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How to Use Your Health Savings Account (HSA) as a Retirement Tool

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Medical expenses are no joke, and that is especially true for consumers saddled with high-deductible health plans (HDHPs). Since 2011, the rate of workers enrolled in HDHPs jumped from 11% to 29%, according to the Kaiser Family Foundation.

For people enrolled in one of these HDHPs, chances are they’re familiar with the HSA, which stands for health savings account. HSAs are useful, tax-advantaged savings vehicles that allow consumers to contribute pre-tax dollars to a fund they can use for out-of-pocket medical expenses.

What HSA users may not realize, however, is that they can also hack their HSA and transform it into a tool for future retirement savings.

Before we explain further, you need to understand how HSAs normally work and who can take advantage of them. From there, you can use a strategy that allows you to use your health savings account as a powerful retirement tool that will help you manage your biggest expense once you retire.

How to Invest Through a Health Savings Account (HSA)

Health savings accounts allow you to contribute a set amount each year. As an individual, you can contribute up to $3,400 for 2017. Families can contribute up to $6,750, and the catch-up contribution for those over 50 allows you to put in an additional $1,000.

The money you contribute is tax free, meaning it reduces your taxable income in the current year. Once your money is in an HSA, you can hold it in cash or invest your savings to increase its earning potential. If you choose to invest, you can explore a variety of options.

But before you get too excited about the possibilities here, remember: not everyone gets access to HSAs. As we noted before, you need to have a high-deductible health plan before you qualify to open one of these accounts, which may or may not make sense for your financial situation.

You don’t have to use the HSA provider associated with your employer’s health insurance company, says Mark Struthers, a Certified Financial Planner and certified public accountant with Sona Financial.

“HSAs are individual accounts that don’t have to go through your employer. You can shop around for the lowest fees and best investment options,” Struthers says. And unlike their close cousin the Flexible Savings Account, HSAs are portable, meaning you can take your HSA with you if you leave the employer you opened it with.

Within the HSA itself, explains Struthers, you also get to choose many types of investments. “In addition to low-risk, savings-type accounts, you can invest in the same type of fixed income and equity mutual funds that may be in your 401(k) or IRA,” he says.

Just like all other investments, protecting against the risk of losing your hard-earned money is an essential step to take. Tony Madsen, Certified Financial Planner and president of New Leaf Financial Guidance recommends taking a hybrid approach.

“I typically advise my clients to leave two years’ worth of the maximum out-of-pocket expenses in cash in their HSAs,” Madsen explains. “Then, we include the rest in investments that are in line with the client’s overall retirement allocation.”

When you’re ready to withdraw your HSA contributions or your earnings, you can do so without penalty — and again without paying tax — anytime, so long as you spend the money on qualified health care expenses.

Examples of qualified expenses include doctor’s fees and dental treatments, vision care, ambulance services, nursing home costs, and even services like acupuncture or treatment for weight loss. It also includes things like crutches, wheelchairs, and prescription drugs (but does not include over-the-counter medications).

Why HSAs Are Great for Retirement Savings

Here’s what makes your HSA such an attractive vehicle for retirement savings:

If you can contribute to your HSA, invest it wisely, and leave the money in the account just like you would leave the money in your 401(k) or IRA until retirement, you can build a sizable nest egg to use specifically on health care costs after you retire.

Not only will you have a fund for medical expenses, but it’s also money you can use tax free!

That’s a big deal, because health care will likely be your largest expense in retirement. Fidelity estimates couples retiring in 2016 can expect to pay up to $390,000 for medical expenses and long-term care during their golden years.

Health savings accounts are designed to help you pay for medical expenses, tax free. No other account offers so many tax advantages for savers.

You can contribute money to the account tax free. Then you can invest that money, and the earnings are also tax free. If you withdraw the money and use it on qualified health expenses, that money is free from tax too.

In addition to the tax advantages, the funds you contribute to an HSA roll over from year to year. That means you don’t have to spend what you saved until you choose to do so.

(This is different from a Flexible Spending Account, where funds are subjected to a use-it-or-lose-it policy. If you don’t spend the money you put into the account by the end of the year, you don’t get it back.)

And health savings accounts aren’t just liquid savings vehicles. You can invest money within them, often within the same kind of mutual or index funds that you might invest in within a Roth IRA or brokerage account.

When It Doesn’t Make Sense to Use an HSA for Retirement Savings

While HSAs can provide a great, tax-free way to save and pay for qualified medical expenses, your priority should be on selecting the best health care plan for your needs first and foremost. If an HDHP makes sense for you, then you can look at using a health savings account.

If you have an HSA already or currently qualify for one, the next step is to consider hacking it to make it work even harder for you. You can transform your account from a good way to manage medical costs into a tool that makes it easier to bear the brunt of your projected retirement expenses.

This strategy may not work if you currently feel overwhelmed with the cost of your health care and need to take advantage of the tax-free savings and spending power today, instead of waiting for retirement.

Because you’re already in a high-deductible health plan if you have an HSA, that also means you are liable for greater out-of-pocket expenses if you seek treatment.

At a minimum, HDHP deductibles start at $1,300 for an individual or $2,600 for a family. Many HDHPs come with deductibles that range upward of $4,000.

Unless you already have an emergency fund with at least enough money to cover the cost of your deductible should you need to pay it, taking on an HDHP can leave you in a bad financial situation if a serious medical concern arises.

Here’s what you need to think about and ask before you switch to an HDHP:

  • Do you expect to spend a lot of money on health care expenses in the next 5 to 10 years? If you’re young and have no health concerns, your expenses will likely be low and manageable.
  • Do you currently have room in your monthly cash flow for occasional unexpected or increased expenses? If your budget can handle a few doctor’s bills here and there, you may be able to handle health care costs with regular income while you’re young.
  • Do you have an emergency fund, and if so, is it fully funded? Would paying your full deductible wipe out that savings? If so, you may want to create a bigger rainy day fund before you take on an HDHP.
  • Will you save on premiums if you switch to an HDHP? Often the higher deductible can provide you with a lower monthly premium, which can help free up more money in your monthly cash flow to pay for health needs as they arise — but that’s not always the case, so compare plans before making decisions.
  • Can you contribute a significant amount to your HSA? Switching to an HDHP just to get an HSA doesn’t make sense if you’re not close to making the maximum contribution to the account each year.

You can also use a tool created by Hui-chin Chen, Certified Financial Planner with Pavlov Financial Planning. She designed a decision matrix where you can input your own financial information and numbers, and see if an HSA makes sense for you based on that information.

If you’re already on an HDHP and like your plan or if you decide you want to switch to one, open an HSA and start saving. At the very least, you can save money tax free, invest it tax free, and use it tax free on qualified medical expenses.

And that’s a great situation, even if you can’t contribute money and leave it in the account all the way until retirement. If you’re able to contribute and let your savings compound until you retire, great! Use your HSA as a retirement tool to help you cover your biggest expected expense in life after work.

“A ‘good’ HSA decision is to have one and use the funds you saved as you need them,” explains Brian Hanks, Certified Financial Planner. “‘Better’ is maximizing your family contribution each year and using the funds as needed. A ‘best’ situation is to maximize your family contribution, not use the HSA account for medical expenses, and treat it as a second 401(k) or retirement account instead.”

Kali Hawlk
Kali Hawlk |

Kali Hawlk is a writer at MagnifyMoney. You can email Kali at Kali@magnifymoney.com

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Should You Use Your Rainy Day Fund for Medical Bills?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Conventional wisdom says it’s smart to save up for unexpected expenses, like covering the basics after a job loss or settling medical bills after an emergency treatment. But because the costs of medical care can be so unpredictable — and often so wildly expensive — should you even try to save up for them and tap your rainy day reserve when they occur?  

Yes and no.  

Financial planners say you should set aside money for medical expenses — expected or unexpected — so if anything happens, you will at least have a cushion. But it’s not a good idea to drain your emergency fund on hospital bills so large that your emergency fund won’t cover all of it.  

“If you were to drain all your emergency fund on that medical bill, let’s say a car breaks down,” says Juan Guevara, a certified financial planner based in Colorado. “Then the only resource at that point is getting into debt.” 

In fact, if you can come up with other strategies to pay down those medical expenses, it may be wiser to preserve your emergency fund as much as possible. Here’s what you can do when you are surprised by a big medical bill: 

Ask for a payment plan 

First, you should reach out to the hospital or doctor. Many medical institutions actually provide low-interest or even no-interest payment plans for patients who cannot pay bills — particularly big hospital bills — in full.  

“Anyone whom you owe money to is a good place to start with: Is there some kind of financing they could provide?” says Catherine Hawley, a certified financial planner in California.  

“There’s not one kind of ubiquitous standard, but it’s definitely something to look into.” 

But you have to ask; this isn’t something hospitals are advertising. 

Guevara says his family got a medical bill for more than $11,000 a few years ago after his wife had an emergency surgery. The couple called the hospital, asking if they could work out a payment plan, and the hospital agreed to a one- or two-year plan with no interest after an initial $4,000 payment.  

“If there’s no interest, why not to spread it out a little bit more?” Guevara asks. He chose to pay off the hospital costs over two years. 

Negotiate 

It’s also possible to negotiate a lower bill with hospitals and doctors.  

Guevara says some of his friends who didn’t have health insurance coverage have successfully done this. They explained their predicament while showing the willingness to pay in cash, and the hospital not only reduced the amount they needed to pay, it also provided payment plans.  

“For a hospital, it’s better to collect something than collecting nothing,” Guevara says. 

Here is a guide to getting your hospital bill reduced or even eliminated. 

It’s OK to tap your emergency fund — just don’t wipe it out 

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When a huge, unexpected medical bill arrives, your emergency fund may not come close to covering it. Still, financial advisers suggest you save some money for such emergencies and tap part of your rainy-day fund when needed. 

“You are making things a little bit easier for yourself,” Guevara says. “If you start treating a lot of things as not-unexpected, when it actually happens, you already have some money there.” 

To come up with the $4,000 to cover part of his wife’s surgery costs, Guevara had to take $1,000 out of the family emergency fund, in addition to using funds from their Health Savings Account (HSA).  

Guevara suggests that, as a rule of thumb, no more than half of your emergency fund should be applied to expensive health care costs. 

For those who feel reluctant to touch their rainy-day cash for medical emergencies, Hawley recommends you learn what your out-of-pocket maximum is — the most you have to pay for health care services in a plan year — and include that amount in your fund. After you hit your out-of-pocket max, your insurance company covers your health care costs for the rest of the year. 

If you anticipate a lot of medical bills in the coming year or have a personal or family history of medical problems, you might want to set aside separate money so you can preserve your emergency fund as much as possible, Hawley advises. 

Take advantage of an HSA 

People with a high-deductible health plan (HDHP) are eligible for a tax-advantaged Health Savings Account. Pros highly recommend that those who have an HSA use it not just as a medical fund for unexpected emergencies, but also as a long-term retirement savings account. 

The money you put into an HSA is tax-deductible. The balance grows tax-free and rolls over each year. Withdrawals from your HSA for qualified medical expenses are not taxed. 

The annual maximum HSA contribution in 2018 is $3,450 for an individual and $6,900 for a family. If you are at age 55, you can contribute an additional $1,000 annually. 

“For very high medical bills, it’s not going to be the only answer, but it could be a nice piece of the puzzle,” Hawley says. 

When a surprising hospital bill arrives, instead of paying for it in cash, Guevara suggests you take the money out of savings account and deposit it into your HSA first. Paying the medical bill with an HSA helps you save money, because then you can deduct that contribution on your income tax return. 

An FSA (Flexible Spending Account) can be similarly helpful, though it can be tricky to decide how much to put in such an account: FSA funds must be used by the end of the year. 

Enlist help from family and friends 

Before resorting to credit cards or other types of loans, look for ways to pay bills without having to take on interest-bearing debt. You may not like the idea of asking for help, but a loan from a family member or friend may be your most affordable option. 

“You gotta push yourself out of your comfort zone and ask for people to help you,” says Dan Andrews, a financial planner based in Colorado. “And put yourself in their position like, ‘If i was the loved one of the person that comes to me for help, I would want to help them.’” 

What to do if after you dip into your fund 

Replenish your fund after withdrawals so you’re prepared for future unexpected costs. 

A drastic lifestyle change may also be needed so that you could redirect more of your money to pay down the medical debt. If you “don’t need a car as much as they used to, sell that, or maybe find other ways to increase your earnings,” Andrews says. 

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen at shenlu@magnifymoney.com

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The Ultimate Guide to Obamacare (Updated for 2018)

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Since Obamacare (or, as it’s officially known, ACA, the Affordable Care Act) created the first federal health insurance marketplace in 2013, some 20 million Americans have become newly insured.

Consumers who don’t qualify for Medicaid or Medicare or who don’t have private insurance through their employer can shop for health coverage either through the federal marketplace — HealthCare.gov — or by way of their state’s exchange.

This year, ACA applicants will have to wade through an average of 30 plans from two or three different insurers to make their insurance choice. The open enrollment period for Obamacare coverage begins Nov. 1 and ends Dec. 15, with coverage due to begin Jan. 1, 2018.

That’s where this guide will come in handy. We will explain exactly what it’s like to enroll, what documents you should have on hand, and, of course, how to sort through all the health insurance options you may find.

Have any burning Obamacare questions? Send us a note at info@magnifymoney.com.

Part I: What is Obamacare?

Most people use the blanket term “Obamacare” when they talk about President Barack Obama’s signature health care legislation, 2010’s Patient Protection and Affordable Care Act (ACA). The ACA touched almost every aspect of the health insurance industry. It had implications for employer-run health insurance plans. For government health plans, too.

One of the most visible features of the ACA was the creation of federal and state health care exchanges that sell health insurance to people who don’t have affordable coverage through other means. Many people who buy health insurance through the exchanges say they purchased Obamacare plans.

Some of the important features of these plans include:

  • Accessibility: All Americans may purchase health insurance through a federal or state-run health exchange even if they have a pre-existing condition.
  • Standardization: All health insurance plans must cover preventive care at 100 percent, and they must cover the costs associated with most medical procedures.
  • Affordability: The ACA offers tax credits and cost-reduction subsidies to limit the monthly premium costs for people earning less than 400 percent of the federal poverty line. Insurers may use age and smoking status to set monthly premium costs, but no other factors may be considered.

It’s also important to note that the ACA has a requirement called the individual mandate. You must get health insurance coverage, or you will most likely pay a penalty at tax time. You can get qualified health insurance through your employer or a government program. However, if you don’t get it there or through some other source, you will need to purchase an Obamacare plan or pay that penalty.

Who can buy insurance through a health care exchange?

Most Americans can purchase health insurance through a health care exchange. If you do not receive insurance through your employer and you don’t qualify for Medicaid or Medicare, then you are likely eligible.

Most long-term, legal immigrants to the United States may purchase insurance. HealthCare.gov maintains a comprehensive list of qualified immigration statuses for purchasing insurance through the marketplace.

Most large employers and some midsize or small companies offer health insurance benefits to their employees. If your employer offers affordable health insurance to you (costing less than 9.56 percent of your total income), you will not qualify for health insurance subsidies through the exchanges.

Incarcerated people and those living outside the United States cannot purchase insurance through the marketplace.

Part II: Obamacare costs and tax subsidies

One major factor to consider when weighing the options is your expected tax subsidy. Most people buying insurance through the health care exchanges will qualify for a health insurance subsidy. This subsidy is applied in the form a credit that immediately reduces the cost of your Obamacare plan coverage.

According to a study from the Centers of Medicare and Medicaid Services, 84 percent of people who purchased insurance through a health care exchange qualified for a health insurance subsidy in 2017. The average subsidy was about $371 in 2017.

With the subsidy applied, nearly eight out of 10 (77 percent) health insurance purchasers paid less than $100 a month for their health insurance premiums in 2016.

To qualify for a subsidy, you must meet three standards:

  1. You must not have access to affordable insurance through an employer (including a spouse’s boss).
    1. Affordable insurance for 2018 is defined as individual coverage through an employer that costs less than 9.56 percent of your household’s income.
    2. You can check that your insurance offers minimum-value coverage by having your human resources representative fill out this form.
  2. You must have a household modified adjusted gross income between 100 and 400 percent of the federal poverty line.
    1. You can calculate modified adjusted gross income using this formula:
      1. Adjusted gross income (Form 1040 Line 37) +
        Nontaxable Social Security benefits (Form 1040 Line 20a minus 20b) +
        Tax-exempt interest (Form 1040 Line 8b) +
        Foreign earned income and housing expenses for Americans living abroad (Form 2555)
  3. You’re not eligible for coverage through Medicaid, Medicare, the Children’s Health Insurance Program (CHIP) or other types of public assistance. Some states have expanded Medicaid to anyone who earns up to 138 percent of the federal poverty line.

How can I calculate my subsidy?

The easiest way to calculate the subsidy you will receive is to use a subsidy estimator from HealthCare.gov or the Kaiser Family Foundation. Both calculators estimate your subsidy based on the information you provide. They also help you understand what factors affect your subsidy estimations.

Your income, household size and the cost of premiums in your state factor into your subsidy. Premium tax credits can help reduce the amount that you will spend on monthly premiums to a set percentage of your income. You will receive the same subsidy, no matter which plan you ultimately choose.

Below you can see the maximum amount you will spend on insurance premiums (for a silver plan) based on your income.

Income (based on 2017 federal poverty line)

Max monthly Silver Plan premium cost after subsidies

Special notes


Lower 48 states:
$12,060-$16,702



Alaska:
$15,060-$20,857



Hawaii:
$13,860-$19,195


Lower 48 states:
$20.20-$46.21



Alaska:
$25.23-$57.70



Hawaii:
$23.22-$53.11

Check if you qualify for expanded Medicaid.


Lower 48 states:
$16,703-$30,209



Alaska:
$20,858-$37,724



Hawaii:
$19,196-$34,718


Lower 48 states:
$47.05-$203.91



Alaska:
$58.75-$254.64



Hawaii:
$54.07-$234.35

You will qualify for cost-reduction subsidies if you purchase a silver plan.


Lower 48 states:
$30,210-$48240



Alaska:
$37,725-$60,240



Hawaii:
$34,719-$55,440


Lower 48 states:
$203.92-$384.31



Alaska
$254.65-$479.91



Hawaii:
$234.36-$441.67

If you earn more than 400% of the poverty line, you will not qualify for subsidies.

Income (Based on 2017 federal poverty line)

Max monthly Silver Plan premium cost after subsidies

Special notes


Lower 48 states:
$24,600-$34,069



Alaska:
$30,750-$42,587



Hawaii:
$28,290-$39,179


Lower 48 states:
$41.21-$94.26



Alaska:
$51.51-$117.82



Hawaii:
$47.39-$108.39

Children will qualify for CHIP. Check if you qualify for expanded Medicaid.


Lower 48 states:
$34,070-$49,200



Alaska:
$42,588-$61,500



Hawaii:
$39,180-$56,580


Lower 48 states:
$95.97-$259.94



Alaska:
$119.96-$324.93



Hawaii:
$110.36-$298.93

Children in 46 states will qualify for CHIP. You may qualify for extra savings if you purchase a silver plan.


Lower 48 states:
$49,201-$61,621



Alaska:
$61,501-$77,027



Hawaii:
$56,581-$70,864


Lower 48 states:
$259.95-$415.94



Alaska:
$324.93-$519.92



Hawaii:
$298.94-$478.33

In some states, children will qualify for CHIP. You may qualify for extra savings if you purchase a silver plan.


Lower 48 states:
$61,622-$98,400



Alaska:
$77,028-$123,000



Hawaii:
$70,865-$113,160


Lower 48 states:
$415.96-$783.92



Alaska:
$519.94-$979.90



Hawaii:
$478.35-$901.51

In a limited number of states, children qualify for CHIP up to 375% of the poverty line. If you earn more than 400% of the poverty line, you will not qualify for subsidies.

What circumstances might affect my eligibility for a subsidy?

Your subsidy can change if your circumstances change. It’s important to plan for such circumstances.

(Read ahead: “What happens if I don’t qualify for a subsidy?”)

Families with children:

Instead, they will receive free or low-cost insurance through CHIP. You can enroll your children in CHIP through the health insurance marketplace, or by calling 1-800-318-2596. You may need to speak with a Medicaid agent in your state to see if you qualify. You can also learn more about CHIP through InsureKidsNow.gov.

Your children may qualify for CHIP even if you and your spouse qualify for an employer-sponsored health insurance plan, though this rule varies by state. In some states, families that have children and employer-based coverage may receive financial assistance to purchase the coverage.

CHIP does not have enrollment deadlines, so you can apply at any time.

Families where one spouse has work coverage:

Some employers only offer health insurance to their employees. Spouses and children cannot get covered. In that case, you can buy insurance with a subsidy through the marketplace.

Families with expensive employer coverage:

If you can purchase family coverage through your or your spouse’s employer, then you will not qualify for subsidies. If an employee can gain individual coverage for himself or herself for less than 9.56 percent of total household income, the insurance is considered affordable. Coverage for the family isn’t factored into the affordability calculation.

This so-called “family glitch” affects two million to four million people and requires them to pay high prices for premiums. If you are caught in this situation, your children may qualify for CHIP. However, uncovered spouses and children must purchase insurance or pay the individual mandate penalty unless coverage for the family costs more than 8.05 percent of your household income. Even in those cases, you will still not qualify for premium assistance.

Senator Al Franken, D-Minn., has proposed a Family Coverage Act that may rectify the tax code, but it has not been passed.

Individuals getting married in 2018:

If you’re getting married next year, your subsidy depends on your combined income. In the months preceding your marriage, your income is one-half of your and your spouse’s combined income. Once you get married, your subsidy is based on your joint income and your qualifying family.

You need to report a marriage to be eligible for a special enrollment period on HealthCare.gov or through your state’s insurance exchange.

Individuals getting divorced in 2018:

If you get divorced or legally separated in 2018, you must sign up for a new health insurance plan after you separate. Your subsidy will be based on your income and household size at the end of the year. However, you will need to count subsidies received during your marriage differently than subsidies received when you’re legally separated.

For the months you are married, each spouse divides advanced subsidies received to each new household. If spouses cannot agree on a percentage, the default is 50 percent. If the plan only covered one taxpayer and his or her dependents, then the advanced tax credits apply 100 percent to that spouse.

Divorce reduces your income, but it also reduces your household size. These factors change your estimated subsidy. How much will depend on the magnitude of each change.

Reporting a divorce makes you eligible for a special enrollment period. When you enroll in a new plan, the exchange website will help you estimate your new subsidy for the remainder of the year.

Giving birth or adopting a child:

You have 60 days from the birth or adoption of your child to enroll him/her in a health care plan. If you miss this window, your child will not have health coverage, and you will pay a penalty. However, if you enroll your child in a timely manner, you can expect your subsidy to increase.

Report the birth or adoption of a child to be eligible for a special enrollment period on HealthCare.gov or via your state’s insurance exchange.

A newborn or adopted child may be eligible for CHIP rather than subsidized health insurance.

Turning 26:

If you’re on your parents’ insurance, generally you can stay until you have turned 26, but you should check your plan to be sure. You will have a 60-day special enrollment period to get your own plan from the health care exchange when you turn 26.

You may also be eligible for a special enrollment period from an employer-sponsored health plan. If you fail to have health insurance for more than three months, you will pay a penalty.

Losing employer coverage:

If you lose employer-based health coverage, you can either enroll in COBRA or purchase a plan through the health care exchange. Once you enroll in COBRA, you become ineligible to purchase subsidized coverage through the exchange.

You need to report job status changes to be eligible for a special enrollment period on HealthCare.gov or your state’s insurance exchange.

Changes in income:

Premium tax credits are based on your annual income. If you increase your income, you will be expected to pay back some or all of the advance premium you received. If you earn more than 401 percent of the federal poverty line, all premiums need to be repaid. If you earn less than 400 percent of the federal poverty line, you may have to pay back $2,500 of advanced premiums per family or $1,250 for individuals.

You need to report income changes to avoid under- or overpaying on your premiums throughout the year.

Moving states or counties:

Most insurance plans that you purchase through the marketplace are state- and county-specific. If you move, you need to report the relocation through the insurance exchange. You may have to change insurance plans after moving. Moving to Alaska or Hawaii will allow you to claim a greater subsidy amount than you can claim in the lower 48 states. If you move from Alaska or Hawaii, you can continue to claim the higher subsidy amount for the whole year.

Part III: Bronze, silver, gold, platinum: Choosing the right Obamacare plan for your needs

The health care exchanges — both federal- and state-run — classify health insurance plans into four categories: bronze, silver, gold, and platinum. Metal categories are based on how you and your plan split the costs of your health care.

According to a 2016 study by the Department of Health and Human Services, 76 percent of consumers who bought a silver plan in 2016 stood to save an average of $58 a month by switching to the lowest-premium plan in 2017.

But that doesn’t meant the cheapest plans are necessarily best for you. They often come with higher out-of-pocket expenses, like deductibles, which can make them very expensive if you end up needing lots of medical care through the year.

Think of this way — the higher the premium, the more comprehensive the coverage will be and the lower your out-of-pocket costs. If you expect that you’ll need fairly frequent medical care or treatment, you might be better off choosing a more comprehensive plan despite the higher monthly premium.

Obamacare ‘Metal’ Plans: Explained

Bronze Plan

Cheapest premium, 60% coverage

Bronze health plans offer the least amount of estimated coverage. Insurers expect to cover 60 percent of the health care costs of the typical population. These plans feature the lowest monthly premiums, the highest deductibles and high out-of-pocket maximum expenses. Just under one-quarter (23 percent) of health insurance enrollees opted for a Bronze plan in 2017.

Silver Plan

Moderate premium, 70% coverage

Silver health plans offer moderate estimated coverage. Insurers expect to cover 70 percent of health care costs, and plan members cover the remaining 30 percent. If you qualify for cost-reduction subsidies (also called “extra savings”), you must purchase a silver plan. In 2017, 71 percent of all participants in the health care exchanges opted for a silver plan.

Gold Plan

High premium, 80% coverage

Gold health plans offer high levels of estimated coverage. Insurers expect to cover 80 percent of health care costs, while plan members cover the remaining 20 percent. These plans feature high monthly premiums, but lower deductibles and out-of-pocket maximums. Only 4 percent of all health insurance consumers on the health care exchanged opted for a gold plan in 2017.

Platinum Plan

Highest premium, 90% coverage

Platinum health plans offer the highest level of protection against unexpected medical costs. Insurers expect to cover 90 percent of medical costs, and plan members cover the remaining 10 percent. These plans have the highest monthly premiums and the lowest deductibles and out-of-pocket maximums. Just 1 percent of all health insurance exchange participants purchased a platinum plan in 2017.

Catastrophic Plans

Cheapest premium, lowest coverage

Catastrophic health plans: People under age 30 or with hardship exemptions may purchase individual catastrophic health insurance plans. These plans are not available for families. Catastrophic plans do not have a cost-sharing component. Your out-of-pocket maximum will be $7,350. Once you reach $7,350 in medical expenses, your insurance company will pay the remaining costs.

Catastrophic plans cover most preventive services. Catastrophic plans generally offer the lowest monthly premiums, but you can’t use a premium tax credit to reduce your monthly cost.

Now that you know all the types of plans offered, it’s time to choose the one that fits your needs.

What to consider before choosing a plan

Choosing a health plan can seem like a daunting task, but you can get all the help and information you need to make an informed decision. Your health and your pocketbook matter, and we want to help you protect both.

Your tax subsidy: Before you choose a plan, you’ll decide whether to receive advanced or deferred subsidies.

If you take your subsidy upfront, it will reduce your premiums right away. If you defer it, then it will be given to you as a tax credit when you file your taxes. If you over- or underpay your premiums throughout the year, the will have to reconcile the amount owed at tax time.

Most people with predictable income and household size should take most or all of the subsidy upfront. However, if you expect to undergo a major life change (such as an increase in income, a marriage or a divorce), consider taking less of your subsidy in advance.

Time to shop. For people shopping for 2018 coverage, the average number of plans available is 30. Rather than comparing every plan, we recommend creating criteria around the following variables:

  1. Monthly cost: Consider how the monthly premium will affect your budget. This does not mean you should choose the plan with the lowest premiums, but you should consider the price. People without chronic conditions who have adequate emergency savings may want to at least consider opting for an option with low monthly premiums.
  2. Deductible and co-insurance: Do you have the emergency fund or income you need to cover a small medical emergency? A broken arm, stitches or an unexpected infection can result in hundreds of dollars in medical costs. If you have a high-deductible plan, you’ll need to cover these costs without help from the insurance company. If possible, choose a plan with a deductible that you could comfortably cover out of your savings or income.
  3. Maximum yearly cost: Add the annual cost of your premiums and your out-of-pocket maximum to determine your maximum yearly cost. In a worst-case scenario, this is the amount you will pay out of pocket. People with chronic conditions that require heavy out-of-pocket fees should try to limit their maximum yearly cost. A plan with a higher maximum yearly cost may represent a higher risk.
  4. Services and amenities: All insurance plans from the marketplace cover the same essential health benefits, but some offer more unique services such as medical management programs, vision and dental coverage.
  5. Health savings accounts: If you choose a high-deductible plan, you may want to opt for one lets you contribute to a tax-advantaged health savings account. Any money you contribute to this account (up to annual established limits) reduces your taxable income, and will not be taxed upon withdrawal when it used for medical expenses.
  6. Network of providers. It’s important to be sure that your preferred medical providers contract with the plan you choose. Not every doctor is “in network” with every insurance plan. You can check each plan’s provider directory before making a selection.

Once you have a firm grasp of your particular criteria, look for plans that fit your needs and ignore the rest.

Using the exchange website, you can filter and sort plans based on these factors. Most people need to balance cost and coverage to find a plan that works for them.

If you are part of the minority that need to buy their own health insurance plans, you should know that not every state uses HealthCare.gov to host their state’s health insurance exchange. Residents in the following states should use their specific state exchange to look for health insurance:

California; Colorado; Connecticut; Washington, D.C.; Idaho; Maryland; Massachusetts; Minnesota; New York; Rhode Island; Vermont; Washington.

Part IV: How to enroll in Obamacare

Applying for insurance takes 30-60 minutes if you have all the necessary information in hand.

Your Obamacare enrollment checklist:

  • Names, birthdates and Social Security numbers for all members of the household
  • Document numbers for anyone with legal immigration status
  • Income information for all coverage-holders
  • Information about employer-sponsored health plans
  • Tax return from previous year (to help predict income)
  • Student loan documents
  • Alimony documents
  • Retirement plan documents
  • Health Savings Account documents

State or federal marketplace?

If your state does not offer its own health care exchange, you should use HealthCare.gov. As mentioned in the previous section, each state has the right to choose whether to run its own or use the federally run exchange and some do use their own.

The state-run exchanges perform the same functions as the federally run exchange. They allow you to estimate your tax credit and purchase insurance. As a consumer, you must provide the same information to your state as you would on the federal exchange.

While the online user experience will vary when states adopt their own online marketplace, the Affordable Care Act is a federal law and program. This means that the requirements and benefits do not change from state to state, even if the exchange platform changes.

The website interface for the federal exchange is simple, but answering the questions may be confusing. It’s important to fill out the application as accurately as possible so you can enroll in the best health insurance plan for you.

We’ve done our best to clarify the confusing portions in our step-by-step process below.

Filling out your Obamacare application

Family and household info

Start the application by filling out contact information and basic information about members of your household. Even if a member of your family will not need coverage, include that relative in your application.

The website will help you determine if a member of your household has insurance options outside the health care exchange. It will also help you determine if a person is a dependent. For the purpose of the health care exchange, your family includes all the people included on your income tax filing.

You need to know Social Security numbers, birthdates, immigration and disability status, and whether each household member can purchase health insurance through an employer plan.

Income and deductions

Next you’ll estimate your income for the coming year. Include all the following forms of income:

  • Jobs
  • Self-employment income (net)
  • Social Security benefits
  • Unemployment income
  • Retirement income
  • Pensions
  • Capital gains
  • Investment income
  • Rental/royalty income
  • Farming and fishing income
  • Alimony received

Afterward you’ll enter deductions. The application calls out student loan interest and alimony paid, but you should estimate all “above-the-line deductions” that should be included. These include:

  • Retirement plan contributions: 401(k), 403(b), 457, TSP, SEP-IRA, simple IRA, traditional IRA
  • Contributions to a Health Savings Account
  • Self-employed health insurance premiums
  • Tuition and fees paid
  • Educator expenses (up to $250 per teacher)
  • Half self-employment tax
  • Moving expenses
  • Early-withdrawal penalties from a 1099-INT

Do not double-count income or deductions since you’ll fill out these forms for each person. If you make a mistake, you can edit it when you review your household summary.

Additional information

Finally, you’ll fill out a few other miscellaneous details that will allow the application to confirm that you are eligible for subsidies or marketplace insurance.

It’s especially important that you have accurate information about job-related coverage for you and your family. This information will determine your eligibility for subsidies and other government programs.

Completing Obamacare enrollment

After you complete the application, you can review and submit it. At this point, the system will suggest which members of your household should complete CHIP or Medicaid applications. The remaining family members can enroll in a health insurance plan.

Part V: Where to get help enrolling In Obamacare coverage

Because of the complex nature of the marketplace exchange, there are marketplace navigators. These professionals provide free, unbiased help to consumers who want a hand filling out eligibility forms and choosing plans.

Marketplace navigators. You can find local marketplace navigators through the health care exchange website.

Be advised: The Trump administration has slashed budgets for health care navigators, leading some states to close down the programs altogether. As a result, it may make it difficult to find help locally from a navigator in some states.

Nonprofit organizations. Outside the exchange, nonprofit organizations are working to help people gain coverage by teaching them about their insurance options. Enroll America offers free expert assistance to anyone who makes an appointment. You can use the connector below to make an appointment with one of their experts.

Insurance brokers. Brokers can offer another form of help. Brokers aim to make it easier for consumers to compare insurance plans and apply for coverage. Insurance brokers have relationships with some or all of the insurance companies on the marketplace. Using a broker will not increase the price you pay for a plan, and it will not affect your subsidies. However, here’s another important note: Online brokers may not have 100 percent accuracy regarding a plan’s details. It’s important to visit a plan’s website before you enroll in a plan.

If you want to work with a broker, consider some of these top online brokers. PolicyGenius compares all the plans that meet criteria that you establish, and they serve up the top two plans that meet those criteria. HealthInsurance.com makes applications quick and easy, and the site specializes in special enrollment help.

Medicare plan finder. If you’re over age 65, use Medicare Plan Finder to find a Medicare plan that works for you.

CHIP: Likewise, if you think your children qualify for CHIP, use Insure Kids Now to enroll them in your state’s plan.

PART VI: Frequently asked questions

What happens if I don’t apply for insurance?

In most cases, you must enroll in health insurance or you’ll have to pay a penalty.

The penalty for 2018 hasn’t yet been released, but the 2017 penalty was calculated as the greater of 2.5 percent of your income (up to the national average cost of a bronze plan) or $695 per adult and $347.50 per child (up to $2,085).

This steep penalty means that most people are better off purchasing some health insurance.

However, under certain circumstances you can avoid buying insurance and avoid paying the penalty. These are a few of the most common exemptions:

  • Health care cost-sharing ministry members: Must show evidence of membership
  • Low income, no filing requirement: If you do not earn enough income to file taxes, then you are automatically exempt from paying a noncoverage penalty.
  • Coverage is unaffordable: For 2017, if you, your spouse, or your dependents cannot obtain employer coverage or a bronze plan for less than 8.05 percent of your income (after applicable subsidies), you may opt out of coverage. (However, if your individual coverage from an employer costs less than 9.56 percent of your income, and your employer offers family coverage, nobody in the family will qualify for subsidies).
  • Short coverage gap: You went without insurance for less than three months.
  • Living abroad: No coverage is required if you live abroad for at least 330 days.
  • General hardships:These include homelessness, eviction, foreclosure, unpaid medical bills, domestic violence and more.  (You must get a marketplace exemption.)
  • Unable to obtain Medicaid: If you earn less than 138 percent of the federal poverty line, and your state didn’t expand Medicaid, you don’t have to purchase health insurance.
  • AmeriCorps coverage
  • Members of qualified religious sects: Must be granted exemption through HealthCare.gov.

Although you will not pay a penalty, you may still want to seek out catastrophe insurance or some other coverage to help with high potential health costs.

What happens if my plan was canceled?

For 2018, some insurers dropped their insurance plans from the health care exchange. In some states, major insurers Aetna and Humana are exiting the exchange. As a consumer, you cannot assume that the plan you chose in the past will be around next year.

If you used HealthCare.gov in the past, and your insurance plan remains in place, you’ll automatically be enrolled in the same plan again this year. This is true even if important variables like the deductible and premiums changed from last year.

If your plan was canceled, HealthCare.gov will automatically enroll you into a new health insurance plan with a price and coverage quality comparable to your previous plan’s.

Although the federal exchange will help you opt into a new plan (ensuring that you have some health insurance coverage), it’s far better to select a new plan on your own. You can enroll in a new plan Nov. 1 through Dec. 15. If you do not enroll in a new plan during this time, you will be stuck with the automatic enrollment option.

Whether you’re shopping for a new plan or reviewing an old plan, take these steps before open enrollment ends.

  • Update personal information on your application. Your income, household size, where you live and more will affect plan and subsidy eligibility. It’s important to keep your application up to date. The plan that fit you last year may no longer be appropriate, but you won’t know unless you keep the information current.
  • Review your plan before you re-enroll. You should receive a notification in the mail if your plan has been changed or canceled. Take the time to understand if the changes affect you.
  • Compare plans that fit your needs. Consider enlisting free help from a health care navigator, a nonprofit or a broker to help you decide.
  • Choose the plan that best fits your needs and your budget.

What options do students (and their dependents) have for health insurance?

University students who are enrolled full time have multiple options for health insurance.

Under age 26: All student under age 26 may continue to receive coverage from their parents’ insurance plan even if living in another state. Of course, it may make more sense to gain coverage in the state where you’re living, so review the coverage network with your parents. Many coverage networks only include doctors in a few ZIP codes.

If you visit an out-of-network doctor, you will face higher deductibles and out-of-pocket maximums. As an alternative to staying on your parents’ plan, you can purchase your own health insurance plan through the health care exchanges even if you are a dependent.

Students who are dependents and over age 26 may be required to purchase their own health insurance plans.

University coverage: Many students will opt for a student health plan from their university. In general, student health plans meet minimum qualifying coverage criteria, and are affordable options. However, student health plans are not treated as employer coverage. Because of that, students may still qualify for Medicaid or insurance premiums. Students (especially independent students) should look into these alternatives when reviewing their insurance options.

The spouses and dependents of students must take time to understand their options. These are a few common scenarios:

If a student or spouse has an affordable employer-sponsored plan that covers family members: Student and spouse do not qualify for insurance subsidies or Medicaid. Children may qualify for CHIP. Student and spouse should seek coverage through either the student health plan or the employer-sponsored plan in most cases. All members of the family must have qualified health coverage, or they will pay the individual mandate penalty.

Student health plan doesn’t offer coverage for spouse or dependents, and neither spouse has an employer-sponsored health plan: Spouse and dependents can apply for Medicaid, CHIP or subsidized insurance through the health care exchanges (provided they meet income criteria). Student may choose any coverage option (including Medicaid or subsidized insurance) without paying a penalty.

Student health plan offers coverage of spouse or dependents, and neither spouse has an employer-sponsored health plan: Student, spouse and dependents may purchase the student health plan. They can also apply for Medicaid, CHIP or subsidized insurance through the exchanges (provided they meet income criteria). All family members may choose any coverage option without paying a penalty.

Where if I don’t qualify for a subsidy?

If you don’t qualify for a health insurance subsidy, you can still apply for health insurance through HealthCare.gov or your state’s health insurance exchange. However, some insurers offer more or different options outside the exchange. Anyone who doesn’t qualify for a health insurance subsidy should consider using an online broker instead to look for plans.

People who don’t qualify for a health insurance subsidy should reconsider their health insurance options in 2018. An analysis by the Kaiser Family Foundation said that a number of insurers have requested double-digit premium increases for 2018. Based on initial filings, the change in benchmark silver premiums will likely range from -5 to 49 percent across 21 major cities. (These rates are still being reviewed by regulators and may change, the analysis said.)

With rapidly rising costs, enrollees without subsidies may want to consider the lower-cost bronze plans to see if they meet their health insurance needs.

Part VII: The ultimate Obamacare glossary

Understanding basic health insurance terminology can help you make a more informed decision about your options. Here are common terms you should know.

This credit can be taken in advance to offset your monthly premium costs. The subsidy is based on your estimated income and can be taken directly from your insurer when you apply for coverage. You must repay credits if you qualify for a smaller subsidy once taxes have been filed. You can learn more about repayment limitations here.

This program was designed to provide coverage to uninsured children who are low-income but above the cutoff for Medicaid eligibility. The federal government has established basic guidelines, but eligibility and the scope of care and services are determined at the state level. Your children may qualify for CHIP even if you purchase an insurance policy through the health care exchange. You can learn about CHIP eligibility through the marketplace or by viewing this table at Medicaid.gov.

Your share of the costs of a covered health care service. This is the percentage you must pay out of pocket after you have met your annual deductible. You pay a specific coinsurance amount until you meet your out-of-pocket maximum.

If you earn between 100-250 percent of the federal poverty level, you may qualify for additional savings. This extra savings reduces your out-of-pocket maximum, and it offers assistance with copays and coinsurance.

Disclaimer: There is ambiguity surrounding whether or not Congress and the White House will appropriate funds for the cost sharing subsidies. In October, President Trump used an executive order to cut off funding for the subsidies. However, the Affordable Care Act still requires that health insurers must issue them to all people earning 100-250 percent of the federal poverty line. As a result of this Trump executive order, many insurers raised premiums for silver plans. The premium increases will not affect the prices that people with subsidies will pay, but they will affect the prices you pay if you do not qualify for a subsidy.

Until the Affordable Care Act or the cost sharing subsidies are repealed, insurers will continue to pay cost reduction subsidies in 2018.

A fixed amount you pay for a covered medical service, typically when you receive the service or prescription. Also commonly referred to as a “copay.”

The amount you pay for covered health services before your insurer begins to cover part of your costs. According to the IRS, a high-deductible health insurance plan is any plan with a deductible over $1,300 for an individual or $2,700 for a family.

Medical services are only covered if you go to doctors, specialists or hospitals in the plan’s network (except in an emergency).

These plans focus on integrated care and focus on prevention. Usually, coverage is limited to care from doctors who work for or contract with the HMO. Generally, out-of-network care isn’t covered unless there is an emergency.

Health Savings Accounts (HSAs) allow you to save and invest money for current or future medical expenses. You do not have to pay any taxes on money you contribute to an HSA, and you can withdraw the money tax- and penalty-free if you use the funds for a qualified medical expense.

You can only contribute to an HSA if your insurance meets the standards for a high-deductible insurance plan. Individuals can contribute up to $3,450 to a health savings account, and families can contribute up to $6,900 in 2018.

If you shop for insurance through Healthcare.gov, plans will indicate whether they are HSA approved. To be an HSA compatible plan, your deductible must be at least $1,350 for an individual or $2,700 for a family. The out of pocket maximums on these plans must be less than $6,650 for an individual or $13,300 for a family.

The out-of-pocket maximums required by the IRS do not line up with Affordable Care Act maximums, so many plans with high deductibles will not allow you to contribute to an HSA. If contributing to an HSA is an important part of your financial plan, be sure to filter for HSA compatibility on HealthCare.gov. And be advised: Not everybody will have an opportunity to purchase a subsidized HSA-compatible health insurance plan.

If you can afford to purchase health insurance and choose not to, you will be charged an individual shared responsibility payment, in the form of a tax penalty. There are a few qualified exemptions, outlined in the guide above, that allow you to avoid the fine. For example, if your employer-sponsored health plan costs more than 8.05 percent for individual coverage, you will not have to pay the fine (though you will not qualify for tax credits).

The fine for 2018 has not yet been released, and Congress has considered removing the individual mandate requirement for 2018. If it is removed, we will update this piece with the required information.

For the 2017 tax year, the individual mandate was calculated two ways:

  1. 2.5 percent of household income (up to the total annual premium for the national average price of the marketplace bronze plan)
    OR
  2. $695 per adult and $347.50 per child (up to $2,085)

You had to pay the greater of the two penalties.

Medicaid: A joint federal and state program that provides health coverage to low-income households, some pregnant women, some elderly Americans and people with disabilities. Medicaid provides a broad level of coverage including preventive care and hospital visits. Some states provide additional benefits as well.

If you were a foster child who “aged out” of foster care, you can continue to receive Medicaid coverage until age 26 with no income limitations.

Medicaid Expansion: Obamacare gives each state the choice to expand Medicaid coverage to people earning less than 138 percent of the federal poverty line. The primary goal of the ACA is reducing the number of uninsured people through both Medicaid and the health insurance marketplace. The Kaiser Family Foundation keeps track of expanded Medicaid coverage by state.

Medicare: Most people who are over age 65 and disabled people who have received Social Security Disability Insurance (SSDI) payment for 25 months in the United States will qualify for a Medicare Health Insurance Plan. Open enrollment for Medicare, which started Oct. 15, runs through Dec. 7. You can learn more about Medicare plans from the Medicare Plan Finder.

The amount you pay each month for your health insurance.

The highest amount you will pay for covered services in a year. In 2018, all health insurance plans sold through the Federal Health Exchange will have a out-of-pocket limits of $7,350 for an individual or $14,700 for a family plan.

You pay less for medical services if you use providers in the health plan’s network. You need a referral from your primary care doctor to see a specialist.

You pay less for medical services if you use the providers in your plan’s network. You may use out-of-network doctors, specialists or hospitals without a referral. However, there is an additional cost.

All health insurance plans purchased through the health care exchange cover some preventive care benefits without additional costs to you. These benefits include wellness visits, vaccines, contraception and more.

Most insurance plans have preferred pricing with a group of health care providers with whom they have contracted to provide services to members.

The federal subsidy for health insurance that helps eligible individuals or families with low or moderate income afford health insurance purchased through a health insurance marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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What to Expect from Obamacare Open Enrollment for 2018

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Open enrollment for Affordable Care Act coverage begins Nov. 1.

Although the future of the act and the health insurance marketplaces it created remains uncertain, that shouldn’t deter consumers from enrolling in coverage for 2018.

In fact, health care experts urge consumers who will be shopping for individual plans to act sooner rather than later. Not only is the window for shopping on the federal marketplace narrower this time around, but planned maintenance periods will further reduce the number of days that HealthCare.gov will be up and running.

Here is what you should expect from the coming open-enrollment period for coverage under the act, also known as Obamacare.

Key dates to mark on your calendar

The 2018 open-enrollment period extends from Nov. 1 through Dec. 15. The period is half as long as it was last year. Existing enrollees who miss the enrollment deadline will either be automatically enrolled in their existing health plans, or l be put into a comparable plan if their existing plan is no longer available.

Further reducing the amount of time consumers will have to enroll in plans, the U.S. Department of Health and Human Services has announced that HealthCare.gov will be taken offline for maintenance each Sunday during the enrollment period.

Consumers who live in states that run their own health care exchange websites might catch a break. Many of the 12 states, such as Colorado and Minnesota, have extended the enrollment window.

Plans purchased during open enrollment will become effective starting Jan.1, 2018.

Act early

If your insurer has exited the marketplace, you should have been notified by now, Karen Pollitz, senior fellow at the Kaiser Family Foundation, said at an October news briefing. Pollitz urged consumers who will have to switch plans to go to the marketplace to check and compare other plans as soon as Obamacare open enrollment starts. If you don’t enroll by Dec.15 (or by your state marketplace’s deadline, if different), you will be automatically signed up for a similar plan.

“It is best act to early. Do not wait until the last minute,” Pollitz said.

Get help from a health care navigator

The Trump administration has cut federal funding for advertising to get people sign up for Obamacare during this fall’s open enrollment season by 90 percent, and slashed 41 percent of grants for navigator groups — those individuals who help consumers enroll.

The slashed budgets have led states to cut back on hiring health care navigators, which could lead to more confusion, experts say.

Some states like Ohio have shut down their navigator program completely.

Use this tool from HealthCare.gov to see if your state has navigators on staff to help you enroll. If not, you can:

  1. Contact the site’s Marketplace Call Center if you have questions. The center runs 24/7, but there may be a long wait.
  2. Reach out to trained and registered agents or brokers using the Find Local Help tool. A note from HealthCare.gov: Services are generally free to you — they’re paid by insurance companies whose plans they sell. (Some agents and brokers may sell only certain plans.)
  3. Use this calculator from the Kaiser Family Foundation to get an estimate of your plan premiums, and check how much financial help you might qualify for based on your age, where you live and the prices in your area. The calculator will soon be updated for 2018 coverage.
  4. Learn what you need to know from free, reliable resources. The Kaiser Family Foundation will hold web briefings for consumers in different states the week before enrollment starts. Check out the dates here.

Experts are concerned that the pullback on advertising grants, especially on TV promotions to get people signed up, will cause a drop in enrollment. This happened at the end of open enrollment this past January when marketing ads were canceled by the new administration, according to Pollitz.

“Consumers need to hear this information over and over and over again,” Pollitz said.

New Obamacare rules to watch out for

While the enrollment procedure remains largely unchanged this year, there are a few new rules experts say are worth your attention:

People who missed payments last year may not receive coverage for 2018.

The U.S. Centers for Medicare and Medicaid Services ruled back in the summer that during the 2018 coverage year, insurers are allowed to deny enrollment for customers who missed payments in 2017. This change will affect those who signed up for health care after the new rule took effect on June 17 and then missed a payment.

Insurers have an option to not to adopt the policy, and states can also prohibit the practice. Pollitz said If you missed payment in that window, you can repay your premium debt to the insurer before the end of the coming open enrollment, or you can sign up for a coverage under a different company.

But if you need to make a dispute, Health and Human Services hasn’t established an appeal process for this insurance change. Pollitz said it’s important for those encouraging this barrier to contact their state’s insurance regulator and the marketplace, and to seek assistance from navigators.

People who haven’t filed a 2016 tax return with Form 8962 may be denied tax credits

Consumers who got premium tax credits in 2016 but have not yet filed a 2016 federal income tax return with Form 8962 (the form allows filers to calculate their tax credits and reconcile their credit amount this year) will be denied premium tax credits next year. However, those affected by the new rule won’t be given the specific reason why they will not be eligible for tax credits, Pollitz said. She advised that if you are denied tax credits, you have to figure out that this is the reason and then file an amended return with Form 8962 to receive premium subsidies in 2018.

Medicaid expansion

Consumers in 31 states and Washington D.C., with income at or below 138 percent of the federal poverty level — that 138 percent means a little over $16,600 every year for a single person and nearly $34,000 for a family of four — are now eligible for Medicaid, which is open for enrollment throughout the year. You can apply through the marketplace to find out whether you are eligible for tax credits or Medicaid.

What’s unchanged from last year

Individual mandate remains

You still have to a penalty if you can afford health insurance but don’t buy it.

The penalty for not having coverage is the same as it is this year. The fee is calculated as a percentage of your household income or as a fixed amount per person. You’ll pay whichever is higher.

For 2018 …

  • 2.5% of household income (capped at the yearly premium for the national average price of a Bronze plan sold through the marketplace)

OR

  • $695 per adult
  • $347.50 per child under 18
  • Capped at a maximum of $2,085

Auto-renewal remains but is not recommended

If you don’t enroll in new coverage by Dec. 15, your plan will be auto-renewed. About one in every four consumers’ plans were renewed in this fashion in 2017, according to the Kaiser Family Foundation. And if your plan has changed, you will be automatically assigned a plan. But experts strongly recommend you not rely on auto-renewal this year because algorithms may not get you the best plan for 2018 with all the subsidies changes. What you should do is to log into your account, carefully review all the plan choices and costs and select a plan for 2018.

Premium increases and uncertainty

Unable to successfully repeal and replace the Affordable Care Act (ACA), the Trump administration has begun peeling back some elements of the legislation in recent weeks. In mid-October, President Trump announced he would yank key federal subsidies offered to insurers that were used to offer copay and deductible discounts to low-income consumers. Soon after Trump moved to pull the insurance subsidies, two senators struck a bipartisan deal to fund the subsidies through 2019. Experts say if the deal is passed, that could stabilize the marketplace.

But experts say this back-and-forth on insurance subsidies likely won’t change anything for those shopping for coverage for 2018, as insurers are still required to offer cost-sharing help under ACA, and most of them had anticipated the loss of subsidies and had already increased premiums for 2018.

Most people still get tax subsidies that can help reduce their premiums — every eight in 10 people who enrolled in an Obamacare plan received premium tax credits that lowered their monthly insurance bills in 2017. Premium subsidy dollars increase as premiums go up. However, those who earn too much to qualify for tax credits will likely feel the effects of higher premiums.

More difficulty down the road

While it’s unclear how exactly individual accessibility to health care services will be affected in light of the changes to ACA, it will be disruptive when consumers have to switch plans with different providers and apply to new doctors due to the exit of their previous insurers from the marketplace, said Jennifer Tolbert, director of state health reform at the Kaiser Family Foundation.

“We do know that simply having an insurance card doesn’t guarantee people access to people and doesn’t mean that they will be able to get the care that they need,” Tolbert said. “But it certainly helps.”

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen at shenlu@magnifymoney.com

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Health, Life Events

You Could Be Paying for More Insurance Than You Need

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Tiffany Hamilton knew as a college student that she would one day be an entrepreneur. With that in mind, she made sure to enlist the help of a financial planning company when she bought her first life insurance plan at 21, as she was just getting her start in real estate.

That first policy was a $20,000 term-life plan that cost her about $80 a month. When her salary increased, she decided she needed more coverage than that. As a single woman with a burgeoning business, she wanted to make sure she had enough coverage to take care of any debts and leave something for her mother..

Her insurance representative at the time encouraged her to up her coverage. So at 25, she converted her policy to a $1 million whole life policy.

“I thought by going to a financial planner, sitting down and answering the questions, and then going off of their recommendations, I thought I was doing the right thing,” Hamilton told MagnifyMoney. “Yes, the $1 million would give my mom X, Y and Z, but was that in my best interests?”

Now 35 and running her own real estate business based in Tallahassee, Fla., Hamilton has lately been wondering: Is it possible to be overinsured?

How much insurance is too much insurance?

As we grow in our careers, home life and families, paying for life insurance becomes another one of those obligatory items on our financial to-do lists, like establishing a 401(k) or an emergency fund. But the sheer volume of life insurance options available may have created a unique problem: Some of us might be overly insured. That is, our insurance coverage may be wildly disproportionate to our salaries and overall net worth.

Joel Ohman, a Tampa, Fla.-based certified financial planner and founder of Insuranceproviders.com, said it’s also easy to end up with a policy that has more bells and whistles than you genuinely need.

Generally speaking, life insurance is a type of coverage that provides a payout to a selected beneficiary in the event of the policyholder’s death. This is often called the “death benefit.” Many people aim for a death benefit that includes a payout substantial enough to cover a few years of the deceased’s salary, funeral expenses and any outstanding debts.

Those with families may also want to include money to pay off a house, children’s college funds and more.

Of course, there are other options for anyone who has a large estate, want to make charitable contributions, needs special tax breaks or has other complicated financial circumstances to consider.

“Unless there are complex estate planning requirements or the insured has exhausted all other investment options, then typically the idea to use life insurance outside of a straightforward death benefit payout is a fool’s errand that will only result in a fancier car for your insurance agent,” Ohman said.

The cost of being overinsured

The difference in premiums between insurance plans can be striking, and if you’re not sure precisely what to get, it’s easy to throw up your hands in frustration. But if you simply choose a plan that may “sound right” without carefully exploring all your options, you could easily wind up paying for more coverage than you need.

Most insurance websites include insurance calculators to make it easy to figure out what your costs could be for a variety of different plans. Using State Farm’s calculator for example, a $500,000, 20-year term policy for a 30-year-old woman in Arizona is about $33 a month. Comparatively, a whole-life policy is $460 a month. That’s a difference of nearly $5,000 a year.

In Hamilton’s case, she realized she was paying thousands of dollars more for insurance than she needed to. In 2016, she converted her $1 million whole-life policy into a $500,000 universal-life policy.

“That cut my budget down by almost $10,000 a year,” she said.

John Barnes, a certified financial planner and owner of My Family Life Insurance, said those cost savings can be important for families.

“My take is, you can be doing something else with that money,” he said. “Families today are squeezed. I’m not about to overextend them, I’m going to get them the right amount.” The additional savings, he said, could go toward retirement, college tuition or other financial need.

Ohman said that a simple term-life policy is a great way to get inexpensive insurance that will still take care of most families’ needs.

“When people are looking for pure life insurance, they want to protect their loved ones if something should happen to them, and they want them to be financially taken care of in a worst-case scenario,” he said. “Ninety-nine percent of the time, then, that cheaper term life insurance product is going to be the best fit.”

Chris Acker, a chartered life underwriter, chartered financial consultant and independent life insurance broker in Palo Alto, Calif., said he almost always recommends term-life insurance to his clients, particularly young families.

“If you’re talking about people in their 30s,” Acker said, term insurance “is hands down the best way to go.”

That’s because it’s an inexpensive way to get insurance that provides coverage for your entire family. Plus, you can always get additional insurance later. But he cautions against applying one piece of advice across all situations.

“The bottom line is, there’s no right answer,” he said. “No two cases are the same.”

Types of life insurance

There are two main types of life insurance: Term insurance and permanent insurance. When consumers typically think about life insurance, they are looking for an option that will provide their families with financial stability if the unthinkable happens. If you work full time for a company, it’s possible that your workplace has a some type of life insurance policy, often equal to one year of the employee’s salary.

But some experts recommend that families purchase their own insurance plan outside of their employer because employer-sponsored life insurance typically falls short of their family’s actual needs.

Permanent insurance does exactly what the name implies: It provides lifelong coverage. In addition to the death benefit also provided by term-life insurance, permanent insurance also accumulates cash value. But with that added benefit comes pricier premiums.


Whole Life


Variable life


Universal life


Variable universal life

Whole life is the most common type of permanent insurance. With a whole life policy, the premium never changes. Part of the premiums goes into a savings component of the policy, which builds cash value and can be withdrawn or borrowed. That cash value also has a guaranteed rate of return.

Variable life offers the same death benefit, but allows consumers the option to seek a better return by allocating premiums to investments like stocks and bonds.

Universal life lets you vary your premium payments and gives a minimum death benefit as long as the premiums are sufficient to sustain it.

Variable universal life insurance is a sort of mix between variable and universal life, meaning consumers can vary premium payments and can also allocate them among investment subaccounts.

Best for: Those who want a policy that offers cash value and stable premiums. There are also tax advantages to this type of policy.

Best for: Those who want the same advantages as a whole-life policy, plus the option of allocating premiums toward different stocks and bonds.

Best for: Those who want the same advantages of any permanent policy with the option of varying premium payments. For example, those who may want to start with a lower premium that increases as their finances do

Best for: Those who want the option to vary premium payments, but also the option to allocate those payments toward different stocks and bonds.


Term-Life Insurance

Term-life insurance provides coverage for a specified amount of time — let’s say 15 or 20 years. Customers pay a premium each month and are covered through the specified term. This is typically the cheapest insurance option.

Best for: Those whose need for coverage will disappear or change at some point, like when a debt is paid or children reach adulthood and go to college. Also good for those looking for a low-cost option.

Even within term- and whole-life insurance, there are additional products you could be offered, like mortgage life, return of premium (in which your premium is returned if you outlive your initial term) and final expense (which covers just funeral expenses). There’s even an option that would provide lifetime protection for your estate upon your death. With all the available options, it’s easy for the costs to add up.

Tips to choose the right life insurance

Use a life insurance calculator. Wealthy families, those with special-needs family members and others in unique situations will also have different insurance needs. Most insurance websites offer calculators to help consumers decide how much coverage to take. The consumer website lifehappens.org also offers step-by-step guidance on choosing insurance, along with a needs worksheet.

Get multiple free quotes. Consumers can also get free quotes from multiple insurers from sites such as My Family Insurance, InsuranceProviders.com and http://myfasttermquotes.com/, which are independent-agent sites for Barnes, Ohman and Acker. Keep this in mind: Getting a quote doesn’t obligate you to work with a particular company or insurer.

Choose the right advisor. It’s also important to understand that hiring an insurance agent or financial planner is just like any other relationship: You want someone who works best for you and inspires comfort. Hamilton said she not only interviewed potential reps this last go-around, she also requested references and asked them about their company philosophy before making a decision. LifeHappens suggests that consumers use referrals to find an insurance provider.

Seek out independent agents. When it comes to actually choosing an agent or financial planner, Ohman suggests looking into independent agents that aren’t tied to a particular insurance company. That’s because a “captive” agent can only recommend those products that his/her company provides, whereas an independent agent can recommend any number of companies. That doesn’t mean they don’t have your best interests in mind, just that they aren’t able to provide customers with options outside their company offerings.

“The only products that they know about, the only products that they’re even allowed to bring to your attention,” Ohman said, are “their own products.”

Understand what it means to be a fiduciary. Another thing to consider is whether the company or adviser you’re working with is a fiduciary. “One of the big advantages you get with working with an insurance agent who has that CFP designation is that they are supposed to be working as a fiduciary, which means they put your financial interests first,” Ohman said.

Those who hold a CFP designation like Ohman are expected to provide fiduciary care to their clients. It’s also perfectly OK to ask your agent if he or she is, in fact, a fiduciary.

By the way, this doesn’t mean that other agents can’t or won’t provide clients with the type of insurance that works best for them. But don’t hesitate to ask if they’re paid on commission and whether a bonus or trip is tied to a particular transaction.

Check the insurance company’s ratings. Once you get a recommendation, he says, make sure the company has at least a A rating or better from independent agencies that rate companies’ financial strength. There are four independent agencies that provide this information: A.M. Best, Fitch, Moody’s and Standard & Poor’s. Do your research and find the ratings from each of the four agencies, because some companies may highlight a positive rating from one agency and play down a lower rating from another agency.

Trust your gut. Barnes said regardless of whom you choose to represent your insurance needs, make sure you have a level of comfort.

“Don’t be discouraged, there are some great independent agencies,” he says. “If it doesn’t feel right during the process, trust your gut.”

That means continuing to be open-minded, but also not allowing yourself to purchase an insurance product you don’t want or can’t afford. During that first meeting or so, Barnes says the agent should spend time getting to know you and your situation without necessarily trying to sell you on a product.

Similarly, Acker says it’s OK to question your agent to make sure you’re getting the best policy for your needs and lifestyle: “Don’t be bullied into buying what someone else says you should buy.”

For her part, Hamilton says she also looked into whether companies were commission- or fee-based. That’s because a fee-based company will charge a set rate, which can ease the worry of having an overzealous rep who may offer expensive products to boost his or her commission.

Because many good policies also offer a conversion option, you’re not “stuck” forever with something that doesn’t actually work for you. That means you have the option to change policies, as Hamilton did. Some consumers also choose to buy additional policies down the road.

But, and this is key, you shouldn’t let uncertainty or the fear of overpaying keep you from getting at least a simple policy.

“Think about today — the immediate need; protect that right this second,” Acker says. “Then that gives you time to work on your financial planning. Then you can figure out if you want to keep the insurance.”

Crystal Lewis Brown
Crystal Lewis Brown |

Crystal Lewis Brown is a writer at MagnifyMoney. You can email Crystal here

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Do You Really Need Pet Insurance?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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More pet owners are buying insurance to cover the cost of accidents, illness and routine checkups, but that hasn’t made it any easier to decide if it’s really worth the extra expense or not.

Nearly 1.8 million pets were insured in the United States and Canada in 2016, which is an 11.5 percent increase from 2015, according to the North American Pet Health Insurance Association (NAPHIA).

Still, that represents a mere fraction of the estimated 400 million pets living in U.S. households today.

One factor holding pet owners back from investing in an insurance plan for their pet could be cost. Annual premiums for coverage can range from $163 (accident-only coverage) to $496 per pet (for a plan that covers both accidents and illnesses), according to the NAPHIA. Those costs can become much higher depending on the age of your pet, type of animal and where you live.

It’s also common for pet insurance plans to come with deductibles, so pet owners could easily still face hefty medical bills even with insurance.

With the increase in how much Americans spend on their pets — from $60.28 billion in 2015 to $66.75 billion in 2016 to an expected $69.36 billion in 2017 — as well as insurers offering coverage, it’s important to determine if insurance is a smart financial option for your furry friends.

What Pet Insurance Covers — and What It Doesn’t

Depending on the insurer and how much you’re willing to pay, you can get several different tiers of coverage for a pet.

The most basic plans offer one or the other: wellness visits or accident-only coverage (similar to a catastrophic health care plan for us humans). At a more comprehensive level, plans can cover illnesses and wellness visits as well as routine checkups. Prices also vary based on what type of pet you have.

For example, Nationwide offers a comprehensive dog insurance plan that covers wellness exams and visits, accidents, hereditary conditions, chronic conditions, and pay back up to 90 percent on some veterinary bills. The price starts at $65 per month or $780 per year. You can pay less and get less coverage.

Their so-called “major medical plan” covers accidents and illnesses but doesn’t offer coverage for wellness exams. The plan starts at $35 per month.

And at the bottom rung of coverage is a wellness plan starting at $18 per month and offering basic coverage for things like flea and heartworm prevention and vaccinations.

It make take time, but it’s important to comparison shop between different pet insurers before you decide on a plan. Sites like petinsurancequotes.com offer ways to compare insurers and plans.

What pet insurance doesn’t cover

While pet insurance can cover many emergencies, the type of plan you purchase will determine if the insurance pays for medical care beyond accidents. Wellness visits and vaccines are not covered by Trupanion, for example, which insures only cats and dogs. Grooming and nail trimming are not included in Nationwide’s wellness package.

While it’s now law that insurers can’t deny humans insurance based on pre-existing conditions, the same perk isn’t enjoyed by pets. Pet insurers such as Trupanion and Nationwide do not cover pre-existing conditions that the pet had before coverage began. Nationwide limits coverage for hereditary disorders by breed — such as cardiac arrhythmia in Boxers — in some plans, but offers full coverage for those conditions in its comprehensive Whole Pet with Wellness plan.

For this reason, the best time to purchase pet insurance is when the pet is young because there is little chance of pre-existing conditions. The average age of insured cats and dogs was 4.86 years in 2016, according to NAPHIA.

When Pet Insurance Makes Sense

In 2016, Americans spent $66.75 billion on pets, according to data from the American Pet Products Association. Of that, Americans spent $14.71 billion on pet supplies and over-the-counter medicine and $15.95 billion on vet care alone.

“Now people are demanding more for their pets,” says Dr. Simon Platt, a veterinary neurologist and professor at the University of Georgia College of Veterinary Medicine.

Insurance appeals to pet owners who prefer to pay a monthly cost for future health expenses instead of doling out hundreds, or even thousands, of dollars when care is needed.

When Destin Miller’s mixed border collie, Ozil, had gastric problems, her pet insurance from Trupanion covered $320 of the $350 bill for medication, fluids, blood work, and 24 cans of special dog food. The $30 that Trupanion did not cover were the dog’s two exams.

“They were all approved … extremely quickly,” says Miller, 23, a graduate student at the University of Georgia in Athens, Ga.

Miller says it is easier for her and her fiancé to pay about $80 per month in pet insurance because she knows it could help cover greater expenses when her dogs are sick.

“It’s a nice safety net,” she says.

In 2016, the average claim amount paid for accident and illness plans was $263 in the United States, according to the NAPHIA 2017 report.

When deciding whether or not to purchase pet insurance for your animal, there are several factors to consider other than cost:

  • Breed: Know the risks and medical conditions associated with your breed, such as if your dog is likely to have diabetes, to determine if it will be covered or if the level of coverage will be enough for your pet’s care now or in the future. Also, if you have a purebred or pedigree dog or cat, it may have inherited medical conditions that could be considered high risk and too expensive to treat.
  • Age: Typically, your pet needs to be at least eight weeks old to be covered, according to NAPHIA. But you also don’t want to wait too long to get coverage because your pet may be too old for a company to insure because of the potential for high costs of care with age.
  • Waiting period: For most policies, you will need to wait 10 to 30 days for the insurance to kick in, according to NAPHIA.
  • Number of pets: Some insurers may limit the number of pets you can insure, particularly if they are considered “high risk,” according to the American Veterinary Medical Association (AVMA). But others may give you a discount if you are insuring more than one pet.

How much should I pay for pet insurance?

Insurance companies provide a variety of plans. Pet insurance can vary due to different factors such as species, geographic location, age and gender.

Don’t simply purchase the plan with the cheapest premium. Look at the deductible as well, because that’s how much you’ll have to pay out of pocket before your insurance kicks in. You should also consider how much you are paying for your pet’s care today and how much care you anticipate your pet will need in the future. Paying for a more expensive plan may be worth the money if you make several visits to the vet each year.

Trupanion allows its customers to choose their own deductible from $0 to $1,000, which allows pet owners to choose a premium that works with their budget, says Emily Coté, director of customer marketing for Trupanion, a Seattle-based pet insurer.

For example, Nationwide offers these examples: Coverage for a small mixed-breed puppy, under the age of one and located in San Diego, Calif., could cost $17.75 a month for a Wellness Basic plan from Nationwide or $49.94 per month with Nationwide’s Whole Pet with Wellness plan. Nationwide, after an annual $250 deductible, will pay up to 90 percent of all accidents.

For a kitten under the age of one, the Wellness Basic plan would cost $12 a month, and Nationwide’s Whole Pet with Wellness plan would be $35.25.

“People want that peace of mind,” Coté says. “It’s easier to budget that monthly amount and not have to make medical decisions due to finances.”

Where to shop for pet insurance

While pet insurance has been in the United States for about 35 years, the awareness and interest is much smaller than their European — most specifically British — counterparts, say insurers and veterinarians.

Platt says when he worked in the United Kingdom, he would fill out three to four insurance claim forms a day. Platt says he has filled out only three to four claims while living and working in the United States the past 11 years.

“I now see some major household insurance names offering it,” he says.

Shop around and compare rates. More than a dozen companies offer pet insurance, with some under brands and entities with names like Pet Protect and Nuzzle, based on a list of NAPHIA members and a list of companies compiled by the AVMA. Providers include major home, auto and life insurers, such as Nationwide and Geico, while some companies, such as Trupanion, PetFirst, and Healthy Paws, specialize in insuring animals. It’s important to get quotes from insurers and compare coverage yourself to make sure you’re getting the best rate.

Free trials from pet shelters. Pet shelters also sign up owners for insurance, typically by offering a free trial for the first 30 days. However, after the trial, you could be charged unless you cancel the policy. Discount membership clubs, such as Sam’s Club with PetFirst Pet Insurance, also offer pet insurance.

Your employer. Some companies, such as Deloitte, Microsoft, and Chipotle Mexican Grill offer pet insurance as an employee benefit. See if your employer offers a policy.

 

Marena Galluccio
Marena Galluccio |

Marena Galluccio is a writer at MagnifyMoney. You can email Marena here

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6 Career Strategies for People Who Are Coping With Depression

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Jana Lynch was 27 years old when she was formally diagnosed with depression. The illness wasn’t severe enough for her to start seeking regular treatment until eight years later, when a panic attack at work sparked a series of events that changed her career — and her finances — forever.

At the time, Lynch was working full-time for a social service agency. “Not only was my anxiety and depression through the roof, making it hard to get out of bed, concentrate on tasks, meet deadlines, communicate with coworkers, and remember meetings, but the nature of my job made it a dangerous environment for my mental health at the time,” she says.

Rather than resign outright, she decided to take a four-month leave on short-term disability. A break, she thought, might help. But when the time came to return to work, the same issues began to surface again. In the end, she chose her mental health over working full time.

“Looking back, it was a terrible choice because of the impact on my long-term personal finances,” she says. “But in the moment, it was the best decision for me and my family.”

Lynch’s story is not unique. In a 2004 study that followed workers over the course of six months, researchers found workers with depression dropped out of the workforce at a rate of 12 percent compared to only 2 percent of their peers.

While depression may force affected workers out of active employment at higher rates, it is also true that those who become unemployed are more likely to show signs of depression — three times more likely, according to a 2010 NIH study.

Thomas Richardson, a leading researcher at Solent NHS Trust, one of the largest community providers in the UK’s National Health System, notes that there is most definitely a correlation between unemployment and depression, but that causation is not as easy to pin down.

“In research such as this it’s always a case of chicken and egg: Which came first?” he says. “A lot of research is only at one time point, so it’s hard to say which came first.”

Some research shows losing your job impacts depression because it makes it hard to cope financially, but other studies suggest it has little impact.

“I think it probably works both ways and is a vicious cycle,” Richardson continues. “Someone becomes depressed, struggles at work, and loses their job. This then exacerbates their depression further.”

6 Strategies to Manage Depression and Work

Abigail Perry, author of Frugality for Depressives, had already been formally diagnosed with depression as a part of a bipolar disorder when unrelated chronic fatigue forced her out of traditional employment.

“I thought I’d be nothing but a burden for the rest of my life,” says Perry. “I wondered who would ever want someone who couldn’t pull her own weight financially, and I became suicidal. A lot of therapy and medication management doctor visits later, I finally started believing that I might have worth despite not being able to work.”

Those struggling with balancing their career and depression need not lose hope.

Richardson notes that many are able to develop coping strategies, allowing themselves to stay in the workplace. He’s developed six key strategies that his research has revealed to be helpful to workers with depression.

1. Intentionally look for work you enjoy.

“Try and do a job you enjoy or are interested in,” Richardson encourages. “If not possible, then try and focus on those bits of your job you do enjoy.”
Allyn Lewis, lifestyle blogger and storytelling strategist from Pittsburgh, Pa., has learned this technique through the course of building her business.

Diagnosed with a depression that was further fueled by her father’s suicide when she was a teen, Lewis never truly entered the traditional workforce, but has found self-employment to suit her disability.

Her motivating enjoyment comes from the community-based aspect of her business.

“Telling my story and talking openly about my anxiety, depression, and the loss of my dad is what keeps me active in my career,” says Lewis, 26. “That might sound strange, but when I keep my mental health journey to myself, it feels like it’s all about me. And if I’m having a down day, week, or month, what’s it matter if I do the work or get the things done? But, by talking about my mental health and using my own story to raise awareness, it makes it something that’s much bigger than myself.”

2. Don’t push yourself too hard.

“Don’t push yourself too hard at work,” says Richardson. “Acknowledge when you are struggling. It’s best to slow down early on than to keep going until you crash.”

Lewis learned this lesson through experience.

“Back in the day when I owned my own public relations firm, I would take on any client, under any circumstance, for any amount of money, and I’d make any accommodation or request they asked for. I ended up overbooked, underpaid, and at a point that was way beyond burnt out,” Lewis says.

“I kept trying to push my anxiety and depression aside to pretend like it wasn’t getting in the way, but the best thing I ever did was starting to tune into what my mental health was telling me. Only then was I able to shift into a business model that worked for me.”

3. Ask for help — and know your rights.

Richardson recommends going to your manager or supervisor for access to resources when your symptoms become too much to bear. If you work at a larger company, it may be more appropriate to get in touch with your human resources department.

This can seem intimidating, as you don’t want to give your superiors any reason to question your work ethic or your ability to provide value to the company.

But Perry, who now works full time in a remote position, notes that depression is covered by the Americans with Disabilities Act (ADA). This means your employer cannot fire you because of your disability — in this case, depression — and that they have to provide reasonable accommodations in order to allow you to do your job.

“Even if you don’t ask for accommodations, you need to make it clear that your absences or other work difficulties are based on a real medical condition,” Perry says. “Imagine being a supervisor with an employee who takes a lot of sick days, or may be easily agitated by interpersonal interaction or additional stress. In a vacuum, that’s a problem employee. Understanding the context, that’s someone who is doing their best to be a good employee despite a disability.”

4. Keep a healthy perspective on your career goals.

“It’s easy in a career to focus on goals, but this makes you vulnerable to depression,” says Richardson. “If you don’t get that promotion it might really impact you and lead to self-critical thoughts which fuel depression.”
He recommends instead harkening back to why you enjoy your work and the current position you’re in.

Lynch, who currently works as a freelance writer and editor, relates to the depression that can be felt when career expectations aren’t met.
“I try hard not to get angry at myself if I didn’t do as much as I’d like, or if my inbox isn’t bursting with inquiries,” says Lynch, “which is hard to deal with when you like to work and tie your work to your self-worth. But depression makes it difficult to look for clients. It’s a horrible, vicious cycle that I deal with only by telling myself this is temporary. It will get better at some point.”

5. Nurture hobbies and social contacts.

Lynch and Lewis both note exercise as a way of sustaining a healthy hobby. Lewis teaches yoga, and Lynch regularly attends a gym. While not the primary goal, a side effect of going to the gym or studio happens to be spending time with other people of similar interests.

Nurturing hobbies and maintaining social contacts are important from Richardson’s research — even if doing so initially feels overwhelming.

6. Practice mindfulness.

Finally, Richardson recommends practicing mindfulness, even when you’re not in the throes of depression. Emerging research suggests that mindfulness may not only alleviate depression, but could prevent relapses.

Richardson has produced a free mindfulness resource, which can be accessed here.

Depression and Your Finances

Career and finance often go hand in hand, so it’s no surprise that the ripple effects of depression can often extend into your finances as well.

By understanding and confronting these challenges head-on, there are strategies you can use to protect your finances as you learn to manage depression.

In a recent study published in the British Psychological Society’s Clinical Psychology Forum, Richardson studied people with bipolar disorder as they were going through a depressive episode. During these episodes, he found four key ways that their finances suffered.

Missing bills

Lynch notes that before she set up automatic payments, she would have trouble remembering pay upcoming bills. She’d get her statements, but ignore them. This led to unnecessary costs like late fees.

Richardson’s study finds that this behavior is typical for depressives. It found that missing bills was a financial manifestation of avoidant coping behaviors. In order to avoid being late on charges you may not know or remember exist, it’s important to get in the habit of confronting  through that pile of mail as you establish the habit of paying through automation.

Poor planning

“It can be harder to keep track of your finances when things get tough,” relates Perry. “Monitoring spending, keeping up with due dates — it’s exhausting even in good conditions. If you spend more because of depression, or if you simply don’t keep as close of an eye on things, your budget could take a big hit.”

Perry’s insights are congruent with Richardson’s findings. Those with depression have a harder time completing tasks like budgeting because planning ahead is made more difficult. The study also revealed that rational thinking and the ability to remember past purchases in order to log them into a spreadsheet were impaired.

Comfort spending

Perry says that when you’re depressed, you’re more likely to get caught up in comfort spending.

“This could be anything from convenience or junk food, which adds up, or going out for drinks, dinner, or entertainment. Alternately, you may be more likely to spend money on things that you think will make you happy or comforted — from convenience gadgets to home décor to clothes.”
Richardson adds the example of being overly generous with one’s family as an example of comfort spending.

Compounding anxiety

Richardson’s study finds that financial stress compounds anxiety and depression. This stress leads to more dire mindsets, like extreme anxiety and hopelessness.

“As a business owner, there’s always so much pressure around profit,” says Lewis. “Even when you’re up, you never know how long it will last, so you have to keep hustling. When I’m going through a period of depression, this puts me in a cycle of ‘I’m never making enough,’ which is a thought that likes to pair itself with ‘I’m not good enough.’ Depression has a sneaky way of switching my mindset from one of abundance to one of scarcity.”

Lewis’s reports of low self-worth are also common, according to Richardson’s work. Self-criticism over “economic inactivity” was detected in study participants.

Seeking Mental Health Care

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For help developing more coping strategies or getting resources that can help you manage your depression, consider seeking out mental health care services.

“I think all depressives — especially ones who aren’t on medications — should have therapists,” says Perry. “It may take a few tries to find someone you work well with, but then that person will be a great lifeline. Therapists can help you deal with the things that depression makes harder with strategies, workarounds, or just working through past events that are contributing to or causing your current depression.”

Therapy and medication management specialists can be expensive, though. Many regions in America face a shortage of mental health care providers, and the matter is further complicated when you consider that some providers may be out-of-network, bringing copays up even if you are currently insured.

Related article: 5 ways to find lower the cost of therapy

If you can’t figure out how to fit these services into your budget, seek out therapists who offer sliding-scale payment options based on your income. Another affordable resource is public mental health care clinics, though their availability may be limited.

If you have insurance and don’t immediately need medication, keep in mind that a mental health care professional may not have an M.D. or Ph.D. after their name. Licensed Clinical Social Workers (LCSWs) and other counselors often accept insurance and are able to provide therapy, referring you out to a psychiatrist for prescription needs when necessary.

Lynch did seek therapy and go on medication for a while, though she now leans on other coping mechanisms such as avoiding triggers and exercising regularly.

“I recommend it if you feel you need it,” she says. “There is no shame in getting whatever kind of help you need.”

Today, Lynch operates from a place of acceptance. Depression is a part of her life that she has learned to deal with. While she doesn’t categorize herself as what we would consider classically “happy,” she does consider herself to be as content as possible, and actively seeks out happiness within her circumstances.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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5 Smart Ways to Lower the Cost of Therapy

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Sasha Aurand has had to scramble for four years to find high-quality mental health care she can afford on her salary from running a website on psychology and sex.

The 25-year-old New Yorker suffers from post-traumatic stress syndrome, depression, and anxiety, and has no health insurance.

“So I’ve always had to find other solutions,” she tells MagnifyMoney. Aurand originally sought help for these conditions while still a college student in Indiana. But after the school’s counseling center referred her to a private practice she couldn’t afford, she researched, asked around, and found a community health clinic where a therapist helped her for $20 a visit.

After graduating from college, Aurand moved to New York, where she briefly had health insurance, enabling her to see what she describes as a “phenomenal psychiatrist” for depression medications. But her insurance ended, and she could no longer afford the psychiatrist’s $350/hour fee.

Aurand is not alone, having to be resourceful finding doctors and therapists in her price range. According to the 2016 State of Mental Health in America report, one out of five American adults with mental illness report they are unable to get the treatment they need, often due to cost. And with an uncertain health care climate in Washington, the challenges are unlikely to ease soon.

Although the Senate failed in its recent attempt to repeal the Affordable Care Act — an effort, says Colin Seeberger, strategic campaigns director for Young Invincibles, “that would have allowed states to opt out of the ACA’s essential benefits, such as substance abuse and mental health coverage” — there’s still some instability in the insurance markets as a result.

In such a confusing environment, how can you find the help you need at a price you can afford?

Here are a few options if you’re looking for affordable therapy options:

1. Work with a therapist-in-training

If you live near a university with a graduate psychology program, it most likely has an in-house clinic. You can see a trainee at one of these clinics for a reduced fee. Yes, the therapists are students, but each one is closely supervised by a seasoned, licensed professional.

Pros: “Because the therapists are still in school, they’re up to date on the latest developments in psychology,” says Linda Richardson , Ph.D., a psychologist who works with the National Alliance on Mental Illness in San Diego. “You’ll also have the advantage of two heads being better than one.”

Cons: Most trainees work at these clinics for a year or less. If you find someone you like, they’re eventually going to leave.

2. Don’t be afraid to ask about sliding scales or reduced cash fees

After losing her insurance, Aurand went back to her $350/hr psychiatrist and “explained the situation and asked if there was anything she could do,” she says. The psychiatrist agreed to see Aurand for $100 a visit as long as Aurand paid in cash. Aurand now sees the doctor every three months.

Many therapists offer a sliding scale based on a patient’s income. If you find a therapist you like, let him or her know your financial concerns and inquire about paying a lower fee. Another option is to check out Open Path Psychotherapy Collective, a nonprofit that lists therapists who offer a few weekly sessions at a lower rate. There’s a one-time $49 fee to join the collective; therapists in the collective charge $30 to $50 per session.

Pros: With a sliding scale, you get all the benefits of good, one-on-one therapy at a lower rate.

Cons: If you don’t reassess the financial arrangement occasionally, says Erika Martinez, a psychologist in private practice in Miami, Fla., “a therapist can become resentful or frustrated with a client,” especially if your income rises. To avoid this, discuss payments every few months to see if an adjustment is needed.

3. Consider group therapy

According to the American Psychological Association, group therapy works as well as individual therapy for many conditions, such as depression, PTSD, and bipolar disorder — and for a fraction of the price. Martinez, for example, charges $150 an hour for individual therapy but only $65/hour for a group session.

Pros: There’s a lot of power in knowing you’re not alone. “When you share about your struggles in group where others have the same concerns, and you feel their empathy, that’s incredible,” says Martinez.

Cons: Some people aren’t comfortable speaking about emotional issues in a group. Also, you have to share the therapist’s attention with others.

4. Try online services & therapy apps

There are many online tools, including Breakthrough.com and Betterhelp.com that offer individual therapy sessions with licensed therapists over the phone or via a secure, HIPAA-compliant video for considerably less than an in-office visit. Rates vary, but if you search, you can find someone affordable.

Several California-based therapists (among the most expensive in the nation) on Breakthrough.com, for example, offer sessions for as low as $55 an hour. A note of caution: Choose someone licensed in your state. In case of an emergency, a therapist can only help secure needed services if you’re in the same state.

Pros: You can get high-quality, one-on-one therapy without ever having to leave your home, office, or pajamas — and at a reasonable cost.

Cons: Insurance often doesn’t cover phone or video sessions. “Also, you can’t fully see the nonverbal language of the therapist,” says Martinez. “And the Internet connection can be bad.”

Better Help App. Source: iTunes

Therapy apps — which allow you to text or chat with a licensed therapist — are becoming increasingly popular. Among the many available are Betterhelp.com, Talkspace.com, and iCounseling.com. Studies in both The Lancet and the Journal of Affective Disorders have shown that online therapy is an effective way to get help, and many services start for as little as $35 a week.

TalkSpace app. Source: iTunes

Pros: You can get help anytime, anywhere, even while sitting in a business meeting or on the subway. Also, it’s a good option for people afraid to walk into a therapist’s office.

Cons: Chat and text therapy, which are not covered by insurance, are inappropriate if you’re feeling suicidal or have severe mental illness. And some people find the technology alienating. “I tried one of these apps a few years ago,” says Aurand, “ and I just missed the human interaction of seeing a therapist in person.”

5. Tap into community resources for free or discounted counseling

You can find psychological and psychiatric care at public mental health clinics, which offer services for free or on a sliding scale, based on your income. Organizations devoted to helping survivors of sexual assault and domestic abuse also offer a wide range of services, including free counseling. And religious organizations, such as Jewish Family Services, often offer therapy on a sliding scale. The best way to find resources in your community, says Richardson, is to dial the information hotline, 211, on your phone or look online at http://www.211.org.

When her PTSD flares up and she needs to talk to a therapist, Aurand supplements her psychiatrist visits by going to a community health clinic, the Ryan/Chelsea Clinton Community Health Center, which offers a sliding scale based on her income and charges $100-$125 a session.

Pros: You can find good care for low or no cost.

Cons: The demand at public health clinics is huge, and staffs are often overwhelmed. “There can be long waiting lists, especially for individual counseling,” says Richardson. “You may have better luck if you’re willing to join a group, such as anger management, that fits your needs.”

The bottom line

When it comes to finding affordable mental health care, persistence is the key. “It can be really daunting, especially if you’re not feeling well or don’t have insurance and think you can’t get help,” says Aurand. “But if you take the time and do your research, you’ll find someone who wants to help you. There are a lot of good therapists and psychiatrists out there, and it’s not necessarily all about the money.”

Laura Hilgers
Laura Hilgers |

Laura Hilgers is a writer at MagnifyMoney. You can email Laura here

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Health

What Does Medicare Really Cover?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Approaching retirement and curious to know how you’ll handle health care expenses? Medicare will likely play a role in helping you mitigate those costs in your golden years.

The federal government offers Medicare as an insurance program for permanently disabled Americans and those 65 or older. The Social Security Administration is responsible for funding the program, and most of its funding comes from a Medicare payroll tax you might have noticed on your pay stubs (it ranges from 1.45% to 3.8%, depending on your employment status and income level).

But what does Medicare actually cover? Read on for a quick overview.

Who’s Eligible for Medicare Coverage?

The majority of working Americans become eligible for Medicare coverage when they turn 65. You may also qualify if you’re younger and have been disabled for at least two years and receive Social Security benefits, if you receive kidney dialysis treatment, or if you are in end-stage renal failure.

In most cases, you’re automatically enrolled into Medicare once you start receiving Social Security payments. You need to opt out if you don’t want the coverage.

John K. Ross IV, an elder law attorney and partner at Ross & Shoalmire with multiple offices in Texas says eligibility is straightforward because it’s simply based on age. But the program does become much more complicated when you start digging into the details of what specific benefits make the most sense for you.

“Retirees need to make decisions around whether they’ll choose the traditional Medicare program versus Medicare Advantage,” he says. He adds that disputing Medicare’s coverage refusals is something most participants in the program will deal with at some point.

How Do You Enroll in Medicare Coverage?

You’ll be automatically enrolled into Medicare if you:

  • Already receive Social Security benefits
  • Are under 65 and are disabled, or have ALS
  • Receive benefits from the Railroad Retirement Board

But you need to sign up for Medicare if:

  • You don’t get Social Security benefits (which could be the case if you’re 65 or older but still working)
  • You have end-stage renal disease

If you need to manually apply, you can do so online here. You also have the option of going to your local Social Security office or calling to apply at 1-800-772-1213.

The Basics of What Medicare Really Covers (and What It Doesn’t)

The main part of Medicare is broken down into two parts: A and B.

What Medicare Part A Covers

It covers several broad categories of hospital care and services you receive while hospitalized.

That includes:

  • Hospital care limited to 90 days each benefit period and a lifetime reserve of 60 additional days for those who exhausted the initial 90 days coverage
  • Skilled nursing care
  • Home health services
  • Care in hospice for those with a life expectancy of less than six months

You can receive this coverage for free as long as you paid at least 10 years into Social Security.

“If you’re not eligible for free Part A coverage, the cost in 2017 is $413 per month if you paid into Medicare for less than 30 quarters while working,” says Desmond Henry, CFP® and founder of Afflora Financial Life Planning. “It costs $227 per month if you paid in between 30 and 39 quarters.”

What Medicare Part B Covers

Medicare Part B covers doctor’s visits and outpatient care. This can include medical equipment and physical therapy. It may cover some preventive care services, too, like screening for certain diseases including cancer and glaucoma.

Here’s a full list of what Part B provides for:

  • All outpatient services
  • Doctor’s visits and home health visits that don’t require a hospital stay
  • Medical equipment
  • Clinical research
  • Ambulance services
  • Durable medical equipment
  • Mental health and preventative services
  • Second option prior to surgery
  • Limited outpatient prescription drugs and drugs that cannot be self administered
  • Diagnostic tests

The costs for Part B are more complicated than Part A. “The standard Part B premium for 2017 is $134 per month, but this may be higher based upon your income level,” says Henry.

And as important as it is to understand what Medicare really covers, it’s also essential to know what the program does not offer to those on the plan.

“Medicaid does not pay for long-term care such as in-home sitters services, and assisted living and nursing-home costs,” says Ross.

Henry goes into even greater detail. “Medicare won’t pick up the tab for hearing aids, eye exams and glasses, and dental care,” he says.

Henry explains other services like cosmetic surgery and alternative medicine get excluded from coverage, too. “People don’t typically realize that Medicare generally does not cover medical expenses when you are outside the United States or territories, either,” he adds.

What Medicare Part C Covers

Medicare coverage gets more complicated when you look at additional parts of the program. There’s also Medicare Part C, which is also known as Medicare Advantage Plans.

Whereas Medicare is a program offered by the federal government, private insurance companies offer coverage with Medicare Advantage Plans (which the government still regulates).

Medicare Advantage must provide services that are comparable or “equivalent” to what’s covered by Medicare Parts A and B. Some Part C plans offer more services not included in traditional Medicare, including prescription drug coverage.

That might help you get the coverage you need if Medicare Parts A and B aren’t sufficient for you — but that also means there’s a huge variation between all the Medicare Part C plans available, both in terms of services provided as well as the costs of the plans.

Prices also depend on the state you live in, the provider you choose, and whether you choose an HMO or PPO plan. eHealthInsurance has a tool that can help you compare a variety of Medicare Advantage plans to see which one may work best for you.

Don’t Forget About Medicare Part D

Parts A and B of Medicare provide for both hospital care as well as outpatient services and doctor’s visits — but it doesn’t cover prescription drugs. That’s where Medicare Part D comes in.

Part D plans are also offered by private insurers and are separate policies from Medicare Parts A and B. Just like Part C coverage, Part D plans vary widely in what they cover and their costs.

What’s the Future for Medicare Under the Trump Administration?

The White House and Republicans in Congress have promised to repeal the Affordable Care Act and are in the process of proposing radical changes to the current health care system.

But most of the proposed changes affect Medicaid, not Medicare. There are proposals that would change the “funding mechanism” for the Medicare program, but beneficiaries are unlikely to feel those changes directly.

And there’s disagreement between the Trump administration and House Republicans over how Medicare should be handled moving forward. Trump has merely said he wouldn’t cut the program.

But Speaker Paul Ryan has talked about making the following changes:

  • Introducing exchanges to Medicare, allowing cartier jewelry replica private insurers to compete with the traditional, government-run program.
  • Providing subsidies to help people pay their premiums, based on income.
  • Requiring insurers to offer coverage to all to ensure everyone in Medicare retained access to benefits.

Again, this is all just talk for now. The House’s initial bill to change the Affordable Care Act failed to pass, and any suggested changes are a long way from implementation.

Kali Hawlk
Kali Hawlk |

Kali Hawlk is a writer at MagnifyMoney. You can email Kali at Kali@magnifymoney.com

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Health, Life Events

The Complete Guide to Disability Insurance

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Quick quiz: What’s the most valuable financial asset you own as a young professional and a provider for your family?Here are some hints: It’s not your home. It’s not your 401(k). And it’s definitely not your car.

The answer? It’s your future income. The money you earn in the years to come will allow you to pay your bills, save for the future, and create a secure financial foundation for you and your family.

Really, all the plans you’re making both for today and the future rely on the assumption that you’ll continue earning money. Which is exactly why it’s so important to protect that income and make sure you receive it no matter what.

That’s where disability insurance comes in.

Disability insurance ensures that you’re able to continue paying your bills and putting food on the table even if your health prevents you from working for an extended period of time. By sending you a monthly check that replaces some or all of your income, it protects your biggest financial asset from those worst-case scenarios.

It’s something that just about every working parent should have, but it’s a complicated product that can be difficult to understand and get right.

So in this post you’ll learn all about how disability insurance works and what kind of policy you should be looking for.

Why You Need Disability Insurance

Disability insurance is often ignored both because the prospect of becoming disabled seems remote and because the premiums can be hard to swallow, especially for young families who are already struggling to pay for child care and all the other expenses that come with having young kids.

But extended disability is a lot more common than most people think.

According to WebMD, your odds of becoming disabled before you retire are about 1 in 3.

The leading causes of disability include:

  • Arthritis
  • Back pain
  • Heart disease
  • Cancer
  • Depression
  • Diabetes

For the most part it’s chronic illness that causes disability, not the kind of major accident that typically comes to mind. And the odds of it happening before you’re financially independent are fairly high, though there are some situations in which your personal odds may be lower.

So the big question is this: If you’re one of the 33% of people who faces an extended disability, where would the money come from to pay your bills and put food on the table? How long would your savings be able to support you, and what would you do if you needed help past that point?

Most people would struggle to make it more than a few months, which is exactly why disability insurance is so valuable. By replacing your income for potentially years at a time, it ensures that you’ll be able to continue taking care of your family no matter what.

Short-term disability insurance vs. long-term disability insurance

There are two main types of disability insurance: short-term and long-term.

Both can be helpful, but they play very different roles in your financial plan. Here’s an overview of each.

Short-Term Disability Insurance

Short-term disability insurance only offers benefits for a relatively limited amount of time. Most short-term disability insurance policies cover you for 3-6 months, though they can provide coverage for up to two years.

There is typically a waiting period of up to 14 days before the insurance kicks in to prevent it from covering minor illness and injury. After that waiting period, it will typically start to pay 50%-100% of your regular income until you either return to work or your coverage period ends.

One of the most common uses of short-term disability insurance is during maternity leave. Many, though not all, short-term disability policies cover the latter parts of pregnancy and the period after childbirth, which can help replace your income while staying home with your newborn.

Most short-term disability insurance policies are offered as an employer benefit, and in some cases that coverage may even be free. Private coverage is also an option if you aren’t able to get coverage through work, though those policies can be expensive. For example, a healthy 38-year-old male might pay a $2,300 annual premium for a $5,000 monthly benefit and 12 months of coverage.

One alternative to short-term disability insurance is building an emergency fund. A 3-6 month emergency fund would provide the same protection as a 3-6 month short-term disability insurance policy, with the added benefit of not having a monthly premium.

Long-Term Disability Insurance

Long-term disability insurance is where you typically find the most value. Because while a short-term disability could be covered by a healthy emergency fund, an extended disability is much more likely to deplete your family’s savings and put you in a difficult position unless you have some way of replacing your lost income.

Long-term disability insurance picks up where your emergency fund or short-term disability insurance leaves off. There’s typically a 3-6 month waiting period during which you would have to replace your income by other means.

But once you’re past that waiting period, your long-term disability insurance would start replacing your monthly income and would continue to do so for years at a time, as long as you remain disabled.

This is a big potential benefit. A long-term disability policy that replaces $5,000 per month in income will potentially pay you $60,000 per year for as long as you’re disable. That would go a long way toward keeping your family on the right track.

Given that potential value, it’s usually more important for families to secure long-term disability insurance than short-term disability insurance. For that reason, the rest of this guide will focus primarily on long-term disability insurance.

10 Questions To Ask When Shopping for a Long-Term Disability Insurance Policy

Long-term disability insurance is a complicated product with a lot of terms and conditions that vary policy to policy. Finding a good, independent disability insurance agent who isn’t beholden to any particular insurance company can help you secure the right policy at the right price for your specific situation.

But whether you’re looking on your own or with the help of an agent, there are 10 key features you’ll want to evaluate.

1. Your Monthly Benefit

Your monthly benefit is the amount of money your long-term disability insurance policy would pay you each month in the event of disability. And there are a few key factors that go into deciding how big a benefit you need:

  1. What are the monthly expenses you would have to cover if you lost your income? Consider the fact that you may be able to cut back on certain discretionary expenses, but also that you may have additional medical expenses in order to treat the disability.
  2. What other income sources do you have? You can factor in your spouse or partner’s income, your savings, and possibly even help from family.
  3. Would your benefit be taxable or tax-free? The benefit from an individual policy you purchase on your own would almost certainly be tax-free. The benefit you get from an employer policy would likely be taxable. The difference affects how much money you would actually have available to spend.

2. How They Define ‘Disability’

Believe it or not, there is no one way of defining disability. There are a lot of variations, but most policies fall into one of three main groups:

  • Any occupation – This is the most restrictive of the three definitions. It defines disability as the inability to perform any job, no matter what it is or how much it pays. It’s hard to qualify for benefits under this definition.
  • Own occupation – This is the broadest of the three definitions. It defines disability as the inability to perform the main duties of your current job. It’s easiest to qualify for benefits under this definition.
  • Modified own occupation – This is a middle ground that defines disability as the inability to perform a job for which you are reasonably suited based on education, training, and experience. In other words, not just any job will do. You have to be able to work in a job that fits your level of experience and expertise before benefits stop.

Understanding your policy’s definition of disability is key to understanding the protection you’re actually receiving. A big benefit with a strict definition of disability may be less valuable than a smaller benefit with a definition that’s easier to meet.

3. The Elimination Period

The elimination period is that amount of time you have to be disabled before you can start to collect your benefit.

Typical elimination periods range from 60 to 180 days, with longer elimination periods leading to a smaller premium. You should consider how long your savings and/or short-term disability insurance would cover you when deciding how long an elimination period to choose.

4. The Benefit Period

This is the maximum amount of time you would be able to collect benefits as long as you continue to meet the policy’s definition of disability.

Many long-term disability insurance policies pay out until age 65 or 67 to coincide with the standard Social Security retirement age. Other policies will only pay benefits for 5-10 years.

Longer benefit periods are more valuable, but also more expensive. You should consider the likelihood of being able to replace your income in other ways, such as transitioning to a different job, when deciding how long you’d like your benefit period to last.

5. What isn’t Covered

Most long-term disability insurance policies will exclude certain types of conditions from coverage. For example, mental health conditions are often not covered or are subject to a shorter benefit period.

Sometimes the exclusions will only last for a period of time, such as the first two years of the policy being in place. Sometimes they last for the life of the policy. You should evaluate these exclusions in relation to your personal and family health history to understand how likely you might be to run into them.

6. Premium Guarantee

Some long-term disability insurance policies are non-cancelable, which means that you are guaranteed a fixed premium until your coverage period ends. The insurance company cannot cancel your coverage and cannot raise your premium.

Other policies are guaranteed renewable, which means that the insurance company can’t cancel your policy, but they can increase the premium as long as they increase the premium for all policies across an entire class of policyholders (such as all policyholders in a given state or all policyholders in a given occupation category).

If you don’t have either of those guarantees, it means that your premium could increase each and every year and that those changes are at the discretion of the insurance company.

7. Residual Benefit

A residual benefit feature means that you could receive partial benefits if you return to work at a reduced salary.

This feature can help you build your workload over time, making for an easier and smoother transition.

8. Cost-of-Living Adjustment (COLA)

Policies that come with a cost-of-living adjustment will increase your benefit each year based on the rate of inflation. This is meant to ensure that you are able to pay for the same amount of goods and services each year, even as the cost of those things increase over time.

Some COLA riders have a maximum annual increase and/or a limited amount of time for which they are applied. For example, a policy might cap the annual increase at 3%, and it may only increase the benefit for a certain number of years before leveling off.

9. Future Purchase Option

Many long-term disability insurance policies guarantee you the right to increase your coverage in the future if your income increases, without any medical underwriting. This is a valuable benefit because it eliminates the risk that a decline in health could prevent you from getting more coverage when you need it.

10. Insurer’s Financial Rating

Finally, you should make sure that the insurer is in good financial condition. The last thing you want is to have the insurance company flake out on you when it’s time to collect.

You can look up an insurer’s rating through any of the following companies: A.M. Best, Fitch Ratings, Moody’s, and Standard & Poor’s.

The Pros and Cons of Group Disability Insurance

There are two ways you can get long-term disability insurance:

  1. Through your employer as an employee benefit (referred to as group disability insurance)
  2. On your own through an insurer of your choice

Both have their pros and cons. Here’s a breakdown.

The Pros of Group Coverage

1. Cost

Group disability insurance is often less expensive, and the premiums are typically tax-deductible. Many employers even offer a base level of long-term disability insurance coverage for free.

The lower premium can come with some negative trade-offs, as you’ll see below, but in the best cases it simply makes the insurance easier to afford.

2. No Medical Underwriting

Your ability to get group coverage is in no way affected by your current health. Eligibility is solely dependent on your employment status with the company.

This can be an especially big benefit if you have significant health issues that would make individual coverage either prohibitively expensive or impossible to get.

3. Simplicity

Group coverage is easy to get in place. All you have to do is sign up during open enrollment, choose the level of coverage you’d like, and you’re done.

The Cons of Group Coverage

1. Benefits Are Taxed

In most cases, your group disability insurance premiums are tax-deductible, and the benefits you receive are taxed. Which means that you won’t actually receive the full benefit.

So while group long-term disability insurance can be affordable on the front end, sometimes that comes at the cost of smaller benefits on the back end.

2. May Not Cover You Completely

In addition to the benefits being taxable, your employer may not offer enough coverage to meet your full need to begin with. You may need to get an additional policy if you want to be fully insured.

3. Lack of Control

Your group disability insurance policy is what it is, and you don’t have much, if any, say in the features it offers.

Sometimes this won’t matter, since the policy will have everything you want. But sometimes it will be lacking in certain areas, which could leave you with weaker coverage than you’d like.

4. Can’t Take It with You

You typically can’t take your group disability insurance coverage with you when you leave the company, and your employer could also choose to stop offering it at any time.

All of which means that you could find yourself without coverage somewhere down the line. And if your health status has declined or your next employer doesn’t offer group coverage, you may find it hard to get affordable disability insurance elsewhere.

The Pros and Cons of Individual Disability Insurance

The Pros of Individual Coverage

1. Portability

Individual long-term disability insurance policies are portable, meaning that they’re yours as long as you continue to pay the premiums, even if you change jobs. This is crucial to making sure that you always have coverage when you need it.

2. Definition of Disability

With an individual disability insurance policy, you have the opportunity to choose a broader definition of disability that increases your chances of receiving benefits. This can be particularly helpful if you work in a highly specialized field where having an own occupation definition would be beneficial.

3. Tax-Free Benefits

Individual disability insurance premiums are not tax-deductible, but the upside is that any benefits you receive are tax-free. This ensures that you get as much money as possible when you really need it.

4. Control over Other Features

You have a lot more control over all the policy features when you buy individual coverage. You can often pick and choose whether you want residual benefits, cost-of-living adjustments, and the like, allowing you to customize your coverage to your specific needs.

The Cons of Individual Coverage

1. Cost

Individual disability insurance is typically more expensive than group coverage, particularly if you have pre-existing medical conditions or you work in a high-risk occupation.

While it can vary greatly depending on the specifics of your circumstances, a reasonable rule of thumb is to expect $2-$2.50 in monthly benefits for every $1 in annual premium.

2. Complexity

Long-term disability insurance is a complicated product, and unfortunately, it’s hard to shop around and get a true apples-to-apples comparison of policies.

Your best bet is to look for a truly independent disability insurance agent who isn’t tied to any particular insurance company, and who can guide you through the process and help you understand the pros and cons of the various policies offered by different companies.

3. Medical Underwriting

Applying for individual long-term disability insurance includes a medical exam and a review of your medical history, after which the insurance company may ask more questions to get a better understanding of your current medical condition.

This can be time-consuming, can feel invasive, and in some cases can lead to a more expensive policy or even a denial of coverage altogether. It can also lead to an attractive offer if you’re in good health, but regardless, it’s a cumbersome process you have to go through.

A Quick Note on Social Security Disability Coverage

While Social Security does offer long-term disability coverage, it’s generally not a good idea to rely on it.

The main reason is that it has a strict definition of disability, requiring you to be unable to work in any job for at least one year. It only pays out under the most extreme of circumstances.

You also need to have worked long enough to qualify for any coverage at all, and even if you do qualify, it often won’t meet your full benefit need.

All of which is to say that if you truly want financial protection from disability, getting some combination of group and individual coverage is likely the way to go.

Are You Protected?

No one likes to think about the possibility of being sick or disabled, but protecting your income is a crucial part of building true financial security.

Disability insurance can be an effective way to get that protection. When it’s done right, it ensures that you’ll have money coming in no matter what, allowing you to continue providing for your family even in the most difficult of circumstances.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt at matt@magnifymoney.com

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