Real World Finance$

So, I finally made the leap this past week.  We are purchasing our own private medical insurance starting in January.  After getting notice from my employer that my current HSA plan will be going up in cost by 7% this next year, I decided it was time to move out on our own.

We will actually be on the same plan through the same insurer, but only on a private policy rather than a group policy.  Here’s the details of the 2 plans.

Group:

• Deductible - $2,000/$4,000 (Individual/Family)
• Out of Pocket Max - $4,000, 0% Coinsurance thereafter
• Employer HSA Contribution - $500
• Max HSA Contribution - $5,950 annually (before tax)
• Current HSA Contribution - $3,250 (before tax)
•  Monthly Premium - $634 (before tax)
• Total Out of Pocket - $10,858 (before tax)

Private:

• Deductible - $6,000 (Family)
• Out of Pocket Max - $6,000, 0% Coinsurance thereafter
• Max HSA Contribution - $5,950 annually (before tax)
• Monthly Premium - $318 (after tax), $374 (before tax assuming 15% tax bracket)
• Total Out of Pocket - $10,438 (before tax)

So, by contributing the max this next year to our HSA account, we will still save over $400 on our medical insurance.  We’ll have around $1,200 in our HSA account at the end of the current year, so I expect to have a balance of close to $6,000 by the end of 2009.  That means, for 2010, we’ll have savings set aside to pay our entire deductible for a year should we need it and have access to another $6,000 for paying down debt.

To make the savings even better, I’m planning on actually putting my HSA funds into one of our E*Trade savings accounts at 3.3% interest during the year and make a gross contribution by year end to get the tax write off.  I may have to move some money earlier in the year to pay medical expenses for my braces though(which I finish paying for come May).  Either way, the 3.3% interest is a much better deal than the 1% in the HSA currently.

In reality, we won’t see much of a savings in 2009, but in years past that it should get considerably better.  The fact that we can spend our health care dollars this next year, saving for future years tax free, leaves me feeling very good about the solution.  That’s what we’re doing to save money on our medical insurance, what about you?

When I was on here last, I was on my way out the door to a trade show in Arizona for my new business. We had a GREAT 4 days and got several contacts for some potential clients that could make us very busy early on next year.

In the mean time, the proposition for funding of public transportation around here failed. I guess gas prices falling from nearly $4 this summer to under $2 by the time of voting (I actually saw $1.499 this weekend) made people seem less anxious to spend tax money on public transit. The system has since announced rate increases for January, and my bus line continues to be on the list for probable elimination come spring. Of course, I’m hoping that my other business takes off by then and I can just work from home when the time comes. Otherwise, I’ll need to decide on how to get to work.

Other than those things, we continue to watch our retirement savings dwindle with the market. I’m on the verge of increasing my contribution through my company. I also hope to wrap up in the next couple of weeks our new medical insurance plan. My employer’s plan for next year came out with a 7% rate increase. Doing the math, I can get my own plan (same plan from the same insurer) with a higher deductible for $350 a month less. By contributing the max to the HSA portion to cover the rest of the deductible and taking into account the tax benefits of both, I still end up with a couple hundred dollars a month in my pocket. I just need to make a few phone calls and get the plans finalized.

One final note here as well. My wife decided that the boy needed to get a better understanding of where our money goes. Our current budget gives us an average of $300 a week for groceries, gas and other expenses we pay with our check card. She decided that once he gets back from his dad’s for Thanksgiving, that they will start going to the bank every week and pulling out the “allowance” in cash. It won’t be quite as convenient in all cases, but she’s hoping it will help them save money for our vacation coming up in February. I’m looking forward to the experiment as well. I know we don’t always use that amount every week. We have many weeks we don’t spend nearly that amount and others where we make up for it.

Hope everyone is doing well getting ready for the Holidays!

Yesterday I posted about the stance on Health Care by the Presidential Candidates. I thought it was enough information that I’d leave it there and give you my take on them today. Once again, I’ll go alphabetically by party.

Democrat - Barack Obama

My biggest issue with Obama’s stance is that he instantly jumps to fixing health care by making insurance affordable. Health insurance is used to buy health care. The cost of that insurance is often not considered when a person makes decisions about their health. If you have a choice to pay a co-pay $10 or $30 for prescriptions that have actual costs of $25 or $100, you might be inclined to pick the slightly more expensive drug as the difference in cost is not much to you. However, if you were faced with the larger difference, you would almost certainly choose the lower cost drug unless there were major differences in their effectiveness. By having more responsibility for the actual cost of my care, I can control my TOTAL health care cost, not just the cost of my insurance.

I do like the idea of a tax credit for health insurance premiums. Currently, you can enroll in a group plan with your employer and pay pre-tax from your paycheck. However, for people who don’t require such extensive coverage (such as myself and my family) we pay higher rates than we could pay out of pocket on our own. If we did that though, we would not be able to pay for those premiums pre-tax unless we spend a large amount on health care that year. This means the real cost has a much smaller difference and I end up paying more money to the insurance company that I would normally. This helps to pad their pockets and cover for those use more health care. By giving me a credit for paying my own premiums, I can make an affordable decision for myself.

Green - Cynthia McKinney (I found no direct references to a stance on health care on either McKinney’s campaign site nor the green party site).

Libertarian - Bob Barr

Barr gets in line with me on this particular issue. The government mandates of insurance, while they seem to be good for consumers, they end up allowing insurers to raise rates because people have to buy them. Allowing more choice gives people the chance to buy just as much insurance or health care as they require. This allows people with few medical issues to purchase just major coverage and pay the rest out of pocket as needed, and those with more consistent problems to buy more extensive coverage as needed. I say this coming from someone with a family history of Diabetes and High Blood Pressure. I do try to watch my own health and take care of myself so I don’t end up like my father and grandmother. But, with group medical plans, I have no incentive to do that. I pay the same as someone with my same pre-disposition who choose not to take care of themselves.

Now, onto his statement about countries with socialized medicine. I wouldn’t agree that those countries control cost by denying needed care. Most often, they deny wanted care and limit the provide care to just the necessities. Is it truly a need to get a prescription for every little thing that might be wrong? Do you have to have that small operation to feel a little bit better when others are much worse? The downside of that is that consumers don’t have the choice but don’t have to pay. I would prefer to have the choice and have to pay.

Republican - John McCain

And now we come to the very thorough (or long-winded) McCain.  Again, I do like the ides and proposals to allow more choice for me as a consumer.  I also like the idea of expanding benefits of the HSA program.  As an HSA participant, I like that I can have catastrophic coverage should something happen, but that I can still pay for my medical expenses out of pocket, pre-tax.  Being able to save my money in a tax free account and use that for health expenses I deem necessary is a great find.  Add to that tax deductions for private insurance premiums and I’d be set.  I’d quickly drop my employer sponsored plan and switch to a plan that is $400 a month cheaper than the one I have now ($10,000 deductible versus $2,000) and save that extra $400 a month for when I actually have expenses I need to cover.

I’m not sure what to think about his Guaranteed Access Plan though.  Again, we are talking about providing government sponsored insurance to those who do not have insurance.  With the way the government runs Medicare, I would have an issue with this.  Can they guarantee that my tax money will not be squandered on unnecessary expenses? They haven’t proven very good stewards of my tax dollars for Medicare, so it’s likely to be the same here (or most likely, I’d guess rolled into Medicare somehow).

In General 

Obama and McCain both mentioned controlling drug costs by re-importing drugs to the US and/or bringing generics to the market sooner.

1. First, the drug companies have large outlays of funds to develop these drugs.  They charge high prices  in the US because we will pay them with out lovely insurance programs as I mentioned above.  They make their money back from us and can then offer them at lower prices elsewhere.  If we re-import those lower cost drugs, the drug company won’t be making their money and will either slow down development of new drugs, or raise foreign prices of drugs to match their total inflows.  So we won’t see the entire savings, but there should be some.  Our savings of course, would end up coming from the pockets of consumers in other countries.
2. Second, the same thing will happen if you bring generics to market sooner.  This requires shortening patents on drugs and shortening the time the drug company has to repay their expenses for research.  Earlier generics would likely increase drug costs even more and possibly kill research into drugs that would be borderline profitable.

It’s a tough choice to make between the candidates as there are good and bad with all of them.  What’s more, an elected President actually pushing something through exactly the way they want it to be has about a snowball’s chance in hell.  Hopefully though, my discussions have helped you as well.

It will time for us to make a decision within the next couple of months about our doctor.  I have talked several times about our health insurance and that I’d prefer to have a much higher deductible on our insurance and pay more out of pocket when we actually use the doctor.  That way I only pay for actually using health care in stead of “in case” I use health care.

This last weekend we got the note from our doctor about his new practice.  As of August, we will be switching to a “Concierge” medical practice.  Basically, he will be limiting his number of patients by having an annual fee for care.  That fee will cover your annual exam with blood work, EKG and several other tests.  We would also get guaranteed same day/next day appointments and appointment times of 30-60 minutes rather than the typical 5 of most doctors.  Plus, we would also have access to the doctor’s cell phone and pager for after hour problem and our medical records available online.

The fee for all of this is $1,200 per adult (under 50) or $2,200 for a couple (under 50).  The prices go up when you are over 49. 

Now, I’ve priced out a similar plan to our current HSA that would change our deductible from $2,000 individual/$4,000 family to a straight $10,000 family.  The price savings is about $400 per month.  With it being an HSA account, I could continue to spend the same amount we are spending now and put that extra $400 in the HSA savings account and let it earn 3% interest towards our medical expenses. 

I’m still in the process of trying to determine if the doctor’s annual fee would be considered a valid medical expense under IRS rules.  If so, it would let me pay for it from the HSA account pre-tax.  If not, the expense is paid after tax and would make a bit of an impact on the decision. 

We have to send a letter back to the doctor by mid-July to let him know our decision.  I LOVE the idea of the more personal care (especially from a doctor I trust).  I guess I would rather spend money on the doctor and know he’s getting it rather than spending it on insurance and making him fight to get it. 

So, what’s your take?  Would you consider getting a high deductible policy and paying your doctor directly or do you prefer to pay insurance and let them haggle with the doctor over the details?

I had my annual check up at the doctor a couple weeks ago now.  I was down about 10 pounds from last year and my blood pressure was back down to the normal range as well. 

With all of my thoughts and posts recently on health care, I was tempted to ask my doctor if he had ever considered doing a “cash only” business and leaving the insurance processing up to the patients.  However, considering he ended up running an hour late coming from his hospital rounds I was in the mood to just get out of there.

Then, last Friday, I got some mail from my doctor.  A very nice color brochure talking about upcoming changes to his medical practice.  He says he will be seeing fewer patients and spending more time with them and on preventive care.  He will also be offering direct phone contact within an hour of call and his personal cell phone available on evenings and weekends.  Now, there is no information on exactly how is planning to do that, buy my thought is that he very well might be going cash only.

The brochure says details will be coming in the next couple of months and that patients will need to apply for the new practice to start in September.  I’m looking forward to getting the information to see what’s coming down the pipe.  Personally, I would be very excited for him to be cash only. 

I recently looked at moving to a private insurance rather than through my employer.  For the same plan I currently have, I can buy one with a $10,000 deductible rather than my current $2,000 and save $400 a month on insurance cost.  Yes, that leaves a lot of expense there should something major occur.  However, by putting that $400 a month into the HSA account (which is done tax free) that adds $4,800 a year to money available to pay the deductible.  Add that to the $125 a paycheck I’m putting in there now ($3,250) and that covers $9,000 a year with only a minor change in my tax liability.  Because payments to the HSA come out as adjustments to gross income, I’m only paying additional taxes on the $180 monthly premium. 

The real catch to the whole situation is this, if I don’t spend my entire deductible in a year, I can drastically reduce my contributions for the following year and have upwards of $9,000 extra income (before taxes).  If I have to dip into it during the year, I can always put more in to replace it and save on taxes while still keeping our buffer.

Am I nuts or does this make sense to more people besides me?

I was thinking today about insurance and something struck me kind of odd.  I was thinking about the difference between auto and health insurance.

 Have you noticed that your auto insurance doesn’t cover routine maintenance?  As a matter of fact, if you aren’t good at maintaining your car and cause more serious trouble, it doesn’t cover that either.  It only covers major accidents.  Anyone every try to get your auto insurance to pay for an oil change or new tires?

Yet, with our health insurance, we expect it to pay for every single little thing we do.  From routine maintenance (office visits) to major accidents (broken bones, cancer, etc.)  Now, I know, it’s in the insurance companies best interest to pay for this routine stuff to hopefully prevent major illnesses later.  However, all that cost that goes into managing the payments for those routine things could drastically reduce overhead at both the doctor’s office and the insurance company. 

This kind of program would be great for me at least.  I currently pay about $70 a month for car insurance (1 car) and $700 for medical and dental (3 people).  If I could pay $210 a month for the 3 of us for medical insurance, I would gladly pay for office visits and routine care on my own.  I’d even be willing to submit paperwork that I was doing that in order to keep my rates low.

I recently got a statement from my insurance company about some tests my wife had done at the doctor’s office (done by a nurse, not the doctor).  The billed price for the test was $80.  The insurance company “allowed” rate was $21 and paid in full.  I would gladly pay even twice that to save $500 a month on my insurance cost. 

I’ve seen that over and over again on my insurance statements.  The billed price and the allowed price are so far apart it doesn’t make sense.  If the doctor really wanted $80 for that, why is he accepting the $21 from the insurance company? 

I did a quick search on Google for Cash Only Doctors and found a large number of news stories.  Maybe I’ll have to track one down and see how cheap I can get some coverage for just major medical expenses.

I wanted to follow-up some on my previous post about the health care crisis.  I was having a conversation with a friend yesterday and it turned to this very subject.  I pitched my idea of letting the market correct itself and that not everyone needs medical insurance. 

She didn’t like that idea one bit.  She is in her late 40’s, has a couple of part-time jobs that give her no insurance coverage and doesn’t qualify for Medicaid.  Her words exactly were, “I want to live as  long as I can.”  To which I responded, “We all do, but at what price.”

That may seem a bit harsh, and she didn’t fully understand my point.  She couldn’t believe that I thought only the rich should be able to get proper medical care.  For those of you who read my previous post, I was wondering if you thought the same?

To clarify my point a bit I wanted to highlight a couple of things:

1. I’m not against everyone having medical insurance, I just don’t believe it’s the governments job to provide it.  If some not-for-profits want to take up the cause and people think it’s a good one, it can happen.  Government plans are bound to fail.
2. When I asked, “… at what cost?” I was not just implying a monetary cost.  Sure, we all want to live longer, but is it worth the inconvience to you of living a healthier lifestyle in order to live longer?  Or should it just be at the expense of your healthy neighbors’ tax dollar that you live longer? 

Be honest, have you ever seen someone in wheel chair with an oxygen tank outside smoking?  I know I have.  If you’ve seen that and been furious thinking your tax dollars are paying for that medical equipment that is being wasted on someone who is still smoking, that’s what I’m talking about.  If you EXPECT the government to make sure you have affordable health care and health insurance so that you don’t need to be responsible with your lifestlye, then that’s just wrong. 

On the flip side, if you are willing to pay the personal price to live healthy and take care of yourself, you deserve affordable health insurance in case something major happens. 

Yes, health care has a price.  Too often people overlook the personal cost and look soley at their insurance.  That’s  one more reason why I like my high deductible plan to lower my cost.  We eat well at our house and do our best to stay in reasonably healthy shape.  I’m still paying 10 times more every year for medical insurance than I am using in actual medical care.  Because of that, I know my money is going to help supplement others who are having large expenses.  Some of them are responsible like me and are dealing with something terrible.  I’m glad I can help and hope it will be there for me if I’m in that situation someday.  Others are a sheer waste of money and are doing nothing to help themselves, but are paying the same as me and using my money to supplement their unhealthy lifestyle. 

Warning:  This post is not for the faint of heart!

I picked up my local Sunday Paper this last week and saw a nice big spread on Where The Candidates Stand:  Health-care.  It’s was a relatively simple, full-page graphic about the major candidates for President and what they feel should be done to “fix” the health care crisis.

As most people are aware, the US spends more more per-capita on health care than any nation in the world.  Despite this, there are still numerous uninsured persons in the country.  Politicians are still fighting on how to fix the problem and make sure every American affordable health care.  What they really mean is, make sure every American has affordable health insurance, not health care.

Now, I’m not an economist, but I do play one in the classroom when I’m teaching.  So, let’s review some of the simple economics of today’s health care issue.

1. The price of health insurance is too high for many people to afford on their own.  Those with insurance typically rely on an employer to pick up part of the tab or are forced into the Medicare system.
2. From the article above, the majority of democrats want to force every American into one of the two categories listed in #1.  They would prefer that every employer offer medical insurance.  Those who aren’t employed or chose not to use their employer plans would be forced to pay an premium to be part of the Medicare system.
3. From the Republican side, they seem to focus on giving more tax breaks to individuals for medical insurance to try and make the current system more affordable.  I guess they figure if you can save 15% off the premium, you’d buy a private policy.

If you can remember back, here is a typical supply and demand graph in equilibrium (Qe, Pe):

Time to pick these apart.  Let’s start with the fact that health insurance is too expensive.  Why is that?  Well, by insuring consumers for something like healthcare, you effectively reduce the cost of them going to the doctor and receiving medication (this is evident if you remember your health insurance rates at work a decade or 2 ago, I used to pay $6 a week for better coverage than I have now).  By making an effectively lower price, consumers change their quantity demanded by sliding to the right on their demand curve.

This change put the market in an imbalance.  There is now insufficient supply of health care at the quantity demanded (if you’ve looked at your local help wanted ads the last 5-10 years, you can attest to the shortage of supply in this market).  The graph below shows our new situation.  With the larger quantity demanded (Q1) the consumer is now paying price P1, but the provider is expecting price P2.

So, what happens next?  There are 4 ways to fix the problem in order to return to equilibrium:

1. We could get let the market continue to increase cost for the consumer in order to bring us back up to the original equilibrium of Pe & Qe. 
2. We could increase Demand (shift the Demand curve to the right), such that the consumer is paying much more (P2) to keep our current quantity of health care (Q1).  Anyone willing to go for this?
3. We could drastically reduce our demand for health care (shift the demand curve to the left) such that we are still paying the same price (P1), but only getting the smaller quantity of health care.  Again, like #1, that will be a tough sell.
4. We increase the supply of health care (shift supply curve to the right) so that there are enough providers they are willing to provide Q1 amount of service at the P1 price.

None of these are answers people want to hear and thus no politicians wants to propose them.  Instead, we continue to focus on making healthcare cheaper for consumers.  Over the past several years, the market has started to correct itself such that we are working on solution #1 above. 

Instead of letting it run it’s course, people are asking politicians to interfere and drop our prices back down, increasing the quantity of health care demanded even more.  That will just make the disparity between the supply and demand even greater. 

Let’s say whoever get’s elected President manages to get control of health care costs for the nation and we stay where we are currently.  Who pays the difference between P1 & P2 in order to have enough Doctors and Nurses available to provide the services that are being demanded?  My guess is it will be added to the national deficit.  Otherwise, there will be cheap health care with no one around to provide it.

While no one want to hear it, the real answer to this crisis is simply to leave it alone.  The market will find it’s own equilibrium over time if we continue to let it.  Yes, there will be people without insurance, just like there will always be people without jobs. 

Personally, I wish things were simple enough that we could pay our doctor’s our selves and that all that money would be tax deductible.  Without the extra overhead of processing the plethora of insurance paperwork, the Doctor’s cost is sure to decrease and I’d be paying not much more than I am now (assuming I stay relatively healthy).  Realistically, I would like to someday have enough savings that I could keep just some basic catastrophic medical insurance and then pay any regular prescriptions and doctor visits out of my own pocket, knowing I’m covered in the case of major illnesses.

This shows that I could save about $500 a year by going with the FSA. There are some other details of this as well.

1. My employer reimburses $500 of the $1,000 deductible for the PPO plan. So, that means the savings disappears. But wait, they deposit $500 in the HSA account for you. That money belongs to you no matter what. You don’t have to spend it first to be reimbursed!
2. We could pay more or less towards deductibles. Either one of those deductible numbers could double for the family amount and we’d have to come up with the extra money.
3. If I go with the PPO plan, and don’t spend my $2,600 from my FSA account next year, that money disappears. I don’t think that will be an issue as glasses, contacts and my braces alone will be $2,000 this next year. However, I can pay for those same expenses from the HSA account (though they won’t qualify for the deductible) and if I don’t spend all $2,600 the money is still mine to keep. I can even roll that over to another HSA plan if I choose to leave and I am on another plan later.
4. One other benefit of the HSA is that once the account has a minimum of $2,000 (the amount of the individual deductible) I can choose to invest the remainder in mutual funds and the capital gains can be used for medical expenses at a future date.

The base HSA checking account does earn some minimal interest as well. There are also some tax implications if I choose to withdrawal money from the account or use it for non-approved expenses (10% penalty similar to withdraw from a 401(k).

If you want some more detail of what is and is not allowed as expenses (for this or an FSA) or for the tax implications, check out IRS Publications 502 and 969 respectively.

I think this is going to be the best option for us at this point. I like the idea of a higher deductible and using the extra savings to pay the deductible should I need to. I also like that the money stays separate so I don’t have to manage it myself. It can all come out pre-tax, so I will also reduce my taxable income for the year as well. Plus, I don’t feel like I’m throwing money away with my insurance. I still have a portion of it if we don’t need it. Should I roll some over to the next year I can reduce how much I am taking out that year and stock that away, or continue at the current rate and invest it within the plan.

While it may not appear to be as large a savings as going with a private plan, it also reduces my risk of large out of pocket expenses and it helps me take full advantage of tax benefits for now.

I based the savings line strictly on my current budget for these items. While I can save over $200 every 6 months on the auto, I will be losing $140 on the homeowners. Still, that adds up to a total savings on the budget of nearly $290 a year.

Of course, there are always other factors involved in this type of situation. Do we trust buying this type of thing online without an agent? What about service should we actually have an accident?

I’ve had Progressive before when I was living in the Chicago area and was happy with them. I also know others in this area who are satisfied with them as well. So, what do you think, save $100 or $300 on insurance next year?