We could pocket the premiums ourselves. And if we get sick or hurt down the line, we can just use that money to pay the bills. But what if we have a serious injury? Like your turkey fryer incident last Thanksgiving. No sweat. We can just crowd-source money for the bills. I see people on Facebook fundraising for medical costs all the time! Great! Although I do think you should quit your extreme parkour. Only if you give up knife-juggling.
Deal. Have you ever found yourself wondering if you should just skip out on the whole health insurance thing? If you don’t have the coverage offered through your job, it’s a pretty heft monthly expense. In 2018 the average private insurance plan cost $440/month for an individual and $1,168 for family coverage! For that kind of dough, I could afford that trip to Japan or buy a miniature pig! With the recent repeal of the individual mandate within the Affordable Care Act, some younger, healthier people might be left wondering, “Should I pay thousands of dollars each year for a service I’ll probably never use?” Take Maria here.
She just graduated with a Master’s degree and works for a tech startup that doesn’t offer health insurance or retirement options. She’s making too much to qualify for subsidized healthcare, so she has to pay $375 a month for her individual health insurance policy. But she’s an avid runner, eats mostly organic, and hasn’t been sick in 5 years. That money could be going to her retirement, or savings to buy a house! What might happen to Maria if she decides to cancel her policy to fast-track other financial priorities? I think it’s time to…
RUN THE NUMBERS!
If Maria decides to cancel her health insurance policy, she can expect to save around $4,500 a year. But she’ll still prepare for the occasional minor injury or illness, by setting aside $1,000/yr for doctor visits or occasional urgent care. If she stashes what’s left [$3,500/yr] in a CD earning 2.5% interest, in just 5 years she’ll have $18,857! Maria just has to stay relatively healthy for the next five years, and she’s gamed the system.
Things are going fine for a while. And then in her third year of the plan, Maria is in a serious car accident. Auto insurance would only pay a fraction of her medical costs. After all the hospital, surgery, and ambulance bills, Maria is left with $58,000 in medical debt and an additional $8,000 on credit cards she used to pay her bills while recovering ($66,000 in debt) Desperate, Maria launches a GoFundMe campaign, joining the 250,000 other people who use the platform every year to try and help pay medical bills. And she ends up raising the average amount: only $3,000.
Facing $63,000 in debt, her parents decide to help. They take out a line of credit on their home, using the money to pay off Maria’s debts in full. Two years later, when Maria’s dad is forced to retire because of his own health problems, they fall behind on their mortgage payments and lose the house. Granted, the chances of a sudden, costly medical problem hitting someone young and healthy like Maria are slim… but not insignificant. A 2011 survey found that people between the ages of 25-34 had a 1 in 10 chance of getting hit with a medical bill of $13,000 or more, and a 1 in 20 chance of at least a $27,000 bill. Considering the lifetime of financial damage that that kind of price tag can do to you or your family, those odds are not to be taken lightly. Besides, the whole point of insurance is to protect you from really bad things that probably won’t happen. No one buys insurance hoping they’ll get to use it.
Is there a middle path that Maria could have taken that would have allowed her to save something, but also protected against a catastrophe? Well, she could have enrolled in a High Deductible Health Plan [$220/month]. These have lower premiums and will help you if something really bad happens, but don’t typically cover routine medical costs. Most insurance providers offer such options, and they can be a good fit for young, healthy people.
But Maria would still be on the hook for everyday doctor’s visits and medications, so she could still set aside $1000 a year for that purpose but put it into a Health Savings Account, which allows her to deduct that money from her taxes. And anything that’s not used for medical expenses becomes part of her retirement savings. Health Savings Accounts are available only to people with High Deductible Health Plans and can be started at your insurance provider’s recommended bank, or one of your own choosing.
Imagine if Maria got into that car accident with this scenario. The most she’d have to pay out of pocket is $4,000. And if she stays safe and healthy, she’ll be stashing money away into her HSA that could later be used for retirement, and even have a little left over to start saving for a home. Most importantly, she knows she’s not putting her financial future--or that of her loved ones--in jeopardy.
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