Author Topic: Predicting healthcare costs  (Read 2684 times)

RedmondStash

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Predicting healthcare costs
« on: March 26, 2017, 11:01:13 AM »
Initially, my FIRE projections did not include a line item for healthcare costs; I just assumed a 2.3% inflationary increase in spending across the board.

But after reading about healthcare premium increases running into the double digits for some years, and increases of up to 25% to 60% over some 5-year periods (not to mention skyrocketing prescription cost increases), I added a line item just for healthcare costs, because I'm not convinced the overall 2.3% accurately predicts the increasing costs of healthcare.

So -- when you're doing your projections -- what annual percent increase do you use for healthcare costs? Right now, I'm using 3% (to cover both premium and other healthcare cost increases), but that might be a bit low, even with the ACA not being struck down.

Also, do you think healthcare costs will continue to be a runaway freight train, or do you genuinely believe that public pressure will ultimately lead to healthcare policy that brings those cost increases down until they're in line with regular inflation?

(Moderators: If I've put this in the wrong place, feel free to move it to the right section.)

protostache

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Re: Predicting healthcare costs
« Reply #1 on: March 26, 2017, 12:13:24 PM »
Premiums have risen quite a bit in the last few years, especially this year, but that's not nearly enough data to draw any real conclusions about since it was during a major market shakeup while ACA was being fully implemented. I would suggest watching over the next few years and seeing how the markets stabilize.

BuildingFrugalHabits

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Re: Predicting healthcare costs
« Reply #2 on: March 26, 2017, 01:48:10 PM »
Honestly, this is a big barrier for FIRE and what keeps me working.  My current household budget for two people with a paid off house is currently around 30k not including any health insurance.  However, my current health insurance premiums for two including employee contributions is around 12k plus our HSA contributions of 6k so around 18k altogether which equals almost 2/3 of all other spending.  And this is for two relatively healthy 30 somethings.  The risks as I see it are inflating costs which rise faster than the COL, getting sick and having to pay additional costs beyond coverage, and getting older and having premiums increase faster than average based on age.  Not sure what the answer is other than stockpiling additional cash or moving abroad to a place where care is more affordable. 

RedmondStash

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Re: Predicting healthcare costs
« Reply #3 on: March 26, 2017, 03:03:57 PM »
The risks as I see it are inflating costs which rise faster than the COL, getting sick and having to pay additional costs beyond coverage, and getting older and having premiums increase faster than average based on age.  Not sure what the answer is other than stockpiling additional cash or moving abroad to a place where care is more affordable.

Yeah, those are pretty much my thoughts too.

I want to use an accurate FIRE number, but it's hard to set when I can't be sure that 4% of current spending predicts 4% of future spending including healthcare costs.

Khan

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Re: Predicting healthcare costs
« Reply #4 on: March 26, 2017, 07:26:15 PM »
Insurance and healthcare are a scary point, but there is a bright side when you change your frame of reference on it.

Medical/health tourism. It won't fix the costs of insurance, but with time on our side as FI people, we can explore many awesome alternatives. Timothy Ferriss did a bit on it in one of his books, I believe 4-Hour Body.

seattlecyclone

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Re: Predicting healthcare costs
« Reply #5 on: March 26, 2017, 07:35:54 PM »
As long as Obamacare or something like it remains in place, the net cost of your premiums is relatively predictable. The sticker price could go to a million bucks, but the tax credit would increase right along with it so that your net cost is a fixed percentage of your income.

MayDay

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Re: Predicting healthcare costs
« Reply #6 on: March 26, 2017, 08:14:03 PM »
It's a major hurdle for us.

We have ongoing health needs that won't go away and aren't something you can travel to a cheap place to deal with.

Right now we typically hit or deductible of not our OOPMax. Our monthly plan cost is ~1000-1500 a month, subsidized by an employer. Premiums have been inflating at above average for a good decade independent of the ACA.

We haven't settled on a precise number to budget for retirement. If anything expenses will be even higher than now with higher premiums as we age. 25,000$ a year seems reasonable now, plus 5%+ inflation every year. That's pretty insane, but I'd rather keep working to budget that than not have health care.

Bateaux

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Re: Predicting healthcare costs
« Reply #7 on: March 26, 2017, 10:18:52 PM »
I've decided to have a separate health-care FIRE account.   Unfortunately I don't have an HSA.  My deductible is just ever slightly too low.  So I'm building an amount separate from FIRE daily living expense. I've budgeted 1.5 million for my wife and I to FIRE, that's already done .  I've also decided to set aside 500k for my wife and I to fund our health care.  If it sounds like a lot, it isn't using the 4% rule that's 20k a year.  As much as I'd love to see Single Payer come to the US, I don't see it coming before I FIRE in 2019.  We have about 300k left to fully fund the health care FIRE account. 

Khan

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Re: Predicting healthcare costs
« Reply #8 on: March 27, 2017, 12:03:51 AM »
If Congress can approve some of Rand Paul's healthcare plan, HSA's would become a super-open, even more useful extra healthcare-only ROTH/tax free account that wouldn't require HDHP enrollment. FYI, if you hear movement towards Rand's plans, look them up yourself, because I did and the high end giveaways seemed a little on the high side possibly, but almost everything else about it looked great.
« Last Edit: March 27, 2017, 12:07:31 AM by Khanjar »

Altons Bobs

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Re: Predicting healthcare costs
« Reply #9 on: March 27, 2017, 12:53:27 AM »
If Congress can approve some of Rand Paul's healthcare plan, HSA's would become a super-open, even more useful extra healthcare-only ROTH/tax free account that wouldn't require HDHP enrollment. FYI, if you hear movement towards Rand's plans, look them up yourself, because I did and the high end giveaways seemed a little on the high side possibly, but almost everything else about it looked great.

I don't like his plan at all. He's preaching to have cross stateline insurance buying. You know where that will lead?  All the insurers will go to the most lenient state, and they will just jack up the price, we will have no choice but to buy from that one state.  Look at where credit card companies are at right now, insurance companies will do the same if that happens.

Pool people together to buy insurance? That's called illegal today, but more power to him if he can make it a law. This will implode eventually. Initially you get healthy people to pool together to buy insurance, and then as people get sick, the premium will go up, only leaving unhealthy people in the pool. What happens then? Premium will skyrocket and where do the unhealthy people go? The healthy people don't want to be pooled together with them.

HSA for all plans? Sure it sounds great, where does the money come from? I think it's a great idea, but he doesn't say where the money is coming from, why not just print money and give it to us instead? When you give tax relief at one place, they need to make it up somewhere else, otherwise the budget does not balance.

Khan

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Re: Predicting healthcare costs
« Reply #10 on: March 27, 2017, 02:40:22 AM »
I'm not saying your concerns aren't valid, but there's an alternative viewpoint on all of them.
Allowing insurers to cross state lines could allow good companies to cross state borders, increasing efficiencies, and hopefully making our system somewhat less *********.
Allowing pools to exist could also set the stage for the healthcare equivalent of Vanguard to come into existence, combined with point #1.(if Single Payer is unacceptable, then I will hunt for whichever solution is to enroll myself in).
We have to take whatever "evil socialism" is palatable. If a Negative Income tax, or Basic Universal Income is unpalatable, than if expanding things like the EITC is the only thing that could get past Congress, so be it. If giving everyone universal healthcare is unpalatable, but increasing the power and usability of HSA's is, so be it. Our government will figure out how to frivolously waste, gift, and spend our money whether or not HSA's become super-awesome, but as a moderately reasonable, responsible adult I'm all for giving myself and everyone else in the US a reason (to save for) and help saving and spending on health services. Expanding the useability of HSA's and access to it to everyone in the US(as I said, I'm apprehensive on Rand's upper limits on them, seemed to be nonexistant) would be a drop in the bucket because people are dumb and won't all use it, compared to stupid deductions that we have like the Mortgage Interest tax deduction(an extremely unbalanced deduction that weights heavily towards higher incomes).

http://economistsview.typepad.com/economistsview/2015/06/why-the-mortgage-interest-tax-deduction-should-disappear-but-wont.html
https://fivethirtyeight.com/features/the-tax-deductions-economists-hate/
http://www.npr.org/sections/money/2012/07/19/157047211/six-policies-economists-love-and-politicians-hate
« Last Edit: March 27, 2017, 02:56:01 AM by Khanjar »

RedmondStash

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Re: Predicting healthcare costs
« Reply #11 on: March 27, 2017, 06:39:49 PM »
Insurance and healthcare are a scary point, but there is a bright side when you change your frame of reference on it.

Medical/health tourism. It won't fix the costs of insurance, but with time on our side as FI people, we can explore many awesome alternatives. Timothy Ferriss did a bit on it in one of his books, I believe 4-Hour Body.

Yeah, I've considered that. But I'm not sure I want to relocate to a whole different country. It's worth thinking about, though.

If Congress can approve some of Rand Paul's healthcare plan, HSA's would become a super-open, even more useful extra healthcare-only ROTH/tax free account that wouldn't require HDHP enrollment. FYI, if you hear movement towards Rand's plans, look them up yourself, because I did and the high end giveaways seemed a little on the high side possibly, but almost everything else about it looked great.

The thing about HSAs is that they do nothing to limit the skyrocketing costs of medical care. What good is an HSA if medical care becomes so expensive that you have to empty it out completely and start draining the rest of your FIRE money? The problem that needs solving is how high healthcare costs already are and how rapidly they're rising, not how we as individuals are allowed to pay for them, and whether it's from pre-tax or post-tax money.

Khan

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Re: Predicting healthcare costs
« Reply #12 on: March 27, 2017, 09:55:24 PM »
I keep dreaming Costco will expand bigly into healthcare.   They already do vision, hearing aids, and pharmacy.   Plus caskets.  I'd go to a Kirkland health clinic if everything was at a standard 15% markup, at least for more basic care.    Not sure about cancer or heart surgery.   But if it was a choice between taking my chances with Costco or bankrupting my family to go to a fancy cancer center,  I might just go ahead and take my chances.

"Welcome to Costco, I love you"
"Would you like a health checkup today?"