 1,288
$100,000 lump sum catastrophic illness policies $ 2,377
$5,400 a month, 30 day elim. period LTC alternative
policy on both spouses with benefits for up to 7 years
Plus a full return of premium if benefits are not utilized $ 1,379
Amount available to fund emergency income cushion $ 2,544
(Plus a $5,400 a month income stream is available in this structure for up to 7 years)
Minimum medical exposure is premiums only $ 6,876
Maximum medical exposure with full deductible,
less 25% tax credits $10,838
You can see how the cost and benefit arrangement of the “typical” family spending their $13,382 on only premiums and out of pocket costs pales in comparison to the family above who planned a better scenario with the same resources.
I have examined instances just like this one where the costs of the current group health insurance premiums alone are more than the cost of this income and asset protection strategy secured on an individual basis.
This is an area you should definitely implement to protect your assets from being sold to cover your health needs, avoid bankruptcy, reduced standard of living and even worse results due to a lack of timely planning.
This is a great idea to take to your HR person as an HSA group alternative to compare against traditional in force policy arrangements when a business is attempting to improve or control spiraling benefit costs.
Author: Amy Rose Herrick, a Member of the Paladin Registry