Consumer Reports on Auto Insurance: Watch Your Credit Score, Shopping Behavior

cr_auto0Consumer Reports (CR) has released a multi-part Special Report on Auto Insurance, included in their September 2015 print issue but also available online without a subscription (at least for now). They analyzed over 2 billion quotes from over 700 companies across 33,419 zip codes. Here are some highlights of what they found.

First, here’s a big picture view of which major car insurers are more expensive on average.

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The biggest individual factor in your premium may be your credit score. Clicking on your state on this 50-state interactive map will give you an idea of the effect of having a “poor” or merely “good” credit score as opposed to an “excellent” one. California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices.

Often, having a poor credit score with clean driving record is more expensive than having an excellent credit with a DUI/DWI! Here’s a screenshot for Florida:

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Another important factor is your loyalty and tendency to comparison shop other items like cable TV. You often think “Loyalty Discount”, but often there is a “Loyalty Penalty”. If you don’t shop your auto insurance, some companies don’t see something to be rewarded; they see a sucker. In my limited experience, the companies with the lowest quotes to entice you from another company are also the ones to hike up the rates every year afterward. Here’s what CR found:

Geico Casualty gave us whiplash with its $3,267 loyalty penalty in New Jersey and its $888 discount just across the state line in New York for longtime customers. State Farm Mutual consistently provided discounts of a couple of dollars up to a few hundred dollars; Allstate Fire and Casualty and Allstate Property & Casualty tended to prefer penalties.

As noted in a previous post, Big Data knows if you’re comparison shopping or not. Such “price optimization” occurs when they find out you could have saved money somewhere else like broadband internet, but didn’t. Not a price-sensitive shopper? You may get the higher rates. Even states that officially ban the practice don’t really have any foolproof way to know if it’s happening. Here’s what CR found:

Amica Mutual and State Farm told us they don’t use price optimization. Representatives from Allstate, Geico, Progressive, and USAA declined to discuss price optimization.

Here’s the general conclusion:

What we found is that behind the rate quotes is a pricing process that judges you less on driving habits and increasingly on socioeconomic factors. These include your credit history, whether you use department-store or bank credit cards, and even your TV provider. Those measures are then used in confidential and often confounding scoring algorithms.

What can a consumer do about all this? Consumer Reports wants you to write to your state’s insurance commissioner, and they have a petition template ready for you. David Merkel of The Aleph Blog says you should simply fight back the market-based way: comparison shop your personal insurance lines every 3 years.

Bid it out. Bid it out. Bid it out. What do you have to lose? If loyalty means something to the insurer, they will likely win the bid. If it doesn’t, they will likely lose. Either way you will win. If you have an agent, they will note that you are price-sensitive. The agent will become more of an ally, even if it doesn’t seem that way.

[…] You don’t need transparency, or more regulation. You don’t get transparency in the pricing of many items. You do need to bid out your business every now and then. You are your own best defender in matters like this. Take your opportunity and bid out your policies.

I tend to agree with Mr. Merkel. However, I am still a long-time customer with State Farm. I’m happy to see that State Farm was found to consistently providing loyalty discounts and claims not to engage in price optimization. I shopped around for auto quotes in 2013 and GEICO was cheaper by about $372 a year. However, I had to balance that with the knowledge that GEICO will probably hike my premiums every year and also I’ve had excellent claim service from State Farm. Perhaps it is time for another comparison shop.

PolicyGenius Review: Long-Term Disability Insurance Quotes for Bloggers and Freelancers

policygenuis_logoI would say that the insurance with the highest ratio of most-needed to least-bought would be long-term disability insurance. According to the Social Security Administration, just over 1 in 4 of today’s 20-year-olds will be become disabled at some point before reaching 67. According to a Harvard study, lost income due to illness was a contributor in 40.3% of all personal bankruptcies in the US. Here is a chart that shows the average duration of disability claims lasting more than 90 days, measured from the start of disability to (at most) age 65.

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Sometimes your employer offers group LTD coverage, but what happens when you switch to another job that doesn’t have it, or you get disabled while unemployed? Not all group plans are convertible to individual policies. Finally, what if you are self-employed? Many people are freelance graphic designers, writers, and other hard-to-define jobs.

PolicyGenius is one of many sites that offer online insurance quotes, but their specialty is straightforward information and non-pushy quotes for “young, self-directed people”. They sell:

  • Term life insurance
  • Long-term disability insurance
  • Renter’s insurance
  • Pet health insurance

I have to admit, the fact that they actually listed “blogger” as a legitimate job was the spark that made me want to get a quote from them. I also liked that they only sell term life insurance, and not whole life, permanent life, or indexed-confusing-whatevernot.

Another plus is that they have quotes from all seven major LTD insurers, and the quotes you get should be identical to everyone else’s for the exact same policy from the exact same insurer. That is, there are no various levels of markup depending on where you buy it from, like there is for Tide detergent or a Toyota Camry. The commission to the seller is already baked into the premiums.

I applied for a long-term disability insurance quote, which they call “insurance for your paycheck”. PolicyGenius has a modern, comfortable user interface. First, they’ll ask for basic information like gender, birthdate, and state of residence. Click on any screenshot to enlarge.

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Income. Usually a policy won’t pay more than about 50% to 60% of your current income. I’m guessing they don’t want to make it too appealing an option!

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Health info. Pre-existing conditions are usually excluded. The worse your health, the more likely you’ll become disabled.

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Monthly benefit. Obviously the higher that is, the higher your premium.

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Waiting period. The longer you are willing to wait before claiming a disability, the lower your premium.

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Benefit period. How long do you want to be able to claim benefits?

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Additional riders. There are coverage options which you can add or remove.

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I made a quote with my own personal details, but also an additional quote for the following theoretical situation. The quotes still require additional underwriting, meaning you’ll probably have to submit supporting financial documents and complete a physical examination (blood, urine, body measurements). Here’s a rough outline:

  • Female, non-smoker, California resident, age 33.
  • Current income $5,000 a month. Policy benefit $3,400 a month.
  • Self-employed blogger for 5 years (classified as Reporters and Correspondents).
  • 90 day waiting period, claim until age 65.
  • Own occupation, residual disability, and non-cancelable.

After 3 business days, I was e-mailed a quote of $265 a month from Principal Financial Group for this situation. This was significantly higher than the $130 to $175 a month estimate that was given initially, and much higher than the $98 a month quote I got for myself. My guess is that my monthly benefit was relatively high at 68% of current salary? I have also read that women are quoted higher premium when statistically likely to have a baby since pregnancy causes a lot of disabilities. I wrote back to them asking what things I could tweak (like a lower monthly benefit and/or a 180-day waiting period) in order to get the premium down to around $100 a month.

If you do get a LTD quote yourself, be sure to read all the tips during the quote process and also wade through the entire detailed proposal package for what is excluded. My thoughts are to treat this as true insurance (as opposed to a payment plan), which means you are trying to just cover catastrophic events and hope to never make a claim. That means I tried to make the benefit just big enough, the waiting period as long as I could bear, but I kept the claim period to age 65 in case I become permanently disabled.

I’m sure there are other quote comparison websites out there and also good (human) independent insurance brokers. I chose to run a quote at PolicyGenius because it was easy, convenient, and less intimidating than other places that I’ve tried. If you’ve gotten individual long-term disability insurance, please share your own experiences in the comments.

Big Data Knows If You’re Comparison Shopping… Or Not

cheapscore0One of the few benefits of getting older is that my car insurance premiums are much lower today than in my 20s. But is that low rate caused by insurance companies knowing that I recently switched high-speed internet and refinanced my mortgage twice? Via drawpoker of Bogleheads, here’s an NPR article called Being A Loyal Auto Insurance Customer Can Cost You about the practice of “price optimization”.

“Well, it’s really profit maximization,” says Bob Hunter, with the Consumer Federation of America. He says insurance companies can buy software that compiles an astonishing amount of data on everyone who buys almost anything, anywhere.

“They have all the information on what you buy at your grocery store. How many apples, how many beers, how many steaks,” he says. “They have all the information on your house. They have incredible amounts of information on are you staying with DirecTV when Verizon is cheaper.”

A sophisticated algorithm crunches that data and spits out an index showing how sensitive a customer is to price increases. Only the insurance company knows the index.

From a USA Today article on the same topic:

Many insurance companies now use a sophisticated data-mining technique called “price optimization” to set rates just high enough that inertia keeps customers from shopping around. Research found that the longer customers had been with their insurers on average, the greater their savings when they switched, due to all the rate increases they experienced during their loyal years. […]

A 2013 Earnix survey found that 45% of large insurance companies and 26% of all insurance companies in North America currently optimize prices, with an additional 36% of all companies reporting they plan to adopt this technique in the future. What this means is that given two customers with identical risk profiles, the one who’s judged less likely to switch carriers if his rate increases will pay more.

In other words, forget just FICO scores affecting your insurance rates. Your grocery club card, your mortgage quote requests, your switching from cable to DSL, your social media activity, it all could be funneling into some sort of “Frugal Cheapskate” Score. If you don’t shop around elsewhere, you probably won’t shop around for your insurance so they can hike it up without worrying about you jumping ship.

If you want some hints as to where you should start your comparison shopping, you may want to check with your state insurance department. For example, California provides some numbers for your rough situation without needing any personally-identifying information. Here are some numbers for a married couple living in Alameda Country, driving 9k to 16k a year, with no accidents or violations. The lowest average premiums are coming from USAA, Wawanesa, and Anchor General.

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Your Homeowner’s Insurance Deductible Should Be Catastrophically High

housemoneyThe NYT Times Haggler just helped a reader who made two small claims on his homeowner’s insurance for (1) a fallen ceiling fan and (2) a stolen bike. Not only did State Farm deny both claims, but they subsequently refused to renew his insurance the next year! This is a unique circumstance, and I’ve heard of co-workers with similar problems. But of course the power of daylight again helped this lucky reader:

After the Haggler’s interactions with State Farm, Mr. Joseph sent an email to the Haggler with the subject line “It worked!” A representative at the company had contacted him and, in conversation, was much more forthcoming than Ms. Risinger. Mr. Joseph learned that in New York City, the average for homeowners is one claim every 38 years.

“Two in two years,” Mr. Joseph recalled this rep telling him, “that makes us concerned.” But after digging deeper into Mr. Joseph’s claims, the company decided that it wanted to keep him as a customer.

You should never make a claim for such small things like a stolen bike or broken appliance (especially if apparently it’s not even covered). Every claim you make will be recorded in an insurance database forever. As a result, if you’re not going to make a $500 or $1,000 claim, then why would you set your deductible to $250 or $500? Set it to $2,500 or higher if you can swing it. I’ve been inching ours up over the years, and I believe it is now $10,000 and even higher for natural disaster insurance. Enjoy the lower premiums, but remember to stock up your emergency fund in return. I used to have a special rider for my wife’s engagement ring, but cancelled that as soon as the value become “non-catastrophic” for our finances.

And we’ve all learned a valuable lesson: Homeowner’s insurance is for disasters. Which means that if you’re lucky, you’ll spend money on it for years and years and never get a dime back.

Exactly. Insurance is not an investment, a maintenance plan, or a replacement for properly securing your property. Insurance is there to protect you from something truly catastrophic happening, like your entire house burning down and them putting you up in a residential hotel for months while they rebuild it (which happened to our friends).

Bottom line: If you have homeowner’s insurance, you should set your deductible as high as you can tolerate. It should be a painful number. Take your premium savings and put it towards your cash reserves.

FidSafe Review: Free Digital Document Storage from Fidelity

fidsafelogoI have a couple of accounts at Fidelity Investments (solo 401k and taxable brokerage), and recently they sent me letter about a new service. FidSafe is a website that stores digital copies of documents for free and is open to the public, no relationship with Fidelity required. (It is technically from Fidelity Labs, owned by Fidelity Investments.) I signed up for an account and took it for a spin.

Sign-up Process
You are only required to provide a name, e-mail, and birthdate (18+ only). It is highly recommended to provide a mobile phone number as well because they support two-factor authentication, and you can choose to have it activated for every login attempt or only on unfamiliar devices.

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Security
In addition to the two-step login authentication mentioned above, FidSafe states that all files are encrypted both in-transfer and while stored on their servers. You can also upload files that you encrypted yourself, although that will make them more difficult to share with others. FidSafe employee access to your personal data or documents is also restricted.

Finally, they have something called an “Identicon” that helps confirm that you are viewing a legitimate e-mail or web page from FidSafe. Similar to what some banks have when you log in. You can choose from a limited selection of patterns and colors:

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Storage Limits
FidSafe users will each get 5 GB of storage space without charge. You can see your storage status under “Settings [Gear Icon] > General”. Individual files are limited to 200 MB in size. Files shared with you by others do not count against your storage consumption.

File Types
Their site states that files of any type can be uploaded. I uploaded various test files of PDF, PNG, JPG, DOCX (Word Documents), and XLSX (Excel Spreadsheets) formats and they all worked fine and were able to be shown by their in-browser viewing tool. As for what files to store, they provide a suggestion list in their FidSafe Fundamentals Kits here.

User Interface and Design
Here is a screenshot of the main dashboard. The user interface is clean, mobile-friendly, and relatively intuitive. They offer a brief walkthrough tour, and I found it easy to get started right away. (It really shouldn’t be that complicated in any case…)

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Sharing Documents With Others
You can either choose to share specific personal documents with other users all the time, or designate someone to have access to all your documents only upon death. In both cases, the person you are sharing with must be invited through via e-mail and sign up for their own FidSafe login and password (and provide name, e-mail, birthdate).

For immediate sharing, your designated “Contact” can only view the specific documents you share with them. You can choose to give them view-only access or add the ability to download.

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Here are some details on the “Share Upon Death” feature:

To sign-up for the service, under “Settings” you will provide the last 4 digits of your SSN and a designee (one of your existing FidSafe contacts). Upon notification of your death, FidSafe verifies your death certificate and shares your FidSafe content (only documents and notes; passwords are not shared) in the designee’s FidSafe account. Any time after signing up for this service, you can change the designee or unsubscribe to the service.

[…] When FidSafe is notified of your death (by family member, attorney, etc.), FidSafe collects the notifier’s contact information (first name, last name, email address, phone number) and decedent’s information (first name, last name, email address used for FidSafe registration). FidSafe will also need a copy of decedent’s certified death certificate mailed to the following address – Fidelity Labs FidSafe Support, 245 Summer Street V3A, Boston, MA 02210. If the death certificate is verified, FidSafe will share decedent content in designee’s FidSafe account.

Support
Call 800-453-3332 or e-mail [email protected]

Conclusions: The Good

  • Having a secure, central place where you store your family’s important documents can be quite useful for estate planning and other needs. There may be an emergency (fire, natural disaster, medical) or you might just be applying for a mortgage or a new passport.
  • Providing online access can make things much easier if important people live far apart.
  • There are numerous start-ups out there now that try to combine digital storage and estate planning, but FidSafe is backed by an established, reputable company (that may have a lot of your personal information already).
  • All available security mechanisms appear to be supported, including two-factor authentication and file encryption. I’m not sure what additional measures could be added.
  • Did I mention it’s free?! Other places can charge $75 a year.

Conclusions: The Concerns

  • The fact that this is a free feature can also be seen as a negative because what happens if Fidelity feels a need to “reorganize” or “streamline” their operations and discontinue the service. It probably isn’t a huge expense but it surely costs something to support. This is the type of service you’d want to be around indefinitely.
  • If you choose to share sensitive documents with other people, then you are depending on them to keep your information secure. If you share your file with someone who uses the same password everywhere or downloads the file onto their home computer (or even prints it out), then that can become the weakest link. Making things view-only is a partial solution.
  • FidSafe is digital-only, so original documents still need to be stored securely (although you can note their locations in FidSafe). You should also consider an offsite, physical backup of any computer files in someone else’s safe or a bank deposit box. (This Forbes article says high-quality optical discs may be more reliable for long-term storage than flash drives and hard drives.)

2015 ACA Obamacare Income Qualification Chart

Open enrollment for obtaining health insurance from the Affordable Care Act-sponsored Health Insurance Marketplace for the 2015 calendar year starts on November 15th, 2014. (If you have a qualifying event like marriage, divorce, the birth of a child, loss employment, or loss of insurance then you can enroll at any time.)

Here is a chart to help you determine if you will qualify for lower premiums and/or lower out-of-pocket costs based on your estimated 2015 household income and household size. Get more details and sign-up for e-mail reminders at Healthcare.gov.

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The numbers above are for the contiguous 48 states. Income cutoffs are higher in Alaska and Hawaii.

Estimated prices for 2015 plans are supposed to be available in “early November” but there are only 9 days until enrollment actually starts. I would hope that the actual 2015 premiums will have been finalized by then!

Our Family’s Retroactive COBRA Health Insurance Experience

healthIn order to extend her maternity leave, my wife is taking an unpaid leave-of-absence from her job. Since this means we will lose her employer-paid health insurance and our child has an issue that requires regular doctor visits at this time, we knew that we would have to sign up for COBRA benefits. Our employer-paid coverage ended 9/30. Somehow due to an administrative mishap, we did not get the paperwork until the third week of October, by which we already had four different (expensive!) doctor visits.

I have written before about the ability to get retroactive COBRA benefits, so I knew that we would be okay:

You have 60 days after you lose your benefits to elect to pay for COBRA coverage. However, even if you enroll on Day 60, your coverage is retroactive to Day 1. Of course, you’ll have to pay the retroactive premiums for that period. Thus, you could technically waive your COBRA coverage initially, and then wait to see if you incur any medical bills.

Her employer uses the big benefit provider Conexis to manage their COBRA administration. We were able to make our COBRA plan elections online and even paid the premiums online via electronic bank transfer. The process was much smoother than I thought it would be; some parts of the healthcare industry are just so archaic.

Our coverage was retroactive to 10/1, and all of our healthcare providers had to resubmit their claims. One thing that I didn’t expect what that we had to get new insurance card and insurance numbers for everyone in the family. I was also surprised that we were able to pick and choose amongst our original workplace options (Dependent coverage, HMO, PPO, etc.) I thought that COBRA meant we would just continue on with our exact same plan as before. Just wanted to share our story in case anyone was wondering how it worked.

Affordable Care Act (Obamacare) and Out-of-Pocket Cost Subsidies

healthPlease consider this an addendum to my previous post on Early Retirement and The Affordable Care Act.

In addition to subsidies on health insurance premiums, the Affordable Car Act (ACA) provides subsidies on out-of-pocket costs to qualifying households when buying insurance from an exchange. The income requirements are more restrictive, but they further improve affordability for those with lower incomes by reducing their deductibles, copayments, coinsurance, and total out-of-pocket maximum limits.

Income eligibility requirements. In this case, the income cutoffs are 200% and 250% of the Federal Poverty Level (FPL). Modified adjusted gross income (MAGI) is used for income. Modified takes your AGI (Line 4 on a Form 1040EZ, Line 21 on a Form 1040A, or Line 37 on a Form 1040) and adds back in certain deductions like non-taxable Social Security income, foreign income, and tax-exempt interest.

For reference, here are the 2014 FPLs by household size listed with the 200% and 250% levels, as calculated by the Department of Health and Human Services (for 48 contiguous states, higher in Alaska and Hawaii).

2014 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA
Persons in
family/household
100% FPL 200% FPL 250% FPL
1 $11,670 $23,340 $29,175
2 $15,730 $31,460 $39,325
3 $19,790 $39,580 $49,475
4 $23,850 $47,700 $59,625
5 $27,910 $55,820 $69,775

Deductible, copayment and, coinsurance subsidies. These cost-sharing subsidies are only available if you start with buying a Silver plan. Now, the idea of a Silver plan is the insurer will pay 70% of covered health expenses across the entire population, leaving the insured to pay 30%. However, if your income is 150% FPL or less, you’ll only have to pay 6% of covered health expenses. If your income is between 150% and 200% FPL, you’ll only pay 13%. If your income is between 200% and 250% FPL, you’ll have to pay 27%.

Each plan will have a different way of implementing this overall requirement, usually by tweaking deductibles and copays. These may be referred to as Cost Sharing Reduction (CSR) plans.

Out-of-pocket maximum subsidies. The Affordable Care Act limits your maximum out-of-pockets expenses per year. Once you reach this limit, your insurance will pay for all of your covered healthcare expenses for the rest of the year. However, if you are under 200% or 250% FPL, these limits are even lower.

Modified Adjusted Gross Income 2014 maximum annual out-of-pocket cost, individual 2014 maximum annual out-of-pocket cost, family
100-200% FPL $2,250 $4,500
200-250% FPL $5,200 $10,400
> 250% FPL $6,350 $12,700

Note that you may read conflicting information elsewhere about reduced out-of-pocket limits being available to anyone at 400% FPL or less. That information is outdated (source). Those numbers were in the original law, but it was since revised to what is shown above.

Recap. These subsidies for out-of-pocket expenses provide another important income cutoff point to consider when purchasing health insurance independently from an employer plan. Your total healthcare expenses could vary significantly if your income is just $1 over the cutoff points of 200%, 250%, and 400% FPL.

More: Healthcare.gov (really wish this site was better), Kaiser Family Foundation, UC Berkeley Labor Center

Early Retirement and The Affordable Care Act (Obamacare)

healthBy now, we’ve all read things about the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare. One concern is the PPACA’s impact on early retirees, or really anyone who wants to buy their own non-employer health insurance? The PPACA is eliminating many high-deductible health plans which many such folks previously used due to their low premiums. But at the same time, many others who didn’t pass the medical screening were faced with astronomical premiums if you could get coverage at all. Could the PPACA actually improve the overall affordability of comprehensive health care?

I’m not going to claim I completely understand everything about the PPACA and I certainly won’t cover it all here, I can only try to provide concise a few examples with sources.

What do I get? First, let’s recap some basics about the insurance you can buy on the new exchanges. You can no longer be denied insurance due to your health history, minimum coverage levels were set for all plans, and certain preventative care services are now free without copays. Taken from the PPACA Wikipedia page:

Guaranteed issue prohibits insurers from denying coverage to individuals due to pre-existing conditions, and a partial community rating requires insurers to offer the same premium price to all applicants of the same age and geographical location without regard to gender or most pre-existing conditions (excluding tobacco use). […]

Under the law’s authorization, Secretary of Health Kathleen Sebelius issued a set of defined “essential health benefits”[22] that all new insurance plans have to include. […] Among the essential health benefits, preventive care, childhood immunizations and adult vaccinations, and medical screenings are covered by an insurance plan’s premiums, and cannot be subject to any co-payments, co-insurance, or deductibles.

Am I eligible for a subsidy? Subsidies for healthcare premiums are determined by your income relative to the Federal Poverty Level (FPL). Here are the 2014 FPLs by household size, as calculated by the Department of Health and Human Services (for 48 contiguous states, higher in Alaska and Hawaii).

2014 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA
Persons in family/household 100% FPL 400% FPL
1 $11,670 $46,680
2 $15,730 $62,920
3 $19,790 $79,160
4 $23,850 $95,400
5 $27,910 $111,640


Your household’s modified adjusted gross income (MAGI) must be below 400% FPL in order to receive a subsidy. As long as you are below 400% FPL, your health insurance premiums cannot exceed 9.5% of your income. Modified takes your AGI (Line 4 on a Form 1040EZ, Line 21 on a Form 1040A, or Line 37 on a Form 1040.) and adds back in certain deductions like non-taxable Social Security income, foreign income, and tax-exempt interest.

You may be surprised that a family of four could have an MAGI of $95,000 and still be eligible for a subsidy.

How much will it cost for a couple with no kids? Let’s assume a couple, both age 40, California resident, and $60,000 MAGI. This is under 400% FPL so they get a subsidy. California’s exchange website is CoveredCA.com. Here are results for a middle-of-the-road Silver plan for the couple with $60,000 income:

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Let’s pick the cheapest Blue Cross Blue Shield option:

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The total quoted was $354 a month, or $177 per person, per month after subsidies.

If they made $95,000 a year, then they would have no subsidy and be quoted just the flat $340 per month, per person.

How much will it cost for a family of four? Let’s try 2 adults, both 40 years old, and 2 dependents under 18. They live in California and make $60,000 MAGI a year. Here are results for a Silver plan for the family with $60,000 income:

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Let’s pick the cheapest Blue Cross Blue Shield option:

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The total quoted was $354 a month after $326 a month in subsidies. I was somewhat surprised to see that the kids would be covered by Medi-Cal, which is commonly considered a welfare program for low-income families.

Here are results for a Silver plan for the family with $95,000 income:

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Let’s pick the cheapest Blue Cross Blue Shield option:

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The total quoted was $676 a month after $342 of subsidy. Most of the difference between the $60,000 income figures was due to the fact that I would have to pay for dependent coverage.

Recap. The primary takeaway is that you should try and get some actual quotes, as you may be surprised by your findings. While you can play around with the California website pretty easily, note that other states may offer a much more frustrating experience at their exchange. Alternatively, you can try a comparison site like eHealthInsurance.com which also has ACA-compliant individual plans. I tried various ages up to the 60s (before Medicare kicks in at 65) and the numbers didn’t rise significantly. If I was a retired couple under 65 and on a budget, I would consider paying under $200 a month per person to be “affordable”. Even if you aren’t retired, these numbers may allow many people to pursue self-employment when otherwise they would be scared to lose employer-linked group health insurance.

The secondary takeaway is that the subsidy is significant, and it may take some planning to qualify for it upon early retirement. If you miss the income cutoff by even a small amount, you end up paying thousands more in premiums. Qualification also looks at your most recent tax return, which may not reflect your current income. If you are transitioning to early retirement, you likely had a high savings rate which means your past income might be high while your income needs in retirement could be much lower. I need to do more research on if you can get the subsidy retroactively in this type of situation.

Update: I wrote an additional post about Affordable Care Act out-of-pocket cost subsidies.

Employer Health Insurance Wellness Programs: Helpful Feature or Profit Center?

healthLike many other folks, I have the majority of my health insurance premiums paid by my employer. I appreciate this and value it as part of my “total compensation” (a fact that they keep reminding me about).

My employer and health insurance provider recently teamed up to offer us a “Wellness program”. These used to be rewards-based programs where you earned points for activities like watching health-education videos, tracking your weight, creating a food journal, etc. You could then redeem those points towards gift cards and such. The idea was to encourage healthy behaviors like eating better and regular exercise with little pushes (“carrots”).

But instead of the “carrot”, it appears they may be switching to the “stick”.

Starting this year, if I don’t complete an in-person health exam, 30-minute online survey, and telephone coaching session annually, then the employer contribution towards my health insurance premiums will be cut by around 40%. For example, if my employer used to contribute $800 a month towards health insurance and I don’t jump through all the hurdles, my out-of-pocket costs will increase by $320 a month. This program is managed by a for-profit publicly-traded corporation called Healthways (ticker HWAY).

Healthways, Inc. provides well-being improvement solutions that help people improve their physical, emotional and social well-being, thereby improving their health and productivity and reducing their health-related costs.

I’m a skeptical person, so this basically translates to “Healthways makes money by making people cost less to insure.” They can do this in two ways:

  • Decrease health insurance claims by improving employee health through cost-effective strategies.
  • Decrease employer-paid premiums by increasing the employee-paid portion for lazy or forgetful employees.

I really don’t know how much these mandated tasks will improve worker health. I suppose some people who never see a doctor on their own may find out they have hypertension or high cholesterol. I know my wife and I pretty much went through the motions (took about 4 hours altogether including travel time) in order to prevent that huge premium hike. It was a financial no-brainer. On the other hand, I would love to see what percentage of workers fail to complete all the tasks by the deadline and how much extra money that brings in.

2013 New Year’s Resolution Follow-Up

It’s time to check up on our 2013 New Year’s Resolutions, which I gave the eloquent theme “Get our crap together” (in case one or both of us dies). I will roughly follow this GYST checklist.

Will and trusts. We are fortunate to have a family friend who is an estate lawyer, and she was able to assist us with creating all of these legal documents. They included:

  • Designating a Durable Power of Attorney for financial and medical decisions, including backups.
  • Designating who would take care of our children, including backups
  • Distribution of assets and personal items. Mostly the money will go into a trust for the kid(s).

Living Will. In case one or both of us are incapacitated, this included:

  • Medical power of Attorney and backup in case of being physical incapacitated
  • Advanced directives
  • Discussions of our wishes with family.

If you can find a good estate lawyer, I would recommend that route as they should have the experience to explain all of the potential issues in your state including being prepared for future law changes. I may try to write about the general issues later once I learn more. I also meant to compare my documents with those produced by services like Legalzoom, but haven’t gotten around to that. As for costs, it will vary depending on how complicated your situation is and how many additional documents you need prepared and reviewed (power of attorney, trust, etc.).

Life insurance. We each have a $1,000,000 term life insurance policy. We think this number is more than adequate given our future expected needs and our existing savings. If one of us dies, the other will ideally not have to work anymore. If both of us die, there should be enough to cover all living expenses plus any educational expenses. To get an idea of cost, try Term4Sale.com.

Short-term disability. We both have short-term disability through our employers. I don’t feel it is necessary to buy an additional individual policy as we have sizable cash reserves.

Long-term disability. Mrs. MMB obtained an individual long-term disability insurance tailored to her profession. This was done through a recommended local insurance broker. I did not pursue buying a long-term disability plan. This is due to the fact that I felt our portfolio is large enough to provide a substantial cushion, and also due to the fact that the physical demands of my job aren’t very high and thus I worried it would be hard to qualify for benefits. Upon further thought, however, I do think I should at least price it out. Another thing to do in 2014.

Financial Education

  • Passwords. All major passwords are stored in an encrypted password manager, with most sites having a unique complex password such that one hacked database won’t affect the security of other accounts. My wife uses it all the time now and is familiar with it.
  • Cash reserves. We have one year of expenses in cash held in an FDIC-insured bank account. This will provide a cushion so that nobody will have to worry about money until life insurance proceeds arrive.
  • Spousal budget education. We did have a few discussions about our current monthly cashflow situation (income and expenses) and what spending levels could be supported with our current portfolio and with the addition of any life insurance proceeds.
  • Spousal investor education. Can my spouse manage the finances without me? Probably, but not as optimally as I’d like. I did very little in this area, and this will be the focus on our 2014 resolutions.

I think we did pretty good in terms of estate planning, but for 2014 I’ll need to be much more proactive in sharing my investing knowledge. I’d like to learn how to make some simple videos and share them on Youtube.

Health Savings Accounts: Defer Reimbursement But Keep Receipts Forever

I always tell myself to do more research on Health Savings Accounts (HSAs), but I lack motivation because we have great health insurance benefits and not even the option of an HSA-eligible high-deductible plan. I know, what a tough problem to have ;).

Still, the benefits of HSAs include tax-deductible contributions, tax-free earnings growth, and tax-free withdrawals when used for qualified medical expenses. Because of this, HSAs are often nicknamed “Healthcare IRAs” and have the potential to be very useful for retirement planning.

A popular tip is to contribute the maximum allowable amount to your HSA every year ($3,300 individual, $6,550 family for 2014) and then invest that tax-deferred money so that you can have a big pile of money eligible for healthcare expenses when you are old and creaky. Some people recommend not taking any withdrawals even if you have current medical expenses and just pay for it out-of-pocket. This way, your contributions will be able to enjoy potentially decades of tax-free growth. There is no maximum allowable balance. There is no mandatory disbursement age.

In addition to all that, the Mad FIentist has a great post on How to Hack Your HSA where I learned that:

  • There is no time limit between when you incur a qualified healthcare expense, and when you can make a tax-free withdrawal of the same amount.*
  • By saving up all your medical receipts but not claiming them, you can effectively defer that qualified withdrawal indefinitely. For example if you pay your $2,000 bill now, you’ll still be able to take out $2,000 tax-free at any time you wish in the future. Meanwhile, that initial $2,000 can be left in there to grow in a variety of investment options, like stock index fund or ETF.

Now, you can still only take out $2,000 tax-free and not whatever that $2,000 grew to. However, as you get older you will likely have more medical expenses including copays or coinsurance payments. HSA money can also be taken out tax-free to pay for COBRA premiums and Medicare deductibles and Part B/C/D premiums. Finally, once you reach age 65, withdrawals for non-qualified reasons will be taxable as income without penalty, acting very similar to a Traditional IRA. If you did that before 65, you’d be subject to a 20% penalty.

This is an intriguing wrinkle, but I’d be wary of keeping my receipt for 20 or 30 years and then trying to redeem them. The IRS states that you “must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source”. What if the IRS starts asking questions? The doctor’s office that did the procedure may be long gone. How do you prove that you didn’t just Photoshop the receipt?

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