By In Budgeting, Individual Health Insurance

Bad Health Coverage Options for FIRE Folks, Freelancers, Gig Workers, Self-Employed and Perhaps Even Trustafarians

If you fall into the broad category of people who don’t qualify for employer-provided health insurance or a government-provided option like Medicare, Tricare or Medicaid, now is the time of year that you should start thinking about your options.

We at The Benefits of FI have preached the importance of having high-quality coverage (read: coverage that is required to pay for a lot of different kinds of health care services and potential needs) coverage for you and your family. But since this FI community is nothing if not fiercely independent, we want to give you a few more details about the options you’re reviewing, in case you don’t take our advice to go with the (probably) more expensive option that is (probably) also the smartest option…

First, a quick reminder: If your income is relatively fixed, it’s quite possible that you still qualify for some kind of subsidy on “Obamacare” insurance, which is generally the most comprehensive insurance you will get in the individual health insurance market. I make a comfortable living but since I am self-employed and am responsible for insuring two adults and four children, I get a pretty good subsidy that means I pay about what I paid for my employer-based health insurance at my last full-time, salaried job. Yes, my deductible is ridonkulous but everyone on my coverage gets pre-deductible services, like the tests that come with an annual checkup, at no charge, so we can at least practice preventive medicine. Plus, my annual out-of-pocket maximum — the money I would spend in a worst-case-scenario accident or diagnosis — is capped around $15k, which is a lot of money but less than crappy non-insurance insurance, or no insurance at all (we’ll get to these scenarios).

Long story short, your first step should be to go to healthcare.gov and see if you qualify for an ACA subsidy for your coverage, because that’s still going to be your best option even if it costs you more.

Bad Option 1: Short-Term Plans

I’ve seen some play in the FI community for the recently re-expanded short-term, limited-duration insurance plans. In a nutshell, these plans provide you with very limited health insurance coverage — something that looks like catastrophic coverage, but worse — for a lower insurance premium. They have been prettied up a bit since the Trump Administration enabled people to sign on to a short-term plan for up to 12 months and renew for several years (under Obama, you were strictly limited to a 3-month duration). I’ve seen plans that promote discounts and other perks, but they mask the fact that the core coverage doesn’t cover much of any preexisting conditions, doesn’t cover any preventive types of coverage, and doesn’t cover things like mental health or prescription drugs. Basically, you pay something like $1,000-5,000 per year to be covered in case you get hit by a bus and don’t die. Seriously, the companies that sell short-term plans have been cited for doing everything they can to not pay claims. And it doesn’t stop at anecdotal proof. Short-term plans have been shown to spend half as much on medical costs as traditional health plans, which are mandated through the ACA to spend 80% of every dollar collected from premiums on health care services. Plus, you have to file claims for everything, which means you have to be a fan of paperwork. There is a very small group of people that might actually do OK by selecting a short-term health plan — young, very healthy, very risk-averse people. So, if you work from home and only go outside to pick up Amazon packages, but you also have a treadmill and do 150 push-ups per day, then by all means, get a short-term health plan. Otherwise, you’re probably throwing away your money.

Bad Option 2: Health Share Ministries

I may get some blowback for saying these are a bad option, and if you compare them with short-term plans, then they’re much better, especially if you have a family. These are essentially faith-based health care cooperatives. You pay money into a pot that is then used to pay for medical expenses of members if and when they arise. There are some additional nuances, like you are paired with certain families and whatnot, but generally speaking it’s a sort of faith-based-anarcho-syndicalism placed inside a modern capitalist democracy. To wit, health share ministries, which are almost always Christian-based, get high marks from members and generally do a great job of covering all costs related to having babies. I’ve also heard testimonials about how they’ve paid for some chronic disease treatment costs. So, “bad” in this case is not necessarily “horrible.” The issue is that health share ministries are even less regulated than than short-term plans, so you have no real guarantees of coverage. You can be denied a claim for virtually any reason, and you have to adhere to a moral code to ensure your “normal” claims don’t go uncovered. There’s also been a recent spate of companies calling themselves health care ministries that have been accused of false advertising and fraud. So, if you’re living an upstanding Christian life and are OK with the limitations, give it a try. But buyer beware, because this isn’t insurance so much as it’s a strangely socialist micro-experiment that was held over from the pre-ACA days. Plus, like short-term plans, you usually do the paperwork on claims.

Bad Option 3: No Coverage

The middle-aged family man in me has a knee-jerk reaction that going without coverage is insane. But as a self-employed consultant who’s always one lucrative project away from making more money than allowable for ACA subsidies, I’m also acutely aware of how crazy it seems to spend $20-30k per year just on insurance premiums. I read a response recently from someone who was two years from retirement and couldn’t stomach the huge premiums, so he took the money he would have spent on his premiums and just banked it to pay for his doctor visits and prescriptions. At the end of it, he had about half of his savings left, which he then was able to keep for smaller additional expenses once covered by Medicare. There are three important points to this example:

  1. He was covering only himself and his wife, both of whom he noted were in relatively good shape for their age.
  2. He didn’t just go without — he decided to manage his money on his own rather than simply not get insurance and not have an “emergency fund” for medical expenses.
  3. He had an end-date for his strategy. Since he was two years away from being eligible for Medicare, he had a backstop on costs for any chronic or terminal illness that may have arisen while he was uncovered. It was a risky acrobatic maneuver but he didn’t try it without a net.

The lessons here are that, in most cases, going without insurance is, indeed, crazy. It’s especially crazy if you have kids and/or are over 40 years old because the probability of needing to actually use health care services is far greater. However, if you feel you can responsibly save money, and if you are lucky enough that nothing goes wrong — this is a huge, huge risk, just so we’re clear — then that is an option that is out there. Not one I would personally recommend, but one for which you should know the details in case you are not inclined to take to our advice for actually covering yourself properly.

Mea culpa, in case it wasn’t clear: Some of these types of coverage I am obviously speaking about simply as an observer or from the perspective of someone who has considered them and then moved on to something I find to be a better option. If you have had experience with any of these “bad” options and found them to be “good” for you, I’d love to hear about them. There may be some nuances I haven’t considered. Either way, I’d love to hear your stories as annual enrollment approaches!

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