Oh, and don’t forget the mouth wash.

Going Without

Mrs. Max OOP and I used to regularly go to the dentist when we were down South. Although I’ve had a few minor things come up over the years, Mrs. Max OOP always seems to get a clean bill of dental health. In fact, our dentist down South used to go out of his way to tell her how healthy and beautiful her teeth were. After a few years of this, I started to wonder why we were paying so much for this guy to say hi and tell us how healthy her teeth were?

So, I made the decision to take her off the insurance in 2019. And no, it wasn’t because I was getting jealous of our dentist. We already moved to New England by 2019 which solved our friendly dentist problems. Just joking; he was a great dentist. 

So why did I strike Mrs. Max OOP from the insurance while selfishly keeping myself on the plan? Two reasons. Price and risk.

Plan

Before we talk about price and risk, we need to talk about the dental plan. It wouldn’t make sense to give up something without fully understanding what it has to offer. We are both eligible for the following if we sign up for my dental benefits.

My employer plan offers two 100% covered cleanings per year that include x-rays. This includes an oral exam by the dentist. It also provides us protection from basic services like fillings and root canals by covering up to 80% of the costs for these services. It provided additional protection for major services like crowns and implants by covering 50% of the cost for those services. There is an annual coverage maximum though; they won’t cover any more than $1600 per covered person per year (basic and major combined). I like this plan already, simple to understand.

If you need more information on the different components of a dental plan, the Healthcare Hustlers have a great overview of everything you need to know about dental insurance.

So for us, as a couple, that’s four cleanings per year and $3,200 in coverage/insurance protection in the event of an unfortunate dental event like a root canal.

Price

I get paid over 26 pay-periods. My individual premium cost for dental insurance for just me comes in at only $8.39 per pay period. Extrapolate that out over 26 pay-periods we get $218.14 in out-of-pocket premiums for 2019. Not a bad deal for a pretty solid insurance plan that includes free cleanings and $1,600 in protection from an unfortunate dental situation. This $218.14 comes out of my pocket, but my employer is also paying part of the premium behind the scenes.

$8.39 premium X 26 = $218.14 for 2019

When we pull Mrs. Max OOP into the equation the premium cost triples to $25.17 per pay period to cover both of us. This comes out to $436.80 more just to cover her. Evidently, my employer is happy to cover me for the $8.39 out-of-pocket premiums per pay period, but they want twice that for Mrs. Max OOP.

$25.17 X 26 = $654.42 for family coverage in 2019

Usually, when expenses break the $500-mark, Max OOP starts taking notice.

Risk

Although Mrs. Max OOP is Canadian, she doesn’t actually play hockey. In fact, we have never even made an NHL game together. With that and the fact that her dentist as never found an issue over years of cleaning, we went ahead and declared her a low-risk dental patient. Therefore, we decided to forgo the $1,600 in protection and two free cleanings per year and put $306.92 back in our pocket. We are choosing to self-insure Mrs. Max OOP.

My dental risk profile is a bit different. With the exception (or should I say extraction) of my wisdom teeth, I still have all 28 of my original teeth. But I have seen a few things come up over the years and my family history suggests I might be prone to dental issues as I age. My dad has had countless bridges, root canals, and crowns and those can really add up quickly. Therefore, it is important that I get preventative preventive cleanings but also have a dentist monitor how things are going. Since I am a higher risk dental patient, I am happy to pay $218.14 for dental premiums in exchange for $1,600 in protection from an unfortunate dental event. I might not need the $1600 in any given year, but at least it is there. The two free cleanings are just a bonus.

Savings On Dental Premiums

This is where all our hard work from the last few months will start to pay off and prevent us from making a decision without understanding all of the moving parts. We needed to do some math before we boot Mrs. Max OOP off the dental insurance.

At first glance at the title of this post, it might look like I am terrible at math and really saving $436.28 on this mastermind strategic decision. When you subtract the dental premiums to cover both of us from the premiums to cover just me, the total savings is $436.28.

$654.42 (both of us) – $218.14 (just me) = $436.28

You might remember our trip through the cafeteria to buy healthcare insurance. If we use our income to purchase health coverage through our employer’s cafeteria plan, that income is sheltered from FICA and federal taxes. In this case, since we are opting out, this $436.28 is now subject to all three federal income taxes; Medicare FICA (1.45%), Social Security FICA (6.2%), and regular federal income taxes. When we were busting tax brackets a few weeks ago we found out Max OOP lands in the 22% tax bracket. Since I am adding $426.28 back into this bucket it is now subject to the 22% tax.

$436.28 X 1.45% = $6.33 Medicare Tax

$436.28 X 6.2% = $27.05 Social Security Tax

$436.28 X 22% = $95.98 Federal Income Tax

Once we subtract all this tax from our newfound $436.28 in income, we only end up with $306.92 back in our pocket. Still not too shabby. What will I do with all this cash?

I generally follow pretty frugal ways, but sometimes you have to make exceptions. I spent $48.06 on some new fancy name brand dental supplies to get us through the last stretch of 2019 and provide some dental motivation. Over 50% of that expense went to the unnecessary Crest Whitestrips ($24.88), but I just couldn’t help myself. The floss should last through 2020. The reach floss was only $0.97, but I had to spring $5.77 for the Glide brand as well to see how much better it really is. None of these brands are sponsors of the blog at this point, but I welcome offers.

As for professional dental cleanings for Mrs. Max OOP, she will skip out on those the years she is uninsured and step up her daily cleaning routine with the fancy products above.

Is Max OOP Really Telling Everyone To Go Without Dental Insurance?

There is always one drunkard in the crowd, so let me spell this out.

No. That would be irresponsible.

You are responsible for your own risk/reward decisions. My main point here is to think about it before automatically signing up for all the benefits an employer has to offer. Could Mrs. Max OOP trip on our next hike and chip a tooth? Absolutely. But not only have we thought about it, we could also easily pay whatever it costs to fix it. Her teeth are self-insured. If her insurance came in a bit cheaper, we might consider insuring again. We could also hedge our bets and consider insuring her every other year and still check in on her teeth, only less frequently.

Final Thoughts

A small decision like this can add up over the years. Ten years without dental premiums for either of us could mean almost $4600 for the Max Out of Pocket crew, without even considering inflation. So If we invest it in medical office buildings with a 5.5% yield, there is a pretty good chance it would be worth closer to $6,000 after 10 years. It is also worth knowing what tax bracket we are in to help understand our true savings. This same decision is worth about $50 more per year to someone in the 10% tax bracket compared to someone like me in the 22% tax bracket.

For someone in their 20s with young healthy teeth and aspirations to spend less, save more, and invest the difference, this analysis could be a great option to accelerate that process. Could even work for someone in their 50s with the correct risk profile. Of course, that is assuming that a twenty or even fifty-something understands the risk, and takes the time to floss.

Max Out of Pocket for our dental premiums in 2019? $218.14 to insure just Max.

The post How I Saved $300 On Dental Premiums in 2019 appeared first on Max Out of Pocket.

We have basically closed out the Max Out of Pocket “Fundamentals of FICA” course. I will eventually brand it as “Fun with FICA”. We have even started using those skills in real life on our stroll through the cafeteria to buy health insurance from our employer. There will be a lot more healthcare content to come. But after all the writing about Nitrous Oxide last week, I need a break. And maybe even a hit if Nitrous.

Just in case you skipped class, free knowledge is just a click away:

Medicare FICA: Tax or Premium?

Social Security FICA: Tax, Pension, or Disability Insurance Policy?

We learned a while back that most Max Out of Pocket readers pay about 6.2% of their earned wages in FICA Social Security taxes. This helps support the Social Security Trust Fund. It might be less if you are bringing in some serious cash from your day job. That’s because there are limits on how much income is subject to the Social Security FICA tax. If you already retired early, you probably aren’t paying this tax at all anymore.

Our social security tax has been pretty much flat since the early ’90s. and is basically baked into the economy at this point. Well, I was recently thinking back to a scary time called the Great Recession. A time when things got so bad that even Max OOP got a short break on the Social Security tax to the tune of over $2,000.

Tough Times

Back in 2008 and 2009 things were really bad. I probably had no idea what was really going on around me. A younger Max OOP had just recently moved to a new southern state to take on a new position at a medium-sized hospital system. At the time, I didn’t realize just how bad the economy was and that it probably wasn’t the best time to be taking a risk on switching jobs. People were starting to lose their jobs, and here I was taking one.

Housing prices were crashing and stocks started losing value. I even recall a small layoff at my hospital system shortly after I started. Thankfully, the chopping block spared me. The bottom fell out of the stock market a few months after I moved. After the stock market crash, there was a multi-year effort by our world leaders to try and fix things. The United States did its part too.

Our Leaders Turn To FICA

One of the many efforts that took place here in the states lasted for two years, from 2011 through 2012. To try and stimulate the economy, a short term reduction in our Social Security FICA tax was put into place. Our leaders basically put some of this tax back into our pocket for a few years hoping we would spend it on flat-screen TVs and DVDs. If you were working in 2011 or 2012, it is very likely you benefited from this. Yeah, this was right around the time Netflix tried to split the company and raised prices on all their loyal customers. You might recall the backlash – the stock price lost 75% of its value that year.

The Social Security FICA tax was reduced by two full percentage points from 6.2% all the way down to 4.2%, or more than 30%. This is a really big number if you consider how many workers it impacted. There was an estimate thrown out by the Congressional Budget Office in March of 2012 that this reduced inflows to the Social Security Trust fund by about 224 billion. Your employer still paid their full 6.2%. Evidently, the government didn’t trust them to throw their 2% back into the economy. Maybe they would just pad their bottom line with it?

If you were making $100,000 at the time, this was $2000 back into your pocket each of those years. If you were making $50,000, $1000 was put back in your pocket for 2011 and 2012.

They didn’t touch Medicare FICA; they left that flat at 1.45%. My guess is it was just easier to generate what they needed from the larger 6.2% Social Security tax bucket. It is also probably easier to estimate the impact and sell the idea when you are only touching one program.

How Did This Impact Max OOP?

Since this was in the early days of Max OOP’s career, this tax reduction probably put about $2000 back in my pocket. It was before I knew how to front-load my retirement accounts, so it probably made its way into my cash savings since that was my main focus in those days. Unfortunately, I probably didn’t do much economy stimulating with my extra $2000 back in 2011-2012. After all, I already bought a TV in 2009, a TV I still own to this day. I wish I had put the whole FICA tax break into Netflix.

These days, I have boring passive income streams that put this kind of money back into my pocket every year. I am building my own stimulus package. I am projected to get $1100 over the next 12 months in ‘rental dividends’ from my healthcare REIT experiment alone. As we learned, since REIT dividends aren’t considered earned income, they won’t get hit with the FICA social security taxes even if you were holding them in a brokerage account.

Our leaders did several other interesting things to try to make things right. Does anyone remember the “Making Work Pay” tax credit? This was authorized by the American Recovery and Reinvestment Act of 2009 and put $400 of my federal income tax back into my pocket in 2009 and 2010. That’s another $800 and paid for most of my TV. There was a lot to this bill, including an $8000 tax credit for first time home buyers in 2009 (I missed out on that one). We are talking real dollars here.

There were also many healthcare spending initiatives imbedded in that bill to the tune of 155 billion dollars. Over 25 billion of that was used to promote the expansion and adoption of Health Information Technology. After going through the build of two Electronic Health Record (EHR) systems that nearly burned me completely out of healthcare, perhaps this funding was the start of my downfall? Or, maybe it was the start of my path to early retirement.

Lessons Learned

History tends to repeat itself. If our political leaders ever tweak this number again (up or down), you will quickly know exactly what the impact would be to your pocketbook. As they said when I was in the south, “Where is my pocketbook”? I also think we need to remember where this multi-year bull run started and caution amateur early retirement enthusiasts who might have a false impression that this stock market will only go up. Over the long term, that is true. But hopefully, we don’t see another hiccup (or should I say seizure?) in the economy like the Great Recession that could push someone into an irrational decision like buying at the top and selling in a panic at the bottom. It wouldn’t hurt to build in some conservative investments here and there so we are ready for when that time comes. More on that later.

Do you recall the FICA tax reduction of 2011-2012? How much did it put back in your pocket?

The post The 30% Reduction In Social Security Tax No One Remembers appeared first on Max Out of Pocket.