By In General Benefits Knowledge, Health Insurance

When it Comes to FIRE-ology, U.S. Health Insurance Is Different from Other Kinds of Insurance

As I’ve reading through blog entries and comments in the FIRE community, two things have come to mind:

  1. Y’all are some smart mofos! Seriously, reading what everyone is saying about how they consider their benefits in relation to their income, savings and wealth is endlessly entertaining and rewarding. People are taking the time to really think about what they’re doing, learning by trial and error, and experimenting with strategies that work for them based on where they are in their lives and, often, where they are in the world. Keep it up, people!
  2. It’s human nature to think of your health insurance in the same way that you think of other kinds of insurance, like your auto or house insurance (“P&C”), or life, disability and other accident indemnity insurances. It works to an extent, but be careful not to think of them as interchangeable. That’s what today’s post is about.

‘It’s like car insurance’

I’ve seen a lot of younger FI folks in particular make analogies between health insurance and car insurance. There are definitely similarities — in both, you’re primary ways to compare plans is your premium and deductible, along with any added services. They’re both quantifiable in that way, which is good. Plus, in both cases you want insurance just in case something bad happens. But there’s more than just “bad” things that are covered under health insurance, which I’ll talk about more further down.

As you’re looking at your bills and mapping out your FIRE strategy, remember that that your personal health is not the same as your car’s health. You can get a new car but you can’t get a new body. Plus, there’s an upper limit to what you will pay on a car — if the damage exceeds the value of the car, you “total” it and move on, hopefully relatively no worse for the wear. No such luck with your body.

Practically speaking, this means that when you’re looking at health insurance, you also want to be mindful of things like out-of-pocket maximum expenses, which is the maximum you will pay per year in a worst-case scenario for your health. There are also lifetime limits on what insurance will pay, which have mostly been removed under the Affordable Care Act but still exist for things like healthshare ministries and short-term, limited-duration coverage.

‘It’s how insurance should work.’

Speaking of these types of coverage that are not compliant with ACA coverage mandates, you may fool yourself into thinking you’ve cracked the code to paying only for what you need with a short-term plan of healthshare ministry. And perhaps you have. But the big difference between health insurance and P&C is that there is the “insurance” part — which keeps you from financial ruin if something unexpected happens — and there’s also the “prevention” part — which is helping you take care of yourself before something bad happens that can lead to financial ruin. Practically speaking, these are things like free well-visits for yourself and your dependents (especially valuable to women and children). You may think of these like oil changes, and yes it’s a fun analogy because there are fluids involved in both. But you can only go so far with a DIY approach to your health. Come at me with your “I haven’t seen a doctor in five decades and I’m strong as an ox” stories and I’ll hit you with a thousand “I never thought it would happen to me” stories, including a few from my own family.

Health insurance in the United States doesn’t work like most other places on the planet. You probably get coverage through an employer (or you should if it’s offered to you). Most people in the rest of the developed world don’t have to do that. Wherever you stand on the political spectrum, that means our system has more opportunities to jack you up. And yes, the coverage that is provided by your employer, or through a public marketplace if that’s where you get it, is super-expensive and has a lot of problems, but it’s still way better than most unless you’re very, VERY confident that nothing bad will ever happen to you and you’re proven right.

‘It’s bloated, so I’m just going to get what I need.”

What does this mean in relation to “alternatives” to standard insurance? Yes, you can definitely get a short-term plan now that they’ve been made available in most states for 12-month durations with the option of up to three years total coverage. If you’re young, have no children and have zero conditions that might need medical attention at some point — and you don’t have cheap coverage available through your employer — then maybe it’s right for you for a period of time.

Likewise, those who are in healthshare ministries seem to be very happy with them, even though they have to file claims and are never totally sure how much will be reimbursed. If it’s working for you, it’s your prerogative to keep going with it.

I can just tell you that they wouldn’t work for me or my family. The short-term plans wouldn’t cover the many well-visits we’ve made (and we don’t visit the doctor on a whim), along with the mental health needs we’ve had, which are pretty average for a family of our makeup and financial status. Likewise with the healthshare ministries, which tend to be very pro-child (they pay for childbirth expenses pretty well!) but not very pro-family-planning, since they’re largely Christian and do not cover things like birth control as readily as ACA-compliant plans and most (not all) employer-provided health plans.

So, why should you pay into a system where you may not get the value out of it that you put into it? Because that’s the one area where health insurance is like any other insurance, which is also like pretty much any social service. You pay into it in case you need it some day, or because you will need it some day. Life insurance may seem like a waste when you get to the end of your term and are still alive and kicking, and you may find that you’re much better off saving your money in your own way, but I can tell you first-hand that it’s a literal lifeline when you become the beneficiary of a policy.

As we move toward financial freedom, each in our own way and through the collective efforts of our community, remember that we’re working both individually and as a group, and that there are many ways that this collective approach shows itself. One of the basic premises of financial well-being found on Harold Pollack’s famous Index Card: “Promote social insurance programs to help people when things go wrong.”

That applies to any of us. We would all like to think it doesn’t. But when it does, we sure are happy to know that we made the right decisions for ourselves, our families, and our financial futures.

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