Should you pay for COBRA?

Usually when you have a health plan at work and you lose your job you will get the option of paying COBRA premiums to stay on the same plan. COBRA premiums can be pretty expensive and there are likely cheaper alternatives for individual insurance plans. There are a few things to consider if you are looking at paying for COBRA or choosing an independent plan. Pre-existing conditions could make COBRA a good choice. Comparing alternatives to COBRA should consider all the costs including the potential maximum costs as well as the quality of coverage. What your finances will allow may determine if COBRA is even practical and if you can't afford COBRA then you may need to settle for cheaper alternatives.

Pre-existing conditions If you have pre-existing conditions then sticking to your current plan is likely to be cheaper. Getting individual health insurance coverage when you have pre existing conditions can be difficult and costly. But if you're already on a group plan then you can continue with that plan via COBRA payments.

Can you get the same coverage cheaper?
I'm going to look at my current coverage and what it would cost to extend it via COBRA and then compare that to an equivalent plan via independent insurance. Maybe I could save money over COBRA with the same coverage level. For my current plan I have a high deductible HSA plan. To stay on this plan the COBRA payments would be over $350 a month for my spouse and myself. If we had two children then the payments would be around $550 a month. I checked eHealthInsurance and they have a very similar plan for $270 a month for my spouse and myself or $430 a month for me, my wife and two children. The plan on eHealthInsurance is from the same provider but the deductible and coinsurance are a bit more. My current deductible is $2400 and coinsurance is 10% up to $4200 maximum out of pocket. The plan on eHealthInsurance has a deductible of $4000, 20% coinsurance and $10,000 maximum. If I look for a lower deductible plan on eHealthInsurance then I'd be paying more than COBRA. As another option, I could also get a non-HSA plan through eHealthInsurance. I checked for a plan from my current provider and they have a standard plan with $3000 deductible, 20% coinsurance and $10,000 maximum for $330 a month for me and spouse or $530 for family of 4.

So the options are:

COBRA through employer = $4200/ $6600 a year with $2400 deductible and $4200 maximum
Self insure HSA plan = $3240 / $5160 with $4000 deductible and $10,000 maximum
Self insure no HSA = $4008 / $6360 with $3000 deductible and $10,000 maximum

Looking at these three options the COBRA plan is fairly good given the low deductible and maximum out of pocket. I think the COBRA is my best option here. COBRA would have lower deductible and maximums. I could save a little more out of pocket with the self insurance HSA plan but its deductible and maximums are higher. Worst case I could be looking at $5800 more out of pocket with the self insurance. Maximum total worst case costs for COBRA would be $10,800 for family of 4 but the self insurance worst case maximums would be $15,160 or $16,360. So I would risk spending $4,360 or $5,560 more with self insurance for a premium savings of $1,440 or $240 respectively. I don't think the savings are worth that risk. So if I could afford it the COBRA plan would be my better choice among these options.

But what if I can't afford COBRA?
If you lose your job you are out an income may be short on money so paying over $500 a month for insurance could be a stretch. I shopped around a little more on eHealthInsurance and found a couple options for HSA plans from other providers with higher deductibles and lower premiums. For a family of 4:

Low cost Plan #1: $2900 annual cost, $5600 deductible, 50% coinsurance, $10,000 maximum
Low cost Plan #2: $4300 annual cost, $5800 deductible, 20% coinsurance, $11,200 maximum

That gives you minimum and maximum costs of $2900 to $12,900 for plan #1 and $4300 to $15,500 for plan #2. In any case plan #1 would end up costing you less out of pocket.

Compared my COBRA plan costs for a family of four, the plan #1 would cost $3700 less per year. Thats over $300 a month. If your finances are tight then going with a low cost self insurance plan could save you a substantial amount over paying COBRA via your ex employer. However you should keep in mind that the deductible and maximum costs are higher here. So you are still running a risk that you could end up paying more overall if you have higher medical expenses for the year.

If you are faced with ending employment for one reason you should look at alternatives to COBRA to see what is your best option. If you have pre-existing expenses then COBRA coverage may be your best bet. Otherwise you can do cost comparison shopping to see if you can get similar coverage for a lower cost. Or if you are tight on cash then consider going with a high deductible plan instead of COBRA to save monthly expenses short term.

Median Property tax bills by state for 2007

Below is a table of the median property bill by state. This information is from the US Census 2007 American Community Survey data.

Alabama	$ 351
Alaska	$ 2,346
Arizona	$ 1,201
Arkansas	$ 492
California	$ 2,697
Colorado	$ 1,348
Connecticut	$ 4,332
Delaware	$ 981
District of Columbia	$ 1,807
Florida	$ 1,859
Georgia	$ 1,217
Hawaii	$ 1,249
Idaho	$ 1,185
Illinois	$ 3,187
Indiana	$ 1,181
Iowa	$ 1,482
Kansas	$ 1,518
Kentucky	$ 797
Louisiana	$ 223
Maine	$ 1,801
Maryland	$ 2,434
Massachusetts	$ 3,327
Michigan	$ 2,123
Minnesota	$ 1,927
Mississippi	$ 453
Missouri	$ 1,179
Montana	$ 1,385
Nebraska	$ 2,117
Nevada	$ 1,640
New Hampshire	$ 4,366
New Jersey	$ 6,072
New Mexico	$ 789
New York	$ 3,472
North Carolina	$ 1,099
North Dakota	$ 1,522
Ohio	$ 1,792
Oklahoma	$ 736
Oregon	$ 2,053
Pennsylvania	$ 2,171
Rhode Island	$ 3,355
South Carolina	$ 770
South Dakota	$ 1,537
Tennessee	$ 902
Texas	$ 2,241
Utah	$ 1,246
Vermont	$ 3,183
Virginia	$ 1,754
Washington	$ 2,454
West Virginia	$ 443
Wisconsin	$ 2,894
Wyoming	$ 874
Puerto Rico	$ 111

The census tables I found actually gave separate medians for homes with mortgages and homes without mortgages. I took a weighted average of the two median values to find the median for the total.


Additional resources:

• New York Times article State-by-State Property-Tax Rates
• MSN article on Property taxes: Where does your state rank?
• National Association of Home Builders has Effective Property Tax Rates by county from 2000 census data and a report with 2005 ACS data : Residential Real Estate Tax Rates in the American Community Survey

Balanced Money Formula: wants, needs and savings

A past article in Get Rich Slowly discusses the The Balanced Money Formula. This is a budget idea presented by Elizabeth Warren and Amelia Tyagi in the book All Your Worth: The Ultimate Lifetime Money Plan. The basic concept for the Balanced Money Formula is that out of your net income (after taxes) you should aim to spend 50% on your 'needs', about 30% on 'wants' and save 20%.

When they talk about needs, wants and savings they mean:

• Needs are the things you can't go without and include: Housing, food, clothing, transportation, etc.
• Wants are the items that are luxury in nature and that you could cut back if you needed to. Wants include eating out, cable bill, movies, vacations and the like.
• Saving is any money you retain in an investment, put in the bank or put towards retirement.

This may seem obvious but part of personal finances is sorting out the wants and the needs. Many people feel they "need" things that they really don't and should treat more things as luxury "wants".

For our own budget I figured out the percents and we're putting roughly 36% into 'needs', 27% into 'wants' and 38% into savings. Our money usage:


So by this measure I'm doing much better than goal. I'm saving a lot more of my net income than the goal. If I had a lower income then this might be considered in some eyes as a bit too miserly. You don't want to save so much that you end up skimping on necessities and end up having no fun at all. Generally though my saving % looks a lot higher cause I have a relatively high income level and I've minimized my spending on the 'needs' category. I don't have car payments and my home mortgage is only about 19% of my net income. We also minimize most of our bills and are fairly frugal about spending in general. In other words we're living well within our means. This is one of they fundamental keys to being successful financially.

Our spending on 'wants' is fairly healthy. We spend nearly the 30% that the authors suggest. Thats a pretty large amount given my income. I personally think that spending some money on 'wants' is healthy. You don't want to be so frugal that you deny yourself any fun. Striking a balance between saving for the future and enjoying life in the present is important.

I like the concept of the Balanced Money Formula. It allows you to track your finances with a budget mindset without going into so much low level detail as most budgets. I figure as long as you're saving 20% of your income or more then you're doing fine.

History of new car costs and average inflation

CPI data

The Bureau of Labor Statistics tracks the Consumer Price Index. One of the prices they track is new vehicle costs. THey have data on prices for new cars dating back to 1935. The following is a graph of the price index from 1935 to 2007:

You might notice the gap in data points during the mid 1940's. This was the period during WWII when US production of personal automobiles was halted in order to use manufacturing capacity for the war effort.

From 1935 to 2007 vehicle prices rose 2.7% average annually. For the last 20 years during 1987 to 2007 prices have only risen an average of 0.9% per year.

Looking at individual decades the annual rates were:

1940's	6.8%
1950's	2.3%
1960's	0.3%
1970's	5.2%
1980's	3.2%
1990's	1.4%
2000's	-0.4%

Yes prices are actually going down this decade. That is a reflection of people buying smaller and more affordable vehicles.


Prices versus wages

The company Comerica tracks auto affordability. One way they look at it is to put new car prices in relation to wages. The chart below, from this report from Comerica, shows the number of weeks worth of median wages that an average consumer would have to work to afford a new vehicle:


Spot check on prices in 1949 versus 2008

If you look at actual car prices from 1949 as listed in The Peoples HIstory, you get real world values. They list 14 prices for 1949 ranging from $1,472 to $3,497. The average of the prices given is $2,680. In 2008 prices range from $10,235 at the low end for a Chevy Aveo to a very high figure for exotic luxury imports. The average price for a new car in 2008 is $27,704 according to Comerica.

If we compare the low prices of $1,472 in 1949 to the low price of $10,235 in 2008 that would be an average annual increase of 3.3% If we compare the mean prices of $2,680 in '49 and $27,704 in '08 that gives an increase of 4.0%

This method and the resulting numbers should be taken with a grain of salt. The prices for 1949 given in the Peoples History are only a handful of data points so this is not that reliable of an estimate and the margin of error for that is higher.

What do you get for your money?

Another important aspect of new car prices to consider is how much vehicle you get for the price. Its reasonable to say that today's car is twice as good as a vehicle from the 1940's. Cars last longer, have more power, get better fuel economy and are safer.

One example is a 1949 Lincoln Cosmopolitan convertible. The car cost $3,948 in 1949. It had a V8 engine that got 152 HP and 8 miles per gallon. There were no airbags, no seatbelts and few modern features.

Today in 2008 you can get a Mazda Miata for $20,635. The Miata has 166 HP and gets 22 MPG city/ 27 highway. It has front side airbags, anti-lock brakes, an AM/FM CD player and remote entry as standard features.

The Miata will likely last twice as long as the Cosmopolitan. In the 1950's to 1970's a car would not be expected to last over 100,000 miles. But todays cars should last for 150,000 to 200,000. The new cars are MUCH safer. If you look at fatality rates per miles driven, from 1966 to 1996 the fatality rate per 1 million miles driven dropped from 5.5 to 1.7.

By every objective measure the Miata clearly performs better. It lasts twice as long, it is much safer and it has better fuel efficiency.