Evansville Business Magazine--June/July 2012

Don’t go looking for the 2012 football schedule for Western Governors University. There is no football team at WGU, or school mascot. There’s not even a campus or classrooms.

While it may be W G Who? to many people, it’s the college of choice for 30,000 students across the country who are now enrolled in the online, non-profit institution.

Indiana Governor Mitch Daniels shows up in television commercials touting WGU Indiana, calling it “Indiana’s eighth state university.” Indiana has been part of WGU since 1997 when Frank O’Bannon and 18 other governors, primarily from western states, created the online college so that working adults could earn a bachelor’s degree or master’s degree at their own pace and at a low cost. The idea sounded good and has worked well in some regions, but in 2010, Indiana had a paltry 275 students enrolled in WGU, much less than the number of Hoosiers enrolled in for-profit online colleges such as University of Phoenix. So Daniels mixed together one part marketing skill and one part financial incentive to create WGU Indiana. His TV commercials put the new ‘WGU Indiana’ name in front of the public, and his mandate to allow Indiana residents to use their state-funded financial aid to attend WGU made the offer more of a bargain. The result is that more than 2,500 Hoosiers are now enrolled in WGU Indiana, where students can earn degrees through the WGU Teachers College, College of Business, College of Information Technology, or College of Health Professions. The cost is approximately $3,000 for each six-month term. For the average student, five terms are necessary for graduation.

“Online education is a good fit for a lot of people; traditional education is a good fit for a lot of people,” says WGU Indiana Chancellor Allison Barber.

“The best thing is, people have more choices now. The average age of our student is 37, so we are meeting a specific need.”

Indiana ranks a dismal 42nd in the number of adults with a bachelor’s degree, according to Inside Higher Ed. If WGU Indiana can improve that ranking, its mission will be accomplished. Maybe then it can start planning to suit up a football team.

Whether you call it the Affordable Care Act or ObamaCare, one thing is for sure: major parts of the health care law have already taken effect. While we sit and wait for the Supreme Court to rule whether it is constitutional to require people to purchase health care insurance, people at all income levels have started to take advantage of the law.

There are two parts that apply directly to those who are retired or nearing retirement.
1. More than 32 million people 65 and older have already received free preventive services, including an annual ‘wellness’ visit to a doctor. There is no co-pay or deductible, and no need for a Medicare supplement. Preventive care is also free of charge for working people as part of their employer health plans. The idea here is that an ounce of prevention is worth a pound of cure.

2. The so-called prescription drug ‘donut hole’ is shrinking, and by 2020 it should go away entirely. The donut hole is the portion of the Medicare Part D drug benefit program in which prescription drug costs skyrocket until a certain payment level is reached, and then costs go back down. Prescription drug costs for name-brand drugs have been reduced 50%, and as a result, more than three million Medicare recipients have saved about $2 billion on their prescriptions.

Other parts of the law that have taken effect: (1) The Pre-Existing Condition Insurance Plan (PCIP) provides insurance now for people who are uninsured and have a pre-existing condition that prevents them from getting health coverage. (2) Federal tax credits are now available to small businesses that offer health insurance to their workers. (3) Young adults can now stay on their parents’ health insurance plan until the age of 26.

Your doctor’s office or your employer’s human resources department can tell you more about how the law affects you. Most polls show that by a slight margin, Americans are against the new health care law. But like it or not, you may be able to benefit right now.

Rarely does an insurance product receive an endorsement from the Governor’s office, but it’s happening in Indiana.

A letter from Governor Mitch Daniels has been going out to Hoosiers for the past two years, encouraging residents to consider long-term care insurance. No, the Governor isn’t moonlighting as an insurance agent. He does have a vested interest, however, because nearly half of Medicaid payments come from state funds. Medicaid takes over when people run out of money and still require care. This scenario plays out far too often for nursing home residents since a nursing home stay can cost $65,000 or more per year, quickly wiping out the finances of many people. From the Governor’s point of view, the more that people invest in long-term care insurance, the less likely they will require Medicaid.

Indiana added to this incentive nearly 20 years ago with the Indiana Long-Term Care Partnership. By purchasing long-term care insurance through the Partnership, residents protect assets so that Medicaid cannot take them away. Let’s take a 65-year-old couple in good health. They buy a three-year policy that pays out $200 per day, which is approximately the daily cost of nursing home care. They are covered for up to $73,000 in long-term care expenses ($200 x 365 days) for each of three years. Money left over after three years can be used for long-term care until it is gone. They would spend about $585 per month to pay for the insurance, which is worth a total of $220,000 (three years x $200 per day). Under the Indiana Long-Term Care Partnership, for every dollar they spend from insurance, they keep that much in assets. So if they spend the entire $220,000 in the insurance policy, their future long-term care expenses will be covered by Medicaid once the value of their assets such as cash, savings, stocks, bonds, CDs, cash value of life insurance, even a second home, drops to $220,000. Other states have similar Partnership plans. Indiana is unique because if residents buy a Partnership policy worth a certain amount (in 2012 it’s $277,000) and receive care in Indiana, they could qualify to keep all of their assets.

The younger you buy, the lower your premiums—makes sense since you’re paying those premiums for a longer
time. Plus, putting off the purchase risks that your health may deteriorate and you become uninsurable. A 60-year-old couple that buys the same policy (three years, $200 per day) would pay approximately $420 per month, a lower amount because they are five years younger than the example above. A 60-year-old woman would pay about $275 per month.

OK, we know that long-term care insurance is a good deal for Governors who must balance a budget. Is it good for their citizens? For those with total assets under $200,000 or over $2 million, probably not. The insurance is too expensive for those in the former group, and not necessary for the latter since they can self-insure. For the rest of us, it’s worth a look. Cost has scared away people in the past, but today’s policies cover in-home care, which is less expensive than nursing home care. Plus, no one wants to be shipped off to a nursing home if they can stay in their own home. Keep in mind, however, that many people purchased LTC insurance while they were working, then surrendered the policy when they couldn’t afford the premiums with their reduced income during retirement.

A primary advantage to long-term care insurance is protecting assets for heirs, but there are even better reasons to consider LTC protection. Insurance can provide the money necessary to give you a wider choice of assisted living facilities or nursing homes, and keep you there. In Evansville, several popular facilities may not accept or keep Medicaid patients.

Insurance can also relieve the burden on loved ones. Everyone would like to stay at home for as long as possible, but that often means extra work for daughters and sons. Insurance can bring professional health aides into the home and alleviate the demands on children who still have their own lives to manage.
Many people purchase policies that pay only a portion of the daily in-home care or nursing home bill, but there’s nothing wrong with that. The insurance allows them to keep enough assets so they can supplement the policy, if necessary, with their own funds.

Like many complicated insurance products, this one requires another set of eyes to make sure you receive the right coverage. Second opinions from local health care organizations, senior citizen advocacy groups or your own doctor can help you decide if you are purchasing valuable protection, or an expensive product that you might drop right before you need it.

If your household income is less than $180,000 and there's a college or vocational school student in your family, here's a way to get a bigger refund on your federal taxes next spring: take advantage of the American Opportunity Credit.

The tax credit is two years old, but relatively unknown. It replaced the Hope tax credit, designed for lower income families, by expanding the income limit to $90,000 for single tax filers, and $180,000 for married-filing-jointly. The first $2,000 you spend on eligible college expenses (tuition, books, fees) comes right off the top of your tax bill. That's what makes a tax credit much better than a tax deduction. Plus, you can take 25% of the next $2,000 to give you a total tax credit of $2,500.

Here's a warning. If you have a 529 education savings plan or a Coverdell savings account, you'll need to split your spending. In other words, you can't pay the entire school bill with your 529 account and also claim the American Opportunity Credit. No double-dipping allowed. What you can do is pay the first $2,000 through the AOC and get all $2,000 back through the tax credit. If you have a little extra cash, pay the first $4,000 out of pocket and get the full $2,500 American Opportunity Credit. Then pay the remainder with your 529. In fact, you'll want to pay all room & board expenses with your 529. Those are not covered by the American Opportunity Credit. If you live in a state like mine, Indiana, you can get back $2,500 from the federal government for using the American Opportunity Credit, and up to $1,000 from the state as a tax credit for contributing to your 529.

For parents who have put their own savings on hold to pay for their kids' college or vocational school, tax credits can take a brick or two off that load you're carrying on your back. The money you receive from the tax credits can go right back toward paying the next college bill. Or it can go straight into your own retirement account. Or it can go into that envelope you have in the back of your underwear drawer, for the cruise to Cozumel to celebrate your final school payment.

Thanks to tax credits, you might even be able to spend a few extra days on the beach.

Referees and umpires figure they've been fair if both teams are squawking at them equally when the game ends. Political writers are pleased if both the Democrats and Republicans bemoan their coverage.

Based on those ground rules, members of Congress who voted for the financial overhaul bill that President Obama will sign next week should feel pretty good about themselves. The nation's biggest banks say the bill went too far and ties their hands. Consumer protection groups say lobbyists convinced lawmakers to water down the bill.

Thomas Donohue, president of the U.S. Chamber of Commerce, denounced the bill: "Today is a sad day for the U.S. economy, for jobs, and for the future of our capital markets," he said. "Consumers will pay the ultimate price in higher fees, less choice, and fewer opportunities to responsibly access credit."

Then there's Congressman Barney Frank, one of the bill's co-sponsors, who complained that, "In some areas the legislation did not go far enough."

The 2,000-plus page bill sprang from the financial meltdown of 2008 that continues to plague virtually everyone, from business owners to employees, and especially those pink-slipped in the past two years. The bill does little or nothing to get us out of the Great Recession. Hopefully it helps keep us out of the next one.

Here are the highlights:

*There's now a process in place to break up troubled financial firms whose quick collapse might seriously harm the overall economy (can you say 'AIG' and 'Lehman Brothers'?). That's the primary reason President Obama keeps saying that taxpayers will no longer bear the brunt when 'too big to fail' institutions fail.

*Hedge funds now must be more accountable to regulators, although they still have more freedom than mutual fund companies. Derivatives such as credit-default swaps, which made our nation's economy look like a house of cards when home prices began tumbling at the end of 2007, also get regulated more.

*Much of the regulation comes from the new Consumer Financial Protection Bureau, designed to keep an eye on credit card companies, mortgage lenders, banks and credit unions. Already on the books is something familiar to most of us: the amount guaranteed on our bank accounts from the FDIC. It's now permanently at $250,000, thanks to the financial reform legislation.

Of course, it's more complicated than that. For example, the new consumer protection bureau doesn't have power to snoop into the lending practices at your local car dealer. Their lobbying group fought hard to keep dealers exempt, and politicians who have been trying to keep American car companies alive decided not to add to the car dealers' challenges.

"It's a victory for auto dealers and for consumers," said Bailey Wood, legislative and communications director for the National Automobile Dealers Association. He says regulation by the new consumer protection bureau would have driven up the costs of auto loans.

On the other hand..."Here we have an industry that came to taxpayers desperate for help, and the American taxpayers saved this industry's hide," said Douglas Heller, executive director of Consumer Watchdog. "Yet, they thank us by using their lobbying might to exclude them from oversight."

See, no one's completely happy. The politicians may have gotten this one right.

Memorial Day is coming up, and every year there's all kinds of fun--cookouts with friends, the first trip of the year to the beach, skydiving through volcanic ash in Iceland.

This year, try something really exciting. Next Saturday, stay home, click on SavingForCollege.com, and learn about the tax benefits of saving for college. May 29 is, appropriately, 529 College Savings Day in many states.

'529' is IRS talk for the section of the code which allows families to set aside money that grows tax-free for college or vocational school expenses such as tuition, books, room & board, and fees. Mom and dad, grandmas and grandpas, and anyone else can put money into a 529 account for baby Susie (or anyone planning on attending school) through the plan of any state they choose. That money is invested, grows--hopefully--and when the tuition bills begin arriving, your payments for her schooling come from tax-free money.

Even better, 34 states now offer tax deductions or credits for 529 contributions, according to Kiplinger's Personal Finance. In my state, Indiana, there's a 20% tax credit for contributions to Indiana's 529, up to $1,000. Remember, credits are better than deductions because they lower your tax bill dollar for dollar. So if I put $5,000 into the Indiana 529 this year for our high school senior, I get $1,000 back on my state taxes next year. It's often pointless to start a 529 if Susie is already 16 years old, but the tax credit/deduction makes it well worth the effort. In fact, despite being Indiana residents, my wife and I opened our first 529 account 10 years ago through TIAA-CREF's plan in Minnesota. At the time, their fees were lower than my own state's plan, and there was no Indiana tax advantage. When both the fees went down and Indiana adopted the tax credit, we quickly switched.

529s have other advantages. The contribution maximums are much higher than the old-fashioned education savings accounts, usually up to $300,000 per account, and the federal financial aid formula counts only 5.6% of parents' 529 account balances toward their expected contribution to college. What if Susie wins American Idol at age 17, signs the big record deal and never goes to college? Mom and dad can transfer her 529 account to another family member, or just cash it in, minus a 10% penalty.

This all sounds swell enough, but the stock market drop of 2008 decimated many families' 529 accounts. That's because many were heavily weighted in stocks, just a few years from needing the money. This is not a long-term investment, folks. At most, it's a 20-year bet. When you know withdrawals are coming soon, stocks are not your best friend.

Fortunately, 529s offer low-risk investments, including age-based plans that become more conservative as the college years approach.

You know, on second thought, go ahead and heat up the grill, head for the beach, and pack your chute next Saturday. After all, holidays don't come often enough. First, however, get out your calendar and pick a day--say, June 29, and make 6/29 your 529 day. You and your future college student will be glad you gave up one day in the summer of 2010 to make paying for college easier. You may even save enough to afford another trip to Iceland.