Health Insurance – Biggest Concern for Early Retirees

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If you are looking for one reason to NOT retire early, I would suggest you study the cost of individual health insurance.  I knew this would take a jump when I left MegaCorp a few years ago, but given the politics messing up this market, I continue to astounded at how it has gone.

You can see from the chart below that our health insurance premium has skyrocketed for the second straight year.  Where I use to think that 8-10% annual increases were outrageous, we have now seen a 42% increase over the last 2 years at the same time that our deductible doubled.  Shocking!

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Last year I published a few posts which explored what was happening to the individual health insurance market.  While we are NOT in one of the areas of the country that are down to a single insurer, we are still seeing explosive premium inflation versus last year (+$6K / +54%) for what is still an incredibly high deductible ($13K family).

In addition to these numbers, we also paid an additional $5K ObamaCare tax last April when we filed our Federal Income Taxes.  I’m not sure if that part of the law has been eliminated or not – I haven’t seen anything in the news on that specifically.

Regardless of your politics, I hope everyone can agree that the government has royally messed up the health insurance market.  As our Democrat Governor commented: “The Affordable Care Act is not affordable for anyone.”

The one group it seems to have helped is the insurance companies themselves.  By eliminating choice (competition) the 4 largest health insurance companies (Aetna, Humana, Cigna, UnitedHealth) have seen their stock grow +500% since the day  ObamaCare was passed, while the broader S&P 500 has grown just a little over 100%.

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A five-fold increase in their stock market value over 7+ years isn’t just luck.  ObamaCare was great for Big Insurance, and terrible for early retirees that pay for individual coverage.  Most people – who are covered under their employer plans – have been protected from the shocking increases.

For now, we are happy with our good health and patiently waiting 3 more years before we go on our MegaCorp Retiree Health Insurance at age 55.  We’ve looked at Health Shares and read about the new Health Associations in the news, but haven’t found an alternative to traditional individual coverage that we were ready to go with.

How is your health insurance cost rolling up for 2018?

Image Credit: Pixabay

36 thoughts on “Health Insurance – Biggest Concern for Early Retirees

    • I thought it helpful for people to plainly see what the costs are in the USA. I live in Minnesota, so we have a lot of Canadian friends – I would say many of them are quite disappointed by public health care there. I read both perspectives. Happy to have good care – even at a high cost.

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      • That’s interesting, our experienced with the Canadian healthcare system was pretty good! Albeit I do know about the horror stories with emergency waiting times and such. Also, the system is being put under a lot of pressure due to bureaucracy, which is not going to help with overall costs and service level.

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  1. I’m curious if you know your costs for your MegaCorp Retiree Health Insurance. I was thinking I’d hold out to 55YO when I could retire with insurance provided by my MegaCorp. I’d pay the costs but at corporate employee rates it wasn’t a huge deal. After a massive layoff, those of us affected shared and the over 55 crowd had some eye opening info: individual premium = $2,400/month (vs. $440 currently paid for COBRA) though I don’t recall the deductible. Pretty sure my MegaCorp had no intention of keeping us on their insurance.

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    • I had 24 years there and they have a top notch program (today, anyway). Under their program, I would cut my premium and deductible in HALF. That would be pretty nice!

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  2. Thanks for sharing your experience with healthcare costs as an early retiree Mr. Firestation.

    Those are some frightening numbers. We hope to reach financial independence and early retirement by 50 (a few years from now), but healthcare costs might be the biggest wildcard as to whether or not we can do it successfully. It would be great if something got fixed over the next couple years, but I am not hopeful that will happen in the current political environment. If nothing changes we’ll have to make the best decision we can with the information we have available – hopefully it won’t mean working for another five years!

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    • The good news for Early Retirees is guaranteed coverage. Without that, you might not have had a decision. It would have been made for you. At least now – although the premiums are high – everyone can get locked into catastrophic coverage.

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  3. Interesting – I assume you don’t qualify for any premium subsidy? In 2018 my “income” will effectively be whatever Roth conversion I make that keeps me in the lowest tax bracket. As a result the premium subsidy covered the full amount of my premium.

    Admittedly it’s the lowest-priced plan available in my state, but I regard health insurance as just that – insurance for the potential costs of catastrophic situations – and pay out-of-pocket for most of my (currently modest) healthcare needs.

    I’m sure the situation will change next year, though. I hope the country comes to its senses and implements a single-payer system, but I’m not holding my breath…

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    • No – we don’t qualify for subsidies. I’m not a big fan of asking other Americans to subsidize my early retirement anyway. Need to have a wealth test – not just income test on those subsidies in my mind.

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      • As far as I can tell from speaking to my accountant even if I chose not to take the subsidy, I’d still get the money back at the end of the year when I report my ACA payments, so I don’t feel like I’m taking advantage of a loophole (I guess I could donate the refund to charity but I can’t give it back to taxpayers). When I was a homeowner I also deducted mortgage interest and didn’t feel like that was asking others to subsidize my big house in the suburbs. This year I’m getting a used RV and won’t have to pay sales tax on it in my state – I don’t regard that as taxpayers subsidizing my travel.

        If faced with the choice of working full-time solely for $12,000 of health insurance premiums I’d have to pay, or not having health insurance, I’d probably choose the latter, and then when I got hit by a bus the taxpayer would be paying much more for my ER visit.

        I think the ACA, while great in spirit, is terrible in implementation, and does nothing to address the real problem, which is health care costs and insurance company gouging.

        The bottom line for me is that healthcare is one of the very few things that cannot be left to the free market – the profit motive is fundamentally at odds with a society caring for its sick people.

        As for means testing – that would be great in principle but I’m not sure how it would/could work in the US – can you imagine the federal government asking everyone to send them copies of all of their year-end bank and brokerage statements 🙂

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      • Agree with you for the most part. The problem with government tax/spend is there are too many tax breaks/subsidies for too many special interest groups. The economics don’t work if everyone gets an exception. Interestingly – Some countries do tax on net worth rather than income – one of the readers on this site – from the Netherlands has pointed that out to me. Property tax is also a wealth tax of sorts in most states.

        I disagree that healthcare cannot be a free market – that is a consumer market – like food, shelter, and other forms of insurance. Consumer markets drive down cost and increase choice. The current government programs are doing the opposite.

        The top 4 health insurance companies, by the way, have seen their stock values go up 5x the growth rate of the S&P 500 in the 8 years since ObamaCare was signed into law. It wasn’t the free market that caused the price gouging – it was government protection that allowed it.

        If you are interested, I maintain a FaceBook feed called @LibertyDevils that focuses on politics & government. We get into some interesting chats there. Look it up if you are interested!

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  4. Those are shocking increases, Chief! The only law our pitiful professional politician ruling-class consistently achieves is the Law of Unintended Consequences. They do not care (nor do they have to) whom they help and whom they hurt. They get to make news and get reelected anyway. ACA was never going to work without causing massive disruptions, as well as loss of personal liberty. Fortunately, you have Retiree Health Insurance to plan towards over three years; many don’t have that safe harbor.

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    • Yep – the good news is we have choices. The best part of ACA is pre-existing condition coverage. Not our situation, but guaranteed coverage has helped many to FIRE.

      Liked by 1 person

    • Yep – good old MegaCorp will be there for me. At least I hope they continue to provide good retiree coverage in the future. Many companies have had to restructure their programs.

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    • People can click on this link if they are interested, Carol – I’ll give you that. But, as you know, I am not a fan of government-paid universal health insurance. Markets work well when consumers make decisions for themselves. If people can’t afford insurance today, how can they afford to also pay bureaucrats to run it?

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  5. Many early retirees are heavily subisidized on ACA premiums.
    I don’t qualify for subsidies and have seen my premiums grow at even higher rates than yours.

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    • Sorry to hear that. Ours have grown a lot, but we are certainly not in the worst of counties. We have several competing insurers in our area and our state government (MN) gives rebates to the insurers.

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  6. Shocking! Are your premiums so high because you have fairly high reportable income? I figured most early retirees would have relatively low income (unless they have a huge nest egg in taxable accounts generating cap gains and dividend income).

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  7. I will try to stay neutral in the politics of the ACA, but suffice to say, that I was not in favor of the overall policy, and agree it has been an unmitigated disaster from a cost perspective. While admittedly there were a couple of good things that came from this horrible law. The ability to get insurance with pre-existing conditions and the ability to cover older children up to 26 yrs of age were good changes.

    With that said, I retired in spite of the healthcare situation this past year. I was covered by a negotiated severance package for the first six months, so I received company paid for health coverage through Cobra for about the first six month of retirement. This coverage was timed with a switch (at the end of last year) to getting insurance through the Healthcare Market Place for 2018. So we chose a catastrophic plan through the market place for 2018. I had budgeted for $2000 per month for healthcare in my personal budget, during the initial first few early retirement years. The six month severance (and free Cobra) allowed me to bank the first six months of my healthcare budget in a cash “deductible fund” for the first year. My new 2018 coverage has a $12k deductible with a Max Out of Pocket of $13k. So I have the cash funds set aside, if needed, to cover the max out of pocket amount. I am also utilizing a HSA to save another $6900 per year, thanks to having a high deductible plan, that allows an HSA. This is a great option if you are relatively healthy, which we fortunately are.

    Due to my heavy position in rental real estate, I have a pretty massive built-in tax shelter (think depreciation), that allows me to bring my MAGI just under the subsidy cliff. That along with other strategic MAGI lowering moves, keeps my income below the subsidy cliff. So at least for 2018, my subsidy will cover all but $1.56 per month. I’m one of the fortunate ones this year paying only about $18.00 for premiums for the full year. If I were just $1 over that cliff, I’d be paying $14k for premiums! So I’m able to use my $2k ($24k/yr) healthcare budget to fill the HSA ($6900/yr), and bank the remaining $17.1k as a “deductible fund” or emergency healthcare cash fund. Assuming we continue to stay healthy (which we work diligently to ensure through exercise and good nutrition steps), we come out way ahead this coming year with a fully funded HSA and extra emergency cash banked for whatever new healthcare premium nightmare comes next year or the years after.

    We are some of the lucky early retirees with good health and the ability to manage our income through tactical incomes positions for 2018. Without the ability to manage our MAGI through real estate investments and other reductions like an HSA, we’d be paying MUCH more. I don’t know how many years we can continue to navigate this thin line, as I believe more and more healthcare law changes are in the future (which, IMO need to happen to clean up this mess), but for this year we are fortunate. It’s my hope, that (in the near term) health insurance is opened to interstate competition, allowing us to purchase insurance across state lines making companies compete for premiums.

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    • We are also socking away the annual limits in HSAs – that’s worth explaining in a post of its own. It’s a triple win that everyone should take advantage of.

      I saw some numbers a year ago about the number of wealthy people getting subsidies under the ACA and how it has exacerbated the economic problems of that program. Helping relatively rich people retire early with almost free insurance ($18/year is incredible!) obviously wasn’t the intent of the program and just points to how ridiculous it is. Not sure why they didn’t put a net worth cap on it. Silly!

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  8. I don’t disagree. It definitely highlights a failure in the system. With the current system setup to only base need on income verses net worth, we will continue to have these types of loop holes. I don’t claim to have the answer, but there must be a more sensible solution for all sides.

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  9. We joined solidarity healthshare this year for 299/month and sharing starting after 1500.00 of family spending on sick care. Our blue shield plan was 1430.00 / month with an in network deductible of 9600.00 for family. So there are other options out there.

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  10. I’m about a year and a half away from having to fund my own health insurance. Starting next year, anyone can purchase a non-ACA-compliant plan like a catastrophic coverage plan and face no penalty. I’ll be looking very closely at the catastrophic plans, opting to pay most costs out-of-pocket, but be protected against a 6 or 7-figure hospital bill.

    Health sharing ministries will be an alternate option that I’ll also explore. I know you’ve looked at those, too, but it may be time to take a closer look.

    Cheers!
    -PoF

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    • It’s hard to imagine the costs going much higher in the next 18 months, but that’s what I thought a year ago. I hope they can bring some sense to the insurance market – by emphasizing consumer choice – but have little faith given it is mid-term election time.

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  12. Thanks for taking the time to write this. I’ve also been exploring health insurance and am deeply understanding the challenges of the ACA. We unfortunately were a big consumer of insurance last year, so it changes the economics for two otherwise healthy mid 30 somethings…

    The ACA in principal made sense, require everyone to buy insurance and set minimum standards and guaranteed coverage. The problem was, everyone wasn’t really required to buy insurance. 2/3rds of the uninsured folks received waivers under the prior administration and the current one just waived the enforcement of the mandate all together. Insurance rapidly goes up in costs when only the heavy users buy, it then becomes more of a deferred payment plan.

    My Megacorp self-insures, so they pay a fee to Anthem to manage the program/claims, but they just pay all the bills each month. It runs about 9k/person including company contributions with a $10,000 out of pocket max. Healthy and unhealthy participate and we have an older demographic, so it gives me an idea of what the real costs are.

    Both insurance companies and hospital systems are consolidating based on the wild pricing in health insurance. Its wild in cost, but its wild that the same procedure can have 5+ prices depending on who your insurance is with. That’s called discriminatory pricing in most other industries, a one service, one price rule would help.

    As for how to fix it, the US could easily convert to one of two other country’s models that also have Top 20 healthcare in the world:
    1) Switzerland – Just require a minimum amount of coverage be purchased. No coverage, no tax refunds, no passports/drivers licenses, ect. A real enforcement tool
    2) Costa Rica – Open up the VA System and expand it to include those who want government/medicaid health care. Then have a robust private care market.

    Accept my apology, I get passionate about this, especially when at least one of the target places I wanted to set up a residence in retirement has one insurance provider who’s also the local hospital. We need to be with a Big 4 carrier for access to specialists on both coasts.

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  13. The chart is somewhat misleading, at first glance. Looking at just premiums, they went up 5K over two years since you left employment. I will make an assumption that you did not meet or pay much of the deductible–please correct me if my assumption is wrong. So your decision to voluntarily leave employment early and then make comparisons to a benefit you gave up (subsidized health insurance) and higher deductible (probably to keep premiums lower) that may or may not be met, is not relevant. It suggests to me that expectations by people looking to RE need to be re-examined, or worst case scenarios looked at much closer. A more valid comparison would be changes in healthcare costs exclusive of working benefits.
    What about dental costs? Speaking with a tax preparer, the largest individual item on many seniors returns are dental costs, not covered under health insurance and often running 4-6k.

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    • I just included the year of employment for context. Many readers are still working, so I thought it would be relevant to them.

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    • Thanks, Ella – it’s simple to see what has happened, the key is where do we go from here. I don’t hear either party offering promising solutions!

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