How to Evaluate a High-Deductible Healthcare Policy

According to an August survey from America’s Health Insurance Plans, an industry trade group, as of January 2010, 10 million Americans were covered by high-deductible health plans with a health savings account (HSA) feature. That’s up from 8 million in January 2009 and 6.1 million in January 2008.


A 2008 report by the Kaiser Family Foundation and the Health Research & Educational Trust pointed out that the number of workers with high-deductible plans has nearly tripled in firms with fewer than 200 employees between 2006 and 2008 to a total of 11.7 million.

The advantage? These companion policies allow individuals and families to keep monthly premiums relatively low while being able to deposit pre-tax dollars into its companion HSA account that allow account holders to use those pre-tax dollars to pay out-of-pocket medical costs. Earnings on those accounts are also tax-free as are withdrawals used for qualified medical expenses.

But is this choice right for you? Here are some considerations:

Numbers you need to know: HSAs are only available with qualified high-deductible health insurance policies. To get the combo, you must be enrolled in a qualified health insurance plan with an IRS-required deductible of at least $1,200 for an individual or $2,400 for a family. This year and in 2011, individuals may contribute a maximum of $3,050 to an HSA and families can deposit up to $6,150.

Assess the health plan properly: Check lifetime limits for claims (don’t go under $5 million) and make sure the health plan provides first-dollar coverage on preventative care because the new healthcare law requires it. Regular preventative care may end up in significant savings. If you have a particular health history, it may be tougher to qualify for that insurance.

Note the fees: HSA accounts are offered at banks and other kinds of financial institutions. You’ll be charged a onetime setup fee of anywhere from $25 to $75 and annual fees that might be as much. Since these are investment accounts, fees might potentially eat up any gains you’ll earn, so keep them as low as possible. While many employers pick up these fees, self-employed people are generally stuck with them.

Check the investments: Assess the investments in your HSA just as you would a mutual fund or CD (you’ll have a range of investment choices). Whatever option you choose, check what commercial returns are and see if your investment will be competitive. But remember that this account needs to be something of an emergency account to cover your deductible and any other medical costs. So you’ll have to balance higher earnings against safety.

Keep good records: It’s important to track all medical spending from these accounts and to make sure they’re qualified. That’s a particularly important thing to do with upcoming changes due to the health reform law – non-prescription medicines won’t qualify after January 1. Also, weigh carefully the decision of asking a doctor for over-the-counter antacids and pain relievers – some health insurers may accuse you of failing to report a pre-existing condition, which could lead to them dropping your coverage.

Price procedures: If your HSA is going to cover any uninsured procedures or uninsured portions of healthcare costs, make sure you’re comparing costs for procedures. It’s always OK to discuss prices for various procedures with doctors – and to walk away from doctors who won’t discuss them. There are also online resources that might help you make a decision including Healthcare Blue Book [http://www.healthcarebluebook.com/page_Default.aspx], a nationwide site that offers averages on hundreds of medical, dental, laboratory test, surgical and medical equipment costs by zip code. At the very least, these services offer ways to start the pricing discussion.

Watch how you spend HSA funds: Health care reform in Washington has changed the rules on what may be paid for out of funds in HSAs as well as flexible savings accounts. As of Jan. 1, 2011, over-the-counter medications will no longer be considered eligible medical expenses, and the IRS has a full list. Also, there are some insurance premiums that may be eligible medical expenses, including some long-term care insurance plans.


December 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Set your Money Resolutions for 2011

The holiday season brings considerable focus on money issues. People are generally spending more around this time of year, and if one’s financial circumstances are precarious, it’s a time of considerable stress.


In fact, the American Psychological Association’s Stress in America survey, released last month, revealed that money (76 percent), work (70 percent) and the economy (65 percent) remain the most often-cited sources of stress for Americans. That’s why it’s a good idea to make some specific money resolutions for 2010.


If financial stress is part of your life, resolve to extinguish it over the next year. Consider the following resolutions to lead a better financial life in 2010.


1. To put your most important goals on paper: What do you really want out of life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them formality and a starting point for the planning you must do.

2. To understand how much risk you can really tolerate: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. Even though the market has recovered from the crash of 2008, it’s worth revisiting your capacity for risk.

3. To track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order. Free resources like Mint.com also offer financial planning software, but always check the security of your data. By tracking your spending, you will be able to distinguish the fixed committed expenses from the discretionary expenses.

4. Cut back on non-essential spending: Whether it’s designer coffee, nightly carryout or too many trips to the mall, once you start to track your spending, it will be easier to identify areas from which where you can make adjustments. You don’t have to give up treats completely – just make them treats.

5. Get some professional advice: Maybe you’ve always completed your taxes alone and put your faith in your employer’s retirement plans to chart your financial future. If you’re like most people in this position, your goals are still far from reach. Get references for qualified tax professionals and consider consulting with a financial planning professional to discuss your current retirement savings and what steps you can take to improve your situation.

6. Put the credit cards away: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum -- on time, every month. Once your cards are paid off, don’t close them – that could have an adverse effect on your credit score. Just put small repeat purchases on them that you can pay off in total at the end of the month to keep them active. Oh, and pay cash from now on.

7. To save: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5 to10 percent of your take-home pay based on your cash flow, and place the maximum in whatever retirement savings plans you qualify for, especially if your employer will match all or part of that contribution.

8. To get ahead on your mortgage: This advice isn’t for everybody, but if you’ve paid off your credit cards, apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut at least five years of payments on a 30-year loan. Just don’t short your retirement investment plans to accomplish this.

9. To invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually use makes sense for your health as well as your insurance costs, do it.

10. To redefine the way you shop for essentials: Most people were forced to change their shopping habits during the recession, but there are still ways to fine-tune. As a suggestion, get a legal pad and create a centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), and note bigger expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.

11. To attack that miscellaneous column: Do you really need premium cable? How much are you paying for your Internet service? Consider bundling your Internet, cable and telephone service with one provider. Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent in savings every time you cut and start setting that money aside on a regular basis.

12. Bid out your insurance: All insurance you buy for yourself – home, auto, health and beyond – should be bid out once a year. Home and auto should be bought together because the savings are generally better.

14. Prescription drugs: Consult with your primary care physician to determine if any of your medication has generic formulary available.


December 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Favorable Tax Treatment on Roth IRAs Set to Expire Dec. 31

While individuals with adjusted gross income of more than $100,000 have been eligible to convert their traditional IRAs to Roth IRAs since the beginning of the year, there’s a tax consideration that may make it a good idea for some who haven’t made the move to do so by the end of the year.



Anyone who makes a Roth conversion by Dec. 31 will have a three-year window to pay those taxes, a potentially substantial issue for those converting sizable amounts of assets to a Roth.


Keep in mind that conversion might be a good idea for people in lower income tax brackets. A tax expert or a qualified financial planner can help you decide


Traditional IRAs allow investors to save money tax-deferred with deductible contributions (within certain income limits if either spouse is eligible for a qualified plan at work) until they’re ready to begin withdrawals anytime between age 59 ½ and 70 ½. Roth IRAs don’t allow tax-deductible contributions, but they allow tax-free withdrawal of funds with no mandatory distribution age and allow these assets to pass to heirs tax-free as well. If you leave your savings in the Roth for at least five years and wait until you're 59 1/2 to take withdrawals, you'll never pay taxes on the gains. You can convert a traditional IRA to a Roth, but you must pay taxes on any pre-tax contributions, plus any gains.


Remember that when you do a conversion, you must pay income tax on the amount you are converting. Since you received a tax deduction on your initial contributions to most traditional IRAs, you must pay the taxes due on those initial contributions and any growth in your IRA. But, subject to certain restrictions, you won’t pay tax when you finally need to withdraw your money. That’s where the silver lining comes in for you, or for your heirs if you pass that money on to them.


The conversion issue is a potentially attractive retirement and estate-planning idea for all Americans who want to make sure they maximize the assets they have for themselves and for their heirs on a tax-free basis. And the conversion option isn’t available just for traditional IRAs – it can be used for retirement assets held at other employers and 401(k) holdings. But anyone considering such a move – regardless of his or her income status – should first review their current retirement asset strategy with qualified tax and financial planning professionals.


Things to consider:


How close is retirement? If you have more than five years until you plan to withdraw your retirement funds, conversion of traditional IRA assets to a Roth IRA might make sense. The longer the time span where earnings can grow tax deferred, the greater the benefit of being able to withdraw those earnings without paying tax on them.


What will your tax rate at retirement be? Many people, such as business owners, may be paying taxes now at a fairly low rate. So they might pay higher taxes at retirement. If that’s the case, converting to a Roth might make a lot of sense. Additionally, with Social Security benefits being taxable at certain income levels, Roth IRAs can allow you to limit or eliminate such taxes. Medicare premiums are also based on modified adjusted gross income – if converting to a Roth now will allow a taxpayer to minimize income in retirement, the taxpayer can also save by having lower Medicare premiums and reducing the taxes owed on Social Security income.


Will you absolutely need to use all the money? Converting to a Roth is a good idea for those who won’t need to tap the account every year (Roth’s don’t require minimum distributions as do traditional IRAs). Heirs will inherit the money income tax-free, but that inheritance may be subject to estate transfer taxes.


A Roth conversion can be expensive – can you afford it? You’ll have to pay taxes today rather than defer the taxes until the future – taxes will be due on contributions that you previously deducted, as well as on the accumulated earnings. Also, you need to be aware that conversion could push you into a higher tax bracket, especially if you've accumulated sizeable earnings over the years. This is why a conversion needs to be planned with a tax expert. Why? It may trigger the Alternative Minimum Tax (AMT) due to those high earnings.


Know how the conversion window will work: Keep in mind that 2010 is the only year that a taxpayer can elect to defer the income from a Roth conversion. The Internal Revenue Service has granted taxpayers the option to claim 50 percent of conversion amount as income in 2011 and the remaining 50 percent in 2012. Also, you have to understand that if you choose the conversion period, your tax will be based on the bracket you fit that year. That means swings in income will affect what you pay.


Be careful about your child’s college financial aid: Converting to a Roth will increase your taxable income for the year of the conversion -- or for 2011 and 2012 if you make a 2010 conversion and choose to spread the tax bill over those years. Check with your tax expert and your child’s financial aid office – it could affect your child’s ability to qualify.


December 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Don’t Wait Until Dec. 31 to Do Your End-of-the-Year Tax Planning

For most people, the last week of the year is almost too late to make the tax moves that make the most sense for them. It’s best to review options now before the holidays – and holiday spending – potentially derail opportunities to save money.



The first piece of advice is to get some advice. A financial planning expert such as a Certified Financial Planner™ professional can review your overall financial situation, and a tax professional can add additional expertise. Here are some other ideas:


Start pulling your records together: Even if you have a longtime filing system you trust or computer-based recordkeeping that’s well in place, set aside a day or two to make sure receipts and entries make sense before the holidays and year-end activities swing into full gear. Even the most attentive taxpayer can make bookkeeping mistakes for personal or business taxes. If your tax situation is particularly complex or you’ve undergone significant lifestyle or business changes during 2010 –(i.e. getting married, getting divorced, going bankrupt) or a significant increase in income, a large capital gain or even an inheritance – it might make sense to sit down with your planner and tax professional before New Year’s.


Defer income if that makes sense for you: If you are self-employed or if you operate a company, consider whether it makes sense to defer income until 2011 as a way to save money on taxes. Though this is fairly common advice, it is very tax-situation-specific, so check to see if deferring income is a good strategy.


Remember your retirement: If you and your spouse file jointly, by contributing to a traditional IRA each of you might be able to deduct up to $5,000 if you’re under 50 by the end of the year -- if you’re older by yearend, that deduction rises to $6,000. But consult a tax expert to see if you qualify for those limits based on your other retirement investments and income levels. Some employer qualified plans may also allow large employee contributions prior to year’s end—if you can afford to make one, check with your plan administrator.


Check investment gains and losses: If you have some capital losses in your taxable investment accounts see if it makes sense to sell and offset them against any capital gains you've realized this year. Again, consult your experts to make sure you’re making the most tax-efficient decision.


Prepay property taxes: If it makes sense to accelerate that deduction based on your tax advisor’s opinion, pay those early 2010 taxes before the end of the year.


Prepay state income taxes: Again, if it makes sense based on your tax situation, consider making a fourth-quarter estimated state tax payment due in January before the end of the year to accelerate the deduction.


Plan a stock donation to charity: If you have stock with a large unrealized capital gain that you’ve held longer than a year, you can give that stock to a qualified charity and claim a deduction for the current fair market value of the security. The deduction is limited however to 30% of adjusted gross income. Any amounts over this can be carried forward 5 years. If you have a stock with an unrealized capital loss, do the opposite – sell the stock, claim the capital loss, then donate the resulting cash proceeds to charity. This is actually better than just donating cash, because you get the same deduction and never have to pay the capital gains taxes from the appreciated security, or you can take a current deduction if you have a loss. A similar donation to a donor-advised fund can provide the same current benefit while allowing you to take your time in appointing the specific charity to ultimately receive the gift.


Make sure donations are documented: You must have a either a receipt or a canceled check to back up any contribution, regardless of the amount, and you can’t simply give away junk and state a “like new” value for it. If you don't have such a written record, the IRS will disallow the write-off if the lack of proper record keeping is discovered in an audit. Also, you can write off out-of-pocket costs you incur while doing good works. Ingredients for casseroles you regularly prepare for a nonprofit organization's soup kitchen, for example, or the cost of stamps you buy for your school's fundraiser count as a charitable contribution.


Look for breaks on student-loan interest: If parents pay back a child's student loan, the IRS treats it as though the money was given to the child, who then paid the debt.  A child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad assuming they meet the income test. And he or she doesn't have to itemize their deductions to use this money-saver.


Check those work-related moving expenses: If you moved due to a change in your job or business location, you may be able to deduct certain moving expenses. There are two tests. The distance test requires that the new job be at least 50 miles farther from your old home than your old job location was from your old home. The second is the time test, which means you must work for at least 39 weeks during the first 12 months right after you arrive in the general location of your new job. Self-employed people have to work full-time for at least 39 weeks during the first 12 months for a total 78 weeks during the first 24 months after they arrive in the qualified location.


November 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Making Your Dollars Go Further at Holiday Time

One of the few good things about a tough economy at holiday time is that it underscores the need to consider what’s really essential. And while what’s essential isn’t always about money or presents, setting spending priorities early is a way to keep the year’s biggest spending season worry-free and most important, debt-free.


Here are some suggestions that can help you stay on budget during the holidays and position you for a financially healthy New Year:

Give yourself the gift of solid financial advice: If you’ve never gotten feedback on your overall financial picture before, set aside a certain part of your holiday budget to visit a qualified financial planner. Think big picture – year-round budgeting, planning for retirement and affording other milestones. It will underscore that the money you save and invest today can yield big dividends down the road.

Take the cash challenge: Before you start spending, sit down and figure what you currently owe on credit cards and any other loans. Then figure out how much spending you can realistically do with the cash you have left. That’s right. Cash. See what it will take to cover all your bills and create a list that conforms to what you’ll be able to spend in cash alone.

Reset your gift policy: Does everyone on your gift list over the age of 21 really need a present? The answer is as individual as your family and friends. But, if you think it might be welcome, make a suggestion for a gift drawing, a budget limit, or a moratorium on gifts for adults or some other alternative where you trade off gifts for help with chores or quality time. For instance, you might agree to take each other out to dinner during the New Year or find some other fun way to spend time together. You could help a friend or family member with a household project that could save them money. And in the end, children seem to enjoy their holiday gifts the most, so focus on buying presents for them.

Create a practical, money-saving gift list: For some, this may mean one big sheet of paper you can write on or a computer file that can be printed out on a single sheet. But it’s important to have a list that’s handy and displays everything you need to spend in a single view. This way, if you spot an item on sale, you can snag it and cross it off. Keeping gift ideas on scratch pads and napkins gets disorganized in a hurry, and it’s easy to start spending money in an equally disorganized way. A centralized list lets you check off things as you go, substitute ideas with the click of a pen (or a mouse) and keeps you on track. A computerized list might offer additional advantages:

• You can collect initial gift ideas by name and then re-sort them by store destination, which can save time and gasoline.

• You can add an extra column that reminds you what you bought each person last year as well as sizes and color preferences. You might also note what you spent last year on that person or family.

• If you’re shopping online, you can copy links to the merchandise you’re planning to buy so when it’s time to spend, you don’t have to waste time on a new search.


Browse online, and then compare at local stores: Whether you plan to spend online is a separate issue, but browsing online can be a very good idea. “Shop-bot” price comparison websites can help you determine general price ranges for gifts you need that are sold online. Once you have those ranges, get on the phone and determine whether you can buy the same items more affordably at retailers close to home – if you can save yourself a trip or consolidate your trips, you’ll save time and gas. And if you do end up buying online, don’t forget taxes, shipping or return policies before you click “complete my order.” Those fees and restrictions can end up costing you considerable money.


Get those coupons: Retailers liberally dole out coupons at the holidays, but don’t stop at those that arrive in the mail or inside your local newspaper. Increasingly, online coupon sites can make a huge difference in what you’ll pay for online merchandise in terms of item discounts and deals on shipping. Finding coupons that work can take a bit of trial-and-error – coupon sites come and go and the coupons they list don’t always work. But type the name of your retailer and the words “coupons” or “discount codes,” see what comes up, and then follow the instructions. Manufacturers are another coupon resource – go to their websites and see if they’re offering printable coupons or discount codes for the merchandise you’re looking for.

Don’t forget charity: Tax benefits aside, it makes sense to budget for charities at the end of the year. In a rough economy, people tend to take care of themselves before they take care of others, so set aside money you plan to give before Dec. 31. And if you have kids, helping others is not a bad idea to teach during the holiday season.


November 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Strategies to Keep Your Healthcare Spending Under Control

Healthcare reform promises to offer health insurance coverage to a wider variety of Americans, but it doesn’t mean healthcare is going to become cheaper, at least not in the short term. A September study by Hewitt Associates notes that 2011 health care cost increases will be at their highest levels in five years with an average 8.8 percent premium increase for employers, compared to 6.9 percent in 2010 and 6 percent in 2009.


Hewitt said the average total health care premium per employee for large companies will be $9,821 in 2011, up from $9,028 in 2010. The amount employees will be asked to contribute toward this cost is $2,209, or 22.5 percent of the total health care premium – this is an increase of 12.4 percent from 2010 levels, when employees contributed $1,966, or 21.8 percent of the total health care premium.

And consider this -- average employee out-of-pocket costs, such as co-payments, co-insurance and deductibles, are expected to be $2,177 in 2011—a 12.5 percent increase from 2010 ($1,934). These projections mean that in a decade, total health care premiums will have more than doubled, from $4,083 in 2001 to $9,821 in 2011. Employees' share of medical costs—including employee contributions and out-of-pocket costs—will have more than tripled, from $1,229 in 2001 to $4,386 in 2011.

So what can you do? You need to make a big change in your mindset about what you spend on healthcare, no matter how great your coverage. Increasingly, people will need to shop for healthcare coverage and services much like they comparison-shop for food and merchandise. Employers and insurers will continue to shift costs to individuals for a variety of healthcare services, and though the initial adjustment might be scary, those that get the hang of it early will become better at selecting healthcare overall.

With the cost of medical care, it makes sense to get outside advice. A qualified financial planner can discuss all medical issues you have as part of your financial planning process. But here are some potential money-saving ideas to consider in the future:

• Do a procedure price-check: Yes, it’s possible to know what procedures cost in your area. When time is of the essence, many individuals and families simply want medical procedures done only to find shocking cost numbers later. It’s absolutely appropriate to talk through the various cost factors of operations and treatments at the time you’re discussing the medical benefits of that treatment. In fact, the question, “Why does it cost so much?” is a way to get doctors to fully justify their recommendations on care and to find out if they also might suggest treatments that are just as effective but significantly less expensive. There are also online resources that might help you make a decision including Healthcare Blue Book , a nationwide site that offers averages on hundreds of medical, dental, laboratory test, surgical and medical equipment costs by zip code. At the very least, these services offer ways to start the pricing discussion.

• Plan your FSA strategy: Health-care reform has made some changes to flexible spending accounts (FSA) for 2011. Starting in 2011, employees will no longer be able to use FSA money for non-prescription drugs (except insulin). FSA coverage for children, however, has expanded. Employees can use funds to pay medical costs for any child who is under the age of 27 by the end of the year. However, there will be lower contribution limits in the future. In 2011, employers are permitted to allow contributions of up to $4,000 in FSAs, but that limit will shrink to $2,500 in 2013 – so employees planning expensive procedures might want to stockpile funds there now.

• Take responsibility for your own health: Want to save money on healthcare overall in the future? Lose the weight. Quit smoking. If you have a history of family disease, start examining those risk factors now.

• Involve your doctors in your affordability quest: Yes, there are some doctors who charge a lot of money to do what they do. That doesn’t mean they won’t fight for you if you need a procedure and you can’t afford it or your insurance won’t pay. Hospital administrators listen to doctors who bring patients to their institution, so work together.

• Put your health insurer to work: The best time to understand your insurer’s advocacy processes – assuming they exist -- is well before you need them. Call your claims department and ask how they advocate for insured customers if a procedure bill comes in too high. Obviously, if you do your due diligence on average fees before you need a procedure this will be less of an issue, but it’s important to know if your insurer will work with you to audit and negotiate a hospital bill if your out-of-pocket numbers come in high.

• Scrutinize your bills: When it comes to medical billing, mistakes get made, either intentionally or unintentionally. Talk these issues over with your insurer and go back to the practitioner or institution to get clarification and demand an audit if necessary.

• Get advice from the state: Some states have very stringent laws governing health insurance and medical costs; some don’t. Read as much as you can about how your state insurance and medical licensing departments operate and find out what you can about their role as patient advocates.

• Question follow-ups and other procedures: Whenever tests or visits are necessary, politely ask why. Everyone’s situation is different, but make sure you have a justification for any cost move you make.

• See what cash can do: If your insurance won’t cover particular procedures, see if paying with cash can get you a discount with the institution or practitioner.

November 2010 — This column is provided by the Financial Planning Association® (FPA®) of FPA of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

The Reality of Bankruptcy and What You Can Do About It

Proving that the nation’s economic trials are far from over, the National Bankruptcy Research Center reported that bankruptcy filings for 2010 to date are still about 12 percent higher than during the first eight months of last year.


Nationwide, the organization reported that there was one bankruptcy filing for every 110 households. The American Bankruptcy Institute adds that consumer bankruptcy filings are the highest they’ve been since Congress revised the bankruptcy law in 2005, adding that consumer filings remain on track to top 1.6 million filings in 2010.

There is no rule of thumb for when someone should file bankruptcy and others should tough it out. But consider this first. Federal law allows a credit reporting company to report most accurate negative information for seven years and bankruptcy information for 10 years. Any accurate information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.

And keep in mind that your credit report is accessed by more parties than lenders and landlords – insurers check your credit data and set your rates by what they find. Cellphone companies check your credit before they offer you a rate plan. But most important, employers check credit reports before they hire you – and a bankruptcy sometime in the last 10 years might communicate to a prospective employer that you’re not as responsible as they would like.

Here are some measures you should consider before filing either Chapter 13 (reorganization) or Chapter 7 (liquidation) bankruptcy:

If you own a home, can you refinance? Interest rates are still at all-time lows. If you’ve managed to be mostly on time with payments, you might qualify for a loan restructuring or refinance that can considerably cut your payments. Your financial planner might be able to give you advice on how to solicit this help.

Call your creditors: Again, get advice from a planner on what to say, but if you suspect you might be late with payments, do whatever is possible to see if you can lower your payments or possibly reach a settlement. Many creditors, including mortgage lenders, might settle for lower amounts on principal to make sure they get something.

Focus on high-rate debt first: For most people, this means the highest-rate credit card among all the credit cards they have. Set up a “knockdown list” of your debt from highest rate to the lowest and attempt to pay more than the minimum on balances.

If you’re not budgeting, you should be: Avoiding bankruptcy means accounting for every dollar you spend and finding the additional money necessary to get control of debt.

Either on paper or on the computer, write down every dollar you spend in the average week (and cut off credit card use during that week). At the end of that week, start marking out non-essential items just to see how much you could live without and then pledge to use any extras to pay off debt.

Go for free entertainment, take your lunch and eat at home: Yes, you’re in for a lifestyle change. Avoiding bankruptcy means taking extreme actions to cut luxury spending, and anything beyond paying immediate bills and eliminating debt should be considered extra.

Park the car and do vehicle and home repairs yourself: Assuming you can do these things competently and safely, take over absolutely necessary repairs on your home or your car. If they don’t need the immediate fix to operate, put it off. And learn to ignore cosmetic issues on your property – at least for now.

Buy essentials and focus on buying used instead of new: Internet auction sites supply an extraordinary number of new and near-new products that can save money if you need to make an essential purchase for yourself or your family. Buy used or heavily discounted and direct that money toward your debt.

Pay cash: When you spend money, make sure it’s cash or debit. Don’t cancel your credit cards – it will damage your credit score – but put them far out of reach and avoid using them until you get your situation under control. And once you have saved your credit, keep the credit cards where you left them.

October 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.