Insurance/risk mitigation

It’s true that men have always paid more for life insurance then women based simply on the fact that women statistically live longer.  A similar pricing structure is about to come to the long term care insurance industry, only in favor of men this time around, and for the exact same reason.

Women Live Longer and Will Pay More

On average, women outlive men by five to seven years. The older we become the greater the chance that we will one day be in need of Long Term Care (LTC). Statistics show that currently about 70% of the residents who live in a nursing home are women. Women represent almost 80% of all individuals living in assisted living facilities and two-thirds of those receive home care. According to one LTC insurance executive, $2 out of every $3 paid in long-term care claims are for women.

The long-term care insurance industry was started in the 1980s and many companies rushed to get into what they thought would be a lucrative market. However, based on untested underwriting practices, a low interest rate environment and greater utilization than had been expected, many companies have seen much higher claims than they anticipated.

Many companies, including Prudential, MetLife, Allianz and others, have stopped selling new long-term care policies altogether and those with existing coverage are experiencing hikes in their premiums by as much as 40%.

Genworth is the nation’s largest long-term care insurance provider and is the most experienced, as well. They are, however, making some changes. In order to better underwrite future policies (i.e. maximize their profits), Genworth will soon institute “enhanced underwriting.”

Qualifying for LTC Will Be More Difficult

Leesa Fons, an Insurance broker in the Sacramento area who has been involved with LTC Insurance for 20 years explains that “The new enhanced underwriting means that new LTC insurance applicants will be subject to a full paramedic exam which includes blood pressure readings and lab work. This is similar to the exam used to screen life insurance applicants. A number of health conditions will be tested for; some of these include diabetes, heart disease, and hepatitis. This will make it more difficult to qualify for coverage.”

“Since dementia and mental impairment are a leading cause of Long Term Care claims, insurers will soon require an in-person interview where the examiner will have an opportunity to observe firsthand the proposed insured’s mental acuity and residential surroundings,” Fons said.

Barbara Hanson, an insurance broker in Santa Cruz, California, who has specialized in long-term care since 1995 recently said, “People who are waiting to buy a long-term care policy may be less able to pass underwriting as it is becoming more stringent. I have a client who was able to get covered a year ago, but was declined for an improved policy by the same carrier this year due to health underwriting changes the carrier enacted last spring. When one carrier moves in this direction, others will follow.”

Another change that will impact women is a so-called “gender pricing strategy,” which will raise rates for single women by as much as 40%.

Consider LTC Coverage Now

For individuals considering long term care insurance Fons recommends that they “make it a priority to discuss the issue with your financial advisor in the near future.  If obtaining a policy is appropriate for you; apply before April 1st, 2013.”

Hanson responded, “The younger you are when you apply, the lower the lifetime cost. With the upcoming changes in underwriting and rates, it is paramount to investigate the option now rather than later.”

Hanson went on to say, “To prepare for old age without the protection of LTC insurance, women need to have access to a substantial nest egg or high monthly income. A reverse mortgage may be helpful for those with equity in their home when the nest egg is gone. However this may not be a good idea for others. Relying on family for 24/7 care is usually not possible, or can be seriously draining on those we love.”  The Medicaid system is still available to provide a safety net for those with little assets or income.

Fons pointed out “A major concern for women is not only outliving their wealth… but outliving their health.  There isn’t a more significant drain on assets than having to pay for the cost of an assisted living facility or professional care givers.”

No one wants to be dependent on others for their care in their later years, but the longer we live, the greater the chance of having decreased physical or mental abilities that will require assistance. Long-term care insurance isn’t for everyone but if ever you think you might consider it, do it now rather than later!

Many Medicare beneficiaries are not aware that the open enrollment period for the Medicare Part D Drug plans is happening NOW. You have until December 7^th to determine if it is to your benefit to change plans, which could save you money.

Why shop for a Part D plan?

There are many reasons you cannot assume that the plan you are on now will be the best one for you in 2013 including;

1. Increased monthly premium.
2. Increased deductible amount.
3. Changes in what drugs the plans cover and how well they cover them.
4. Changes in the medications you take.
5. Your plan may no longer be offered. In this case if you do nothing you will be enrolled in another plan that most likely will not be the best suited for you.

In 2013 both Health Net and Community CCRx will no longer offer Part D plans of any type. If you are enrolled in one of their plans you need to comparison shop for a new plan now.

When reviewing plans for clients for 2013, we have found an average savings of $1,100 per year.

Getting Help

If you have Internet access, you can compare Medicare’s drug plans online. Go to Medicare’s “Plan Finder Tool” at www.medicare.gov/find-a-plan, and type in your personal information (from your Medicare Card), the drugs you take and dosages, select the pharmacies you use and you’ll get a cost comparison breakdown (“estimated annual drug cost”) for each plan available in your area.

If you are not able to do a comparison yourself, consider asking someone in your family or a friend to help you, or you can call Medicare at 800-633-4227 and they will do it for you over the phone.

Comparing Plans

When comparing drug plans, don’t choose a plan just based on the monthly premium. Low-premium plans often have higher prescription co-payments and could end up being more expensive. Look at the “estimated annual drug costs” which is how much you can expect to pay for the entire year in total out-of-pocket costs, including; premiums, deductibles and co-pays.

Be certain to verify that the plan you’re considering covers all of the drugs you take with no restrictions. Some plans require you to get prior approval for a particular drug or have “step therapy” where you must try a number of cheaper drugs before they will cover certain prescriptions.

Deadline to change plans December 7

If you currently have a Medicare Part D plan it is critical that you shop for the best plan now.

Now that Obama-care has been blessed by the Supreme Court, those couples with incomes over $250,00 a year and singles over $200,000 should be aware that your taxes could well be going up January first!

When Congress passed Obama-care in 2010, it added a new surtax. While we are waiting for conformation from the IRS, it is believed that the new tax applies to

• Ÿ• Dividends
• • Rents
• • Royalties
• • Interest
• • Short and long-term capital gains
• • Taxable portion of annuity payments
• • Income from the sale of a principal home (above the exclusion),
• • Net gains from the sale of a second home
• • Passive income from real estate or investments

The new tax doesn’t apply to income from a regular or Roth IRA, 401(k) plan or pension, Social Security, life-insurance proceeds, municipal-bond interest, Schedule C income from businesses, or earned income on which you are paying self-employment tax.

As of Jan. 1, 2013, the tax rates on dividends for high-income earners will increase from their current historic low of 15% to 18.8% or 23.8% or higher if Congress does not extend the Bush Tax cuts.

What you should do now?

Consult with your tax professional now and verify if you will be impacted by the new tax. I made this recommendation to a client and her tax professional was unaware of the new surtax so ask the specific question. “Will I be impacted by the new Obama-care Tax and what should I do about it?”

The new 3.8% tax could make accelerating income into 2012 worthwhile. This would include those with a large stock concentration and had planned to sell over time and then diversify or anyone planning on selling their expensive home or investment property or even a business.

For those people who would not normally be impacted by the law but are planning to convert an IRA to a Roth IRA, they too should consult their tax professional about doing it in 2012 to avoid being impacted by the new tax later.

If there are assets in a trust with a separate Tax ID number and more than $12,000 of income, the new law applies as well. Therefore if there are assets in the trust with appreciation that you plan to sell in the near future, you may wish to sell in 2012 rather than 2013 since capital gains are not usually distributed as income to the beneficiaries and could be subjected to the added tax with in the trust.

If you are impacted by the new law and hold mutual funds invested in actively managed equities you may wish to liquidate these and reinvest in a passively managed diverse funds such as those offered by Dimensional Fund Advisor (DFA). These funds have below average turnover, which deceases capital gains. At the same time they have below average expense ratios (which is a whole other story).

Some investors may consider selling dividend generating investments and moving to tax-free investments since they will not impacted by the new law.

Starting in 2013, impacted investors will need to manage not only their adjusted gross income but also their investment income in order to avoid or minimize this tax.

THIS ARTICLE IS NOT PROVIDING TAX OR INVESTMENT ADVICE. CONSULT YOUR INVESTMENT PROFESSIONAL BEPOFE MAKING AN INVESTMENT CHANGE

If you made the decision to buy a long-term care insurance policy about a decade ago, you may be getting a big rate increase in premium this year.

Prudential insurance company anticipates increases in premiums between 18 and 25% for those policies issued between 1999 and 2003. MetLife anticipates increases of 18% on those policies with the series LTC 97 and VIP1.

Perhaps the increase that will affect the most people is from John Hancock which will impact approximately 140,000 federal employees with long-term care contracts. The company announced their premiums for this group will be going up by as much as 25%.

There is a lag time between when an insurance company announces a premium increase and when the effective date of that increase starts as a result of the regulatory approvals necessary by each state. Many companies have recently made the announcement so expect the increases in the next year.

The size of the upcoming increases will vary according to the claims experience for the group of policies, the investment return of the company, as well as the type of coverage provided by the plan. Those policies issued to groups may be hard hit since companies were very aggressive in pricing a few years back.

Those policies that have richer benefits such as lifetime benefits could face higher increases since these policyholders are less likely to drop their coverage. Policyholders perceive them as having greater protection and wouldn’t want to lose the coverage. Therefore even with rate increases they tend to hold on to the policy.

At the time the policies are sold, agents often told clients that that rate is stable and not to expect a rate increases like that for standard health insurance. Evidently this is not the case when even companies such as Genworth have instituted rate hikes.

The question is what do you do if you receive a premium increase. The answer will primarily be determined by your financial situation. If you can afford the increase in premium, that might be your best option.

If the increase is more than you can handle, most companies allow you the opportunity to either decrease the amount per day of coverage or the length of the term of coverage and in some cases to change the deductible period.

There are however, some individuals who should consider dropping the coverage altogether. These are the individuals who were sold policies when they may not have needed them in the first place. One guideline is that you should not spend more than 7% of your annual income in long-term care premiums. A new increase in policy cost may put you over this recommended limit.

One option that is not likely is changing your coverage to a new policy or another company. Premiums are based on your age and health. If you took a policy 10 years ago, a new policy would be much more costly than one taken at a younger age. This is the reason why keeping your current coverage might be the best option.

One of the best types of long-term care policies is referred to as the California Partnership Policy. Only a handful of companies offer this type and it provides additional safeguards that non-partnership policies do not have.

You should talk to someone knowledgeable about your financial situation as well as your policy to decide what it best for you. The one downside to talking to the agent who sold you the plan is that he or she continues to get paid when you keep the policy. Talking to a financial planner who is not compensated by the insurance company may give you more objective advice. Unfortunately, some planners are not well versed in this area. HICAP is another option but their counselors vary in quality as well.

Should you get a rate increase, talk to your family, review your finances and get an objective second opinion.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

The most important shopping you will do this holiday season is for your Medicare drug plan for next year. November 15 through December 31 is your only opportunity to sign up for the best plan for next year.

The Medicare part D program provides beneficiaries with assistance paying for prescription drugs. Unlike hospital and doctor coverage, which is provided within traditional Medicare or through Medicare advantage plans, the drug coverage requires beneficiaries to enroll in one of the dozens of different programs offered by private companies.

The difficulty for beneficiaries is that no two private company drug plans are the same and every year the plans change their deductibles, coverage limits, annual out-of-pocket thresholds, as well as which drugs are covered and to what extent. Another change is the prescriptions needed are often different one year to the next. FOR THESE REASONS, IT IS ESSENTIAL TO SHOP YOUR DRUG PLAN EVERY YEAR. You could save hundreds of dollars by making sure you have the best plan for you.

As an example, “Ruth” had a plan from “company X”. The coming year, company X raised the premium on her plan 27%, it changed which drugs were treated more favorably as well as changed the deductibles. Ruth had a change in her health and her doctor changed some of her medications. The result is if Ruth keeps her current plan she will spend a total of $2,584 next year according to the Medicare website but if she changes plans she would save $852 the coming year with a different plan.

While not everyone will save by changing plans, it is my observation that the majority will save. As a result everyone must take the time to find out which plan is best every year.

The only way to know if you have the best drug plan is to check the Medicare database after November 15^th of every year. The first step is to have a list of all the medications you take including the dosage and the number of pills each month as well as your Medicare number and date of birth. The next step is to access the Medicare database. Here are your options:

1) Go on line and enter your information into the Medicare database. http://www.medicare.gov/MPDPF/Public/Include/DataSection/Questions/SearchOptions.asp The result is a ranking of all plans in your area. The top one will be the least costly and the last one the most expensive over all. There can be differences of over 100%!

2) If you do not have computer access, call HICAP at 916-376-8915. The volunteers can enter your data and determine your best choices. You will need to set an appointment and there are limited number helpers so call earlier than later.

3) Call Medicare at 800-633-4277 and the Medicare representative will enter the information for you. Unfortunately, there are limited representatives and the wait time can be very long. The representative will tell you the three least costly plans and it is up to you to decide on one. The representative can help you sign up for a plan. You can ask that they send it to you in writing before you decide.

Unfortunately, there are people who would like to give you information but it may well not be the best for you. Here are some tips

1) Do not ask what your pharmacist recommends. Some plans pay the pharmacy more than others.

2) Do not automatically get the same drug plan as your Medicare Supplemental. Seldom is the best drug plan for you the same as the best Part A and B plan.

3) Do not take the same plan simply because your spouse or friends have it.

4) Do not sign up for a plan that a salesman is recommending unless the representative has a complete list of all your drugs and can show you the Medicare printout displaying the best plans for you.

It is recommended that you start the process of finding the best drug plan November 15^th and complete the process by December first. When calling Medicare or the private companies, sometimes early in the day is better than mid or late day.

So in this holiday season if you are over 65 and not on an employer group health plan that pays for drugs, be sure to check the best Medicare part D plan for you and do so every year. While this may not be your favorite holiday shopping it could be the most important.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice