As someone with a family in the USA, health care costs are the single largest problem for early retirement for me. When I look into the costs of plans for a family and consider the max out of pocket (worst case scenario) of over $10,000 per year that means I need over $333,000 just for basic health care! (10K/3%) This includes looking into the HSA options. Other than moving to another country, is there any way to minimize this expense/capital need? Of course, staying healthy is a good idea as well, but all it takes is one crazy illness where the (proven effective) drugs cost $1,000 per pill per day, and everything could go out the window. I'm so frustrated that health care available through employment is so much cheaper!
Health care capital needs
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jacob
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It seems that premiums vary between states and even counties.
It sounds pretty wild that you pay $800+/month for health care. Is that the Cadillac plan?
I may have a somewhat different take on risks. Most costs are exponentially concentrated to the point where one is close to dying anyway. I'm not going to work all my life so I can live 3 months longer in a hospital bed. There are crazy illnesses, but there are also crazy bus drivers which might run me over any time while I'm still working to cover a crazy but unlikely disease. Also sometimes gas lines explode under people's houses---although, here being away from home working to pay for health insurance might have saved the day. I have health insurance to cover things like broken bones and blood poisoning.
It sounds pretty wild that you pay $800+/month for health care. Is that the Cadillac plan?
I may have a somewhat different take on risks. Most costs are exponentially concentrated to the point where one is close to dying anyway. I'm not going to work all my life so I can live 3 months longer in a hospital bed. There are crazy illnesses, but there are also crazy bus drivers which might run me over any time while I'm still working to cover a crazy but unlikely disease. Also sometimes gas lines explode under people's houses---although, here being away from home working to pay for health insurance might have saved the day. I have health insurance to cover things like broken bones and blood poisoning.
@miyatarama
Is the $10K max out-of-pocket per year your cost for premiums, or are you including co-pays or co-insurance?
This is important because if you can pay a low premium for a catastrophic plan with a high deductible, then the out-of-pocket maximum due to deductibles and co-insurance will not be a recurring annual expense unless you are very ill or very unfortunate.
So, I might have a $200/month premium on a $6K deductible plan with a $10K oopm. In YR1, I pay $600 for routine doctor visit and Rx: annual outlay of $3000. In YR2, I spend three days in hospital and have orthopedic surgery because car accident broke my femur, reach my oopm: annaul outlay $12,400. In YR3, back to routine health care: outlay of $3000. Average for three years is $6134 (ouch, still high but better than $10K).
Is the $10K max out-of-pocket per year your cost for premiums, or are you including co-pays or co-insurance?
This is important because if you can pay a low premium for a catastrophic plan with a high deductible, then the out-of-pocket maximum due to deductibles and co-insurance will not be a recurring annual expense unless you are very ill or very unfortunate.
So, I might have a $200/month premium on a $6K deductible plan with a $10K oopm. In YR1, I pay $600 for routine doctor visit and Rx: annual outlay of $3000. In YR2, I spend three days in hospital and have orthopedic surgery because car accident broke my femur, reach my oopm: annaul outlay $12,400. In YR3, back to routine health care: outlay of $3000. Average for three years is $6134 (ouch, still high but better than $10K).
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jacob
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In comparison, in the 6+ years I've lived in the US, I have yet to see a doctor for anything medical. $10 spent on the big red Merck manual will explain a lot of symptoms without having to pay a doctor to look them up in a computerized version of the same manual.
(To clarify, when I applied for my green card, I had to get a sealed doctor's statement that I didn't have AIDS or tuberculosis. I am not making this up. Funny, huh?)
(To clarify, when I applied for my green card, I had to get a sealed doctor's statement that I didn't have AIDS or tuberculosis. I am not making this up. Funny, huh?)
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miyatarama
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Hi Jacob, I agree with you and I would gladly join a health insurance plan that will not pay for extending life where there is no quality of life. However, there are plenty of life-saving prescriptions and surgeries that can come up as well, and that's why I want insurance. The plans I'm looking at aren't cadillac plans - notice that I am using the maximum out of pocket, not the premiums for that $10,000 figure. Obviously without any serious illnesses the costs will be closer to the premiums, which for the most basic hsa/high deductible plan is still $3,600 per year (or $120K in capital). The cost for 1 healthy middle-aged male is only $1,200 per year with a maximum $3,000 out of pocket. I'd be interested if other areas are significantly lower.
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miyatarama
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@Maus, yes, I am using the out of pocket maximum of $10,000, although really I suppose if I wanted to calculate the worst case, it would be $10K plus the $3.6K of premiums. I agree this is VERY conservative, and probably would not be what we actually pay. On the other hand, premiums/cost of coverage has increased 10% plus *annually* the last few years. Okay, maybe you can shop around for a cheaper plan if your rates increase too much, but then will a cheaper plan take you if you have pre-existing conditions? I think health-care reform might change this somehow in 2012, but I'm not sure/confident that it will succeed. By the way, I can't remember the last time I had to go to a doctor.
@Jacob
As a practical matter I've assumed an earlier death because of my health condition (diabetes) and tailored my expected capital needs accordingly. I won't want heroic end-of-life treatment as my organs shut down, etc. But the hardest contingency to plan for is the random catastrophe like a traffic collision. I may be prepared mentally to die, but would consider it a horrific waste if it happened next year and the cause of death was as simple as an untreated septicemia.
As a practical matter I've assumed an earlier death because of my health condition (diabetes) and tailored my expected capital needs accordingly. I won't want heroic end-of-life treatment as my organs shut down, etc. But the hardest contingency to plan for is the random catastrophe like a traffic collision. I may be prepared mentally to die, but would consider it a horrific waste if it happened next year and the cause of death was as simple as an untreated septicemia.
@miya -- plan for the average case but have a back up plan in case things get worse than you expect. Almost nobody could retire without company/employer healthcare if they had to plan for a worst case scenario.
If you have a serious and expensive medical problem you may be able to (1) move to another country, (2) go back to work and get healthcare, (3) have your spouse go back to work for healthcare, (4) become a medical tourist, (5) go on medicaid, (6) wait it out for PPACA which I believe will limit maximum out-of-pocket expenses based on your income and prevent coverage denial based on pre-existing conditions.
If you have a serious and expensive medical problem you may be able to (1) move to another country, (2) go back to work and get healthcare, (3) have your spouse go back to work for healthcare, (4) become a medical tourist, (5) go on medicaid, (6) wait it out for PPACA which I believe will limit maximum out-of-pocket expenses based on your income and prevent coverage denial based on pre-existing conditions.
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miyatarama
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Thanks, photoguy, that's pretty much my option list at this point as well, with the one addition of just working longer and having a larger passive income stream (and possible overdo it). Like I said above, there are no current medical issues but I want to be realistic and prepared before retiring early. It would be really easy to just budget for the premiums but that doesn't make me personally feel comfortable. Anyway, thanks everyone for helping me think about these issues!
@miyatarama, So far as I can tell you are correct that you don't have a great list of options. Providing a guarantee of care availability in the US for a family is an expensive proposition. There are ways to manipulate your way into medicaid, but you might not consider that an attractive proposition.
Depending on your work, you may be able to find a job that allows you to work only 3 days per week while retaining benefits. You could consider yourself retired for most of the week.
In some areas there are organizations called PEO (professional employer organizations). At one point these organizations allowed small businesses to pool their HR needs, including benefits. So a bunch of small businesses could combine their purchasing power and negotiate health benefits at prices comparable to large businesses. Thus you could start your own business and use it primarily to generate enough income to cover your health care expenses-- depending on your occupation/business you might not have to work much to do that. In the past few years though, some (if not all) PEOs have lost the ability to significantly reduce health care costs, so you might not be able to do this effectively in your area.
Depending on your work, you may be able to find a job that allows you to work only 3 days per week while retaining benefits. You could consider yourself retired for most of the week.
In some areas there are organizations called PEO (professional employer organizations). At one point these organizations allowed small businesses to pool their HR needs, including benefits. So a bunch of small businesses could combine their purchasing power and negotiate health benefits at prices comparable to large businesses. Thus you could start your own business and use it primarily to generate enough income to cover your health care expenses-- depending on your occupation/business you might not have to work much to do that. In the past few years though, some (if not all) PEOs have lost the ability to significantly reduce health care costs, so you might not be able to do this effectively in your area.
"(To clarify, when I applied for my green card, I had to get a sealed doctor's statement that I didn't have AIDS or tuberculosis. I am not making this up. Funny, huh?)"
When I went through the naturalization process I had to sign statements that indicated I did not frequently utilize the services of prostitutes ("Well, not frequently...")and that I was not applying for citizenship for the purpose of overthrowing the government (why would anyone answer yes to such a question?).
When I went through the naturalization process I had to sign statements that indicated I did not frequently utilize the services of prostitutes ("Well, not frequently...")and that I was not applying for citizenship for the purpose of overthrowing the government (why would anyone answer yes to such a question?).
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miyatarama
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I have my own high-deductible health plan and a health savings account. I am accumulating money in my HSA for long-term care should I need it when I get much older. I use my flexible spending account to pay the premiums for my HDHP.
I visited a doctor last year for the first time in many years and ended up getting all the tests I should have gotten over the years. The official list price for this medical testing and treatment was $9K, but the medical providers agreed to accept the insurance company's maximum price for these services, which was only $2.7K. The insurance company covered $1K of the tab and I picked up the $1.7K remainder.
Since my deductible was $1.8K and I changed my lifestyle habits to eat healthy, exercise, and keep my weight down, I changed over to a new plan with a $5K deductible (which lowered my premiums). I keep the $5K in cash in a high-yield savings account as a reserve fund for all sorts of financial emergencies that might arise.
The insurance company just increased my premiums by 20% and it was due to its costs going up (rather than my health or me getting older and ending up in a different age bracket). In some ways, this is a "bargain" because since the mid 1990s, my health insurance premiums have increased on average of 25% a year.
I treat my health coverage as catastrophic health coverage. I'll pay for the "small stuff" and let the insurance company pay for the really serious conditions. I will also remain healthy with a safe lifestyle to minimize the chance I'll get a serious ailment.
If I end up not needing my HSA funds, I believe that money is treated as ordinary income if I use it for something other than medical care. I think of my HSA as a "medical Roth IRA" if I use it for medical care and a "medical Traditional IRA" if I don't use it for medical care.
I visited a doctor last year for the first time in many years and ended up getting all the tests I should have gotten over the years. The official list price for this medical testing and treatment was $9K, but the medical providers agreed to accept the insurance company's maximum price for these services, which was only $2.7K. The insurance company covered $1K of the tab and I picked up the $1.7K remainder.
Since my deductible was $1.8K and I changed my lifestyle habits to eat healthy, exercise, and keep my weight down, I changed over to a new plan with a $5K deductible (which lowered my premiums). I keep the $5K in cash in a high-yield savings account as a reserve fund for all sorts of financial emergencies that might arise.
The insurance company just increased my premiums by 20% and it was due to its costs going up (rather than my health or me getting older and ending up in a different age bracket). In some ways, this is a "bargain" because since the mid 1990s, my health insurance premiums have increased on average of 25% a year.
I treat my health coverage as catastrophic health coverage. I'll pay for the "small stuff" and let the insurance company pay for the really serious conditions. I will also remain healthy with a safe lifestyle to minimize the chance I'll get a serious ailment.
If I end up not needing my HSA funds, I believe that money is treated as ordinary income if I use it for something other than medical care. I think of my HSA as a "medical Roth IRA" if I use it for medical care and a "medical Traditional IRA" if I don't use it for medical care.
"I use my flexible spending account to pay the premiums for my HDHP."
What's the advantage of doing this? Can't you pay the premiums of your HDHP with pre-tax dollars anyway? By using your flex spending account aren't you reducing your ability to use flex spending dollars for purchases that otherwise would have to be made with post-tax dollars?
What's the advantage of doing this? Can't you pay the premiums of your HDHP with pre-tax dollars anyway? By using your flex spending account aren't you reducing your ability to use flex spending dollars for purchases that otherwise would have to be made with post-tax dollars?
"...the medical providers agreed to accept the insurance company's maximum price for these services, which was only $2.7K"
Generally speaking, if they're going to accept payment from your insurance company, they HAVE to accept a pre-negotiated price from your insurer, which is typically less than the "list price".
Generally speaking, if they're going to accept payment from your insurance company, they HAVE to accept a pre-negotiated price from your insurer, which is typically less than the "list price".
@Mo - Can't you pay the premiums of your HDHP with pre-tax dollars anyway?
I pay my HSA with pre-tax Federal dollars and post-tax state dollars (because the state where I live does not follow the IRS in this area).
I have to pay my HDHP premiums with post-tax dollars unless I pay them using a flexible spending account. Some people may be able to deduct their HDHP premiums depending on how they are employed, but I cannot do so myself.
I pay my HSA with pre-tax Federal dollars and post-tax state dollars (because the state where I live does not follow the IRS in this area).
I have to pay my HDHP premiums with post-tax dollars unless I pay them using a flexible spending account. Some people may be able to deduct their HDHP premiums depending on how they are employed, but I cannot do so myself.
@Cashflow, That's an interesting situation you're in. So, do you have an FSU through your employer, but no healthcare benefits? I hadn't thought of that situation. Alternatively, I guess you could choose to decline your employer's benefits if they are too expensive and use an FSA to pay for a HDHP.
I'm also shocked to hear that your state is collecting taxes on your HSA dollars. I didn't know that happened either.
I'm also shocked to hear that your state is collecting taxes on your HSA dollars. I didn't know that happened either.