Do You Really Need Health Insurance?
Strategies which give you back control of your money, and prevent a lifetime of wasted insurance premiums.
The Problem
As I’m sure you would have guessed, this article is primarily directed at people from the USA. However, it may be helpful for our global readership to get a perspective on how things work here in the US.
For those who are unfamiliar with the American health insurance industry, here are some sobering numbers.
Average Yearly Health Insurance Premiums for one person in 2024 was about $8951. For a family, it was $25,572.
That comes to $745 per month for one person, and $2131 per month for a family!
When looking at government subsidized plans (Affordable Care Act Marketplace), the average cost in 2024 was about $477 per month for a single person. About $5700 on a yearly basis.
These costs will vary considerably depending on your age, location, habits and history.
Most people who have health insurance, either from an employer, government or direct from an insurer…have it for most of their adult life.
If you take any of these numbers, and just multiply it by 5 years…I think you can start to see the problem I am alluding to.
If you are paying premiums for a family, in 5 years you will have sunk $127,860 before you have spent any money on actual medical bills, co-pays or deductibles. This is money you are never getting back
We haven’t even considered the impact of deductible limits. Deductibles are the amount you are responsible for before insurance kicks in.
For example, out-of-pocket deductible limits are as high as $9450 for a person, or $18,900 for families!
These costs have grown steadily over the years, and we have long reached a point of diminishing returns.
Is this really necessary? Surely, there is a smarter way to manage your finances and secure your family’s health…
How To Frame The Solution
The first thing we need to address is why people buy health insurance.
Two major reasons:
Healthcare expenses can be very high.
Lack of funds to deal with high-cost emergency or unexpected medical bills.
Additionally, people tend to feel more secure when they know that they or their loved one will be covered in the event of an emergency, even if that emergency never occurs.
Whatever the reasoning, at the end of the day it comes down to funds available to cover healthcare costs.
Which brings us squarely into the next important consideration:
How much money do we need to set aside to feel safe?
Let’s look at some more numbers from recent years to help us get an idea.
Medical bills typically fall between $750 - $2600 per person (annual)
Average out-of-pocket healthcare expense: $1142 (annual)
In 2023, US employees paid $1763 out-of-pocket before hitting their deductible
Average cost of Emergency Room visit without insurance $2,600
Urgent care visits are far less expensive, averaging between $100-$200
About 25% of ER visits exceed $3000
Co-pay and out-of-pocket cost of ER visits range from $400-$700
You will notice that we haven’t included the most monstrous of healthcare bills, which are typically related to very expensive and toxic drugs used for things like autoimmune conditions and cancer therapy.
This is a whole other ballgame that I don’t want to get into for now. For starters, because I wouldn’t recommend anyone take some of these experimental drugs for things like autoimmune diseases.
In any case, let’s take the worst case scenario based on the above numbers.
Let’s say we want to have enough in any given year to bare the cost of an expensive healthcare encounter. How much would that be? $5,000? $10,000? Take your pick.
To cover $5000, we’d have to contribute about $417 per month for a year.
To cover $10,000, that’s $833 per month for a year.
If that is too much of a monthly contribution, you can spread this over a longer period of time. E.g. $417 per month for two years for a $10K emergency fund. You get the idea. It’s basic arithmetic.
In either case, not too bad, at least compared to insurance premiums.
Planning For Medical Bills
At this point, you may be thinking that without insurance the amount you would get billed would be way higher. This is not true.
Most clinics, hospitals, and pharmacies provide different fees for those who are uninsured or paying out of pocket. Even if they don’t offer it, you can negotiate it. Especially if you aren’t in an emergency setting. Shopping around for healthcare is a real and growing market trend. Including for surgeries, devices, drugs and lab tests.
There are even companies who can do this for you. Such as CrowdHealth or Goodbill.
The reason why medical bills look so high is because hospitals and clinics are playing games with insurance companies. Once you cut out the middle man, the landscape changes drastically.
Look, I know this approach isn’t for everyone. There will always be people who are in unique or extreme circumstances for whom this sort of approach doesn’t work.
But, the vast majority of people should consider an alternative to standard health insurance. Especially if you are young or generally healthy.
What are these alternatives?
The ideal financial set-up for emergencies (both medical and non-medical) will probably include a combination of an HSA + another fund.
The biggest challenge for most people is planning and discipline. Obviously, a transition like this will require some effort and take some time. Most people won’t feel comfortable quitting insurance plans cold-turkey until they have built up a fund they will secure with.
But once they have, they can free themselves from a lifetime of wasted premiums.
Health Savings Accounts (HSA) are high-deductible tax-advantaged savings accounts which can be used towards health-related expenses.
These are actually decently useful and give you far more control of your finances than any health insurance plan. There are some downsides, but in my opinion are a great start to digging yourself out from under the boot of insurance companies.
One advantage is that the amount you contribute in one year gets rolled into the next year. So, you aren’t really losing money on a yearly basis as you would by just paying insurance premiums. Of course, you will pay a small premium with most HSAs, but it’s nowhere near as high.
For instance, one reader quoted that by switching to an HSA they saved $1000 per month on their premium (paying only $200), which they can put towards their HSA fund.
What other advantages do HSA provide?
Triple tax-advantaged
Money you put into HSA isn’t taxed, and helps reduce your tax-burden.
HSA funds above a certain amount (e.g. >$1000) can be used to invest in assets, like a stock or mutual fund
The earnings on this investment are also tax-free
Finally, the money withdrawn to pay for eligible expenses are also tax-free
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