The Bogleheads' Guide to Retirement Planning (40 page)

Indian Health Service (IHS) is an agency within the Department of Health and Human Services that provides care primarily through IHS facilities. Interestingly, Indian health care is probably the oldest program in the United States. It began in 1787 with Article I of the Constitution and has evolved with treaties, laws, Supreme Court decisions, and executive orders. The IHS provides health care to approximately 1.5 million American Indians and Alaska Natives who belong to more than 557 federally recognized tribes in 35 states. More information is available at the Indian Health Services web site at
www.ihs.gov.
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High-risk pools are available in over 30 states. They were created to catch some of those less fortunate people who fall through the cracks. The pools provide coverage for individuals who have serious medical problems and cannot qualify for other coverage. Premiums are typically higher than for individual plans that are required to insure you. High-risk pools are increasingly important because they provide an element of stability for those who could not otherwise qualify for coverage. Contact information for your state can be found at the web site of the National Association of State Comprehensive Health Insurance Plans at
www.naschip.org.
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Emergency rooms or emergency departments are required by federal law to provide minimal care to all who seek it. Patients cannot be turned away because of inability to pay. Although it may be a program of last resort, it does provide some level of care for everyone. Many Americans who have no health insurance at all use emergency rooms to access heath-care benefits.

People with original Medicare Parts A and B frequently buy a Medigap insurance policy that helps pay the deductibles, copays, and gaps in coverage. These plans pay for additional services not covered by Medicare. New policies no longer cover prescription medicine.

When you sign up for Part B of Medicare, you have an open enrollment period of six months to buy a Medigap policy. During this six-month window, you cannot be turned down, even if you have health problems. You would have to qualify medically for these plans beyond the open enrollment period. Most states have standardized versions for Medigap plans (A-L) making it easy to compare policies. Details on these plans are available at the Medicare web site.

Medigap policies are not available if you have a Medicare advantage plan, as these plans already include benefits typically paid for by a separate Medigap policy. So, if you have a choice, you will want to carefully compare traditional Medicare plans with a supplement to the Medicare advantage plan. We recommend that you seek help from experts in this area because these choices can be complicated. In most communities, there are agencies that help citizens understand Medicare and other issues related to aging.

Health savings accounts (HSAs) are an alternative way to pay for medical expenses with flexibility and tax benefits. HSAs are accounts in which you or your employer can make tax-advantaged contributions. Money placed in the account can help cover deductibles, copayments, dental care, vision care, and over-the-counter drugs. They can be a very good choice for those who want to manage their own health-care insurance needs.

Individual contributions are tax-deductible, and withdrawals to pay medical expenses are income tax-free. If your payments are through your employer, they are on a pretax basis, and payments for medical expenses are income tax-free to you. Annual inflation-adjusted contribution limits are set by the IRS. For 2009, the annual limit on deductions is $3,000 for an individual and $5,950 for a family. Catch-up contributions and a limited IRA rollover option are also available to those who qualify. The account can be invested in a variety of instruments while you wait to use it, subject to the rules of your plan. More information is available at the Department of the Treasury web site at
www.treas.gov
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High-deductible health plans (HDHP) feature higher deductibles and out-of-pocket maximums than traditional medical insurance plans. Your HDHP may be offered as an indemnity plan, an HMO, PPO, or POS. Premiums for HDHPs are less than for traditional plans because the deductible is higher. For 2009, the deductible for an individual must be no less than $1,150, or $2,300 for a family. Annual out-of-pocket maximums for health-care expenses are $5,800 for an individual or $11,600 for a family.

Consider an HDHP if you are healthy and your medical expenses are limited. Plans are available individually and may be offered by your employer. HDHP might also be a good choice for family members with nonsubsidized group coverage. Take time to educate yourself and carefully research all the choices available to you.

Premium savings can be used to help fund your HSA. An individual HDHP with an HSA can be a good way to fund health care for those who can meet the health and underwriting criteria and can afford to pay for smaller, routine medical bills themselves. By law, you must enroll in an HDHP before setting up an HSA, and you cannot be enrolled in Medicare or another health plan.

Long-term care insurance (LTC) provides care generally not covered by other health insurance, Medicare, or Medicaid. It typically covers home care, assisted living, adult daycare, respite care, hospice care, nursing home, and Alzheimer’s facilities. LTC can pay for home care if home-care coverage is purchased. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist, or private-duty nurse up to 7 days a week, 24 hours a day (up to the policy benefit maximum).

Paying for LTC is an increasing challenge for millions of Americans. The U.S. Department of Health and Human Services says that 70 percent of Americans age 65 and older will eventually pay for long-term care services. Genworth Financial’s 2008 Cost of Care Survey shows the average annual cost of a private nursing home room to be more than $76,000 and rising annually. The annual cost for assisted living averages $33,000, and the cost for noncertified home health aides is $25 an hour. Skilled care costs more. The focus of this section is on planning for the needs of the elderly, although LTC can also be used at any age for illness, accidents, and periods of rehabilitation.

Bob Hope once quipped, “I don’t feel old. I don’t feel anything until noon. Then it’s time for my nap.” While it’s good to be able to joke about getting older, it’s also wise to make solid plans for the time when we may no longer be able to take care of ourselves. Planning in advance for disability and dependence in later life can help put you in charge of the type and quality of care you’ll receive when you need it. Without advance planning, your options will be more limited, and they may be ones you would not like.

In the United States, care for the elderly takes place in nursing homes, assisted living facilities, continuing care retirement communities (CCRC), and in the home. LTC is a variety of services, including medical and nonmedical care for people who have chronic illnesses or disabilities and who need help with their activities of daily living. Unlike traditional medicine that is administered to help people get well, LTC provides care for people as they are, even if they are not expected to get better. This care can be provided by skilled professionals, unskilled aides, family members, or friends.

Because LTC has its own language, learning the basic terms can be helpful:

People can provide for their long-term care needs in several ways. Many families take care of their own. Some fortunate people self-insure in that they have the financial resources to pay for care out of pocket and do not need insurance. Other people with very limited income and few assets may qualify for Medicaid. Finally, a large portion of the population cannot afford to pay potential care costs out of pocket, but their net worth is too high to quality for Medicaid, and family care is not an option. These are the people who should look at LTC insurance to help fund their needs.

The main problem for this last group is the cost of coverage, which typically runs from $1,500 to $3,000 annually per individual. There are several methods that will allow you to buy adequate coverage while keeping costs as low as possible. In the final analysis, the decision to buy LTC insurance is highly personal. It requires looking at a number of factors, including family health history, family relationships, personal desires, and your financial situation.

Some large employers offer group LTC plans, including the federal government, and associations you may belong to could offer LTC plans. However, most LTC policies are sold to individuals directly by insurance agents. The complexity of the product and the wide number of choices available typically requires the help of a skilled professional. LTC policy details vary, but your main choices will include the following: