I just read a blog post by Dani at Living Behind the Curve. She writes about her thoughts on going without health insurance in order to work part-time. Initially, she goes looking for individual health insurance, but talks herself out of it for several reasons. The policy has a $5000 deductible, and Dani calculates that her total medical expenses for the previous year came to $1200. So she points out that if she were to get this policy, she would probably pay $1200 in medical expenses (below the deductible) plus the $89/month in premiums. Not a good deal in her estimation.
She goes on to point out that the policy has a 24 month exclusion on pre-existing conditions, so the things that she generally has treated would not be covered for two years anyway. Her pre-existing conditions include bipolar disorder and fibromyalgia. In Colorado, bipolar disorder is an automatic decline with individual health insurance companies, so Dani obviously lives somewhere with more relaxed underwriting laws, and can qualify for a policy that will cover the bipolar after two years. A two year wait sounds like a long time, but it’s better than not being able to get coverage at all.
Then Dani makes the comparison with auto insurance. She points out that we don’t expect our auto insurance companies to pay for oil changes and brake pads (akin to doctor visits and low-cost prescriptions). Rather, for people with full coverage insurance, the insurance company will pay to fix damage that is over the deductible on the policy, and will write a check for the value of the vehicle if it is totalled. Dani notes that her truck is worth about $15,000 – and wonders about self-insuring the vehicle. If she could save up that amount in a high-yield saving account, and pay the account every month instead of the insurance company, she’d be ahead of the game. Chances are, she will not total her truck and the money will keep on growing. If she does total the truck, she can use the money to buy another one.
This scenario works very well when you’re self-insuring something with a fixed value and an absolute limit on the worst-case scenario. In this case, $15,000. You can budget how much to put away each month, and once you have $15,000 in the savings account, you can rest easy knowing that if something were to happen to the truck, you can replace it without going into debt. But what about liability insurance? There is a reason we’re all required to have liability insurance, regardless of our ability to self-insure our own vehicles. It’s because the worst-case scenario in a liability case is wide-open. It’s one thing to have $15,000 sitting around to replace your own vehicle. It’s entirely another thing to have $300,000 sitting around to pay someone else’s medical bills after you’re found at fault in an accident. And nobody wants to be on the receiving end of that lawsuit – that’s why we send our insurance companies into the ring on our behalf.
Health insurance is much more akin to liability insurance than to comp/collision insurance on a car. We really have no idea what the worst-case scenario could be when it comes to medical claims. People who choose a high-deductible (Jay and myself included) are already choosing to self-insure for claims that fall below the deductible. In our case, we have a $3000 deductible. We save money in an HSA, hoping that we won’t need to use it, but knowing that it’s there just in case. We can self-insure up to that amount.
Things that cost less than $3000 are not the reason we have health insurance. We have health insurance so that if I go over my handlebars on my bike and break my neck, we won’t lose our house. Or if one of us gets diagnosed with leukemia, we won’t have to declare bankruptcy. I’m always surprised when people present their normal medical expenses (typically below the level of the deductibles on the policies they can afford) as a reason that the health insurance will be of no benefit to them. Health insurance is a safety net. It was never designed to cover the small things. Rather, it’s there so that you can sleep easy at night, knowing that if a worst-case scenario were to occur, you could probably pay your portion of the bills within a year or so of payments. Without insurance, there are very few of us who could pay off a $500,000 bill within a year or so.
Happily, Dani mentions at the end of of her post that she has taken a job that offers full benefits, so she is no longer having to consider individual insurance. Since the plan is through her employer, it should cover her pre-existing conditions as well. But for people who are in Dani’s situation and don’t get benefits through work, make sure you consider a worst-case scenario rather than usual expenses when you ponder the option to self-insure. There are very few people who can truly afford to self-insure.
