Health Insurance and FIRE: 2022 Edition

It’s early December 2022 and Open Enrollment is about wrapping up with the health care exchanges.   This means it’s time to pick our health insurance plan as early retirees. In the past, I shared how we experienced four different health insurance plans in twenty-one months due to my initial plans falling through.  Now we’ve been purchasing insurance on the health exchange for almost two years.

What are our plan options?

We have 59 total plan options, which are available from three companies.   We get to choose from Anthem based Exclusive Provider Organizations or two other company’s Healthcare Management Organizations.   State employees are covered through Anthem, meaning virtually all physicians accept the Anthem based insurance while physician availability is more limited through the other two.

The options?  A bit underwhelming.  The plan we currently have is going up to $721/mo.  With this plan we get the honor of paying for the first $6,850 in care per person before the plan pays for anything other than a preventive care appointment.   This means our minimum outlay between premiums and out of pocket payments will be $15,502 before it begins covering a dollar for one person.   Since we both have at least a few appointments a year, if we got into a situation where we needed to use insurance, we will have probably spent even a bit more out of pocket.   This is before we get to coverage exclusions, which I’ll talk about a bit later.

Health Savings Account or No Health Savings Account:

The first decision is if we want an HSA eligible plan or not.   In our current situation, the HSA is worth between 27.5% and 29% of the maximum contribution, which is $7,300 for 2022.   The calculation for us goes as follows:

Until 2021, the ACA Tax Credit was capped at 400% of taxable income.   Now the tax credit is calculated based on a taxpayer paying “no more than 8.5%” of modified adjusted gross income towards the cost of a silver plan in your state.   Based on rates in my state, it happens that the cutoff for the tax credit is right around the same as the jump from the 12% to 22% marginal federal tax rate.   It’s not exactly $109,450, but for simplicity purposes it’s close.   Unless I decide to complete a large IRA conversion, we’ll be under $109,450 in income by some amount so I’m assuming the $7,300 HSA contribution is worth tax savings of $2,007 for 2022.

But what about “subsidies”?

You’ll occasionally see a debate about early retirees taking “subsidies” towards healthcare in retirement.   The ACA provides two types of monetary benefits for purchasing insurance, the ACA Tax Credit, and Cost Sharing Reductions.  The ACA Tax Credit can be advanced to you in the form of a lower premium, then you “true up” what you received vs. your real tax credit when you file.  I’ve opted not to take this credit monthly and see if I receive anything when I file because our income is unpredictable.  This means for me it’ll work like any other tax credit with an income phase out.

Cost Sharing Reductions are the real subsidies and kick in for people below 250% of the Federal Poverty Level.  This is a magic number for health insurance for many early retirees.  As a couple outside of a high cost state, this number would be $43,550.  This isn’t a number that’s possible for us to get down to due to how I structured our retirement plans, but it can benefit those with larger families and more flexibility in income.   These subsidies can dramatically reduce the cost of healthcare.

How much will we spend on healthcare (and how much of that spend will actually count towards the deductible)?

This has been the biggest unknown for us and probably is for most early retirees.   We’ve had both low and high spending years on medical costs, especially over the last five years.   My better half suffered an injury five years ago that she mostly recovered from, but has left her with post-concussion style symptoms that are a combination of persistent symptoms that are manageable without care and occasionally other symptoms that can show up and intensify, driving the need for some medical attention.  

This is where a new set of challenges showed up with our ACA plan.  Specialist visits are covered and count towards the deductible, but only if that specialist is in network.  The network available in all of our plan options is state specific.  We don’t have the best suited specialist within a couple of hours, so this is an additional out of pocket cost since the specialist resides in another state.   There may be an ability to get this specialist covered through a lengthy appeal, but we’ve accepted it as an additional expense and enjoy the private pay clinic we have.

The plan documents then say services are covered with pre-authorization, but our experience is when we attempt to pre-authorize the exact same services that were covered under our previous corporate plan, the response is “this is considered investigational” or “this is considered not medically necessary”, adding an additional expense. 

I have yet to get to the bottom of this:  I can’t figure out if this issue is a policy change, an issue in changing states, or the ACA level insurance provides less coverage.  Somehow a low cost procedure with twenty-one medical journal articles researching it as a prudent treatment can be considered investigational in my state.  This same treatment used to be covered by this same insurer on a different state plan that my employer had.  From what research I can get, it is covered under ACA plans in other states with the same insurer.

As a consumer I’m frustrated, I have been questioning the insurance company for nearly two months and I am only now getting a trickle of information on their entire policy of what is and isn’t medically necessary, which is challenging as a consumer trying to make a plan decision.  Unfortunately I probably have to stay with that insurer and expect a lot of resistance in allowing anything beyond an office visit to be included in counting towards the deductible.

Ask the Readers:  So What Plan Should We Choose?

Here is where I’m stuck:  What plan should I choose for 2021?   I’m between keeping the same plan we have today with the HSA for $721/mo, or choosing the lower cost bronze plan for $616/mo.   The $616/mo has a slightly higher single/family deductible, but includes the slight possibility that they pay more for random office visits and specialist visits.  It also has a better pay structure for emergency room care, which we’ve been fortunate not to use for years but is what’s most likely to count towards our deductible and actually hit our max if it happens.  If we switch to this plan, we lose the ability to contribute to an HSA. 

I’ve considered stepping up to a Silver or Gold plan, but the amount the premium goes up seems comparable to the reduction in out of pocket maximums, so all I’m doing is guaranteeing that I pay more up front on the possibility that we recover that money plus a little bit when we actually use insurance.  

So what should I choose and why?

(Everything after this is considered rant and contains profanity – continue only if you wish)

Why does healthcare have to be so difficult?   There is only one end result that’ll eventually happen in the United States.  A mediocre baseline level of rationed government provided or paid care and a robust private pay system.   In my opinion, until we get to that inevitable outcome, the system will be messed up.

Why is it messed up?  How did we get to a system disliked by the patients, doctors, and payers (employers) of healthcare? Where in the heck do I start?

How did we get to the employer being involved in healthcare?  Apparently around the time modern medicine was advancing, the United States had price controls on wages.  Companies responded by adding medical benefits and it never went away.  This means Fortune 500 companies get to have a nice self insured pool with lower costs.   Smaller companies end up having more expensive insurance offered with crummier care.   To continue with COBRA with my Fortune 500 employer was only $900/mo for decent insurance.  To continue with COBRA through the small business I used for a while, it was over $1,600/mo.

How did we get to hospital facilities price gouging consumers?  At some point after World War II, the government required hospitals to take emergency patients regardless of their ability to pay.  This was great for society, but the politicians failed to take the next step:  Address how the hospitals would be paid.   Since that never happened, we have a dual system of non-paying charitable care and price gouging those who are on non-government plans.  This is especially painful for me, the main medical network I have access to in the area is the state’s medical university system and they systematically mark prices up by 2-3x what the service would cost outside of that health system.

Speaking of that:  Is more government the answer?  When I’m being price gouged by the state government and dealing with the administrative bureaucracy, my faith in the government being the solution goes down.  At the same time, how does someone make a rational decision on healthcare in times of urgent need?  Why is it still so damn difficult to find the price on anything?  Healthcare isn’t the same as an airline seat, there should be rules around one procedure = one price.

The idea that other countries ration care and we don’t in the United States is a bullshit argument:  Have you tried to get certain medical care lately?  How long does it take for you to get a specialist appointment?  Hell, it’s three months for me to see my general practitioner for a follow-up wellness appointment.  Want to get a procedure done that has 21 peer reviewed journal articles justifying it as prudent?  Insurance claims it’s not medically necessary.  Hmm, sounds like rationing.   Maybe the government can solve it?   My complaints with the state insurance commissioner haven’t made much progress.  The government influences the laws on what is and isn’t covered, so I’m not optimistic this gets better.

Healthcare in Retirement:  This shit can get expensive.  YTD for 2021 we expect to spend $15,000 between insurance premiums and out of pocket costs.   And the amount our insurance has paid?  One wellness visit.   It’s not a reason to just work forever, but be prepared to pay through the nose.  I’m glad we took the fatFIRE route and these expenses aren’t a hardship.

Where you live matters too:  We moved to a smaller state (five million people) and only have one EPO option for health insurance and no national network.  If the specialist you need is out of state?  Enjoy starting an appeal process.   Dealing with this stuff is making me consider either moving our residency to Florida and enjoying no state income taxes and a state with 4x the population, or just renting a furnished house for a year in Hawaii to try it out.   Healthcare can’t get any worse, right?   I actually did a lot of research into this before I moved, thinking being next to a medical university would be a positive. Instead it’s turned into a price gouging clusterfuck.  Maybe Colorado is the answer, one of the healthiest states in the country.

On that note, why in the hell can a procedure be investigational in one state while a covered benefit in another state, with an insurance company under the same public company umbrella?

Do I support the ACA?   Somewhat.  I think there were problems that all politicians agreed were problems, but couldn’t come to a solution.   The guaranteed coverage and removal of lifetime caps for insurance payouts needed to happen, but the hyper political way it happened left us with a mess.  Which leads me to…

Why is the ACA so expensive?    Blame the politicians.   The ACA was passed with the mathematics of all these healthy 20 and 30 somethings being forced to sign up.  The problem?  They weren’t forced to sign up.  The Obama administration intentionally delayed the enforcement of the individual mandate until after the 2012 election, using the usual political playbook of giving benefits without paying for the benefits. In this case, the “pay for” was people under 40 that could afford healthcare but were actively choosing not to purchase it.  Then when the “mandate” was enacted, the fine was minimal with a laundry list of exclusions that could get you out of paying it.  It was financially better to be late on your power bill, get a shutoff notice, then pay the bill and it completely removed the penalty.   But wait, there’s more!   Since Republicans were excluded (or refused to try to fix healthcare depending on your political leanings), they decided to latch on to the individual mandate as the constitutional challenge to the ACA for years. Fortunately the courts learned from their past mistakes and decided not to admonish congress from responsibility of fixing the mess they created.   The result of not requiring healthy 20 and 30 somethings to sign up is exactly what you’d expect:  They still didn’t sign up and the result is ridiculously expensive shitty coverage.

One additional point about the ACA: The law came with “profit caps” on health insurance companies. They must payout a certain portion of revenue each year. Unfortunately those choices have consequences, and that consequence is the perverse incentive to increase total overall healthcare costs as pointed out in Why Your Health Insurer Does Not Care About Your Big Bills.  

But what about Universal Health Coverage?  It might work, but the price tag is so large politicians haven’t figured out how to promise the benefit with others paying.  The math is such that claims it can be provided by “taxing the rich”.   The countries that have Universal Health Care fund it through regressive taxes such as payroll taxes and sales/VAT taxes.  Until someone can be honest that the deduction employees see for insurance today will be for a Medicare-like program, I don’t see how it happens.  Medicare is already in a financial trouble with payroll taxes only covering 40% of outlays (and falling).  These payroll taxes need to be tripled just to cover current obligations.   Until our country’s leadership is willing to have an adult conversation about funding existing medical obligations, I don’t have much optimism for this getting better.