Personal Finance and Investing

A Health Savings Account or HSA type plan consists of two main parts. The first part is a “catastrophic” health plan. The second part is a special savings account called an HSA. So what is catastrophic coverage? Catastrophic coverage has many definitions, but we will call it coverage that is a high deductible health plan, (HDHP) without the “frills” of copays for drugs and copays for doctor visits. A catastrophic plan should be there to protect you if you need to be hospitalized for sickness, surgery or any other catastrophic event. The high deductible health plan offers protection against unexpected, debilitating financial damage.

The terminology is rather confusing. People commonly refer to both parts as an HSA or Health Savings Account. The proper way to refer to such a plan is to say you have an HDHP and an HSA combination. As you can see, this is too cumbersome, so we call in an HSA type plan.

We talked about the first part, the HDHP catastrophic plan. Now, let’s talk about the second part, the HSA or Health Savings Account. This is a special savings account that you open up at a bank. It could be your local bank, or an internet bank. The money you can put into this account can be spent for a very wide variety of medical expenses. For example, you may want to visit an acupuncturist. An acupuncturist is not covered in your major medical plan, but you can use your savings money for this type of an purchase. You can use your savings for over the counter cough medicines, doctor visits, prescription drugs, eye glasses and vision checkups, dental care expenses and a number of other medical expenses.

Will an HSA, Health Savings Account, work for you?

Are you looking for a catastrophic plan? Do you visit the doctor only four or fewer times per year? Are you on a few or no medications? When you visit a doctor, would you be content paying $60 for the visit instead of $25? If you have to buy drugs, will you be satisfied paying a negotiated price, but not a $35 copay? Do you have funds to deposit into an HSA account? Are you looking to reduce the premiums you pay for health insurance?

These are a few of the factors that you should examine and discuss when considering an HSA type plan.

How does an HSA type plan reduce risk?

Let’s take an example of a family of four. Typically, families will choose a $5450 deductible. Wow! That is a high deductible. But wait. That deductible is an aggregate deductible for the entire family. All four of the family members’ expenses go toward meeting this annual deductible. Once it is met, the insurance company covers 100% of the allowable expenses.

Compared with a traditional copay type plan, one can argue that you have reduced risk. Why? Because each of the insured members, up to three, has to meet his own deductible. It is much more likely that the family will hit the $5450 aggregate deductible than for three members to hit their individual deductible of typically $2500 each, or $7500. In addition, usually the copay type plan has coinsurance which adds to the out of pocket risk.

Are HSAs the answer to our health care crisis?

If you study the costs of elective cosmetic surgery, you will see that prices have risen ever so slightly over the years. Free enterprise competition among doctors has kept the price increases in check. Since cosmetic surgery is NOT covered by health insurance, there is no “third-party payer” involved. (The third-party payer is the insurance company.) Consequently, doctors have created special volume pricing, the surgery is done in their own operating rooms, there is no insurance company having to approve expenditures, and overall, there is much less red tape.

Taking the cosmetic surgery example and applying it to HSA type plans; we see that when you put people in charge of their own medical expenses, they are quite frugal. They question the doctor when he suggests a series of tests. They are more concerned that the hospital makes no mistakes in their billing.

In summary, HSA type plans offer lower premiums, lower risk and steadier, more reasonable premium increases. Knowledgeable people in the insurance industry feel that this is the direction that our nation should forge.

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The 529 plan of the state of Pennsylvania, known as the College Savings program, is often touted as the best 529 plan in the country, and not without reason. This plan has several advantages for the both the discerning investor looking for tax deductions, as well as the concerned parent making long term plans for his or her child’s college education.

The following are some points which set the PA 529 plan apart from the rest of the 529 state plans:-

1. All contributions on the College Savings Plan of Pennsylvania State are partly deductible. If the contributor is filing singly, then the limit on the deductions is up to $10,000; and this amount remains same for married couples filing jointly.

2. A huge maximum contribution is allowable in the state of Pennsylvania, and that is $344,000. This money can be withdrawn for both qualified and nonqualified purposes. Withdrawals for qualified purposes at any point of time attract no penalties. But, the earnings can also be removed for a nonqualified purpose. In that case, a penalty of 10% is imposed on the amount that is removed.

3. The costs of getting into the plan are very less. There is no enrollment fee, and there is no annual maintenance fee for keeping up with this plan. There is a very small program management fee, which varies between $0.5 and $0.7.

4. This plan is an outstate favorite, because outstate residents can contribute into the plan and enjoy the same benefits as the instate residents. Qualified withdrawals from other state 529 plans into the PA 529 plan are exempt from taxes.

5. There is no broker required for buying the PA 529 plan. Residents can buy the plan directly.

6. The minimum amount to open an account is $25 for both instate and outstate residents, which is lower than the minimum amount with other states. In addition, a $25 purchase needs to be made when opening the account.

7. There is an automatic investment plan provided with the PA 529 plan, and there is no restriction on how often you contribute to the automatic investment plan. The automatic investment plan also needs a minimum additional purchase of $25.

On observing all these points, it is obvious that the college investment plan of Pennsylvania is very welcoming to people from other states. It is a very cheap and profitable investment plan, which is also very good for the instate residents.

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It is a well published fact that most Americans have very little or no savings. This, in my opinion, is a direct result of most people wanting to live well above their means. The problem is, over the long term this type of thinking leads to a reduction in your quality of life.

High credit card debt and living in a bigger house than you need is a sure way to continue living paycheck to paycheck. This leaves little money left over to build financial independence.

Stop Spending and Get Out of Debt

If you have to charge anything on your credit card, and you are not able to pay off the entire balance at the end of the month, then you are spending too much money. Stop using those credit cards and start paying down your debt.

The first thing you have to do is cut down on spending. Sit down and write out all of your bills and necessary living expenses. Whatever is left over you should use to pay off your credit card debt.

Start Saving and Investing

Once you are out of debt, then you can begin putting money in the various investment vehicles that have proven to appreciate in value over the long term.

Where should you invest your money? There are many choices out there. The best thing to do is talk to a licensed financial adviser if you are not educated on the various types of investments.

I think it is an absolute necessity to contribute the maximum amount to an IRA each year. An IRA is a tax-deferred investment which is an enormous advantage for long term capital growth. I think it is also important to have at least three month’s living expenses saved in a high yield savings account. Once you have enough in your savings account, and you have contributed the maximum amount to your IRA, you can then begin to put money in various investment vehicles that suit your return expectations and risk tolerance.

Develop a Disciplined Savings Approach

Think of your savings plan as a bill that you have to pay. If you have $500 left over to save, then make it a point to write a check for that amount at the end of the month to one of your investment accounts. Don’t miss a month.

Once you do this for awhile it gets kind of fun to watch your savings grow. You begin to feel better about your financial situation. Every month that you write that check, you take a positive step towards becoming financially independent.

Don’t Spend It

You must resist the urge to spend the money once you have a decent amount saved. Don’t spend your money on things you don’t need. Put that money to work for you so one day you can afford whatever you want!

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A debt consolidation program for medical bills helps to convert medical bill debts into monthly manageable payment. Debt consolidation programs also reduce the amount of monthly payment on medical bills. The debt consolidation program first understands the client?s needs and then restructures the payment plan. Many non profit organizations, agencies and online services conduct debt consolidation programs. These agencies have established communication links with a list of creditors. The creditors include the government, banks, credit unions, hospitals and other lending institutions.

There are different types of consolidation programs for secured and unsecured debts. A medical bill is a type of unsecured debt. Unsecured debts have higher interest rates. Debt consolidation programs first analyze the amount of medical debt and then prepare a payment plan. This payment plan is discussed with creditors to lower the interest rate. The reduction of average interest rate is on the total medical debt. Late fees, penalties and taxes are also discussed in the payment plan. The revised consolidated medical debt is then divided into easy monthly installments.

Debt consolidation programs for medical bills help to get easy installments from the creditor. The client requires a good credit rating to gain medical bill consolidation from creditors. Debt consolidation programs select creditors with minimum credit scores. They help in the supervision of debts more professionally and successfully.

The advantage of a debt consolidation program for medical bills is that the client has to pay only one medical bill against all the medical bill debts each month. Debt consolidation eliminates the past interest and penalty. It helps to keep current on medical bills. The client has to pay the actual medical debt amount through the debt consolidation program. The client becomes debt free by means of a well organized debt consolidation program.

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One of the best ways to save for your child’s future college expenses is by setting up a plan for savings through New York State’s 529 College Savings Program.

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