HDHP: Deductible Hit.

So back in open enrollment time for me early this year, I had a few health insurance plans to choose from: an HMO (an in-network only plan), a PPO (a combined network plan with a low deductible), an HRA (medium deductible and employer covers half of it), and an HDHP (high deductible plan with an HSA, which employer contributes some to).

Most of my friends have gone with the HDHP or HRA plans because “they’re healthy and only ever go to the doctor for a physical (if that)”. Seriously, the only guys I know who have ever used their health insurance had major sports injuries. What is it with twenty something guys and not using their health insurance??

Well, I seem to always end up with some reason to use my health insurance:

  1. ~$1,445 total: Minor issue ($335 two doctor’s visits, two prescriptions), talk therapy ($870 referral visit and then visits with therapist), and birth control ($240)
  2. ~$2,445 total: Birth control ($1,000), doctor’s visits ($365), talk therapy ($650), tests from annual check-up ($430)
  3. ~$1,965 total: Birth control ($1,365), doctor’s visits and tests ($200), talk therapy ($400)
  4. ~$3,525 total: Birth control (free!), talk therapy ($175), minor issue ($150 doctor’s visit and prescription), injury in September (total ~$3,200: $65 urgent care and x-rays while traveling, $160 my home doctor and tests, $290 specialist and tests, $1,200 specialist again and more tests, $80 specialist again, $1,400 estimate for physical therapy)

Note: these are the costs before my deductible / coinsurance / out of pocket maximum / co-pays kicked in. I didn’t actually pay anywhere near these amounts!

I thought this year was going to have no costs and it turned into my most expensive year yet for medical costs! And it’s not even over yet! I still have another 4 months to go. All of the times I’ve gone to the doctor were completely legitimate reasons to go. Do guys just not have reasons to go to the doctor? I don’t get that. Life happens.

In all of these years, the HDHP would have been the cheapest. Why? Because I’m only going to put as much money into a FSA as I know I’m going to spend since it’s use-it-or-lose-it. So in the past, I assumed I was paying for birth control and that was it and put enough into my FSA (Flexible Spending Account) to cover that, but I’ve almost always gone over and then paid for those costs with post-tax money. With the HDHP, however, I decided to contribute the maximum to the Health Savings Account. I’ve been using the account to pay for my out of pocket health costs, which has been amazing. None of the costs this year were expected. I’ve been withdrawing money out of the HSA like no tomorrow, but now that I’ve hit the deductible, that is definitely slowing down. I will most likely still have some money left in the HSA, which will leave a buffer for next year. My plan with the HSA was always to withdraw money to cover the expenses that I do incur and let the rest accumulate. I just hadn’t anticipated this amount of expenses! I may consider investing it once I have accumulated two full years of my out of pocket maximum ($6,000) as a buffer.

Why is the HDHP so much cheaper than the others? There are multiple reasons that make this plan so attractive:

  1. The difference in premiums between the HRA plan and the HMO plan is about equal to my portion of the deductible.
  2. After I hit the deductible with the HRA plan or the HDHP, I pay 10% of the cost of everything until I hit my out of pocket maximum. The HMO plan has no out of pocket maximum. You just keep paying.
  3. From all of the data that I’ve seen, 10% is almost always cheaper than the co-pay. The specialists I’ve seen so far have ranged in cost from $80 to $205. 10% of that range is $8 to $20. My co-pay with the HMO plan for seeing a specialist is more than $20. Seeing my doctor costs me about $145 or $14.50 if I’m only paying 10%, but the co-pay with the HMO plan is more than $15.
  4. With the HRA plan and the HDHP, prescription costs count towards both your deductible and your out of pocket maximum. This was really great when I had the expensive birth control prescription. (Prescriptions have co-pays that can add up forever with the HMO and PPO plans.)
  5. The premiums are the same on the HRA plan and the HDHP, but the HDHP gives me access to a HSA with great investment options.

When all is said and done, my after tax cost for health costs this plan year should come out to just under $600. (My premiums are incredibly cheap, but I’m also in a somewhat high tax bracket*.) The HMO plan would have cost me just over double that figure. So despite having over $3,500 in medical costs for the year, my HDHP wins out. I’m now wishing I’d picked the HDHP last year as well because it would have been cheaper and then I would now have more money in an HSA. Ah well, I now know!

Note: The math on your particular plans may be different, but I do encourage you to at least investigate! So many people are scared of the high deductible plans, but they can sometimes be cheaper, even with a ton of health costs. I actually am less scared of my health costs since my high deductible plan has an out of pocket maximum and the no/low deductible plans don’t.

* I am so close to the 33% tax bracket that I can (almost) taste it! It’s kind of cool to realize how close I am, but not actually be there since then I’m still “only” paying 28% as my marginal tax rate.

2013 Spending Goal: Little Things Add Up

Now that I’m no longer hunting for a condo, moving, or refinancing the condo and my savings plan is likely to be a bit more static, I’ve decided to turn to the other side of the table and work on my expenses. My goal for 2013 is to keep my non-mortgage spending under $24,000 for the year or under $2,000 on average each month (including travel). I think that this is definitely doable. One of the ways I’ve been working on this is by tackling the little things.

Interested in a book? I used to just go on Amazon and buy it for my Kindle. But recently I found out that my local library has e-books in addition to regular ones! So that’s a free book for minimal effort beyond buying it! My Kindle is almost 3 years old now, but it still works great! I probably will replace it when it completely dies, but I have a feeling it will last for a little while yet.

Food: Muffin, tea, lunch, fruits and yogurt? I can buy a muffin mix for $2-3 at the grocery store, make some on Sunday and bring them in. (Yes, I realize I could also make them from scratch. That’s the next step.) The office has free tea, hot chocolate, and coffee, so there’s no need to pay $2-5 for those. And I can bring in sandwich makings and yogurt from the grocery store for much cheaper than buying them for 4-5 days each week. In January/February my food spending totaled up to:

  • $68.41/$2.72 Dining out – This was an anomaly month and probably won’t happen again (see super cheap February at $2.72), so I’ve lowered this budget from $110/month to $70/month. (Note that only eating out with just me or me and my boyfriend that I pay for goes in this category. Eating out with friends goes in Entertainment.)
  • $246.36/$139.66 Groceries – I made once weekly trips to the grocery store to cover breakfasts, dinners, and work lunches except for one week. There was definitely a bit of stocking up since I noticed some sales at the grocery store, so this might go down next month. (up $119.81 from my 2012 average spending) Yup, definitely went down in February. Not bad!
  • $49.22/$48.00 Work Lunches/Coffees – I ate out every day the short week of the holiday and the last week of January due to various work functions. This is the least I’ve spent on work lunches in one month over the last three years. (down $122.65 from my 2012 average spending) Sweet, I spent even less in February!

It looks like the grocery and work lunches differentials in January about evened out, so I didn’t really save any money. It definitely went better in February when I made fewer trips to the grocery store! I lowered my work lunches budget from $200 to $80 and increased the grocery budget from $150 to $200.

Cell phone bill? I switched from Sprint to Ting, terminating my contract early. Even with paying the early termination fee (ETF), it still would have been cheaper, but I was able to get in on the giveaway Ting was doing to pay your ETF, so I’m saving money instantly. I found that I wasn’t using data much at all, so this should work out well. I was paying about $83/month with all the taxes and fees with Sprint for way more than I needed (it was an “unlimited” plan of sorts). But now with Ting, it looks like the taxes and fees are way cheaper at around $2-3/month versus almost $14/month with Sprint and my plan is way cheaper too. Their thing is that they adjust your billing plan each month based on which usage tier you *actually* fell into. I figure that I should spend about $34/month including taxes and fees, which shaves about $48/month off my cell phone bill and it would have been cheaper for me to switch even if Ting wasn’t paying my ETF. I also got a $25 referral credit from someone online, which was a pretty sweet bonus!

New cell phone? I was setting aside a bit of money each month to buy a new cell phone once my contract was up and switch carriers. Since I was able to bring my phone with me when I switched carriers and I’ve already set aside almost $300, I’m not going to add any more money to that line item in my budget. I zeroed this out and sent it to the mortgage in February.

Internet bill? I’m working on this one. I never seem to manage to call my internet provider during “business” hours. But I’ve been shopping around and actually found another provider that has a better rate, even when they force me to bundle it with their phone AND they’ll lock the price for 5 years. Even with needing to buy a new modem since the new provider doesn’t support my current one, I will still save about $14/month by switching. Having the local phone and combining that with Google Voice will actually significantly reduce the minutes I use on my cell phone and could reduce that cost as well! I’m more hesitant to pull the plug on switching internet providers because it is not as clear of an immediate savings and it would mean changing from cable to DSL, which I’ve never actually tried.

Easier option: I called Comcast and asked to lower the speed. My February bill was cut to $8 instead of $50 and I will only pay $31 going forward each month. It seems that I can still VPN with the lowered speed and everything is working fine. Sweet!

Pandora? I decided to nix this. Upfront savings: $36 since it was just about to renew. Monthly savings: $3.

Remember the Milk? I decided to nix this, but I’m still not completely sold. I’ve tried other to do systems and just stuck with this one out of habit and not bloating up my phone too much. If it’s actually gone, $23.08 in upfront savings and $2/month.

Insurance? After my 25th birthday, I’m going to ask my current insurance company to re-pull my insurance score (re: do a soft pull on my credit) and see how that lowers my rate and then shop around to see if there is anything better out there. I shopped around for car insurance back when I was buying the condo and I didn’t see anything worth switching to, probably because I was still under 25. My umbrella insurance will also get about cheaper once I turn 25. I’m curious to see how much turning 25 saves me on my car insurance. I’m guessing $10-20/month?

Feminine hygiene? I calculated that in 2012 I spent at least $60 on such products. I spent about $40 to buy a menstrual cup in January which should last for several years. Not a huge cost savings in the first year, but I’ve heard good things about it in general and I figure it’s worth a try. I still have a few months’ worth of prior supplies left, so I will run through those a bit more before trying out the cup for a whole week.

Tax return preparation? The last couple of years, I paid a CPA. But as I’ve mentioned a few times, I wasn’t overly pleased with the service. I spent the first weekend in February working on this for maybe 3-5 hours using Free File Fillable Forms. I’ll e-file by the end of February, once I’ve had a chance to double check my math at least once. Total cost this year: $0.

Electricity bill? The most expensive things here are: lights, heating, and the water heater. Maybe the fridge, but there’s nothing I can do about that. I unplug the appliances that I’m not using. I keep lights off that I don’t need. I only run the dishwasher and clothes washer with a full load. I finally figured out that my programmable thermostats (came with the place) weren’t really programmed, so the heater was keeping the bedroom at 70 F all day. ALL DAY while I’m at work. My electricity bill for December/January was incredibly expensive. As such, I’ve increased my electricity budget a bit, but also trying to fix things somewhat and hopefully the next bill will be much cheaper and I can reduce my budget. Electricity has probably been my biggest budgeting change/unknown since moving to the condo. It’s an older building than my apartments were and it’s also a lot larger of a unit. On the pro side though, I do actually have programmable thermostats and if I didn’t, buying them would save me a ton of money.

Clothing? I’ve evaluated my wardrobe and what I spent money on in 2012. I’ve made a decree that other than buying bras if I don’t have any that fit properly, I’m not going to spend any money on clothing going forward in 2013. Let’s see how I do with this! This is probably honestly one of the bigger “fat” items of all the ones I’ve listed here with food/cell phone being a close second.

Miscellaneous items:

  1. $50/month lowered entertainment budget from $150 to $100. Can you believe that it used to be $300/month? :)
  2. $35/month lowered dining out budget from $70 to $35.
  3. $30/month lowered budget for each person
  4. $16 upfront – don’t need a hair cut in March.
  5. $65 upfront – not going in a sports tournament that I had planned on.
  6. $77 upfront – not going to renew my annual gym membership. I’ll switch to punch cards when it’s up.
  7. $6/month – will keep Tivo for at least 5 more years.
  8. $48 upfront – have plenty of fuel budget rolled over, so don’t need to add more in March.
  9. $2/month – never spend more than $3 on parking meters.

I estimate that all of these “little” things should save me about $200-300/month. That means an extra $200-300/month that I can throw at the mortgage and $6-9k less that I need in investments in order to be financially independent. I’ve lowered my checking account direct deposit from $2,500/month to $2,200/month. (Note that that amount includes a $350/month travel budget that rolls forward indefinitely.)

I got off to a good start with January and February! This whole new year, new mortgage thing has been great to motivate me to cut out some of this fat.

Readers, have you recently done any budget overhauls? What kind of fat did you find in your budget to cut?

Open Enrollment, Take Three

This year’s open enrollment period is really exciting to me because my birth control will finally be covered. It is a huge portion of my health insurance expenses for the year, so this is a really awesome development. Other than that, the plans my employer is offering look pretty similar to last year’s choices and I’m again deciding between the consumer-driven health plan (CDHP) or high-deductible health plan (HDHP).

Here are the commonalities between the CDHP and HDHP choices:

  • Premiums are $X per month on both (same monthly premium).
  • Employer will pay the first $500 of my deductible.
  • I have zero expected health expenses for the year since I don’t have to pay for my annual physical or my birth control pills.
  • Past the deductible, I pay 10% in-network and 30% out-of-network.
  • There is a deductible and an out-of-pocket maximum on both plans.

And the differences between the two plans:

  • Both the deductible and the out-of-pocket maximum are $1,000 on the CDHP, but $1,500 on the HDHP. (So the total stop-loss for me is $1,500 on the CDHP and $2,500 on the HDHP – $500 is covered by my employer in each case.)
  • With the CDHP, the portion my employer covers of the deductible ($500) rolls over from year-to-year so long as I stay with the company and disapparates into thin air if I leave. On the other hand, with the HDHP, the portion my employer covers of the deductible ($500) is really that money being put into my HSA, which I can keep if I change employers. Since I have zero expected health expenses, the HSA is more attractive in this sense.
  • With the CDHP, I would put some money into a FSA to cover my base level of forecasted expenses for the year, except that is zero. All of those funds and all of the funds my employer will pay to cover their portion of my deductible are available immediately. With the HDHP and the HSA, however, the funds aren’t available until they have actually been contributed. Advantage: HDHP since I can max out the HSA and keep the money when I leave the company and it’s not use it or lose it. This will net me a non-state tax savings of 28% (marginal federal tax rate) + 1.45% (medicare tax) = 29.45% or saving me $809.875 on my taxes by maxing out the HSA.

Total financial bottom line is as follows for the year, including deductible, and coinsurance (ignoring premiums since they’re the same):

  • The CDHP will cost me between $0 and $1,500.
  • The HDHP will cost me between $-500 and $2,500.

The HDHP could cost me more money, but the additional tax savings between it (maxing out the HSA) and the CDHP is $809.875, which is $190.125 short of the difference in out of pocket maximums between the two. The likelihood of hitting the out of pocket maximum on either is reasonably low since that would be either $11,000 or $16,500 in total health expenses for the year.

I’m definitely leaning towards taking the HDHP for this year, maxing out the HSA at $3,250, and then re-evaluating again next year. I would use the HSA funds to pay for medical expenses throughout the year, which would be great as a budgeting tool for that. Who knows, maybe it would make sense to switch back to the CDHP next year if I have a bunch of planned health expenses. And then I can transfer my HSA to a credit union or other institution, earn some interest on it, and use it to pay for expenses. In retrospect, this exact same math on the tax savings existed last year since there is no difference in the two plans from last year, but the fact that I had planned expenses that would get me over the CDHP deductible made me want to go for it instead.

Readers, do you have an HDHP/HSA plan at work? What do you think about it?

Today, I am thankful for having insurance on my car.

So I guess this is why I insure my car. I have a pretty good insurance policy, with a $1,000 deductible. My car sustained some damage last week, for which I was not at fault and the cost to repair is well over the cost of my deductible.

What is my insurance covering?

  1. All repair costs above my $1,000 deductible
  2. A rental car, for up to a month

The rental car should definitely make this less of a pain and I found a repair shop not too far from my office and home, but so far, it’s just been a bit of a shock. A bit of a shock that my car has this damage. This is the first time that something of this level has happened to my car. I’m quite surprised at the level of emotional attachment that I seem to have acquired to my car. I’m hopeful that my insurance premiums won’t go up or if they do, not by much, since this damage was not my fault.

As you all know, I keep some money set aside in my reserves fund to cover my car insurance deductible. I’m going to use this money to cover the deductible, but then that leaves me with an empty car insurance deductible reserve fund. I’m debating how I will replenish this fund and whether I will:

(Original plan) Pay an extra $2,200 against the mortgage from my October paycheck at the end of the month

  1. Replenish the car insurance deductible with the full $1,000 this month and pay an extra $1,200 against the mortgage from my October paycheck at the end of the month
  2. Follow the original plan and never replenish the car insurance deductible fund since really I can pay for this problem out of extra cash flow
  3. Replenish the car insurance deductible at some rate of say $200/month and then pay an extra $2,000 against the mortgage from my October paycheck at the end of the month

Honestly, I”m most likely going to go with option #1. Having the funds set aside specifically for this, even though I have plenty of other savings made this a lot less stressful.

Happy Monday, readers, Happy Monday.

Wait, my insurance cost for the year would have went DOWN by buying a condo?

Note: This post was originally written and meant to be posted around closing on the condo. I’ve adjusted it so that it still makes sense.

This is absurd! A week before closing was scheduled, I called my insurance company to finalize the new condo insurance policy and cancel my renter’s insurance policy as of the day the lease on my apartment ends.

We managed to get the condo insurance policy set at about $155, which is $45 more per year than my renter’s insurance policy of $110. That extra amount is acceptable since they are insuring more than they are in my rented apartment.

The point in the conversation where I became flabbergasted was when the insurance agent started asking me questions about my auto insurance policy. I explained that I’ll probably drive to work on average once per week after I move, so I expected the cost of my auto insurance policy to go *up* by a small amount.

I asked the lady how much my auto insurance policy would go up after I move and she started telling me that it was going to go DOWN. And I’m going “What?!?! My auto policy is going DOWN by telling you I’m going to be driving more?”

It turns out that when they drafted the new condo insurance policy for me, they re-pulled my credit score and it was much better than the last time they checked it, so that saved me about $50. Condo insurance policies are slightly more expensive than renter’s insurance policies and cover more, so my “home+auto discount” improved to save me about $100. They also price based on zip codes and my condo is in a different zip code than my apartment is, saving me just under another $200.

Let’s compare my insurance costs for the year pre-buying the condo and after buying the condo:

BEFORE:

  • Renter’s insurance = $110
  • Auto insurance = $1,600
  • Total = $1,710

AFTER (Condo):

  • Condo insurance = $155 (+$45)
  • Auto insurance = $1,300 ($-300)
  • Total = $1,455 (-$255)

So I would have saved about $255 per year in insurance costs by moving and buying a condo or about $21/month. I wasn’t complaining, but I’m still flabbergasted by this concept.

Now what happened with the whole move to a new apartment instead of buying a condo?

AFTER (Apartment):

  • Renter’s insurance = $96 (-$14)
  • Auto insurance = $1,470 (-$130)
  • Total = $1,566 (-$144)

I, unfortunately, didn’t get to keep the full auto insurance policy discount since I no longer owned a condo, nor did I change zip codes, but I did at the very least get to keep the credit score improvement and that also helped the renter’s insurance policy, so I still saved some money on insurance through this process. I will definitely be calling them at the very beginning of my next policy year to re-pull my credit and see how that changes my policy cost! I will probably try to shop around for insurance when I look at buying a different condo, just to make sure that after almost 2 years, I’m still getting the best deal on my policies.

Readers, have you ever saved money by doing something you were already planning on doing like I have with my auto insurance? Are you as surprised by my insurance company as I was? How often do you shop around for your insurance policies?

This is Why I Have Emergency Reserves

My emergency reserves situation currently looks like this:

  1. Auto insurance deductible: $1,016
  2. Health insurance deductible: ~$920
  3. Renter’s insurance deductible: $508
  4. Job loss fund/general reserves: $21,600 or 6 months expenses at $3,600 per month (expected new level), with the first $7,200 or 2 months expenses at my credit union

I’m not completely convinced that this qualifies as an emergency, but I was definitely worried that my finances were going to contract with moving to a new apartment. I ended up paying more than normal in rent for the month of February (overlapping rent between the two apartments) and I also had to pay an application fee and shell out a refundable deposit.

This is exactly why I have emergency reserves. I didn’t think I would need to use more than $5,000 out of my emergency reserves, but I actually ended up using under $2,000.

On top of that, I’m having some out-of-network insurance costs which were unexpected to begin with, but also higher than “normal” since I pay a slightly higher rate on out-of-network charges. Thankfully, I have an out-of-pocket maximum which I will hit before using up all of the reserves for my health insurance deductible.

I’m going to use my reserves for my health insurance deductible to cover all of my out-of-pocket health expenses for the rest of the year. That way, I’m not worrying about my cash flow contracting due to the additional expenses and instead, I’m taking care of my health.

I’ve been using my reserves for the health insurance deductible to cover my out-of-pocket health expenses this month and I will continue to do so for the rest of the plan year (through the end of March).

The new plan year starts soon, at which point my deductible would be fully reset, with new funds available from my employer to cover it and fresh funds in my FSA. Since my FSA and my employer’s funds cover my deductible and a little bit more, I should have a few months before I need the funds out of my health insurance deductible reserves, if at all. I’ll set aside some savings starting with my April paycheck to help refill the reserves.

I am so glad that I specifically set aside money for my health insurance deductible, in addition to 6 months of expenses at my previous level of spending ($3,000 per month). That definitely helped my sanity and financial anxiety at this point with all of the other (e.g. moving) stress going on this month.

This is actually the first time I’ve had to dip into my emergency reserves since I started my job a few years ago, which is a really good feeling. Now I’m realizing exactly why you keep them in cash and somewhat easily accessible. I’ve also been using my emergency reserves for the various moving expenses.

Readers, when is the last time that you used your emergency reserves?

We finally have a HSA/HDHP!

My employer is finally offering us a high-deductible health insurance plan (HDHP) with a health savings account (HSA) this year. I am strangely excited about this! Now let’s figure out if this makes sense or not.

I’ve definitely ruled out the HMO and the PPO – they are way more expensive than the consumer-driven health plan (CDHP) or HDHP and the premiums just keep going up every year…

I’m still not completely convinced that my birth control pills will actually be free come August 1st, so I’ll do the math both ways.

Here are the commonalities between the CDHP and HDHP choices:

  • Premiums are $X per month on both (same monthly premium).
  • Employer will pay the first $500 of my deductible.
  • Projected total costs for the plan year (not including premiums and before any deductibles or coinsurance amounts kick in) are between $1,000 and $2,300 (higher end assumes paying for birth control pills past August 1st and lower end assumes that stops then, plus taking some other projections off).
  • Past the deductible, I pay 10% in-network and 30% out-of-network.
  • There is a deductible and an out-of-pocket maximum on both plans.

And the differences between the two plans:

  • Both the deductible and the out-of-pocket maximum are $1,000 on the CDHP, but $1,500 on the HDHP. (So the total stop-loss for me is $1,500 on the CDHP and $2,500 on the HDHP – $500 is covered by my employer in each case.)
  • With the CDHP, the portion my employer covers of the deductible ($500) rolls over from year-to-year so long as I stay with the company and disapparates into thin air if I leave. On the other hand, with the HDHP, the portion my employer covers of the deductible ($500) is really that money being put into my HSA, which I can keep if I change employers.
  • With the CDHP, I would put some money into a FSA to cover my base level of forecasted expenses for the year. All of those funds and all of the funds my employer will pay to cover their portion of my deductible are available immediately. With the HDHP and the HSA, however, the funds aren’t available until they have actually been contributed.

Total financial bottom line is as follows for the year, including premiums, deductible, and coinsurance:

  • The CDHP will cost me between $790 and $870.
  • The HDHP will cost me between $1,000 and $1,300.
  • The HDHP will cost me between $210 and $430 more for the year over the CDHP.

Wow! I hadn’t expected the cost difference to be quite that high, but I suppose that is because I am projecting my total costs to be close to or above the deductible, which is $500 higher with the HDHP while the monthly premiums remain the same. With the above numbers, it looks like my best bet is to stick with the CDHP for another year and re-evaluate if the math makes more sense to switch to the HDHP next year.

Since I plan on using my employer’s full $500 contribution if I go with the CDHP, the benefit of them contributing to a HSA on my behalf is null and void. And since I don’t plan on leaving my company within the next year, I think that the CDHP/FSA route is better for me than putting a bunch of money into an HSA. Though the HSA could be cool since I could stock it up this year and then whatever I don’t use rolls over and I wouldn’t have to put as much money into it the following year (versus ending up way underestimating my FSA contributions), but I don’t think that’s worth the extra $500 on the deductible and $500 increased out-of-pocket maximum level.

Readers, does the CDHP choice look like a no-brainer again for me?