Feminization of health care and veterinary medicine affected the supplemental insurance

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How has the feminization of health care and veterinary medicine affected the supplemental insurance plans employers are offering?

Let’s plan for a future where more women continue to enter fields previously dominated by men. Let’s expect to see benefits change.

HSA Heath Savings Account
“Whatever happened to those Long-Term Care Insurance plans employers were offering years ago? If I recall, they not only offered me Long-Term Care Insurance, but I could also offer it to my wife and my parents.”

This was a question a practice owner asked me when she was inquiring about setting up a group Long-Term Care Insurance plan for her employees. The plans the doctor was referring to are the Guaranteed Issue (GI) or Guaranteed Standard Issue (GSI) insurance plans that doctors were offered for Long-Term Care (LTC) and Disability Income insurance (DI).

What happened was that more women were entering fields previously dominated by men. Years ago, we used to see gender-neutral individual and group LTC plans. The group plans were guaranteed issue in that anyone could sign up regardless of their health. This worked out great for the insurance companies because most of the group plans were marketed to large entities where most of the employees and upper management were men. As more and more women entered the workforce and as the claims were being processed, the companies realized that offering gender-neutral rates and guaranteed issue group plans was costing them too much. Women live longer and have a higher cost of claims, so overall, Long-Term Care is more expensive for them. Realizing that offering these group plans was no longer sustainable, many of them dropped out of that business and the rest went to gender-specific rates. Now we are at a point where group plans are not available for companies who have a workforce where more than 50% are women. The plans are also not available if too many of the employees make less than $40K per year.
This is an unfortunate situation because, on average, women do earn less and live longer. Now if they want to protect their retirement savings, they will be paying more to get LTC coverage by applying for a personal policy. That is if they can get approved. GSI Group plans are sometimes the only way women and those having pre-existing health conditions can get coverage at all. On the other hand, group plans are not always the best for men because they might be able to get an individual plan outside of their group plan that is less expensive and offers a better benefit. That adds to the problem as most group plans have a participation requirement. If they do not have enough employees sign up, they will either pull the offer or offer another option that is just like buying an individual policy, where age, gender, and health determine the cost of coverage. That means the women and men who are not healthy enough to qualify for the lesser expensive individual plans are depending on others to help them pull together a big enough group to meet the participation limits.
Long-Term Care is not the only insurance that is dealing with the cost of covering females. Long Term Disability also offers group plans that are guaranteed issue or guaranteed standard issue (GSI). Those too are becoming few and far between in some industries. In fact, back in 2016, I was working with a dean at a local veterinary school. We were trying to secure a group plan for those doctors who were just finishing up their veterinary school studies. I called around to a couple of carriers and they said they were willing to offer the graduating class a plan. That was until they asked me to send the school’s enrollment numbers. When the dean and I pulled together the numbers to send them, he remarked how things had changed since he was in school. Back then, most of the students were male. Now those numbers are reversed, and he says he expects it will be up to 80% women in no time. Plus, he also said they are also seeing more students enroll who are non-binary and gender nonconforming.
The insurance carriers seem to share his expectation because when they saw the increasing numbers of non-male students, they said that they could not offer a GSI plan. The best one insurance company would offer was a discount. The policy they offered was not gender-neutral and the students would have to go through underwriting. They also required a participation minimum to receive the discount. The school decided not to go with the plan.

What options do women have if they want to get LTC coverage, especially if they are young or work in a state that is considering a program like the WA State Long-Term Care Trust Plan? They can look at an individual LTC policy, a hybrid LTC policy, or a Life Insurance Policy or Annuity with an LTC rider. In fact, the cost of Life Insurance is less expensive for females than it is for males so a Life Insurance policy with an LTC rider can be a better route for securing a good amount of Long-Term Care at a reasonable cost. Plus, if they do not use the policy for LTC, they will use it for the death benefit or cash value. In short, unlike some of the group plans where the LTC plan is “use it or lose it,” they will get a policy that they will use no matter what.

For disability insurance, if they are offered a GSI plan, they can compare it to adding a personal plan and choose the one that works best for them now and later when they are established in their career. If they get a GSI, then reviewing it on a regular is recommended. That is because the benefits of the GSI plan might not have future purchase options or inflation protection. If the policy no longer works, they can fix it, replace it, or supplement it with another policy to fill in the gaps.

That brings me to the next part about group versus individual plans. As I mentioned, GSI plans usually require a minimum participation number. And some of them also set it up so that the employer deducts the cost of the insurance directly from their paycheck. Even though these policies are owned by the employee, some will not take them with them when they leave the employer who offered the plan. Others think that they do not need the policy if they change fields. Many times, these employees think the employer is responsible for the policy and do not know they can take the policy with them and even have their own advisor service the policy.

Part of having a good plan in place is also having an advisor that they can call to service the policy and make sure their information is up to date and correct so that if they should need to go on claim, the policy will do what it is meant to do. In fact, it is wise to have a regular review of all policies and accounts. It is also helpful to work with an advisor who is an expert in working with someone like them and is proactive about contacting them if there is a change, update, or new law that affects them. That is even when they purchase insurance through their employer. They, or rather their spouse, partner, or family will need to know who to call submit a claim.

Let’s face it, chances are if they go on claim, they will not be the one calling the insurance company. The last thing that they need is to have the person who is trying help them jump through hoops to file a claim. If a wife calls about a husband and they both have the same last name, it usually works out okay. But, when the last names are not the same or when both spouses are of the same gender, the process is not as easy as it should be. Having a trusted advisor going to bat for them is always helpful because the advisor can shortcut the whole process and get things rolling for the claim. The advisor is the one who gets to explain why they have different last names or deal with that awkward silence on the line when they question when a woman calls to initiate a claim for her wife.

I have been on these calls several times and when the client says they have their advisor on the line, the given response is, “What is his name.” That same thing happens when women call about their female spouse and the person on the other end of the line says, “What is his name.” It might not seem like a big deal, but when you are dealing with the complexities and emotions behind a claim, these comments erode the trust that their spouse is going to get the help they need.

In summary, one word of advice I would give young professional women. Let’s plan for a future where more women continue to enter fields previously dominated by men. Let’s expect to see benefits change. Gender-neutral policies are pretty much gone for Long Term Care and Disability Insurance and GI and GSI being will soon be replaced by simplified underwriting. That means that young, healthy people will have an easy application process and the rest hopefully are working with advisors who can help them navigate through these changes and get the protection they need now and in the future.

Disclosure: Guarantees are backed by the claims-paying ability of the issuing insurer.

*Registered Representative, Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Finity Group, LLC and Cambridge are not affiliated.  

Peggy Haslach, CFP®,CLU

Peggy Haslach, CFP®,CLU

Financial Advisor

As an athlete, trainer, and coach, Peggy uses a coach’s approach with her clients. She knows how to inspire women to take control of their financial plan. he works collaboratively with her client’s other advisors (CPAs, Attorneys, Mortgage Brokers, etc.) to put together a plan where her clients can make and manage their own money, live the lifestyle they want today, and feel confident about their tomorrow.

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401k Basics

Purse Strings Approved Professional

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401K Basics

It is always best to defer a little more than you believe you can and adjust downward than it is to start lower and never get back to increasing the percentages.

Remember, the only way to have a solid, healthy fiscal retirement is to save because you CANNOT borrow for your retirement.

Whether you want to feel sand between your toes or breathe fresh mountain air, retirement is likely to be the most expensive thing you ever pay for and the only way to have a successful retirement is to save for it. 

So, let us talk about one of the easiest ways to save for your retirement, the 401k plan. A 401(k) plan is a qualified plan, meaning that anything you save into it, along with Individual Retirement Accounts and Simplified Employee Pensions, grows income tax-free and you pay tax when you take the money out, and therefore they are called qualified. Conversely, savings accounts and individual stock accounts are taxed as the account grows and are referred to as non-qualified. Tax deferral is the key reason 401(k) plans are so popular.

What is a 401K?

The 401(k) is an account that you can sign up for at work. Employers sponsor these plans to help employees save for your retirement.

History

How did 401(k) plans start? Congress passed the Revenue Act of 1978, which included a provision that was added to the Internal Revenue Code, Section 401(k). This provision allowed employees to avoid being taxed on income saved. In 1980 the first 401(k) plan with an employer match was created and in 1981 the IRS issued new rules to allow us to fund our 401(k)s through payroll deductions. This is when the 401(k) plan really took off!

Not all employers offer a 401(k) Plan, and you must meet the eligibility requirements set forth. For example, some plans state you must be working for the employer for a year and have attained age 21 to be eligible.

Now What?

Once you are eligible to join, also known as enrolling in the plan, you will receive information from your employer about the plan details. You will need to decide

1. If you want to save into a traditional 401(k) plan or into the Roth 401(k)

2. How much you want to defer or save monthly

3. How to invest your money. Let us talk about the two types of 401(k) plans.

Traditional 401(k) 

Your contributions are made before taxes and over the years your money grows tax-deferred. This means the contributions you make help lower your taxable income now, and you do not pay any taxes on either your contributions or investment growth until you begin making withdrawals in retirement. At that point, the money will be taxed as ordinary income.

Roth 401(k)

Your contributions are made after you have paid tax on the income, but your money grows tax-free because you already paid tax upfront and when you withdraw money during retirement, you will not have to pay taxes if you follow the rules. Must be 59 ½ and have had the account open for 5 years.

I typically suggest clients defer salary into both types of accounts to have more options for withdrawing money in retirement.

So now you have an idea of which account to use to save, but how much should you contribute? 

This amount is a very personal choice, but there are considerations to help you make this decision. Often you can find useful calculators on the company 401(k) website to help you determine a percentage to save. These calculators will also show you what your take-home pay will be if you deferred salary into a Roth 401(k) and or a traditional 401(k) plan. If you can’t save as much as you’d like, consider signing up to have 1% more taken from your salary annually. This is referred to as step-up savings and is offered by many employer-sponsored plans. It is always best to defer a little more than you believe you can and adjust downward than it is to start lower and never get back to increasing the percentages. Remember, the only way to have a solid, healthy fiscal retirement is to save because you CANNOT borrow for your retirement. 

For 2021, you can defer $19,500 into a 401(k) plan at work, plus $6,500 if you are over the age of 50. Those levels are unchanged from 2020. If you are just starting out and you want to participate in the 401(k) plan at the very least, differ enough monthly to capture the employer match. A company might, for instance, match half of the contributions you make on the first 6 percent of your salary or match 100 percent of what you contribute up to a certain dollar amount or percentage of your salary. This is free money! But as I mentioned above, it is always better to aim a little higher than you believe you can afford and ratchet down.

 

Now that you have selected what type of 401(k) and the percentage of pay you plan to defer, it is time to choose the investments.

What Type of investor are you?

401(k) plan offers a wide selection of investments to choose from and they fall into different levels of risk depending on your risk tolerance. Like the calculators I mentioned earlier, most 401(k) plan websites have a short questionnaire that scored your risk tolerance for you. Whether you are conservative, aggressive, or somewhere in the middle there should be funds that meet your criteria. Many 401(k) plans include target-date funds. These funds are designed with specific retirement timelines in mind. Keep in mind that the closer you get to retirement, the more conservative these funds become which may NOT reflect your true risk tolerance. You may retire at age 60 or 65 BUT that does not mean you should not take some risk. Your money needs to last for many years past the year you retire.

Changing Jobs or In Between Successes?

You have decided to change employers or have left a position, so now what do you do with your 401K balance?

  1. If the balance is above 5,000 you may want to keep it at the plan
  2. You can roll it into the new employer’s 401K.
  3. Open an IRA and transfer the balance into the new IRA. If you have a Roth, you will need to open a Roth IRA too as the two accounts are treated differently for tax purposes.
  4. Take the money and pay 20% in tax or more PLUS a 10% penalty. That is almost 1/3 of your hard-earned money GONE with lost time and opportunity.

What if You Stay Home to Raise your Children?

Even if you are not currently employed, and if you have not deferred income into a 401K for the year, you can take advantage of tucking away up to $6,000 or $7000 if you are over the age of 50 into a Spousal IRA for 2021 (unchanged from 2020). Of course, you should speak to your tax advisor because there are some limits based on income limits that could prevent you from saving into a tax-deductible Spousal IRA. 

Hooray 

Now that you are an expert in 401(k) plans, it is important to not “set and forget” your plan. It is important that you increase the percentage you defer as often as possible. For example, if you receive a bonus or a raise be sure to have that increase in salary reflected in the percentage you differ into your 401(k) plan. It is also a very good idea to look at your accounts periodically and add a minimum every six months to be sure the investments reflect your tolerance for risk.

Gigi Verrey

Gigi Verrey

Vice President, Wealth Management

We will provide you useful and timely information you can use to be #financiallyfearless