1. Personal Finance Garman/Forgue Twelfth Edition
Chapter 11: Managing Health Expenses
PPT slide program prepared by Amy Forgue and Ray Forgue.
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2. Introduction There are three finance related health care issues :
Direct medical care costs
Lost Income when you cannot work due to illness or injury
Long-term rehabilitative and custodial care costs
Health related losses can include the cost of direct medical care, the lost income resulting when you cannot work due to accident or illness, and the cost of rehabilitation. Insurance is available for all three of these potential losses.
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3. Your Next Five Years
In the next five years, you can start achieving financial success by doing the following related to managing health expenses:
1. Sign up for an employer-sponsored premium conversion plan and a flexible spending arrangement for medical and dental expenses, whenever they are available, to save money on taxes.
It is important to get off to a good start in your financial life. The first five years are critical and require that you do five things related to managing health expenses.
First, sign up for an employer-sponsored premium conversion plan and a flexible spending arrangement for health care, whenever they are available, to save money on taxes.
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4. Your Next Five Years
2. Consider using a bronze-level health care plan and health savings account if you are unable to afford the high costs of an HMO or traditional health insurance plan.
3. Consider maintaining coverage for health care expenses when changing employers using the COBRA law or a plan offered through the Affordable Care Act.
Second, consider using a high-deductible health care plan and health savings account if you are unable to afford the high costs of an HMO or traditional health insurance plan.
Third, always maintain coverage for direct health care expenses when changing employers using the COBRA law or a short-term health plan for protection.
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5. Your Next Five Years
4. Take advantage of employer-sponsored long-term disability income insurance if available or consider purchasing protection individually.
5. Create your advance medical directive document so your family will know your wishes.
Fourth, take advantage of employer-sponsored long-term disability income insurance if available or consider purchasing protection individually.
Fifth, regularly reevaluate your need for long-term care insurance against your resources for providing such care on your own.
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6. 2012 Cengage Learning. All Rights Reserved
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7. Learning Objective #1
Explain how the Affordable Care Act works, and how consumers shop and pay for health insurance coverage.
Learning objective #1 is to explain how the Affordable Care Act works, and how consumers shop and pay for health insurance coverage.
2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

8. The Affordable Care Act
Over the past decade over 45 million American were without health insurance at some point during a given year.
These people did not go without some health care because most hospitals are required to provide emergency care to anyone who needs it.
In recent years about 15 percent of Americans are without health insurance at some point in a given year. But they do get some health care.
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9. The Patient Protection and Affordable Care Act
Increase the quality and affordability of health insurance
Lower the uninsured rate by expanding public and private insurance coverage
Reduce the costs of healthcare for individuals and the government
mandates
insurance exchanges
subsidies

10. The Affordable Care Act
Prior to passage of the Affordable Care Act the cost of providing medical care to those people who were uninsured were passed on to the insurance companies and, thus, to the purchasers of health insurance; either employers or people who purchased their own coverage.
The cost of providing care to those who cannot pay for it is borne by those who can pay for their own health care or who are insured.
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11. The Affordable Care Act
The Affordable Care Act (ACA) was designed to address these issues by requiring that all persons have a health care plan.
The impact of this law was primarily on those 15 percent of Americans who had no health insurance protection.
The Affordable Care Act was designed to address these issues by requiring that all persons have a health care plan.
The impact of this law was primarily on those 15 percent of Americans who had no health insurance protection.
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12. The Affordable Care Act
The Affordable Care Act provides benefits, rights and protections
Employer mandate
> 50 full-time employees
≥ 30 hours
-People must buy a health care plan under the individual mandate.
-Those that do not must pay a tax penalty called an individual shared responsibility fee.
People must buy a health care plan under the individual mandate.
Those that do not must pay a tax penalty called an individual shared responsibility fee.
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14. The Affordable Care Act
Among the most important provisions of the ACA are;
No cancellation of policies or denial of coverage for preexisting conditions,
Men and women must be charged the same rates,
Free preventative care and annual checkups,
Among the most important provision of the ACA are;
No cancellation of policies or denial of coverage for preexisting conditions,
Men and women must be charged the same rates,
Free preventative care and annual checkups,
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15. The Affordable Care Act
No limits on maximum payouts,
Children can remain on a parents plan until age 26,
Prohibits overcharging of older consumers,
No need for a referral when choosing a provider within the plans network or outside the network for emergency care.
No limits on maximum payouts,
Children can remain on a parents plan until age 26,
Prohibits overcharging of older consumers,
No need for a referral when choosing a provider within the plans network or outside the network for emergency care.
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16. The Affordable Care Act
All health care plans must meet certain specified criteria and, thus, be a “quality” health care plan.
To be a quality health care plan all plans must provide 10 essential benefits of adequate coverage.
To be a quality health care plan, all health care plans must provide 10 essential benefits of adequate coverage.
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17. ACA’s Ten Essential Benefits
• Ambulatory patient services, such as doctor’s visits and outpatient services
• Emergency services
• Hospitalization
• Maternity and newborn care
Mental health and substance use disorder services, including behavioral health treatment
• Ambulatory patient services, such as doctor’s visits and outpatient services
• Emergency services
• Hospitalization
• Maternity and newborn care
Mental health and substance use disorder services, including behavioral health treatment
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18. ACA’s Ten Essential Benefits
Prescription drugs
Rehabilitative and rehabilitative services and devices
Laboratory services
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care
Prescription drugs
• Rehabilitative and rehabilitative services and devices
• Laboratory services
• Preventive and wellness services and chronic disease management
• Pediatric services, including oral and vision care
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19. The Affordable Care Act
Because the ACA mandates that people have a health care plan and plans can be expensive, the ACA provides for subsidies to make plans affordable.
Because the ACA mandates that people have a health care plan and plans can be expensive, the ACA provides for subsidies to make plans affordable.
2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

20. The Affordable Care Act
The Affordable Care Act established health insurance exchanges. These are on-line marketplaces where one may shop for, compare, and purchase a health care plan.
The Affordable Care Act established health insurance exchanges. These are on-line marketplaces where one may shop for, compare and purchase a health care plan.
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21. The Affordable Care Act
Under the ACA, plans are grouped into four categories depending on the percentage of out-of-pocket costs you must pay in a given year before the plan begins to pay 100 percent.
Under the ACA, plans are grouped into four categories depending on the percentage of out-of-pocket costs you must pay in a given year before the plan begins to pay 100 percent.
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22. The Affordable Care Act
Bronze—40 percent
Silver—30 percent
Gold—20 percent
Platinum—10 percent
Bronze—40 percent
Silver—30 percent
Gold—20 percent
Platinum—10 percent
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23. The Affordable Care Act
In summary, the ACA:
Mandates health insurance;
Sets minimum standards to ensure that plans are of high quality;
Provides subsidies to help the uninsured afford insurance;
Sets up an on-line marketplace to make it easy to shop for and buy a plan.
the ACA
Mandates health insurance
Sets minimum standards to ensure that plans are of high quality
Provides subsidies to health the uninsured afford insurance
Sets up an on-line marketplace to make it easy to shop for and buy a plan.
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24. The Affordable Care Act
Expansion of Medicaid
raised income ceiling to 133% poverty level
25 states & District of Columbia
Medicaid gap
the ACA
Mandates health insurance
Sets minimum standards to ensure that plans are of high quality
Provides subsidies to health the uninsured afford insurance
Sets up an on-line marketplace to make it easy to shop for and buy a plan.
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25. Concept Check 11.1
Summarize what the Affordable Care Act is supposed to accomplish.
How much is the penalty if you do not purchase health insurance and your income is $40,000.
Assess your understanding by addressing these points.
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26. Concept Check 11.1
If you choose a “silver” health insurance plan, how much of your out-of-pocket medical costs will be paid by the plan?
Assess your understanding by addressing these points.
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27. Learning Objective #2
Distinguish among the types of health care plans.
Learning objective #1 is to identify ways that people can manage the financial burdens resulting from illness or injury.
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28. Addressing the Financial Burdens of Illness or Injury
A health care plan is generic name for any program that pays for or provides reimbursement for health care expenses.
Many people obtain a health care plan through a group health plan; typically through their employer.
Most people have their health care plan through a group plan—typically via employment. Group Health Plans are sold or provided collectively to an entire group of people rather than to individuals. As a result, the per member cost is reduced.
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29. Addressing the Financial Burdens of Illness or Injury
Health care plans can be:
Traditional Health Insurance
High-deductible Plans
Health Maintenance Organizations (HMOs)
Preferred Provider Organization (PPO)
Provider-Sponsored Network (PSN)
For most people, coverage for direct medical care expenses is available from one of four major types of plans.
Health Maintenance Organizations (HMOs) are a form of prepaid health care.
Traditional health insurance operates like any other form of insurance with reimbursement provided for covered losses.
High-deductible plans focus on coverage for catastrophic health care events with most smaller losses paid for the by the insured party.
Government plans include Medicaid for low-income households, Medicare Parts A and B for the elderly and the S-Chip programs for children of families with moderate income and no access to another type of plan.
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31. Addressing the Financial Burdens of Illness or Injury
Government Health related care plans include:
Medicare Parts A, B, and D for those age 65 and over
Medicare Advantage Plans
Medicaid and Expanded Medicaid for lower-income Americans
For most people, coverage for direct medical care expenses is available from one of four major types of plans.
Health Maintenance Organizations (HMOs) are a form of prepaid health care.
Traditional health insurance operates like any other form of insurance with reimbursement provided for covered losses.
High-deductible plans focus on coverage for catastrophic health care events with most smaller losses paid for the by the insured party.
Government plans include Medicaid for low-income households, Medicare Parts A and B for the elderly and the S-Chip programs for children of families with moderate income and no access to another type of plan.
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32. Tax Consequences of Managing Health Expenses
Premium Conversion
Flexible Spending Arrangement (or FSA)
Health Savings Account (or HSA)
Health Reimbursement Arrangement (or HRA)
Health expenditures can be used as itemized deductions
Employers can assist their employees who choose a consumer driven plan by offering premium conversion whereby the employee’s share of the plan premium is paid with pre-tax dollars, a flexible savings arrangement that allows the employee to fund qualified medical and dental expenses on a pre-tax basis, a tax-deductible health savings account to set aside funds to pay for health care expenses, and a health reimbursement arrangement t through which the employer provides funds to their employees for health care expenses. Finally, any health care expenses not paid via these other mechanisms may be taken as an itemized deduction on one’s tax return to the extent that they exceed 10 percent of one’s adjusted gross income (AGI)
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33. Concept Check 11.2
Distinguish between health maintenance organizations (HMOs) and traditional health insurance.
Identify two benefits of selecting a preferred provider organization (PPO) when seeking health care.
Assess your understanding by addressing these points.
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34. Concept Check 11.2
List three ways you can save on taxes when paying for health care or insurance.
Assess your understanding by addressing these points.
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35. Learning Objective #3
Describe the typical features and limitations of health care plans.
Learning objective #2 is to distinguish among the types of protection for direct health care expenses.
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37. Your Health Plan Benefits and Limits
Certificate of Insurance: This is the document or booklet that outlines group health insurance benefits.
Whether you use an HMO or health insurance, you will have entered into a contract with the provider. The contract for individual plans will be the insurance policy or HMO contract. The contract for group plans is between the group provider—usually an employer—and the health plan. Members will receive instead a certificate of insurance outlining their benefits. Regardless of the type of document used you will want to fully understand its terms and conditions.
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38. Your Health Plan Benefits and Limits
What Types of Care Are Covered?
Hospital, surgical and outpatient care
Prescription drugs
Dental expense insurance
Vision care insurance
The first question is the types of care provided. Traditional health insurance and HMOs cover a broad range of health care procedures, prescriptions and service. Dental expense and vision care insurance are also included as required by the Affordable Care Act.
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39. Making Sense of Your Health Plan Benefits
How Much Must Your Pay Out of Your Own Pocket?
Deductibles
Copayments
Coinsurance clause
All plans have some provision for the member to pay some portion of their health care expenses out of their own pocket. These payments take three forms.
Deductibles required that the member pay the first dollars of any health care during the year. Deductibles are usually in multiples of $100. An example might be $200 per person and $500 for the family under a family plan.
Copayments are specific dollar amounts that must be paid for certain items of care. Examples might be $5 per prescription and $25 per doctor’s office visit.
Coinsurance requires the member to pay a percentage of any expenses after payment of the deductible and copayments. The typical percentage is 20 percent. Most plans with coinsurance place a cap on the amount the member must pay such as $1000 or $2000 per year.
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40. Concept Check 11.3
Distinguish among a deductible, a copayment, and coinsurance.
Explain COBRA rights and portability rights that apply when you leave a job that has a group health care plan.
Assess your understanding by addressing these points.
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41. Concept Check 11.3
Explain the linkages among premium conversion plans, flexible savings arrangements and health savings accounts (HSAs) and health reimbursement accounts (HRAs).
Assess your understanding by addressing these points.
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42. Learning Objective #4
Explain the basics of planning for long-term custodial care.
Explain the basics of planning for long-term custodial care.
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43. Planning for Long-Term Custodial Care
Injuries, severe illnesses and certain conditions such as Alzheimer’s disease often require a long period of custodial care in a nursing home or at home. Because this care is custodial and not directly medical in nature it is not covered by health care plans.
Long-term care insurance provides reimbursement for costs associated with custodial care in a nursing facility or at home.
Many serious health events such as heart attack, stroke and cancer require that you receive rehabilitation and custodial care after the medical interventions have been completed. Health care plans tend not to cover such long-term care.
Long-term care insurance can be purchased to protect against such expenses.
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44. Planning for Long-Term Custodial Care
The degree of impairment required for benefits to begin
Activities of Daily Living (ADLs)
The level of care covered
Skilled nursing care
Intermediate care
Custodial care
Eligibility for reimbursement under a long-term care plan is based on the degree to which someone can perform certain activities of daily living. The fewer the number of these that is required the more generous the plan. ADLs also dictate the degree to which the level of care is categorized as skilled, intermediate or custodial
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45. Planning for Long-Term Care
The person’s age
The benefit amount
The benefit period
The waiting period
Inflation protection
When planning for long-term care insurance you will also want to consider several factors.
The person’s age—the older the person is the higher the cost in keeping with the higher likelihood of requiring care.
The benefit amount is generally quoted on a per day basis. The cost of a stay in a skilled nursing facility can approach $200 per day or more. One can purchase a plan covering $160 per day in such an instance and self-pay for the remaining $40.
You will also want to trade-off the benefit period and the waiting period. Selecting a longer waiting period will allow you to afford a longer benefit period.
The costs associated with rehabilitation and custodial care go up every year. Including an inflation protection clause that increases your benefit amount is a good idea.
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46. Concept Check 11.5
Describe the protections provided by long-term care insurance.
Distinguish between the benefit period and the waiting period for a long-term care policy.
List three aspects of long-term care insurance that affect the cost of a policy.
Assess your understanding by addressing these points.
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47. Learning Objective #5
Develop a plan for protecting your income when you cannot work due to disability.
Learning objective #5 is to develop a plan for protecting your income when you cannot work due to disability.
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48. Protecting Your Income During Disability
Disability income insurance
Social Security disability insurance
Two mechanisms are available to replace at least a portion of your income when you cannot work due illness or injury. Disability income insurance can be purchased individual or through a group plan. Plans typically will provide percent of your prior income.
Many workers may qualify for Social Security disability income insurance based on taxes they have paid into the Social Security system. Being eligible also depends on the degree of disability. You must be unable to work at any job and the disability must be expected to last for one year or until death whichever is shorter.
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49. Protecting Your Income During Disability
What is your level of need?
Long-term disability policies will typically only cover about percent of the insured’s after-tax income.
Long-term care policies will typically only cover about percent of the insured’s after-tax income.
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50. Protecting Your Income During Disability
What is your level of need?
Calculation of needs starts with current after-tax income and then subtracts Social Security disability benefits, employer-based disability benefits, and any other existing disability insurance.
Calculation of needs starts with current after-tax income and then subtracts Social Security disability benefits, employer-based disability benefits, and any other existing disability insurance.
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51. Protecting Your Income During Disability
Important disability income insurance policy provisions:
Waiting period (or elimination period)
Benefit period
A longer waiting period will help you afford a longer benefit period.
When you buy disability income insurance you specify the percentage of income you wish to replace, when benefits should begin and how long benefits will last. You will want to design a plan that has the longest waiting period you can handle. This will allow you to select the longest benefit period affordable. It is the long periods of disability that can destroy one’s financial well-being.
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52. Protecting Your Income During Disability
Consider the degree of disability.
An own-occupation policy will provide benefits if you can no longer perform the occupation you had before becoming disabled.
A residual clause allows for reduced benefits when a partial disability occurs.
An own-occupation policy will provide benefits if you can no longer perform the occupation you had before becoming disabled.
A residual clause allows for reduced benefits when a partial disability occurs.
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53. Protecting Your Income During Disability
An any-occupation policy will provide full benefits only if you cannot perform any occupation. Typically, it will provide the difference in income between your prior and after-disability occupation.
An any-occupation policy will provide full benefits only if you cannot perform any occupation. Typically, it will provide the difference in income between your prior and after-disability occupation.
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54. Protecting Your Income During Disability
Important disability income insurance policy provisions:
Social Security rider
Cost-of-living adjustments
Disability income insurance plans may also include a Social Security rider that will provide protection if you fail to qualify for Social Security disability benefits.
Finally, you should consider buying a policy that provides for cost-of-living adjustments so that your benefits keep up with inflation.
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55. Concept Check 11.5
Explain how you determine your level of need for disability income insurance.
Identify the major policy provisions to consider when purchasing disability income insurance.
Assess your understanding by addressing these points.
2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

56. Concept Check 11.5
Distinguish between any-occupation and own-occupation disability income insurance plans.
Describe how you might adjust the waiting period on a disability income insurance policy in order to affordably obtain a longer benefit period.
Assess your understanding by addressing these points.
2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

57. Learning Objective #6
Summarize the benefits of preparing advance directive documents.
Learning objective #6 is to summarize the benefits of preparing advance directive documents.
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58. Create Advance Directive Documents in Case You Become Incapacitated
Advance Medical Directive: a medical guideline that pertains to treatment preferences and the designation of a surrogate decision maker if you are unable to make your own medical decisions.
It is very common for a person to become unable to handle their affairs in the weeks or months prior to death or even when severe illnesses or injuries occur although death is not imminent. Effective financial planning requires that you make provisions for such circumstances through a number of advance directive documents.
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59. Create Advance Directive Documents in Case You Become Incapacitated
Health Care Proxy: legal document in which individuals designate another person to make health care decisions if they are rendered incapable of making his or her wishes known.
A health care proxy is used to name someone else to make and communicate health care decisions on your behalf if you are unable to do so.
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

60. Create Advance Directive Documents in Case You Become Incapacitated
Living Will: instructs health care providers of your wishes should you become terminally ill with no hope of survival and unable to express your wishes.
With a living will you can state your wishes for the level of care you wish to receive should you become terminally ill with no hope of survival and unable to make your wishes known to your health care providers.
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

61. Create Advance Directive Documents in Case You Become Incapacitated
Durable Power of Attorney: a document in which you appoint someone, called an attorney-in-fact, to handle your legal or business matters and sign his or her name to documents.
With a durable power of attorney you name someone to handle your finances and other business matters while you are incapacitated.
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

62. Concept Check 11.6
Offer three reasons why people should create advance directive documents.
What does a health care proxy achieve, and how does it differ from a living will?
Assess your understanding by addressing these points.
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

63. Concept Check 11.6 What does a durable power of attorney provide?
Assess your understanding by addressing these points.
2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

64. Worst Financial Blunders in Managing Health Expenses
Based on others’ financial woes, you will make mistakes in personal finance when you:
1. Pay the tax-penalty assessed under the Affordable Care Act because you fail to enroll in a health care plan. .
Avoid these blunders that are typical for people who are less than successful in their financial planning.
Go unprotected for health care when you change jobs.
Duplicate employer-provided health care protection with your employed spouse.
2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

65. Worst Financial Blunders in Managing Health Expenses
2. Duplicate employer-provided health care protection with your employed spouse.
3. Ignore your need for disability income insurance.
2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

66. Do It NOW!
You know more about personal finance after reading this chapter, so get started right now by:
1. Learning exactly what group health care coverage you actually do have through your job, your school, and/or your family.
You do not have to wait to get started on managing health expenses. Get started today by doing these three things.
Learn exactly what group health care coverage you actually do have through your job, your school, and/or your parents.
2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

67. Do It NOW!
2. Investigating the possibility of saving on income taxes via a premium conversion plan, flexible spending arrangement, or health savings account (HSA).
3. Create living will and health care proxy documents.
Investigate the possibility of saving on income taxes via a premium conversion plan, flexible spending arrangement, or health savings account (HSA).
Identify one behavior that you engage in that could lead to health problems later in life and taking steps to reduce their impact.
2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.

68. 2012 Cengage Learning. All Rights Reserved
2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or on a password-protected website for classroom use.