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The Power of $50

After the $2 bill, the $50 bill is the rarest in circulation. It bears the image of Ulysses S. Grant, one of the most consequential and interesting leaders in American history1.

$50 saved is modest: forgone lattes, dedication to an older vehicle, or a rounding error for some. $50 saved every two weeks can offset most of the out-of-pocket healthcare costs in retirement while funding the card swipes for care today. It’s also less than half the gap in annual premiums in two common insurance plans2. For most, this advice works: buy low. Save the difference in premiums.

Out-of-pocket costs are actually pretty modest, especially when stretched over multiple years and normalized. Mean reversion can be your friend. What goes up must come down. Few young people are high users over multiple decades. While bad luck and big health interventions do happen3, most health expenses in working years are pretty small. It’s the least steep part of the human depreciation curve, or the age-gender utilization that actuaries use.

Where did I get $50? The short version: an analysis of a 3,000 employee midwestern manufacturer. 3 years of continuous healthcare claims, single coverage, a multiple regression with statistical significance on age and gender factors, ~$50 is the average for a 27 year old male.

A 27 yr old male with a typical healthcare plan4 can expect to spend $46 per month on average ($0 low, ~$100 high)5

 

 If you double that, spend half and invest the other, growing the contributions at 3% per year and assume a 7% return, you’ll have a cool $160,000 at age 65, in line with what Fidelity currently estimates one should expect for healthcare costs in retirement. 

As 2020 comes to a close, it’s worth remembering that health and money are two areas where everyone has skin in the game (I highly recommend Taleb’s book of the same name). Dollars give us time and our health is one of our most important assets.

$50 is a good starting point. It’s rare to do. Still only 5% of HSA account owners invest part of the balance. Start young. Premiums are forever. Get enough runway and you could pay for over much of the healthcare costs in retirement and some of the accidents along the way. We won’t all close the deal by writing dramatically successful memoirs like Grant. 

Disclosures: my personal healthcare coverage is a $5,000 deductible cost-sharing plan (non-ACA compliant). Healthcare investments: Cigna, IPOC (Clover Health SPAC), HealthEquity.

Send a note if interested in the out-of-pocket tool or calculations. https://olavigroup.com/oop/

Photo by Library of Congress on Unsplash

Footnotes

  1. Grant led a fascinating life. Poverty, alcoholism, failure after failure until he thrived as a Civil War general and eventually became president, the first president to do a global tour after. In his old age, he sat down, dying of throat cancer, and wrote his memoirs, desperate to save his family from penury. It worked.
  2. single coverage PPO vs. HMO in 2020 Kaiser Employer Survey
  3. I had a partial parotidectomy at age 27 (in 2008) and my employer via self-funded insurance, paid $25,000--my bill was $5. Those were the days.
  4. $2,000 deductible, $5,500 out-of-pocket max
  5. average comes with all the caveats of averages; high is the modeled number based on the 80th percent confidence interval.
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