Health Insurance – Is Self-Insuring Reckless or Worth It

A person can pay a certain premium every month for health insurance or pay that same amount into a savings account to pay for any medical expenses that come up. Most people do not experience health problems at all (besides vision and dental) until they are past the age of 45. This article is an argument for and against each method with a conclusion that people in good health could risk the self-insure method, but only if they do not have dependents. Also, that people should opt for jobs that offer family health insurance coverage, or at the very least have cheap family health insurance because it is sometimes better than having no health insurance at all.

The Definition of Reckless

Somebody who does not have health insurance is not reckless. To be reckless means to take extreme risks without thinking of the consequences. It is to act without thought, and yet if you are going to make a success of self-insuring, then it requires a lot of thought.

On the other hand, there is a line drawn between being reckless and being dumb. For example, if you have dependents, especially young dependents and you are the only provider, then you are being pretty dumb if you do not have health insurance. If something bad happens, which is common with very young babies and children, then you cannot risk running out of money to pay for extended treatment. On the other hand, if you have adult or near-adult children, strongly consider taking them off your insurance.

A similar argument could be made if you are looking after an elderly person who doesn’t have enough savings of their own. The mounting medical costs could be astronomical, and your dependent is really going to suffer if you run out of money during their extended care and/or treatment.

How Does Self-Insuring Work?

The premise is built upon a person looking back over twenty years and figuring they should have saved the money that has been spent on health insurance premiums rather than having health insurance.

Let’s say you reach the age of 40, and you look back over the last 20 years. You have paid an average of $5000 per year. Over twenty years, you will have saved $100K plus savings interest. Looking back, you realize you have had no medical expenses besides minor things that your insurance doesn’t cover, such as dentist and optician appointments. You figure you would have been better off if you had put the money into your savings account from the start.

Every year, when you fill out your taxes, you also go and search out a good priced health insurance premium. Then, over the course of the year, instead of paying the premium to your insurer, you pay it into a dedicated savings account. The idea is that if you ever have medical expenses, then you use the money from the dedicated savings account. You only ever use the saved money for medical expenses, and over the years you are probably going to experience a net gain against having health insurance.

Problems That Arise

Let us assume that you keep yourself in fairly good condition, you are also not a spelunker on weekends, nor do you engage in risky sexual encounters. There is still a chance that you are going to be injured and your treatment costs more than you have saved, especially in the beginning when your savings have not yet bulked up sufficiently.

However, that is not the most common problem with self-insuring. The most common problem is that people who are not good with their money are trying it. You need to be good with money for two reasons. Firstly, you need a new premium figure every year in order to keep up with the changing costs of care, and many people just decide on a figure and then do not change it for forty years.

Secondly, it is imperative that you never miss a payment. Many people who are bad with money see the payment as a luxury and they will happily miss it when they are having a rough month. But each payment is essential if you wish to self-insure. Thirdly, most people do not have the willpower to allow tens of thousands of dollars to build up in their account without spending it on something other than healthcare.

Finally, there are sometimes problems that arise if you do not have health insurance for a long period of time. For example, there are rules in Australia where your insurance premiums go up if you have not had health insurance before your 31st birthday. Plus, there are all sorts of lifestyle choices and career choices that demand you have health insurance, such as if you wish to adopt.  For instance if you are working in a busy city like New York, we highly recommend to check out readily available New York health insurance plans to see if you need the coverage. Accidents happen fast in a super busy city like that.

Conclusion – Should You Self-Insure?

If you are prepared to take a cold hard look at the risks, if you are good with your money, and if you are prepared to commit to your payments without ever missing or spending the money, then you should consider self-insuring rather than paying a health insurance company. However, if you have dependents, especially young or vulnerable dependents, and/or if you are chronically ill, then self-insuring is probably not for you.