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.

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.