Insurance Increases

[ferco]

Confusion in FIRE planning: How does anyone planning FIRE deal with the annual increases in Health, Auto and Home Insurance. What number do you use to project? Premiums for Health Insurance rose 18% Home Insurance 15% Auto Insurance 10%.....the numbers are all over the place. They certainly aren't tied to the CPI. How does Firecalc account for these wild increases if they assume increases based on some markedly smaller number like 3% inflation rate. Most of us don't have COLA driven pensions / health plans, so what do most folks do to project ahead or do some folks just drop the insurances all together and just pray for no bad outcomes.

 

[REWahoo]

With the exception of health insurance, I'm not sure your premium increase experience is typical. In my case I've seen increases of 10-15% per year in health premiums over the past few years, but my auto premiums have been reasonably flat and my homeowners insurance has actually declined by more than 25%.

Not saying my history is more representative of the real world, just pointing out everything doesn't necessarily go up by double digits each year - other than health insurance.

 

[dex]

What number do you use to project? Premiums for Health Insurance rose 18% Home Insurance 15% Auto Insurance 10%.....the numbers are all over the place.

I don't know how FIREcal handles it. And, estimating is difficult. The number can increase generally and for your age - health ins, age of your home - home ins for example. Also, as fewer people pay into the ins. co. due to being out or work or other issues the premiums can increase more.
If, the past increases are as you outlined them above, then you should use those projections for each line item in your budget.

 

[walkinwood]

Projecting increases of 15% way into the future leads to very unrealistic numbers. If your premiums are $10,000 today, it would be $40,455 in just 10 years.

 

[dgoldenz]

Projecting increases of 15% way into the future leads to very unrealistic numbers. If your premiums are $10,000 today, it would be $40,455 in just 10 years.

By that point we will have a single payer system anyway. As I have always said, at some point people will say screw it and take their chances. I'm guessing that happens well before $40k/year for premiums.

 

[Independent]

Confusion in FIRE planning: How does anyone planning FIRE deal with the annual increases in Health, Auto and Home Insurance. What number do you use to project? Premiums for Health Insurance rose 18% Home Insurance 15% Auto Insurance 10%.....the numbers are all over the place. They certainly aren't tied to the CPI. How does Firecalc account for these wild increases if they assume increases based on some markedly smaller number like 3% inflation rate. Most of us don't have COLA driven pensions / health plans, so what do most folks do to project ahead or do some folks just drop the insurances all together and just pray for no bad outcomes.

I compared Auto, Homeowners, and RE Taxes from 2004 thru 2010. There were some sharp annual bumps. but the long term trends weren't bad. HO had a big step from 2008 to 2009, which hasn't reversed. I wonder if my carrier (State Farm) had investment losses that made up some of that. Still, the 6 year average increase was 6.6%.

Auto/Home aren't very large expenses as a percent of our total. RE Taxes are a bigger deal, but they've been well contained in my area (from $1,828 to $2,182).

Health care is a completely different issue. I wouldn't be afraid to project a high number to age 65, with a step down to Medicare then.

 

[dex]

Projecting increases of 15% way into the future leads to very unrealistic numbers. If your premiums are $10,000 today, it would be $40,455 in just 10 years.

If you are paying 833.33/mo now or 10K/yr it isn't unrealistic - it is just math.
What are the details for the policy that you are paying 833/mo.?

 

[dex]

Health care is a completely different issue. I wouldn't be afraid to project a high number to age 65, with a step down to Medicare then.

I haven't researched this. But does it really go down when you consider the supplemental ins you need to buy for part B(? or whichever letter it is) and for drugs. My mother 92 pays 170/mo for the supplemental plus the medicare premium (I don't know the number - maybe she is on medicaid, I don't remember).
170 - 2 supplimental policies
254 from the web site
96 part B
520 total
That 520/mo. is a good policy for a private ins. policy today.

Check the numbers - I'm not sure if I got it right.


https://questions.medicare.gov/app/answers/detail/a_id/2260/~/medicare-premiums-and-coinsurance-rates-for-2010

I have ten years to go until 65. Again, without doing/knowing the numbers my guess is that my age 65 costs will be close to my age 64 costs. After that I'm guessing by the time I'm 70 we will have a single payer system. My costs will then go down or be pretty flat as I dump the costs on the younger generation that is still working.

Maybe others can contribute with their experience.

 

[dgoldenz]

$424/month is a lot cheaper than most policies for someone in their 60's on the individual insurance market....

 

[Bikerdude]

Year to year I project a 10% increase. Some years its more, some years less, but the 10% estimated increase from the previous year (actual) number seems to work for me. I agree projecting out more than a year or two is not effective.

 

[dgoldenz]

The individual market has been much more than 10% increase the past few years. Most of my client's policies have been 20-35% increases over the past two years.

 

[kevink]

$424-525 per month could easily amount to 33% or more of the income of an older retiree living on SS. To get back to the OP's question no, I don't see any way to plan for 20-40% annual increases in health insurance premiums. I'm with dgoldenz - capitulation to single payer (which works okay for the rest of the industrialized world) is inevitable, but who knows when.

For our own sanity we set a ceiling on what % of our net draw we were willing to fork over to the insurance companies as well as total % of income devoted to health care (i.e. actual care plus the premiums). When it became obvious that we'd be looking at 20%+ of net squandered on supporting insurance companies we moved to Mexico. No regrets - except that living in our homeland is no longer an option due to an insane health care system.

 

[dgoldenz]

The problem with single payer is the costs remain the same and someone still has to pay for them. Until cost control is done, does it matter whether you pay insurance premiums or taxes? That's probably more suited to a political forum post though, so I'll leave it at that.

 

[dex]

we moved to Mexico. No regrets - except that living in our homeland is no longer an option due to an insane health care system.

I think the problem with living outside the USA is when you are at an advanced age and frail - take a walk through a retirement home with people 80+ years old.

Are you plans to remain in Mexico at that stage?

 

[REWahoo]

Every situation is different, but for comparison here are my increases for the past three years on an individual BC/BS policy:

Age 61 - 6.5%
Age 62 - 8.7%
Age 63 - 14.8%

 

[dgoldenz]

Every situation is different, but for comparison here are my increases for the past three years on an individual BC/BS policy:

Age 61 - 6.5%
Age 62 - 8.7%
Age 63 - 14.8%

Not bad....though I suppose it would depend on what the rates were when you started. Some of my clients would kill to only have a 7-8% increase...I had a BCBS policy myself that was HSA-compatible and jumped 35% last year, so I therefore jumped ship to United Healthcare.

 

[REWahoo]

The age 61 rate increase was based on a premium of $216. I'm now paying $287. It is a HSA-compatible policy and I'm less than two months away from what should be my final increase at age 64. Last chance for a zinger...

 

[dgoldenz]

That's still incredibly cheap even if it's a $5k deductible....other than BCBS you would probably be looking at double that price.

 

[Bikerdude]

The individual market has been much more than 10% increase the past few years. Most of my client's policies have been 20-35% increases over the past two years.

I think your client's need a competitive quote.

 

[dgoldenz]

I think your client's need a competitive quote.

The healthy ones usually switch companies from year to year to whatever is the best deal at that time. The unhealthy ones don't have much choice though....a quote is meaningless without taking into consideration the medical background. Would you switch companies if it required an exclusion rider for your back? Or knee? Or foot? Probably not....just ask anyone who has ever had a $50k surgery denied for that very reason whether their "competitive quote" did them any good.

 

[Nords]

Confusion in FIRE planning: How does anyone planning FIRE deal with the annual increases in Health, Auto and Home Insurance. What number do you use to project? Premiums for Health Insurance rose 18% Home Insurance 15% Auto Insurance 10%.....the numbers are all over the place. They certainly aren't tied to the CPI. How does Firecalc account for these wild increases if they assume increases based on some markedly smaller number like 3% inflation rate. Most of us don't have COLA driven pensions / health plans, so what do most folks do to project ahead or do some folks just drop the insurances all together and just pray for no bad outcomes.

FIRECalc just uses a generic rate of inflation, the CPI, without trying to put a number on each & every expense category. While individual categories may be all over the place, the overall rate of inflation may be 3-4%. Of course FIRECalc also assumes that past is prologue, not 1981 all over again.

Once you're retired (and perhaps as you get close to ER) you'll have the time to shop around and tailor your coverage to your exact needs. Some insurance companies will offer price breaks on home/auto premiums because you're retired. (You're home more often, you're driving less.) Some medical insurance coverage may change once you're no longer "employed", although I'm not an expert in that area. You may also choose to go the self-insurance route with higher deductibles.

If your ER plan works when you assume 3% inflation but falls apart when you assume 3.1% inflation, it's a warning sign that your ER plans are very thinly capitalized and may even lack sufficient reserve for surprises.

 

[Bikerdude]

The individual market has been much more than 10% increase the past few years. Most of my client's policies have been 20-35% increases over the past two years.

I think you are focusing on health care insurance rates. The OP's question concerned the increase of ALL insurance.

 

[walkinwood]

If you are paying 833.33/mo now or 10K/yr it isn't unrealistic - it is just math.
What are the details for the policy that you are paying 833/mo.?

Dex, I was illustrating the math.
But, in NJ, $10K/yr to cover 2 people is in the ball park. Check on eHealthInsurance.

 

[fisherman]

Over the last three years of ESR we have had the following changes in Ins. The numbers are monthly and are from 2007 and 2010

Home owners Ins. $76.92 to $92.17

Car Ins. Has not changed

Real Estate Tax $259.67 to $282.38 Just for our primary home. I left of the Lake House for this comparison

Health Ins. for a family of four. Deductible was $5K to start and is now $7K.
$371.91 to $456.77 The biggest increase was this year but we went to a $7k deductible to help offset it. I project 15% increases for this area and yes the number gets really high toward the end. I doubt this will continue.

Liability Ins has not changed

Long Term care $17.50 to $22.65

We projected our over all inflation rate for the other budget items to be around 3.5%. In the previous three years we have been comfortably below budget on spending as several categories had plenty of padding and we had years of data to start with.

 

[scrabbler1]

In my budget spreadsheet, I input one inflation rate for medical costs and another for everything else (including other types of insurance such as auto). When I was first developing my 20-year ER budget to get me to age 65, I had 7% for Med (including dental which is all out-of-pocket but not very high) costs and 3% for everything else. In the "everything else" category, some items rise by a little more than 3%, others by a little less, and others are unchanged.

However, I have since changed that to 10% for Med and 2% for everything else. But that 10% figure may be too low because my HI premiums rose by 20% for 2010 and will rise another 25% for 2011. At a 20% inflation rate, my Med costs (single, no kids) will triple in 6 years to nearly $20k and will cost me $167k when I turn 64! Very scary stuff.

Someone in E-R.org posts a link to an online calculator which will show how much less we pay for HI due to the recent reform. There is a cap on the amount paid via tax credit relative to a percentage of our income. I did not build this into the spreadsheet because, frankly, I don't know the method by which this is calculated.