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Yesterday, the U.S. House of Representatives narrowly passed the American Health Care Act (or as many are calling it, “Trumpcare”) by a vote of 217 to 213. Initially, it was determined by Republican House leadership that the bill was not strong enough to pass a vote. The discussion appeared to be tabled indefinitely. However, after a few amendments to the bill over the course of the last month, there was enough to satisfy the Republican members of the House to ensure a vote would carry with it a passed bill.

I’m going to try my best to discern fact from fiction, remove the propaganda from both Democrats and Republicans, and tell you exactly what this bill means for your healthcare. Depending on who you talk to, you may be hearing things like “tens of millions of people with pre-existing conditions will lose their healthcare,” or “Obamacare is dead, long live Trumpcare.” If you’re on the outside and haven’t actually read the bill, it’s not easy to figure out who is telling the truth and who is lying (SPOILER: in politics, everyone lies).

So, let’s dive right into what this bill does and doesn’t do, and how it could affect your future healthcare.

Pre-Existing Conditions

This single topic is the one that divides the Republican party more than any other. Under Obamacare, anyone that was sick could purchase health insurance through the federal or state exchange. They could even do so at the same price as a someone who had no pre-existing condition.

The idea behind the increased coverage was that by forcing a mandate, more healthy people would pay for health insurance. Their premiums would cover the cost incurred by insurance companies to cover those that were sick, balancing the scales a bit. This meant that millions of Americans, who previously could not get health insurance at an affordable cost, now could under Obamacare. What happens to these individuals if Trumpcare is signed into law, though?

The answer is: absolutely nothing. Any person currently covered under Obamacare who maintains continuous healthcare coverage (which is defined in this bill has not having lapsed for longer than 63 days) cannot be charged a higher premium because of a pre-existing condition. It doesn’t matter what state you live in, and it doesn’t matter what condition or how many conditions you have. Your insurance will be the same as those that have no pre-existing condition.

Examples of pre-existing conditions under Trumpcare:

  • Parkinson’s disease
  • Epilepsy
  • Alzheimers or dementia
  • Kidney disease
  • Sleep apnea
  • Multiple Sclerosis
  • Cerebral palsy

So, what is changing about pre-existing conditions? The primary change is for those that do NOT have health insurance–or whose coverage lapses for longer than the 63 day threshold. If these people then do get sick and look to purchase health insurance, it’s going to be expensive.

Federal law will allow for a specific premium increase (right now, 30%) to be charged for each pre-existing condition. Then on top of that, individual states can request a waiver to increase costs for new premiums even further. States must prove that they are requesting a waiver so that they can either lower premiums for everyone OR cover more people as a result of the waiver. In this way, people who choose not to have health insurance and then get sick will no longer be able to buy healthcare at, what I can only define as, an affordable rate.

Income-Based Subsidies Disappear

Under Obamacare, those looking for health insurance could receive government subsidies based on their income. The smaller the amount of income, the more in subsidies.  This allowed the poor to be able to afford healthcare (in some cases, making it free) and ensuring that the rich were not getting benefits from the system. With Trumpcare, however, the subsidies are based on age rather than income level.

Here is a breakdown of the annual tax credits received from Trumpcare:

  • Someone that won’t turn 30 in the calendar year – $2,000
  • Someone that won’t turn 40 in the calendar year – $2,500
  • Someone that won’t turn 50 in the calendar year – $3,000
  • Someone that won’t turn 60 in the calendar year – $3,500
  • Someone over 60 years of age – $4,000

The amount you see above begins to phase out for those that earn more than $75,000 (or couples that earn $150,000), starting with 10% and going down from there. So, the very wealthy will not receive any government subsidy. However, for example, my family of four (me, my wife, and two children under the age of 4) would receive a total subsidy of $9,000 to pay for health insurance. My current income level means it would not phase out, and as our current health care premiums are $800 a month, the subsidy would be welcomed by my family (and our budget).

Related: How to Save Money on Healthcare Costs

This change in policy would affect the lower class more than anyone else in terms of a negative impact. For some families that are completely covered by Obamcare, they would now owe a portion of their monthly premiums. As a result, the fear from many is that they will no longer be able to make their payments, thus fall into the lapse period and then not have the ability to purchase coverage should they get sick.

All of this said, the change in subsidies from income based to age-based would take effect on January 1st, 2020. It wouldn’t be an immediate impact and would allow families to plan for the changes.

Higher Costs for the Elderly

Under Obamacare, the elderly (ages 55 and above) can currently be charged up to 3x the cost of their premium compared to that of a younger person (under 30). That’s not to say that every plan features this kind of charge, however the option is available to insurers. Under Trumpcare, that charge increases to 5x. Because of the ability for individual states to apply for waivers, there is the potential for them to increase that cost even higher.

Read More: How to Afford Healthcare In Retirement

For this very reason, groups like the AARP have voiced their opposition to this bill, as many seniors would see risings costs as a result. When the first version of this bill (that was not voted on) was scored by the Congressional Budget Office (CBO), the average estimated increase in cost to annual premiums for the elderly was ~$3,200. That amount could be off-set by some of the changes being made to the Medicare portion of healthcare; however, it is expected that most elderly Americans will see a rise in their healthcare costs.

High Risk Pools May Fill Too Quickly

One of the reasons this bill has taken so long to pass the House is that some Republican lawmakers were concerned about high risk pools running out of money. These are the pools that will take care of people with pre-existing conditions, who have a lapse in coverage, and who will require the most funding for their healthcare costs. The current law has included $138 billion in funding for these pools over the course of 10 years to help insurance providers subsidize some of the claims made.

However, while $138 billion sounds like a lot of money, some estimate that the actual amount needed to cover high risk pools is in excess of $300 billion. The Upton Amendment, named after Congressman Fred Upton (R-MI), added an extra $8 billion to this pool, which was enough to get a few additional (and much-needed) votes.

But even though $8 billion sounds like a ton of money, it covers less than you’d think. When getting into the weeds of healthcare for high risk individuals, that money is likely only to cover an additional ~100,000 people.

Healthcare Mandate Disappears

Under Obamacare in the 2016 tax year, if you decided not to buy healthcare, you would be charged a penalty based on the income you earned. For example, my mother (who refuses to listen to my advice) was charged a $2,300 penalty for not having health insurance. Under Trumpcare, the mandate disappears, and no penalty is charged.

The upside for the young and healthy is that if they choose not to carry insurance, they will no longer have to pay out of pocket for that choice. The downside is that if those same healthy people all of a sudden get sick, their premiums will be much higher should they decide to then buy health insurance. However, even that is not much of a downside because the money saved over the years of not paying for health insurance may still be greater than the amount they need to pay on top of their new health care premiums. So, in the end, they’ll have likely saved more money.

The Obamacare mandate never seemed to provide a great enough incentive to get healthy young people signed up for health insurance. This caused health insurance companies to take in too little revenue while paying too much in health care costs. The result is what you see now. Every day, it seems as if insurers are pulling out of different state markets, reducing the plans available to residents.

But That’s Not All… Another Insurance Giant Pulls Out of Obamacare

The Final Word on Trumpcare Part One

Depending on whether or not you’re a fan of the above changes, I have good or bad news for you. These details discussed are not yet law, and there could be (and likely, will be) significant changes. The bill that passed the House of Representatives probably will not be voted on by the Senate; instead, the Senate will write their own healthcare bill and vote on that (when Republicans feel they have the 51 votes needed to pass).

This doesn’t mean everything you’ve read above won’t happen, but it does mean that the finished Trumpcare product could look substantially different than the one that was just voted on. If the Senate passes a bill significantly different than the one the House just passed, then both houses of Congress will have to get together and compromise on a bill that they both endorse. At that point, the bill hits President Trump’s desk, and I believe the odds are somewhere in the 100% range that it will be signed into law.

There is another possibility, however: the Senate may not be able to create a law that can pass, and when they vote on the House version, it could be struck down.

There are no guarantees as to how or when the finished version of Trumpcare will take effect, but many expect something to be completed before the end of August. If that’s the case, millions of Americans will soon be shopping for new healthcare plans. When that happens, we’ll do our best to keep you apprised of the different policy options.

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Former President Barack Obama signed an order into law back in March 2010, which later became known as Obamacare. He did so with the hope that it would revolutionize the way Americans handled their healthcare.  However, if Obamacare was to ever survive, it required a large number of healthy individuals to sign-up for healthcare.

To “persuade” healthy individuals to sign up for plans, Obamacare included a mandate. This required everyone in the United States who didn’t have other healthcare to sign up for healthcare on either the state or government exchanges… or else.

trumpcare

This meant that if you had healthcare from your employer, you were covered. If you signed yourself and/or your family up on the exchanges, you were covered. But if you currently had no health insurance, and did not have an employer that offered it to you, then you either had to sign up for healthcare on the exchanges or face a financial penalty. In 2016, the penalty for not having health insurance was $695 per adult, $347.50 per child, OR 2.5% of your adjusted gross income (whichever number was higher), with a maximum amount per family of $2,085.

Now, on its face, that amount might make you think, “Geesh, I better get health insurance.” The sad reality of the mandate, though, was that it wasn’t punishing enough.  Let’s take a healthy individual, who hypothetically needs to pay $500 a month in health insurance premiums. Many of them would rather just pay the $695 one-time penalty than fork over $6,000 for health insurance premiums in a given year.

Related: Another Insurance Giant Pulls Out of Obamacare

The end result was tens of millions of Americans still declining to sign up for Obamacare, which meant the amount of money in the health insurance pool was far lower than what was predicted.  To compensate, health care providers increased the costs for existing exchange owners, sometimes as much as 115% year over year.  Hanging by a thread, the law needed Hillary Clinton to be elected president in order to survive. Instead, it was given Donald Trump.

Obamacare Mandate

Goodbye Obamacare Mandate

It may feel like Donald Trump has been president for four months and not four weeks. However, if you can think all the way back to President Trump’s first executive order, it was one to remove the enforcement of the Obamacare mandate. To put it simply, President Trump ordered the U.S. government to defer to the individual, rather than the government, should a dispute arise regarding the enforcement of the mandate. This didn’t really mean much the day he signed it because its implementation was unclear. However, last week the IRS put out a statement that said, “If you don’t answer the healthcare question on your tax return, we will still accept your return.”

Wait… what?

So, Line 61 of your 1040 tax return will ask if you had healthcare coverage for more than 9 months in the 2016 tax year.  Before this change in policy, you had three options to answer the question:

  • You can check YES, and show proof of coverage
  • You can check NO, and expect the penalty amount above to be included in your return
  • You can check EXEMPT, and show proof of exemption

Now, there’s a fourth option for every US taxpayer:

  • Naa Na Naa Na Naa Naa, I’ll never tell you

To be clear here, there is no guarantee that if you leave the question unanswered, the IRS will simply look the other way.  The IRS has not explicitly said they will be avoiding all Obamacare penalties for the 2016 tax year. However, considering they’ve decided to allow taxpayers to leave this question blank, it’s highly unlikely that they plan to create more work for themselves and audit individuals who choose to avoid the question.

Thus, in one stroke of the pen, the mandate is done. This all-but-means that Obamacare has been effectively killed, and the need for a replacement healthcare plan is of great urgency.

What Will a Trumpcare Mandate Look Like?

Knowing that the end is near for Obamacare (you might say it’s already here), the next logical question is: Will there be a Trumpcare mandate and, if so, what will it look like?

Well, I’m here to tell you that a gentleman by the name of Tom Price proposed a conservative healthcare plan back in 2015…and wouldn’t you know it, he’s just been confirmed as the new Health and Human Services Secretary. Without getting into specific detail about the entirety of the plan, I’d like to focus squarely on his idea for how to make a mandate work in the future.

The crux of Obamacare, and the part that Republicans have always hated, was that it forced people to buy health insurance, even if they didn’t want it. But you see from the text above that the only way a national healthcare plan would work is if everyone contributed, healthy or otherwise. So, how can a Republican plan provide enough money so that those with Obamacare do not lose coverage AND people that don’t want health insurance don’t have to buy it?

Tom Price proposed two main ideas:

  • This should not be national health care. It should be private and sold across state lines, which is expected to increase competition and lower prices.
  • Pre-existing conditions should be included, so long as the consumer has had 18 consecutive months of healthcare coverage.  If someone without healthcare suddenly gets sick and tries to buy coverage, they can be charged appropriate rates based on a previous medical condition. Also, their current healthcare costs can potentially be increased by 50% annually, for up to three years.

The best analogy I can think of is comparing this idea to your auto insurance policy. If you’ve just signed up for auto insurance and get into a big accident, your insurance provider is likely to increase your rates substantially. However, if you’ve been with your auto insurance carrier for years, you likely have small (or large) accident forgiveness, so your rates are not increased. Similarly, if you’re healthy and have avoided buying health insurance for years and then get sick, don’t expect to walk through the door with a low-cost health insurance policy.

Resource: 15 Auto Insurance Discounts You May Be Missing

Now, this is not to say that the healthcare proposal Congressional Republicans put forward will include a mandate specifically like the one above. It is simply an idea on how to go about getting people to pay for health insurance, without forcing them to pay for health insurance. You can bet any plan that we see proposed in the next few weeks will receive extreme scrutiny from tens of millions of Americans, so the benefits and drawbacks will be widely known.

Make sure that when the dust settles, you’ve done your research on whatever 2018 health insurance looks like, and do the best for you and your family. Something tells me you won’t be short of options.

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After pulling out of a merger deal with Aetna, major insurance company Humana announced that it will drop out of the Affordable Care Act exchange in 2018. The company had already been scaling back its plans available on the exchange. For 2017, it was only selling policies in 11 states.

Although Humana has been a relatively small provider in the Obamacare healthcare marketplace, its pulling out of Obamacare may signal more changes to come. Humana cited an “unbalanced risk pool” as its reason for pulling out of the marketplace. But Humana, like many insurance companies, is likely anxious about the future of the entire Affordable Care Act.

Related: Insurance Giant Aetna Pulls Out of Obamacare

Congress and President Trump have promised to “repeal and replace” the ACA, but haven’t given many details about their plans. Because of this, many insurance companies have already pulled out of the healthcare marketplace.

According to the Kaiser Family Foundation, 18 states have only one or two insurers in their marketplaces in 2017. In general, insurer participation increased between 2014 and 2015, but dropped significantly between 2016 and 2017. Alabama, Alaska, Oklahoma, South Carolina, and Wyoming each have only one insurance company operating in their exchanges. Many states maintain diverse exchange offerings, but participating insurers are still on the decline.

So what does it mean for you?

As noted above, Humana was only offering health insurance plans in 11 states for 2017. If you’re one of the consumers currently covered by a Humana plan through the individual marketplace, you’ll have to find an alternative plan next year. You can, however, keep your current plan through the end of the year.

On a grand scale, Humana’s change of heart won’t directly affect many consumers. With that said, Humana’s exit puts even more pressure on the Republican Congress and White House administration to make some serious changes to the healthcare law.

More Ahead: President Trump’s Proposals for Childcare

With more insurers leaving the marketplace, those that remain are likely to increase their 2018 rates in an attempt to ward off further financial losses. Those costs will fall to the consumers if the law isn’t altered or replace quickly and efficiently.

It remains to be seen what sorts of changes the Trump administration and the Republicans in Congress have for the Affordable Care Act. But with major players like Humana pulling out, the pressure is on to come up with a solution–one the insurance companies can live with–sooner rather than later.

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Retirement is a huge financial undertaking, as we all know. It requires plenty of planning to ensure that all of your needs will be met once your career, and working income, ends. It needs to be able to cover your costs of living, some fun money to actually enjoy your years, and expenses such as healthcare. Of course, the latter become becomes even more important as we age, but many seem to overlook the magnitude of this expense in their planning.

The average person between the ages of 55 and 74 with retirement savings has only $104,000 to $148,000 tucked away in a defined benefit account. What’s even more concerning is that this statistic only reflects 48% of American households. The rest of them have no retirement savings at all.

Those with retirement savings tend to also have other resources to depend on, such as non-retirement investment accounts. On the other hand, those without retirement savings tend to have less of those resource, too.

What does this mean for costs associated with retirement? It means that many Americans will struggle to afford to retire at the standard age of 65. And those who do will have trouble meeting their monthly expenses, including health care.

In fact, 74% of married partners said they worry about unexpected medical costs in retirement. With the cost of health care in retirement being such a big concern, it’s important to consider the actual numbers and plan accordingly.

How Much Does Health Care Cost In Retirement?

According to a 2015 study conducted by Fidelity, a couple, both aged 65, can expect to spend about $245,000 on health care during their retirement. That’s over $12,000 a year — or $1,000 a month — based on average life expectancy!

Why is this so expensive? When you factor in copays, out-of-pocket costs, and dental and vision care, you’ll easily see how the numbers add up quickly. That’s exclusive of any insurance premiums, too.

Speaking of health insurance, here’s a breakdown of how insurance provided by the government works:

Medicare Part A

Hospital Insurance

As long as you or your spouse paid Medicare taxes while working, you won’t have to pay a premium for this coverage.
It mainly covers hospital inpatient care, skilled nursing facility care, hospice care, and home health care.
Medicare Part B

Medical Insurance

Most people will pay $104.90 per month.
It mainly covers services from doctors, outpatient care, durable medical equipment, and some preventive services.
Medicare Part C

Medicare Advantage Plus

Monthly premium varies greatly, but can be up to $200 per month.
It mainly covers everything in Parts A and B and is run by Medicare-approved private insurance companies.
Medicare Part D

Prescription Drug Coverage

Monthly premium varies greatly, but can be up to $100 per month.
It mainly helps cover the cost of prescription drugs.

As you can see, if you opt for all parts of government-provided medical insurance, you can pay up to $400 in monthly premiums per person. This is exclusive of the other costs associated with health care as mentioned above: copays, out-of-pocket expenses, and auxiliary care.

There are ways plan for these expenses, however. The main thing you can do is start saving early.

How To Plan For Health Care Costs In Retirement

Your first plan of attack should be your employer’s retirement account, if one is offered. According to the American Benefits Council, nearly 80% of full-time workers have access to an employer-sponsored defined benefit account, such as a 401(k)/403(b). So if you’re one of many offered this benefit, make sure you take advantage.

Saving even just a small percentage of your salary will make a big difference if you start early. You can begin by saving a mere 3% of your salary, then gradually increase your contributions until you reach 10%. This is generally considered the target amount to save.

This is just a recommendation though. If you can contribute even more, by all means do so.

If you max out your 401(k)/403(b) by contributing $18,000 in 2016 ($24,000, if over the age of 50), investing in an individual retirement account (IRA) is a great next step. Although the annual contribution limit for IRA’s and Roth IRA’s is much lower than that of 401(k)s/403(b)s, the extra savings will help you cover cost of your future health care.

Lastly, saving money in a Health Savings Account (HSA) is a great way to plan for covering medical expenses in retirement. If you are currently enrolled in a high-deductible health insurance plan, you are eligible to contribute to an HSA.

HSAs offer a triple tax benefit. First, HSA contributions are tax deductible. Second, the interest earned on money in an HSA is tax-free. Third, you can withdraw money from your HSA for qualified medical expenses tax-free, as well.

HSAs can be considered retirement funds because there is no carry-over limit, unlike Flexible Spending Accounts. So, the money you contribute today can be used for health care costs in retirement years later.

How To Offset Health Care Costs Once In Retirement

In today’s economic environment, retirement doesn’t necessarily meaning relaxing on sandy beaches. The unfortunate reality is that many people must continue to work in order to supplement Social Security and their minimal retirement savings.

Working a part-time job during the early years of retirement can greatly offset the cost of health care. In fact, you could even save some of your earnings from your part-time job and put it into a retirement savings account to use in future years.

Here are a few ideas of part-time jobs you can take up that won’t be taxing on your health:

  • Consultant: Transfer all the skills you accumulated from your day job over the years and use those expertise to help other companies accomplish their goals.
  • Freelancer: Use your talents to do one-off assignments for businesses. This could include graphic design, writing, proofreading, and much more.
  • Blogging: It can take a while to make money from a blog. But once you get the ball rolling, this gig can bring in a lot of income.

Other Things To Consider

Aside from Medicare, Social Security, and your retirement savings, there may be other ways to cover the cost of health care in retirement.

One thing to consider is COBRA. Under the Consolidated Omnibus Budget Reconciliation Act, federal law requires that companies with more than 20 employees give them the option to continue receiving coverage under the employer’s health plan for at least 18 months.

With COBRA, however, you’ll be responsible for the entire cost of the health plan. While working, your employer likely paid for a large percentage of the premium. This expense will be wholly your responsibility with COBRA.

You may want to consider continuing your employer’s health plan before enrolling in Medicare. Your employer’s health plan will likely cover more medical expenses.

On that note, if you want a more comprehensive health insurance plan after your COBRA benefits end, you can consider enrolling in a Marketplace health insurance plan. If you don’t enroll in Medicare, you may qualify for lower out-of-pocket costs and premium tax credits. You could also use the two in combination; but you won’t receive the same tax credits for the Marketplace health insurance plan.

Wrapping Up

There is a lot to consider on the topic of health care costs in retirement. If you’re young, the lesson here is to start saving early, because the cost of health insurance and medical care is only increasing. If you’re approaching retirement age, you may want to consider working part-time during your early retirement years, in order to offset the costs of health care. And if you’re already retired, it wouldn’t hurt to tuck away any extra money each month, in case unexpected health concerns pop up.

How are you planning to cover your health care expenses in retirement? Is it a big concern to you yet?

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Another Insurance Giant Withdraws from Obamacare — What Does This Mean for You?

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Burst Sprinkler Line, Property Damage, and Renter’s Insurance

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High Deductible Health Plan? It Pays to Shop Around.

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In just a few days, one of the major provisions of the Affordable Care Act will go into effect. The health insurance marketplace will open. The public discussion about this marketplace and about Obamacare overall is full of partisan politics, so it’s difficult to see beyond the rhetoric and get an idea of what this […]

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Variable Annuities Customers Facing Benefit Reductions

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When people find out I’ve been writing a blog about personal finance for ten years — yes, it seems crazy, but the tenth anniversary of Consumerism Commentary is Tuesday — they recognize it is an opportunity to share their financial troubles and triumphs. I’m a good listener. For the most part, I am happy to […]

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