HEALTH INSURANCE


Ask the Editors: Real-Life Insurance Questions and Guidance

In its March 2010 cover story, Kiplinger’s Personal Finance tackled real-life questions on the minds of many of our readers these days. Extending our mission of personal service, we invited readers to send us more questions to be answered in this exclusive online companion package.

COBRA Insurance

I was downsized in October, 2009, from a company where I had Aetna health insurance.

The company offered to pay the continuing insurance (COBRA) premiums for 6 months along with my contribution of $280 per month. In February, I called Aetna to ask how I could apply for the government subsidy of 65% of the insurance once my company’s payments stop in April. Aetna's representative said I could not apply because more than two months had passed since I was notified of my termination. Is this correct? Must I soon pay full COBRA expense? I received no notification of this 60-day rule until my February call.

The COBRA subsidy is a big benefit to people who have lost their jobs and suddenly have large health insurance bills, but the rules can be complicated. The government currently pays 65% of the premiums for COBRA health insurance coverage for up to 15 months for people who lost their jobs between September 1, 2008, and February 28, 2010. You don't need to apply for the subsidy -- your former employer is required by the Department of Labor to send you a notice of your eligibility for the subsidy, which includes any forms you need for enrollment in COBRA.

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You need to contact your former employer -- not the health insurance company or the government -- to make sure that everything is ready to go in April. At that point you you pay 35% of the COBRA premiums and your former employer will be reimbursed by the government for the remaining 65%.

Your situation might be a bit more complicated because your former employer paid a portion of your COBRA premiums for six months, so you might want to contact a benefits advisor at the Department of Labor's Employee Benefits Security Administration by calling (866) 444-3272. You can also find more about the COBRA subsidy and your rights at the DOL's Cobra Continuation Page.


HSAs

I'm 53 years old and unemployed with a private health insurance plan with a $1,500.00 deductible. Am I eligible to contribute to a health savings account with pre-tax dollars?

You can contribute to a health savings account if you have a self-only health insurance policy with a deductible of at least $1,200 in 2010, or a deductible of at least $2,400 for family coverage -- so your current policy should qualify if you have self-only coverage.

But even if you have a family plan, it's a good idea to consider raising the deductible so you can qualify for an HSA. Increasing the deductible is a good way to lower your premiums, and you'll be able to contribute tax-deductible money to a health savings account, which you can use tax-free for medical expenses in any year. In 2010, you can contribute up to $3,050 to an HSA if you have self-only coverage and up to $6,150 if you have family coverage. You don't need to have earned income to qualify, but you must be under age 65 (you can't contribute to an HSA after you're eligible for Medicare, although you can continue to keep the money in the account at any age).

After age 65, you can use the money for any reason without penalty, but you'll need to use it for medical expenses to avoid the tax bill -- and there are still plenty of out-of-pocket medical expenses you can pay with HSA money even after you're on Medicare, such as out-of-pocket costs for prescription drugs, your payment through the doughnut hole, and copayments and deductibles.


Homeowners Insurance

Florida has problems with hurricanes and my county (Hernando) has problems with sinkholes. Most insurance companies don't write homeowners policies anymore—state- sponsored Citizens seems to be the only solution. How can I be sure I explored all possibilities?

Florida does have one of the toughest homeowners insurance markets in the country. But some companies still offer policies in the state and a few -- like PURE Insurance -- entered the Florida market in the past few years to provide homeowners insurance options for well-built, high-end homes.

No matter where you live, if you'd like help finding a policy in your area, it's a good idea to contact an independent insurance agent, who works with several insurance companies and knows which ones are most likely to offer coverage in your situation. Find a local independent agent online, visit www.iiaba.org.

In states like Florida, where coverage can be particularly tough to get, it's also a good idea to contact the state insurance department and find out which insurers do business in your area. Find your state insurance department online, visit www.naic.org.


Flexible Savings Accounts

Are Flexible Savings Accounts available for retirees?

You usually need to have an FSA available through your work in order to contribute to this type of account. But if you're younger than age 65, you can get some similar tax benefits on your own by contributing to a health savings account.

To qualify for an HSA, your health insurance policy must have a deductible of at least $1,200 in 2010 if you have self-only coverage or at least $2,400 for family coverage. Then, you can contribute tax-deductible money to a health savings account, which you can use tax-free for medical expenses in any year (a big benefit of an HSA over a FSA, which you must use by the end of the year). In 2010, you can contribute up to $3,050 to an HSA if you have self-only coverage and up to $6,150 if you have family coverage.

You don't need to have earned income to qualify, so it is a good option for early retirees, but you must be under age 65 (you can't contribute to an HSA after you're eligible for Medicare, although you can continue to keep the money in the account at any age). After age 65, you can use the money for any reason without penalty, but you'll need to use to use it for medical expenses to avoid the tax bill. Even if you're on Medicare, that can include out-of-pocket costs for prescription drugs and co-payments and deductibles that aren't covered by Medicare or any medigap policy.


Medicare Premium Increase

I sold property in 2008 and the resulting long-term capital gains were reported on my 2008 tax return filed in April 2009, significantly increasing our 2008 taxable income. My wife and I received notice that our Medicare Part B premiums would increase from $96.40 to $154.70 effective January 1, 2010. The land sale was a one-time event and our 2009 tax liability falls well within the 15% tax bracket. How long will the Medicare Part B premium remain at the higher amount?

Your Medicare Part B premiums are based on your last tax return on record so, as you discovered, having an unusually high income in 2008 can lead to high Medicare Part B premiums this year. If your adjusted gross income was more than $170,000 on a joint return in 2008 (or more than $85,000 if single), you and your spouse may both have to pay $154.70 per month for Medicare Part B in 2010 -- or more, depending on your income.

People can get their premiums reduced if their income has dropped since then because of a "life-changing event." That includes marriage, divorce, job loss or reduced work hours (including retirement), loss of income from income-producing property or cuts in pension benefits. If this were the case, you'd fill out the "Medicare Part B Income-Related Premium -- Life Changing Event" at www.ssa.gov. You'd need to estimate your income for the year and provide evidence of the change.

It sounds as if you won't qualify for one of those exceptions, so you will probably have to pay the $154.70 per month for 2010, but then your premiums may be reduced for 2011 if your income drops back down and you end up below the limits for the Medicare Part B surcharge based on your 2009 taxes.

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