Two types of Medi-Cal

With the start of California health care reform in October, you will also hear a lot about changes to Medi-Cal. It is important to remember the following.

There are two types of Medi-Cal:  Health Insurance Medi-Cal and Long-Term Care Medi-Cal (LTC Medi-Cal). The type of Medi-Cal that helps to pay for nursing home care is long-term care Medi-Cal. Health insurance Medi-Cal helps pay for doctors, hospitals and other medical care.

The administrative process for Health insurance Medi-Cal is changing dramatically. Because it is the safety net for those that will not be able to afford coverage under Covered California, initial eligibility is being simplified. Annual requalification is also being eliminated.

For those in a nursing home whose health insurance is first Medicare and then Medi-Cal as secondary, they must be enrolled in a Medi-Cal HMO beginning in April 2014 (this has already been pushed back many times).  

Unlike Health Insurance Medi-Cal, the qualification standards for long-term care Medi-Cal don’t change. Eligibility will still be as difficult as it is now. Annual redeterminations will also still be mandated.

What happens if a person age 65 or older is on Health Insurance Medi-Cal and goes into a nursing home? Keep in mind that just because someone is already on Health Insurance Medi-Cal, they have to be approved by LTC Medi-Cal.

We have already experienced a huge problem in getting a case transferred from Health Insurance Medi-Cal to the LTC Medi-Cal department. The problem is that we couldn’t get in touch with anyone directly. We kept getting pushed from one phone number to the next.

California has created one phone number for both Health Insurance and LTC Medi-Cal. They call this the Customer Service desk. Contact phone numbers for LTC Medi-Cal workers have also been eliminated, so if we need to speak with the caseworker, we need to call the Customer Service number and leave a message for the worker to contact us.

This is also true now for facilities needing to speak with their assigned workers. The old adage of “don’t call us, we’ll call you” is now standard operating procedure for Medi-Cal.

The bottom line is that it now even more difficult, time-consuming and burdensome to qualify for LTC Medi-Cal even if you already have Health Insurance Medi-Cal. 

It is now more important than ever for an initial application for LTC Medi-Cal to be submitted as accurately as possible. Processing and approval time is sure to be delayed as it is going to be harder to get through the bureaucracy.

So the next time you hear about changes to Medi-Cal, ask yourself if it is about Health Insurance Medi-Cal or LTC Medi-Cal. There is a huge difference.

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While doing research, I came across four stunning new revelations about 401(k)’s and IRA’s. If you have money in one of these plans, I urge you to read this today to find out how to protect yourself from making costly mistakes:

Wealth-Killer #1: The fees you’re paying may be much higher than you think

I’ve written in the past about how Congress passed a law in 2006 protecting employers from liability as long as they automatically put employees’ contributions into certain types of mutual funds, known as “default” investments.

Target-date funds (TDF’s) have emerged as the default investment of choice. Unfortunately, they’ve also proven to be very risky AND they’re among the most costly mutual funds you can buy. (Would it surprise you to learn the mutual-fund industry lobbied Congress to get that law passed and make sure their interests were protected? Didn’t think so.)

So last month, an article in Forbes (“The Trouble With Target Funds”) revealed that, according to the prospectus of one popular target-date fund, your projected fees and expenses for each $10,000 invested is $2,478 over a ten-year period (assuming it grows at 5% a year). That’s 25% of your savings!

So, if you had $300,000 in that fund for ten years, you’d get soaked for – are you sitting down? – $74,340! (And that’s just over a ten-year period!) It also doesn’t take into account all the other fees you’re charged in a 401(k).

The author of this article concluded, “Whoever is buying the funds would not be at the genius level. They have not figured out that they are getting ripped off.”

The bottom line is that compounding is great when it’s working for you. But in traditional retirement plans, the compounding of fees works against you. The more you save and the longer you save it, the more you’ll pay in fees.

Wealth-Killer #2: The fees you pay in an IRA are often even worse than 401(k) fees

While all the attention has been focused on the confiscatory fees you pay in a 401(k) plan, IRA fees have gotten ignored. Many people assume they’re very low. Hold on to your wallet, because a March 2013 Government Accounting Office (GAO) report blew the roof off that myth! (Pages 34-39 of the Report reveal the tawdry details.)

Have you ever left a job and rolled your 401(k) into an IRA? Millions of people do every year. Financial firms often encourage workers who are leaving a job to roll over their 401(k) assets into an IRA also managed by the firm.

Undercover investigators hired by the GAO called thirty of the largest 401(k) providers. Seven of them incorrectly stated there were no fees to open or maintain an IRA. And half of the ten largest firms incorrectly advertised free IRAs on their websites. The fee information was scattered in tiny print in hard-to-find documents on the site.

The study found that at one of the largest IRA providers, the annual advisory fee is 1.5% of assets for accounts with balances up to $500,000. As Representative George Miller noted when he released the report in Congress, “This comes as no surprise since IRAs often come with higher costs when compared to a 401(k).”

So how big of a deal is a 1.5% annual fee? According to the Department of Labor, it’s a very big deal. A fee of only 1% can slash the value of your savings by 28% over the next 35 years.

Wealth-Killer #3: Your plan administrator is a lousy fund picker

A study from the Center for Retirement Research at Boston College in June 2013 found that plan administrators choose mutual funds that lag comparable indexes. Just like the rest of us humans, they routinely chase returns. About the best thing the study could say was that, even though employers choose funds that lag the indexes, at least their choices were better than randomly selected funds. (Translation: Their choices were marginally better than a monkey throwing darts, or a random-name generator.)

Wealth-Killer #4: The new 401(k) fee disclosure rules haven’t helped much at all

In 2012, amidst considerable fanfare, the government announced new rules designed to force 401(k) plans to disclose the fees that we are paying. The new annual disclosure form often runs more than fifteen pages, but it doesn’t provide a simple figure for the annual cost you’re paying.

Even with new laws requiring better fee disclosures, surveys show most participants still have no clue how much they’re actually paying. A 2013 survey from the Employee Benefit Research Institute revealed only half of plan participants even noticed the fee disclosure information, and only 7 percent have made changes to their investments as a result of receiving information about the fees they’re paying.

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What’s On Your Key Chain?

What’s On Your Key Chain?.

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What’s On Your Key Chain?

Take out your key chain and put it on the table. You’ll see the house key. Do you have homeowners insurance?

Next, you’ll see the car key and think, “My car is insured, too?” You may have some other items such as a small picture of your child, or something your child made for you. Ask yourself if your child has health insurance. And, you might have the key to a boat, motorcycle or family cabin up at the lake. Are these insured too?

Of course they are. If you think about it, your entire life is on that key ring—in fact, it is your life. And considering that the ring is what holds everything together, shouldn’t it be insured too?

People knows that they need insurance for unforeseen expenses such as a car accident or a house fire. But so often they ignore the ultimate unforeseen expense and forget to take out a life insurance policy.

In this 1% interest rate environment, everyone you know is underinsured. Think about it. In a 1% interest rate environment, it takes $5,000,000 of life insurance to protect $50,000 of income. Even in a 5% interest environment, it takes $1,000,000. I recently met with a 45 year old widow. She had been a stay at home mom with 2 daughters. Her husband made $250,000 per year. When he died suddenly, she thought she would be fine with his $1,000,000 life insurance policy. Guess what? She is not fine! In this low interest rate environment, she is going to have to try to live on $30,000 to $40,000 per year!  The difference between a family that survives an untimely death and one that doesn’t is typically the miracle of life insurance.

Should you purchase permanent or term insurance? Well, the only policy that matters is the one that is in force on the day you die. Since less than 1% of term policies ever pay a death claim, they may not be the best choice. A good permanent policy should be the foundation for any financial plan. However, term can be great to supplement the permanent coverage.  The key is to own enough life insurance so your family will be able to continue their standard of living if something should happen to you.

How will you protect everything that your keychain represents if you pass away unexpectedly? With proper planning and a large permanent life insurance policy, you can have peace of mind knowing that your family will be safe and secure well after you are gone.

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Tax considerations in retirement

The amount of tax you owe at retirement depends not only on your income, but also on the type of your retirement plan and the timing of your withdrawals; you’ll want to consider retirement strategies that provide tax deferred growth and tax efficiency.

With qualified retirement plans that provide tax deferred accumulation, such as 401(k)s and Traditional IRAs, the money you contribute to the plan is pre-tax, meaning it is not be taxed until you make a withdrawal, often years later. In addition, any growth or gain is also tax-deferred.

Distributions (i.e. mandatory withdrawals) from such qualified plan will, in most cases, begin by April 1st of the year after your turn 70½. The money you receive from distributions is always considered regular (or in IRS terms “ordinary”) income and is taxed at a standard rate. Should you wish to withdraw cash from your retirement plan early (before age 59½), you may be subjected to an additional 10% tax on the amount.

If you have an investment account outside of the tax-deferred retirement accounts discussed above, you should consider investments that are tax-efficient. Tax efficiency, here, refers to how much you earn on an investment in comparison to the portion of the return that’s lost to annual taxes. Tax efficiency can be achieved in various ways. A qualified investment professional and your tax advisor can be a great resource in formulating such strategies.

Municipal bonds (which generate tax-exempt income) and US savings bonds, (which allow you to defer your taxes until your bonds are redeemed), are also considered tax efficient. Interest from municipal bonds are generally exempt from federal income taxes, and in most cases, state and/or local income taxes, so long as the investor resides in the state that issued the bond. However, Alternative Minimum Tax may apply. Municipal bonds are subject to credit risk and interest rate risk and can lose principal value, when interest rates rise.

Please note, investments may only be offered by properly licensed Registered Representatives. Product information is provided for informational purposes only and is not intended to offer, advise or make recommendations on the purchase of a security.

Always remember, the choices you make today can have a tremendous impact on both your current finances and your future retirement.

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Vacation: It’s a Family Affair

Say “summer” and most people think “vacation.” The reality is that most adults work year-round, and some seasonal workers may even be busier in the summer than during other seasons. Children of working parents may continue to have schedules just as structured as school—even if it’s called “camp”—to accommodate their parents’ long hours away from home. Teenagers may have jobs of their own. Still, the traditional myths persists: summertime is vacation-time. 

Many families plan at least a week or two for some memorable trip or time as a family. For the past few years, with fuel prices escalating and driving up the price of travel, the “staycation” has become popular as well. A staycation involves creating the feel of a vacation without leaving the house, by suspending regular routines and concentrating instead on fun activities. It may even mean taking day trips, but always with home as a base.

Vacations can provide some of the happiest memories of a lifetime. Perhaps we remember fondly a cabin by the lake rented each year, visiting grandparents in Florida, or driving cross country in the station wagon with Mom and Dad taking turns at the wheel. We naturally want to provide equally fond memories for our own children. Or, if we missed out on precious vacation memories, we may be all the more determined that our families do not.

It can be a source of stress, however, when money is tight or emergencies crop up. Job loss, unexpected medical bills and the like can mean that luxuries like vacations get put on hold. We may worry that our children still will want to do what their friends are doing or what we’ve previously promised them—after all, they’re just children and don’t understand financial realities.

Or do they? You might be pleasantly surprised how willing your children are to adapt to budget constraints as long as they feel they have choices. A family is a team, and even the smallest members should have some say in family decisions. Most children embrace a challenge, so whatever your budget, why not make vacation planning a family project this year?

Here are some guidelines for planning a vacation with the help of your kids:

  • Parents determine the total budget for the project as well as the workable dates. Of course, you might give kids a choice between a set vacation period and a series of shorter trips, depending on your own flexibility.
  • Parents may veto anything that’s not safe or feasible.
  • The entire family contributes ideas for destinations.

Make a list of all the potential expenses. For example:

  • Transportation
  • Lodging
  • Meals
  • Admissions
  • Souvenirs
  • Equipment (bicycles, inflatable rafts, beach balls, tents, hiking shoes, maps, coolers).

Even children in the elementary grades seem to be adept at online research. Let them look for airfares, car rental packages, hotel prices. If they’re old enough, they can figure mileages and multiply distances by federal mileage rates to calculate the cost of driving a car. They can compare pricey hotels with cheaper bed-and-breakfasts, smaller motels, or campsites or check out menus for restaurants, and opening hours and prices for attractions. They can discover cool, out-of-the-way places they’d like to visit too. As soon as they have a budget to stick to, you may see them become very frugal! They may be willing to cut back on one item to make room for something else more important to them. 

Don’t forget that some organizations you may belong to, such as automobile associations, give discounted prices to members for certain rental cars, admissions, meals and the like. Also, some libraries purchase admission tickets to area attractions that may be checked out like library books.

If children are old enough, have them keep a journal of expenses during the vacation, to make sure you are keeping within the budget. If certain items go over, try cutting back on something else. If you’re under budget, allow yourself a splurge! When the vacation’s over, discuss how it went and write down what you’ve learned to help you plan your next vacation!

Planning for Vacation and Your Family’s Future

While your family thinks about ways to prepare for a vacation, consider applying those same planning skills on your household’s finances. 

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Disability Facts that Might Surprise You

In times like these, good decisions matter. And when it comes to protecting a portion of your income from disability risks, it’s important to base your decision on the facts. In the case of disability, some of those facts might surprise you.

For example, more than one-quarter of today’s 20 year-olds will become disabled before they retire.1  And if you are covered by a group disability income policy through your employer, you might not know about the likely gap between your policy’s benefits and your family’s actual needs.

To start with, the typical group plan only covers 50-70% of income. And benefits are often
taxable, have maximum limits, and don’t cover bonuses, commissions or 401(k) contributions. In some cases, worker’s compensation helps bridge the gap, but less than 5% of disabling accidents and illnesses are work related. 2

If you run a business, your insurance protection should help cover its operating costs, possibly provide the funds for a partnership buyout, and protect a portion of lost earnings – either yours or your employees’.

The most common way to close the gap between existing coverage and actual needs is to obtain a supplemental individual disability income insurance policy. Because you own it, you can take it with you throughout your career.

And the best way to make a good decision about that policy is to work with a trusted, trained financial professional. No surprise there.

1 Social Security Administration, Fact Sheet March 18, 2011
2 Council for Disability Awareness, Long-Term Disability Claims Review, 2011

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