According to the Agency for Healthcare Research and Quality’s Web site, the United States spends a larger portion of its gross domestic product (GDP) on healthcare (nearly one-seventh) than any other major industrialized country, and it has been one of the fastest growing areas within the federal budget for the past several years. In other words, a large portion of all U.S. economic expenditures (14 percent or $1.2 trillion) is spent on providing healthcare to Americans. On the surface, this appears to be a good thing because if more money is budgeted for healthcare, then more people can benefit from it. Yet there’s an underlying irony – an increasing number of healthcare providers continue to operate in the red. In fact, according to the American Hospital Association, one-third of America’s 5,000-plus hospitals are actually losing money, while another one-third is barely breaking even.

So who’s to blame for this financial crisis? Most would assume that healthcare institutions are the ones to blame. It is easy to jump to the conclusion that the institutions are abusing the system and that they are not using their allotted sums appropriately. However, in reality there are a number of culprits on the playing field, and only one of them is healthcare institutions. An aging population, an increasing number of uninsured Americans and slow-paying government aid programs all play a part in cramping the budgets of hospitals, physicians, employers and consumers.

Over the past 50 years, our nation’s population has aged significantly. The Baby Boomers are quickly approaching their 65th birthdays, which will place them in the oldest adult segment of the American population. (In fact, the U.S. Census Bureau projects that over 20 percent of the American population will be included in the oldest segment by 2050). According to The 2003 Chartbook on Trends in the Health of Americans, the surge in elderly adults will place tremendous stress on America’s healthcare system during the 21st century, because additional services will be necessary to treat and manage their chronic and acute health conditions. Not to mention there will be over 40 million retired elderly adults depending solely on Medicare to cover their medical bills next year, a problem that I will delve into later in the article.

In addition to the ‘baby boom’ generation getting older, our younger generation has received the short end of the stick when it comes to healthcare coverage. Medicaid usage and the percent of uninsured Americans has been on the rise since 1984. The 2003 Chartbook on Trends in the Health of Americans reported that in 2001, adults aged 18-24 were most likely to lack health insurance coverage (16 percent went without for the year) and those 55-64 were least likely. In addition, the Denver Post reported that the number of uninsured young adults aged 25-34 “jumped dramatically” during 2003, from 9.8 million to 10.3 million. Rising health insurance premiums and overall poverty rates have both contributed to the 45 million Americans who went uninsured last year, as reported by The New York Times.

For example, expensive healthcare premiums make it harder for employers to afford coverage for their employees, creating an uninsured working class. According to the Washington Post, the proportion of the working class who received health insurance through their employers fell to 60.4 percent in 2003, (down from 61.3 percent in 2002,) the lowest level in a decade. Within that uninsured working class, 20.6 million people were full-time employees. Add in the fact that emergency rooms are obligated to care for any patient that comes through their doors, regardless of whether they have insurance or not, and what do you get? Answer: Millions of uninsured people who visit the emergency room to receive medical attention and who also rely on the hospital to foot the bill.

To make matters worse, the U.S Census Bureau reports that poverty rates have been steadily increasing over the past few years (12.3 percent in 2002, translating to 34.6 million people, see figure 1), forcing a majority of the less fortunate population to either go uninsured or rely on Medicaid to pay their medical bills. Neither option is a promising solution to the healthcare cash crunch equation because the facilities cannot count on being recompensed directly and adequately for their obligated medical actions.
Hence, the increase in uninsured Americans and those who rely solely on Medicaid and Medicare has had a tremendous affect on the United States’ healthcare institutions.

Title XIX of the Social Security Act, commonly known as the Medicaid program, is the largest source of funding for medical and health-related services for America’s poorest people. However, since its launch in 1965, Medicaid’s costs have rapidly increased, paying an average of $3,935 per person to healthcare vendors in 2000, as reported by The Official U.S. Government Site for People with Medicare (www.medicare.gov). On the other hand, the Medicare program was created in 1965 under title XVIII of the Social Security Act. Designed to provide basic hospital and medical coverage for adults aged 65 and above who are no longer working and therefore are unable to pay for healthcare, Medicare’s costs has also increased rapidly, and it currently covers 41 million Americans.

Although Medicaid and Medicare programs can be beneficial for underprivileged and elderly Americans in need of healthcare, American medical institutions and their vendors don’t fare quite as well in this cash crunch equation due to sluggish and inadequate payments from the above federal programs.

Because each state has its own unique way of filing for government healthcare coverage and because of capped expense amounts, federal insurance plans like Medicaid and Medicare make their payments slowly, sometimes taking months to deliver funds and in many cases, the government-mandated payments don’t cover the actual cost of providing care. Accordingly, healthcare institutions such as hospitals and nursing homes take a longer time to pay their own invoices. As a result of their inadequate financial resources, these hospitals and nursing homes suffer from dwindling human and technological resources. So in an effort to save money, facilities are forced to make cuts in staffing and special treatment programs, pass on costly technological advances and start outsourcing more general positions, which creates a whole new world of vendors who sell to hospitals and nursing homes. (Think: janitorial services, cafeteria workers, temporary nurse staffing agencies, medical staffing and medical transcriptionists, to name a few.)

Healthcare institutions need money to help patients, increase technology and pay their vendors. But because it sometimes takes months for hospitals and nursing homes to be paid for their services, they are forced to take additional months to pay their own vendors for their services. In the meantime, those vendors suffer because they can’t make payroll or pay taxes. So they reach out to healthcare factoring consultants to help them find a way to stabilize their cash flow.

The Social Security Administration has established a number of different types of disability programs. Although the medical rules are similar under each program, the technical rules on eligibility set each program apart. What program you may be eligible for depends on a number of factors, including your work history, age, household income and marital status. You may be eligible for more than one type of benefits, but generally SSA will pay you the higher benefit amount of any one program you may be entitled to.

Disability Insurance Benefits: This program, also known as “DIB” or Title II benefits, awards benefits to individuals who, because of a physical or mental impairment, are unable to work at a “substantial” gainful level, and their condition has existed or is expected to exist for at least a 12 month period. By “substantial,” SSA means the claimant would be unable to earn over $900.00 per month because of their disability. This dollar amount increases slightly every year. To be eligible for DIB, a claimant must have worked long enough and paid enough into Social Security through their FICA taxes to be “insured.” As a general rule, if a claimant worked at least five of the last 10 years, he would be “insured” for purposes of DIB. How much a claimant receives each month if found disabled and entitled to DIB is based on how much he “paid into” the system during his working life. Generally, the longer someone has worked and the higher his earnings, the more he would be paid if found disabled. Individuals found disabled and entitled to DIB benefits may be awarded retroactive benefits. Retroactive benefits can only go back one year from the date of the initial application. There is a five-month waiting period from the date the claimant is determined to be disabled until entitlement to DIB benefits begin. To illustrate this, if a claimant files a claim for DIB on January 1, 2006 alleging disability as of February 2005, and SSA determines he is disabled and his disability began February 1, 2005, he would be eligible for retroactive benefits starting in July 2005. In addition to receiving individual DIB benefits, your minor children may also qualify for auxiliary benefits based on your disability. These benefits are granted in addition to any benefit you receive. To ensure any minor children are awarded any benefits they may be entitled to, it is important you furnish the names and Social Security numbers of any minor children you have to SSA. The children do not have to live in the same household to be eligible for auxiliary benefits.

Supplemental Security Income: This program, also known as SSI or Title 16 benefits, is a “needs-based” program in which individuals with little or no resources or assets may receive disability benefits. The medical criteria for SSI eligibility is the same as that used for DIB — a physical or mental impairment which prevents you from working at a “substantial” gainful level, and the condition has existed or is expected to exist for at least a 12 month period. Effective January 2007 the SSI payment for an eligible individual is $623 per month and $934 per month for an eligible couple. There is no retroactive eligibility for SSI benefits: benefits can go back only to the month in which your claim was filed. Unlike DIB, there is no five-month waiting period for entitlement to SSI, so your eligibility would begin the month in which you filed your claim or were determined to be disabled, whichever is later. A claim for SSI benefits can also be filed on behalf of any minor children with a disability; however, as with Adult SSI claims, to be entitled to SSI benefits the household income must be below certain limits.

Disabled Adult Child: This program provides disability benefits to adult children of deceased or disabled parents. In addition to the medical requirement that you have a physical or mental impairment which prevents you from working at a “substantial” gainful level, and the condition has existed or is expected to exist for at least a 12 month period, you must also show that your condition has existed and has been disabling since before your 22nd birth date. In addition, you must be the adult child of a parent who is currently receiving DIB benefits, or the Adult child of a parent who is deceased and was “insured” for purposes of eligibility for DIB benefits. It is not necessary that the adult child ever worked because benefits are paid on the parent’s earnings record. The adult child must not have worked and earned “substantial earnings” for an extended period at any point after turning 22; however, certain expenses the adult child incurs in order to work may be excluded from these earnings. An adult child already receiving SSI benefits should check to see if benefits may be payable on a parent’s earnings record. Higher benefits might be payable and entitlement to Medicare may be possible.

Disabled Widow’s/Widower’s Benefits: If you are a disabled widow or widower age 50 or older you may be able to receive benefits off your spouse’s (or former spouse’s) Social Security record. If you are a widow or widower from a spouse you were divorced from, to be eligible for benefits you need to have been married to your spouse for 10 years or longer and your disability must have started before age 60 and within seven years of the date in which the worker died. If you were married to your spouse when they passed away, Social Security does not require that you were married for 10 years. In either case, you will need to provide proof of relationship in the form of your marriage certificate or divorce decree, along with your spouse’s death certificate when you file for benefits. If you file a claim for Disabled Widows/Widower’s benefits and DIB or SSI benefits, you will receive only the higher monthly benefit amount of the two programs.

Medical Insurance: Once you are found disabled and entitled to Social Security disability benefits, you will also be eligible for medical insurance though Medicare or Medicaid. If you filed a claim for DIB, Disabled Adult Child or Disabled Widow’s/Widower’s benefits, you may be eligible for Medicare. However, eligibility for Medicare does not start until you have been disabled for 25 months. If you are approved for Social Security benefits under any of the above-listed programs, SSA will contact you approximately two months before your eligibility for Medicare begins. If you have already been disabled for 25 months, be sure to keep a record of all medical bills as you may be reimbursed by Medicare for these expenses. There is no waiting period for Medicaid; however, your income and resources must be very low to qualify. If you have applied for and have been approved for SSI you probably qualify for Medicaid. You may think that Medicaid and Medicare are the same, but actually they are two different programs. Medicaid is a state-run program that provides hospital and medical coverage for people with low income and little or no resources. Each state has its own rules about who is eligible and what is covered under Medicaid. Some people qualify for both Medicare and Medicaid. For more information about the Medicaid program, contact Social Security or your local social services or welfare office.

This article has been written to give you a general overview of the Social Security disability programs and the disability process. As this article may not address all questions you might have, please contact us for further information.

The biggest reason more people don’t retire before age 65 is lack of health insurance, and many Americans reach age 65 woefully unprepared for the medical expenses they’ll face once they do retire. One of the most important long-term reasons for establishing an HSA is to build up some money for medical expenses incurred during retirement.

Fidelity Investments reports that the average couple retiring in 2006 will need $190,000 to cover medical expenses during retirement. This assumes life expectancies of 15 years for the husband and 20 years for the wife.

HSAs are, without exception, the best way to build up money to pay for medical expenses during retirement. You should not contribute any money to your traditional IRA, 401 (k), or any other savings account until you have maximized your contribution to your HSA. This is because only health savings accounts allow you to make withdrawals tax-free to pay for medical expenses. You can take these distributions anytime before or after age 65.

Your HSA contributions won’t affect your IRA limits — $3,000 per year or $3,600 for those over 55. It’s just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

For early retirees who are healthy, a health-savings account can also be a smart option to help lower their health insurance costs while they wait for their Medicare coverage. The older someone is, the more they can save with an HSA plan. For many people in their 50’s and 60’s who are not yet eligible for Medicare, HSAs are by far the most affordable option.

Any money you deposit in your health savings account is 100% tax-deductible, and the money in the account grows tax-deferred like an IRA. For 2006, the maximum contribution for a single person is the lesser amount of your deductible or $2,700. In other words, if your deductible is $3,000, you can contribute a maximum of $2,700; if your deductible is $2,000, then that is the maximum. For families, maximum is the lesser of $5,450 or the deductible.

If you’re 55 and older, you can put in an extra $700 catch-up contribution in 2006, $800 in 2007, $900 in 2008, and an additional $1,000 from 2009 onward. The contribution limit is indexed to the Consumer Price Index (CPI), so it will increase at the rate of inflation each year.

How much you accumulate in your HSA will depend on how much you contribute each year, the number of years you contribute, the investment return you get, and how long you go before withdrawing money from the account. If you regularly fund your HSA, and are fortunate enough to be healthy and not use a lot of medical care, a substantial amount of wealth can build up in your account.

Health savings accounts are self-directed, meaning that you have almost total control over where you invest your funds. There are numerous banks that can act as your HSA administrator. Some offer only savings accounts, while others offer mutual funds or access to a full-service brokerage where you may place your money in stocks, bonds, mutual funds, or any number of investment vehicles.

One of the biggest advantages of retirement accounts like HSAs are that the funds are allowed to grow without being taxed each year. This can dramatically increase your return. For example, if you are in the 33% tax bracket, you would need a 15% return on a taxable investment to match a tax-deferred yield of only 10%.

As another example, if you are in a 33% tax bracket and were to invest $5,450 each year in a taxable investment that yielded a 15% return, you would have $312,149 after 20 years. If you put that same money in a tax-deferred investment vehicle like an HSA, you would have $558,317 – over $240,000 more.

Because catch-up contributions are allowed only for people age 55 and older, if one or both of you are under age 55 you should establish your HSA in the older spouse’s name. This will allow you to capitalize on the expanded HSA contribution limits for people in this age range and maximize your HSA contributions. Once that person turns 65 and is no longer eligible to contribute to their HSA, you can open another health savings account in the younger spouse’s name.

Strategies to Maximize your HSA Account Growth

If your objective is to maximize the growth of your HSA in order to build up additional funds for your retirement, there are three important strategies you should implement.

Strategy #1: place your money in mutual funds or other investments that have growth potential. Though this is riskier than placing your money in an FDIC-insured savings account, it is the only way to really take advantage of the tax-deferred growth opportunity that an HSA provides.

Strategy #2: delay withdrawals from your account as long as possible. Though you may withdraw money from your HSA tax-free at any time to pay for qualified medical expenses, you do have the option of leaving the money in the HSA so that it continues to grow tax-free. As long as you save your receipts, you can make medical withdrawals from your account tax-free at any future date to reimburse yourself for medical expenses incurred today.

As an example, let’s say a 45 year old couple places $5,450 per year in their HSA over a period of 20 years, they have $2,000 per year in qualified medical expenses, and they get a 12% return on their investments. If they withdraw the $2,000 from their HSA each year, they’ll have a net contribution of $3,450 per year into their account, and they’ll have $248,581 in their account when they begin their retirement years.

If on the other hand they delay withdrawing that money, they will have $392,686 in their account at age 65. If they choose they can withdraw the $40,000 to reimburse themselves tax-free for the medical expenses incurred during that 20 year period, and still have $352,686 in their account – over $100,000 more than if they had withdrawn the money each year.

Strategy #3: make the maximum allowable deposit to your HSA at the beginning of each year. Even though you are allowed until April 15 of the following year to make deposits to your HSA, you should take advantage of the tax-free growth in your account by funding it as soon as possible. The extra interest you can earn by contributing to your account on January 1 of each year rather than the next April 15 can amount to over $40,000 in a 20 year period, and over $100,000 in 30 years.

Using Your HSA to Pay for Medical Expenses during Retirement

When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy.

Though Medicare will pay for the majority of health expenses during retirement, there many be expenses that Medicare will not cover. Nursing home expenses, un-conventional treatments for terminal illnesses, and proactive health screenings are all examples of medical expenses that will not be paid for by Medicare, but that you can pay for from your HSA.

Long-term care is assistance with the activities of daily living, such as dressing, bathing, or feeding yourself. It can be provided in your home, a retirement community, or a nursing home. Long-term care expenses can be paid for using funds from your HSA, and long-term care insurance can even be paid for from the HSA up to the following maximum annual amounts:

To establish a health savings account, you must first own an HSA-qualified high deductible health insurance plan. Compare HSA plans side by side to determine the best value to meet your needs. Once you have your high deductible health insurance plan in place, you can open your Health Savings Account with the financial institution of your choice.