HACE 3

• Pay more depending on income
• Impacting all incomes
• 84-85% insured
• 14-15% uninsured
• 72% insured private insurance
• 20-25% insured by government provided insurance

• Most common in 1st half of 20th century
• Paid physicians and other healthcare providers in cash or through barter

• A 3rd party insurer is "added to the picture"
• Requires 2 transaction
• - A premium payment from individual to an insurance plan, then a reimbursement payment from the insurance plan to the provider

• During WWII, with the labor shortage, companies competing for workers began to offer health insurance as a fringe benefit
• After the war, unions picked up on this
• Government viewed as a tax-deductible business expense and employer portion is not taxable income to the employee
• Government financing

• 1. Increasing use of costly high-tech medicine
• - Equipement
• - Testing
• - Drugs and Treatment
• 2. The high cost of treating such illnesses as AIDS and cancer
• 3. Aging of the population
• 4. Fraudulent practices by some providers
• 5. The large # and high cost of malpractice suits
• 6. The administrative cost of complying with government regulations
• 7. The practice of defensive medicine (unnecessary testing)

• 1. The nature, extent, and complexity of service
• 2. The time involved
• 3. The office overhead (rent, neat, lighting, equipment, supplies, and salaries of personnel)
• 4. The experience and expertise of the practitioner
• 5. The area in which the physician practices
• 6. The fee customarily charged by others in the community
• 7. The circumstances and the economic status of the patient

• Insurance companies can...
• - Raise deductibles and co-payment amounts
• - Limit what they pay for each service
• - Limit or exclude certain services
• - Limit maximum total benefits
• - Exclude people with pre-existing illness

• Escalating cost and the prospect of greater government intervention have stimulated rapid and sweeping changes in the way in which the health market place is organized
• Many hospitals are merging and hiring large number of physicians, and developing integrated managed care
• - Will reduce competitions in the market place and eventually raise prices

• Most health insurance is obtained through this
• As a result of rising health care cost, many businesses are offering much less benefits such as:
• 1. Switch to managed care plans
• 2. Cut retiree benefits
• 3. Requiring employees and retirees to pay part of the premium cost
• 4. Many employers are now becoming self insured

The amount you and/or your employer, in addition to co-payments, coinsurance and deductibles, in exchange for insurance coverage

• The amount you must pay before your insurance covers any expenses
• Your insurance pays benefits only for losses that are greater than the deductible
• The initial amount not covered by an insurance policy and thus the insurer's responsibility
• Usually determined on a calendar year
• On a few plans, based on a per illness or per accident basis

• A way to share medical costs
• You play a flat fee every time you receive a medical service
• The insurance company pays the rest

• A requirement that you pay a percentage of all eligible medical expenses, above the deductible, that are due to sickness or injury
• If an insurance company has an 80/20, then the insurance company pays 80% of the claim and you pay 20%

• The group of physicians, hospitals, and other medical care professionals that a managed care plan has contracted with to deliver medical services to its members
• In-network
• Out-of-network

Charging a patient the difference between what an insurer will pay and what the physician wants to charge for a service

The process of confirming eligibility and coverage before admissions, procedures, and services

• Most insurance plans, whether they are fee-for-service or managed care plans, don't pay for all services
• Some may not pay for prescription drugs
• Others may not pay for mental healthcare
• Covered services are those medical procedures the insurer agrees to pay for

The name given to those providing professional services such as laboratory tests and radiology exams

• A physician, such as a general practitioner or internist, an individual chooses to serve as his/her healthcare professional and handle a variety of health-related problems such as:
• - Keeping a medical history and medical records on the individual, and of referring the person to specialists as needed

• Individual and family plans
• Short-term health insurance
• Employers sponsored plans
• Medicare/Medicaid

30 days to 6 months

Elderly

• Low income families
• Government funded

• Health Maintenance Organization (HMO)
• Participating Provider Organization (PPO)
• Indemnity Plan
• High Deductible Health Plan (HDHP) that may be paired with the financial product, a Health Saving Account (HSA)

• No deductible
• Co-Payments
• Primary Care Physician (PCP)
• Network Restricted: no coverage for out-of-network
• Must follow all rules

• Deductible
• Co-Payments/Co-Insurance
• Network for Physicians/Facilities/Ancillary Providers
• In-Network vs Out-of-Network payments
• Follow the rules to get most for your money- avoiding balance billing

• An insurance plan in which the healthcare provider is separate from the insurer, who pays the provider or reimburses you for a specified percentage of expenses after a deductible
• Typically pay 80% of the healthcare expenses after insured meets deductible
• Amount paid on "usual, customary, and reasonable"
• If doctor charged more the UCR, you may be reasonable for full amount in excess of UCR
• Most flexible plan type of Health Plan
• Deductible
• Co-Insurance
• Network for Physician/Facility/Ancillary Providers
• Plan of the Past

• High Deductible
• Must satisfy entire deductible before payments
• Low premiums
• In-Network: 90/10 or 80/20
• Out-of-Network: 70/30 or 60/40

• You must be enrolled in a HDHP to be eligible for one
• If you enroll in this insurance plan, you may contribute through payroll deduction on a pre-tax basis

• Out-of-Pocket expenses are likely to occur each year
• - The average was about $1,800 per person in 2009
• Costs tend to increase as people grow older
• The appropriate amount to allocate should depend on the number of people in the family unit, how old they are, and the extent of insurance coverage

• Understand your choices
• Read written or website materials first
• Make a list of questions
• Ask questions
• Make an "educated" choice

• Choose a plan based only on the premium cost
• Choose a plan without doing anything from the "Do-List"
• Be afraid to ask questions (let the experts help you)
• Treat this decision lightly

• Cover more than 94% of all Americans
• Bars insurance companies from discriminating based on pre-existing conditions, health status, and gender
• Creation fo health insurance exchanges
• - Should create more competition in the market
• - Premium costs should fall
• Tax credits and cost sharing for insured lower and middle income households

• Empowers the Department of Health and Human Services and state insurance commissioners to conduct reviews of insurance plans and premiums
• - Makes sure they follow the rules
• Maintain current funding levels for the Children's Health Insurance Program (CHIP) up to 2015
• Increase compensation for primary care doctors in Medicaid

• Immediate access to insurance for the uninsured with pre-existing condition through the "high risk" pool
• - Can drive up the prices for people with pre-existing conditions
• Small businesses that buy health insurance for employees can claim up to 35% in tax credit
• - 25% for small nonprofits
• Eliminates life time limits on health insurance plans
• Dependent coverage of children extended to age 26
• Review of health plan premium increases
• - Insurers will have to justify unreasonable premium increases
• Consumer Website- Department of Health and Human Services will develop a website to help residents identify health coverage options
• Tax of 10% on indoor tanning services
• $250 rebate for those who fall within the Medicare Donut Hole

• 10% Medicare bonus for primary care physicians
• Freezes 2011 Medicare Advantage payments to 2010 levels
• 50% discount on brand name drugs within Medicare Part D
• Employers need to disclose healthcare coverage costs in the W-2 form
• HSA withdrawals for non-qualified medical expenses (Below age 65) will be taxed at 20%
• Grants for small employers to establish wellness programs
• Nutritional labeling- requires nutritional consent of standard menu lists at chain restaurants and food in vending machines

• Elimination of health insurance annual limits
• Establishment of health insurance exchanges
• - Standardized health insurance packages
• - Tax credits for individual purchase
• - Choice through multi-state plan and nation wide health plans
• Penalty for being uninsured $95 (rising to a maximum of $2250 per family by 2016)

• Certain religious groups can opt out
• Many states are filing lawsuits claiming mandatory coverage to be unconstitutional
• No provision for reduction of insurance premiums or healthcare costs

• Starter home
• Full-nest home
• Empty-nest home

• Low cost
• Small

• High cost
• More space

• Smaller
• Low upkeep

• Mortgage loan principal- amount you're borrowing from a bank
• Maturity or term of the loan- how long the loan is for
• - The longer the loan, the more you pay in interest
• Interest rate- how much you're being charged to have loan

• Stable payment
• Long-term tax advantages
• Shield from future interest rate increases

• Interest rate higher
• Monthly payment higher
• No benefits if market interest rates decrease
• Limited availability during some periods

• Borrower stretches out payments
• Slightly higher interest rates
• Good for only first-time buyers who don't plan on staying in the house for more than a few years

Lower monthly payment

Over life of mortgage, increase amount paid in interest

• Lower initial monthly payment
• Families may qualify for this when not others
• Known, moderate increases in monthly payments

• Higher total interest costs over the life of the loan
• No benefits if interest rates decrease
• Negative amortization

• Occurs when the mortgage interest rate rises but the mortgage payment remains the same, the mortgage payment does not cover the interest that is being charged for that month
• Occurs during the "stair step" process

• Interest rate is made up of 2 parts:
• - Index
• - Margin
• Frequency of rate change or adjustment interval tells you how often the interest rate can change
• - Can be as often as every 3 months to 3-5 years
• Rate cap

• Measure of interest rates generally
• - Rates on 1-year constant-maturity Treasury securities
• - Cost of Funds Index (COFI)
• - London Interbank Offered Rate (LIBOR)

Extra amount that lenders add on

Index + Margin

In a given interval (time period) the interest rate can only change by x% points

• Maximum that the interest rate can ever change (up or down)
• Adding y% will be the highest interest rate that it could ever have
• Subtracting y% will be the lowest interest rate that it could ever have

• Frequency of payment change
• - How often the payment can change
• - Problem of negative amortization, if payment changes less frequently than the rate change
• - You want the rate change and payment change to be at the same time
• Payment caps
• - Limit on the monthly payment increase that may result from a rate adjustment
• - Problem of negative amortization

• Initial interest rates are lower
• Initial monthly payment is lower
• Some long-term tax advantages
• More available during certain periods
• Caps reduce uncertainty
• When interest rates are high and you expect the rates to drop, this mortgage avoids the cost of refinancing to get lower rates

• Uncertainty about future interest rate and monthly payments
• Negative amortization (with frequency of payment change that differs from frequency of rate change; with payment cap)
• May be higher total cost than fixed if rates increase

• These are a mix of a fixed-rate period and an adjustable-rate period
• The interest rate is fixed for the first several years of the loan; after that, the rate could adjust annually
• Example: 5/1
• - 5= number of years that interest rate is fixed
• - 1= interval after the fixed rate period
• - Interest rates can change once a year, every year AFTER the first 5 years

Benefit from lower rate if borrower doesn't expect to be in the home much longer than the fixed-rate period

• After fixed rate period, the borrower assumes the interest rate risk
• Beware of prepayment penalty if you plan to refinance after fixed rate period

• Allows you to pay only the interest for a specific number of years
• After that, you must repay both the principal and the interest over the remaining term of the loan

Benefit from lower payment if borrower doesn't expect to be in the home much longer than the interest-only period

• After the period, the borrower assumes the principal and interest payments= much higher payment
• Not accumulating any equity during the period (does not change the amount you owe on your mortgage)

• Allows you to choose among several payment options each month
• Options typically include:
• - A traditional amortizing payment of principal and interest
• - An interest-only payment
• - A minimum payment that may be less than the amount of interest due that month (GPM)- would result in negative amortization
• * Must be able to handle mortgage to use advantages and disadvantages

Flexible to deal with economic circumstances

Potentially lose much of tax advantages (determined by which method used predominantly)

• Initial interest rates lower
• Initial monthly payment lower
• Stable payment for several years
• For some families, may be easier to qualify for

• Must refinance at Balloon time
• Uncertainty about getting a new loan at Balloon time
• May include no equity build-up

• Pre-payment is automatically planned
• Applies to conventional or fixed rate mortgage

Allows homeowner to pay mortgage down more quickly (equity grows faster)

Less flexible than just prepaying your fixed rate mortgage

Amount of points x loan amount

Amount of fees x loan amount

• Locate the monthly mortgage cost in chart
• Monthly cost x 12

• America's Social Security program is based on the original design in Germany (1889)
• Retirement age was originally 70
• Germany lowered the age to 65 in 1916

When you can afford to do nothing

• Think about what your financial situation will be
• - Retirement income
• - Retirement expenses
• - Risks in retirement

• Social Security
• Pension plans
• Investments (personal savings)
• Income from working...

• Living
• - Housing (Rent/Mortgage, utilities, maintenance)
• - Food
• Healthcare
• Transportation
• Taxes
• - Property taxes
• - Up to 85% of Social Security may be taxable

• Travel
• Entertainment
• Hobbies
• Club Memberships
• Gifts/Family

• Age at retirement
• Health status and life expectancy
• Goals
• Lifestyle decisions
• Available resources
• Income sources

• 1. Age at retirement
• 2. Number of years in retirement
• 3. Amount of money currently saved
• 4. Amount of annual income needed
• 5. Rate of return on investments

• Longevity
• Inflation
• Rising Healthcare costs
• Timing and amount of investment withdrawls

• Born from 1946-1964
• They are altering the financial planning and public policy environments
• We must plan now for longer retirements

• Retiring baby-boomers are putting a strain on the Social Security System
• Oldest baby boomer age is 64 today
• Youngest is 46

• Current benefits are primarily funded by current revenues
• If we have more people working than collecting benefits, we are in a positive cash flow

• Not intended to be only source of retirement funds, but currently:
• - Payments compromise 50% or more of the income that is received by 65% of older Americans
• - Payments are the sole source of income for 20% of older Americans

• 3 Main areas you needed to focus on for planning for retirement:
• - Social Security Benefits
• - Employer-Sponsored Retirement Plans
• - Personal Savings

• Play a critical role for most seniors
• Only source of retirement income for 20% of older Americans
• For 65% of Americans, Social Security income is half or more of their retirement income
• Average monthly benefits for current payment status is $1068

• There are plans that you have as part of your employment benefits with your employer
• There are generally 2 types:
• Defined Benefit Plans (traditional pensions)
• Defined Contribution Plans (employee and/or employer)

• Specifies the monthly benefits paid at retirement
• Paid out regardless of how well (or poorly) the retirement funds are invested
• Monthly benefits depend on a formula that considers:
• - Number of years of employment with the business or organization
• - Age at retirement
• - Pre-retirement salary (last few years)
• "Vesting" is usually required
• - Must work a certain number of years to be eligible to receive the pension

• Increasingly common
• A pension plan specifying the contributions that both employer and employee must make; it makes no promises concerning the size of the benefits at retirement
• - The employee (and often the employer) make regular contributions to their own retirement fund
• Retirement benefit depends on:
• - The employee and employer contributions
• - Age at retirement
• - Number of years of employment with the business or organization
• - Performance of the investments made
• No "vesting" for employee contributions
• Vesting requirement IS common for employer portion

• Puts much of the responsibility and risk on the employees
• - Must contribute to receive retirement check
• - Mut make investment portfolio decisions
• Many view this shift favorably
• - You can take it with you to new jobs

• For employees of money making businesses and government
• Tax deferred

• Non-Profit Organizations
• Tax deferred

For small business owners and self-employed

• Requires defined benefit plans to fully fund their future pension obligations
• Strengthens the rules that defined benefit pensions must follow so that they are more likely to meet obligations
• Makes it easier for companies to automatically enroll workers into company sponsored savings plans
• Encourages employees to make use of various salary reduction plans, but setting higher contribution limits

• This is the money that you are putting away on your own: savings and investments
• Median household net worth of householders age 65 and over was $239,400 including the house

• Taxable Accounts
• Retirement Accounts
• - IRA
• - Roth IRA
• Annuities
• Life Insurance

• Social Security
• Retirement plans and individual savings
• Continued earnings from employment
• Health insurance coverage

The largest federal government policy (or set of policies) affecting family economic well-being

• 1935- Program enacted under President Franklin Roosevelt's "New Deal"
• - Compulsory "contributions"
• - "Old age Insurance"
• - Pay-as-you-go financing
• - "Proportional" payroll tax
• - Benefits disproportionate to "contributions"
• Myth of the "Insurance trust fund" begun
• 1965- Medicare and Medicaid added
• 1979- "Solvency Crisis" I

• Old age (retirement) benefits
• - To cover worker
• - To worker's spouse(s)
• Survivor's (widow's/widower's) benefits
• Dependents' benefits
• Disability benefits
• Health insurance benefits
• - Medicare

• People 65 or older
• People under 65 with certain disabilities
• People of any age with End-Stage Renal Disease (ESRD)- permanent kidney failure requiring dialysis or a kidney transplant

• Serves low income individuals
• Jointly funded by state and federal government

• Hospital Insurance
• Hospice Care

• Medical Insurance
• - Doctor services
• - Some preventative services

• Private Plans
• - Extra Coverage (dental, vision, hearing, etc)

Prescription Drug Plan

• Most workers are required to participate in Social Security
• Workers NOT required to participate in Social Security
• - Federal employees who were hired before 1984 (covered by the Civil Service Retirement system)
• - Employees of state and local governments who have chosen not to be covered

• FICA tax rate is 7.65% for employees, and 15.30% for self-employed people
• The rates are broken down into:
• - 6.2% (Social Security portion) on earnings up to the maximum taxable amount of ($106,800)
• - 1.45% (Medicare portion) on all earnings

Must contribute for a minimum of 40 quarters over a lifetime (equivalent to 10 work years)- does not need to be consecutive

• Year of birth
• Your annual average earnings
• Age at which you begin to collect benefits

• Historically age 65
• 1943-1954- age 66
• 1955-1959- age 66+ (2, 4, 6, 8, 10) months
• 1960-now- age 67
• Benefits increase according to cost of living

Benefits are reduced if Social Security received before full retirement age