Sunday, February 2, 2014

Health Insurance Considerations when Retiring

 "Fashion is a form of ugly so hideous that it must be changed every six months."  -attributed to Oscar Wilde

The new fashion seems to be to have a very large deductible before health insurance kicks in.

The way it works is that the policy holder pays health insurance premiums even as they pay 100% of their medical bills.  At some time in the year the sum of the billings passes a magical number ($3000-to-$6000 are common ranges) and then you start getting assistance with medical bills.

The theory behind the large deductibles is that insurance was originally reserved for "Acts of God" and other LARGE events that are difficult to anticipate.  That is, -3 sigma events.  The expectation is that the average person would handle all of their medical expenses in most years.  The insurance would kick in if you were involved in a serious accident or had a health event that put you in the hospital.  The health insurance would not be activated for what might be considered "normal-wear-and-tear".

The ERJ Family

We flipped from my medical insurance when I retired in June 2013 over to Mrs ERJ's.  We had just passed the deductible limit and were starting to get some help.

The remainder of 2013 was pretty typical but then Mrs ERJ's employer switched to the large deductible as well.  Likely we will burn through that by June 2014.

Mrs ERJ is strongly considering retiring in 2014 which would flip us to our fourth health insurance policy in two years.

The worst case scenario, which will likely happen to many, is that if a couple retires in mid-year, a year apart from each other they could find themselves stuck in 24 months of paying into deductibles and never making it to the checkered flag.

Short Duration Work

I went wandering around the web to see if there is much data on how long  full time work gigs last.  My reason for getting bumped policy-to-policy was retirement but I believe there is a large population of workers who may work full time but hop jobs on a frequent basis.

Sometimes the person stays put but the job hops out from beneath them.  I have a cousin who has been in the same job for about 10 year.  He is on his fifth employer as the work involves programming on Government contracts.  He reports to the same cubicle, same computer screen but the name on the paycheck changes.  Oh, and the benefits restart.  Under the new rule-set, it is conceivable that he could almost never see the checkered flag....even if his family's medical expenses are twice the median.


I need to stay positive.  I need to focus on the reason for insurance: Financial help for catastrophic health events.  Not triggering "help" means that we are relatively healthy.

But is sure puts a huge bite in the budget when an extra $1500 flows out of our budget in January.

I wonder if the medical establishment will see sawtooth demand where demand is lighter in the early part of the year as people conserve cash and aggressively manage their healthcare spending, and then increasing demand as more families blow through the deductible and can afford more discretionary procedures and catch up on deferred care later in the year.

Fixed Cost

A very large portion of medical costs involves the debt servicing of expensive equipment.  Uneven demand will cause both under-utilization (early in the year) and under-capacity (later in the year).  That is the worst of both worlds.

The rational thing to do would be to stagger the starting gun for the restart of the deductible period.  Two rational choices would be to use one's hire date.  Another rational choice (especially for professions like education where most hire dates are July-August) would be to stagger the start by the last two digits of one's Social Security Number.  That is, 00-24 starts January 1, 25-49 starts April 1, 50-74 starts July 1 and 75-99 starts October 1.

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