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IPS / Lighthouse Insurance Group Blog: flexible spending account

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Each year since 2010, when the Patient Protection and Affordable Care Act (“Obamacare”) was passed into law, incremental changes have been implemented.  Perhaps the largest and most sweeping of all will take effect in 2014.  But there are some “behind the scenes” things set to kick in in 2013 that will most certainly impact the pocketbook of many Americans because of changes the new law makes to the tax code.

1.       Itemized deduction for Medical Expenses.  If you itemize tax deductions, you are aware that you are allowed to deduct medical expenses that exceed 7.5% of your adjusted gross income.  Beginning in 2013, the threshold increases from 7.5% to 10.0%.  At first glance, this may seem like minor change.  But this change will affect mostly middle-class Americans and is expected to raise an additional $15.2 billion in tax revenue.

2.       Flexible Spending Accounts.  A Flexible Spending Account (FSA) has been a good way to help individuals and families reduce the cost of some out-of-pocket medical expenses by allowing them to be paid from pre-tax contributions into the account.  Through 2012, the IRS has not had a limit on the amount of money that could be put into and FSA.  However, beginning in 2013, Obamacare will limit the pre-tax contribution amount to $2,500.  Those who are accustomed to contributing more than $2,500 will see a tax increase.

3.       Medicare Tax.  One of the payroll taxes withheld from your paycheck goes to fund Medicare.  The amount has been 1.45% of your gross pay.  Often, this amount is shown as part of the Social Security tax, or FICA.  Beginning in 2013, this amount will increase by 0.90% (from 1.45% to 2.35%) on wages exceeding $200,000 for individuals or $250,000 for married couples filing jointly.

4.       Unearned Income Tax.  There will be a new 3.8% assessment on unearned income (interest, dividends, capital gains, and gain from the sale of a home) for higher-income taxpayers.

5.       Tax on Medical Devices.  $20 billion is expected to be raised from a new 2.4% excise tax on the sale of any taxable medical devices.  This is, in effect, a Federal sales tax on certain medical goods. 

Source:  Quinnscommentary.com


ChoicesThe economy is improving, but many of today's grads will likely struggle to find good jobs with employer-based medical benefits. Additionally, the looming Supreme Court decision and the 2012 presidential election may create more uncertainty about consumer health insurance options and the future of the Patient Protection and Affordable Care Act.

In order to help young adults and their parents navigate their health insurance alternatives and find the best coverage options in the current environment, we have found the following tips specifically for 2012 college grads:

1. Consider all your options. The three most common forms of coverage for college grads include employer-based plans, individually purchased plans, and coverage under a parent's policy. Each comes with special considerations:

Employer-based health insurance - These plans often provide rich benefits, and monthly premiums are split between employee and employer. No one can be turned down for employer-based coverage due to pre-existing medical conditions. However, not all employer plans are created equal. Weigh your employer's coverage options carefully and make sure you know how much will be taken from your wages and applied to your monthly premiums.

Individually-purchased health insurance - Young and relatively healthy grads should be able to find individual coverage at relatively affordable prices. Health care reform improved key aspects of these plans by doing away with lifetime coverage limits and improving access to many preventive medical services. A licensed agent like Insurance Planning Service can provide you with free quotes and help you compare plans. Keep in mind that you may be declined if you have certain pre-existing medical conditions.

Health insurance coverage through a parent - Health care reform made it possible for children to stay on a parent's health insurance plan until age 26. However, if you live in different state than your parents, your benefit levels may be severely reduced. Parents may also need to actively re-enroll adult children every year. If you're offered coverage from your own employer, you could be dropped from your parent's plan.

2. Watch out for changes to the health care reform law. If you hadn't heard, the Supreme Court will be ruling on the constitutionality of the law this summer. This fall's presidential election could impact the law's prospects too. If it's struck down or radically altered, the provision of the law allowing young adults under age 26 to retain coverage under a parent's plan could be invalidated too. Be prepared and make sure you understand your other health insurance options in case things change in 2012.

3. Go Mobile. If you're like most young people, you spend many of your waking hours staring at a smart phone. There are some great apps out there that can help you find coverage, track your health, and manage your health care spending.

4. Fill in the gaps with supplemental insurance. If you buy a high deductible health insurance plan, consider accident and/or critical illness insurance too. These plans can help you cover out-of-pocket costs if unexpected medical costs arise, and they're relatively affordable. In case of a qualifying event, they pay you directly, not the doctor. A bit of extra cash might come in handy if you're in the hospital facing steep medical bills, a high deductible, or other personal expenses.

5. Think about why you need coverage -- and for how long. Many young adults only want a health insurance plan that will provide back-up coverage in case of a serious injury or illness. Others may only need something to cover them for a few months until employer-based coverage kicks in. Either way, short-term health insurance may be a good option. Short-term coverage typically lasts up to six months at a time and does not cover preventive care, prescription drugs, or pre-existing medical conditions. Even so, it can still provide meaningful protection in case of unexpected hospitalization.

6. Don't be afraid of high deductibles. Some health insurance plans with lower monthly premiums tend to come with higher annual deductibles. High deductibles shouldn't necessarily scare you away from these plans, however. If you're relatively healthy and don't visit the doctor often, a high-deductible plan may be right for you. Just be sure that you could afford to pay the full annual deductible in case of an unexpected injury or serious illness. Take a look at the annual "out-of-pocket limit" too: that's the true maximum amount you could be required to pay for covered services in any given year -- including copayments and coinsurance as well as your deductible.

7. Think about FSAs and HSAs, and know the difference. An FSA (Flexible Spending Account) is set up by your employer. Money from your wages can be deposited into an FSA on a pre-tax basis and used tax-free to pay for qualified medical expenses, including copayments, deductibles, and things like glasses or contacts. Any money left in the account at the end of the year reverts to your employer. An HSA (Health Savings Account) is similar but differs in important ways. HSAs are used in conjunction with qualifying high-deductible health insurance plans. Money can be deposited into the account on a pre-tax or tax-deductible basis to pay for the same kinds of medical expenses. But the account itself and the money in it belong to you and can accrue and earn interest year to year. Many employers offer HSA-eligible health insurance plans and some may even contribute to your account.

8. Don't go without health insurance. Healthy young people who almost never get sick often imagine they don't need health insurance. But you do need it. When you're fresh out of college your financial future is less than assured. An unexpected illness or injury could put you in a huge financial hole if you're uninsured. Don't hamstring your financial future before it even starts by going without coverage.

We can assist you in wading through the options!  Contact Insurance Planning Service today at 800-220-5582 or via the web using our convenient Contact Us form!

Article Source: eHealthinsurance.com
Image Source: Microsoft clip art


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Lighthouse Group Main Office in Grand Rapids, MI
Mailing Address | P.O. Box 530009, Livonia, MI 48153

Phone: 734.421.9900 | Toll Free: 800.220.5582 | Fax: 734.421.9911

Also serving these Detroit area communities in Michigan: Livonia, Farmington Hills, Ann Arbor, Southfield, Plymouth, Canton, Westland, Northville, Novi, Dearborn, South Lyon & Walled Lake