The biggest concern many would-be retirees have, at least in the US, is the cost of healthcare.
Not only is healthcare more expensive in the US than in every other industrialized country. There’s also no national health insurance system to control costs or standardize care quality…unless you’re a senior or very poor (or both).
In fact, were it not for worries about healthcare, there would undoubtedly be way more US retirees out there today. The average retirement age would drop noticeably.
Because no less than your retirement security is at stake, healthcare financial planning is retirement planning.
That’s why I invited Bo Bowen to the podcast today to share his unique perspective on healthcare financial planning in retirement. Bo is both a healthcare practitioner (pharmacist) and a certified financial planner who has specialized in advising on healthcare financial planning and retirement health insurance. His dual background gives him unique insight into the way healthcare financial planning is crucial for retirement security.
- The biggest challenges retirees face when it comes to healthcare planning
- What retirees should think carefully about when it comes to health insurance in retirement
- How those considerations change depending on your retirement age
- Checklist for choosing the right health insurance plan if you’re retiring soon
- Common mistakes retirees make when planning for post-retirement healthcare
- When self-insuring might be your best choice in retirement
- How medical tourism can play an important role in retirement healthcare
- What retirees should know about buying health insurance on ACA marketplace exchanges
If you’ve already retired, what do you do for health insurance? Knowing what you know now, what (if anything) would you do differently in terms of healthcare planning in the years before retiring?
If you have NOT retired yet, how big of a factor is healthcare and health insurance to your decision of when to retire?
Let me know by leaving a comment.
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Andrew Chen 01:33
My guest today is Bo Bowen.
Bo is a licensed pharmacist, who started out working as a pharmacist, but after a few years switched careers to become a certified financial planner.
In that capacity, he focused on advising individuals and families planning for retirement about the nuances and complex considerations of planning for healthcare and health insurance in retirement. His primary work was advising clients on healthcare financial planning.
And he did that on a non-commissioned basis, which means he wasn’t getting paid to sell insurance plans. His firm was just charging for the financial advice, so he would have been in a position to provide objective advice squarely aligned with the client’s interests.
After several years of financial advisory work, he left the financial planning world to go back into pharmacy practice, where he’s been working since.
So, he’s seen the practice of healthcare from both the provider side and from the financial planning side as it relates to health insurance planning.
So that’s why I’m excited to have Bo on the podcast today, because I think he has a really unique, relevant background, and can bring a unique perspective to helping early retirees think about health insurance planning in retirement.
So, hope you enjoy this conversation, and let’s jump into it!
Could you share a little bit about: why did you decide to specialize in health insurance consulting as a financial advisor in your prior career?
Bo Bowen 04:11
Yeah, good question. I had always been really interested in finance in general. I guess I had a really privileged upbringing, not in terms of financial resources being handed to me, but financial lessons.
For example, my first job was when I was 15, in ’98 or ’99, and my grandmother was like, “Hey, if you contribute to this new thing called a Roth IRA, I’ll match you for the first $500 you put in.” So, some early lessons with finance and early investing got me interested in that.
And so, I went to pharmacy school, really just knew nothing about drugs but decided that’s what I wanted to do, thought I could make a pretty good living, graduated in ’09 with a doctor of pharmacy degree. And so, I started practicing pharmacy, did that for seven or so years, worked for Walgreens a little bit while in school and then afterwards, once I graduated.
And along that way, I was just, by default almost, probably saving 70% of my income and not really thinking much of it, just because I was used to living as a college student for seven years while I was going through school.
And so, once I realized, “Hey, this hobby of mine has really been helpful to friends around me,” and so forth, I thought, “Let me transition to financial planning or get into that industry.” So I joined a national brokerage firm, started advising individuals and families on just broad investment topics, retirement accounts, retirement planning, that sort of thing.
And then realized how much I didn’t know, when you’re faced with other people’s circumstances that are totally different from your own, like older folks looking at estate planning. I hadn’t even thought about estate planning. It just wasn’t anything on my radar.
So, I just started seeing other people’s perspectives, led me into trying to fill those gaps to my knowledge, because I just wanted to learn more. And to get to your original question, a big gap was health insurance planning.
I’d just always take it for granted that I had employer coverage, and felt like that was one of those topics that wasn’t really covered much, even once I did do the CFP or certified financial planner curriculum. Only about 17% of that exam even covers any health insurance or insurance planning, and of that, a small subset is Medicare employer, COBRA, on-exchange, off-exchange insurance planning.
So I decided, “Okay, well, this is good. I’m enjoying working with families, but where can I figure out how to become an expert on that area?” And so I started doing some online research, and there’s really not a whole lot of options.
The industry is such that you hopefully work with a trusted insurance agent who you feel has your best interests at heart. And the model has historically been that you buy insurance products of some kind, and a commission is paid to that agent for recommending a health insurance strategy to you, and you hope that they’ve got a wide range of options and they’re choosing the best one, given the information at hand.
But I realized that that model is sometimes conflicted, so I sought out other options. And I really only came across a couple in the country that do health insurance advice on a fee-only basis, and so I applied for a job with that company, working directly with other financial planners, trying to come up with tailored strategies for their clients. And so, really, the financial planners were our clients, and then we just essentially gave advice to their clients on behalf of them.
So, in a way, that business model was forced upon us by the fact that there’s not really a regulatory framework for giving advice when the product itself has an embedded commission paid to whoever sells that product. So, it’s a little difficult to hold yourself out to the public, like “Hey, I’m going to give this great fiduciary level advice to you based on specifics of your situation.” It’s a little difficult to do that.
There was a company based in Nashville, Tennessee, and that’s where I live. I was doing that, so I thought, “Great. No better place to learn more about this kind of niche.”
So, I did that for a little while, felt like I was pretty competent with that, and decided then just to transition back into active pharmacy practice, just because I happen to connect with a friend of mine. But I’m running on now, so…
Andrew Chen 09:55
No worries. How long were you in the role where you were doing health insurance specific advisory work? How long was that period?
Bo Bowen 10:08
It was under a year, somewhere between six months and a year, I think. That’s really where I felt like I got all the benefit I could in terms of the education aspect. And then it was just the more mundane, taking on quite a big workload in terms of serving clients.
So, for me, it felt like I wasn’t really progressing knowledge-wise. I was just doing a job at that point, which the point of financial independence is to do what’s meaningful and fulfilling and where there’s growth, and not so much just slaving away or toiling away, doing something just for a paycheck or whatever.
Andrew Chen 11:00
And how long were you a financial advisor, just all in, both the pre-health insurance part and the post?
Bo Bowen 11:09
Right about five and a half years, something like that.
Andrew Chen 11:16
So the health insurance portion was the back end of that, the last 6-12 months, is that right?
Bo Bowen 11:21
That’s right, yeah.
Andrew Chen 11:24
And what made you want to eventually then switch back to the provider side as a pharmacist?
Bo Bowen 11:30
Really just the culture, the people that you’re surrounded with on a day-to-day basis. I had an opportunity to join a company called Fresenius Medical Care North America. They’re a big dialysis provider.
And really, to be honest, it was just a chance to join a really good team. I had a close friend, who has been a close friend for over 10 years, who was hiring a team of pharmacists, and I said, “Great, I can work with her.”
I also had some influence in terms of talking to some of the other people who were being onboarded at that same time, and encouraging some different applicants that eventually got hired. And so, I came with a team of people that I really enjoyed working with.
And the culture of pharmacy is such where there’s just a certain personality that’s drawn to pharmacy oftentimes. It’s people with servant’s hearts that are just good people.
I think in general, not to say that there’s a reason for this, but there’s oftentimes different polls that show pharmacist is one of the most trusted professions, and financial advisors are usually the opposite, maybe less trusted. Insurance salesmen as well, maybe not highest on the trust rankings.
That’s for a reason, I think, in general. There’s different cultures around those different industries. I was tiring of working for other financial planners who oftentimes weren’t really putting the client first, in a lot of cases, and it just rated on me, because…
Why am I doing this work for people who really don’t deserve the work and effort I’m putting into this, and trying to take care of their clients? So, I’m making them look great and trying to give good advice, but then they’re not really the type of people I want to work with.
That’s probably the majority of that. Not to be negative, but I think in general, just surrounding myself with good people that I enjoy working with was the main driver of that.
Andrew Chen 13:52
Yeah, it makes sense, and my wife would agree. My wife, by the way, is a pharmacist as well, and has been her whole career. She’s definitely the good one in our family, the servant heart in our family, I think.
I would love to get into some of the nitty-gritty, tactical aspects about what retirees should know about health insurance planning. And maybe to start, I would love to get your thoughts on: what do you think are the biggest challenges that retirees, and especially early retirees, face when it comes to healthcare planning?
Bo Bowen 14:28
That’s a great question. Broadly, I’d say it’s just ignorance, certain assumptions that everybody has about health insurance.
What’s the expression? “It’s not what you don’t know that hurts you. It’s what you know for sure that just ain’t so.”
I don’t know if that’s Mark Twain or somebody who said that. That always stuck with me. That’s really true with health insurance planning.
I’ll give you a quick example. So, I had an emergency call working with that healthcare financial planning company I work with, and it was a gentleman who had just lost his job. He was scheduled to have a surgery later, about three weeks away, the following month.
And he’s no longer employed, and he had always been told by colleagues or by friends, or just if you lost your job, you’d often assume that “Hey, I’ve got access to COBRA. This will be no big deal.”
“I’ll just pay my premiums. Maybe they’re not subsidized like they previously were, but this will be fine. I’m already scheduled for this surgery.”
“I’m just going to pay a little bit more for a couple of months, get that surgery done, and then figure out what’s going on afterwards, maybe get a new job, whatever. I’ll figure it out.”
This gentleman worked for an employer that had under 20 employees. He had no access to COBRA whatsoever. And when we started to do the research to see what other options were available, he quickly found out that his provider was not in network for any Affordable Care Act-compliant plans on healthcare.gov.
So, it was like, “Okay, I’ve got to maybe talk to their billing office, see if there’s any cash fee discount they might offer me. Maybe I need to look into seeing a different provider,” which he didn’t really want to do. This surgeon had followed him through other procedures.
So, it’s things like that where I think you just have to do the planning ahead of time, know your situation, know the landscape in your given ZIP code, county, or state, and just really stress test or game plan that scenario out before it happens, before you’re faced with it.
And that might be things like looking at a simple website, like Kaiser Family Foundation, kff.org, has a lot of Q&A sections that have some state-specific information that’s helpful.
Also, healthinsurance.org, another decent website that will have a state-by-state overview of the landscape in different markets, so you can familiarize yourself with what options even exist in this area, especially if you’re moving. There’s just a lot of things like that, and it’s very specific to the area you’re in.
I’ll give you another quick example. Everything was an emergency, but I had a financial advisor email me and say, “This is very sensitive.”
“I have a very valuable client who has a daughter who has gotten pregnant unexpectedly, and she has no health insurance. What does she do?”
And I was like, “Well, first off, if your client is worth tens of millions of dollars, don’t you think you just pay a few thousand dollars for the delivery? I don’t know. That’s just me.”
But beyond that, it’s like, “Okay, where does she live?” In New York, pregnancy is a qualifying event. You can get health insurance on exchange just from being pregnant.
That’s not the case in most states. So, it’s very specific to your locale and your situation, and what’s important to you, and the doctors you want to see.
Andrew Chen 18:45
So it sounds like your geographic location is really important. Are there tips that you would suggest that transcend where you’re specifically located? Given that it’s easy to mess this up, what are some of the tips or important things that soon-to-be retirees should be thinking about and considering and planning in advance when it comes to getting ready to transition off of employer insurance coverage onto whatever the case may be?
Let’s say they’re not yet ready for Medicare. They’re not at the age yet. What are some of the things that they should be considering as just basic strategy?
Bo Bowen 19:38
Basic building blocks, I’d say, is know exactly what your unsubsidized rate for your COBRA would be. For my employer now, we’ve got a few different options, but just as an example, we have an option that’s $10 every two weeks as your premium that’s taken out of your check. The unsubsidized cost of that is about $700 per month.
COBRA typically can be up to 102% of that unsubsidized premium. So, know roughly, “Okay, I’m going to be paying about $700. Should I elect COBRA?”
It’s real simple to use kff.org subsidy calculator, or just healthcare.gov subsidy calculator, to gauge what sort of income situation either you’re in or could be in in the future, should you transition into early retirement.
On that topic, some of the basic tax planning is super easy. In terms of setting aside some cash ahead of that date, it’s difficult, if you’ve never done it, to forecast a marginal rate including the impact of subsidies on the exchange versus your pre-retirement, or before you leave work, marginal tax rate, just comparing those two and trying to make them more level…
…and not realize so much taxable income while you’re working, that you’re not paying unnecessary taxes relative to what’s forecasted for the future. But also, either while you’re on COBRA, if you’re 18 or 36 months, depending on what qualifies you for COBRA, it’s really easy to realize some income…
…because in theory, you may be on COBRA, you’re not earning that paycheck from the job, you’re able to maybe realize some income from your IRA or from 401(k), some other taxable money, capital gains, etc., where you can just live on that basis that’s been realized over that period of time, to bridge for future years of subsidies.
I guess other important things that are pretty basic is just understanding the landscape in your market, like “What options are on exchange for a given county, or what options are off exchange? What does my COBRA look like?”
“And what are other employer plan options?” Get part-time work or whatever. What do those options look like?
In a state like Tennessee, we’re really lucky. Well, either lucky or unlucky, however you want to look at it. Unlucky for the ill-informed, but super lucky for the informed.
We’ve got Farm Bureau options in Tennessee, where they’re not considered health insurance because they’re a member organization that you’ve got to join in order to have access to. But it functions very similarly to other insurance, except they screen out individuals based on preexisting conditions and they’re not compliant with Affordable Care Act but otherwise function pretty well as health insurance, and they’ll be really quite affordable.
That’s been operating in Tennessee longer than any other state since about 1993, if I’m not mistaken. Texas recently got an option with the Farm Bureau in Texas, maybe as of last year, pretty recent.
Indiana has that. There’s several states, maybe around six states in total, that have that option. So, again, just knowing your local landscape is important, so looking at some of those basic websites to just understand what’s available is good.
Andrew Chen 24:01
In your prior role, how would you help soon-to-be retirees choose the right plan? If that is the outcome that would typically happen, how would you help them navigate to get to the right plan that balances their needs, their budget, etc.? Because COBRA, it’s finite, it will run out at some point, and sometimes it’s quite expensive.
So, you might be looking at the Affordable Care Act marketplaces. You might be looking at just the private market, which could be very expensive. Or you might be looking at doing part-time work, like you said, to qualify for healthcare.
But how would you typically, step by step, walk a would-be retiree who’s not as knowledgeable and they just need a framework? I don’t know if you had a framework or a step-by-step process that you would follow to get them to the right plan that balances their needs and budget. How would you do that?
Bo Bowen 25:02
Basically, we create more or less a slide deck or a PowerPoint presentation, and we start with “What drugs do you take?” Write all those down.
“What providers do you value?” If you see primary care that you’re attached to, or you see specialists that you have a relationship with, that you don’t want to lose, let’s take that into account.
And then from there, we just make a grid that would show in-network, out-of-network, with all the different plan options. So, we just manually investigate every health insurance offering in that ZIP code where they lived. If they had multiple residences in different states, we’d consider, “How willing are you to spend more than half a year in this state versus your current state?” and so on and so forth.
So, there’s a lot of manual work involved in terms of just finding out which doctors fit into which networks. That was a big part of it: just making a grid that said, “Here’s all the doctors, here’s all the different networks,” whether it’s the UHC Choice Plus network or it was some other Blue Cross network. Whatever contracting that the doctors would do, we would outline that first.
And it would depend on the person. Some people say, “I don’t care. I’ll just go to whatever doctor.”
Or “It’s fine with me. I don’t have any particular ties to anybody.”
Or they’re moving to a new place, in which case, they haven’t met anybody. In which case, we just send them different options and inform them about what was out there, what the different networks look like, and so forth.
But a lot of times, people would say, “I have to go to Vanderbilt” or if they’re from Nashville, or “I have to go to the Mayo Clinic,” or “I have to have access to those networks because I value the quality of care at those places.” And that would knock out a ton of plans, frankly, just right off the bat.
And then from there, it became a little easier to compare costs versus coverage, and “Do you want more of the high deductible style plan? How valuable is having an HSA, the tax savings with that?” And you just go from there and narrow it down further based on the specifics.
Andrew Chen 27:37
Makes sense. Does that then become an annual consultation that they come back to you for? I know you’re not in the role anymore, but I guess the role like that, does it become a situation where the client really should be coming back, if not annually, then every few years?
Because the drugs you take may change. Where your retirement location is, where you want to stay may change. You might make plans to be close to your grandkids or something like that, and that may necessitate rethinking some of those insurance choices, so that you don’t get left with a surprise when you need to use it and realize you actually can’t use it for one reason or another.
How would you recommend retirees revisit? And on what type of cadence should they revisit this type of assessment or consultation or financial advisor?
Bo Bowen 28:38
That’s a great question. The way that was structured in my previous role is that you would have a pretty routine annual check-in. And then the way it was structured also is that you had unlimited access during the years.
So, if there was a new drug or you’re having problems getting covered, if it required a prioritization or even a more in-depth formula exception, or you needed some additional steps to have the drug covered, we were on call for those sorts of things we well, a white glove service all around, but at minimum once a year.
And then anytime something major changes in your life, oftentimes, you look at the average medical claim, you might see some articles about the average medical claim is $2000, and everybody has in their mind, “Oh, okay, just set aside a few grand, I’m fine.”
It’s not the average, and it’s very skewed in one direction, where you have huge spending on some acute conditions that can occur.
My current role is a perfect example of that, where we only have about a half-million dialysis patients in the country, but the average commercial plan pays about a quarter-million dollars per year for those patients. Medicare pays maybe $80,000 a year for those patients.
And so, you talk about having acute kidney injury, you take too much ibuprofen, or you have some other illness or injury, and suddenly you find yourself in a situation where you’re spending a whole lot of money. Everybody has cancer in their mind, or different examples of costly illnesses. But obviously, you would revisit when there’s any major change in your health situation.
Andrew Chen 30:53
Yeah, makes sense. Do you think the considerations change at all depending on if you’re planning to retire in your 50s versus 40s or even 30s? In what ways should the age at which you’re planning to retire influence how you think about or plan for health insurance coverage?
Or does it? Maybe it’s the same framework analysis.
Bo Bowen 31:15
No, it does. There’s definitely a tremendous amount of uncertainty around not just the cost now, but how those costs will evolve over multiple decades. You look at Medicare spending in general and you know that intuitively, like “Hey, this is not something that I’m going to be able to project really cleanly over the rest of my life.”
And part of that, if you think about just a simple example that comes to mind, there was a news article within the last month that talked about the surprise announcement that Medicare Part B premiums were going to decline year over year. From last year to this year, it went down to about 30%. For this coming year, 2023, they’re going to lower them about 30%.
And everybody is like, “Well, how did that happen?” Healthcare spending keeps increasing at about 4-5% a year, and yet Part B premiums that cover doctor’s visits and outpatient medical services for retirees are declining.
And really, that was due to just one drug that’s covered as an IV infusion, called Aduhelm, for early symptoms of Alzheimer’s. That one drug wasn’t utilized as much as it was projected. And so, you’re talking about one single drug, for one single condition, having a 3% impact on the cost that everyone faces in an entire country.
Andrew Chen 33:00
Bo Bowen 33:02
It’s a mind-blowing example of how just small factors can impact things. Other changes like that are coming in the future. There’s a lot of policy decisions that are trying to control cost by shifting more of the burden to Medicare.
Another example of that is there’s some Part D covered drugs that are, in the next coming years, going to be covered under Part B, simply because Medicare Part B can control costs better. Because they’re a single payer, they can just dictate what they’ll pay for drugs, whereas the Part D landscape is this hodgepodge of private insurers that are all really unable to dictate price to the drug manufacturers.
So, policymakers’ solution to that mess is “We’ll just quietly, for certain conditions, certain drugs, slowly take oral medications for dialysis patients,” saying this certain class of drugs is going to be covered as just a payment for Medicare Part B rather than being covered under outpatient drug benefit. And so, the drugs that cost $10,000 a year will now be covered under Part B starting in the next couple of calendar years.
And so, you really can’t forecast what policy decisions are going to be made, so you just have to try to do the best you can to understand what those drivers are of cost, and try to set aside enough money to navigate it.
Fidelity publishes that annual report that lots of people cite: aged 65 married couple is going to spend x amount on medical services through retirement. And they say 65 married couple, 30-year retirement, what is that going to cost?
I think it’s up to $313,000 or so, and they break that down and say 17% is going to be prescription drugs, and they say 39-40% is going to be premiums for Part B, Part D. The remainder is going to be your out-of-pocket expenses, co-pays and co-insurance, and so forth.
Andrew Chen 35:41
To your point, those are averages still, right? So, if you’re the unfortunate dialysis patient, you could blow through that in a year maybe.
Bo Bowen 35:50
Andrew Chen 35:51
Given the uncertainty, especially the uncertainty of you end up retiring early, are there any tips or suggestions you might have for how a would-be early retiree can have some semblance of analyzing their situation at least semi-quantitatively to try to forecast what their healthcare costs are or anticipate for out-of-band costs?
Maybe there’s not. I’m just trying to see if there’s any better suggestions that we could provide to listeners, better than just guessing or not having any actual quantitative way to forecast. Because it’s a bit unsatisfying and probably worrying if you know that unexpected healthcare costs can arise, and the future is so uncertain. There’s this unknowable.
What suggestions might you have for somebody who is, say, 45, they’re in a position that they can’t retire early, maybe they’re 50, and so they still have a bit of time before they get to Medicare? Are there things they can do, actions they can take, analyses they can do? Maybe it’s run their 23andMe analysis to see what might be hereditary for them, etc.
I’m just curious to get your thoughts on actions that would-be retirees can take if they’re retiring early.
Bo Bowen 37:45
I definitely see where you’re going with that, and I think it’s important to try to get a handle on what you’re facing risk-wise. Me personally, I want to make sure that I can afford the out-of-pocket max on an exchange plan for the foreseeable future and take maybe a 4% inflation rate on that, roughly.
I think probably healthcare inflation, at least prescription drug inflation, has been quite low for years now. People don’t have that in their mind, but generic drugs especially have been falling in price pretty dramatically over the last decade. I think there’s reason to believe that healthcare inflation won’t be significantly higher than overall inflation.
At least lately, it’s been lower than overall inflation. Of course, overall inflation has been really high.
So, I would say being able to look at that out-of-pocket max each calendar year ongoing is definitely plenty of cushion to deal with uncertainties. I would say that the threshold where maybe it would be “Okay, I don’t have that much money set aside to cover that and still have my other budget items covered. Then what?”
Then I think it just comes down to adapting to what comes your way. And just how adaptable you are as a person is going to drive how well you can navigate the healthcare landscape, whether that’s being willing to take a flight to Canada, Singapore, another developed country to import 90 days of drugs here and there, if you get a really expensive drug that you have to take and you can’t afford the prices in the U.S…
…or if you need to have a procedure done, again, look at those developed countries that have really great healthcare systems. And if you’re flexible and willing to navigate what comes your way, I think there’s plenty of options for really inexpensive care globally, whether it’s Singapore or Taiwan. It depends on the situation, it depends on the condition, it depends on what you need, but I think that’s definitely a good route for most people.
I think there are people out there who are pretty wed to a given healthcare system within the United States. I had two great-grandfathers who graduated from Vanderbilt Medical School and had one from Johns Hopkins in the family, and these different procedures, universities, oftentimes family members will say, “I’m only going there. That’s all I’m going to do.”
And if that’s you, then you do need to set aside more money, frankly. You’re going to have to have more of a cushion because there are a lot more outliers in terms of cost in the U.S. than other places with a single payer.
You’ve just got more gamesmanship in the U.S. in terms of the insurance landscape and such, where it’s very similar to higher education where Princeton and Yale and Harvard are all racing to have the highest sticker price so that they can then give you the biggest scholarship, to make it seem like “I’m signaling that I’ve got great quality here, and the net cost is lower than anywhere else.”
The insurers are all racing. There’s no incentive to put pressure on lowering prices. They’re just more concerned with demonstrating savings.
And also, there’s a lot of rebate schemes involved that there is legislation trying to limit now going forward. But in past years, it was totally common for a pharmacy benefit manager to cover a way more expensive drug on their formulary or their approved drug list, and then just demand a rebate from the manufacturer at a certain percentage of that money. And so, it was more profitable for the insurer to do that than to actually try to squeeze or to try to lower prices overall.
And so, it’s similar in higher education. There’s huge tuition inflation, but it’s not the net cost that’s inflating quite that high. In fact, the net cost is pretty reasonable because that’s really tied to what people can afford.
So, I think there’s definitely reasons to be optimistic. A lot of it has to do with how flexible and how adaptable you are. And I think most early retirees generally fit into the camp of more adaptable and more flexible, just because the behaviors that get you to that situation, in many cases, are being budget-conscious, whether that’s at the grocery store, looking at different options, looking out for the best value.
Being value-conscious in general is super important in healthcare. So, if you just understand what things cost, and you’re just aware of your situation, and being adaptable, I think that’s…
Of course, you have to educate yourself. In anything complicated, you have to take the steps to educate yourself. But in general, if you’re value-conscious and paying attention to quality and not just looking at sticker price as an indication of quality, I think there’s reasons to be optimistic, for sure.
Andrew Chen 43:33
Makes sense. What are common mistakes that you have observed that retirees often make when it comes to planning for their health insurance needs in retirement?
You alluded to some examples earlier in our discussion, but I was wondering if there are specific things that you saw come up over and over again that you would advise to somebody who’s contemplating retirement to think about perhaps earlier.
Bo Bowen 44:07
That’s a good question. Honestly, the most common thing I saw was people being unwilling to retire early because of health insurance costs. Basically, people are saying, “I’m going to work until Medicare age,” even if they’re really financially prepared otherwise to cut ties with their job a couple of years earlier.
It’s amazing, just the fear involved with that decision and wanting something more. Medicare definitely feels more predictable and stable than the ACA landscape and the stigma, at least in the South.
The stigma of Obamacare is definitely something I face, for sure: people just not being willing to even participate in the exchange for just…I wouldn’t say political reasons, just the uncertainties around it, the exit and entrance of different insurers year to year.
Oftentimes, certain states, and this has changed, but a couple of years ago, Blue Cross Blue Shield of Alabama is the only insurer on their exchange. And so, people say, “Well, I had a bad experience with them, and I’m just not going to use them.” And a lot of people just unwilling to part with the employer-based coverage they had out of the fear of the unknown, basically.
Beyond that, common mistakes, that’s what we’re asking, right?
Andrew Chen 45:57
Yeah, that you had observed in your actual practice.
Bo Bowen 46:11
I didn’t really see that many mistakes, because that was the reason for us being involved, like “Hey, here’s my client. They don’t know what to do. Tell them what to do.”
And then our job was not to make a mistake. So, frankly, I can’t say that I really saw many mistakes other than people coming to me with an emergency, like the girl who got pregnant, who didn’t have health insurance. Just not having health insurance in general.
Andrew Chen 46:37
Or maybe framed a different way, were there common things that you saw clients come to you with, where they were ignorant, they just didn’t know, and after they had consulted with you, it had actually changed maybe even some decisions that they were going to make, especially if that happened over and over again? I’m just curious of your thoughts there.
Bo Bowen 47:04
I can think of one example that was fairly common. Oftentimes, I saw people using health sharing arrangements through a Christian ministry or one of these outfits. That was very common where people were doing that as a cost-saving measure, where they’d rather spend $100-200 a month and be involved in those sharing arrangements rather than having a contractually based health insurance benefit.
And so, I would generally classify that as a mistake. It’s fine if you understand what it is, but once you peel back the layers and realize this is not a contractual obligation, this is the kindness of a group of people’s hearts, and a lot of administrative bureaucracy dictating when I’m going to pay my providers.
In general, I did sway some people away from that once they realized some of the problems with the claims processing delays. A lot of providers just don’t like taking a year to get paid for something. So, that’s one big issue with those arrangements.
But just generally speaking, I think having a contract that says, “This is what services are covered, and what I’m paying for these services is valuable from a planning standpoint,” to understand what your risk exposure is. That would be probably up there in terms of a common either misunderstanding or misconception or just not seeing the full picture.
Andrew Chen 49:05
Makes sense. And something you said earlier, I hadn’t considered before, but I was just curious to follow up on it. I totally get that in a lot of more conservative-leaning states, there’s just more inherent skepticism about the Affordable Care Act plans.
Setting politics aside, it is what it is. But the thing I hadn’t considered before was that somebody who is working in a job, who might otherwise be financially ready to retire and have a valid option on the ACA marketplace, might still, not for political reasons, but just not quite feel confident or not trust the idea of jumping off their employer plan, which they know or are maybe familiar with, going on to a marketplace plan.
But for that thing, they would retire. And that might be the thing that actually prevents them from retiring because they feel like they don’t have that peace of mind.
Is that really common? I could see that happening, but I guess I was surprised that that would prevent a lot of people from retiring, because those are health insurance plans. They’re not health ministries, they’re contractual.
They’re only for a year, and you have to renew next year. They may not be there next year, but there might be different options next year. But they aren’t bona fide health insurance plans.
So, that’s what I was curious to get your thoughts on: how common it was, and also, is that more perception or is that borne out of reality? They try to get reimbursed for something and they have troubles with it during the reimbursement process, and it’s a real hassle so they don’t trust it because they had had actual really bad experiences?
Bo Bowen 51:06
I think most of it is fear-based, and I think it’s more common to have that concern when you’re already pretty close to calling it quits, and you don’t have a lot of time until Medicare or another option becomes available.
But how legitimate is that fear? Just broadly speaking, it depends on what resources you have, probably. I think if you were doing the Lean FIRE thing and really trying to live on a really slim budget, it might be a little bit harder to pull that trigger.
Basically, it depends on the market, honestly. But a state like Tennessee, it’s interesting. If you had a chronic condition, it would be a little bit scarier here where you’ve got the Farm Bureau, who is really successful in this market, charged for a high deductible plan with $3000 or so out-of-pocket match.
A 35-year-old might spend $120 a month or something for that plan, just a third of the cost of other options that are available on the exchange. They’re essentially “cream skimming” all the healthy people out of the pool and leaving less healthy people on the exchange, and that’s going to drive the cost over time, depending on how popular Farm Bureau becomes over time versus the ACA plans.
So, it is somewhat legitimate. If you really are marginally prepared financially, you can start to see, “Okay, maybe in a market like that, if I’ve got a chronic condition that’s expensive, those premiums and out-of-pocket maximums, maybe they are going to rise quite a bit faster than what it might in another state.”
But on the flipside, if you’re marginally prepared financially, you probably have a marginal income as well, in which case, you get really generous subsidies. And there’s definitely a lot of gamesmanship in different markets.
And it’s quite interesting. Part of what creates a lot of fear in people’s minds is “There’s only one insurance company on my exchange in my state” or “There’s only two insurance companies on my exchange in my state.” Part of that, when it drops down to one, if you don’t have a ton of income, can be actually a great thing, as long as you’re somewhat flexible on your networks.
Because all of a sudden now, that insurer, like Blue Cross Blue Shield of Alabama, when they were the only insurer in Alabama in past years, they could dictate what their benchmark plan price was because they were the only insurer on the exchange.
And so, if the listeners aren’t familiar with what that means, it’s the second cheapest silver plan in your market. So, that drives the subsidy calculation for all plans on the exchange. And so, you could set that artificially high to increase the subsidy for everything else, and they often appear to do that.
So, lots of states’ insurers have figured out the math, figured out, “Well, if I’m the only insurer, and it’s the second cheapest silver plan in the market that drives the subsidy calculation for everything else and drives the net cost of every other plan down, then I’ll just make my exchange, I’ll offer two silver plans, one will be cheap and one will be really expensive.”
And that expensive plan will drive a lower net price for every other plan.
And so, that gamesmanship, it strikes through in people’s minds in terms of “Oh, gosh, I’ve only got one option. What happens in the future when they drop out or there’s some other cataclysmic event in the market?”
Ultimately, some of that is actually quite beneficial for the insurer and actually encourages them to continue offering the plan in the market. So, that’s why, even though there’s been news articles, since the ACA was passed, about different markets losing all insurer options in the market, I don’t think that will ever happen, just because of how advantageous it is to be the only insurer in the market.
You just can engage in that sort of gamesmanship. Now, I don’t agree with it, I don’t agree with how the law is written, but they understand the way the law is written, and they, I think, will continue offering an option for people who are early retirees.
When it first was passed, I definitely was super excited. That was a big fear of mine, and once the Affordable Care Act became an option, I felt like, “Okay, now I can be an early retiree and not really have to worry.” And I think in general, for anybody in that average early retiree span of wealth…
Probably if you’re over $10 million in wealth, then you really have to think about the cost. But then again, you’ve got more income and wealth, so maybe you don’t really care about the cost much.
So, I think it’s a great option that didn’t exist before that now does. Of course, in theory, you could have been responsible, gotten your coverage before becoming ill, and retained your coverage, and the fact that health insurance is oftentimes tied to the employer in the U.S., not a lot of good ideas can come about when you’ve got those main building blocks in place already. Those legacy features of our system are just going to create a lot of problems.
I think in general, if you just divorced that relationship of corporate America subsidizing our healthcare system, and you just either mandated or encouraged through subsidies, people getting coverage early, before they get sick, and maintaining that coverage through time, it would be a whole lot cheaper overall.
Andrew Chen 57:42
It would. It is true, I think, especially for the early retirement community, the introduction of the ACA marketplace has opened up an entirely new way for would-be early retirees to actually develop a little bit more confidence, because it is a real option.
It doesn’t mean that the plans are necessarily the best, but it does mean that you probably have an option so that you won’t go medically bankrupt. You won’t lose your shirt because you thought you were going to be okay in retirement, but prior to the ACA, there were lifetime caps, or it was just whatever you can qualify for whatever reason.
So, you’re just walking through the desert, hoping that you have enough to make it to the other side. But the ACA, at least for all its faults, does seem to fill that need.
I’m also just curious. Have you heard of Mark Cuban’s Cost Plus pharmacy?
Bo Bowen 58:45
The pharmacy? Yeah.
Andrew Chen 58:47
Yeah, because so much of insurance cost is driven by patients who do not have to go to see a human doctor or to see a human at a provider center. If you need to get dialysis, that’s not a drug, that’s a service, right?
But if you have a chronic condition for which you take an expensive drug, like you gave the example of the Alzheimer’s drug that dipped Medicare prices year over year, 3%, just that one drug. Drugs can be very expensive.
I’m just curious. Right now, Cost Plus is not yet at scale, but they’re growing rapidly. If they really are successful nationally, how big of an impact do you foresee that having in the broader health insurance market for early retirees?
Bo Bowen 59:55
Unfortunately, I like the idea of trying to address the problems. The Cost Plus idea, I think, has gotten a lot of attention because everybody is frustrated with how opaque and frustrating and non-market-driven our healthcare market is.
It’s not price-driven, as I just said, opaque. It’s a market failure, essentially. There’s no determining price versus value.
It’s just arbitrary. All the prices are arbitrary events, from one cause or another, lots of different causes.
But I don’t really see it making a meaningful difference, simply because they’re oftentimes going to be more expensive than other alternatives for a lot of drugs. And for those few drugs that are super expensive, patients wouldn’t want to pay the cash price.
It’s not in the insurer’s best interest to allow that model either. Unfortunately, the pharmacy benefit industry is such that they’re willing to allow pharmacies to make an exorbitant amount of money on some scripts and then lose a lot of money on other scripts, and that keeps the whole machine humming. It keeps them with the profits they want to achieve.
And on the whole, when you rank 32 major industries in the U.S., pharmacy is really ranked near the bottom of 32 major industries in terms of gross profit margin for quite a while, probably since the early 2000s.
That means that they’re still making money, though. They’re still existing. But you look at salaries of pharmacists.
I don’t know your wife’s situation, but probably you’re more in tune with the pharmacy market in general. Wage inflation has been negative for about a decade in that industry.
There’s a lot of margin pressures in pharmacy. It’s not what the public thinks in terms of drugs are expensive, so the pharmacists and the pharmacies are making tons of money. That’s just not the case.
Most of the time, they’re super overly efficient operations that are just barely surviving. And so, the Cost Plus thing, if that were the alternative, if that were wholesale, we scrap everything and just start with that model, then yeah, it would succeed and be better than what we have now.
But unfortunately, I don’t see a way for them to take market share, because the consumer, who is ultimately deciding on what the best option is price-wise, is not going to opt for that. Most pharmacies, there’s a lot of drugs that are losing money when you talk about labor cost per prescription and so forth.
Oftentimes, if the labor cost, even at an inefficient operation, if it’s $3 per prescription, and CVS Caremark is reimbursing 50 cents in total for the supplies, the drug that goes in the bottle, and everything for a generic drug, the Cost Plus model is just not going to steer someone away from what ends up being a great deal for the consumer in that PBM traditional model that we have now.
But also, they’re going to get a generic drug where the pharmacy is making $2000 on something that… There really is no justification for it whatsoever. It’s more or less just offsetting losses elsewhere.
And that’s the problem: again, price is not really operating in the way that it should in driving consumer choices. The price is hidden from view.
I like the idea of making it more transparent. I like the idea of the websites, like Healthcare Bluebook, and there’s several out there, MediBid, where you can go in and bid for procedures, if you want a procedure for x, y, and z, you want a colonoscopy and you want to pay cash, you want to get it cheaper than insurance rate and cut out the middleman.
All those ideas are good in terms of trying to restore some price into the system to where people can make value judgments, like any other functioning market. But you look at the problem markets in the U.S.—education and healthcare—the pricing mechanism is just gone and hidden.
So, I don’t think it will be successful, unfortunately, but I’m all for those efforts to try to put the consumer in charge of their healthcare decisions. The high deductible health plans and the HSA movement is a good one, but ultimately, so much spending happens after the deductible is met, that out-of-pocket is met, with the fact that a very small percentage of our population is driving the spending predominantly…
…that really how much you pay for an out-of-pocket service underneath your out-of-pocket max, when you’re going to the doctor for your annual checkup or you’re going to a specialist once a year for a minor issue, that’s not what’s driving the cost of our healthcare system.
We just need to do a better job of taking care of people who are very sick, and also giving some pricing mechanism in that situation. Even if it’s not cost, facing some incentive or disincentive to engage in a value-based choice is what we have to do.
Policy-wise, that’s not happening. There’s a lot of interest that would have anything happen besides that, just because any profit margin on a big price is better for insurers than having a much lower cost and a higher profit margin.
Andrew Chen 01:07:16
Bo Bowen 01:07:18
Drugs are an example of that. There’s been huge price declines in generic drugs over time, but that’s because they have to compete. There’s lots of different generic manufacturers out there.
The largest one, Teva, might only have 10% or 20% market share. So, it’s hugely competitive. And when you have real competition and you have the buyers of generic pharmaceuticals, your big companies like your wholesalers or your CVS, your Walgreens, they decide on the best price.
There’s an incentive for them to do so. They make more money if they pay less for those things. And so, when you have a functioning market, you get a good outcome.
So, it’s really just certain brand drugs, certain services. It just shocks you, where one hospital with a great reputation charges half the price of a lesser hospital with a poor reputation, or vice-versa. Price and value are not joined at the hip like in most features of life.
Andrew Chen 01:08:32
Earlier, I think you were alluding to the idea of medical tourism. That could be one element of strategy for covering your healthcare needs in retirement.
And I was just curious, how do you view medical tourism for early retirees in terms of how it might play a role in their healthcare planning? Do you recommend medical tourism for certain types of care in particular, or even certain profiles of customers or patients?
Bo Bowen 01:09:13
I wouldn’t make any blanket recommendations for everyone. I would leave it up to the individual and their comfort level with that. But I started mine quite comfortable with it, and my own experience has been positive, either anecdotally from people I’ve talked to or I went to El Salvador this year for my cousin’s wedding and had to get a COVID test done and was super impressed with the efficiency in what would typically be considered a developing country.
Really low cost, really efficient. For that particular service, it was better than my experience in the U.S., better value, better result. Every aspect of it was better.
But obviously, it’s a COVID test. It’s not open heart surgery. And so, it’s difficult to really assess value.
So many people do it based on reputation. They talk to colleagues, “If I’m having some major medical procedure done, who do I trust to do that?”
And I do think it would be nice if there were more readily available benchmarks that indicated quality to the consumer. There are some things out there. Definitely, one benefit to certain insurers is that they do track some metrics like that.
Blue Cross in different states has been pretty valuable in terms of trying to assess providers. In most cases, they’re measuring things that also impact their bottom line, like “How well does this person adhere to evidence-based medicine benchmarks? Are they immunizing their patients at an acceptable rate? Are they recommending colonoscopies at an appropriate age?”
There’s various things that help them control costs and that also indicate quality. But again, that’s a very personal decision too. I’m definitely wired as someone who cares about evidence-based medicine and cares about what the science says is good medical care, and I’m not as impressed with the warm relationship or how friendly my provider is, or that sort of thing.
But I’ve definitely learned that people do not agree with that. There’s plenty of people who really only care about bedside manner, and they don’t care at all whatsoever. They’re going to trust that person.
And there’s maybe some evidence that just having a good, trusted relationship and acting on that person’s advice, even if it’s not absolutely optimal, that can be valuable too, in terms of improving people’s health. So, different strokes for different folks. I would say, for sure, that’s a very personal decision.
Andrew Chen 01:12:33
All right, well, this has been really insightful. I’ve really enjoyed the conversation. But where can people find out more about you and what you’re up to?
Bo Bowen 01:12:44
I’m not super active on social media, but certainly, if anybody wanted to message me on LinkedIn or something, my handle is @legaldrugdealer. And on Facebook, just look up my name and send me a message, and I’ll probably see it at some point.
Andrew Chen 01:13:05
All right, well, I really appreciate your taking the time to chat with us today. And thanks so much for sharing your insights and experience with us.
Bo Bowen 01:13:16
Yeah, thanks, Andrew. Nice meeting you.