Healthcare is extremely expensive. In the United Sates, we spend nearly $10,000 per year per person on healthcare-related expenses.
If you are healthy and have a robust emergency fund, you can self-insure against most routine office visits, medications, and minor elective procedures. However, unless you have an 8 figure net worth, you can NOT self insure against major catastrophes such as a horrific car accident or a metastatic cancer diagnosis. Therefore, you NEED some form of health insurance.
With the initiation of the Affordable Care Act (ACA), you will also be fined 2.5% of your gross income in 2017 if you don’t have health insurance, so that’s another reason to get some form of health insurance.
Employer-Sponsored Health Insurance
If your employer offers you health insurance, count yourself lucky. In 2014, 66% of workers were provided health insurance by their employer.
In most cases, your employer will pay the vast majority of the premium cost. For example, in 2015, the average cost of an employer-sponsored family plan was nearly $18,000 per year, and the employer paid over 70% of this premium, with the remaining 30% paid by the employee.
At my current employer, the total cost of my employer-sponsored individual health insurance is around $1000/month ($12,000 per year). My employer pays around 90% off this, or $900/month, and I pay $100/ month.
The Individual Health Insurance Marketplace
If your employer does not offer health insurance, or you are unemployed, then you are in a more challenging situation. Health Insurance costs on the individual marketplace are rising significantly and can be quite onerous, even for a high deductible plan. In 2017, the average (nationwide) monthly premium for a high-deductible (Bronze-level) ACA-compliant plan was $350 for a 40-year-old healthy nonsmoking male.
However, the costs vary widely by state. For example, in Alaska, the lowest cost high-deductible plan for a healthy 35-year-old is $674 /month, which carries a deductible of $6350. Therefore, you will spend ($674 x 12) + $6350 = $14,438 per year before receiving any monetary benefit from your insurance. For someone making the median income of $60,000, that would be nearly a quarter of your income before your health insurance kicks in!
Finding An Individual Health Insurance Policy
If you are in the market for an individual policy, you can explore your options on either ehealthinsurance.com or healthcare.gov. Both sites offer the same plans, but only on healthcare.gov can you qualify for reduced premiums based upon your income.
You can use the calculator at Healthcare.gov to determine your eligibility for reduced premiums. In Alaska, if you are single and make less than $59,000/year, you will qualify for reduced premiums. Above that, and you will pay full price.
Health Savings Accounts
One of the few consolation prizes in the area of health insurance is the Health Savings Account (HSA). You can only contribute to an HSA if you have a qualifying high-deductible health plan (HDHP), which according to the IRS is defined as a deductible greater than $1300 per year.
In 2017, you can contribute $3,400 per year to a Health Savings Account ($6750 for a family). This money is triply tax-advantaged. In other words, it is contributed pre-tax, it grows tax-free, and you can take it out tax-free when used for eligible healthcare expenses. In this sense, it is even better than a Roth IRA.
We will talk more about health savings accounts in upcoming posts, but suffice it to say, if you have a HDHP (deductible > $1300 / year), make sure to max out an HSA every year.
Healthcare Sharing Programs
Another consolation in the health insurance arena are healthcare sharing programs, such as MediShare, Liberty HealthShare, Christian HealthCare Ministries, and Samaritan. These programs are not allowed to call themselves insurance, but they behave similarly. You pay a monthly “share” (like a premium), and this money is pooled together and used to pay each members’ medical care.
The boon here is that if you are a member of a healthcare sharing plan, you will be exempt from the 2.5% fine.
Monthly premiums for healthcare sharing programs are also significantly less than for standard health insurance. For example, I was a member of MediShare for two years when I did not have employer-sponsored health insurance. I paid $75 per month for a $10,000 yearly deductible. Compared to the lowest cost ACA-compliant plan in Alaska ($674/month), that was a significant savings.
Know the Potential Disadvantages of HealthCare Sharing Programs
There are two very important things to understand about healthcare sharing programs.
First, all healthcare sharing programs have some sort of religious affiliation. That is how they can qualify for exemption under the ACA. If your values do not align with the values of the programs, then you will want to steer clear.
Second, healthcare sharing programs are not technically health insurance. They are not subject to the same rules and regulations as health insurance companies. For example, there are extensive limitations on pre-existing conditions and payment for medical services is not guaranteed. If you are not generally healthy, you will likely be better off with standard insurance.
However, for those that are healthy, healthcare sharing programs are the closest thing you can get to a true low-cost high deductible catastrophic plan.
If you decide to go this route, I would encourage you to do your research and read ALL the fine print before foregoing traditional insurance.
Bottom Line
Even if you are healthy and can do 30 pull-ups, you need health insurance. If you have employer-sponsored health insurance, then your health insurance choice will be relatively straightforward. If you are responsible for your own insurance, then consider a high-deductible plan, prepare to pay high premiums, fill up your HSA, and explore alternative options such as HealthCare sharing programs.
I have to purchase my own health insurance, and to be honest, it hasn’t been easy for me to figure out what to purchase. Obviously a big part of it is that you never know what health problems you’ll run into. However, I opted last year to purchase a lower deductible plan (that made us ineligible for an HSA) knowing that we were having a child. I kept it this year without giving it a huge amount of thought, not sure if that was a big mistake. It’s a topic I’m not well-versed in so thanks for writing abut it. You having me thinking!
Hi Passive Income MD, thanks for visiting. In my opinion, for a high-earning professional who can afford a deductible over $1300 ($2600 for family coverage), the tax benefits of the HSA (especially when used as an investment vehicle) far outweigh the potentially higher out-of-pocket medical costs of a high deductible plan. An exception would be if you or one of your family members is dealing with a costly chronic health condition.
Great summary of the options and the reasoning behind health insurance. I agree, of course. We consider ourselves to be self-insured for disability and death, but months in the ICU would destroy our wealth.
I paid for insurance out of pocket the first half of my career at about $1,000 a month. I’ve been employed for the last 5.5 years and have had subsidized health insurance via an employer.
When we pull the FIRE trigger, I’ll be back on my own again. A health care sharing ministry may actually be the route we choose — a couple years ago, I had never heard of such a thing. The cap on coverage that many have of about $1 million scares me, but at least one of the companies has a premium package with no cap.
Of course, the healthcare coverage landscape could change drastically in the coming weeks or months, so I won’t put too much time and effort into exploring our options until it’s time to make a decision.
Best,
-PoF
Hi PoF, thanks for stopping by.
According to MediShare’s website: “Each Member enjoys sharing of his or her Eligible Medical Bills with no annual or lifetime limit.”
https://mychristiancare.org/medi-share/what-is-medishare/eligibility/for-individuals-family/medi-share-guidelines/#IV.C.MaximumSharingLimits
When deciding whether to become a member of Medishare I asked whether they had actually paid out (“shared”) over a million dollars for medical care for a single person, and they confirmed that they had, although I don’t know if it’s possible to verify this.
There is certainly a risk with opting out of traditional health insurance, but I like several aspects of Health Care Sharing programs, including risk-adjusted premiums and the focus on personal responsibility.