But most of us never will. We will just keep on spending our way through life wondering why we can’t get ahead.

I could argue that tracking expenses should be at the bedrock of any sensible personal finance strategy. At the start, managing expenses is more important than investment choices, expense ratios, and to some extent, even salary. Personal finance is very much behavioral, and spending is the starting point of that behavior. Tracking expenses is just a way to measure it.

And what’s measured matters.

I have always recommended tracking expenses manually in Excel. Automation makes sense at some point, but there is something to be said about doing things manually in the beginning.

I have always dubbed our annual expenses as “a reasonable standard of living”. Frankly, it’s beyond reasonable. I personally think we live it up on about $50,000 per year. But where I see happiness and efficiency, others might see deprivation.

For Max, the value in reviewing these numbers has diminished over the years. That said, I am only providing this information because years ago I found having an online “compare group” beneficial as I firmed up my personal finance strategy. It helped me set baselines.

So, taking the time to download my credit card statement history and pivot it into a nice summary is my way of paying back to others who might be taking that first hard look in the mirror. Now, they might have someone to compare to.

So what’s the damage?

In 2020, the Max Out of Pocket crew spent $46,207. This is exactly $5,229 less than we spent in 2019. 

Here is how things looked in 2019:

Housing

We dropped another $12,000 on housing in 2020. Plenty of people would tell me I am throwing my money away on rent, but I know it is not that simple. Thankfully, this expense has remained flat for 2018, 2019, and 2020. I am not projecting an increase for 2021 unless we move. We have been renting the same place in northern New England since we sold our house down in North Carolina.

This represents about 26% of our total 2020 expenses. I consider it money well spent since it is meeting one of our basic needs – shelter.

Food, Dining, and Groceries

Speaking of basic needs, food is up next.

In total, we spent $9,723 on food, dining, groceries, and a three-month college meal plan in 2020.

This group includes things like groceries, eating out, and alcohol. For the Max Out of Pocket crew, groceries consist of things beyond food items. Cleaners, paper goods, and personal care items land in our grocery line. A few specific examples are things like shampoo, dishwasher detergent, and toothpaste or toothpicks.

In 2020, Mrs. Max OOP spent 16 weeks studying abroad in Alberta, Canada. She lived right on campus so we dropped $1,885 (USD) on her meal plan which is included in the number above. This made things very convenient and she could focus on her studies and being pregnant.

Max was left to fend for himself. It’s amazing how much food you can buy in exchange for less than an hour of work.

We also somehow spent $1,350 at restaurants and coffee shops. This would include “carry out” after the pandemic hit. Although this total came in higher than expected, it was $1,400 less than in 2019. We probably spent more than $300 eating out at nice restaurants during our visits to Cape Cod over the summer.

One accomplishment from 2020 is we had three solid months where we did not eat out at all. I do not recall this ever happening since I started tracking this type of thing. April, May, and November we did not spend a dime at restaurants and coffee shops.

I also took over a month off drinking alcohol, so we spent $0.00 on the substance in October.

Utilities

Utilities include things like electricity, oil, internet, cell phones, and our Netflix subscription. Yes, I still call Netflix a utility. I categorized this line as a “utility” years ago and just left it there mostly because it is incurred monthly.

In total, this category came in at $4,883.

Here is a side by side from the prior year. Most of the increase can be attributed to a new cell phone (Pixel) for Mrs. Max OOP. I continue to get nickel and dimed by our internet provider and I am not sure why I don’t just deal with that.

Auto & Transport

Mrs. Max OOP and I both drive aged-out Hondas (07′ Civic / 08′ Odyssey). Over the summer I was seriously considering upgrading one of our vehicles to a newer mid-sized SUV. I was even talking about it with friends and family, which usually is a tell-tale sign that Max is getting serious about something. However, with Mrs. Max OOP in Canada, making a new vehicle purchase really did not make much sense.

We only spent $2,128 in the auto & transportation category.

Almost half of that went to gasoline. I biked to work during the summer for over 6 weeks straight. Another $528 went to our auto insurance. I know some people who spend close to that each month on car insurance in my home state of Michigan.

2020 was a nice year for the “service and parts” category, coming in at only $388. Most of that came late in the year when I was forced to replace my rear brakes during a routine annual inspection. I didn’t include the cost of the Labatt Blue in the repair.

Lastly, we dropped another $250 on property taxes for the vehicles.

Miscellaneous

My other/miscellaneous category has everything else dumped in it. For 2020, this came in at $16,308. Just like last year, I feel like I have some explaining to do here.

Following an 80/20 rule, my goal is to quickly identify where 80% of this money went.

Here is $13,702, representing 84% of this category.

Mirror on the Wall

• $3,997 on our damn cats. This was mostly for therapeutic treatment for our cat Charlotte, followed by end-of-life care. She was a great cat, but 4k seems steep and represents almost 25% of this category. We will see a nice reduction to this in 2021.
• Mrs. Max OOP dropped $2,262 on tuition for 16 weeks of training on how to become a butcher. This was partially subsidized by the Canadian government because she is a Canadian citizen.
• We spent $1,394 on a two-week hotel stay in downtown Calgary, Alberta. This was during our initial quarantine to get set up for the program.
• I have $1,242 labeled “shoes and clothing”. This seems high again, but I have not drilled too deep into it.
• We spent $753 on a two-week rental car in Calgary, Alberta when moving Mrs. Max OOP out there. This was a bad purchase considering we were in quarantine most of the time, but we felt it was required to keep others safe considering the pandemic.
• Mrs. Max OOP bought a new computer with a touch screen for $702.
• $627 is labeled “gifts” – this includes gifts to family and other donations.
• Spent $550 on firewood. I could make the argument this is technically a utility, but we use it more as a luxury item since the fireplace is not the most efficient way to heat the house in our current setup.
• $536 on other hotels during travel to and from Alberta, including a “park and ride” hotel here in New England.
• $501 on air travel to and from Alberta for butcher training.
• $365 on my gym membership after two months were waived during the March/April shutdown. About $200 of this is now paid back by my employer through healthy benefits, but I consider that income and don’t reduce the expense.
• $191 for a new United States passport for Mrs. Max OOP. We paid for United States citizenship out of 2019’s spending.
• $162 on haircuts, mostly for me; Mrs. Max OOP cuts her own hair.
• I spent $151 on this blog.
• $133 golfing in the mountains.
• We spent $101 on our post office box.
• $35 renting a mountain bike.

So, here is where Max will show you his advanced blogging skills by busting out “gallery mode”. These photos represent discretionary spending at its finest, although Mrs. Max OOP will argue the expensive cat care was not discretionary.

Here is a giant Calgary avocado, meat camp, a $3,000 cat, golfing, and the Bow River. A nice look at 2020.

Healthcare Services

Since we consider Max Out of Pocket the intersection of healthcare and personal finance, I feel compelled to further break down our healthcare category this year. This section does not include our insurance premiums since my employer heavily subsidized those costs. I don’t think my portion of the premium cost represents much of anything. That said, we did cover my 2020 health insurance in detail earlier this year. It would cover 48.5% of our entire 2020 spending.

We spent $1,146 on healthcare in 2020. This was slightly higher than normal because Mrs. Max OOP is expecting! We paid cash for most of the obstetric services Mrs. Max OOP received during her studies in Canada.

Here is everything:

• $259 on dental work for me
• $231 for doctors’ visits in Alberta with Mrs. Max OOP’s OBGYN
• $83 for our first ultrasound on 9/18/2020
• $154 for a nuchal translucency ultrasound on 10/15/2020
• $108 for lab work in Canada on 10/15/2020
• $172 for a second-trimester ultrasound on 12/3/2020
• $82 for prenatal vitamins
• $46 for a telehealth call while in quarantine in Canada
• $13 for some throat lozenges

Considering we are expecting the baby in April, this year is projected to be an expensive healthcare year. I am sure other things will start hitting soon as well.

Passive Income & Government Tax Credits

I see a lot of other bloggers looking at how much of their “passive income” covers their regular living expenses. So, If I add up all our passive interest and dividend income from all sources including my non-liquid retirement accounts, I come up with about $18,398. This would include passive dividend income from my medical office building portfolio. It does not include capital gains or taxes.

$18,398 covers about 40% of the lifestyle above completely passively. For someone who considers himself a regular Joe Max, I find this pretty impressive.

$18,398 Passive Income / $46,207 Total Expenses = 39.8%

Additionally, our family qualified for both stimulus payments in 2020. In total, we received $3,600 from the federal government. That alone covered almost 8% of our 2020 spending.

At times, I have a hard time reconciling these government payments and think it’s odd that families like us are in receipt of these funds. For me, it is not as simple as “Oh you don’t like it? Just donate it to your favorite charity”. I suppose at the end of the day, it is a refundable tax credit that we qualify for.

Perhaps, I will touch more on that later.

Final Thoughts

Personal finance and budgeting are very much behavioral. It is one of the reasons I have a hard time providing personal finance advice to friends and family. By extension, I am weighing in on their spending behavior, and I don’t think that is any of my business.

But making the recommendation that someone should track their expenses? That seems like reasonable advice to me. I completed this early this year and it only took me a few hours. Ultimately, I still think it is worth the time.

Once again, the Max Out of Pocket crew lived it up on about $50,000. We do not have reason to spend anything less, but we could if we needed to. Our $100,000 opportunity fund could sustain this level of living for two years without lifting a finger. That’s a great feeling.

Arguably, most if not all of our $16,308 in “miscellaneous” expenses were completely discretionary. If we ever needed to tighten things up, we could. But I don’t expect that ever to be needed. If anything, I am looking to get more liberal with our spending as we move forward with life. We have already put the work in.

How much did you spend in 2020?

The post Max Out of Pocket’s 2020 Spending appeared first on Max Out of Pocket.

As a purchase moves into the several thousand-dollar range, a deeper analysis is required. It might even require an excel spreadsheet or two. This assessment should be at the bedrock of any responsible personal finance philosophy. Frankly, when we are spending thousands of dollars on something, we need to make sure we understand the product or service we are buying.

Unfortunately, this analysis just doesn’t happen with most medical insurance plans when they are provided by our employer. We might briefly flip through the hundred-page document provided by the Human Resources department, but we do not go much deeper than that. We tend to trust that our employer is vetting the purchase on our behalf.

Max is here to change that.

Every single year, I carefully read through the specs of my medical plan to make sure I understand what I am getting. Last year, I noted that I could buy a couple of used cars for what was being paid for my premiums and still have a few thousand dollars left in my pocket. This year, I am sticking to just talking about the specific specs of my plan.

If you want to follow along at home, go grab your summary of benefits and coverage. You have a right to this document per the Affordable Care Act.

Premiums

Premiums are the payments made to have health insurance. A membership fee to be dumped into an actuarially sound country club pool that helps pay down your medical bills.

In 2020, the high-deductible health plan (HDHP) that covers me and Mrs. Max Out of Pocket will run $22,450 for the calendar year 2020. These premiums are split between me and my employer. I will pay approximately 22% of the tab and my employer will pick up the remaining 88%. Here is how the split looks in real dollars:

• Max pays $4,950
• My employer will pay $17,500

2020 Premiums = $22,450

This is a 3.85% increase of about $860 from 2019.

My current employer is the first of my career that shares the full premium information. It is nice to see how much money is really exchanging hands on my behalf behind the scenes.   

Even though it is just me and Mrs. Max OOP, our plan is still considered a “family plan”. There is not an “employee and spouse only” option. In other words, I pay the same amount as an employee who has a spouse and four children.

Most of my previous employers had three separate premium rates depending on the employee’s situation.

• Employee Only
• Employee and Spouse Only
• Family

Health Savings Account Match

It is important to note here that my employer gives $600 of my premiums right back to me to start the year. This $600 is deposited directly into my health savings account and I can use it to pay down out-of-pocket costs throughout the year. Access to an HSA is one of the perks of having a high-deductible health plan.

This deposit hits my health savings account the first pay period of the calendar year.

Here is where it hit my Health Equity account back in January.

Max Out-Of-Pocket

The very next thing I look at is the “out-of-pocket maximum”. Believe it or not, I prefer to call this the max out-of-pocket. That’s what Michiganders call it at least.

In theory, this is the maximum we would have to pay for covered medical services in 2020. I like to think of it as a bucket. Once the bucket is filled up, I no longer need to pay for medical services and my insurance will pick up the full tab for the rest of the year. This, of course, assumes we follow the sometimes-confusing policies and procedures of my plan, including staying in-network.

My plan sets both Mrs. Max OOP and I up with our own individual max out-of-pocket. In other words, we both get our own bucket to fill up. This helps us mitigate risk and is much like the individual deductible concept.

In 2020, our individual max out-of-pocket bucket is $3,300, for a total of $6,600.

The nice thing about having separate buckets is it helps us further mitigate risk. Although our family max out-of-pocket is $6,600, if one of us has a bad accident, the most we would pay is $3,300.

The max out-of-pocket is an accumulation of out-of-pocket costs like deductibles, coinsurances, and co-payments. In other words, you can generally use ANY of your out-of-pocket costs to fill the max out-of-pocket bucket. So, a $100 co-payment here and a $1,000 deductible there can both be dumped into this.  

I tend to consider this the fully weighted “risk” associated with my medical insurance plan. So, between my spouse and I, the most we should have to pay out-of-pocket for medical services in 2020 is $6,600. This is our “health risk”, and it is relatively easy for us to plan for.

Deductible

The deductible is just another bucket. Aside from preventive care, we need to fill this one up before my health insurance starts helping us pay for medical services. In 2020, our family deductible is $3,300.

So, as a family, we are expected to pay the first $3,300 for medical services before our insurance starts paying.

Just like the max out-of-pocket, we each get individual deductible buckets of $1,650. This means if either of us has an issue, our insurance will start paying for our individual services after we pay the first $1,650.

And again, at the risk of being redundant, these deductible buckets are dumped right into our max out-of-pocket bucket.

Coinsurance

Coinsurance is a little more complicated. Once we fill up the deductible bucket, our insurance will start helping us pay for medical services. But there is a catch. They still expect us to pay a portion of the bill until we reach our max out-of-pocket.

In my case, our coinsurance for an in-network provider is 10%.   

The coinsurance is generally the portion of the bill I am expected to pay after I reach my deductible. This is usually based on the rate the insurance company will pay the medical provider for the services provided. We often do not know this rate because these prices are negotiated behind the scenes. If I go to an in-network hospital for a diagnostic lipid panel, they might negotiate that bill to $100. Since my coinsurance is 10%, I would have to pay $10.00 of the $100 negotiated rate. Since I already met my deductible, my insurance will pick up the other $90.00.

$100 negotiated rate X 10% coinsurance = $10.00

Along with my $1,650 deductible, that $10.00 will be dropped into my max out-of-pocket bucket.

Co-Payments

My plan does not have any co-payments for medical services, but it does have them for prescriptions. Co-payments typically go hand in hand with office visits in the clinic or visits to the emergency room.

Co-payments are generally “fixed amounts” that are incurred with each visit regardless of what occurs at the visit. I often see $25 co-payments for office visits and $100 co-payments for visits to the emergency room. Once we meet the max out-of-pocket, we no longer need to worry about co-payments.

We are going to stay out of the prescription realm today, but it is important to note that my plan does cover prescriptions and there are co-payments tied to those transactions.

Final Thoughts

This stuff matters. It is part of your compensation package. Taking a few minutes to understand it makes a difference. You can even throw it all into a nicely organized Excel spreadsheet as I did for your viewing pleasure.

Last year I complained a bit about the cost of this plan. This year, I tried to stick to the specs. I still think the fact that these total premiums cost almost double what it cost for us to put a roof over our heads for the entire year is a bit obnoxious. This also represents 44% of our entire 2019 spending on regular life. There are people out there that make less than this for an entire year of work. But I digress. Ultimately, I am thankful to have health insurance.

The specs of my plan are relatively simple to understand, but unfortunately, that is not always the case. Some plans are extremely confusing, so I tend to focus on my premium liability and total max out-of-pocket for the entire year. This gives me a good feel for my worst-case out-of-pocket risk for the calendar year.

$6,600 (max out-of-pocket) + $4,950 (employee premiums) – $600 H.S.A. match = $10,950

Fortunately, we have not had any medical expenses so far in 2020. Hopefully, we can keep it that way.

What’s the total ticket price for your medical insurance premiums?

*I very lightly rounded my total premium figures in an effort to stay anonymous.

The post 2020 Insurance Premiums – My $22,450 Health Insurance Plan appeared first on Max Out of Pocket.

Things started ramping up this week even more than they were last week. Employees at my work are cleared daily now through a questionnaire that asks about various symptoms and activities. We even take our temperature every morning with one of those fancy infrared forehead thermometers. They are really cool and I enjoy screening people.

Every day, more and more “systems” and “processes” are being put in place to help us open the faucet while keeping everyone safe. It is encouraging.

Max’s Back Pocket

Over the last several years, I have absorbed a ton of great content from a lot of talented people in and around the internet. Several of those ideas even got drawn into my personal finance strategy. Some of these writers are professionals, but a lot of them are just amateurs throwing their weight around in a random niche. I like to think I am pretty good at healthcare and personal finance, but there are plenty of people out there much smarter than me.

Up until now, most of these ideas just landed in my back pocket. There they would sit for my own benefit whenever I needed them. They were rarely shared or exchanged with anyone in my personal network. These days, that is no longer the case. Max will start scouring the entire internet for these ideas in a weekly effort to not only spread but recognize the wealth of knowledge that is out there. This weekly check-in will also give me an excuse to catch up on what’s going on around here more often. What are we calling this idiomatic experiment?

Max’s Back Pocket.

Personal Finance

Not much going on in our personal finance lives these days. I forgot to mention that we got our stimulus money way back on April 14th.

Interestingly, our total expenses for April came in at a record low $2,600. That means the stimulus technically covered about 92% of our living expenses in April.

We were not too creative with our stimulus money. But the folks over at All Options Considered know we’re in this together and used their money to help others. Knowing they didn’t need the money, they started giving it away way back in March before the money even hit their account. Pretty awesome.

Apparently, Twitter has a hashtag dedicated to this at #shareyourcheck. Look at that, I’m getting so much better with Twitter.

Here at Max Out of Pocket, I completed the series discussing how the passive income from my medical office building portfolio is getting taxed.

• Tax Treatment Of My REIT Dividends Part 1
• Tax Treatment Of My REIT Dividends Part 2: Non-Dividend Distributions

Healthcare

Speaking of stimulus checks, residents in nursing homes will likely qualify for checks as well. Nursing facilities and families will need to know what to do with the checks when they get them. Is there a risk this stimulus money will put a nursing home resident over the income/asset limit for Medicaid?

Medicaid can be a tricky program to navigate for families of residents living in nursing homes. A lot of state Medicaid programs don’t allow residents to have over $2,500 in assets and still qualify for the Medicaid program. Thankfully, the American Council on Aging put together a nice write-up of how this will work.

Here is the bottom line:

Stimulus checks will not be counted as income and therefore will not impact Medicaid beneficiaries or applicants. However, should the stimulus money not be spent within 12 months, it may be counted as an asset, and therefore could impact eligibility in the year ahead.

Stimulus Check Impact for Medicaid Beneficiaries

This isn’t a green light for the nursing home or assisted living facility to keep it either. The checks should probably just be deposited into their personal needs account and encourage the resident to spend it within the 12 month time period. Maybe they could get a nice new TV for their room?

We have a lot to learn about long term care (LTC) planning here at Max Out of Pocket. I’ve had the pleasure of doing some side projects for a nursing home tied to our health system and have learned a ton about how it works. Frankly, there is a lot to plan around this and it’s just another example of healthcare intersecting personal finance.

Life

On a personal level, I have been thinking for years now that I would eventually go out on my own and start my own healthcare consulting business. It would be a one-man shop. That said, it is just so much easier to work for a W2 employer who provides solid pay and benefits. My main goal for a transition like that would be to build in some additional flexibility into my life.

Thankfully, Dragon Guy started mapping this process out with Contract Work In Early Retirement – Part One: Negotiations. He was lucky enough to dip his toe into this world very quickly after pulling the plug from his W2 employer. It sounds like he learned a lot from the process. Maybe I will get there someday.

I think we are finally getting to warmer weather. Last weekend may have been our last “winter” hike of the year. We got back up to the mountains and there was still a ton of snow on the ground. Maybe this weekend will be our first “spring” hike.

How was your week?

The post Max’s Back Pocket Vol. XI appeared first on Max Out of Pocket.

I also recently documented how much cash I keep in my pocket. Since that decision was a function of our 2019 expenses, I thought I would make sure things are still in line.

In my early days of personal finance, I would pretty much check in on our expenses monthly. I wasn’t getting as much value from it in 2019, so I backed off going through this process as often so I could focus on other things.

I am a big fan of going through this process manually. It probably takes me 30-60 minutes. There are plenty of personal finance bloggers out there who swear by Mint or Personal Capital for expense tracking. Automation is great if you understand what you are automating. I download our transaction history from our Fidelity credit card into Excel and self-categorize everything manually. There is definitely value in doing this the long way, particularly early on in our understanding of personal finance. I am probably far along enough in personal finance mastery where automating might make some sense. I suppose part of me is still old school.

So what’s the damage? From January – March 2020 the Max Out of Pocket Crew saw $10,941 leave our pockets.

Annualizing Expenses

As I like to say, some might look at this and think we are slumming it. Others might say we have a spending problem on our hands. Max, I am more than comfortable where things are. We live a good life and that’s what makes personal finance ‘personal’.

Making some small adjustments, if we hold this trend, we will come in at $41,365 for the year.

If you don’t know how to annualize your expenses, don’t sweat it. You basically take the total expenses to date, divide it by the number of months, and multiply it by 12.

For example, our rent. Annualizing this out, I can project we will spend about $12,000 on rent assuming all things stay the same.

$3000 / 3 months = $1000

$1000 X 12 month = $12,000

I made a small adjustment to utilities because we had a $700 tank of oil delivered in February. It doesn’t make sense to annualize that because we probably won’t get another delivery in 2020.

Housing

Housing is holding tight at $1,000 a month. This comes in at $3,000 for the first three months of 2020. This represents a whopping 27% of our entire spending for the quarter. I suppose having a place to live and sleep is important and probably not something we are looking to cut back on.

Our rent has been flat since we moved to New England back in 2017. Thinking about it, if I take my “half” of the rent, I am paying what I was paying way back in 2006 to rent a room in Nashville, TN. When I started my first job out of college, I was still paying $500/month way back then. Hard to believe I have been able to hold this expense flat for so long.

We currently live in a modest house nestled in the mountains. We have a babbling brook behind our house. It is a pretty amazing setup.

Food and Dining

We spent another $2,736 on food and dining. This includes things like eating out, groceries, shampoo, cotton, toothpaste, and alcohol. I don’t itemize this or anything so if Mrs. Max OOP happens to slip in her favorite movie into the cart while we are at Walmart, it probably accidentally gets counted as a grocery. Overall, this is about 25% of our spending from January through March. We beefed up (no pun intended) our grocery bill in March in response to the pandemic. We didn’t go crazy or anything, just a heavier inventory of food in the house. Our deep freezer purchase from 2019 certainly came in handy.

About $500 of this was spent at restaurants and coffee shops. This will drop to $0.00 in April due to the pandemic. This is a number I like to watch closely and a category most families in America struggle with. For us, it includes things like ordering a drink at a pub, dinner, fast food (rare), or anything like that. We are not afraid to spend money on a nice meal; we spent $84.00 on a lunch (and drinks) while we were skiing one weekend in early March.

Annualized, this will come in at $10,944 which is over $1,000 less than where we ended 2019. I’ll tell you, after April we will be looking even better.

Utilities

Utilities include things like electric, oil, internet, cell phones, and our Netflix subscription. This category came in at $1,572 and is inflated because we had a $716 oil delivery in February. Unfortunately, we use oil to heat our poorly insulated rental house and it is expensive. This oil fee only hits a few times per year so I excluded some of it in the annualization of our utility expenses.

Everything else looks pretty good except we are still overpaying for the internet. Electric should start coming down in April since we are no longer using the space heater to keep our bedroom warm at night.

Auto & Transport

As I mentioned in my 2019 update, this is an area we do really well in. Our only expense here was gas and that came in at $359 for the quarter. I will say, April is shaping up to be a $0.00 gas month since Mrs. Max OOP is teaching from home and my commute is less than 2.5 miles. I do think I have an auto insurance bill coming from Geico that will probably run me about $300 for both vehicles.

Miscellaneous

Last but not least, the dreaded miscellaneous category. This came in at $3,274. Frankly, 58% of that was spent on our two cats. Charlotte is sick and ran up $1,593 in vet and prescription bills. I suppose it is worth keeping her around, though. She is often sitting right next to me when I write these posts, as she is now. In theory, I hate cats and I am probably seriously risking my credibility by posting yet another photo of this cat. I guess she has grown on me over the years.

Mrs. Max OOP also spent about $191 on a new United States passport now that she is officially a US citizen. Hopefully, the last expense associated with that process.

Like I did with my 2019 update, I am going to do a rapid-fire 80/20 rule to make sure I understand where at least 80% of our miscellaneous expenses went.

• $1,593 for the cat’s food, litter, and vet bill. Ouch.
• $326 for more dental work for me and this will technically be paid from my HSA. I should be all set for awhile.
• $191 on Mrs. Max OOP’s new United States passport.
• $140 for Turbo Tax.
• $135 on the blog – renewal fees (I take donations).
• $113 gifts for family.
• $100 cash withdrawals from ATM – no idea where this money went, I don’t think it has been spent yet.
• $96 from the gym, technically offset by my healthy benefits.
• $60 for a secret project Mrs. Max OOP is working on.
• $46 for our PO Box renewal.
• $42 for Mrs. Max OOP’s hair cut.

This covers 87% of this category for January – March.

$2,842 / $3,274 = 87%

Healthcare

How can a blog called Max Out of Pocket just ignore healthcare premiums? I prefer to tackle those on their own since there are so many moving parts to them. My current costs don’t reflect how my costs would look if I wasn’t employed. Last year, my plan was valued at $21,564. There are also FICA considerations when we buy things off a cafeteria plan.

So once again, I am keeping my employer-sponsored healthcare premiums out of this calculation. I pay $191.24 per pay period for health insurance and through March there have been seven pay periods. This comes out to $1,339 in premiums. By the end of the year, I will pay exactly $4,972 for our portion of the health insurance.

After throwing Mrs. Max OOP off the dental in 2019, I put her back on the plan for 2020. We have paid $26.18 per pay period for that coming in at $183 through March. That will run us exactly $680.68 in 2020.

Final Thoughts

Even with a sick cat, for the first 3 months of 2020 we are coming in light on expenses compared to 2019. Annualized, I am projecting about $10,000 less in expenses in 2020 as compared to 2019. With the pandemic shutdown really ramping up in April, I expect that gap to grow. Thankfully, so far our W2 income has been steady despite layoffs and pay cuts across the country. Not everyone is so lucky.

$51,436 (2019 Expense) – $41,365 (2020 Annualized) = $10,071

Does that mean I can reduce my cash allocation down from $51,436? Not so fast. Three months isn’t a trend. I have also not addressed a move like that in my “investor policy statement” yet, a document I am still drafting up. I need to have rules in place before I make adjustments to things. So I will hold onto my $51,436 VMMXX allocation as is.

We do have some planned expenses for the latter part of the year related to a top-secret project Mrs. OOP is working on. That project would likely take place in Canada. With that, there will be some income reductions to allow her to focus on it for a few months. She may make up some of that income over the summer, but there are too many unknowns to justify reducing our cash allocation yet. So we will hold tight, and see what the next few months bring.

How are your first few months of 2020 coming?

The post Max Out of Pocket’s Q1 2020 Spending appeared first on Max Out of Pocket.

But I am doing my best to stay on top of what’s going on with out-of-pocket costs related to COVID-19. I mentioned last week that Medicare and several large medical insurance commercial carriers had already stepped up to cover the COVID-19 lab test free of charge. If you were wondering, providers will receive about $51.31 from Medicare for the non-CDC lab test (U0002). Commercial insurance companies will likely pay much more. Yes, even in times like this, everything has a price tag. Then again, at least beneficiaries won’t foot any of the bill.

But last week, the president signed a new bill into law that, among many other things, specifically addresses out-of-pockets costs related to the test. It codifies what was already happening and makes it the law. To a certain degree, it went even further than just the lab test. But there is no doubt that this still falls short of mandating coverage for therapeutic services for COVID-19 (treatment). The bill mandates all payer sources (including government payers) to cover the COVID-19 lab test for free, and in some instances gets into some specifics on how this will be operationalized (particularly for Medicare). It even put in some protections for the uninsured. 

But today we are only going to look at the implications for commercial medical insurers. I suppose Max is being a little selfish by only looking out for himself in the event he needs a COVID-19 lab test. That, and I only have so much bandwidth.

With that, let’s drill down in this bill and see what’s in it. I am going to zero in on one section of it; the part where it talks about commercial insurance (including grandfathered plans) offering individual and group insurance.

Division F – Health Provisions

It all goes down in Division F. They title it “Health Provisions”. I would have probably called it “Max Out of Pocket Provisions,” but that’s me. This division directs all payers how to handle out-of-pocket costs for COVID-19 testing.

The first section, Section 6001, talks about coverage of testing for COVID-19. This speaks specifically for group and individual health insurance plans and even includes those grandfathered in by the Affordable Care Act.

The “Who” and the “What We Want Them To Do”

“In General.—A group health plan and a health insurance issuer offering group or individual health insurance coverage (including a grandfathered health plan (as defined in section 1251(e) of the Patient Protection and Affordable Care Act)) shall provide coverage, and shall not impose any cost sharing (including deductibles, copayments, and coinsurance) requirements or prior authorization or other medical management requirements, for the following items and services furnished during any portion of the emergency period defined in paragraph (1)(B) of section 1135(g) of the Social Security Act (42 U.S.C. 1320b–5(g)) beginning on or after the date of the enactment of this Act:

H.R.6201 – Families First Coronavirus Response Act

This paragraph is setting up the “who” and the “what we want them to do”. I usually take out several of the words and narrow it down so the Average Joe Max like myself can actually understand it. Max’s simplified interpretation goes something like this:

A specific group of payers shall provide coverage with no out-of-pocket costs for the following services:

I have personally seen the government get in trouble before in other areas of healthcare for using “shall” and not “must”, but that’s a story for another day.

Okay, What Services?

So I understand who we are talking about and what we want them to do. But what services are they mandating coverage for? In this part, they call out two specific things. First, it touches on the COVID-19 lab test itself. Then, it looks at items and services furnished in conjunction with the test.

In vitro diagnostic products (as defined in section 809.3(a) of title 21, Code of Federal Regulations) for the detection of SARS–CoV–2 or the diagnosis of the virus that causes COVID–19 that are approved, cleared, or authorized under section 510(k), 513, 515 or 564 of the Federal Food, Drug, and Cosmetic Act, and the administration of such in vitro diagnostic products.

H.R.6201 – Families First Coronavirus Response Act

Max’s interpretation:

Both the administration of a legit COVID-19 lab test and the lab test itself is free when used to see if an individual has COVID-19.

Oh, but wait, there’s more. I bolded a few things for emphasis.

(2) Items and services furnished to an individual during health care provider office visits (which term in this paragraph includes in-person visits and telehealth visits), urgent care center visits, and emergency room visits that result in an order for or administration of an in vitro diagnostic product described in paragraph (1), but only to the extent such items and services relate to the furnishing or administration of such product or to the evaluation of such individual for purposes of determining the need of such individual for such product.

H.R.6201 – Families First Coronavirus Response Act

So this is where things get a bit confusing but I think we can handle it.

Max’s interpretation:

You only have to cover these “other” services if a free COVID-19 lab test is ordered during the encounter and those services are related to the giving of the free COVID-19 lab test or evaluating the patient to see if the free COVID-19 test was warranted in the first place.

So What Does This Mean?

My interpretation is a COVID-19 lab has to be ordered to trigger out-of-pocket costs to be waived. In other words, if we show up to the emergency room and don’t meet the guidelines to warrant a COVID-19 lab test (maybe we have the regular flu), we are still on the hook for out-of-pocket costs.

I think the government is trying to direct payers to only cover the lab test, services related to the lab test, and evaluation and management costs that come along with seeing if an individual needed the test in the first place. But a provider must order a test to trigger the out-of-pocket costs waived. They are clearly not requiring payers to cover anything else outside lab test and services that come with it. Therapeutic services are not on the table here.

It also seems like if other services provided are unrelated to the COVID-19 lab test, they will hit deductibles and co-payments as usual. So if I get another issue addressed (let’s say a broken leg) during the same encounter I get tested for COVID-19, the broken leg services will be carved out and hit my deductible and other out-of-pocket costs accordingly.

Final Thoughts

Just like Colonel Jessep ordered the code red in A Few Good Men, we need an order to waive COIVID-19 out-of-pocket costs.

But Max is not a lawyer. But I sometimes like to pretend I am Lt. Kaffee. Through this little analysis of the H.R.6201 – Families First Coronavirus Response Act, I think we have some clarity on where we sit with COVID-19 out-of-pocket costs as they relate to the medical insurance industry. We need an order for the COVID-19 lab test to waive out-of-pocket costs.

Frankly, I have not fully developed my opinion on how out-of-pocket costs should be handled for COVID-19 services. I know, it is hard to believe the mind behind a blog called “Max Out of Pocket” isn’t clear on the best course of action here. But this stuff is complicated. Ultimately, part of the idea of this blog was to help me get some clarity on my healthcare views.

I like the idea of covering the tests and the evaluation and management of an individual to see if they need the test even if it is not ordered. It removes a barrier for a patient who may be infected from getting checked out. The other side may argue it has the potential to flood emergency rooms with a bunch of Americans demanding their “free test” when they really don’t need to be there.

Trust, I am concerned about the potential tsunami of out-of-pocket costs that might be coming, particularly for our seniors. But as for a blanket waiver for all out-of-pocket costs, I don’t think I am there yet. We likely need a funding source to help people who are out of work and can’t afford their out-of-pocket commitments, but not everyone is in that boat.

What are your thoughts on this first step in mandating coverage of the COVID-19 lab test with no out-of-pocket costs to the patient? Where should we go from here?

Also, just another reminder Max is not an attorney. I am bound to get things wrong from time to time. If you are an attorney and want to correct anything here, feel free to call me out in the comments.

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So let’s get right to it.

In 2020, the Medicare Part B premiums for most beneficiaries will increase to $144.60 per month. This is a 6.7% increase ($9.10/month) from where we were in 2019. The total annual premium is $1,735.

According to the Centers for Medicare and Medicaid Services, approximately 10,000 people are signing up for Medicare every day. With that many people signing up daily, I would think the out-of-pocket premiums tied to this program would be a hot topic. 

We already touched on the “premium-free” Medicare Part A program. Most of us get Part A coverage by paying our Medicare FICA taxes for 10 years. That program covers the inpatient/hospice services we might need when we hit age 65. But what if we need outpatient or physician services? How do we get those services covered during traditional retirement?

We need to get Medicare Part B coverage to help us take care of those services. Unfortunately, Medicare Part B coverage comes at a cost.  

What is Medicare Part B?

The Medicare card calls Part B coverage “medical” coverage. But that is a very broad definition.

In general terms, I like to think of Medicare Part B as the piece of the Medicare program that covers services provided on an outpatient basis. This includes things like clinic visits, laboratory testing, home health care, and ambulance services. It even covers more intensive services provided on an outpatient basis like surgeries, diagnostic imaging, chemotherapy, and radiation therapy. Even if these services are provided in the hospital setting, if it is an outpatient service, generally, Medicare Part B will be responsible for covering the service.

I dropped “generally” a few times up there for a reason. Medical necessity and other rules governed by the Centers for Medicare and Medicaid (CMS) can cause reason for non-coverage. These are things we couldn’t possibly cover in one blog post (or even one blog), so let’s keep that in mind.

I do need to go ahead and call one thing out here, though. If we are in the hospital in an observation status, those services are considered outpatient Part B services. If a qualified practitioner does not order us “inpatient”, Medicare Part B is paying for those services, not Medicare Part A. It needs to be medically necessary for us to be ordered as an inpatient for Medicare Part A to cover the hospital stay. This impacts our out-of-pocket costs and I will discuss it exhaustively in a later post because it is a huge point of confusion.

This all may sound a bit vague, but Medicare is even fuzzier on what Medicare Part B covers when you check it out on their website.

What are Medicare Part B Premiums?

Medicare beneficiaries must pay a monthly premium to keep their Medicare Part B coverage active. As mentioned above, in 2020 this monthly premium is $144.60 for most beneficiaries. This comes out to $1,735.20 annually. If 10,000 people are really signing up per day, that’s over 17 million dollars getting added to the annual premium pool every single day.

10,000 people per day X $1,735 annual premiums = $17,352,000

I say “most” beneficiaries pay $144.60/month because Medicare tiers the premium responsibility based on income ranges. In other words, if we make more money, we are going to have to shell out more for Medicare Part B coverage. I took the table below directly from the Medicare website.

Side note: Did you know you can pay down Medicare Part B premiums with a Health Savings Account? Check out the guest post I did over at Physician on Fire on a Medicare Part B premium drawdown strategy. 

Don’t Be Late to the Party

Medicare Part B is technically optional, but it also comes with some stiff penalties for not signing up on time. Most people become eligible for Medicare Part B at the age of 65. Medicare doesn’t like it if we don’t sign up when we become eligible.   

Our monthly premium can go up by 10% for each 12-month period we could have been covered. So if you forget to sign up for 3 years and don’t meet one of the exemptions for being late, we are looking at a 30% penalty.

In 2020, that mistake could cost us over $500.

$1,735.20 X 30% late enrollment penalty = $520.56

There are of course confusing loopholes and waivers around this penalty, but be careful with it and make sure you understand enrollment requirements. Particularly, if you are still working at 65 and eligible for an employer’s health plan, make sure you understand the rules.

How is Medicare Part B Funded?

You might remember this chart from when we looked at Medicare Part A. It is based on 2018 data. Unlike Medicare Part A, which is mostly funded from payroll taxes, Medicare Part B is heavily funded (26%) with the premiums we pay into the program. Another 72% comes from “general revenue” funding. Not exactly sure what that means, but my guess is we are talking individual and corporate income tax revenue here.

KFF suggests that Medicare Part B does not have the financing challenges we see with Medicare Part A. This is because it is funded by beneficiary premiums and general revenues. Evidently, these are set annually to match projected outlays (claim expenses for medical services provided). 

Take-Home

Once we hit 65, Medicare wants us on their rolls. So much so that they will penalize us if we don’t enroll timely. I think their goal is probably three-fold; collect premium dollars, make sure no one accidentally goes without coverage, and make sure everyone is paying their fair share. The penalty for not enrolling in some ways reminds me of the penalty the ACA tried to enforce as a tax for not having insurance.

In 2020, between our premium-free Medicare Part A coverage and our Medicare Part B premiums, we have covered a good chunk of our health insurance needs for only $1,735 annually. That certainly beats the $20,000 in premiums my employer and I are shelling out in 2020 for my commercial medical insurance.

That said, my commercial insurance comes with prescription drug coverage and we haven’t covered that piece of the Medicare program yet (Medicare Part D). Also, my plan comes with a $6,600 max out-of-pocket and unlimited coverage for medically necessary care. The Medicare program does not have a max out-of-pocket protection or unlimited coverage. This is something I plan to discuss extensively here on the blog in the future. It is also something to consider before we go marching into a “Medicare-for-all” scenario. And no, I am not talking politics here, just Medicare.

The everchanging Medicare program has more moving parts to it than any program I have ever worked with. Make sure you do your own research and understand the program’s rules. This blog is not responsible for your decision to sign up or if you were to sign up late. See my disclaimer page if you have questions. 

The post How Much are Medicare Part B Premiums in 2020? appeared first on Max Out of Pocket.

It has been a while since I’ve done one of these little updates here at Max Out of Pocket. That’s not to say we haven’t had a lot going on. The last time I did this I was writing about leaf-peepers descending on our town and now we are knee-deep in the snow writing about a new American citizen. I was planning on trying to keep up with these updates monthly for about a year, but the last two months just got away from me. We spent a good chunk of November down in Ecuador, so there wasn’t much more to update there. Then suddenly, it was the holidays. Now somehow, we are already in February.

We ended up spending Christmas in Saratoga Springs, New York. Mrs. Max OOP’s sister lives down that way and bought their first house over the summer. So, this was their first Christmas in the new house. We spent about a week with them and Mrs. Max OOP’s mom also joined us from New Brunswick. Their children had a wonderful Christmas and it reminded me of when I was a kid. After that trip, we were on to January and the roaring ’20s.

American Woman

As I mentioned, probably the biggest thing going on in January was an update on Mrs. Max OOP’s citizenship status. Long time readers probably know she was born in Australia and raised in Canada. So, she has been holding citizenship for both of those countries for some time. She has now added a third country to the mix: America. We went to the ceremony at the federal court on January 17^th where she was sworn in. It was really nice and there were 65 people getting sworn in from 37 different countries. Pretty amazing stuff here.

So after more than a decade of living in the United States, Mrs. Max OOP has finally been sworn in as an American citizen. Years of spending time and money worrying about the next visa opportunity are officially over. We were finally able to secure her “permanent residency” back in November of 2016. This was a big step on the road to citizenship and cost a few thousand dollars. Once someone becomes a “permanent resident” they must wait for 3 – 5 years to apply for citizenship. Since she was going through naturalization through marriage, we only had to wait 3 years. 

The tail end of this citizenship process was incredibly organized. A lot of the communication and scheduling with the government was handled through an online portal. We could upload documents directly to the portal or review letters sent to us via snail mail right online. I did not need to be nearly as involved in this process since I already went through the screening when I sponsored her for the green card back in 2016.

Out-of-pocket cost for this last part of the citizenship process was about $750.00

Flexibility Comes With Being American

There are a ton of benefits to all of this, but our main interest was flexibility.

Mrs. Max OOP has been paying into the US tax system for over 10 years. This includes Social Security and Medicare payroll taxes. Although she likely would have access to some of those benefits even without citizenship, this move will all but guarantee her access to those benefits when she becomes eligible. That’s even if we were to relocate out of the country.

This gives us the opportunity for healthcare geo-arbitrage should we ever need it. This is something I plan to cover in detail here on the blog at some point. Since Mrs. Max OOP technically retains her Canadian citizenship, if she were to return to Canada for 90 days, my understanding is she would become eligible for the Canadian healthcare coverage again. In the event of a serious illness, she could move to Canada and secure healthcare without having to worry about losing permanent residency here in the United States. That’s not to mention she would avoid dealing with the twists and turns of the American healthcare system.

Lastly, we could now easily move to Canada at any time and we would not lose any progress on the citizenship process. Relocation to Canada is an idea we have been tossing around for years for a multitude of non-political reasons. Now that American citizenship has been finalized, that is one less thing holding us back from moving to Canada. This is likely a few years out since my skill set isn’t as marketable in the great white north.

Work

Both of our jobs are still going well. Mrs. Max OOP continues to dabble in early retirement with her part-time teaching gig (0.6 of an FTE) which continues to offer flexibility and the opportunity to explore other things. Unfortunately, her afternoon side hustle came to a screeching halt for reasons outside of her control. But the timing of that couldn’t have been better considering everything we have had going on.

I am still grinding things out at my full-time job but enjoying several of the projects I have been working on. I have even popped in to work the last few Sundays of January to try and close out a few things. Haven’t done that in several years. As I mentioned back in November, I am probably more engaged and motivated with my job than I have been in quite some time. This timing is great too and I will likely cash-flow my W2 job for all of 2020.

Play

Ski season is among us. Mrs. Max OOP and I joined a 10-week race series this year and are through week 5 already. We are total amateurs but really enjoying the races. Every Wednesday, we go down to the ski resort and check-in at the lift. It is only about 5-minutes from our house. We then take two runs and our best time is recorded for the competition. Then, we join everyone down in the lodge for drinks and raffles. Our results are posted in the paper the next day. Lots of fun, and another healthy benefit of being employed. My employer sponsors me for this event so there is $0.00 out-of-pocket cost on my end.

We are also in the midst of a 30-day plank challenge. The goal is to slowly increase our plank time until we hit 5-minutes on the last day of the challenge. We have both made it to 3 minutes and 30 seconds and only have 5 days to go. It is going to be difficult and a few of our family members have dropped out.

Healthcare

With a fresh new 2020 deductible and annual max out-of-pocket, we were both able to stay out of the healthcare system in January. Our out-of-pocket costs came in at $0.00. That said, I am scheduled to have some more minor dental work done in February that will certainly cost me. After saving $300 in 2019 by opting Mrs. Max OOP out of my dental insurance, we put her back on the insurance for 2020 to check in on things. Her first cleaning will be in February.

Unfortunately, I can’t say the same things for one of our cats. We were bummed to find out our cat Charlotte has something going on with her jaw/cheek. We took her in to the veterinarian and they seem to think it is likely bone cancer or an infection, but they are probably going to have a specialist have a look. She seems herself all around except for some swelling on the left side of her face. We are being told it is pretty serious but are hoping for the best. She is such a friendly and happy cat so we are very sad about this whole thing.

Personal Finance

My healthcare REIT portfolio eclipsed $50,000 and I couldn’t be happier about it. I invested $1,000 into GMRE on 2/3/2020 even though that stock has been rising quickly. I am probably going to keep my dollar-cost averaging amounts down a bit while the prices are high. Even though I know I can’t beat the market and most of my portfolio is in the total stock market index, I am still enjoying this new hobby.

Our total net worth was up another 2.76% in November, 2.63% in December, and 3.89% in January. This includes investment returns and cash flow from our W2 jobs. Not too shabby. I am not front-loading my 403(b) this year so a lot of our W2 earnings are being dumped into a taxable brokerage account. About 3% of my income is going into my new Roth 403(b) account. The 3% match I get still hits my tax-deferred 403(b).

I am 3 or 4 months behind on tracking our expenses, so I plan to get that caught up very soon to see if we have any unexpected leakage or lifestyle inflation. I am sure a fancy trip to the Galapagos Islands didn’t help the numbers, but we aren’t afraid to spend money on the things we like.

My 2008 Honda Odyssey broke 200,000 miles in January, so I may be in the market for a new vehicle later in 2020. I bought it four years ago with 175,000 miles on it for about $7,000 from a colleague at at my old job.

Blog Update & Final Thoughts

I like these updates because it helps me review where we are spending our time and money and make sure it is lined up with our goals. We are looking forward to 2020 and have a lot more we want to accomplish. As of now, we don’t have any travel plans in the works and that is something we need to correct. We have also kicked around the idea of relocating again for other opportunities both professionally and to better line up Mrs. Max OOP’s side projects.

I have a couple of guest posts scheduled for February so hopefully we see an uptick in traffic and more people can see some of the work I am doing here at Max Out of Pocket. It is hard to believe I started this little blog project almost a year ago. I have learned a lot but generally still feel pretty green to this new blogging world. I have found a few other resources I have been enjoying:

• Unlike me, Kim over at The Frugal Engineers is actually keeping up with her monthly expenses. Her family spent $224 on healthcare in January. She includes her gym membership in the healthcare category which makes a lot of sense to me. I also love that they are pricing out healthcare services before purchasing them.
• The Healthcare Giants podcast has been great for road trips – lots of good audio content over there. I really enjoyed the episode with Dr. Josh Luke that was published on December 2nd.
• Dave over at Accidental FIRE published a nice map showing how many citizens in each state are on the Medicaid program. New York has over 33% of its population on the Medicaid program in September of 2019. Way more than I would have guessed.

Happy 2020.

– Max

The post Max Out of Pocket – January appeared first on Max Out of Pocket.

That’s not to say I haven’t been busy behind the scenes dollar-cost averaging into my new favorite healthcare REIT. Since then, I have purchased over 300 shares of Global Medical REIT Inc. The total value of the Max Out of Pocket REIT portfolio is just over $43,000 and set to pay out over $2,000 in dividends over the next year.

Well, there was a pretty significant price run-up on Global Medical REIT Inc. (GMRE) since I made that case for diversification. I paid $11.85 for that initial position and the stock price increased all the way up to $14.13 by market closing 12/10/2019. That is a 20% gain in just over a month. We call that accidental timing. Max is good, but not that good.   

Common Stock Offering – Dilution

That price run-up all ended for GMRE last week when we saw a 7.9% stock price reduction in one day.

Global Medical REIT decided to do an upsized offering of common stock to the tune of 6 million shares at a price of $13 per share. The gross proceeds from this offering were about $78 million. That event diluted my ownership in the company because new shares were issued, reducing the value of the shares I have been accumulating. 

Since this is a long-term investment for the Max Out of Pocket medical office building portfolio, I am really not too concerned with this event. If anything, I am happy with the timing because they were able to raise a decent chunk of capital at elevated stock prices. It also might give me a chance to lock in more shares with a higher yield going forward.

But the real question is do I trust my management team to deploy that $78 million in capital strategically to make me money in the long run. Their relatively short history suggests they will.

Capitalization Rates

Before we dig too much more into GMRE, we get to learn something new today at Max Out of Pocket. Capitalization rates. We can call them “cap rates” for short. The cap rate metric helps us analyze and determine the potential annual rate of return for a particular property in a REIT portfolio. 

So let’s formally define the cap rate. Generally, the cap rate for a property a REIT owns is the net operating income of a particular property divided by the current market value of that property.

CAP Rate = Net Operating Income / Current Market Value

Net operating income (NOI) is a little different than regular income. It is a before-tax figure that excludes interest payments on loans, capital expenditures, depreciation, and amortization. We could spend some time on NOI, but I am going to leave it at that.

The current market value is the amount of money the property might sell for in the open market today.

Divide these two and we have our cap rate.

Global Medical REIT Inc Q3 Conference Call

I listened in on several of GMRE’s conference calls before I officially became an investor with the company. My first earning conference call as an actual investor occurred 11/7/2019 for the quarter ending 9/30/2019.

GMRE is a much smaller company than my portfolio’s core position, Physicians Realty Trust (DOC). But the company has been staying very busy growing. They acquired seven properties in the third quarter of 2019 alone. These properties had an average weighted cap rate of 7.7%. These are higher cap rates than we are seeing over at DOC where they were running between 5-6% on Q3 purchases. The total purchase price for the properties GMRE purchased was about 66.1 million dollars.

One of those properties was in Livonia, Michigan and tied into Mission Health. That building cost $10.5 million and has a cap rate of 8.1%. This happens to be a market Max is relatively familiar with. The NOI/base rent is $855,000 per year.

$855,000 (NOI) / $10,500,000 (Market Value) = 8.1% Cap Rate 

Through the Q& A, the management team made it very clear they are aiming to stay in that mid 7% cap range for the foreseeable future. 

In other words, GRME is in a growth phase. With the $78 million stock offering referenced above, they could potentially acquire seven more buildings with similar cap rates. This could continue to grow the income stream and increase funds from operations (FFO). According to the press release mentioned above, the management team plans to use the $78 million in proceeds from the stock offering to repay a portion of outstanding indebtedness, fund acquisitions, and for other general corporate purposes.

GMRE’s Medical Office Building Portfolio

As of 9/30/2019, GMRE has 101 buildings with a total of 84 different tenants. They are one of the few healthcare REITs that are 100% leased. Their asset portfolio has grown from $124.8 million to $830.4 million as of 9/30/2019.

There are several things that make GRME different than DOC, but one of the key differentiators is that medical office buildings only represent 55.4% of their portfolio. Inpatient rehab facilities (IRF) make up 28% of their portfolio and Encompass (who is a decent player in IRF) is their largest tenant making up 10.9% of their annual base rent.

This gets the Max Out of Pocket healthcare REIT portfolio some exposure outside of the highly competitive MOB space.

Here is a look at their asset types:

Out of 131 leases, GMRE only has 3 of them expiring in 2020 and only 6 expiring in 2021.  

Sweet Spot

GMRE’s chief investment officer Alfonzo Leon mentioned the (current) sweet spot for their acquisitions is between about $7-14 million. Since they are a smaller REIT, these smaller purchases can still drive some material growth for the company. 

I was also happy to hear Mr. Leon suggest that they were being very selective on inpatient investment opportunities. The traditional Medicare program is driving as much as they can to the outpatient setting. He said the lion’s share of opportunities on the inpatient side are rehab hospitals. Although inpatient rehab hospitals have been targets of some RAC audits (in my experience), the reimbursement model for Medicare is usually pretty favorable and it will be hard to drive patients out of that setting since it is so intensive.

Like I said, Encompass Health happens to be their top tenant (10.9% of the base monthly rent) and is a big player in inpatient rehab hospitals.

Final Thoughts

I am still learning my way around Global Medical REIT Inc, but I am certainly happy with the short-term results and long-term growth opportunity. GMRE is small, but with that comes mobility and the ability to strategically grow. It also brings risk, a risk I am willing to take for the higher short term yield on my investment.

At the time of writing this the dividend yield for GMRE is back over 6% where DOC is closer to 5%. We will eventually do a side-by-side comparison of DOC and GMRE to get a better idea of how these two REITS compare.

Do you own any medical office building REITS?

The post Why Global Medical REIT Inc? appeared first on Max Out of Pocket.

Talk about a loaded question – but we are willing to try and field just about anything here at Max Out of Pocket. Pricing on insurance can vary widely from product to product. Like most other purchases, the product itself could be a Cadillac or a Pinto. Unlike most other purchases, the pricing is complex and most people don’t ever see the full price tag. Luckily, Max is here to set the record straight on what we really pay for health insurance.

Insurance Premiums

We actually haven’t covered insurance premiums here on the blog yet.

We pay for medical insurance through something called an insurance premium. Think of this as the fee to turn on your medical insurance coverage. You might recall, Max OOP likes the bucket analogy. The premium payment is paid to an insurance company that puts all the money into a giant bucket. This money is then used to help cover the cost of medical services of everyone paying into the bucket. By design, some people paying into the bucket will use more of the money than others. Some of them might not use any of the money if they have a particularly healthy year. 

Insurance companies use actuaries to try and determine the risk level of everyone dumping money into the bucket. This helps project spending and makes sure the bucket doesn’t run out of money in any given calendar year. There are some other moving parts to this, but let’s leave it at that for now. 

How Much Do You Pay, Max?

To provide medical for Mr. and Mrs. Max OOP in 2019, it will cost $21,564 in insurance premiums.

In other words, by the end of 2019, $21,564 will be dumped into our insurance company’s bucket to pay for healthcare services. I am going to continue to bold and italicize that number for effect. We are relatively healthy people in our mid-30s. 

I am not going to get too much into the specs of the plan in this post, but this is a High Deductible Health Plan (HDHP) providing family coverage for the two of us. The deductible is $3,300 and the max out-of-pocket is $6,600.  

Let me say that again, over TWENTY THOUSAND DOLLARS will be paid through 2019 to provide medical insurance for the two of us. I threw in a few capitalized letters there to drive the point home.

Comparing To Other Expenses

I am no actuary, but hopefully, I am not the only one that thinks that is an absurd and unsustainable number. It’s even worse when you compare it to some other line items in our budget. Let’s start with the big 3. These are projected expenses for the Max Out of Pocket household through the rest of 2019. We are a relatively high-income family living in a low COLA area.

• Housing: $12,000 in rent
• Auto: (gas, insurance, repairs for two paid off cars): $3,300
• Groceries: (including things like food, toothpaste, toilet paper, and a bottle of wine here and there): $6,800

Total = $22,100

So we could cover 97% of our basic annual living expenses for what it costs to insure the two of us for one year. This includes the occasional bottle of wine.

If I had this money in my own pocket, I could pay cash to buy this brand new 2019 Nissan Rogue Sport for $21,127 and still have several hundred dollars to go out and celebrate.

This is well over TWO HUNDRED THOUSAND per decade funneling into a broken system we barely use. And we haven’t even gotten to patient cost shares yet like deductibles, coinsurances, copayments and the max out-of-pocket. This doesn’t even include my dental or vision insurance; only medical health insurance. 

If I wanted to get Mrs. Max OOP a car as well, we could buy two used cars and still come in over $3,600 under budget.

So How Can I Afford $21,564 Per Year?

If I was paying $21,564 in an open market, I would be doing pain-staking research on plan options to lower my price and buy a plan that would fit my minimal needs. Who knows, maybe I would forgo insurance altogether (cut out the middle man) and buy some medical services directly off the open market or internationally through medical tourism. It seems to me that most people who make larger purchases (like maybe a car) put a decent amount of time into making sure they are getting a good price and understand what they are buying. 

Unfortunately, those pricing pressures just aren’t as strong in the medical insurance market. Part of the reason for that is most people don’t ever see the full price tag for health insurance. Like we do, they pick it up through their employer’s cafeteria plan at a discount. In other words, the full $21,564 doesn’t come out of my own pocket.

How Much Does It Really Cost Me?

In 2019, I will only pay $4,793 to the insurance company through my employer-subsidized insurance product.  

This is something I agreed to pay when I evaluated my compensation package. You might remember our stroll through the cafeteria? If I didn’t like it, I could always leave the company and see what else is on the market through other compensation packages. That said, most people don’t dig into this number too much when considering job opportunities. Salary and geography drive almost everything in the job offer decision tree. Health insurance usually isn’t a negotiable item for larger employers.

My employer will pay the remaining $16,771 to the insurance company on my behalf as an ‘employee benefit’. Not all employers will share this number with their employees. I happen to review these numbers annually.

Here is how the breakdown looks over 26 pay periods.  

If my employer would allow me to forgo insurance and take the $16,771 ‘benefit’ as salary compensation instead of the ‘benefit’, trust me, I would take it. I would take half that and figure something else out for insurance. Unfortunately, my company doesn’t allow that. I do know some employers allow a nominal cash payment in exchange for electing NOT to use the insurance benefit. It usually doesn’t come close to the annual cost they would actually pay in insurance premiums on your behalf.  

Let’s see. Assuming Max OOP works 2080 hours this year, I would get about $8.06 in additional hourly compensation tacked onto my hourly rate if I were to take these premiums as regular compensation. 

$16,771 / 2080 hours = $8.06 per hour

The Minimum Wage Worker Comparison

My employer could technically hire a minimum wage worker for $7.25 per hour, put them to work for an entire year, and their salary would come in less than it costs to provide family medical insurance to them for the entire year. If I was that minimum wage worker, I would find it insulting that a year of my efforts was not even worth what it cost to insure my family. 

$7.25 (minimum wage) X 40 hours X 52 weeks = $15,080

So it costs $6,500 more to insure me and Mrs. Max OOP than it does to pay a minimum wage worker to complete a task for an entire year. Maybe I should hire some help for the Max Out of Pocket blog?

Ungrateful For This Benefit?

Some people might call me out here. “Max, you seem a little ungrateful for the fact that your employer is picking up 78% of your insurance costs. What gives?”

I don’t really care who is paying for it.  These numbers seem to be reaching a breaking point. If I am at a business meeting in my corporate cube with five colleagues on the family insurance plan, that’s $100,000 sitting in the meeting. I have actually been to meetings with more than 50 professionals in the room – that’s a million dollars.   

Since Max considers this $16,771 as part of my compensation package, I feel like that money is coming out of my pocket. It then goes right to the insurance company for a product that faces no real pricing pressure from competition.  

Tip Of The $20,000 Iceberg

I heard Dave Chase refer to insurance premiums using an iceberg metaphor on the Creating A New Healthcare podcast (Dr. Zaav Neuwirth) several months ago. We are starting to see some of the problems above the surface like higher copayments and deductibles, but the real problem is below the surface and hidden in these premiums. They are causing wage stagnation across the board and devastating budgets in the education system. This is generally the second or third biggest cost to employers and these premiums are not sustainable. I will touch on this analogy in more depth in another post, but Dave Chase’s theory is that Millennials will fix this problem.

Perhaps this little blog will help. After all, I am technically a Millennial.

I do need to reiterate though, price comparison can quickly get complex on these insurance plans. We are just a sample size of one. For example, although it is currently just me and Mrs. Max OOP with no kids, we are still paying the same rate as if we had a full family with 2.5 kids. A lot of company insurance plans would have a slightly lower rate when it is just a spouse on the plan compared to a 4.5 person family (with a white picket fence).

Also, we haven’t even looked under the hood at the specs of this $20,000 high deductible insurance plan. I am saving that for another day. 

Final Thoughts On Health Insurance Premiums

Apparently, my free preventive annual exam really wasn’t free. Hopefully, my $20,000 in premiums helped cover the cost of this visit with my doctor.

I want to be clear here that I am not blaming my insurance company for these prices. The entire system is off balance. It used to be food, water, shelter. Now medical insurance costs more than all three of those put together for the Max Out of Pocket crew.

The result is inflated pricing and excessive costs to the employer and small businesses.  It has also turned into yet another Golden Handcuff and just another reason people think they can’t retire early or go on sabbatical. If you haven’t noticed it yet, Max finds these numbers outrageous, egregious, preposterous.

Max is speculating, but $20,000 seems like a breaking point for family coverage. People like me are going to look at this iceberg for what it’s worth and start asking questions. Meanwhile, cost shares like coinsurance, deductibles, copayments, and our overall max out-of-pocket are continuing to rise higher above the surface. 

If we are pumping this kind of money into the Healthcare system, perhaps you understand a little more about why I am interested in medical office buildings.

Max Out of Pocket for our 2019 Medical Insurance Premiums = $4,793

How much is your medical insurance?

The post Insurance Premiums – My $21,564 Medical Plan appeared first on Max Out of Pocket.

I figured why not throw down an extra $15.38 and spring for a more comprehensive look at my blood chemicals. Little did my doctor know, I already priced this particular test out before he even ordered it. I suspected he might take this approach with my annual labs. As they say, go big or go home. I get six more levels measured with this test and a closer look at how my liver is functioning. Since I like to throw back a little too much Canadian Moosehead from time to time, it might not hurt to check in on that organ.

We learned a few weeks ago about the basic metabolic panel and how much it might cost. Today, we will take a look at the comprehensive metabolic panel. I often hear it called CMP for short. This is another lab test that might be ordered during a preventive physical exam.

This falls under CPT code 80053 for all you coding experts out there.

What Is A Comprehensive Metabolic Panel?

A comprehensive metabolic panel is a lot like the basic metabolic panel. It just has a few more tests in it. Instead of looking at 8 blood chemicals we get to look at 14. I bolded the additional chemical levels we get to measure with this panel below.  

• Albumin
• Bilirubin
• Calcium
• Carbon Dioxide
• Chloride
• Creatinine
• Glucose
• Phosphatase
• Potassium
• Protein
• Sodium
• Transferase (ALT)
• Transferase (AST)
• Urea Nitrogen

Wow. Talk about comprehensive.

Just like the basic metabolic panel, this test checks the status of a person’s metabolism. This includes the health of the kidneys, blood glucose levels, and electrolytes. But the CMP goes beyond that. It checks in on liver function, and the liver is a pretty important organ.

Although it is a pretty detailed test, it does have its limitations and can sometimes produce false positives on some of the indicators causing additional testing we may or may not need. I am willing to take that risk, but it is definitely worth reviewing these options with your doctor.

The hospital lab will take my blood and use special instrumentation to get my levels on all the indicators above. It even spits out the normal reference ranges to help me and my doctor easily identify if anything looks out of sync. You can learn a little more about this test at labtestsonline.org. I have no affiliation with them.

How Much Should It Cost?

Price-wise, my comprehensive metabolic panel will come in a little higher than the basic version. That makes sense considering we are getting six more tests added to the panel. The retail price for the CMP is about $108 at the hospital I go to. This is $23 more than I would be charged for the basic version of the metabolic panel. That’s about $3.83 for each additional blood chemical.

I have personally seen charges for this test range between $90 and $275 at hospitals. The 50^th percentile price for the CMP would come in at about $190. A hospital I priced about an hour from me charges $185 for the exact same lab test I get for $108 at my local hospital.

Now if we have this drawn in a clinic and done by a reference lab, it is likely to come in at a much lower price. I would say $35 – $65 would be more reasonable in a lower-cost setting. If you have any examples of this you are willing to share, please do so in the comments below along with your geographical region.

How Much Will My Insurance Pay?

You might remember, I priced out the basic metabolic panel through my insurance and they negotiated the price down to $61.76 when done at my local hospital. I like to compare the negotiated price to the sale price you might see at T.J. Maxx.

So I also priced the CMP out with my insurance. This test comes in $15.38 higher with a negotiated rate of $77.14 when it is done in the hospital I go to. In other words, they won’t pay the full $108 retail price; they will get the test on sale for $77.14. It is always a good idea to ask for these insurance rates before having the test.

Here is a side by side look at the BMP and CMP pricing where I get services and the negotiated rate my insurance gets to pay. This is obviously a sample size of one and pricing for only my market.

How Much Will I Have To Pay?

This is where I get to say every insurance plan is different, and make sure you understand your benefits package. Since I am on a High Deductible Health Plan (HDHP), I would have to assume that this test would hit my deductible. In that case, I would have to pay the full $77.14 my insurance company negotiated this test down to.

In reality, my doctor ordered this with the Z00.00 (Encounter for general adult medical examination without abnormal findings) diagnosis code. I talked about this code when we covered the free cholesterol screening. This code triggers the insurance company to waive my deductible and pay preventative preventive services in full. So in this case, they will likely pay the $77.14 on my behalf even though they technically have no legal obligation to do so. It doesn’t work for all lab tests, but I believe my insurance considers this particular test preventive in nature. We will verify this when the claim processes.

How Much Would Medicare Pay?

I like to throw the Medicare payment amount here just to expose the gap in reimbursement. I like to say Medicare has more pricing power than Walmart. In 2019, Medicare is paying most non-rural hospitals $11.74 for the comprehensive metabolic panel. You can download this information here.

There is that “problem gap” again, we just keep seeing this trend here at Max Out of Pocket.

$77.14 (my negotiated rate) – $11.74 (Medicare rate) = $63.34 (problem gap)

Final Thoughts

The decision to have this test done is between the patient and the medical provider. If it happens to hit my deductible, I am willing to shell out the $77.14 to have this panel of 14 tests done. It is worth the money to me to make sure my levels for these blood chemicals are within normal ranges. Will I have it every year? Maybe, maybe not.

My max out-of-pocket for a comprehensive metabolic panel in 2019? About $77.14, unless my insurance pays this in full.

*This is not a recommendation to get or not get a comprehensive metabolic panel. That decision can only be made by you and your doctor. The content of this article is based on my experience and my own opinions.

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