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Picking Plans

Mike Zaccardi

HAVING LEFT the nine-to-five world, I face a decision: What to do about health insurance? I’m a single, generally healthy millennial. Historically, I’ve not run up major medical bills. But as with the financial markets, past performance doesn’t guarantee future outcomes. Here are the five options I’ve been considering:

1. Continue COBRA. When I left my job, I kept my old employer’s health plan, but I have to pay the full cost of coverage. That’s a steep bill each month, but the coverage is decent. If I continue with it, there would be an added bonus: I could keep contributing to a health savings account.

2. Buy through the health exchange. An Affordable Care Act policy would offer a slightly lower premium, but the benefits are unimpressive.

3. Purchase short-term coverage. Premiums are almost too good to be true, meaning the insurance isn’t all that great. Considering that I have ample savings and I’m healthy, maybe it’s worth taking the risk. Famous last words, perhaps.

4. Join a health sharing ministry. These programs allow members of a religious group to share risk by pooling health care costs. Premiums are attractive, but coverage can be sketchy. While there are plenty of positive comments about these programs, there are some horror stories, too.

5. Self-insure. This seems too risky to me. Sure, I have way overfunded my emergency reserve, plus I have other means of raising cash. But I’d be living in fear that a broken finger or a bug bite could mean a huge financial hit. Remember, if you self-insure, you aren’t protected by the out-of-pocket maximum and the negotiated medical discounts offered by an insurance policy.

Which will I choose? Option No. 3 strikes me as the way to go. I don’t plan on sitting out of the workforce for long. That’s the purpose of short-term coverage—insuring the transition period between fulltime jobs. It would be a different story if I chose self-employment indefinitely.

Today, I better appreciate the adage, “When you’re young, you think you’re invincible.” In my 20s, health risk wasn’t something I thought much about, but now I do. As risk managers know, unfortunate and costly events can domino and cluster. Carefully considering risk and reward is paramount in our investment decisions—and in our insurance decisions, too.

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Andrew Forsythe
Andrew Forsythe
1 year ago

Mike, I would advise getting a plan which limits your risk in the (unlikely) event of a major medical incident. You’ll sleep better and it could really come to the rescue.

My wife and I are both on Medicare now, thank goodness, but for many years before that were on individual plans, and ACA plans most recently. While not nearly as beneficial or hassle free as Medicare, they provided crucial benefits during several major incidents. A couple of years ago my wife had back surgery and was in the hospital for about 3 days. When I saw the bill for $155,000 (!) from the hospital that the insurance paid, I was very grateful for the coverage.

Last edited 1 year ago by Andrew Forsythe
Mike Zaccardi
Mike Zaccardi
1 year ago

Great perspective and insights, Andrew. Thank you. Yes, I must fight my natural loss aversion and ensure I am insured properly.

William Perry
William Perry
1 year ago

I would encourage considering the after tax cost of the medical insurance premiums in your decision. As a now strictly self employed individual those premiums should should be deductible above the adjusted gross income line on your 1040. The same tax result should also be true of your funding of your health savings account, up to the annual maximum based on your filing status and age, if the plan qualifies as a HDHP. Typically you have to have sufficient net self employment income for the tax deduction not to be limited. I expect your future self will appreciate a pool of tax free money for qualified medical expenses when your health needs demand payment.

Mike Zaccardi
Mike Zaccardi
1 year ago
Reply to  William Perry

That is a nice thing about owning a small business! Thank you.

R Quinn
R Quinn
1 year ago

You pay a premium to use CORBA because an administrative percentage is added to the basic premium. And depending on the group that was left the premiums could be above normal if the group is experience rated.

Using an exchange plan is usually the best option with several choices based on the out of pocket risk one wants to take plus many, if not most people will be eligible for a subsidy. This is especially true for people during a job transition.

I’m not sure of your comment that exchange plan benefits are unimpressive. They are no less impressive than many employer plans and you can select the level of coverage you want to fund. Sounds like you already had a HDHP in any case.

Mike Zaccardi
Mike Zaccardi
1 year ago
Reply to  R Quinn

Great insights, thank you. Hopefully I’ll be back on an employer’s plan before long. A few opportunities brewing!

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