The REAL Cost of Healthcare Premium Caps

[ScaredtoQuit]

Like so many companies across the country, my employer has decided to cap their contribution to the healthcare plans of early retirees. Actually, they announced the cap more than five years ago, however, healthcare premiums are just now getting to the point that they are approaching the cap. I ran into an article recently that said healthcare inflation is running at 8%. So I decided to run some numbers on what I could expect my healthcare premiums to be over the next 10 years before I am eligible for Medicare.

The results were eye-opening. Following is a chart that projects the monthly cost of my healthcare premium along with my share of the cost based on a quote I got from my HR Manager:


Covered My
Total By Share
Year Premium MegaCorp of Cost

2007 440.06 343.25 96.81
2008 475.26 343.25 132.01
2009 513.29 343.25 170.04
2010 554.35 343.25 211.10
2011 598.70 343.25 255.45
2012 646.59 343.25 303.34
2013 698.32 343.25 355.07
2014 754.19 343.25 410.94
2015 814.52 343.25 471.27
2016 879.68 343.25 536.43
2017 950.06 343.25 606.81

As you can see, the effect of having a cap is to transfer a greater and greater portion of the cost of the premium onto the insured. And this is only for individual coverage!! (The HR Manager answered my question via email and did not give me what I asked for.) My guess is that a family plan will be about twice this!!

Have many of you guys taken this into consideration in your projections?? Since I have decided to get a part-time job after I ER, I think I will be okay. But if you haven't planned for this, it could really be a bite in the you know what!

[maddythebeagle]

Somehow, I dont think you can figure 12 years out...who knows what will happen by then on health care....I really dont think things will be as they are now (at least I hope so )...but even so, you dont think that your portfolio can make 7-8% a year to make up for the difference? Seems like I would be happy if my former employer was kicking in something and quite a few folks here have posted insurance costs in the 12k+/yr. range...

[ScaredtoQuit]

I will be okay.

The point I was making is that here is a substantial cost that some people might not have thought of... particularly those who are retiring from corporations that have historically born such things.

[Martha]

When healthcare inflation was running at 11% I posted a similar analysis how costs would increase over 20 years. I can't seem to find it now. But in relatively short order healthcare would not be affordable to most people. Something simply will have to happen before we hit that point. But it will probably get a lot worse before it gets better. The middle class has to feel the pain.

One positive development has resulted from the fact that smaller employers are having a harder and harder time buying insurance for their employees. They want their employees insured and are getting more and more vocal about cost problem.

Because we feel costs are going to rise for the forseeable future, we have built excess into our budget to address those costs.

[youbet]

Quote:

Originally Posted by ScaredtoQuit Like so many companies across the country, my employer has decided to cap their contribution to the healthcare plans of early retirees...... Have many of you guys taken this into consideration in your projection

Same kind of deal with my retiree med plan. Megacorp announced the cap a number of years ago, back-tracked and gave us some slack after that, but now is enforcing the cap. Most folks were in denial until that first increase showed up in January 2005, and it was a whopper! There was much whooping and shouting and acting surprised, although the situation had been widely published to everyone involved for a long time. Folks just didn't want to believe, or didn't understand, what they were reading I guess.

I have six years until Medicare and have budgeted to cover the increases using calculations similar to yours.

[RASAP]

Yeah, my company has a healthcare plan cap too. The maximum they will pay for retired employees healthcare insurance is $0.

[Gone4Good]

Quote:

Originally Posted by Martha When healthcare inflation was running at 11% I posted a similar analysis how costs would increase over 20 years. I can't seem to find it now. But in relatively short order healthcare would not be affordable to most people.

Yes. It's impossible for health care spending to grow significantly faster than the economy as a whole indefinately. I think the law of large numbers is already starting to take hold and is probably the reason for the deceleration from 11% to 8%.

One can only hope.

[KM]

DH's company announced a few years ago it was pulling all subsidized retiree medical care as of this year. If you were retired before this year, you got it. If not, you didn't. You can imagine the uproar that caused from people that couldn't retire until 2007+.

Fortunately my company still offers a fairly good subsidy (albeit capped), but I can't get it untill 55. I pray every day they don't do what DH's company did, although more and more companies are doing that. I am greatful they offer any type of subsidy.

And I am currently estimating $1000/mo (in 2007 dollars) for the two of us. That's almost twice what it appears it will be, but I always overestimate on high-unknown items.

[cute fuzzy bunny]

What Martha said.

Plain and simple, the costs will become so high that most people wont be able to afford it, which will hustle in one of two replacements: universal type health care or more of the wal-mart type el-cheapo clinics and drugs backed up by very high deductible lower cost "disaster" health care plans. Many will probably not opt for the backup plan and will go bankrupt if they have a serious illness or accident.

[mykidslovedogs]

I don't think retiree benefits will exist in the near future.

If you're healthy now, you might want to think about an individual policy. Premiums don't seem to be as out of control in the individual market as they are in the group market, because these policies are medically underwritten, so the pools of insured members tend to be a lot healthier than they are in the group market.

[Bikerdude]

I ER'd in 2000 and my HC policy cost about 2K. Now it costs 6.4K and I pay 34%. My cap is 7.5K. When I got my first big increase I did the same as you and did some math. However, so far it has not been as bad as I had thought (although I still have 6 yrs. to go until MC) so my advice (for now) is to "chill".

[BUM]

I think HC premiums are our #1 expense... even more than food. We just got notified that they are going up another $100/month. The "grand-a-month" conservative estimate noted above is what we're paying NOW (no megacorp handouts here).
We've budgeted and planned for it in our pre-ER calcs. Nationwide, sooner or later somethings gotta give.

[lets-retire]

BUM kind of brought this to the front of my mind. What happens to health care costs once the boomers die off? The number of elderly, and total number really, who need care should drop dramatically. Shouldn't the costs stay steady or drop during this time? Many millions have been made and lost because of the actions of the boomers.

[BUM]

Quote:

Originally Posted by lets-retire BUM kind of brought this to the front of my mind. What happens to health care costs once the boomers die off? The number of elderly, and total number really, who need care should drop dramatically. Shouldn't the costs stay steady or drop during this time? Many millions have been made and lost because of the actions of the boomers.

Whatever you're smokin' send some over here

The oldest boomers (1946-1964) are only just now starting to retire. We've got about 20 years worth of folks to get thru. If we're talking dying - add another 20 - 30 years to that! Demographics don't lie. Any reduction in HC costs wont be a function of a decreasing population.

Hate to say it, but dead boomers will be replaced by kids, grandkids, and aliens (legal and otherwise). The population won't get smaller, quite the reverse.

[lets-retire]

BUM--I understand they are just starting to retire. The point is they are the largest single group in America and since they are getting to the age where their health care needs are going to go up drastically, I think there will be an even bigger need for more doctors. I think you will start to see the eldest boomers dying off in about the next 15 years and the numbers will increase each year until they are pretty much gone. During that time the boomers will flood the Medicare system leaving fewer and fewer, or best case scenario the same number of people, paying for the benefit. With more people using MC and the payouts being so low that would have to cause both taxes and insurance rates to go up quickly. Once this large group is essentially exhausted the MC system won't be as stressed and the private health care insurance will have to cover less of a shortfall.

I think you might be correct in that the population will stay steady or slightly grow, but with the largest group of people entering the point in their lives where health care is used the most wouldn't it make sense that the system will be overloaded? So once this large group of people die off wouldn't it also make sense that the system will see an easing of the load when they are gone?

[Bikerdude]

Quote:

Originally Posted by lets-retire So once this large group of people die off wouldn't it also make sense that the system will see an easing of the load when they are gone?

IMHO HC will become a government program in the not to distant future. Now, given that scenario, when have you seen a government program get smaller or less expensive.

[lets-retire]

Bikerdude-- I saw it once back in......Oh never mind I was wrong. I think if universal health care does not develop during the next presidency it probably will when the boomer's overload the MC system causing private health insurance rates to increase quickly.

Other boards I go to that have a more centrist bent to them seem to think universal health care will be a long time coming. This is the only board I go where many of the participants are for it and think it will happen very soon.

[Independent]

ScaredtoQuit -

I did the same calculation that you did and had the same reaction. I also understood that my prior employer could completely cancel retiree health care benefits anytime they want to (and I expect they will at some time in the future).

My personal plan was to wait till 59 retire, so I only had 6 years till Medicare. Also, and more important, to build up enough assets that I could cover a significant increase in medical expenses. I'd rather spend the money on "nice to do" stuff, but it's there for "have to do" if necessary.

Then I figured I was in better shape than many of my contemporaries, so when/if the wheels come off Medicare, they'll be yelling for changes before I do.

[cute fuzzy bunny]

This is why I frequently squawk about keeping an eye on your actual/potential spending rate increases rather than just rely on CPI, which doesn't include cost increases in health care as most urban workers get it as a job benefit.

[Gone4Good]

Quote:

Originally Posted by lets-retire This is the only board I go where many of the participants are for it and think it will happen very soon.

No shocker that a board populated by early retiree hopefuls is generally in favor of having healthcare funded through income taxes.

As far as happening soon, I'll take the under. No major change happens without national consensus, and we're still a long way away. At best we might have a plurality that agrees the current system is broken, but not on how to fix it. Besides, as long as people continue to think they can have a free lunch (i.e. free health care, in unlimited quantities, and on demand) we'll never get to a consensus solution.