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.  
--

Is AAA Life Insurance a Good Deal?

I received an offer in the mail to buy AAA group life insurance.    The rates are pictured to the right.

That image is probably too small to read as shown but I'll cite some example prices.

$300k of coverage rates :

18-34 year old male (non-nicotine user) for $31.24 per month.
40-44 year old female is $31.57
50-54 year old male nicotine user at $266.92
70-74 year old female at $416.34

I went to Term4Sale.com to get some example quotes and this is the cheapest option from A+ rated insurers :

20 year old male for $14.70 a month
34 year old male at $15.66
40 year old female $17.82
44 year old female $25.93
50 year old male nicotine user $182.86
54 year old male nicotine user $266.85
74 year old female gave no options available.

Pretty much across the board, the AAA group rates are higher for the age groups I looked at.
Of course the quotes on Term4Sale are based on good health so your exact rate may differ depending on the details.   The AAA insurance offering does say they don't require an exam and they only as a few basic health questions.    AAA does also have options for people in their 70's which I didn't find on Term4Sale.  

It pays to shop around for this kind of thing.

--

Is This a Good Deal For Whole LIfe Insurance?

I saw an add in a local news paper offering whole life insurance policies for $10,000 of benefit.   The policy is marketed to people 40-85 years old and talks about paying for your funeral.    The premium rates cited didn't seem too bad to me.  The rates for men and women are listed in the table below for the $10,000 benefit.

This is just the $10,000 benefit.   I've used the best case scenario as far as life expectancy for the age group.  So by that I mean that for the age 45-49 I used the life expectancy for the 45 year old and rounded up.   Life expectancy data is from social security site.

	M	F	M	F	M	F
45-49	$  32.50	$  27.00	34	38	$13,260	$12,312
50-54	$  36.00	$  30.00	29	33	$12,528	$11,880
55-59	$  45.00	$  37.50	25	29	$13,500	$13,050
60-64	$  55.00	$  42.00	21	24	$13,860	$12,096
65-69	$  66.00	$  51.00	18	20	$14,256	$12,240
70-74	$  89.00	$  69.00	14	16	$14,952	$13,248
75-79	$121.00	$  98.00	11	13	$15,972	$15,288
80-85	$166.00	$139.50	8	10	$15,936	$16,740

The first set of columns on the left is the monthly premium.   The middle are the expected life expectancy.   The right hand columns are the total amount you'd pay over the average life expectancy at the given premium cost.

If you simply put the cash into savings the average person would be ahead by $2000 to $6000.

For example then if you're a 58 year old woman you'd pay $37.50 a month and the average life expectancy for your age group is about 29 years and I'm summing it up as a total of $13,050 paid over that term.   $37.50 x 12 months x 29 years = $13,050.  

OK but I figure the net present value (NPV) of that at about -$4500.     That isn't good.   Also if you simply take the $37.50 a month or $450 a year and invest that money at just 4% you'd have a total around $25,200 after 29 years.

You can see the total amounts paid in are lowest when you get coverage at a younger age.

The policy does advertise "no medical exam" and "no health questions".   If your life expectancy is below average then this insurance could work out for you.   If you're in poor health or have a family history of significant illness then you could face a lower life expectancy than average.  

This isn't a bad policy as far as whole life goes.    But the average person will come out way better on average if you simply dump money into a savings account.


--

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.

--

Do You Have to Pay Taxes on Life Insurance?

Having a good life insurance policy is important if you've got dependents that will require support in case you pass.    I've got a pretty sizable life insurance policy myself and my wife has a policy as well.   I don't know if I've ever really researched if you have to pay taxes on a life insurance payment in the case of the death of the insured person.   I think I just assume that it was tax free.   But better to make sure than be caught unaware with a giant unexpected tax bill.

According to the IRS topic : Taxable or Non-Taxable Income? they say:

"Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price."

So that settles it.   Life insurance  payments to beneficiaries are not taxed.   Good, thats what I thought.

On the other hand if you cashed out a life insurance policy then you may owe taxes on gains.  The IRS says " If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy."    Thats basically since the insurance functioned as an investment for you.

--

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.

--

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.  

--

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.
--

When To Buy Life Insurance

This is a guest post from Gary Dek who writes at MyLifeInsuranceQuotes123.com, a site focused on providing comprehensive life insurance guides. Previously, Gary was an investment banker and private equity analyst.

Nearly every consumer today realizes the importance of life insurance for a secure, healthy financial future and retirement. About 93% of Americans say that life insurance is an essential part of financial planning; unfortunately, only 41% own a private policy outside of their employer’s benefits package. So, how do you decide when it is time to purchase life insurance?

There are going to be numerous times throughout your life where the need to have the best, affordable life insurance plan is obvious, such as potentially lethal car accidents, illnesses, or disabilities, but you can’t plan for those moments. By following a few tips, learning when to buy life insurance is easy.

Marriage

One of the best times to buy life insurance is after getting married. If you are a young family with limited finances, losing all or half the household income can be financially crippling. Since funeral and burial expenses can cost between $10,000 and $15,000 nowadays, each partner should have life insurance that will at least cover final expenses. Depending on which partner passes on first, this guarantees that the expenses will not put a burden on the surviving spouse.
The need for life insurance becomes even more critical when one individual is the primary breadwinner for the family. How much life insurance you will need depends on your existing income, the amount of your assets versus liabilities, and the lifestyle you want your dependents to enjoy.

Buying A Home

Another time to prioritize life insurance is upon purchasing a home. Buying a home is a large, long-term commitment. An adequate policy would make certain that your spouse, children and dependents are not left struggling with making mortgage payments. Because a bulk of your income likely goes toward paying your mortgage, buying a life policy with a death benefit large enough to pay off your home would eliminate one huge expense for your family.

With Children

Having children is a great reason to buy or update a term life insurance policy. More coverage should be purchased with the addition of each new child. This is fundamental because there are many costs involved in providing for and supporting a full household. As children mature and start on the road to their own financial independence, there will also be college/education and living expenses to think about. Given the way tuition rates and cost of living have been increasing, $150,000 to $250,000 per child may provide the right amount of coverage. Just remember – every living situation and family budget is different, so find a figure that works for you.

In Your 30s and 40s

Although it may seem strange at the time, purchasing life insurance is best done when you are young and healthy. This is due to the fact that the life insurance quotes you will find at this time of your life are the cheapest and most affordable they will ever be. Companies are happy to insure those who are young with no pre-existing conditions or medical issues. These factors (or lack thereof) make you a low risk investment. With different kinds of life insurance policies, you will be able to lock in a low premium price because of your age and your rates will remain fixed for the life of your policy.

How To Find The Best, Affordable Life Insurance

Life insurance rates vary widely depending on several different factors, such as the applicant's age, medical history, smoker or non-smoker, diet, exercise, occupation, and dangerous hobbies. Premiums are calculated according to risk, so those who smoke or are older will often have to pay higher premiums for coverage. Comparing life insurance quotes from the best companies is a great way to save money, since it is easy to shop online and find a policy tailored to your individual needs at affordable rates. There are many insurance options to be found online, no matter your circumstances.
Even though some times are better than others for purchasing life insurance, the best, affordable coverage is a necessity for individuals in any stage of life.


--

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.
--

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

--

Is Gerber Life College Savings any Good?

I recently saw a TV ad for Gerber Life College Savings.   The commercial was very similar to the Gerber Life Insurance ads that I've seen in the past.  However these new ads were for a college savings plan instead of life insurance.... or at least thats what the TV ads pitched.   In actuality they're just selling a cash value life insurance plan and pitching it for college savings.

I set out to find more information on the plan.  The Gerber site has little detail.  But others have examined it.  


Market Watch doesn't like it.   They wrote This college savings plan flunks the test
In fact they really don't like it, they said : "I will use words like “awful” and “lousy” and “Stupid Investment of the Week.”

But what about people who don't hate cash value insurance?   The Insurance Pro Blog wrote their Gerber College Plan Review on the plan.     The point out a major problem with the plan is that it apparently fails an IRS test and the investment returns lose preferential tax deferral treatment.   Yet they do favor cash value for college savings.  They conclude with "The Gerber College Plan falls well short of what we can accomplish with high quality cash value life insurance products."

The Gerber Life website says : "For example, putting aside $35.42 monthly for 18 years will get you $10,000"   If thats a real example of a real policy then that turns out to be around a 3.1% return and its taxable.    Given today's low rates that isn't awful but its not very good either.   

The Gerber plan also has no special tax benefits that 529 plans do.  Most states offer some form of tax benefit for 529 plans.

Bottom Line :  Avoid it.  Overall the Gerber Life College Savings plan seems to be a pretty poor choice.
--

Less Than 1% of Life Insurance Claims are Denied

Once or twice I've seen people make generic statements about insurance companies denying claims.   I think theres good evidence of pretty high denials for some health insurance claims.   However I haven't seen much evidence that something like life insurance claims are often denied.   Life insurance and health insurance are pretty different and just because a health insurer behaves one way doesn't mean life insurance companies will behave similarly.  For one the laws regulating them are quite different.

Out of curiosity I set out to find out how often life insurance is denied.    I found one source with good info from 2010.   This L.A. Times article Flaws can cancel life insurance — after death  says:

"More often than not, life insurers make good on policies, paying $38 billion in death benefits on individual policies last year. But what happened to Sheila Weissberger was not unusual. The claims of thousands of beneficiaries are denied or disputed every year — more than 5,000 last year alone — many for allegedly flawed applications, a Times review found.
Overall, the amount of money life insurers withheld from beneficiaries has more than doubled over the last decade, to $372 million last year"
Therefore in that year the life insurance companies paid $38 billion but withheld $372 million.   Thats just under 1% that they do not pay.    

Of course there are going to be some legitimate reasons that claims are denied.  Policies may exclude suicide for a certain period or people may make fraudulent claims.    But unfortunately the other side is that insurers may try to deny claims for technical flaws in applications simply to try and get out of paying valid claims.    I can't say how much of the denials are valid and how much are insurers simply trying to get out of paying money. 

I would point out that this is just one source of information and its a couple years old.   Also the 1% is the amount of money not paid and doesn't tell us the % of claims that are denied or disputed.  

--

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. 
--

Next Year ObamaCare Could Pay a Typical Uninsured Family $8,462

Did you know that in 2014 one the new elements of the Affordable Care Act (aka Obamacare) will kick in which will subsidize health insurance for low/mid income families?   You may have heard something about that detailed buried in amongst the partisan hyperbole when they were debating the law.    Did you know that those subsidizies will be in the form of tax credits to help families pay for health insurance if they aren't eligible for insurance from their employer?  

 The Kaiser Family Foundation has a calculator to estimate the amount of the subsidy based on age, income and some other factors. 

The tax credit mandated by Obamacare to subsidize health insurance are expected to be around $8,462 for a family of 4 with 42 year old policy holder and a $55,000 annual income.

The subsidy will vary based on the details.   A 40 year old single person with the same $55,000 income would not get any subsidy as their individual insurance is much cheaper.


Now don't get all excited, this subsidy is not available if you can get insurance from your employer.   So for most people theres no changes and no subsidy.   The tax credit is meant to help people pay for health insurance who don't already get insurance from work.    You can also only get the credit if you buy insurance through an exchange.   And the credit is setup to pay part of your insurance so families will often also have a share of the expense to pay themselves.   Its not like the government pays you $8462 and you get to do whatever with it, that amount is based on an assumption that insurance will cost $12,597 and the family pays the other $4,135.   Thats what the KFF site says.  
--

Two Things to Look for In a Long Term Care insurance provider.

 Long Term Care (LTC) insurance can be a good idea for someone in their 50s or 60's.   This kind of insurance is not as common and may be a little harder to shop for than something like auto or home insurance.   LTC is also an evolving product that insurance companies are still working to figure out how to handle well.   Here are a couple things I'd recommend looking for when shopping for LTC coverage.   


Stick to Big Diversified companies

A.M. Best the company that rates insurance companies published a paper discussing the struggles seen in the LTC insurance industry.   One thing they highlight is how the smaller companies that just specialize in LTC policies have had more problems than larger diversified providers.  Those smaller companies are not as established and diversified and all their eggs may be in the LTC business.      The A.M. Best article has this graph showing the ratings of the smaller companies versus the larger ones :

source : A.M. Best

This is not a good trend for the smaller, specialty LTC insurers.  The rating of the company is a estimate of their financial strength.  You really don't want to be buying insurance from a company that is on shaky financial footing.  You can see the red line representing the small companies is steadily going down and is now in the C's which means they are 'marginal' or 'weak' financially.
For this reason : I would avoid smaller insurance companies or those who specialize in LTC products only.

Look for A Highly Rated Company

Insurance companies are rated by A.M. Best, Moody's, Standard & Poors and Fitch.   You should look for an insurer who has a high rating in the A's.    A rating in the A's will be Excellent, Strong or Good level.   The different rating agencies have different grading systems.   AM Best explains the ratings here.

The American Association for Long Term Care Insurance has a list of highly rated LTC providers.

For 2012 the leading LTC insurers are : 

Genworth = A (excellent)
John Hancock = A+ (superior)
Life Secure Insurance = A- (parent company )
Massachusets Mutual = A++ ( superior)

MedAmerica = B++ (very good)

Mutual of Omaha =  A+ (superior)
Prudential Insurance = A+ (superior)
Transamerica Life = A+ (superior)

Looking at that list I might narrow it down to just the A+ companies.   The B++ one is a few notches below the others in its rating.   The A- Lifesecure is based on its parent company and I can't find out what that company is.  From their website it seems Lifescure specializes in LTC too.   The A rating for Genworth is OK.  I might check them for a quote, but I'd try the A+ companies first.

Ratings change over time so I would make sure to double check the current rating on any insurance company before I investigate the options.

Of course there are other factors you need to look at when shopping for this kind of insurance.   The coverage and price are major factors in the purchase decision.   However sticking to larger diversified insurance companies with solid ratings will give you a safer product.

How Common Are House Fires?

A relative of mine currently has no home insurance.   If his home burns down then he's just out of luck.   He's taking a risk by not paying insurance.   Since he doesn't have a mortgage loan he can get away with not having insurance, plus he is in a very good financial situation so he could withstand a major loss.   While this is risky for him, going without insurance is saving him over $1000 a year.   For most people insurance is required for your mortgage so its not an option.   Even if your mortgage is paid off its usually not a good idea to go without insurance since the risk of a major loss would be a major financial hardship.

The major risk my relative faces is a house fire.  How common are home fires really?

[edit: I should point out that home owners insurance covers a variety of things other than fires.  Having homeowners insurance is almost always a smart move.  So don't follow my dads example ]

Image by dvs

I do not personally know a single person that has had their home burned down entirely.   I do know a couple people who have had minor home fires.  One person was smoking and had a small fire in his room and another relative had a kitchen fire.  In both cases the damage wasn't very significant.   But of course my own anecdotal evidences from my personal experience doesn't tell us much. 

The FEMA U.S. Fire Administration keeps stats on fires

In 2010 there were 362,100 residential fires in the USA.     In total the fires caused $6.65 billion in damages.

According to the Census there are 131 million housing units in the US and 114 million households.

As far as frequency you could figure that 0.317% of households experienced a fire in 2010.   Or we could say that 0.276% of housing units had a fire in the year.

With 362,100 fires and $6.65 billion in damages that means the average property damage from a fire was $18,365.

Clearly damages of $18,365 would not indicate the average fire causes the home to be destroyed or "burned to the ground".    Most of the fires are more more minor in nature and likely include many kitchen fires which result in smoke damage and minor structural damage.    Of course $18k is a large bill and most people can't afford that, but its much better than having to replace an entire home.

I could guesstimate the portion of homes that are actually burned to the ground.  First I'll take a wild guess that replacing a home costs $150,000 on average.  With $6.65 billion in damages and assuming that $150,000 replacement cost then the maximum number of homes that could be burned down totally would be about 44,333.   This is just a guess of course.   But I think it is reasonable to assume that only 10-20% of the homes that have a fire are totally ruined to the point of needing complete rebuilding.     If one in 10 fires results in a destroyed home then 0.03% of individual homes are destroyed by fire in a year.  That would mean that the chances of having a home burned down would be approximately 1 in 3000 ballpark.

Another way to look at the cost of fires is the average cost from fires per year per household.   Since theres $6.65 billion in damages if you average the cost over all the 114 million households the average cost per household is just $58.33.   If you're deciding if insurance is worth while then this is the figure I'd use compared to an average cost home.  If the average home costs about $170,000 then we're talking roughly 34¢ per $1000.   In other words a $200,000 home would have likely fire damage of 34 x 200 = $68.   I would estimate the fire insurance costs at roughly 34¢ per $1000 home value.    Keep in mind this is really just a ballpark estimate.  Insurance costs vary greatly from state to state based on local costs and varying likelihood of damages.

Of course the risks will vary based on several factors like age of the house, whether or not you smoke, how much you cook in the kitchen, etc.   The amount of property damage caused by a fire will be proportional to the value of the house as well.   It costs a lot more to replace a fancy kitchen in a  large house then to fix a few cabinets in a squalid apartment.  

What causes home fires?

FEMA's US Fire Administration site also has data on the causes of fires.   Here are the causes of residential fires ranked by %.

Cooking	46%
Heating	13%
Electrical Malfunction	7%
Other Unintentional, Careless	7%
Open Flame	5%
Intentional	4%
Equipment Malfunction	4%
Other Heat	4%
Appliances	2%
Smoking	2%
Exposure	2%
Natural	2%
Other Equipment	1%
Investigation with Arson Module	1%
Playing with Heat Source	1%

Looking through that list, there are not a lot of causes that you can easily avoid.  Not smoking and not intentionally burning down your own home only accounts for about 6% of the fires.


Cooking is by far the #1 cause of fires in the home.   That makes sense.   Who doesn't know of someone who's had a kitchen fire and probably had something on their stove catch flame once or twice?   Ok maybe I'm not a very good cook, but I think fires in the kitchen are not very uncommon and they can certainly turn into major fires.

Notice that smoking is the cause for just 2% of fires.   I would have guessed that number would be higher but only around 20-25% of adults smoke in the US.
--

Do You Need Jewelry Insurance?

A lot of people own some jewelry.   If nothing else you may have an engagement ring of considerable value.  What would happen if you were to lose that ring or if it were stolen?    If you have insurance coverage for your jewelry then it can help protect you against such a loss.

Do You Need It?

I honestly can't say if anyone would really need jewelry insurance.   I don't know how often people actually lose jewelry or how practical insurance is.  If I think about it one way, I would say that since jewelry is not a necessity there is no need to have it and therefore no need to replace it if its lost.  You might enjoy an expensive heirloom broach but if you lost it you would only be out the cash and would not experience any kind of hardship.   Another way I would think about this is that the best option financially is to not buy or own expensive jewelry in the first place, which saves you money all around.   In most cases I think insurance for jewelry is not necessary.  Thats just my opinion on the topic.

On the other hand accidents can happen and insuring against risks can make sense. Some people really enjoy jewelry and if they can easily afford it then who am I to say they shouldn't own the things they like.  If you do own expensive jewelry then considering the risks of losing it might make sense.   Maybe you are particularly prone to losing things and there have been a rash of burglaries in your neighborhood.   In such a situation maybe insurance makes good financial sense.   Another reason to buy insurance is simple peace of mind.  If you are a jewelry lover and have a collection worth a fair amount then not having insurance could be stressful and make you worry far too much about potential loss.   If you really feel you need insurance and you can afford it then I don't see a problem with buying it.


You May Already Be Covered
First thing to do is to check and see if your existing insurance coverage may already cover your jewelry.  If you have home insurance or a renters policy then it may provide some coverage for lost or stolen jewelry.   You may have enough protection there already to cover your jewelry.   However such coverage often has limitations and is not likely to cover the full cost of a more expensive piece of jewelry.  

Riders to Existing Policy
If your existing policy doesn't have enough coverage then you can check how much it would cost to add a rider to the policy to increase the coverage for specific pieces of jewelry.  You may need to get an appraisal or at least provide proof of the purchase cost for the items in question.

Buying a Jewelry Specific Coverage Policy
Another option is to get separate insurance just for the jewelry.   At least one insurer known as Jewelers Mutual will write policies to cover one or more individual pieces of jewelry.    They will even give free quotes for policies online without having to call and talk to an agent.    Just for example sake I got a quote off their site for a $10,000 ring with a $1,000 deductible.  The annual cost for such a policy was quoted at $86.00.   It may vary based on location and thats just a quote.   They even have the policy available to view online.
[note : I don't have any dealings with Jewelers Mutual so I can't endorse them personally]

Shop around and read policies

As with anything you should do your research and shop around.   Look for reviews of insurance companies and compare prices from multiple providers.  Specialty insurance can be very expensive or quite practical depending on where you get it.  You should also make sure to read the actual insurance policy and fully understand what it actually insures.  It would be a waste of insurance payments if your insurance doesn't even cover what you want and expect it to.

Take Reasonable Precautions
Your first line of defense against a loss is to be simply careful.   I am no expert on being careful with jewelry but I can at least mention some common sense tactics.  You should of course not leave your expensive jewelry laying around so anyone can see it. If a burglar or other thief gets into your home and finds all your jewelry nicely displayed on your vanity in an open jewelry box then you've unnecessarily aided them.   Being careful with jewelry on the beach, in swimming pools or in other active pursuits like sporting events is also smart so you don't lose a ring or other piece of jewelry.   Making sure your rings are property sized so they don't accidentally slip off is a good idea as well.

Bottom Line  : Whether you chose to get insurance for your jewelry is up to you ultimately.   If you do get insurance then make sure to shop around and consider a specialty insurer and compare to coverage through your existing policies.

--

Do You NEED Umbrella Insurance?

An umbrella insurance policy is a form of insurance that provides general liability insurance coverage.   The coverage for  umbrella insurance is typically for $1 million or more.    Americans seem to be in borderline paranoid fear about lawsuits.  I think we watch too many television shows that revolve around lawyers.  The reality is that million dollar lawsuits are actually very rare.   However a large lawsuit is a risk, albeit a small one, so protecting against such a lawsuit with insurance can be a smart move at least in some circumstances.

What does it cost?

The cost of an umbrella policy can typically run $100-$200 for the first $1 million in coverage.   But keep in mind that this amount is often on top of other forms of insurance.   When my wife got a quote for umbrella insurance they required that we had maximum liability on our home and auto policies first.   If you aren't already covered with maximum liability on your home and / or auto policies then you may need to pay more to get that liability coverage first.

Who should buy it?

My opinion is that umbrella insurance is not necessary unless you have significant assets to protect.   An unfortunate number of Americans have little assets or are technically insolvent.   Those people do not need to bother with umbrella insurance.   If you have nothing to sue for then buying a big fat insurance policy is not really necessary.

On the other hand if you have any significant assets then an umbrella policy can be a very good idea.  It doesn't hurt to have umbrella insurance coverage.   The worst thing that can happen is you spend money on a policy you will never need.

People with higher liability have a higher need for umbrella policies.   If you own a business or otherwise expose yourself to higher liability then an umbrella policy can make more sense.   Individuals with lower liability should worry less.  

A Lower Priority Insurance
One caveat is that I certainly think that there are other forms of insurance you should obtain first as a higher priority than umbrella coverage.

Higher priority insurance includes :   health insurance, life insurance, short and long term disability insurance, long term care insurance


If you don't have those then you need to get them first.  If you have to make a choice between where you spend your money then umbrella insurance should be a lower priority.



I think most people do not "need" umbrella insurance.   However it doesn't hurt to get it.   If you have a large amount of assets or specific liabilities then it can be a smart investment.

I have to admit that I do not have an umbrella policy myself.  My wife and I shopped for it and discussed it but we decided that higher liability on our home and auto are sufficient in our opinion.

Image by Molly DG

--

Closer Look at a Whole Life Insurance Sales Pitch

Over on FreeMoneyFinance there was a discussion in the comments a long while ago about certain insurance investments.  One person there linked to this video on Youtube.   I found the video interesting in itself. 

The video is comparing a cash value policy to buying term and investing the difference.  I noted the following points from the video:

1. They cite a $840 annual premium for $1M level term. I get quotes of around $700 annual for $1M.
2. The video assumes a 30% tax rate. Marginal tax bracket of 33% kicks in around $200k taxable income. Which is the top 1-2% of the nation.
3. They assume a 2% management fee on your investments that you might make instead of the cash value insurance. Thats high I sure hope people aren't paying that. Index funds are more like .1%-.5% and mutual funds 1.5%.
4. They base the performance of the cash value policy off of assumed dividend rates that are not guaranteed.    A mutual insurance company pays dividends but these are not guaranteed.  Its a fairly safe bet you'll get a dividend but the specific amounts will vary and depend on the financial performance of the mutual insurance company.

They are stacking the deck in favor of the cash value insurance.

The rate of return on the cash value insurance is about 4.6% initially.  Then they add the impact of avoiding the 30% taxes, 2% management fee and not buying the over priced term policy and it the effective return they claim for the whole life goes up to 9.8%.

Why would someone be paying 30% on a mutual fund anyway? Are they going to do nothing to avoid taxes and shouldn't it be taxed at the 15% long term capital gains rate?   Or better yet you should put your savings first into a tax sheltered retirement account and possibly avoid taxes all together.   Who's going to pay a whopping 2% expense fund on a mutual fund?   You shouldn't be buying funds with such high expenses since that alone will erode your returns significantly.   Don't over pay on term policy.   Why wouldn't you shop around for your term policy?

Today a 20 year AAA municipal bond rate is around 3.4%. Those are tax free and can be bought with marginal initial fee and no ongoing expenses. However a couple years ago muni's were going for 5.5% and yields on safe bonds are sure to climb in future years when interest rates go back up.   We can't stay at rock bottom interest rates forever.

Now that 4.6% internal rate of return on the whole life policy is not bad at all in my opinion.   I don't know if that would be the current rate of return from the policy since the example is a bit old.   In any case this is actually a fairly decent whole life policy from that return rate.  Of course the details of what kind of return you'll get on insurance policy depends on the policy, your situation and the often performance of the insurance company if its a mutual paying dividends like in the example.

If you are looking at whole life insurance make sure you are getting a clear picture of the financial performance of the investment component.   Don't expect whole life insurance to give you 9% returns and if someone claims it will then be very suspicious.