The True Cost of Healthcare in Early Retirement: A Guide to Open Enrollment
Today’s timely and insightful guest post started as a post in our fatFIRE Facebook group. A generous soul named Mike Magruder, an early retiree in his late forties, shared his actual healthcare expenses from the prior year, along with an outlook for 2020, giving us his true cost of healthcare in early retirement.
Open enrollment via healthcare.gov is underway, and you’ve got about a month to enroll in a plan before the window closes mid-December.
For the first time since I was an independent contractor and locum tenens provider, I am responsible for procuring my own healthcare coverage. I considered alternatives myself, but in the end, I chose a plan from the exchange, just like Mike did.
After reading his post in the group, which was nearly 1,000 words, I sent Mike a friend request and asked if he would mind me sharing his insights with a larger audience. Not only did he oblige, but he more than doubled the length of it by including additional details. More about my new friend:
Mike worked in software development for twenty-eight years in roles including developer, tech lead, architect, and engineering manager. He spent 15 years at Microsoft and more than 4 years at Facebook. He retired in early 2017 at 46 with his lovely wife and two cats in beautiful Washington state where he whiles away the hours volunteering, snowboarding, mountain biking, building snowboards, gardening, and generally goofing off.
The True Cost of Healthcare in Early Retirement: A Guide to Open Enrollment
It’s open enrollment season, so last week I took a close look back at my 2019 healthcare expenses and picked my plan for 2020. I’m going to take you through all of it in detail to help provide a sense of what the costs are for one real couple in early retirement.
My numbers can serve as an example and give you a good starting point to figure out what these costs may be for you. I’ll also add in a few planning suggestions along the way.
Healthcare in early retirement is one of the biggest unknowns for most people planning for FIRE. Whether you’re just starting out or have been on your journey for a decade, no other topic fills us with more dread, uncertainty, and doubt, than how we will get health insurance, how much it will cost, and what it will actually cover.
It’s enough to make a lot of people throw up their hands and decide to work until 65, or seriously consider moving to another country. It feels less predictable than stock market returns. Less transparent than taxes. It feels like you just have to guess.
Part of the problem is that most of us have minimal exposure to the actual cost of health insurance, or to what’s paid when we go to the doctor. Our employers typically cover most or all of our insurance costs, and the entire system does a pretty good job of insulating us from the actual cost of care along the way. There’s no price list when you seek care, and even if you ask the answer is rarely clear until the bill shows up.
I mean, when you have good insurance, who looks at the bill? I know I didn’t. For 20 years, working at places like Microsoft and Facebook, I had what seemed like a magic card I would whip out at the doctor’s office and they’d treat me like a king. I paid little or nothing out of pocket, and I just tossed the statements in the shredder.
Despite all of this, it is possible to plan for these costs in retirement and it doesn’t have to derail you! It feels unknowable, but it’s not. You have to make a projection based on good data just like every other variable in your FIRE planning.
A Little Personal Background
Healthcare is personal. We’re all different, and what I need each year is going to be different from what you need. Age and location also matter greatly. So to put our spending and plans in perspective, you need to know a little about my wife and me.
We’re a married couple, ages 48 and 49, no kids, and non-smokers. We live in King County, WA, (i.e., near Seattle) and have been retired for over 2.5 years.
We each have pre-existing, chronic conditions that require management throughout the year in addition to the normal physicals, flu vaccines, and the occasional laceration.
I have a congenital heart defect and my cardiologist has moved me up to annual monitoring. My wife lost her thyroid to cancer a few years ago and has other issues that require a number of prescriptions and regular doctor visits throughout each year.
Alright, let’s get down to the details!
Our Healthcare Costs in 2019
- Amount billed (all doctors, labs, drugs, etc.): $19,634.88
- Discounts for in-network providers: $12,189.68
- Amount paid by Premera: $1,633.13
- We paid: $5,812.07
Neither of us hit our annual deductible of $4,500. I came closest; I think I might be losing a bet with my wife right now.
So, yeah, you’re reading that right. We incurred $19k of medical bills this year. Not premiums, that’s separate. How?!
Well, let’s look at our big expenses:
- My wife’s ongoing ‘mislaid thyroid’ treatment. One example is a generic prescription with a monthly cost that has fluctuated between $77.15 and $170.76 throughout the year. Office visits and three sets of labs ran about $2,388.
- I get an annual echo and cardiologist visit which this year was billed at $1,596.00.
- I messed up my shoulder – torn rotator cuff and SLAP tear – which resulted in 4 doctor visits, X-rays, MRI w/ contrast injection, and some weeks of PT. That MRI alone was billed at $3,814, and the billed costs for the PT were genuinely ludicrous. Imagine if I’d have opted for the shoulder surgery.
- One emergency room trip billed at $2,594.72.
Plus other office visits and prescriptions, the normal preventative care, etc. It adds up fast, and costs are obviously outrageous. Do note, though, the massive difference between billed cost and what is actually paid. I’ve listed the billed amounts to illustrate how we got up to $19k, but we paid much less out-of-pocket.
Charting this is helpful, and you can see some of the bigger events easily.
Of course, that’s just the costs for doctors, labs, drugs, etc. There’s also the actual cost of the insurance plan for the year:
- Insurance Premiums Paid: $15,613.32 ($1,301.11/mo)
So that’s a grand total of $21,425.39 paid by us for healthcare in 2019. (Premiums + “we paid” from above.) A small, nice, new car. A 2020 Subaru Impreza 5-door, base model with automatic, red, prices out at $21,395, so I guess some floor mats are in order.
Gathering the 2019 data
Tracking your true healthcare costs is the first step to getting a handle on this stuff. Premera makes it easy, giving me an Excel spreadsheet to download with everything broken down in detail for the year. Look for something similar from your provider, but if yours doesn’t have that available then start saving those statements you usually toss in the trash!
As you gather your costs be sure to record the category of care for each item. Plans cover office visits, prescriptions, labs, emergency, urgent care, etc. all differently. I haven’t shown this for my costs above, it’s just too much detail here, but I do have it and use it when comparing plans and projecting future out-of-pocket costs.
A portion of Premera Blue Cross Preferred Silver EPO 4500 for 2020
You also need to understand the current cost of your health insurance. Ask your employer what the monthly COBRA payment is for this year, though you might want to make it clear you’re not planning to quit. (Or not, have a little fun with it!)
Start with that number, but note that there is a 2% markup for administration fees. Also recognize that you likely won’t get coverage that good on your own.
Our Plan for 2020
We selected Premera Blue Cross Preferred Silver EPO 4500, which is the replacement for our now discontinued silver plan from 2019. We stuck with Premera’s network for two specific doctors, though there are cheaper options we might consider in future years when one of them retires.
Our rate for 2019 was $1,301.11 per month, and the 2020 plan will be $1,322.74, an increase of ~1.662%. This is the 3rd most expensive plan on the WA state exchange.
So, $15,872.88 in premiums, plus a projected baseline $1,693.32 of out-of-pocket on the silver plan suggests a minimum 2020 total of $17,566.20.
Projected baseline costs for 2020
Given the data from 2019, I can easily add up our expected recurring exams and prescriptions, and use our out-of-pocket costs for those. Most of these costs are co-pays only on the silver plan we selected, which makes them a flat $30 or $60 fee regardless of what the doctor charges or what the prescription really costs.
The biggest variables are labs and tests which are paid by us before the deductible, then 30% co-insurance afterwards, on this plan. I’ll talk about inflating this each year below.
Monthly insurance premiums since retirement
- $1,198.99 – FB’s Aetna PPO via COBRA for most of 2017
- $1,407.33 – FB’s Aetna PPO via COBRA for 2018
- $1,292.60 – Premera Blue Cross PersonalCare Silver for Dec 2018
- $1,301.11 – Premera Blue Cross PersonalCare Silver for 2019
- $1,322.74 – Premera Blue Cross Preferred Silver EPO 4500 for 2020
Why not an HSA plan?
We seriously considered the bronze HSA plan. The premium cost for the HSA plan would have been ~$3k/yr less, and the tax deduction for HSA contributions would have netted us ~$1.5k, but that’s mostly offset for us by the differences in coverage for drugs, urgent care, and office visits.
So it turned out to be mostly a wash with the HSA plan a little ahead, but we stuck with Silver since it should better insulate us from any surprising prescription cost increases, which have already been pretty volatile, and has better urgent care coverage.
The Silver and Gold plans tend to win out when you have a lot of expensive prescriptions or many individual office visits, as you’re charged a fixed co-pay and insurance picks up the rest, while a bronze plan will typically be deductible then co-insurance for those things.
And as you can probably tell by this point, that describes us pretty well.
A spike in either of those categories for us easily wipes out multiple years of the advantage we’d otherwise get on a bronze HSA plan.
More predictability in drug prices and increased skill in mountain biking would both motivate me to reconsider the bronze HSA plan in the future.
How About a Non-Exchange Plan?
I looked at the non-exchange plans available in our county, and the one we’ve selected is preferable to all of them. In general, a “silver” non-exchange plan was much more in line with a bronze exchange plan. I’m not sure if that’s a broader trend or just what the few companies offering these in our county are doing. Your mileage will vary.
Isn’t Obamacare subsidized?
Subsidies are based on income, but we earned more than $67,640 last year (400% of the federal poverty level for a family of two) so we don’t get any. And that feels fair to me, honestly.
2020 Market Overview for King County, WA
There are 32 plans available in King County for 2020, including 2 new carriers, which is up a lot from last year. I don’t have the hard data at hand, but I recall ~14 options last year.
There are a number of HSA options. The lowest cost plan is $755.42/mo and the highest is $1,509.61/mo. Overall rates for ACA plans in WA decreased in 2020 by 3.27%, which is a nice surprise.
Play More, Crash More
Plan on more injuries after early retirement. You’ll be more adventurous with your new free time, I assure you.
I’ve been snowboarding for 20 years, but going multiple times per week throughout the winter instead of working increases the risk of injury. Especially in the first few years when you feel newly free, it makes you want to get after it a bit more than usual.
I also took up mountain biking this past spring, and though it really helped with my physical fitness, being a n00b here resulted in a number of minor injuries and some nicely bruised ribs. And I’m positive I haven’t flown over the bars for the last time yet!
More time in the workshop means more opportunity for metal tools to find their way into my body, etc…
Check rate charts for the cost of your plan at your projected retirement age. It will increase with age, at a surprising rate. Above I noted that our 2019 premium was $1,301.11 per month, and the 2020 plan will be $1,322.74, an increase of ~1.662%. Doesn’t sound bad, right? But there’s more to it than that:
- 2019 premium for a couple 47 & 48: $1301.11
- 2020 premium for a couple 47 & 48: $1266.13
- 2020 premium for a couple 48 & 49: $1322.74
Getting one year older increased the cost by 4.471%. Ouch. That outpaces inflation easily, and even outpaces the steeper inflation of healthcare costs.
So, don’t use the cost at your current age if you think you’re 10 years out from retirement.
A portion of Premera’s gold/silver plan rate chart for 2020.
You’re already considering inflation in your retirement projections, I’m sure. I’d guess you’re using something in the 2-3% range.
But healthcare costs are growing more rapidly. Here’s a starting point from Premera’s 2020 rate filing with WA state:
“The average cost of a [sic] medical and prescription drug services is expected to increase 3.9%, …”
You’ll want to use this, or something similar, to inflate your projected premiums as well as portions of your baseline out-of-pocket projections each year rather than your usual inflation number.
Co-pays will likely remain stable (they’ll nail you for the rest of it via increased premiums), but anything covered as “deductible then co-insurance X%”, etc., should be inflated to get a better estimate. You can find the full filing with that quote by searching here.
At this point, it should be pretty clear that your location, specifically your county, matters when selecting healthcare on the individual market. I keep pointing out that we live in King County, WA, for a reason!
Check out Premera’s individual rate map for WA in 2020. Ouch. That is severely reduced from 2019.
Lifewise has a more encouraging map but consider how a small move across a county line can result in different premiums or no coverage at all. Have Lifewise living in Seattle and want to move across the sound to Bainbridge Island when you retire? Cool, but find a different insurance company.
Use your local exchange to get a starting point for the county you care about. Start at Healthcare.gov. Take a close look at what plans are offered across your state.
For as analytical as you might want to be about costs and plan selection, you can’t ignore the psychological effect of these choices on your and your family. The math may suggest one plan, but you might need to pick a different one anyway.
Early retirement is already a big change in your family’s life. There are new stressors you can’t even imagine yet. Picking the lowest cost plan and switching all of your doctors might not phase you, but what about your spouse?
When someone gets hurt, is their new first thought “How much will this cost? Should we even go to the doctor?” followed closely by “I didn’t have to worry about that before all this FIRE crap.”
It might be worth budgeting a couple grand more per year for a better insurance plan and walking the earth a bit more carefree as a result.
This is the main reason I did the full 18 months of COBRA. Full stability in healthcare; our cards didn’t even change. Well, laziness was a factor too. Retiring is supposed to be fun, and who wants to think about all of this then?
Phew, that was long! It’s a complex topic, with a lot of variables, but again I firmly believe this is something you can get a handle on and plan well. Will your projections be a little off? Sure. But that’s true for quite a lot of retirement planning, and it shouldn’t stop you from forming a good projection and keeping it up-to-date as you approach your goals.
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How much are you paying for healthcare coverage in 2019? Do you expect to pay more in 2020? Have you found alternatives to exchange plans to be a viable option for you and your family?