The ABR and the Pinnacle of Flexibility

From ABR President Brent Wagner’s article, “ABR, Stakeholders Remaining Flexible During Uncertain Times,” in the May issue of the BEAM:

For the ABR, as it became clear that standard exam development activities would not be effective in the short term, staff and volunteer content experts quickly made adjustments: test assembly activities for upcoming exams were revised to use remote conferencing software. While this is often not optimal for the volunteers, the modification to the process promised to support continued success in exam creation that would be relevant and cost effective.

The real stakeholders here are the residents who should be taking a live-proctored test from the comfort of their home next month.

The volunteers who do the heavy lifting of test creation may have been given the flexibility to volunteer from home, but so far the ABR has been unwilling to “remain flexible” enough to do the right thing and make remote testing a reality like the American Board of Surgery recently successfully demonstrated. Even the NBME has temporarily canceled USMLE Step 2 CS with the understanding that nationwide travel is simply inappropriate for a healthcare-related examination involving scores of doctors for the foreseeable future.

Some financial considerations are almost certainly tied to this desperate need to have a live in-person exam that no one has ever wanted, but departing highly-compensated Executive Director Valerie Jackson said this in her departing missive:

Another big part of my life has been volunteering. Over the years, some of my friends have wondered why I would give so much of my time for no pay. The reward isn’t monetary; better than money for me was the sense of giving back, the ability to work with wonderful people who are now long-term friends, and having an impact on many facets of our profession.

I have no words. Total compensation in 2018? $834,567.

I did, however, like the final paragraph of incoming ABR President Robert Barr’s entry:

We still have work to do. We need to keep costs down, we need to ensure that testing is meaningful and accurate, and we need to improve the overall test experience for our candidates, among other challenges. We are working on all of these today. I hope you’ll give us a chance, and I welcome your suggestions and constructive feedback.

I would love nothing more than for the ABR to pivot and start making the correct operational and strategic decisions to succeed in those areas. The ACR recently made some suggestions.

Explanations for the 2020 Official Step 1 Practice Questions

Another year, another set of explanations. As always, the order here reflects that of the new PDF released in February 2020. The official practice material page subsequently reverted back to the 2019 version, but as you can see the 2020 link remains live.

Last year’s 2019 set is available here, though it was almost entirely a repeat of the 2018 set explained here.

The asterisks (*) signifies a new question, of which there are 36.

Continue reading

The disappearing USMLE 2020 practice questions

Earlier this year the NBME released updated 2020 practice materials for both Step 1 and Step 2 CK. There are a bunch of new Step 1 questions and the Step 2 set is entirely brand new (the first meaningful change in several years). I was going to continue my annual tradition of explanations but then noticed that the website reverted back to the 2019 sets.

As is their tendency, the NBME isn’t very quick to manage outdated URLs. The PDFs for both new sets are still accessible:

I don’t know if these will simply come back as official sets soon, but it seems they were likely removed because of COVID-19, so it might be a while.

But they are free highest-quality questions and remain worth your time.

Symbolic Measures and the Silence of the ABR

Earlier today the ACR passed resolution 50 without dissent, a gesture made in response to the recent (and ongoing?) MOC agreement debacle. The thrust of the resolution is that the American Board of Radiology should strive to “minimize power imbalance in decision-making between those professionals and the certifying body by committing to representative, inclusive, and transparent decision-making.” Also that they should consult the ACR before making terrible participation agreements and should also share said agreements in advance for public comment from candidates and diplomates.

Little birdies informed me that the ABR was working hard behind the scenes to spike this resolution. However, when it was presented during the reference committee hearing on Monday and then came up for a vote today, the ABR maintained complete radio silence. Not a peep.

This is, oddly, in strange contrast to recent promises of greater communication and transparency, such as when the ABR President recently said he wanted to “take ownership of flawed or incomplete communications.” Given the opportunity to literally address the entire radiology community and its largest deliberative body, the ABR didn’t say anything. They didn’t argue that they were right. They didn’t admit that they were wrong. They offered no window into the agreement process or any public acknowledgment or response to the many questions and comments that are contained in the resolution or that were raised during the discussion.

Why?

Because they don’t have to.

The core problem with the ABMS member boards like the ABR is that they are completely unaccountable. They may claim “business league” nonprofit status as 501(c)(6) organizations, but they are not accountable to their fields or their diplomates. The ACR has no power over the ABR. So why should the ABR work with them? Why subject itself to a public flogging? Better for that to occur on Twitter, anonymous forums like Aunt Minnie, and yes, right here.

During the reference committee discussion, I offered this testimony:

In its recent apology email to diplomates, the ABR suggested that the new MOC agreement was a slip-up. They wrote, “an error in the creation of the agreement resulted in the posting of an incorrect document, with more restrictive language than was intended.” This statement is at best misleading. The document was not simply a one-off overreach. I would like the members of the college to know that I and all other recent diplomates have been forced to sign similar agreements during our training. I signed a nearly identical agreement waiving my own due process rights in 2013 when I was a first-year resident. And today, despite softening the language of the recent MOC agreement after the public outcry, the current Candidate Agreement containing the exact same problematic language remains completely unchanged. We are leaving our most vulnerable colleagues out to dry.

The ABR is currently starved of external influence and oversight. Their bylaws mandate that nominees for the Board of Governors are solicited internally and elected by 3/4 majority of the current BOG. This insular approach essentially precludes outside perspectives. Once elected, the ABR conflict of interest policy “requires the Governor to act in the best interests of this Corporation, even if discharging that duty requires the Governor to support actions that might be contrary to the views, interests, policies, or actions of another organization of which the Governor is a member, or to the discipline of which the Governor is a member.”

This is deeply problematic. The ABR, by its own bylaws, is unaccountable to radiology and to radiologists. This is why we have our current state of affairs.

What we do matters. We should demand transparency and excellence from any organization that has an impact on our field and our practice. And if the ACR will not take a stand for radiologists then who will? This resolution could be a small first step toward creating a more meaningful working relationship.

Ultimately, this ACR resolution is purely symbolic.

Unfortunately, the ABR’s softening of the recent MOC agreement language was also merely a placating gesture, because it’s functionally similar despite the removal of the most heinous legalese.

There is a massive power imbalance here. In a situation where you can only vote with your feet, you have to be able to walk to wield influence. But doctors can’t strike. And the only people that can meaningfully do so in the current climate are the grandfathered lifetime certificate holders who are optionally enrolled in MOC, and they make up a shrinking fraction of the ABR’s profits every year.

Until the ABR decides that transparency and democracy will help their mission (or their bottom line), they have no need to listen.

But I hope they will. And I hope the ACR will take increasingly strong positions in future years because they’re an important part of the certification narrative that the radiology community needs to hear.

Resident Retirement Contributions and PSLF: Pretax or Roth?

Saving for retirement, even as a resident, is a good thing. The absolute amount of money you can likely contribute is relatively small, but it does add up and over time it will compound to a larger amount. However, the most important reason to do so as soon as possible is to start the saving habit.

It’s important to make saving an automatic deeply-ingrained habit. It will serve you well when you make more money and help you make faster progress toward your savings goals of financial flexibility and a healthy retirement. If you think you should wait until you earn more money, the problem is that you can always spend more money, and some folks will simply need higher spending in order to make ends meet based on the decisions they’ve already made with regards to prior spending and borrowing, family planning, and the results of the match. So the most meaningful answer to the question of resident retirement savings is simply yes.

But if you can, let’s discuss the age-old question of pretax vs Roth.

The Options

In a traditional pretax account like the standard option for your work 401k or 403b, money is subtracted from your income in the year of the contribution. So you pay fewer taxes upfront. It then grows tax-free while in the account, and you’ll pay taxes on the distribution when you use it in retirement as if it were income.

Roth accounts are the opposite. You put after-tax money in, meaning you pay regular taxes on that money in the contribution year. The money also grows tax-free while in the account but then is also tax-free when you withdraw it.

Which contribution type is mathematically best has to do with your marginal tax rate during the contribution year while working vs during the withdrawal year in retirement. What’s important to realize is that mathematically, the two choices are equivalent when the tax rates are the same if the amounts contributed are adjusted on a tax-basis (ie, at a 10% marginal tax rate, $1000 pretax contribution is equivalent to $900 Roth, because the Roth has the taxes paid upfront).

The reason behind the idea that a resident should generally use a Roth option is because it’s assumed that you will earn less as a resident than you will want to spend in retirement (potentially true), not that you will simply earn less than you would as an attending (almost universally true).

Retirement Contributions and Student Loans

When it comes to student loans on an income-driven repayment plan, pretax contributions reduce your adjustable gross income, which reduces your discretionary income, which reduces your monthly payments the following year. Because PAYE/REPAYE uses a ten percent discretionary income calculation, every dollar you contribute reduces your payment by ten cents the following year (fifteen cents in the old IBR). If you achieve loan forgiveness via PSLF, then that bonus contribution match is truly extra free money on top of the PSLF windfall.

Additionally, if you are in REPAYE, the lower payments can result in more unpaid interest and thus a slightly better unpaid interest subsidy and lower your effective rate. Conversely, this would only matter if you did not get PSLF. Outside of this rate reduction, remember that lower monthly payments are really a good thing financially: they just mean less progress on your loans and more interest paid over time.

The impact here depends on how much you can contribute. If you have a high-earning spouse and can therefore max out a $19,000 contribution, for example, you’d save an extra $1,900 in payments the following year. That’s not chump change. But if you put $5k away? Just $500, or about $40 a month. Not necessarily anything life-changing there.

In contrast, Roth contributions have no impact.

How Taxes Work

2019 tax bracketsSingleMarried Filing Jointly
10%$0 – $9,875$0 – $19,750
12%$9,876 – $40,125$19,751 – $80,250
22%$40,126 – $85,525$80,251 – $171,050
24%$85,526 – $163,300$171,051 – $326,600
32%$163,301 – $207,350$326,601 – $414,700
35%$207,351 – $518,400$414,701 – $622,050
37%$518,401+$622,051+

Taxes are progressive. You don’t simply pay your marginal rate on all your earnings based on your total income. You pay the rate on each bucket of money as it fills up. But since pretax contributions are a deduction, they do reduce your taxes at the marginal rate.

So, looking at the chart, a single resident making $55k would be in the 22% bracket, and with the standard deduction their effective tax rate about 12%. Let’s say you then as a married couple wanted to retire on $100k a year? Well, with a $24k standard deduction that would actually get you a marginal tax rate of 12% and an effective rate of about 11% (using 2019 tax brackets as a guide). In this scenario, therefore, pretax could win right off the bat (the marginal rate is what matters here).

There are three important nuances here:

  1. We don’t know what taxes will look like in the future.
  2. Distributions are taxed as income, so not every dollar is taxed the same.
  3. You may need less money in retirement than you think.

We don’t know what taxes will look like in the future

I suspect tax rates will overall be higher in the future, at least at the top marginal rates. The current rates are at historic lows, deficits are rising, and income inequality is reaching a tipping point. That doesn’t necessarily mean they’ll be higher at the level you end up retiring at, but it’s certainly a notch in the Roth column.

Distributions are taxed as income, so not every dollar is taxed the same

As we just discussed, taxes are progressive and each bracket is filled sequentially with rising income. So the first dollar pays almost nothing while the final dollar pays the full marginal rate. In retirement, you can utilize a combination of social security, Roth, and pretax money to minimize your tax burden. You do not need to pay taxes on an income of $100,000 in order to spend $70k after taxes in retirement like you would have during your working years if you have money in both types to utilize. You can use pretax at the lower tax brackets and Roth to fill in the rest to prevent paying the higher rates.

That’s one good reason to do a Backdoor Roth as an attending, even when you earn too much to contribute directly.

You may need less money in retirement than you think.

In retirement, you should have no debt and significantly decreased monthly expenses. No student loans. Real estate taxes, sure, but no mortgage. Probably no car payments, at least for a while. Maintaining a similar quality of life in terms of discretionary spending will be significantly less expensive even with some increased leisure spending.

The Fuzziness and Flexibility of Extra Money

The 10% PSLF “match” has nothing to do with tax savings. It’s extra after-tax money you get to play with the following year due to lower required monthly loan payments. So it’s letting you hold on to money you would have spent. That makes it fuzzy. But it also makes it valuable, because it’s money that you can do whatever you want with. You can certainly invest it by increasing your contribution to your retirement. You could even do that pretax again, getting a token 10% of that amount back the following year. But regardless, the money is a good reason to understand the idea of the time value of money.

The time value of money is the finance principle that money now is worth more than the same amount of money later due to its earning potential (ie it can be invested and earn interest). So while it’s possible, like in our above example, for this extra money to merely improve the tax inefficiency of using a pretax account when you hope to spend more in retirement, if it ends up a wash it still may be better to have that money now than later.

One thing to consider, outside of math, is simply where the extra money will help you more. If you do a good job saving for retirement, the few thousand bucks in changes related to tax optimization may not be meaningful because you’ll have more than enough anyway. On the flip side, having smaller IDR payments frees up money now on a monthly basis in these leaner years at the start of your career.

That’s putting money in your pocket to get rid of high-interest debt like credit cards, build up an emergency fund, save a little for an important purchase, make life and disability insurance affordable, or pay for your own HBO subscription. My point is here is that it’s not always prudent to let the tax tail wag the living your life dog.

You can, of course, split the difference and invest some of your contribution in your work pretax account (say up to the match) and then whatever else you can afford into a Roth IRA.

Conclusion

it’s literally impossible to know what the correct choice is mathematically. Any calculation involves a ton of assumptions. It’s possible the machines will have taken over and everyone will be on a universal basic income and most tax revenues will come from the immortal cyborg of Jeff Bezos. It’s also absolutely possible that future tax rates will be sufficiently high that Roth becomes the optimal strategy regardless of the extra money pretax contributions can give you right now.

However, that doesn’t necessarily make it the right choice for you. Personal finance is personal. The increased cash flow now may be more valuable in practical life impact than more money later that you may not need or get to utilize.

Personally, if you’re really planning for PSLF, I think pretax makes a lot of sense (though Roth is never bad!). If you’re not planning for PSLF, then, by all means, these are almost certainly some of the best years of your career for Roth contributions. And lastly, if you’re struggling to make your IDR payments and don’t see how you could contribute to your retirement at all, then pretax may make it slightly more feasible for you.