February 2008 Financial Articles

• How to Minimize Your Health Care Costs 
• Understanding Medicare Advantage Plans
• Financial Advice for the “Sandwich Generation”
• Five Signs Your Finances Are in Trouble

The average employee contribution for health insurance has soared more than 143 percent since 2000. Typical out-of-pocket expenses that consumers pay for deductibles, prescription co-payments and coinsurance for doctor and hospital visits have jumped 115 percent during the same period, based on facts compiled by the National Coalition on Health Care. According to the Virginia Society of CPAs, you and your family can still afford to receive the treatment you need by taking some simple steps to limit your costs.

Be tax savvy

Don’t miss out on the tax-advantaged options for lowering your health care costs. For example, find out if your employer offers a Flexible Spending Account (FSA), which will allow you to set aside some of your earnings tax free to cover unreimbursed medical costs, such as co-payments and deductibles, as well as items that might not be included in your plan, like eye care or eyeglasses, hearing tests, chiropractic care and the cost of prescriptions. It’s important to remember that you must use your FSA contributions in the year they are made or you will lose them, although your employer can give you an additional two and a half months to spend the funds. That’s why it’s a good idea to perform a careful estimate of your out-of-pocket health care costs during a recent year — and consider how that amount may change in the coming year —before contributing to an FSA account.

Health Savings Accounts are another option generally open to people under 65 who are covered by one high-deductible health insurance plan. Contributions are tax deductible and can be used to pay for the expenses that your insurance doesn’t cover. The earnings accumulate tax free and withdrawals are tax free when used to pay for qualified medical expenses —- but you will face a 10 percent penalty if you withdraw money for another purpose.

Examine your plan options

As another cost-cutting step, be aware that the health care plan with the lowest premium may not be the best one for you. In fact, you may find that it is more expensive in the end due to higher costs for co-pays or unreimbursed charges. A cheaper bare-bones plan also may cover fewer services or providers, which means you may face more out-of-pocket costs.

When picking a plan, your family situation will be an important factor. A family with young children may do better selecting one with low co-pays or deductibles — even if the premiums are a little higher than other options — because they may have frequent doctor visits. A younger single person or couple, on the other hand, might select a plan with lower premiums and higher co-pays if they rarely see the doctor outside of annual check-ups.

Be alert for errors

Check your medical bills for accuracy. Common hospital billing errors include duplicate charges, charging for extra days or for services that weren’t actually rendered or simple typos that can add dollars to your bill. Also, review the statements you receive from your insurer to verify that the facts are correct and that you received the right reimbursements.

Appeal decisions

Finally, if your insurance company denies coverage, you don’t have to take no for an answer. You have the right to appeal their decision and try to negotiate a better outcome.

Your CPA can help you understand the health care options open to you. Turn to your local CPA for advice on making the most of your health care dollars.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.   

 

Are you or a loved one enrolled in Medicare? This government health insurance program for older Americans offers many choices in terms of coverage and available plans. Given this wide range of options, the Virginia Society of CPAs recommends that those enrolled in Medicare understand the options available to them.

Get the facts

When choosing this or any other health insurance option, you should learn as much as possible about the plan before you make a commitment. The importance of this advice was proven recently in relation to some Medicare Advantage private fee-for-service plans. A Medicare Advantage Plan is designed to make it possible to extend your coverage beyond the basic Medicare programs. These plans, which are sometimes referred to as “Medicare Part C,” are typically similar to a PPO or HMO and can combine hospital, medical and prescription drug coverage in one plan that is available through private insurers approved by Medicare.

Problems discovered

While Medicare Advantage plans can be an excellent choice in some circumstances, Congress and many states have investigated abusive sales tactics employed by marketers selling private fee-for-service Medicare Advantage plans. According to the Center for Medicare Advocacy, those enrolled in the plans have sometimes faced difficulties in finding doctors who would treat them. There have also been instances when a private pay-for-service plan offered no more than traditional Medicare but did charge a higher fee. These plans are also exempt from many of the regulations that apply to other types of Medicare Advantage plans.

Know what to ask

One of your questions about any plan should be which doctors will accept this insurance, since some doctors won’t accept patients from private Medicare plans. You’ll want to know, too, whether you can see doctors or use hospitals outside the plan’s network. Ask also about each plan’s premiums, coinsurance and deductible to make sure they are affordable and compare well with your other options, including the original Medicare plan. Find out if the plan provides added benefits beyond what you would get using the basic Medicare plan, such as prescription drug coverage. When you have a Medicare Advantage plan you usually don’t need Medigap insurance, so confirm that this is the case when you sign up.

Resources available

There are many sources of information on Medicare. The main government Web site is www.medicare.gov, or you can call (800) 633-4227 ((800) MEDICARE). There are also helpful resources on the Social Security Administration Web site at www.ssa.gov. The government’s booklet “Medicare & You” may be particularly helpful. For questions on another front, “Medicare Prescription Drug Coverage — Your Questions Answered,” published by AARP, is available at www.aarp.org.  

The 360 Degrees of Financial Literacy program, a special initiative of the CPA profession, also provides basic information at www.360financialliteracy.org, in the “Retirement & Estate Planning” section. And don’t forget that your local CPA can help you understand your options and make informed decisions about any of the financial issues you and your family are facing.

Virginia CPAs launched the Financial Fitness program to help improve the financial health of citizens in the Commonwealth. Visit www.FinancialFitness.org for articles on a variety of financial topics.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.   

 

Many members of the Baby Boom generation are trying to balance supporting a parent while also raising a youngster or providing financial help to an adult child, according to the Pew Research Center. Several factors make it likely that this trend will continue. People are living longer, so there’s a greater chance that our parents will need our help as they age. And, once children reach adulthood, they increasingly face hefty college tuition debt and are turning to their parents for economic assistance. That can put a squeeze on adults in their middle years, often known as the “Sandwich Generation.” The Virginia Society of CPAs recommends that this group take a number of steps to cope with competing financial demands.

Set up a college fund

In the last decade, tuition and fees rose 54 percent at four-year public universities and 33 percent at four-year private colleges, according to the College Board. Given steadily rising tuition costs, CPAs advise parents to begin setting aside money as early as possible for this significant expense and to investigate tax-advantaged savings options such as 529 plans.

Educate yourself about your parents’ finances

Often, adult children are reluctant to question their parents about money, but it’s important to understand our parents’ financial situations so that we are prepared to help them when they need it. Ideally, you want to determine what they receive in pension and Social Security payments and how much they have in savings. Find out about their fixed expenses, too, such as mortgage or rent and utilities payments. Don’t forget to consider medical expenses, including the cost of health care insurance, medications and provisions for emergencies. It may feel awkward to ask your parents about these details, but when you are informed you are in a better position to help. You can use this information to gain a broader sense of how their needs may affect your own financial situation.

Investigate long-term care insurance

Often, family finances are devastated by a lengthy nursing home stay or in-home care costs for a loved one. That’s why it’s important to find out whether your parents have long-term care insurance that will cover these expenses. If they are not paying for this insurance themselves, double check to see if it is part of their former employers’ retirement packages. If they’re not covered, explore your options and consider whether this insurance would be a wise choice.

Don’t neglect your own needs

You can’t help others if you’re not on firm financial footing yourself, so remember to continue to set aside money for your own retirement. Be sure to take advantage of tax-deferred savings options, such as your employer’s 401(k) plan or an individual retirement account, in order to maximize your earnings. By focusing on your retirement, you’ll set the foundation for a secure financial future and ensure that your own children will not have to help you in your later years.

Consult a CPA

As part of their 360 Degrees of Financial Literacy initiative, CPAs have created a special Web site that addresses financial concerns at every life stage. Go to  www.360financialliteracy.org and click on “Sandwich Generation” to learn more about the special issues facing this group. Remember, your local CPA can offer you advice on all the financial challenges your family is facing.

Virginia CPAs launched the Financial Fitness program to help improve the financial health of citizens in the Commonwealth. Visit www.FinancialFitness.org for educational resources and articles on a variety of financial topics.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.

The loss of a job, a sudden illness or another crisis can spell financial trouble for any family. Sometimes, however, people make small mistakes that add up over time to create big problems for their finances, according to the Virginia Society of CPAs. CPAs recommend that you watch out for these warning signs that can signal potential financials pitfalls.

1. You have no budget.

With a budget, you can take stock of how much money you have coming in each month, what your expenses are and what’s left over once you’ve paid them. Without this realistic assessment, it’s easier to spend too much — often without even realizing you’ve done it — and harder to reach your financial goals. Budgeting is an important first step in managing your money, so take the time now to itemize each month what you earn and what you spend.

2. You have a budget, but you usually outspend it.

Creating a budget is a good start, but then you have to follow it. If you find yourself spending far more on discretionary items, such as entertainment or clothing, than you budgeted for, it’s time to cut back. If you want to splurge, set aside some cash each week for fun, but don’t spend more than you planned for.

3. You pay only the minimums on your credit cards.

Credit cards make it easy to spend, but they can be tough to pay off if you charge too much. If you make only minimum payments on your debt each month, a $1,000 debt can take up to 22 years to pay off. And during that time, you will continue to pay interest charges well in excess of your original purchases.
If you find yourself in this position, limit future spending by cutting back to just one card that you use only in emergencies. Then, chart a new budget that will allow you to increase your monthly payments and begin reducing the size of your debt.

4. You are using one credit card to pay off another.

This is a clear sign that spending is seriously out of control. It’s also an expensive way to manage debts since instead of erasing your outstanding balance you are simply shifting it to a new card with its own interest payments. A related warning sign is using your credit card to pay for regular expenses — such as food, rent or car payments — because you don’t have enough cash to cover those costs. There are both indications that it’s time to rein in spending.

5. You have no savings.

Families are saving less than they have in the recent past and taking on more debt, according to the Federal Reserve. Without a savings cushion, it’s harder to bounce back from financial setbacks and less likely that you’ll be able to afford vacations and other indulgences. To fix this problem, start with small weekly deposits to a savings account. Stick with your savings plan and you’ll be amazed how your balance will add up over time.

Take control

As part of the Financial Fitness program, Virginia CPAs have created a special Web site, www.FinancialFitness.org, to help people with all their financial concerns. This Web site contains articles and tools that you can use to gain control over your financial life. Remember, too, that your local CPA can offer smart ideas and recommendations to help you with any aspect of your finances.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.