For the last couple of years, one of the biggest blind spots I have had in planning for financial independence has been healthcare costs. I’m not concerned about runny noses, scrapes or bruises, but rather major illness and injury, and more specifically, protection of wealth. One of the top (if not the top) reasons people go bankrupt is medical costs.
Even if you maintain a healthy lifestyle, factors beyond your control such as hereditary or environmental factors can contribute to illness. Of course when it comes to injury, there are also factors beyond your control such as a car crash. So when I think of health insurance, it’s not just making sure there’s enough coverage to pay the massive bills but also defending my hard-earned wealth.
This post sums up the path I took to try and eliminate this blind spot and come up with a reasonable way to estimate my healthcare expenses.
A couple of notes before we get started
My focus here is to cover the gap between early retirement and Medicare, with just a little consideration for Medicare. As a healthy 44 year old, I have some time before I have to get serious about thinking about Medicare, and then again, who knows what will be around in 20 years anyway. So my focus here is going to be on marketplace insurance. I am also stopping short of mentioning long-term care insurance. That being the case, I’m still researching that topic and will write about my take on long-term care in another post.
This post will make the most sense to US-based readers. I’m aware that other countries have all kinds of different government or private health care plans. So fair warning, some of this won’t make much sense if you live outside the US.
Lastly, I wrote a disclaimer here just so it’s clear where I’m coming from: I am not a doctor nor am I in a position to give any medical advice. I wrote this post to show the steps I took to estimate my future health care costs. How you decide to use this information is your business, but do your own research. I consider myself to be pretty healthy, I don’t take prescription meds, nor have I had any past life altering illness or injury. Therefore, I am comfortable skipping over healthcare considerations other people may not want to skip. That being said, I would like to hear what other folks out there have done with respect to this topic. Let me know in the comments.
Alright, now down to business…
Planning Considerations
Here are the steps I took to estimate my healthcare costs in retirement:
- Retirement date – basically what I’m factoring in here is how long will I need to pay for one of the marketplace insurances before Medicare kicks in at 65. I’m 44 as I write this post so Medicare is still 21 years away.
- Location – where you live will determine what insurance is even available. The marketplace insurances in Oregon are not the same as in California, and not the same as what I have available in Texas.
- Income in retirement – this is more important for Medicare. The Medicare premium you pay will be based on your household income wages, social security benefits, pensions, distributions from IRAs, dividends, and so on.
- Type of insurance – for me it’s pretty simple, go with a marketplace plan. For others out there, there may be other options such as an employer plan or pension plan (I hear these actually still exist out there…).
- Health – Based in information here at Healthcare.gov, insurers can charge up to 50% more for folks that use tobacco. However, they cannot up charge for preexisting conditions. That being the case, I personally think it is still a good idea to assess your overall health. Even though the premiums may not be affected, the out of pocket costs can come into play if you are prone to medium or high risk medical issues. I put some general guidelines from my research in the table below.
- Type of plan: In my research I’ve generally come across two options. A low premium plan with high out of pocket costs, or a high premium with lower out of pocket costs. I wouldn’t tell anyone what to do here, but I feel I’m in good health with few risk factors for major disease so I tend to go with a low premium plan because I’m betting that my out of pocket costs will be low. If I had health issues that caused me to see a doctor more often I would heavily consider high premium. As it stands now I have only met my annual deductible once in the past 15 years (I dropped a 4 x 8 foot piece of plywood on my toe, not fun!).
| Low Risk | Do not smoke Visit the doctor minimally as needed In general, free of chronic health conditions |
| Medium Risk | Either you smoke tobacco or you visit the doctor more than a few times per year You have one or more chronic health conditions |
| High Risk | You have a family history of chronic health conditions Visit the doctor often for non-routine care Have two or more known chronic health conditions |
Some additional thoughts on health. In doing my research and talking to my family doctor, I learned to look at risk in terms of controllable versus uncontrollable factors. Controllable risk factors are things like diet and exercise. While an example of an uncontrollable risk factor may be hereditary or family history. The American Heart Association has a really good breakdown of heart disease risk factors here, for cancer, check out National Cancer Institute here. Given that heart disease and cancer rank No. 1 and No. 2 in cause of death in the US, I chose to focus on these risk factors to assess my health.
Types of Plans
The table below summarizes what I have available in my zip code. If you go to healthcare.gov, you can type in your zip code, enter in some additional information and you my get different results or more options. However this should give you a good idea on what to expect.
| Plan feature | Bronze plans | Silver plans |
| Premium | Less Expensive | More Expensive |
| Out-of-pocket costs when you receive care | More Expensive | Less Expensive |
| In my zip code, the plan will reimburse | 60% of my total costs | 70% of my total costs |
| In my zip code, I will have to pay | 40% of my total costs | 30% of my total costs |
My Experience Researching this Topic
In early 2018 I actually called my current insurance provider (USAA) and asked about private health insurance. At that time I was thinking about leaving my employer and wanted to start to understand what options were available. In short, it was an eye opening experience. I specifically recall the person I spoke with saying, paraphrasing “..the insurance industry is chaotic and will be for some time…”.
It’s comments like that combined with what I read in the news that immediately had my mind going to this very conservative place. That is, not only do I want to account for the cost of insurance based on what I know now, but perhaps I should be setting aside even more money for unknown future rises in premiums. After giving it more thought, I realized I am better served by paying close attention to my health, nutrition and exercise. It also motivated me to keep maxing out my employers health savings account, which I consider to be a sort of 401k for healthcare costs in retirement.
Final Thoughts
Healthcare costs, insurance costs, prescription drugs, long-term care, these things are all very expensive. Getting treatment for major illness or injury is not only life altering but potentially wealth altering. My take away from this exercise is to continue to learn and monitor the costs associated with healthcare and make it in integral part of my financial plan.
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