Financial Update – Nov 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

• Fidelity is now an HSA administrator!
  • Fidelity Link
  • Bogleheads Discussion
  • Thoughts from the Finance Buff
  • There are no administrative fees. It is now unambiguously the best HSA administrator. The only reason not to use them is to capture the payroll tax benefits from your employer. However, even in this case you can still utilize Fidelity by first capturing the payroll tax benefit from your in-house administrator then rolling the HSA over to Fidelity. Doing so would only make sense when the transfer fees are less than the payroll tax benefit.
    • I am in the process of rolling over my HSA from Saturna to Fidelity.
• WSJ article on the FI movement (link).
• My Money Blog on immunizing yourself from shocks (i.e. unemployment, etc) through financial freedom (link).
• Fascinating bogleheads discussion about the ACA subsidy cliff (link).
  • Cliff notes version: If you make <= 400% of the federal poverty level (FPL), you can quality for a subsidies of $1-2 thousand per month.
  • If you make 400% FPL + $1, you lose out on $1-2 thousand per month of subsidies..
    • In other words, the implied tax rate on that extra $1 of income is 1,200,000% (=(12*$1k)/$1) to 2,400,000% (=(12*$2k)/$1).
    • If you want to learn more, here are write-ups by the Finance Buff (link) and Root of Good (link).
      • These cliff’s can be manipulated with 401k/401a/403b/457/HSA/FSA contributions, much like the EITC.
    • Go Curry Cracker has a very thought provoking post this month regarding gaming the ACA subsidy game (link).
      • If you are thinking about strategically implementing these strategies down the road there are several things you can begin to do now:
        • Be comfortable living on relatively little.
        • Reduce your cash flow needs by eventually paying off mortgage.
          • I think this is an underappreciated strategy regarding prepaying your mortgage. I don’t think I’ve seen anyone write about this one.
        • Capital gain harvest now (to minimize taxes down the road).
        • Having a stockpile of Roth principal to live on tax-free in retirement.
          • I understand that this advice generally contradicts the premise of tax arbitrage that I tout so widely.
• Mr 1500 on practical tips for maximizing happiness, now (link).
• I’ve been following the blog and instagram feed of “the Dangerz” couple for a few years now. They’ve lived out of a personally-customized sprinter van for the last few years, but recently sold it, purchased a sailboat, and are teaching themselves to sail. Pretty remarkable to see people breaking free from the cube farm and sucking the marrow out of life.
  • Their recent sailing adventures haven’t fully hit the blog yet but are limited to the instagram feed.
• Watched the season finale of This is Us.
  • My favorite show on TV right now (with Shark Tank coming in second).
  • You have to watch it from season 1 to make any sense of what’s going on.
  • I loathe folding laundry, but we’ve designated Tuesday night as our laundry night as a form of temptation bundling.
    • Never in my life have I more looked forward to folding laundry.
• WSJ article on Walmart’s efforts to curtail healthcare spending costs by mandating that employees travel to preferred hospitals for a particular spine surgery (link). Walmart is self insured (i.e. they end up bearing the entire medical costs of their employees), so they have every incentive to have their employees be frugal consumers of healthcare. With the incentives properly aligned (a seeming rarity with healthcare), the company is going to drastic measures (i.e. actually considering price in the purchasing of services) to lower prices.
  • It’s odd how newsworthy it is for costs to be factored into healthcare decisions. It’s no wonder that our healthcare costs are skyrocketing! It’s not often you see a WSJ headline stating “Consumer Bob buys bananas at Costco because they are 33% less expensive than at Whole Foods!” That’s just basic economics. But basic economics in the context of the American Healthcare (in which trillions are spent annually) system is indeed a rarity.
    • Imagine a system in which your food were paid for by your employer (via “food insurance”). With food insurance, you may go to any restaurant you want as often as you want. In this system, the restaurant doesn’t even bother to put prices on your menu – they know with certainty that either your “food insurer” or you will pay for it regardless of the price. Any restaurant bill is sent to your food insurance administrator. After 6 months of processing time, you will be informed of any deductibles and co-insurance that you’re responsible for. You learn through years of experience that you are not paying for your food…your insurer is. As a result, food seems “free” to you. Eventually you come to believe that food insurance is a basic human right, without which people will die. Restaurants respond to this price-indiscriminate demand and begin offering meals with astronomical prices without noticing any corresponding drop in demand. Suddenly, every restaurant is a 5-star Michelin Restaurant. Inevitably, the high food costs end up driving up the cost of food insurance premiums. After years of overpaying for food insurance, a subset of rational people emerge and leave the system (those who realize they can cook cheaper on their own, and importantly, don’t receive food insurance from their employer). Eventually, only the most gluttonous remain on food insurance. These individuals are those for whom the value of the food they consume is greater than the dollar amount of the premiums they pay. This adverse selection of gluttonous individuals remaining on food insurance drives the premiums even higher creating a death spiral which destroys the industry.
      • I believe that bad economics are the primary driver of skyrocketing healthcare costs, which are inflating at 3x the pace of overall inflation.

Life