If You're Buying Prescription Drugs Via Insurance, Also Ask About the Cash Price

Just saw this article posted from the New York Times :

Why Your Pharmacist Can't Tell You That $20 Prescription Could Cost Only $8  (paywall)

The article exposes a practice by which pharmacists are gagged from telling customers that drugs would be cheaper with cash purchases.      Now I don't know how common those gag orders really are.   But it seems they happen.     It also highlights the fact that cash prices for drugs may be less than the negotiated insurance rate.   

In any case, the take away here for me is that if you're buying a drug at a pharmacist then you should ask them what the cash price is.


--This article may contain referral links which pay this site a commission for purchases made at the sites.

Annual Increase In Per Capita Health Care Spending 2001 to 2014

Not too long ago healthcare spending was going up around 8% a year.    That has slowed down recently.   I thought it would be interesting to see the rate of change in per capita spending recently.

I got the data on the CMS site where it says that "The National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States."

Annual rate of increase in per capita spending :

2001	7.5%
2002	8.6%
2003	7.6%
2004	6.3%
2005	5.8%
2006	5.5%
2007	5.5%
2008	3.7%
2009	3.0%
2010	3.1%
2011	3.1%
2012	3.0%
2013	2.1%
2014	4.5%

They only have data up to 2014 so far.

The most recent 5 years have been going up ~3% a year.    However during those years inflation in general was only averaging about half of that in the 1-2% range.
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What Do Health Care Sharing Ministry Plans Cost?

Since the passing of the Affordable Care Act (Obamacare) I've come to learn about Health Care Sharing Ministries.     A health care sharing ministry is a cost sharing organization ran by a religious group.   Its kind of like co-op health insurance.      The sharing ministries may be attractive for a couple major reasons.   First you may prefer to participate in a religious plan that matches your own religious beliefs rather than the various mandates and rules of health insurance and the ACA.    In other words you prefer not to be forced to buy into insurance that pays for things against your religion.   Second, the ministries may be cheaper than general individual health insurance and also help you avoid the financial penalty for not having insurance.     Or maybe a combination of those reasons.  

Whatever your interest in a health care sharing ministry it may or may not be cheaper than standard insurance.   The plans may also not cover everything normal insurance does.     But the first question... what do they actually cost?

Doing minimal research I found 5 plans at Make that FIVE sharing ministries…

Altrua HealthShare
Christian Care Ministry
Christian Healthcare Ministries
Liberty Healthshare
Samaritan Ministries

There or may not be more plans out there, but I'm only covering the five plans above.

First an important note:  If you're interested in any of these plans, you should real.ly look at all the details of coverage and fully understand how they work.   Some will deny you coverage if you smoke or do other things against the plan rules.    They may not over certain things at all.     You should also verify for sure that membership in the plan in question does qualify you as covered under Obamacare in order to avoid the penalty.    I'm not covering every detail here and I'm just giving a rough summary of plan costs and coverage.

Details on the plans pricing are below.

Altrua plans : 

They have 3 levels with pricing varying by age.
Bronze   $120 to 300 singles / $330 to 600 families
Silver $216 to $360 / $450 to 720
Gold $240 to 420 / $480 to 780

The deductibles are $500, $1000 and $1500 for gold, silver and bronze respectively plus you also have to pay 25% of the next $10,000 of cost.

Christian Healthcare Ministries  (CHM)

They have 3 programs

Bronze = $45 /mo for a single and $135 for family with a $5000 deductible per incident and $125,000 per illness cap on benefit
Silver = $85 / mo for a single and $255 for family with $1000 deductible and $125k cap
Gold = $150 / mo for a single and $450 for family with $500 deductible and $125k cap

For about $140 / $340 more you can add their Brothers Keeper plan that adds $100k to the cap for bronze and silver and makes it unlimited for gold.

Christian Care Ministry (CCM)

This one has a lot of variable pricing.     The rates vary by age and there are several deductible levels.

A 25 year old single individual can get coverage for as little as $70 a month with a $10,000 deductible or pay up to $197 for $500 deductible.
Someone who is 60 years old will pay $213 for $10k deductible and $475 for $1250 deductible (no option for $500 deductible)
Family rates are based on the age of the oldest person.
If the head of household is 25 years old the rates are $193 to $709
A 60 year old head is $419 to $900

Liberty HealthShare

They have 3 plans with monthly prices based on age bands.

Liberty Complete pays 100% of bills up to $1 million
Single $149 under 30, $199 for 30-65 and $225 for over 65
Family $399, $449 and $475/499

Liberty Plus pays 100% of bills up to $125,000
Single $131 under 30, $181 for 30-65 and $206 for over 65
Family $374, $424 and $449/474

Liberty Share 

Single $107 under 30, $157 for 30-65, and $182 over 65

Family $345 under 30, 395 for 30-65, and 420/445 over 65

Samaritan Ministries 

Their rates only vary based on family size and don't care about your age.

$220 for a single  / $495  for a family of 3 or more
Save to Share is an extra cost of $133 single or $399 for family

They cover anything over $300 per incident.    The normal max coverage is $250,000 but you can also sign up for the Save to Share program to cover unlimited costs.


Here is a summary table of the plans, benefits and costs for a single person who is 25 years old:

		Deductible	Monthly	Cap
Altrua	Bronze	$1,500	$120	$1,000,000	25% over $10k
Altrua	Silver	$1,000	$216	$1,000,000	25% over $10k
Altrua	Gold	$500	$240	$1,000,000	25% over $10k
CHM	Bronze	$5,000	$45	$125,000
CHM	Silver	$1,000	$85	$125,000
CHM	Gold	$500	$150	$125,000
CCM	$500	$500	$197	unsure
CCM	$10,000	$10,000	$70	unsure
Liberty	Complete	$500	$149	$1,000,000
Liberty	Plus	$500	$131	$125,000
Liberty	Share	$500	$107	$125,000	pays 70%
Samaritan	normal	$300	$220	$250,000
Samaritan	Saveshare	$300	$353	unlimited

The very cheapest plan is the CHM Bronze plan which is just $45 a month.   But it pays very little.   That plan has a $5000 deductible and only $125,000 cap.  

The Liberty Complete plan looks like the best all around deal.   That plan is $149 a month with only a $500 deductible and has a $1,000,000 cap.


For a family of 3 or more with a youngish head of household under 25 years old:

		Deductible	Monthly	Cap
Altrua	Bronze	$1,500	$330	$1,000,000	25% over $10k
Altrua	Silver	$1,000	$450	$1,000,000	25% over $10k
Altrua	Gold	$500	$480	$1,000,000	25% over $10k
CHM	Bronze	$5,000	$135	$125,000
CHM	Silver	$1,000	$255	$125,000
CHM	Gold	$500	$450	$125,000
CCM	$500	$500	$709	unsure
CCM	$10,000	$10,000	$193	unsure
Liberty	Complete	$500	$399	$1,000,000
Liberty	Plus	$500	$374	$125,000
Liberty	Share	$500	$345	$125,000	pays 70%
Samaritan	normal	$300	$495	$250,000
Samaritan	Saveshare	$300	$894	unlimited

The cheapest is again the CHM Bronze plan at only $135 a month.   But again that plan covers very little and its not a good risk for a family.

I think the best deal is the Liberty Complete plan for $399 a month.  
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Today is the Deadline to Enroll for Health Insurance on the Exchange

If you don't bother to pay attention to news then you may have missed this story.     Today, December 15th is the deadline to enroll in health insurance on the public exchange.    Just an FYI.

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You Should Buy a New Car Instead of Eating Organic Foods

Stop eating healthy food and go buy yourself a new car.    Serious, let me explain...

First a disclaimer:  This is pretty rough, ballpark estimates and I"m purposefully simplifying things by ignoring some factors, using simple numbers.   I could be off by a factor of 10 easily.   I'm not saying organic food is bad or that buying new cars is smart money.   But its all just to illustrate a point in how we should consider our spending and priorities and open to thinking differently.

 People buy organic foods because they are healthy.   Key reason is that organic foods are certified as being free of pesticide residue. I think we can all accept as fact that pesticides are not a good thing to eat. Lets then also assume as fact that eating organic foods is healthier than eating non-organic. We should avoid eating the pesticide residues on non-organic foods. But how much should we spend to avoid doing so?

Image credit : Some rights reserved by SummerTomato

If organic food was the same price as regular food then it would seem obvious that we should all eat organic foods. However organic foods are quite expensive so its a little harder to declare that everyone should pay that premium without a good idea of the risks and benefits associated with the choice. If you're rich and the money isn't a concern then I see no reason to not buy organic food.  But for most of us the difference in cost when buying organic is pretty noticeable chunk of change relative to our budgets. Some of us might say "I'd spend any amount of money to be healthy" and that sounds reasonable BUT you don't have unlimited money so how much you spend should be based on the actual value you get out of it. And you really do need to consider what other things could you spend your money on to safeguard your health?

Quantifying the impact of Organic foods

I'm going to say that key measurable health impact of organic foods is eliminating the use of pesticides.  Such pesticides could contribute to sickness that could result in death.  What is the risk of pesticides? The EPA regulates the amount of pesticides that can be on foods. The EPA defines a "negligible risk threshold for the amount of pesticide reside that they allow on foods. The "negligible risk" level is defined as a one in a million chance of getting cancer from the level of pesticides over a 70 year lifetime of eating that amount of pesticide. However there are a couple criticisms of this type of regulation level. First they don't look at the impact on a child versus the impact on an adult. A certain amount of a chemical will have a worse impact on a child since they are developing and their bodies are smaller. But the regulation applies equally to everyone. Another potential problem with the EPA definition is that it does not consider the compound impact of multiple pesticides. One in a million seems very small but what if you multiply that by 10 or 20 varieties of foods and then multiply that by 10 or more pesticides? You might eat 10 different foods that each have 5 different pesticides so you'd be looking at 50 in a million chance rather than just one in a million. If we start with the EPA's one in a million criteria and then assume that its compounded by 5 pesticides on 20 foods then that would make it 100 in a million or one in ten thousand risk of getting cancer from pesticides on food. Note this is obviously a ballpark estimate. I'm making assumptions here that there are 5 pesticide residues per food and you eat 20 food types. If you think those numbers are low you could double them both or multiply by 10 and rework the odds. As I don't know the exact numbers I'm picking some and using them for discussion sake.   But if we use this 1 / 10,000 estimate of cancer then we can estimate a fatality risk at about 1 / 30,000 as roughly 1/3 of cancer cases result in death.    So that gives us :  

Organic food benefit : 0.003% fatality risk avoided

I previously figured that organic costs about 80% more than regular foods.   An old NYTimes article said : "Organic food is typically 20 percent to 100 percent more expensive than a conventional counterpart"   I'm just going to 'ball park' this and say that organic food is 60% more expensive on average.   But a range of 20-100% is probably more accurate.
 Average household expenditures on food at home was $3,921 for 2.5 people in 2012. Thats $1,568 per person.    Organic would cost you then 60% more than that or $940 a year per person.   Or using the broader range the cost would be $313 to $1568.

Organic food costs :  $940 a year (or $313-$1568) per person


So if we take the cost and risk level and put them together then by buying organic food we'd be spending $940 a year (313-1568) to avoid a 0.003% chance of fatality.



How does this compare to other things we spend our money on?

How new is your car?   Is it a model with all the latest and greatest safety features?


The National Safety Council figures odds of dying from various causes. They figure the odds of dying in a motor vehicle accident sometime in your life is 1 in 112. So thats a 0.9% chance of dying in a motor vehicle accident in our life. Spending more to get a safer car could decrease that risk. A study in 1994 from the National Highway Traffic Safety Administration found that
"A composite NCAP score, based on the test results for all three body regions, has excellent correlation with fatality risk: in a head-on collision between a car with good composite score and a car of equal weight with poor score, the driver of the car with the better NCAP score has, on average, a 20 to 25 percent lower risk of fatal injury." So a safer car could reduce your risk of motor vehicle related fatality by 20-25%. That would be a 0.18% to 0.225% reduction in lifetime fatality due to motor vehicle accidents due to car safety. Or simply adding side airbags could help a lot. This article refers to a study that found that side air bags could reduce fatalities by 37%. A 37% reduction would be a reduction of 0.33% risk for the individuals lifetime fatality risk.

This Consumer Affairs article reports that Electronic Stability Control option in cars saves lives. They say: "The NHTSA study found a 35 percent reduction in single-vehicle crash risk for cars and a 67 percent reduction for SUVs. Fatal single-vehicle crashes were reduced about 30 percent (cars) and 63 percent (SUVs)." and "...widespread application of ESC could save more than 7,000 lives per year." There are currently about 34,000 auto vehicle fatalities a year so a 7,000 reduction in fatalities would be a 20% drop roughly. Starting with the 0.9% lifetime risk of fatality in motor vehicle accidents, the Electronic Stability Control feature will reduce your fatality risk by 0.18%. The cost and availability of Electronic Stability Control varies between makers and models. For example the Vehicle Stability Control system was a $250 option on a 2009 Toyota Corolla and is now a standard feature on a 2014 model.

The 2008 Toyota Corolla did not have stability control or side air bags as standard features.   You might have those as options but its not standard.   SO lets say you have a base model Corolla that lacks those options.

source : Toyota.com

  If you upgrade to a new 2014 Corolla then it will come with stability control and side airbags as standard features.   Those features decrease fatality rates by 37% for stability control  and 18% for side airbags.   Roughly speaking I'll estimate that adding both those features will cut your risk of fatality from motor vehicle driving in half.   I'm saying you avoid 37% of accidents with stability control to get you down to 0.57% fatality rate and then 18% of that is avoided with side airbags for a total of 0.46%.  

Upgrading to a new car with safety features can cut your fatality risk in half.

 Knowing how much it will cost you to upgrade your car to a newer safer model is hard to figure.   It depends on what car you drive now.    For illustration purposes I'll assume you drive a 6 year old Toyota Corolla.     The average age of cars in the USA is now 11 years.    However I don't have data on cost of operation for 2003 vehicles.  

Edmund's True Cost to Own calculation for a 2014 Toyota Corolla is $33,939 for 5 years or $6,788 a year.   The TCO for a 2008 Toyota Corolla is $29,350 or $5,870

Upgrading from a 2008 Corolla to a new 2014 model would cost you an extra $918 per year.


Spending $918 a year in this example cuts your fatality risk by 0.45%.


Now lets sum up:

Organic food reduces pesticide consumption which can cut your fatality risk by 0.03%
Organic food costs about $940 a year

New cars have better safety features which can cut your fatality risk by 0.45%
New car upgrade over a 6 year old model would cost $918 a year.

Bottom line :

You get about 15 times as much 'bang for the buck' in improved safety in terms of reduced fatality risk if you buy a new car over paying for organic food.


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How Much Will COBRA Cost You?

When you leave an employer you have the right to continue coverage under their health insurance by paying for COBRA.    If you leave your employer voluntarily or involuntarily for anything but 'gross misconduct' then you generally qualify for COBRA.    For more specifics on how COBRA works see the Dept. of Labors FAQ on COBRA.    COBRA premiums can be expensive and people often don't know how much it will cost until they're attempting to sign up. 

How do you find out how much COBRA costs?

I can think if 3 ways to find out how much COBRA costs.

1. First you can simply ask your employer.   They should be able to tell you.    Your HR department or whoever handles such things should know the premium costs.   I'm assuming here but I don't see any reason why they would not know.     My employer actually publishes COBRA rates internally and its possible yours does too, especially if you work for a large company like I do.   Simply asking your employer is the obvious answer but people may not think of it or they may have a reason for not wanting to ask.  For example if you're thinking of leaving your current job for another job you may want to keep that quiet for now.

2. COBRA cost is generally 102% of the actual cost of health insurance.   That includes both the employee and employer contributions.   If you happen to know the total cost of your health insurance then 102% of that that is how much COBRA will cost as well.  

3. Figure the cost based on W2 information and your premiums.   Lastly one trick for figuring COBRA cost is to find the employer cost of health insurance on your W2 form.   Now the government requires most employers to document the cost of health insurance on the W2 forms.   For information on that see the IRS page on reporting of health insurance on W2's.    Box 12 DD of the W2 will list the employer contribution.    This doesn't count the amount that you as the employee pays and it does not include any HSA contributions.   You can figure the total cost of your insurance by adding the amount from box 12DD on the W2 plus your current monthly premiums.   So for example say you have a family of 4 and your current premiums are $200.   On box 12 DD of your 2013 W2 it lists a cost of $9600.   Your annual cost is $200 x 12 months for the employee contribution plus the $9600 for a total of $12,000 or $1000 a month.   Your COBRA premiums are likely to be 102% of that or $1020.

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Should You Spend Money on Vitamins?

[note: for any health related topic you should consult your doctor as they would have more knowledge of your personal health]

Every day I take a single mult-vitamin and a extra dose of vitamin D.

Articles like this editorial Enough Is Enough: Stop Wasting Money on Vitamin and Mineral Supplements published in the Annals of Internal Medicine might make me believe that I'm wasting my money.   The editorial seems based on these three studies :
Oral High-Dose Multivitamins and Minerals After Myocardial Infarction: A Randomized Trial Long-Term Multivitamin Supplementation and Cognitive Function in Men: A Randomized Trial Vitamin and Mineral Supplements in the Primary Prevention of Cardiovascular Disease and Cancer: An Updated Systematic Evidence Review for the U.S. Preventive Services Task Force

I read those as meaning that vitamins in high doses won't stop heart attacks, vitamins won't keep you from losing mental abilities in older age and that vitamins don't prevent cancer or heart disease.   OK.   I wasn't expecting that vitamins would stop cancer or heart attacks.    My purpose for using vitamins is to prevent a common vitamin deficiency.   I don't have any specific reason to think I'm prone to have a vitamin deficiency but how do you know?   There are a significant number of people with deficiencies and most don't know it.   I figure vitamins are a fairly cheap way to make sure that doesn't happen.   I don't expect them to stop cancer.  Do people really expect their multi-vitamin to prevent heart attacks or fend off dementia?  

If you do take a multi-vitamin then make sure to shop around and get a reasonably priced one.   If you get store brands like Kirkland or similar or hunt for sales then you can find tablets for about 3¢ each.  

You can get a Kirkland muti-vitamin for $14.49  with 500 tablets or about 3¢ a day. or get it at Amazon for $17 or so if you don't belong to Costco.  Similarly  you can get  a NOW Foods Vitamin D-3 1000 IU  supplement at Amazon for under 3¢.    I'm spending abut $2 a month on vitamins.  Thats not too much money really.

Maybe its a waste of money but I don't know.   In fact I actually hope it is a waste of money because that would mean I'm not deficient in any vitamins.   In my opinion the cost of reasonably priced vitamins is quite small and I think that its worth it just to make sure you don't end up deficient with something like vitamin A or vitamin D or iron for example.  

Whether or not you want to take vitamins is up to you.   



--This article may contain referral links which pay this site a commission for purchases made at the sites.

What Are the Chances of an Expensive Medical Bill?

Recently I made the argument that you need to have health insurance.  Sometimes when people go without insurance they do so because they feel that the risk of a large health care bill is not high enough to warrant the cost of insurance.   I thought it would be useful to see what the actual risks of a high health care bill look like.

The Kaiser Family Foundation has data on the concentration of health care spending in the U.S.   Their data there was from 2010 so the figures are a little higher now, but the general trend should be about the same.    I took their chart and reformatted into a pie chart to show the mix of spending for the different population groups.

Half of the population spent under $829.   80% of the population spent over $4639.    So you can see the vast majority of the population spend under $5000.   Only about 10% of the nation spent over $10,000.   The top 1% spent over $53,238.

OK then roughly speaking, there is about 1 in 10 rate of spending over $10k and about 1 in 100 rate of spending  over $50k.  

Now keep in mind that this is looking at the entire population so you'll have higher and lower typical spending levels for different age groups.   For example people over 65 years old will spend more than average and people in their mid 20's might be much lower than average. 

I also tried to find data on very expensive health care costs like $100,000 or $250,000 or $500,000 levels but I could not find anything saying what percent of people have such high bills.   I suspect those hefty bills are a small fraction of the population though.  

Someone might look at the chart and think well if the risk of a $50k bill is only 1% then I can risk that.  However keep in mind that a full 20% of people spend about $5000 or more and another 30% spend around $1-5k.   If your insurance cost is around $3000 a year then we could estimate that there is probably about 1 in 3 chance of repaying your insurance in any given year.   Plus there would be about 1 in 5 change that your health costs would be significantly higher than your insurance costs.   So its not just looking at spending $3000 to avoid a 1% chance at a $50k bill.      You are actually a lot more likely to have a $5000 or $10,000 bill which is still a pretty hefty burden.   I'd also point out that insurance is never a straight odds gamble but the point is to insure yourself against the very high costs which would be catastrophic to your finances.  

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You Need Health Insurance

If you don't have health insurance then you should really get it.   

Most people get health insurance via their employers or through existing government programs like Medicare, Medicaid or VA benefits.    But there are still a lot of people who don't have insurance for various reasons.   Before the Affordable Care Act  (ACA) (everyone calls it Obamacare) there were a lot of people who really had a difficult time affording health insurance.  But with the ACA there are now subsidies that help pay for the cost of health insurance for those with medium or lower incomes.

If you don't have enough money to afford it then you can get generally get coverage under Medicaid.  If you make too much money to qualify for Medicaid then you will probably qualify for a premium subsidy from the government that will help pay the cost of health insurance.   If you make too much to qualify for the subsidy then you can afford health insurance.    I think this really splits the uninsured into two groups, those who have difficulty affording it but can now get aid through the government programs or people who can actually afford it but don't buy it.


Some people feel they can't afford insurance but they simply aren't making it a priority.    Health insurance should be a priority over many other expenses.   If you make an average income or better than you should have money in your budget to afford health insurance.   If you don't feel you have the money then you need to re-prioritize your spending.    People without health insurance generally skimp on healthcare when they need it since they can't afford the out of pocket costs without insurance.    What good does cable TV or a nicer car do you if you end up seriously ill for lack of adequate health care?  

Its not likely you'll have a giant unaffordable hospital bill but the consequences are catastrophic.   If you do end up with a serious illness or injury then the total healthcare costs can easily bankrupt most people.   Some people feel that going without health insurance is an acceptable risk because they think the chances of needing it are low such that they feel its 'worth it' to fore go buying insurance and take the risks.   We don't treat auto insurance or home owners insurance this way so I'm not sure why people make such choices with health insurance.   Healthcare costs can wipe you out financially just as well as a severe auto accident or a home fire.  

Younger people may also feel that they have no 'need' for health insurance because their healthcare costs have been generally low.   Younger people are generally more healthy and do have relatively low healthcare needs and lower risks.    This however is not good reason to go without health insurance entirely.  Younger people are not immune from serious illness or injury.    While its not likely you'll end up with a giant hospital bill it can and does happen to people who are under 30 years old.   Just stop and think about all the people you know and who you know in their 20's who've had serious illnesses and serious injuries.  I'm sure you know someone.  

Healthy lifestyles also don't defend you against all serious healthcare costs.   A lot of people seem to think that because they do a good job taking care of themselves with good diet and exercise that this means they're immune to hospital stays.   Certainly keeping in good shape will keep you in good health but it doesn't defend against all illnesses and injuries.  

It may make good sense to get a high deductible plan but you need catastrophic coverage at a minimum.    Young and healthy people do have lower healthcare costs so a high deductible plan may be a good idea financially.  But you should at least get a plan that will kick in and protect you against extremely high medical costs for serious illness or injury.   People under 30 can still buy catastrophic plans under the ACA and the Bronze level often has $5000 level deductibles.    These plans are often quite reasonably priced (relatively speaking) especially when you consider subsidies available to most people.


Please make health insurance a priority in your budget.  Going without health insurance is not worth the risks.
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Obamacare and My Early Retirement Planning

This blog is supposed to be centered around about my personal journey to early retirement which I hardly ever write anything about.   Way back when I started Free By 50 over five years ago.. (5 years..  really?)... it was about my personal quest to be financially free by the age of 50.   Early retirement is a gradual journey though and not exactly worthy of daily updates.   So I usually wander far far off that topic and talk about cable TV programming packages and buying cheap beater cars.    Today I thought it would be a good idea to revisit the actual theme of this blog for once.    And I've found what I think is a good reason to do so.

Obamacare officially launched October 1st 2013.  Ok not really.   The exchanges where you can buy insurance opened for enrollment.   OK not completely.  The websites claimed to open but mostly failed to work property.    Which is an amazing thing since everyone knows that large software launches are always perfect on day one.[1]   Well whether or not it works well... this is a lot of peoples real first taste of the meatier part of Obamacare.   This is the first point where people are seeing the prices and options for individuals to buy insurance via the exchanges .   That doesn't impact me now nor does it impact the other approximately 80-90% of the country currently insured by their employer or in a government program.   But it gives me an opportunity to see how the new system can impact insurance costs in the future.

One of the big unknown variables in early retirement planning has been the ever increasing cost of buying individual health insurance coverage.   Until recently we'd seen health insurance going up 8-10% a year pretty steadily.   At that rate insurance would more than double by my early retirement target age.   That kind of uncertainty can throw a wrench into my retirement plans.   On top of that if my wife or I had a preexisting condition then we could be denied coverage entirely.   I wouldn't want to quit work early if I knew we'd be unable to get insurance.    So planning for early retirement had a couple major unknown variables due to health insurance costs and availability.  Would I be able to afford insurance when I'm 58?   Would we even be able to get it?? 


Through its individual subsidies Obamacare creates more certainty in the cost of health insurance for most people and it also removes the worry about being denied coverage for existing conditions.

First of all if you're under 400% of the poverty line then you get a subsidy that is designed so that you pay no more than 9.5% of your income towards insurance.   I discussed how that works before.    I can use that as a good baseline to estimate insurance costs and assume that health insurance will cost 9.5% of my income.   That will work at least for starters, I'd have to estimate some out of pocket cost on top of the insurance premiums.   

Of course it assumes that our income stays under the 400% poverty line.    That may or may not be a good assumption.   The federal poverty line for 2013 is $15,510 for 2 people.   At 400% that would give us $62,040 for 2 people.    If I have a target early retirement income of $50,000 then that is under the threshold for 400% poverty line even for just myself and my wife and for any kids it goes up further.   For 4 people the poverty line is $23,550 and 400% would be $94,200.    Of course I would prefer to have a higher income in the future.    If its just me and my spouse then we could more easily exceed the 400% level of income of $62,040.   For a family of four though hitting the $94,200 level is a higher income target and less likely.    I did a quick, rough calculation and figured that on my current path that by the time I'm 50 years old I would have enough assets that would generate income of about $55,000 annually (in todays dollars).    I'll probably be below 400% of poverty in early retirement but that is not a given.

In some situations I could 'game' the system to limit my income in order to get a larger subsidy.   I'm not sure if I'd consider purposefully manipulating the system for a higher subsidy to be ethical.   I'll have to give that some thought if we'd actually want to do such a thing.     If I'm managing my own real estate and withdrawing money from retirement funds then I'll have flexibility to pull money out when I want to.  If for example I'm on track to hit $63,000 in income for a given year and I know that the 400% limit is at $62,040 then I could purposefully limit my income for that year to $62,000 so I don't exceed that 400% limit.   For example, instead of pulling money out of an IRA which is counted as income, I could instead borrow some money short term and use that for our living expenses then pull out a larger amount from the IRA the next year. So if it was just my wife and I and we had $60,000 of income then we'd get about a $400 subsidy. But if I shifted that so it was $40,000 one year and $80,000 the next then we'd get almost $2400 subsidy for the year with $40,000 of income.   

The amount of the subsidy we might get will depend on who's being insured.  It would be a lot less for two people versus a family of four at the same income level.   I used my states exchange to get some idea of what the plans would cost and what our subsidy could be.   Thankfully our exchange web site works well enough to give you estimated cost quotes and doesn't force you to fill out 10 pages of forms to do so.  If I was 50 years old with an income of $62,000 then the subsidy for my wife and I would only be about $200 a year and the insurance plans would $400 to $950 per month.   A $200 annual subsidy doesn't really amount to much and wouldn't be worth me gaming the system.   Now on the other hand if we had a family of four at that time then the subsidy would be more like $200 a month and insurance would run $600 to $1300 range.   So it depends on whether or not we've got dependents at the time of early retirement.   Of course dependents can be on your plan until age of 26 years old now so thats a long ways into the future.   I'd figure on having 2 dependents under our coverage for a long while.

Summary points:

With Obamacare subsidies I think I can safely guesstimate our health insurance costs to be capped around 10% of income.
We may or may not qualify for a subsidy.
If we have dependent kids at the time  its a lot more likely we would get a subsidy.

With the guarantee coverage provision we no longer have to face uncertainty about whether or not we are able to buy individual coverage.

Bottom Line:  I'm going to use 10% of income as a baseline budget cost for health insurance expenses when figuring our early retirement planning.


[1] If this comment doesn't send your sarcasm meter off the scales then you're not too familiar with software.
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How Much Are Health Care Subsidies?

With the implementation of the Patient Protection and Affordable Care Act (PPACA) commonly known as "Obamacare" there will now be tax credit subsidies to help pay for health insurance.   To be eligible you have to buy insurance on your own (outside of employer plans ) and have a family income that is 400% of the federal poverty level or lower. 

Keep in mind this won't impact most people since most people get insurance through their employer or via government programs like medicare or medicaid.   You are only eligible for a subsidy if you buy private insurance via an exchange.

How much are the tax credits available? 

They figure the subsidy based on how much the tax payer is expected to pay for insurance and then the subsidy pays the rest of the cost for a 'silver' level plan. 

In other words :

Subsidy = Cost of silver plan - Tax payer premium

The tax payer premium is a % of their income based on the following table :

Federal Poverty Level	% of income
under 133	2%
133	3%
150	4%
200	6.3%
250	8.05%
300	9.5%
400	9.5%

I found the table both at the KFF and in a US News article.

If your income is in between one of those points then there will be a sliding scale.   So for example if you're at 225% of poverty then you'll be halfway between 200 and 250 so your % of income is the midpoint of 6.3% and 8.05% or 7.175%. 


Also refer to the 2013 Federal poverty levels

Abbreviated table :

Persons in family	Poverty level
1	$11,490
2	$15,510
3	$19,530
4	$23,550
5	$27,570

Lets say for example that you're a 40 year old single person making $28,725 that would put you right at 250% of the poverty level.  So your premium is 8.05% of your income which is $2,312.36  

Now lets say as an example that a 'silver' level health plan would cost you $4,800 a year.   Therefore the subsidy is $4800 - $2312.36 = $2,487.64

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Hodge Podge : Tax Estimator, Medical Cost lookup and Median Incomes & Rents

Here are three interesting sites that I've ran across.   They are all useful or interesting.   These were sitting in my pile of stuff to write about but didn't warrant a article on their own so I figured I'd post about them all together...

Estimate Your Tax Bill : TurboTax's TaxCaster This one is pretty useful to figure out your rough income tax bill.   You can also use it to model how different changes would impact your taxes.   Its smart enough to know what you can and can't claim based on your tax levels.

Get Average Medical costs: FairHealth's medical cost lookup
You can look up specific medical procedures by ZIP code.   It gives estimated costs in your area for various procedures and it figures both the insured costs and uninsured costs.

Median Income & Median monthly rents by Census tracts: Rich Blocks, Poor Blocks
You can put in your address and find the median rents in your area.   This is handy for setting rents or market research for rentals.   You can also look up median income levels which is more for curiosity sake.  I found it interesting to see the huge differences in median incomes in various areas of our town.


--This article may contain referral links which pay this site a commission for purchases made at the sites.

Responses to NPRs Story on Disability

I wrote an article Disability is the New Welfare reflecting the apparent conclusion of the NPR  piece on disability from Planet Money Unfit For Work.

I had a reader named Joan email me about the topic and I shared her thoughts with A Readers Perspective on Disability

Well now several other folks have chimed in on the topic as well.    Planet Money pointed to some responses and gave other links to additional information on the topic Former Social Security Commissioners and Others Respond to Our Disability Story

First lets look at the : 
An Open Letter from Former Commissioners of the Social Security Administration

One key bit they say:

"It is true that DI has grown significantly in the past 30 years. The growth that we’ve seen was predicted by actuaries as early as 1994 and is mostly the result of two factors: baby boomers entering their high- disability years, and women entering the workforce in large numbers in the 1970s and 1980s so that more are now "insured" for DI based on their own prior contributions. The increase in the number of children receiving SSI benefits in the past decade is similarly explained by larger economic factors, namely the increase in the number of poor and low-income children. More than 1 in 5 U.S. children live in poverty today and some 44 percent live in low-income households. Since SSI is a means-tested program, more poor and low-income children mean more children with disabilities are financially eligible for benefits. Importantly, the share of low-income children who receive SSI benefits has remained constant at less than four percent."

In other words:   Most of the increase in disability is purely due to demographic changes.

There is also a response from the  Consortium for Citizens with Disabilities (CCD)

"Unfit" for NPR--Let's Get the Facts Straight on Disability Social Security Disability Programs Are a Vital Lifeline for People with Severe Disabilities

They didn't seem to care for the NPR article much at all.

They say: "Unfortunately Ms. Joffe Walt’s reporting fails to tell the whole story and perpetuates dangerous myths about the Social Security disability programs and the people they help."

The CCD response makes a lot of points.

One data point they give is that :
"Many are terminally ill: 1 in 5 male SSDI beneficiaries and 1 in 7 female SSDI beneficiaries die within 5 years of receiving benefits.  "

That hardly paints a picture of a bunch of "free loaders".

"Just 1.6 percent of U.S. children receive SSI fewer than 1 in 4 U.S. children with disabilities.
Contrary to what Ms. Joffe Walt suggests,doing poorly in school is not a basis for SSI eligibility."

And as far as people shifting from TANF to disability, they point out : "The decline in TANF enrollment from 1996 to 2011 is more than 20 times the magnitude of the increase in SSI child enrollment during that period."

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Disability Is the New Welfare

NPR wrote a very interesting article titled Unfit For Work.    I'd encourage you to read the whole article.    The gist of it is simply :  The number of people on disability has risen steadily over the past 30 years.   This isn't a unique phenomenon related to the recent recession. 
 
The article says:

"The federal government spends more money each year on cash payments for disabled former workers than it spends on food stamps and welfare combined." 


Did you realize that?   I didn't.

Then theres this bit about how some people get on disability:

"Dr. Timberlake is making a judgment call that if you have a particular back problem and a college degree you're not disabled. Without the degree, you are."

This actually makes sense to me.   I myself have a back problem.   I work a 'cushy' office job where I sit at a desk the vast majority of the time.  Yet if I stand for too long my back and leg will start to ache.   If I didn't have a college education it would likely be pretty difficult for me to do a lot of blue collar jobs that require 8 hours of standing or repetitive work.    Reportedly 80% of adults have back pains at some point in their lives and its probably no coincidence that the #1 reason for disability is back pain.

The article shows various charts over time that show relationships between the number of people applying for disability to spikes in unemployment and the comparison of the people on welfare to the people on disability.  It seems fairly clear that disability is replacing welfare for many Americans.

A pretty obvious connection between welfare and federal disability is evidenced by this bit :

"PCG [Public Consulting Group] is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability."

You read that right.   A private company is paid by the states to get people off of welfare and onto federal disability.   They say that Missouri pays the company $2300 per person.    The company facilitates individuals getting on disability and they have this quote from one of their agents talking to a welfare recipient:

"Can you think of anything else that's been bothering you and disabling you and preventing you from working?"

This makes twisted sense.   If an individual is on welfare then the state has to pay money, but if the individual instead gets on disability then the state saves money.   Individual states have financial incentive to get their welfare recipients on federal disability.  Its clear enough if they're paying a private company $2300 per head to get that accomplished.

I don't know what portion of people on disability are severely disabled and what portion  have less severe disabilities.   I also don't know hat portion of the people receiving disability are actually cheating the system.   But even if there isn't outright fraud the system is setup so that if you work in a blue collar job and get unemployed that you may end up on disability due to back pains whereas if you kept your job you'd likely continue to work.   Or if you get on welfare you may get 'helpfully guided' on to disability by the state and their private consultant. 

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How Your Health Insurance Bill Can Grow Much Faster Than Health Insurance Costs

If you haven't had your health insurance premiums increase a lot then then you're in a minority. However the increase in the bill you pay may not have much to do with the increase in the health insurance cost. Its actually quite common and easy for your own health insurance premiums to go up at a very fast rate while the cost of your insurance has only grown marginally.

The reason for this is that employees normally only pay a small fraction of the actual premium costs.   Then when the premium increases the employer may shift the bulk of that price increase to the employees.

Here is a simple example to illustrate :

Lets say your health insurance ran you $133 a month in 2012 and now in 2013 they jacked it up to $147 a month.   Thats a 10% increase.   Your costs went up 10%.

However your employer actually pays 80% of the premium.   In 2012 the actual total premium was $8,000 and your employer paid $6,400.   Then in 2013 when the rates went up 2% to $8,160 they decided to make you pay the entire increase and passed the extra $160 on to you.   In 2013 the employer pays $6,400 and you pay $1,760.

Now that example is a bit extreme and most employers don't dump the entire increase on the employees in a given year.   So this isn't really what I'd call typical but it certainly can and does happen.

As the cost of health insurance has gone up over the years the employers have pushed more of the increased premiums over to the employees.   This results in high percentage increases for the employee premiums.   Most employees see this as a 10% increase and then assume that means that the cost of health insurance rose 10% while it doesn't mean that at all.  

Over the past decade or two on the average the workers cost has gone up a bit faster than the employer share.   Between 2007 and 2012 the worker premium for family coverage at large firms went from $2,831 to $3,926   Thats a total increase of 39% and annual growth of 6.75%.   However the cumulative increase in premiums from 2007 to 2012 was up only 30%. or just annual growth of 5.4%.

As you can see in this chart the total increase in premiums from 1999 to 2012 was up 172% while the workers premium grew by 180%.  Thats not a huge difference but if you look at that chart you can see that the total premium and worker share grew mostly at the same rate till about 2009.  Then from 2009 to 2012 the worker share grew a lot faster and in fact 2009 shows a large leap in the worker share.

This isn't exactly earth shaking revelation to many as I assume many people are  well aware that their employers are shifting more of the costs or at least the increases to the workers.   However I think a lot of people simply don't know or just don't think about how their portion of health insurance costs are usually small compared to what the employers pay.  Plus it does take a little basic algebra level math to see how your increase in cost for your smaller fraction isn't  the same as the increase in costs for the entire amount. 
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Cancer Incident Rates by Age Group

Recently I saw a commenter on The Simple Dollar said something that sounded like he didn't think cancer rates were age related.   As you can see in the data below, cancer rates are very age related.    

I got the data from the National Cancer Institute's Surveillance Epidemiology and End Results SEER website.   The figures are for 2004-2008.

These are the rates of cancer incidence per 100,000 people for each age group.   The low is for years 5-9 when the rate is 11.9 and the peak is at age 80-84 the rate is 2,444.    The incidence rate for the population as a whole is 464.    These incident rates are per year, so people in their early 80's have about a 2% annual rate of being diagnosed with cancer.

This data is for all forms of cancer.   Different types of cancers have different incident rates.  Most cancers follow a pattern similar to the graph.  However there are exceptions, for example testicular cancer in men peaks in the late 20's.

What is Co-Insurance?

Co-insurance is a term that is new to me in the past few years.   When I first got my insurance at work I had a small co-pay but no co-insurance.   At that time I had no reason to be worried about co-insurance.   Over the years our insurance options have changed and I now have a policy with co-insurance. 

Co-insurance is a portion of the costs that the health care recipient is responsible for paying out of pocket.   Generally co-insurance is a percentage figure.     The co-insurance will kick in after a deductible is met and then stop after the total out of pocket is met.    The higher the co-insurance then the more you have to pay and the less the insurance pays.  

Whats the difference between a co-pay and co-insurance?

A co-pay is generally a fixed amount of money that you have to pay for a given service.  You may have a co-pay of $20 or $25 for a doctors office visit or a $10 co-pay for a prescription.   The co-pay is fixed at a specified amount.   With a co-insurance you are paying a percentage of the costs so the exact amount you pay is not fixed and depends on the cost of the health care received.   Generally co-insurance applies to any or all services you receive.

Is co-insurance Good or Bad?

Its bad if you have to pay it.   But if you don't have to pay it then higher co-insurance can keep your monthly premium lower.   Cheaper plans may have higher co-insurance rates, this can keep your monthly premiums lower but you'll run the risk of higher out of pocket costs above your deductible.   Generally every health insurance plan will be a balance between monthly premiums and risk of higher out of pocket costs.  If you are pretty healthy then a higher deductible and higher co-insurance plan could be cheaper for you overall, but carry a risk of higher costs.   On the other hand if you pay more monthly then you don't take the risks of high out of pocket costs but pay more up front.

How much is it?

The exact rate will depend on your insurance plan.   I've seen co-insurance rates in the 10-30% range on ehealthinsurance and my policy is 10%.   But I have heard of co-insurance as high as 50%.  
 
When do you have to pay it?

You pay co-insurance for any costs incurred above the deductible but below the out of pocket limit.  

Its easiest to explain with an example :   Lets say your insurance has a $1,000 deductible, 10% copay and a $15,000 out of pocket maximum.   You go to the doctors office for a ear infection and they charge you $184.   That is under your deductible so you pay that full $184 out of pocket.   You haven't met your deductible yet so the co-insurance does not apply.    Then you go to the doctors with stomach problems and you get a bunch of tests run.  That costs you $1,242.   You have $816 remaining to hit the deductible so the first $816 of the bill you have to pay in full.    That leaves $426 left above the deductible.  This is where your 10% co-insurance kicks in.  You pay 10% of that amount or $42.60.   The insurance will then pay the other 90% or $383.40.   Lastly you have to go in for surgery to fix your stomach problems and thats a really big bill of $24,346.   Again you pay 10% of the bill or in this case that would be $2,434.60.   Your insurer pays the remaining 90%.   You will continue to have to pay 10% of any costs until you hit the total out of pocket maximum.  Since the out of pocket maximum is $15,000 you'd have to have medical costs of over $141,000 for the year to hit the limit.

For the example above this is what the responsibility for health costs would look like between you and your insurer.

The red bits are what you pay and the yellow and green are what the insurance pays.

If you have an insurance plan with a co-insurance rate then it is important to understand what it means.  If you don't fully understand co-insurance then you might assume that your obligation ends once your deductible is met, but that won't be true. 

The Medical Financial Cost of Obesity

In a recent edition of Money magazine they have a article on health and weight loss titled Slim Your Body,, Not Your Wallet.   In the article they had a side graphic showing the average medical spending of people based on different BMI or Body Mass Index values.   

I've reproduced the numbers in the graphic below:

I wanted to point this out since as you can see the medical costs escalate as the BMI goes up.   Theres not really much difference from BMI 25 to BMI 30, its not even 10% more.   From BMI 30 to BMI 35 though it goes up 42%, then from BMI 35 to BMI 40 the increase is 86% and from BMI 40 to BMI 45 the costs escalate 142%. 

You may think that the cost is not a big concern to your wallet since you have health insurance.   However you'll likely foot some if not all of that bill.   Most people have deductibles, copay or co-insurance costs that mean they end up paying a good portion of their health care costs.    You also may be made to pay extra by your employer.  The article also says that currently in 2011 there are 7% of employers who charge extra for medical insurance for people with health issues like high BMI.   They say that by 2012 it is projected that 33% of employers will charge extra.

What the numbers mean
BMI of 25 is the threshold for 'over weight' and BMI of 30 or more is considered obese.   The wikipedia page on Obesity has different definitions of the higher BMI levels.  You can use the BMI calculator to find your BMI.


A note about BMI:   I don't believe that BMI alone is a perfect measure of your weight.   BMI is a reasonable measure of over weight for most people but there are exceptions.  You should also get a measurement of body fat or best yet the evaluation of a medical professional.

Comparing Hospital Quality

A relative of mine drives 250 miles to go to the hospitals in a larger city for non-emergency procedures.  He wants to take his family to the "best" hospitals that he can.   Unfortunately I think my relative has a biased view of the hospitals in his home town and has let one horror story he saw on the news unduly taint his opinion of his local hospitals.   If my relative had better data then he might not feel the need to take 5 your drives and spend extra money and hassle staying in hotels.

A while back I talked about shopping around for health care costs.   Its particularly important if you have a high deductible health insurance plan (like I do) to make sure that you are not overpaying for health care.   But it is also important to make sure that you go to a good medical facility and that you don't give up quality for the sake of cost savings.   So it is also very important to compare the quality of the medicine you receive.

Below are a few resources that you can use to measure hospital quality.   These could be used as pieces of data to help guide your decision but none of them should be taken as any sort of pass / fail judgment on a hospital.   A lower rating does not make an individual hospital "bad" nor does it mean you will get poor service there.  

The very best 
US News has a site with rankings of best hospitals.    The Top 100 Hospitals site from Thomson Reuters ranks top hospitals.  Either of these sites will help you find what they consider the "best" hospitals in the nation.   Of course such measures are not perfect and based on statistics and subjective opinions to some degree.   But if a hospital is on these lists then at minimum I think we can safely conclude its a pretty good hospital.

Survey results
The U.S. Dept. of Health and Human Services has a Hospital Comparison site.  If you put in your city or ZIP code you can then look up the hospitals in your area.   From there you can pick specific hospitals and get a comparison.  They give you the survey score results for a "Survey of Patients' Hospital Experiences".   The survey is described : "HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) is a national survey that asks patients about their experiences during a recent hospital stay."    When you compare a couple hospitals at the bottom of the first page on the results you see a score for two questions : "Patients who gave their hospital a rating of 9 or 10 on a scale from 0 (lowest) to 10 (highest)." and "Patients who reported YES, they would definitely recommend the hospital."  High scores on those two questions is a quick measure of general patient satisfaction with the hospital.   However that is a pretty subjective measure of quality and you should look a little deeper to make sure the other scores are also high.  

Health Grades Awards
You can use the site Health Grades to find hospitals in your area and see how they are rated for various procedures and if they are award winners in specific categories.  They give an award for the "America's 50 Best Hospitals Award"    They also give awards for things like ""Distinguished Hospital - Clinical Excellence Award", "Emergency Medicine Excellence Award" and "Patient Safety Excellence Award"

Shop Around For Health Care

The blogger Frugal confessions shopped around to get price quotes for a hernia operation at local hospitals.   The costs cited by different hospitals varied significantly.   At the low end, one hospital would charge $3900 to $4900 and the most expensive wanted $16,100.   The most expensive is a shocking 312% more than the least expensive.    Thats a huge difference.  


When Shopping Around Makes sense

You can't shop around if there is an emergency.   It really only makes sense to shop around for costs if your procedure is not urgent and you have the ability to choose the hospital you go to.    Some health plans will tie you to specific hospitals that are "in network" and you won't have the freedom to go anywhere.   In other cases the procedure you require may only be performed at a certain hospitals which my limit your choices.


Comparing costs at My local Hospitals

My state happens to have an online database that cites the median and mean cost for various common medical procedures at each of the hospitals.   That makes it particularly easy for me to shop around.   I looked up a few procedures at the hospitals nearest to me to compare the costs:

1.) I checked the prices for a common procedure at the hospitals around here and the median prices were : $5,309, $6,300, $6,500, $8,722 and $9,456.     The most expensive is $4,147 or 78% more than the least expensive.  
2. ) I searched for appendix removal and the costs for that were : $9,747,  $13,964, $7,244, $12,200 & $9,689  The cheapest was $7,244 and the most expensive was 68% more at $12,200.    Thats a difference of up to $4,956.
3. ) Lets say you need a hip joint replacement.   That would cost you : $20,863, $26,210, $18,597, $22,006 & $21,067.     The cheapest at $18,597 and the most charged $26,210.     That is a 40% premium for the most expensive over the least.    You could pay up to $7,613 more at the most expensive.

So that is 3 semi randomly selected, fairly common procedures that had price differences of 78%, 68% and 40% between the cheapest and most expensive hospitals in the area.

Why Should You Care if You Have Insurance?

You may have a traditional co-pay insurance plan where you are not responsible for paying anything past a $25 co-pay.   But you may also have to pay a deductible and you might also have co-insurance.    Only the very best health insurance nowadays comes with no out of pocket costs.   So most of us are going to have to pay at least some of the bill for a hospital procedure.   If you have co-insurance then you'll be paying 10-20% or more of the cost usually up to a maximum level.    Whether you have a deductible or co-insurance its going to help you save cost if you shop around.     Even if you have no real out of pocket costs yourself there are indirect costs for your insurance and its best for all of us to help keep the costs down.   Just because someone else is paying the bill it really doesn't make much sense to write a blank check to the hospitals.


Consider Hospital Quality

Of course this doesn't say anything about the quality of the hospital.   I wouldn't just go  the cheapest hospital if it meant receiving very low quality care.   It is also important to compare the quality of the hospitals.