Why I’m Not Afraid of the Health Insurance Boogeyman

These probably won’t help…then again, you only live once! – Image courtesy of Jean-Marc Buytaert

I occasionally hang out with early retirement minded people. Some of them have already taken the plunge, some are thinking about it more and more as I am, and some are much earlier in their financial journeys but are intrigued by an alternative to the “work till you’re either dead or wish you were” program that has been the standard for far too long. Easily the most common question I hear being asked of the people who have already retired ten, twenty, or even thirty years before the traditional age, is “what about health insurance?”

And I admit that was one of my first questions as well. Most people I’ve met answer this question in one of a few disappointing ways. Some were able to negotiate some sort of arrangement with their final employers, some have a spouse that is still working, and many are structuring their incomes in such a way as to be eligible for subsidies on individual coverage under the Affordable Care Act. None of these is workable for me. My current employer will likely be neither willing, nor able, to make any deal with me, I don’t have a spouse who can keep working so I can “retire,” and I can’t stomach exploiting badly written legislation for personal gain – particularly not when I’m currently paying a substantial share of the associated bill.

After I recently learned of some significant challenges my current employer is facing, which threaten not just my job and those of many of my colleagues, but the company itself as a going concern, I’ve been thinking a lot about my options. I could find a similar job at another company. Since I started my latest job search, there have certainly been some encouraging signs that this will be a viable option – although nothing has come to fruition just yet. But aside from maintaining the status quo as an employee/entrepreneur hybrid, I’ve been looking at other, more adventurous options. One common thread among many of them would be stepping out from under the umbrella of having an employer at all. And this has brought the health insurance question back to the forefront.

But as I’ve begun to explore the issue, I’ve actually been very pleasantly surprised by what I’ve learned. It turns out individual health insurance is both fairly straightforward and less expensive than I had anticipated. I acknowledge that things would likely be different if I had dependents. But at roughly $15k per child, per year, for as long as one is willing to keep the financial umbilical cord intact, having children is one of the most expensive financial decisions a person can make. That is one of several reasons I’ve personally opted out.

Anyway, I searched around and Blue Cross Blue Shield appears to be king of individual health insurance in my neck of the woods. By simply entering my birth date, non-smoker status, and zip code, I was presented with a menu of options ranging from the most minimalist plan at roughly $320 per month to something approaching the top of the line plan I have now at nearly $700. I didn’t see an annual payment option but if one is offered with a decent discount, it would amount to an awesome churning opportunity. One nice thing that I believe came out of the ACA is that it appears all plans now cover the one annual preventative appointment we should all be going to. Of course, that is priced into the premiums. But I digress. Beyond that, as a relatively healthy young adult, I’m almost certain to spend somewhere in the $0-1500 range per year on health care expenses, meaning paying an extra $400 a month for a high end plan that would cover most of that doesn’t make sense. I will note that there are subsidies offered for people with surprisingly high income limits. Sadly, I’m in the group that pays handsomely for those subsidies to be offered, and don’t anticipate that changing, so I’m paying full freight for my own coverage no matter what. But your results may be different – particularly if you have kids. And as the birth rate continues to decline, it is very likely that we will all see the government using more mechanisms like this to force people like me to subsidize your procreation efforts. For what it’s worth, that will likely offset at least a portion of the additional costs you would face in areas like this.

Ultimately, my choice would be a plan that costs $332 per month because it is the cheapest HSA eligible option. With a deductible of $6k, an out of pocket limit of $6650, and no prescription coverage until the deductible is met, I would almost definitely be paying all of my costs beyond the annual preventative appointment. In most cases, I would probably not even use the insurance, instead opting to negotiate directly with doctors since my insurance would effectively cover nothing anyway. I’ve heard there is often significant room on the pricing if you aren’t forcing the provider to deal with an insurance company.

But this is where it becomes important to calculate things out for yourself. If you tend to spend a lot in health care costs, it may make sense for you to go with a plan with higher premiums but more coverage. One thing to consider is that it’s not necessarily the end of the world if a plan doesn’t offer prescription coverage (it can’t if it is HSA eligible). Thanks to a wonderful website called Good RX, anyone can pay much less than retail prices for prescriptions whether or not they have insurance. Don’t ask me what kind of sorcery makes it possible, but this can be an absolute godsend if you don’t have prescription coverage and yes, I did use it back when I worked for an employer that offered a very minimalist coverage option.

I’ve mentioned “HSA eligible” twice now. Why? HSA stands for health savings account and it’s a hidden financial gem. Unlike an FSA, which is garbage unless you have health care costs you can forecast very reliably, an HSA is a tax advantaged account that can be built into quite an asset. To put it simply, it is a miniature Roth IRA for health related expenses only. This year, an individual can contribute $3500 into one. The money can be invested in whatever you want, provided you’ve chosen a good provider, and as long as you don’t spend it, it will grow tax free just like a Roth IRA. It does ultimately have to be spent on health care expenses, but given the state of the industry, I don’t believe any of us will have too much trouble accomplishing that. In fact, remember that quarter million dollars the media is always screaming about you having to pay for your health care expenses during your traditional retirement years? Well, if you contribute the max to a Roth IRA for twenty or thirty years and don’t use any until you retire, that is more or less covered – without dipping into your other assets. As usual, a little knowledge can go a long way towards putting out the fires of mainstream ignorance. The important thing to keep in mind with HSAs is that only certain more minimalist health insurance plans are eligible for them. If you have a lot of health care expenses now, you may be better off with a “Cadillac” plan paired with an FSA. No one can tell you definitively without specific information; I recommend that you run your specific numbers yourself to figure it out.

But in my case, a disaster only health insurance plan and an HSA are a home run combination. The only problem is that pesky “Cadillac” plan I have now. But given that I’m kicking in well under $100 a month for it, and that’s tax deductible by the way, it’s obviously the best option available to me as long as I’m with my current employer. However, once that relationship runs its course, likely by the end of this year, it’s nice to know I will have some great options available to me and that they won’t be nearly the financial disaster the media would have folks believing they are.

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