My employer has already started dropping hints that our health insurance costs are going up in January. I’ll probably need to switch to a leaner plan again. I’m healthy and don’t have a family. How much should I worry about having a high deductible or a high out-of-pocket maximum?
Healthy But Broke
Dear Healthy But Broke,
By “worry”, I hope you mean how much money you should set aside in case you have a big health event. And the answer depends upon how much money you have.
There is a widespread myth that you have to have health insurance in order to get medical care. No, the truth is that cash also works fine. The real reason you have health insurance is to protect your house from being sold to pay for your new kidney. Your deductible and out-of-pocket cost is “uninsured”, meaning that you have to pay it. So, you can think of yourself as partly uninsured.
If you do not have any money – in savings or in a house – then you have nothing to protect from the people you owe (and who, by the way, may have saved your life). If you have a bank account or home that you are fond of, then you do not want to give it up for medical bills. In that case, then you might want to prepare.
You do not need to have the whole deductible and out-of-pocket sum on hand right away. In any given year, you are unlikely to spend more than $2,000 on medical care. You could build up some emergency savings specifically for medical care over the course of a few years. If in the first year you did have a big event, you would have some of the savings to help pay it and you might have to dip into other accounts, home equity, or whatever else you have. Chances are you would have two or three years in a row where you had low or no bills. That would give you enough time to grow your “medical emergency” fund so that it would cover all of your out-of-pocket costs, including the deductible.
If your employer offers a Health Savings Account (HSA), you are a great candidate for a high deductible health plan. The HSA lets you save tax-free money for medical bills, and it rolls over from year to year. Even if you leave the high deductible plan in the future, the HSA funds are still there for you to use.