In a recent article published by our firm on September 30th, 2011, we discussed navigating your Employer's Open Enrollment. This month I will be shedding some additional light on a few areas to focus in an attempt to decrease "out of pocket" expenses for 2012.
In a recent survey of large companies by the National Business Group on Health, we found that employers estimate their health-care-benefit costs will increase by an average of 8.9% in 2012, compared to the 7% increase in 2011.
The research shows that employers are continuing to boost premiums and co-payments, but they're also "beefing-up" programs that encourage employees to lower their medical expenses.
Let's look at some potential or anticipated reactions by employers as well as potential solutions for the employers and employee.
A Change to Higher Premiums and Co-Pays
Based on our research, we found that 63% of employers plan to increase the percentage that employees contribute to the premium and 46% of employers plan to raise "out-of-pocket" maximums. Also, about 40% of employers intend to increase in-network or out-of-network deductibles.
Based on our knowledge, experience and research, these same employers have already been boosting employees' share of premiums and co-payments. But these same employers are smart enough to realize that increasing employee costs cannot be their only solution since many workers have had stagnant wages and in some cases have spouses that have lost jobs.
They recognize that if they continue to increase co-pays too much, the employees may NOT seek care leading to greater expenses for the employer and greater medical expenses for the industry at-large.
If you have a choice of several plans, you should factor your potential "out-of-pocket" costs into the equation rather than looking just at premiums. Evaluate the new rules for co-payments carefully when deciding which type of care to use throughout the year.
A Change to High-Deductible Health Plans and Health Savings Accounts
Based on our research, 61% of employers surveyed said they plan to offer a consumer-directed health plan in 2012 (usually a high-deductible health plan combined with a health savings account). As employers get more educated on these types of plans, they understand that these plans help lower health-care costs because it encourages employees to become better health-care shoppers.
In fact - today, 20% of employers plan to make the consumer-directed health plan the only health care plan of choice and for those that are offering several options, we are seeing them steer employees toward the high-deductible plans by reducing premiums and often contributing money to the employees' health savings accounts.
These extra incentives may make a high-deductible plan worthwhile even for those that aren't in good health. Also, most high-deductible plans now cover preventive care without cost sharing before you reach the deductible. Our suggestion is to look carefully at the high-deductible plan option this year and consider adding some of your own money to an HSA (if you're eligible). Contributing to an HSA lowers your taxable income, and your money grows tax-deferred for the future and can be used tax-free for medical expenses in any year.
A Change to Better Deals for Primary-Care and Wellness Programs
Many employers intend to reduce or eliminate the co-pays for primary care and preventive care. This tactic can help catch problems early and lower medical expenses in the long run.
Employers have been experimenting with various forms of wellness benefits over the past few years, and most now give people bonuses for participating in wellness programs rather than penalizing them if they do not. Again of those surveyed, 41% of the employers are offering discounts for participation in wellness programs with the average incentive to employees being $380 a year.
In our humble opinion, employers are realizing that they need to provide workers with better incentives to sign up for wellness programs. So as an employee, if participating in one seemed like a hassle in the past, it may be worth a second look this year. Also, get a list of free preventive-care services and make the most of them through-out the year.
A Change in Prescriptions
Over the past few years, more employers have been charging varying levels of co-pays for different types of drugs. Of those surveyed, 63% now have a three-tiered design for their prescription-drug coverage that charges the lowest co-pay for generic drugs, a middle rate for preferred or some routine brand-name drugs, and the highest co-pay for specialty brand-name drugs.
Furthermore, we are seeing that employees are often in a position where they have to jump through more hoops to get their drugs. In fact, 73% of employers now require prior authorization before they will let you use certain drugs, and many are using step therapy, which requires doctors to try a lower-cost drug first before certain higher-cost drugs will be covered.
Lastly, employers are changing co-pays to encourage you to get your drugs from a cheaper source. For example, some will fully cover the cost of maintenance medications only if you use mail-order pharmacies. If you choose to get the medication at a local pharmacy instead, you pay the difference between the cost of mail order and the retail price.
From our perspective, if employees are taking medications regularly, they should look carefully at how the drugs are covered and their potential "out-of-pocket" cost.
Switching to generics, when possible, will always save you money and the cost savings becomes even more pronounced if your employer charges a lower co-pay for the lowest-cost drug. Also, re-consider where you buy your medications if your employer provides a higher level of coverage for mail-order pharmacies.
And lastly, find out about any prior authorization or step-therapy requirements before using a new medication so you don't get hit with surprise charges if you don't follow the rules.
Based on our research and experience, we can summarize this month's article by advising employers and employees to be active and responsible in understanding what your Health Care Plan is offering and how it will affect your "out-of-pocket" costs. As an employer you want to learn more about popular trends and or changes, OR as an employee, you have questions on which plan you should be selecting or how to make it most cost effective, VisionQuest Wealth Management and VisionQuest Capital are here to help.
I'm sure that it is not news to you that we live in volatile times.
For example, a person can go to bed in Australia as the New York markets open and sleep through a 300-point drop in the Dow index, a 100-point rise, a 50-point fall, further rises and falls, and wake up to a close down 100 points.
Swings in markets and indices are large and growing larger every day. Stock gains or losses of 3% to 4% are more common now than any other time in recent market history.
So, how can a private wealth holder get on with life in such volatile times? How can you achieve freedom from wealth if you are consumed by fluctuations in your wealth that can be millions or even tens of millions of dollars in a day or week? The answer is fundamental to private wealth management: Building strategies to make your wealth do what it is for - what we call "goal-based investing."
What are the goals that you have for yourself, your family, and your community? Perhaps you want to pay for your children's education or you want to be able to scale back on the time you spend at work in 10 years. Maybe you want to purchase a vacation home at the beach for your family and friends to enjoy. "Goal-based investing" allows you to take your goals, prioritize them, and then match each goal with an appropriate portfolio. Each investment portfolio is then evaluated over time, in order to maintain consistency with new circumstances and the ability to adapt to changes in your life and even changes in your goals.
Experts say we should not look for the volatility to subside any time soon, so whatever the reasons for the volatility, there are several important fundamentals for the private wealth holder. First, volatility is smoothed over time, so taking the long view and having a long-term investment horizon is important. The peaks and valleys of the hourly graph become a steady line if extended to five years.
Second, volatility appears more prominently in assets that are publically and actively traded by investors. Closely-held businesses, real estate and private equity aren't re-valued second-by-second. They are often not re-valued even year-by-year.
Private wealth is rarely "smart money." With a few notable exceptions, private wealth holders are usually not the best at market timing and calling the short-term trends. Indeed, the fortunes of private wealth holders are made in enterprises, businesses and real estate, held over a period in which volatility smoothes out. Buffett, the Walton family, and others are good examples. The goal is to be "wise money" rather than "smart money".
For a private wealth holder to achieve freedom from the burdens of wealth, it's critical to start at the beginning with the key question: What is the wealth for? Everything we do for a particular client should be designed strategically to accomplish the clearly articulated goals for the wealth. And freedom from wealth requires the comfort of knowing where you want to go and how to get there.
Volatility causes discomfort, while focusing on the hourly and daily ups and downs of the market keeps one from building the perspective necessary to see the road ahead. Living with that discomfort prohibits leading life to the fullest. Wise private wealth has a truly long-term perspective. Daily swings become irrelevant and you can build strategy to make your wealth do what it is for, but here is where strategy becomes crucial:
- - Recognize the importance of due diligence. VisionQuest has a strenuous due diligence process in place for each investment that we may recommend to a particular client.
- - Analyze the "risk" that you may need cash. Raising cash in volatile times can require liquidating at market lows, so it is important to reserve what you think you may need when markets are high.
- - Consider carefully whether you should play at all on the volatile playing field. Market timing likely does not work. It is important to focus on making your money "wise money" rather than "smart money."
- - Recognize that wealth is built and preserved by investing in enterprises, businesses and real estate rather than financial derivatives.
- - Understand the importance of a disciplined process to allow you to stay the course. A common mistake is to buy high and sell low, but that mistake can be tamed by process. VisionQuest implements a strict standard of re-balancing client accounts to make sure we are meeting this goal.
The world has seen great wealth built and preserved even in volatile times. Knowing what your wealth is for, staying focused on where you are going, and having well-defined strategies to get you there is what "wise money" is all about. Having the perspective, the discipline and patience necessary gives any wealth holder the capacity to survive volatility and lead the life he or she wants to lead.
According to the Society of Human Resource Management's 2010 Employee Benefits Survey released in June of 2011, 72 percent of HR professionals said "the benefits at their companies had been affected ‘in some way' due to the economic downturn that began in 2008." And while 79 percent said "they were reviewing their benefits offerings annually," 10 percent reported that they were reviewing them more than once a year.
One notable SHRM statistic stated that 10 percent of respondents said "they plan to reduce or eliminate employer match for 401(k)s in the coming year."
Employee benefits are a very important component of an individual's financial plan and they should be coordinated and managed towards achieving financial wellness. That's why VisionQuest Wealth Management helps its clients review all available benefit choices to determine how such choices fit into your overall financial strategy.
Here are some of the items that we review:
Retirement Plans: Most companies will alert you if they are changing investment options and/or matching contributions. On a quarterly basis VisionQuest reviews each client's 401(k) investment options and recommends appropriate changes with the asset allocation. If you receive notice of changes occurring within your plan, VisionQuest needs to be notified in order to stay up-to-date on each client's plan offerings to ensure we maximize success within the plan for you.
Health Care Plans: As you're reviewing health plan choices, think of all the health issues you've experienced throughout the year. It could be a diagnosis of a chronic disease, the birth of a child, or the need to place a new spouse/partner on your coverage. A new spouse or child can usually be added with proper notice throughout the year, but open enrollment is a good time to review all current and future situations. If you're healthy, you might want to opt for a lower-premium plan that requires higher co-pays or deductibles and try to put more into your retirement savings. Just try not to choose any plan that limits lifetime benefits to $1 million or less - you'd be surprised how little time it takes to get there for an accident or serious illness.
Prescription Plan: You should look at your prescription needs and find the best insurance choice to cover them. While you may have a co-pay of $5 to $10 for generic drugs, will your plan pay for a brand-name drug that you really need, or will you get stuck with a co-pay of $50 or more? Make sure you understand the tier system within your pharmaceutical plan and pick the right one for you based on your current or expected needs.
FSA/HSA Options: A flexible spending account (FSA) is an account some employers offer so workers can deposit funds on a pre-tax basis to pay their out-of-pocket health and dependent care costs. However, workers need to make a good estimate on the funds they'll use by year-end because excess funds can't be carried over. Health Savings Accounts (HSAs) allow workers to save pre-tax dollars for health care costs without the "use it or lose it" restrictions in FSAs, though they require the enrollment in a qualified high-deductible health plan, which more companies are moving toward. These dollars often can be directed into different investment accounts and used on a tax-favored basis in retirement. In 2010, individuals can deposit up to $3,050 in their HSA, and those with family coverage can deposit up to $6,150. Individuals above age 55 can add another $1,000 in contribution on both individual and family coverage.
At the onset of each client relationship, VisionQuest takes the time to review the benefit options available and helps each client get enrolled in the right choices. If things are changing in your life or your benefits, we need to sit down and go through the same process during your next open enrollment period. To get the ball rolling, simply send us the information your Human Resources team sends to you and we'll make sure you're set-up for success in the coming year.
As we have all seen and heard, the United States bonds are no longer officially rated Triple-A, at least in the eyes of Standard & Poor's.
And while Moody's and Fitch, the other leading rating agencies, have affirmed the top rating, they too have worried about the long-term outlook for the United States.
None of this necessarily means disaster for your money. The United States has not been downgraded to "junk" status, like say, Greece. The rating is still very high -- just not tops.
Your stocks: Bad news for the economy generally means tough times for stocks. But history shows that when a country loses its AAA credit rating, it's not necessarily terrible news for that nation's stock market.
When Canada lost its AAA rating in April 1993, the country's stocks gained more than 15% in the subsequent year. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.
At the very least, a downgrade could add more fear and uncertainty to an already sluggish economic recovery. To counter this, VisionQuest has been diversifying our portfolios to include an even greater global reach as well as the addition of specific commodities including oil, natural gas and agricultural products.
Your bonds: In the year following Canada's downgrade in 1993, yields on 10-year Canadian bonds jumped from 7.6% to 8.1%. So there could be an uptick in U.S. bond yields, but experts didn't think it would be big. That's because Treasuries, unlike Canadian securities, are considered a default investment for global investors seeking safety.
The "downgrade" will likely force investors to look at bond issuers with balance sheets that, unlike the U.S.'s, are improving. And with regards to emerging market countries, their ratio of debt-to-GDP is falling as the same ratio rises in the U.S. and Europe.
As a bonus, Americans who buy emerging market debt could see their investments rise simply because emerging market currencies are strengthening against the U.S. dollar.
Your cash: The safety of the different vehicles in which you might stash your cash -- FDIC-insured accounts, money market funds or short-term Treasuries, for example -- wouldn't be so affected by a downgrade that you'd need to shift your money around.
Skittish investors who wouldn't want to park their cash in downgraded Treasuries might feel more secure by putting that money into an FDIC-backed bank account instead, since it would be protected by deposit insurance. But the increased sense of security would be little more than psychological, because after all, like Treasuries, FDIC-insured accounts are ultimately backed by the same entity: the U.S. government.
As for money market mutual funds, which are not insured, the effect of a downgrade is not expected to be dramatic since those funds generally invest in short-term debt and discussion of a downgrade has so far been limited to long-term U.S. bonds.
Despite a downgrade, U.S. debt would still be considered a safe haven. Double A will become the new triple A because there simply isn't a viable competitor to Treasuries.
Your borrowing: Because yields -- and corresponding interest rates -- move inversely to price, rates that track shorter-term Treasuries are more likely to see a bump.
Rates on car loans, which follow shorter-term rates like the two-year Treasury or LIBOR could go up, but not enough to really hit consumers.
Most mortgage rates, however, track the 10-year Treasury yield, which continues to fall. Adjustable rate mortgage holders could be slightly more vulnerable because ARMs are typically tied to shorter-term interest rate movements.
For students and parents who rely on private student loans, any jump in borrowing costs for lenders would be passed on to borrowers. Luckily, Federal student loan rates would remain fixed.
Credit card rates are pegged to the prime rate, which moves with the federal funds rate. If the prime rate goes up, consumers could be hit with credit card rate hikes. Even if the rate doesn't go up, card issuers spooked by a credit downgrade could raise your interest rates anywhere from 1% to 5%, but only if you've had your card for more than a year.
The credit downgrade has implications for the general economy, but none of them are as dire as they were portrayed from other sources. VisionQuest and its teams of experts will continue to deliver consistent, appropriate advice to help you reach your financial goals.
As fall approaches, colleges around the country are busy sending out tuition bills to parents and students. For those of you with a college bound child I'm sure you've already seen yours. I recently helped my brother review his latest bill and was astonished at how high college costs are becoming.
As I often preach to our clients, parents should take full advantage of college savings programs like the 529 plan to help prepare for the day when they'll be faced with their own inevitable sticker shock.
A 529 Plan is an investment plan offered by a State or educational institution to help families save for future college expenses. The number comes from the section of the Internal Revenue code that covers these types of accounts. These plans can be used to pay for expenses at qualified colleges nationwide. In most cases, your child does not need to attend a school in the state that sponsors the 529 plan you elect to use. You are also not restricted to investing in the plan offered by your state of residence. Every state now offers at least one 529 plan and many states offer several different choices, so finding a plan that is right for you is no problem.
One of the key benefits of 529 plans is the Federal and State tax benefits they offer. Although contributions are not deductible on your federal tax return, the investment will grow tax-deferred. Money withdrawn to pay for your child's college costs is tax-free at the federal level and also in most states. Some states also offer tax breaks including deductions for contributions, but these vary from state to state. The Free Application for Federal Student Aid (FAFSA) treats 529 accounts established by parents on behalf of their children as parental assets rather than student assets, significantly reducing the negative impact these funds may have on your child's qualification for financial aid.
Parents and grandparents can open accounts and the amounts that you can save are substantial because of rules that allow you to contribute an amount equal to the annual gift limit for 5-years in one lump sum (once you do that you cannot gift any money for the next five years). You can even open up an account for yourself if you are planning on going back to college or graduate school in a few years. While it is possible to open up one account then split it later to benefit multiple children, it is normally better to open up a separate account for each child or grandchild. Separate accounts allow you to tailor the investments inside the account for each beneficiary. More importantly, separate accounts also make your intentions clear in case you are disabled or deceased before the child graduates from college.
Utilizing a 529 account to save for college is one way for parents to help their children, but really the key is to start saving when children are young. Money grows over time and starting to focus on college savings once children are in high school is probably too late for most families. That being said, if you are planning on paying your child's tuition out of pocket, you should still place those dollars into a 529 account first, and then pay them to the school. This will allow you to capture the state tax deduction (in most states). If you are not taking advantage of a state 529 plan you are missing out on tax free growth and cash back in your pocket from your state government. Setting up and funding an account is quick and easy, give us a call today if you're not currently taking advantage of this opportunity and we'll get you started.