Health Insurance: Should You Self-Insure?

I have noticed something remarkable over the past few months: many of my financially comfortable friends have reached their breaking point with health insurance.

It is not hard to understand why. In many cases, they are getting hit with huge increases, and those with families are facing renewal premiums of $3-4K/month.

Never before have I heard so many people talking about self-insurance. The thinking goes like this: Rather than spending $30-$50K on health care insurance, just put that money in an account and pay cash for medical bills. Over the years, even if a huge emergency arises, there will be money in the account to pay for it.

Self-insuring is appealing for many reasons:

• There is no doubt that cash payers get better prices than those paying through insurance. That sounds insane, but it is true regardless.
• Health insurance covers many things we may never want/need. This drives up the price. And on the flip side, it does not cover many things that we would like it to cover (like supplements!).
• The risk of a serious health event is modest, especially for young, healthy people.

For many, the decision of whether to have or not have insurance is unfortunately made for them because they simply can’t afford it. But if you can afford it, I am not going to encourage you to self-insure (go without health insurance) unless you have a lot (millions of dollars) of disposable cash. Here is why:

• Even young and healthy people have health emergencies, including cancer, heart attacks, car wrecks, and other accidents. While the risk is low, it is not insignificant. As a rule of thumb, you could plan on about a 10% chance per household member of having a significant health emergency in the next 10 years.
• These events can easily cost in the millions of dollars and are real debts that can/will destroy your financial life, affecting your ability to get loans and possibly driving you into bankruptcy.
• Generally speaking, health insurance premiums are subsidized for those with lower incomes and offer tax advantages for those with higher incomes. When you figure out the actual cost, while still expensive, health insurance is a bit more palatable.

Please don’t ever forget what health insurance is for. It is not primarily about paying for routine office visits. It is rather about protecting you from financial ruin in the case of a health crisis. And, if you are reading this, you have the risk of a health crisis.

If you want to protect yourself but simply cannot afford traditional health insurance, a middle ground exists: health-sharing plans. While they are not technically insurance, these plans do have a long history of paying large claims, and they cost a fraction of the cost.

There are many of these health sharing plans on the market right now. I don’t know enough about any of them to recommend particular ones, but you can find them easily online.

Photo by Towfiqu barbhuiya on Unsplash