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May 19, 2011

Medicare Advantage vs. Medicare Supplement

Is One Better Than The Other?

Before you can make a decision on which Medicare option is best for your needs, you must first understand the basics of Medicare Advantage (MA) and Medicare Supplement (Medigap) plans. They are very different insurance plans with distinct benefits. The answer to the question “Is one better than the other?” depends on your circumstances and needs.

Medicare Supplement Insurance (Medigap)

A Medigap plan is an insurance policy designed to pay for certain healthcare expenses not covered by Medicare Part A and Part B. In every state but Massachusetts, Minnesota, and Wisconsin, there are ten standardized Medicare Supplement plans (Plans A through N). The ten plans have different combinations of benefits and deductibles that can be reviewed on our Medicare Supplement page. While Medigap plans always have more benefits than Medicare Part A and Part B, they are no longer allowed to offer prescription drug coverage. Prescription drug coverage can be added through a stand-alone Medicare Part D plan.

Medicare Advantage (MA)

MAs are health plans offered by private insurance companies that provide the standard hospitalization and medical coverage of Medicare Part A and Part B. In some cases, a MA plan may include additional benefits that are not part of original Medicare such as prescription drug coverage. Medicare Advantage plans may deliver their benefits through one or more of the following options. A health maintenance organization (HMO) is a network of health care providers and facilities where you choose a primary care physician to coordinate your care. A preferred provider organization (PPO) is also a network of health care providers and facilities but typically you do not need to select a primary care physician and you have more flexible options regarding out-of-network care. A private fee-for-service (PFFS) is a mode of benefit delivery where you are not limited to a network but there are no guarantees that your doctor or hospital will accept the plan.

So What’s the Difference Between the Two?

The standardized Medigap plans are uniform in the 47 states that offer them. Consequently, a given plan type (e.g. Plan F) has the same benefits regardless of the insurance company that provides the policy or the state in which you reside. On the other hand, Medicare Advantage must provide all Medicare Part A and B coverage but, depending on the insurer and the specific plan, may cover more than Part A and Part B benefits. Excluding drug coverage, any standard Medigap plan with Original Medicare Parts A & B will have more benefits than a standard Medicare Advantage program since a Medicare Advantage program is only required to duplicate Medicare Part A & B benefits. However, as mentioned earlier, some Medicare Advantage programs offer benefits beyond those found in Part A and Part B.

Some Medicare Advantage plans offer prescription drug coverage (often for an additional monthly cost). With a Medigap plan, in contrast, you would need to enroll in a separate prescription drug plan. However, remember that the total cost of drug coverage, as well as coverage for the specific drugs you are taking, is of utmost importance when comparing your options. In some cases, you may find that a Medigap with a stand-alone prescription drug plan has lower total costs than a Medicare Advantage plan with drug coverage. In other cases, the reverse might be true.

Comparison Is Key

When choosing between a Medigap plan and a Medicare Advantage plan, take the time to do your research. Remember that while the benefits of Medigap plans are standardized in the states having plans A through N, their prices are not. Plan F from one insurance company may be significantly cheaper than Plan F from a different company in the same state. Read the benefit descriptions of every Medigap and Medicare Advantage plan you are considering. Be certain to look at:

  • Monthly premium
  • Deductibles
  • Doctor and healthcare facility restrictions
  • Benefits
  • Anticipated plan costs given your typical use of healthcare and hospitalization services
  • Prescription drug coverage cost sharing as it relates to your medication usage

By submitting this form, you agree that a licensed sales representative may contact you to discuss the specific types of products listed above and you acknowledge that you have read and understand PlanPrescriber’s Terms and Conditions.

Medicare Advantage Plans, sometimes called “Part C” or “MA Plans,” are offered by private companies approved by Medicare and provide Medicare Part A and Part B coverage. Medicare prescription drug coverage is insurance run by an insurance company or other private company approved by Medicare. A Medicare Supplement plan is a health insurance plan provided by a private company that fills in the “gaps” in original Medicare coverage.

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An introduction to 529 Plans?

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan.

What are the differences between pre-paid tuition plans and college savings plans?

Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.

College savings plans generally permit a college saver (also called the “account holder”) to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as, age-based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Withdrawals from college savings plans can generally be used at any college or university. Investments in college savings plans that invest in mutual funds are not guaranteed by state governments and are not federally insured.

The following chart outlines some of the major differences between pre-paid tuition plans and college savings plans.1

Prepaid Tuition PlanCollege Savings PlanLocks in tuition prices at eligible public and private colleges and universities.No lock on college costs.All plans cover tuition and mandatory fees only. Some plans allow you to purchase a room & board option or use excess tuition credits for other qualified expenses.Covers all “qualified higher education expenses,” including:

  • Tuition
  • Room & board
  • Mandatory fees
  • Books, computers (if required)

Most plans set lump sum and installment payments prior to purchase based on age of beneficiary and number of years of college tuition purchased.Many plans have contribution limits in excess of $200,000.Many state plans guaranteed or backed by state.No state guarantee. Most investment options are subject to market risk. Your investment may make no profit or even decline in value.Most plans have age/grade limit for beneficiary.No age limits. Open to adults and children.Most state plans require either owner or beneficiary of plan to be a state resident.No residency requirement. However, nonresidents may only be able to purchase some plans through financial advisers or brokers.Most plans have limited enrollment period.Enrollment open all year.

1 Source: Smart Saving for College, FINRA®

How does investing in a 529 plan affect federal and state income taxes?

Investing in a 529 plan may offer college savers special tax benefits. Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so long as you use withdrawals for eligible college expenses, such as tuition and room and board.

However, if you withdraw money from a 529 plan and do not use it on an eligible college expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. Many states offer state income tax or other benefits, such as matching grants, for investing in a 529 plan. But you may only be eligible for these benefits if you participate in a 529 plan sponsored by your state of residence. Just a few states allow residents to deduct contributions to any 529 plan from state income tax returns.

If you receive state tax benefits for investing in a 529 plan, make sure you review your plan’s offering circular before you complete a transaction, such as rolling money out of your home state’s plan into another state’s plan. Some transactions may have state tax consequences for residents of certain states.

What fees and expenses will I pay if I invest in a 529 plan?

It is important to understand the fees and expenses associated with 529 plans because they lower your returns. Fees and expenses will vary based on the type of plan. Prepaid tuition plans typically charge enrollment and administrative fees. In addition to “loads” for broker-sold plans, college savings plans may charge enrollment fees, annual maintenance fees, and asset management fees. Some of these fees are collected by the state sponsor of the plan, and some are collected by the financial services firms that the state sponsor typically hires to manage its 529 program. Some college savings plans will waive or reduce some of these fees if you maintain a large account balance or participate in an automatic contribution plan, or if you are a resident of the state sponsoring the 529 plan. Your asset management fees will depend on the investment option you select.  Each investment option will typically bear a portfolio-weighted average of the fees and expenses of the mutual funds and other investments in which it invests. You should carefully review the fees of the underlying investments because they are likely to be different for each investment option.

Investors that purchase a college savings plan from a broker are typically subject to additional fees. If you invest in a broker-sold plan, you may pay a “load.” Broadly speaking, the load is paid to your broker as a commission for selling the college savings plan to you. Broker-sold plans also charge an annual distribution fee (similar to the “12b 1 fee” charged by some mutual funds) of between 0.25% and 1.00% of your investment. Your broker typically receives all or most of these annual distribution fees for selling your 529 plan to you.

Many broker-sold 529 plans offer more than one class of shares, which impose different fees and expenses. Here are some key characteristics of the most common 529 plan share classes sold by brokers to their customers:

* Class A shares typically impose a front-end sales load. Front-end sales loads reduce the amount of your investment. For example, let’s say you have $1,000 and want to invest in a college savings plan with a 5% front-end load. The $50 sales load you must pay is deducted from your $1,000, and the remaining $950 is invested in the college savings plan. Class A shares usually have a lower annual distribution fee and lower overall annual expenses than other 529 share classes. In addition, your front-end load may be reduced if you invest above certain threshold amounts – this is known as a breakpoint discount. These discounts do not apply to investments in Class B or Class C shares.
 * Class B shares typically do not have a front-end sales load. Instead, they may charge a fee when you withdraw money from an investment option, known as a deferred sales charge or “back-end load.” A common back-end load is the “contingent deferred sales charge” or “contingent deferred sales load” (also known as a “CDSC” or “CDSL”). The amount of this load will depend on how long you hold your investment and typically decreases to zero if you hold your investment long enough. Class B shares typically impose a higher annual distribution fee and higher overall annual expenses than Class A shares. Class B shares usually convert automatically to Class A shares if you hold your shares long enough.

Be careful when investing in Class B shares.  If the beneficiary uses the money within a few years after purchasing Class B shares, you will almost always pay a contingent deferred sales charge or load in addition to higher annual fees and expenses.  

  * Class C shares might have an annual distribution fee, other annual expenses, and either a front- or back-end sales load. But the front- or back-end load for Class C shares tends to be lower than for Class A or Class B shares, respectively. Class C shares typically impose a higher annual distribution fee and higher overall annual expenses than Class A shares, but, unlike Class B shares, generally do not convert to another class over time. If you are a long-term investor, Class C shares may be more expensive than investing in Class A or Class B shares.

Is there any way to purchase a 529 plan but avoid some of the extra fees? 

Direct-Sold College Savings Plans. States offer college savings plans through which residents and, in many cases, non-residents can invest without paying a “load,” or sales fee.  This type of plan, which you can buy directly from the plan’s sponsor or program manager without the assistance of a broker, is generally less expensive because it waives or does not charge sales fees that may apply to broker-sold plans. You can generally find information on a direct-sold plan by contacting the plan’s sponsor or program manager or visiting the plan’s website. Websites such as the one maintained by the College Savings Plan Network, as well as a number of commercial websites, provide links to most 529 plan websites.

Broker-Sold College Savings Plans. If you prefer to purchase a broker-sold plan, you may be able to reduce the front-end load for purchasing Class A shares if you invest or plan to invest above certain threshold amounts. Ask your broker how to qualify for these “breakpoint discounts.”

What restrictions apply to an investment in a 529 plan?

Withdrawal restrictions apply to both college savings plans and pre-paid tuition plans.  With limited exceptions, you can only withdraw money that you invest in a 529 plan for eligible college expenses without incurring taxes and penalties.  In addition, participants in college savings plans have limited investment options and are not permitted to switch freely among available investment options. Under current tax law, an account holder is only permitted to change his or her investment option one time per year. Additional limitations will likely apply to any 529 plan you may be considering. Before you invest in a 529 plan, you should read the plan’s offering circular to make sure that you understand and are comfortable with any plan limitations.

Does investing in a 529 plan impact financial aid eligibility?

While each educational institution may treat assets held in a 529 plan differently, investing in a 529 plan will generally reduce a student’s eligibility to participate in need-based financial aid. Beginning July 1, 2006, assets held in pre-paid tuition plans and college savings plans will be treated similarly for federal financial aid purposes. Both will be treated as parental assets in the calculation of the expected family contribution toward college costs. Previously, benefits from pre-paid tuition plans were not treated as parental assets and typically reduced need-based financial aid on a dollar for dollar basis, while assets held in college savings plans received more favorable financial aid treatment.

Is investing in a 529 plan right for me?

Before you start saving specifically for college, you should consider your overall financial situation. Instead of saving for college, you may want to focus on other financial goals like buying a home, saving for retirement, or paying off high interest credit card bills. Remember that you may face penalties or lose benefits if you do not use the money in a 529 account for higher education expenses. If you decide that saving specifically for college is right for you, then the next step is to determine whether investing in a 529 plan is your best college saving option. Investing in a 529 plan is only one of several ways to save for college. Other tax-advantaged ways to save for college include Coverdell education savings accounts, Uniform Gifts to Minors Act (“UGMA”) accounts, Uniform Transfers to Minors Act (“UTMA”) accounts, tax-exempt municipal securities, and savings bonds. Saving for college in a taxable account is another option.

Each college saving option has advantages and disadvantages, and may have a different impact on your eligibility for financial aid, so you should evaluate each option carefully. If you need help determining which options work best for your circumstances, you should consult with your financial professional or tax advisor before you start saving.

What questions should I ask before I invest in a 529 plan?

Knowing the answers to these questions may help you decide which 529 plan is best for you.

* Is the plan available directly from the state or plan sponsor?
 * What fees are charged by the plan? How much of my investment goes to compensating my broker? Under what circumstances does the plan waive or reduce certain fees?
 * What are the plan’s withdrawal restrictions? What types of college expenses are covered by the plan? Which colleges and universities participate in the plan?
 * What types of investment options are offered by the plan? How long are contributions held before being invested?
 * Does the plan offer special benefits for state residents? Would I be better off investing in my state’s plan or another plan? Does my state’s plan offer tax advantages or other benefits for investment in the plan it sponsors? If my state’s plan charges higher fees than another state’s plan, do the tax advantages or other benefits offered by my state outweigh the benefit of investing in another state’s less expensive plan?
 * What limitations apply to the plan? When can an account holder change investment options, switch beneficiaries, or transfer ownership of the account to another account holder?
 * Who is the program manager? When does the program manager’s current management contract expire? How has the plan performed in the past?

Where can I find more information?

Offering Circulars for 529 Plans. You can find out more about a particular 529 plan by reading its offering circular. Often called a “disclosure statement,” “disclosure document,” or “program description,” the offering circular will have detailed information about investment options, tax benefits and consequences, fees and expenses, financial aid, limitations, risks, and other specific information relating to the 529 plan. Most 529 plans post their offering circulars on publicly available websites. The National Association of State Treasurers created the College Savings Plan Network which provides links to most 529 plan websites.

Additional Information About Underlying Mutual Funds. You may want to find more about a mutual fund included in a college savings plan investment option. Additional information about a mutual fund is available in its prospectus, statement of additional information, and semiannual and annual report. Offering circulars for college savings plans often indicate how you can obtain these documents from the plan manager for no charge. You can also review these documents on the SEC’s EDGAR database.

Investment Adviser Public Disclosure Website. Many college savings plans’ program managers are registered investment advisers. You can find more about investment advisers through the Investment Adviser Public Disclosure website. On the website, you can search for an investment adviser and view the Form ADV of the adviser. Form ADV contains information about an investment adviser and its business operations as well as disclosure about certain disciplinary events involving the adviser and its key personnel.

Broker-Dealer Public Disclosure Website. You can find more about a broker through FINRA’s BrokerCheck website. On the website, you can search for any disciplinary sanctions against your broker, as well as information about his or her professional background and registration and licensing status.

Other Online Resources. You can learn more about 529 plans and other college saving options on FINRA’s Smart Saving for College website. The website contains links to other helpful sites, including the College Savings Plan Network and the Internal Revenue Service’s Publication 970 (Tax Benefits for Higher Education). FINRA’s investor alert on 529 plans also provides valuable information for investors.

We have provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

Modified: 08/06/2007

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Annuities: The Good, The Bad, and Ugly?

Annuities are an investment option that allows a person to collect tax deferred payments for a predetermined amount of time. Just as there are pros and cons with any investments, the annuities pros and cons are certainly something to be researched before you make, what can potentially be a very large purchase. More and more people are living into their 80ies and that could mean spending nearly a third of their lives in the retirement phase.

So what are some of the annuities pros and cons? Once you’ve invested as much as you can in your 401K, Roth IRA and Traditional IRA, an annuity is another option for tax deferred payments to be made for retirement. Tax deferred payments of an annuity are appealing due to their potentially high level of return. However, one of the cons of purchasing an annuity, that should be taken into consideration is that the fees can actually cancel out the tax benefits. There are setup and administrative fees to be aware of and if you need the money sooner than you expected, there are what’s called, “surrender fees” that are not surprisingly, expensive. All of these fees will add up quickly. It is vital to be aware of all of these types of fees when choosing your annuity.

A reverse annuity mortgage allows a person to take tax free payments borrowed against their mortgage. When considering the annuities pros and cons, this pro can be very appealing. Low income seniors can receive tax free payments until their death, giving them lifelong financial aid for any potential personal and medical expenses that may arise.

However, a con to be aware of is that upon an annuity holders death, the lending agency will get complete control of the real estate in a reverse annuity mortgage situation. Banks do have very strict requirements for those who apply for the reverse annuity mortgage. It is vital to understand the fine print of your annuity policy, so you are well informed as to what happens to the (in this case) reverse annuity mortgage upon the annuity holder’s death.

If you would like to know more about annuities pros and cons, in an effort to determine if an annuity is the right choice for your retirement financial planning, you should seek the advice of a qualified financial planner.  A financial planning professional will be able to explain the benefits and potential drawbacks in laymens terms, with the focus based on your individual needs.

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Benefits of Supplemental Health Insurance?

Most health insurance plans provided by small or even medium and large companies cover most of a person’s medical bills, but not all of them are covered. Typically there are a certain amount of deductible expenses that are the responsibility of the individual, and typical amounts are from $200-500 per person covered each year and an amount a bit higher for the family as a whole. On top of that people pay co-payments for every visit, and typically 80% of the bills are covered by the health insurance company, after the deductible amount for the year has been met.

Therefore most people are required to cover only 20% of their total medical costs after having paid their monthly premiums, and these can easily amount to over $1,000 per month, and their individual deductible amounts. There is also usually a cap on the amount of money that must be paid out-of-pocket each year. A typical cap might be in the range of $15,000- $20,000 per year. It is this latter amount that supplemental health insurance will cover.

If a major health issue occurs to a family member, like coming down with cancer, for example, it is not difficult to run up bills of over $20,000 per year. In fact the father of this author had a major stroke several years ago and survived for seven months before passing away. He was in and out of emergency rooms, rehabilitation centers and nursing homes during that seven month period, and his total medical bills were over a million dollars. 20% of that figure would still be a huge amount, and it would have put my parents in difficult financial straits were it not for having supplemental insurance. This can mean the difference between having to sell one’s house to pay medical bills or to remain living in the home.

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How can Modified Endowment Contracts in Life Insurance be Helpful?

When deciding upon a permanent life insurance policy, there are many variables to consider. The importance of each of these variables really depends on the overall goal of the purchase. We have to ask ourselves, “Why are we buying this life insurance policy?”

Some people buy life insurance to financially provide for a spouse or children in the event of an untimely death. This is a traditional view of life insurance.

What is a modified endowment contract?

Some life insurance agents encourage people to buy life insurance because of the ability to over-fund the policy. The excess cash value is then available to use for many different reasons in later years. (Keep in mind that this only works in much later years. There is no real benefit during the first 15 or 20 years.)

One of the challenges with over-funding life insurance policies is the way the IRS views the policy. There are limits as to how much money can be added to the cash value portion of the life insurance policy before it is no longer considered a life insurance policy.

If too much additional cash is added, the IRS views the policy as a savings vehicle rather than as life insurance. The term most commonly used for this type of policy is “modified endowment contract.” At that point, gains on any withdrawals taken are considered taxable.

How is this helpful?

While the idea of paying more in taxes is not normally seen as a benefit, let’s go back to the original question posed: “Why are we buying this life insurance policy?”

If the intent was to have cash available during retirement years, then this is not a good option. The additional taxes start as soon as withdrawals begin.

However, if the intent was to transfer funds to beneficiaries income tax free, then this option can work. The IRS only views this as a savings vehicle for withdrawals. It is still considered life insurance if not tapped until after the insured dies.

The modified endowment contract allows the cash value to grow on a tax deferred basis, and the death benefit is completely income tax free. Since the beneficiaries are named, there is no probate, offering complete privacy to the deceased and the heirs.

Many life insurance policies now offer additional features that allow the insured to control the distribution of the death benefit so that the heirs cannot misuse the life insurance proceeds.

Research shows that most beneficiaries spend the entire death benefit in less than one year, regardless of the amount of money received. Policies can be designed to control the payouts. Some even offer to make monthly payments to the beneficiaries for the rest of their lives.

What if I need access to the money?

Even though it is a modified endowment contract, the policyowner will always have access to the cash value. The main caveat is that gains are taxable.

However, if there is a critical or terminal illness, many life insurance companies offer some type of long term care benefit. Terms vary, so it is important to research the options before purchasing the policy.

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HMO VS. PPO: What are the differences between the two?

Most Americans who have health insurance through their employer (and many who are self-insured) are enrolled in some type of a managed care plan - either an HMO or PPO. The most common types of managed care plans are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Less common are point-of-service (POS) plans that combine the features of an HMO and a PPO.

Managed Care Networks

All managed care plans contract with doctors, hospitals, clinics, and other health care providers such as pharmacies, labs, x-ray centers, and medical equipment vendors. This group of contracted health care providers is known as the health plan’s “network.”

In some types of managed care plans, you may be required to receive all your health care services from a network provider. In other managed care plans, you may be able to receive care from providers who are not part of the network, but you will pay a larger share of the cost to receive those services.

Health Maintenance Organizations (HMOs)

If you are enrolled in a health maintenance organization (HMO) you will need to receive most or all of your health care from a network provider. HMOs require that you select a primary care physician (PCP) who is responsible for managing and coordinating all of your health care.

Your PCP will serve as your personal doctor to provide all of your basic healthcare services. PCPs include internal medicine physicians, family physicians, and in some HMOs, gynecologists who provide basic healthcare for women. For your children, you can select a pediatrician or a family physician to be their PCP.

If you need care from a physician specialist in the network or a diagnostic service such as a lab test or x-ray, your primary care physician (PCP) will have to provide you with a referral. If you do not have a referral or you choose to go to a doctor outside of your HMO’s network, you will most likely have to pay all or most of the cost for that care.

Preferred Provider Organizations (PPOs)

A preferred provider organization (PPO) is a health plan that has contracts with a network of “preferred” providers from which you can choose. You do not need to select a PCP and you do not need referrals to see other providers in the network.

If you receive your care from a doctor in the preferred network you will only be responsible for your annual deductable (a feature of some PPOs) and a copayment for your visit. If you get health services from a doctor or hospital that is not in the preferred network (known as going “out-of-network”) you will pay a higher amount. And, you will need to pay the doctor directly and file a claim with the PPO to get reimbursed.

How HMOs and PPOs Differ

The following outline compares some of the features of HMOs and PPOs. These are general rules and you should speak with your human resources office at work or directly with your health plan. If you are in the process of deciding between enrolling in a HMO or PPO, you often can compare the plans by going online to the plans’ websites to learn about the available benefits and costs.

Which health care providers must I choose?

  • HMO: You must choose doctors, hospitals, and other providers in the HMO network.
  • PPO: You can choose doctors, hospitals, and other providers from the PPO network or from out-of-network. If you choose an out-of-network provider, you most likely will pay more.

Do I need to have a primary care physician (PCP)?

  • HMO: Yes, your HMO will not provide coverage if you do not have a PCP.
  • PPO: No, you can receive care from any doctor you choose. But remember, you will pay more if the doctors you choose are not “preferred” providers.

How do I see a specialist?

  • HMO: You will need a referral from your PCP to see a specialist (such as a cardiologist or surgeon) except in emergency situations. Your PCP also must refer you to a specialist who is in the HMO network.
  • PPO: You do not need a referral to see a specialist. However, some specialists will only see patients who are referred to them by a primary care doctor. And, some PPOs require that you get a prior approval for certain expensive services, such as MRIs.

Do I have to file any insurance claims?

  • HMO: All of the providers in the HMO network are required to file a claim to get paid. You do not have to file a claim, and your provider may not charge you directly or send you a bill.
  • PPO: If you get your healthcare from a network provider you usually do not need to file a claim. However, if you go out of network for services you may have to pay the provider in full and then file a claim with the PPO to get reimbursed. The money you receive from the PPO will most likely be only part of the bill. You are responsible for any part of the doctor’s fee that the PPO does not pay.

How do I pay for services in the network?

  • HMO: The only charges you should incur for in-network services are copayments for doctor’s visits and other services such as procedures and prescriptions.
  • PPO: In most PPO networks you will only be responsible for the copayment. Some PPOs do have an annual deductable for any services, in network or out of network.

How do I pay for services out of the network?

  • HMO: Except for certain types of care that may not be available from a network provider, you are not covered for any out-of-network services.
  • PPO: If you choose to go outside the PPO network for your care, you will need to pay the provider and then get reimbursed by the PPO. Most likely, you will have to pay an annual deductable and coinsurance. For example, if the out-of-network doctor charged you $200 for a visit, you are responsible for the full amount if you have not met your deductable. If you have met the deductable, the PPO may pay 60%, or $120 and you will pay 40%, or $80.

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From Michael Bihari, MD, former Guide

Updated April 15, 2010 Health’s Disease and Condition content is reviewed by our Medical Review Board



Report on States New Response: to the Healthcare Reform Act!

Kathleen Sebelius, Secretary of Health and Human Services, testifies to the Senate Finance Committee in Washington March 16, 2011. REUTERS/Joshua Roberts

Kathleen Sebelius, Secretary of Health and Human Services, testifies to the Senate Finance Committee in Washington March 16, 2011.

Credit: Reuters/Joshua Roberts


NEW YORK | Wed May 11, 2011 5:24pm EDT

NEW YORK (Reuters) - Most states likely will run their own health insurance marketplaces or partner with neighbors to help expand coverage under the federal health reform law, Health Secretary Kathleen Sebelius said on Wednesday.


"We think that the vast majority of states will choose to either run their own or run their own in conjunction with neighbors" rather than leave it to the federal government, Sebelius told the Reuters Health Summit on Wednesday.


More than half of all states are challenging the law in federal court, focusing largely on a requirement that all Americans buy health insurance or pay a fine.


Sebelius said she believed the requirement was constitutional but there were other ways to expand insurance coverage if it was struck down.


She also said health insurers’ financial reports showed they were “doing well” in the market since the law took effect. Concerns the law would dismantle the market seem “wildly incorrect,” she said.

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Health Reimbursement Account

A health care plan that gets employees thinking more and spending less

Facing rapidly escalating costs, employers are looking for ways to get their employees more engaged in their health care spending. Health Reimbursement Account (HRA) provides a viable solution. Equipped with the HRA, employers encourage member engagement to lower overall benefit costs.

How does the HRA work?

An HRA consists of the following components:

  • Health Reimbursement Account - Employer contributes a predetermined amount to each member’s account annually. The member may use the funds in the HRA to pay for medical care; covered expenses are paid from the HRA at 100 percent (or percentage amount determined by employer) until the HRA balance is exhausted.
  • Employee out-of-pocket or FSA - Once the funds are exhausted in the HRA, the member is responsible for the remaining deductible. The member must satisfy the deductible each year before the medical plan pays benefits; the deductible can be paid with FSA funds, if available.
  • Medical Plan - Traditional medical plan benefits are payable after the member satisfies the deductible; coinsurance and breakpoint out-of-pocket maximum levels are available.

HRA Benefits

  • Controls health plan costs by making employees accountable for their decisions, purchases and behaviors.
  • Controls rising employee out-of-pocket expenses without restricting coverage.
  • Adds an affordable health care program as part of employee’s overall compensation package.
  • Members are eligible for first-dollar benefits and can manage money in their accounts effectively.
  • Offers members more personal choice and flexibility in their health care purchases and decisions.

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

Health Savings Account

Simple, cost-effective healthcare plans that offer real cost savings

In today’s system, consumers of healthcare services are unaware of the true costs they incur due to low deductibles and copay amounts. Casual utilization has driven up claims and premium levels. As costs for healthcare and healthcare coverage continue to increase, employers and employees alike are looking for money-saving alternatives to traditional plans. Health Savings Account (HSA) plans provide an effective solution.

The idea behind an HSA is simple. Individuals, not the government and not managed care companies, are empowered to make healthcare decisions and control how their dollars are spent. HSAs reward careful consumers of healthcare with funds they own that earn interest for them. With traditional plans, an employee who spent fewer healthcare dollars did not receive any savings. With an HSA plan, employees who use fewer and less costly services keep the money they save through the HSA’s rollover provision. This built-in financial incentive provides a significant cost-savings opportunity for both employers and employees. Employees spend more carefully when purchasing healthcare services because unused amounts in the HSA rollover to subsequent years.

There are two complementary components of these plans:

  • A High Deductible Health Plan (HDHP)
  • A Health Savings Account (HSA)

Here’s how it works:

  • The employer purchases an HDHP to provide protection from large medical bills.
  • An HSA is established for each covered employee to pay for qualified medical expenses. HSA funds can be used for expenses that apply toward the deductible.
  • Employees and/or employers make pretax contributions to the HSA.
  • Withdrawals from the HSA are tax free for qualified medical expenses.
  • Employees own and control the money in the HSA. Careful spending is rewarded with money that accumulates and grows.

What is an HDHP?

An HDHP is a health plan that has a minimum annual deductible of $1,000 for individuals and $2,000 for families. The maximum in-network out-of-pocket limits, including deductible amounts, are $5,000 for individuals and $10,000 for families. The employer designs the plan by selecting the appropriate benefit level, which creates a significant premium savings over traditional plans. The HDHP protects individuals from the financial impact of large medical bills, while the premium savings can be used to help fund the employee’s HSA.

What is an HSA?

An HSA is a tax-favored trust account established for the purpose of paying qualified medical expenses as defined in the Internal Revenue Code. The employer, eligible individuals, or both can make contributions. The maximum annual HSA contribution is the lesser of 100% of the annual HDHP deductible amount or $2,600 for an individual and $5,150 for family coverage in 2004.

HSAs offer triple tax advantages:

  • Tax-deductible contributions for employers and employees.
  • Tax-deferred interest earnings.
  • Tax-free withdrawals for qualified medical expenses.

Funds in an HSA belong to the individual and unused amounts can be carried over indefinitely from year to year. Accounts are portable when an employee changes jobs.

The HSA pays the initial annual qualified medical expenses that aren’t covered by the health plan. Once the deductible is met, the HDHP covers additional medical expenses as defined in the policy.

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Term vs. Permanent Life Insurance?

Which one is right for you?

How do you know if you have the right coverage? Here’s a quick look at all of the options: term, whole, variable and universal.

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Related topics: insurance, life insurance, policies, family, financial planning

Few people who have bought insurance — or even window-shopped for quotes — have escaped the debate over term versus permanent insurance.

And the wrong kind of life insurance can do more damage to your financial plans than just about any other financial product today. So, the first and most important decision you must make when buying life insurance is: term, permanent or a combination of both? Let’s look at each.

Term life policies offer death benefits only, so if you die, you win (so to speak). If you live past the length of the policy, you (or, more specifically, your family members) get no money back.

Permanent life policies offer death benefits and a “savings account” (also called “cash value”) so that if you live, you get back at least some of, and often much more than, the amount you spent on your premium. You get this money back either by cashing in the policy or by borrowing against it.

Permanent life insurance is more expensive

As you might expect, permanent life insurance premiums are more expensive than term premiums because some of the money is put into a savings program. The longer the policy has been in force, the higher the cash value, because more money has been paid in and the cash value has earned interest, dividends or both.

The debate is all about that cash value. If you buy a policy today, your first annual premium is likely to be much higher for a permanent life policy than for term.

However, the premiums for permanent life stay the same over the years, while the premiums for term life increase. That extra premium paid in the early years of the permanent policy gets invested and grows, minus the amount your agent takes as a sales commission. The gain is tax-deferred if the policy is cashed in during your life. (If you die, the proceeds are usually tax-free to your beneficiary.)

The saying you always hear is, “Buy term and invest the difference.” The fact is, it depends on how long you keep your policy. If you keep the permanent life policy long enough (and the market ever fully rebounds), that’s the best deal. But “long enough” varies, depending on your age, health, insurance company, the types of policies chosen, interest and dividend rates, and more. The reality is that there is not a simple answer, because life insurance is not a simple product.

Guidelines to live by when buying

Even with all of these variables, there are some guidelines you can follow. The key is how long you plan to keep the policy. If the answer is less than 10 years, term is clearly the solution.

If it is more than 20 years, permanent life is probably the way to go. The big gray area is in between. Here is where you need an expert to run the term vs. permanent analysis for you. Of course, this assumes you keep the policy in force. Most people drop their policies within the first 10 years, but if you do your homework now, that shouldn’t be the case for you.

How to choose

Start by assessing your needs with MSN Money’s life-insurance estimator.

Categorize your insurance needs by their use. If you need $60,000 for college and your youngest child will graduate in three years, you need $60,000 of term insurance as a short-term hedge against your death, thus insuring that your child can finish his or her education. Meanwhile, if your estate will owe $200,000 in taxes at your death, you probably need permanent insurance, because you’re not likely to die in the next 20 years (you hope). You also may want to re-evaluate your estate plan, but that’s a different issue.

Once you figure out your needs, it’s time to choose the type of policy that makes most sense for you.

Term insurance

Term insurance is relatively easy. You can buy term insurance that stops after 10 or 20 years, or that can be continued beyond age 70. You can choose for your premium to increase each year (annual renewal term) or to remain at the same amount for a fixed number of years.

Most term policies offer both a current payment schedule and a maximum rate for each year. With some policies, the company reserves the right to increase premiums if company costs increase. With others, your health may be a factor in determining rates. At certain “re-entry” ages, you may have to prove your good health in order to keep the lower premium.

Most term policies are convertible to permanent ones without evidence of good health.

Types of permanent life

The real wild card in terms of price is permanent insurance, because most policies have guaranteed and nonguaranteed portions. There are three main types of permanent insurance.

Traditional whole life: This type offers the most guarantees. The annual premium is guaranteed, and there are minimum guaranteed cash values and death benefits. Most whole life policies these days are “participating,” meaning that the dividends they earn can be used to increase the cash value and/or death benefits, decrease the premiums or be refunded in cash.

If you are a conservative investor and also have trouble saving, traditional whole life makes sense.

Universal life: If you need premium flexibility, especially in the early years of the policy, universal life is for you. Universal life insurance was developed in the 1970s, when insurance-industry regulations changed to allow insurers to be more competitive with other financial-services providers.

Universal life insurance is more flexible than traditional whole life, because premiums can vary from year to year and sometimes can even be skipped. Universal life has maximum guaranteed premiums and minimum guaranteed cash values and death benefits. Instead of dividends, universal life policies earn interest at the credited interest rate determined each year.

Variable life: If you consider yourself a knowledgeable and risk-accepting investor, check out variable life. Variable life insurance has the fewest guarantees and therefore offers the greatest potential for cash-value increases.

There are required guaranteed annual premiums and a guaranteed minimum death benefit. However, there is no guaranteed cash value, and you have to select the investments for your policy.

Buyers typically are offered a variety of mutual fund accounts, ranging from money market funds to aggressive growth funds.

Not an investment tool

Life insurance should never be purchased solely as an investment. After all, some of your premiums are being used to buy death-benefit coverage and to cover other expenses (including sales commissions). Life insurance should not be purchased on children as a way to save for college, and make sure you (and your spouse) have all the coverage you need on yourselves before you buy any coverage on a child.

When you make your purchase, avoid all of the fancy riders, but do consider the waiver of premium, which suspends your premium payments but keeps the policy in place if you become disabled.

If you find that you cannot afford all of the permanent insurance you have decided you need, consider a combination term-plus-permanent policy. You can quickly

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Winthrop University to continue Long Term Care Education Program

 Agape Senior Services Founder Supports Long Term Care Education

A new commitment of $200,000 from Agape Senior Services and company founder, Scott Middleton, Winthrop Class of 1981, will support programming and curriculum for senior healthcare management education at Winthrop University. The Agape Senior Healthcare Management Endowed Fund will provide discretionary support for developing a healthcare management certificate program, supporting student and faculty professional development, and providing for initiatives which develop a long term care health care management track within the College of Business Administration’s healthcare management program.

Middleton’s previous generosity at Winthrop has included the End of Life Fund to provide specific palliative care education and continuing education for the palliative care training within the Master of Social Work program as well as the 2006 establishment of the John Risher Brabham Endowment in memory of long-time Winthrop Wesley Foundation Director; the John Risher Brabham Endowment supports scholarships for students studying health care management.