Financial Frontlines®

Maybe you’ve seen the email.  The Government is going to tax your health insurance benefits so the cost of the insurance will be added to your pay stub.  Well, hold your horses everyone.

Yes, the new law requires an entry on the W-2 showing the cost of employer-provided care.  But that doesn’t mean the employee will be taxed on it.  The purpose of including it on the W-2 is mainly to show the employee what the value of the benefit is.  As for the tax aspect:

First off, there isn’t any tax on health benefits value before 2018.  Then at that time, it’s not the employees but the insurance companies that provide those plans that will be taxed on part of such value.

Second, there won’t be any taxes imposed on plans that aren’t deemed “Cadillac” plans (which are defined as those costing more than $10,200 for individual coverage or $27,500 for a family plan).

Next, the IRS is the agency responsible for enforcing the mandatory health insurance requirement in the future and this is the way they can monitor this requirement. 

Finally, the tax won’t be on the total value of the plan.  Insurers will be assessed a tax equal to 40% of whatever share of the value exceeds the $27,500 threshold.  i.e., if the value of a plan is $30,000, the insurer will be taxed 40% of $2,500 = $1,000.

While the real answer isn’t as good as ‘no health insurance cost on pay stub’, it’s not as bad as it’s being presented.  If this is an issue to you regardless of the back story, at least now you can contact your representative without the half-cocked version.

Since the passage of the Health Care Reform bill, the number one question here at MOAA has been, “Will Tricare increase the age of a dependent to 26 to match the new law?”

Answer: Yes, but it won’t be soon. Military health care and Tricare fall under a different set of laws than the Health Care Reform act. Military health care requires changes in the National Defense Authorization Act (NDAA). For the dependent age to increase to 26, the NDAA must authorize it. It will. Probably when the NDAA for FY2011 is passed which is usually around October or November of this year.

Then, once the law changes to allow 26 year olds, it has to flow through the bureaucracy. This could take a year…give or take. After a legal change, all the directives, policies, instructions, regulations, publications, computer systems, publication in the Federal Register with the required comment period, and the contracts with the Tricare insurance providers must change.

Oh, and don’t be surprised if when this change occurs, coverage for dependents over the age of 23 requires a premium. Don’t have any info to base this on, just a “worse-case-scenario” hunch.

In the meantime, check out these options if you need health care for an older dependent:

Tricare Continued Health Care Benefit Program

The MOAA Short-term Health Plan

www.ehealthinsurance.com

Be Cautious About Giving Info to Census Workers

With the U.S. Census process beginning, the Better Business Bureau (BBB) advises people to be cooperative, but cautious, so as not to become a victim of fraud or identity theft.

The first phase of the 2010 U.S. Census is under way as workers have begun verifying the addresses of households across the country. Eventually, more than 140,000 U.S. Census workers will count every person in the United States and will gather information about every person living at each address including name, age, gender, race, and other relevant data.

The big question is – how do you tell the difference between a U.S. Census worker and a con artist? BBB offers the following advice:

** If a U.S. Census worker knocks on your door, they will have a badge, a handheld device, a Census Bureau canvas bag, and a confidentiality notice. Ask to see their identification and their badge before answering their questions. However, you should never invite anyone you don’t know into your home.

** Census workers are currently only knocking on doors to verify address information. Do not give your Social Security number, credit card or banking information to anyone, even if they claim they need it for the U.S. Census. While the Census Bureau might ask for basic financial information, such as a salary range, the Census Bureau will not ask for Social Security, bank account, or credit card numbers nor will employees solicit donations.

Eventually, Census workers may contact you by telephone, mail, or in person at home. However, the Census Bureau will not contact you by Email, so be on the lookout for Email scams impersonating the Census.

Never click on a link or open any attachments in an Email that are supposedly from the U.S. Census Bureau.

For more advice on avoiding identity theft and fraud, visit:

http://www.bbb.org/us/article/10306

http://www.snopes.com/fraud/identity/census.asp

I have received a number of calls and a couple of faxes from members upset about the premium increase in the Fed LTC program. The premium increase applies to the plan with the inflation protection. Members remember being told that under the inflation protection plan there would never be a premium increase. The faxes I received were copies of contracts that indicated no premium increase. Well, not exactly…

In the case of the Fed LTC plan, the guaranteed premium rate was for the contract period. The contracts are for 7 years. There was no guarantee that premiums would never go up—ever. Don’t be surprised if there is another premium increase in the next round of contract talks. If you get the inflation protection option when you re-up, which I highly recommend, you can be secure in knowing you will have no premium increase in the next 7 years even though your benefit amount will increase.

So why did the premium increase so much? According to Mike Causey’s Insight column in the Federal Employees News Digest, there were a couple reasons. One is the age of the applicants increased. This is a standard reason for higher premiums. The other reason, the use of the benefits was much greater than anticipated. LTC insurers don’t expect large payouts until people reach their 70s and above. The Fed plans are paying a larger number of beneficiaries in their 50s and 60s. Now why this occurred cannot be known. Were there more unfortunate Fed workers than the general population? Maybe more Feds applied for LTC knowing they had conditions that would one day require LTC. Either way, that the way it is.

So what about commercial LTC plans? Before working at MOAA, I was a financial adviser with a firm and I sold LTC policies when appropriate. I can state that no policies from any company ever stated there would never be a premium increase. All policies have contract provisions that allow premium increases on ‘classes’ of customers. Premium increases in LTC policies are not unusual and will probably become more common as we age and use the policies. If you have a policy with a smaller insurance company, your premium is more likely to be increased.

Homeowner assistance program begins tomorrow

By Karen Jowers – Staff writer
Posted : Tuesday Sep 29, 2009 12:13:16 EDT

A program to help military homeowners caught in the downturn of the housing market can start processing applications Wednesday, sources said, with the scheduled publication of the implementing rules in the Federal Register.
About 4,300 homeowners have already applied for assistance under the expanded Homeowners Assistance Program, which was signed into law Feb. 17 with $555 million in funding. Eligible are people on permanent change-of-station orders, wounded warriors, surviving spouses and those affected by base realignment and closure actions.
Wounded warriors and surviving spouses receive priority in the program, although about 98 percent of the applications received so far have been in the PCS category.
The Army Corps of Engineers, which runs the program, has been increasing staff and preparing to start processing applications. Some service members have said that HAP officials have been doing initial reviews of their applications, asking for more information, to further prepare in advance.
But the primary issue that has held up the program for six months still looms: Homeowners who receive benefits under the expanded HAP will have to pay taxes, and the taxes will be withheld upfront. Recently introduced legislation that would fix the problem and make the benefits tax-exempt is still pending.
For now, the tax requirement will limit the number of people who can be helped, because service members who are “upside-down” on their mortgages — those who owe more on their mortgages than the sale price of their homes — would not have enough money to take to the table to close the sale.
Defense officials have been exploring options that could help these service members.
Each individual’s situation will be different, and service members will have to decide what is best for their circumstances.
If they qualify for the program, those who have already sold their homes at a loss can be reimbursed for part of the loss, minus the tax withholding.
The program is retroactive for those who received PCS orders on or after Feb. 1, 2006. Homeowners affected by PCS or base closure actions must have purchased homes before July 1, 2006. Additional eligibility requirements will be included in the final rules.
Although there still will be a 30-day comment period on the implementing regulations in the Federal Register, the Corps of Engineers will be able to process applications starting the day of publication.
The tax issue is out of the Defense Department’s hands, and the Office of Management and Budget and the Internal Revenue Service had tried to come up with a resolution. Assistance under the original HAP, created to help those affected by base closure actions, is not taxed. But that tax exclusion was not written into the provision that expanded the program.