The financial weirdness of health insurance in 2018

I’d like to start by admitting that I’m not nearly qualified for anything I’m writing here to count as “definitive”. So take it with a huge grain of salt, do your own supplemental research, and don’t hold me accountable for any health, financial, or legal trouble you might get yourself into.

This is a strange post, and one that mostly targets the intersection between health insurance, financial strategy, and general risk/reward. It’s probably most useful to people who are pursuing financial independence / early retirement (FIRE), working on starting their own businesses, taking time off to travel and live on savings, or doing something else delightfully unusual.

It’s also guaranteed to be a tangled and sprawling mess of a post, since healthcare touches on SO many things.

This one is for all my weirdos out there.

Enrollment is open!

This is important now because until the 15th of December, it’s the only chance to use healthcare.gov, or possibly some state marketplaces (if your state has a healthcare marketplace with similar enrollment dates to the federal market), in order to secure health insurance for the entirety of 2019. You can’t decide partway through the year that it’s time for health insurance, outside of a few qualifying events. So if you need insurance next year, and you can’t get it from your job, it’s time to get moving.

And now the game begins of guessing what your income is going to be next year, how much that’s going to help/hurt you, and what’s worth it in your unique situation.

Playing the income game

Ok, so your income next year is really important, because there may be tax credits available depending on how much you earn. These credits help pay for your healthcare premiums. This is part of the whole ACA/Obamacare thing that polarizes people on many sides of the healthcare problem our country is facing.

I’m not here to take a stance on that, just to talk about the way it currently is and how to make the best of it.

Overview

In general, if you make less than roughly 1.4x the poverty rate, which is usually around $17k or so for an individual, you’ll qualify for Medicaid. (You need to check for your state and single/married designation to determine exactly what this income number is.) If that’s your income for next year, and you can’t increase it, there’s no need to read anything else. Just apply for Medicaid.

But once you earn more money than that, you are eligible to buy for health insurance through the Healthcare Marketplace instead of receiving Medicaid. So, lets say that you barely pass the income threshold – perhaps earning $20k per year. That’s where someone receives the most tax credits to help pay for their healthcare premiums. As you earn more income, climbing up to roughly ~$50k for an individual, the amount of tax-credit you’re eligible for will approach zero.

So the more money you make, the more your healthcare might cost you next year. Usually of course, you’d always want to make more money – even if you’ll wind up paying more for your health insurance.

It’s worth it.

However, if you’re doing something weird like generating your own income, taking time off to travel, trying to start a business, retiring early, or trying to use a tax strategy such as a Roth conversion ladder, it might possibly make sense to earn less money next year.

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A Roth conversion ladder is where, during times of low-income, you can chose to move retirement savings stored in IRA accounts into Roth-IRA accounts. Effectively this lets you chose exactly how much income you make that year, because when you move the money over it counts as income for that year. This is what first led me into thinking about this whole thing. Root of Good has a great article on Roth , if you want to read more.

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How tax credits work

Tax credits are interesting. Let’s say you qualify for $200 per month. You can elect to have all, part, or none of it applied directly to the bill that will come from the health insurance company. However, if you apply it all to your bill and wind up making more money next year than expected (when you filled out your healthcare.gov application), you will need to pay some of the credit back when it comes tax time. Because the government paid for a bit more of your health insurance than they should have.

This website did a really good job of estimating what my tax credits would be, confirmed as I played around on the healthcare.gov website.

Here’s an example on how that works:

• Eligible for $200/mo credit, based on income, and next year you make exactly that estimated income
  • If you had none of it applied to your bill, you pay the full insurance cost each month but come tax time you’ll get a refund for the full $2400 ($200×12)
  • If you had all of it applied to your bill, your monthly insurance will cost $200 less
  • If you had 50% of it applied to your bill, you get a tax refund of $1200, and during the year your insurance costs $100 less per month
• Eligible for a $200/mo credit, based on income, but you wind up earning more than expected next year
  • If you had none of it applied to your bill, you just get a smaller refund
  • If you had all of it applied to your bill, you now owe the government extra money during tax time, because they paid for more of your insurance than they should have with your new, larger, income
• If you wind up making less than expected next year, you’ll get extra money back on your refund if you would have been eligible for additional tax credits.
• If you earn so little next year that you should have just been on Medicaid… I don’t know what happens.

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*If at some point next year it looks like you’ll wind up earning more, or less, than you predict now – you can update your info on healthcare.gov at that point so your tax credits are adjusted accordingly. This helps prevent owning the feds more money than necessary, or not getting as much of a tax credit as you were eligible for throughout the year.

If you have ample savings, and can easily pay what extra you owe, or don’t mind getting more cash back than expected come tax time, don’t worry either way. It all works out the same and you won’t be penalized.*

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Income wrap-up

So if you don’t want to be on Medicaid, make more than ~$17k(ish).

But if you’re doing anything strange with your income or your life next year – make sure to check how it might impact your healthcare costs.

For example – if you’re unemployed or low-income next year, and are hoping to perform a Roth conversion, you might only want to convert $20k or so. For example, I found that in my personal situation going from $20k -> $40k in income next year would cost me an extra ~$3k in healthcare costs – practically offsetting any tax savings.

Either way, it’s all a bit of a strange mess – so consider this an introduction into some of the variables you’re looking at.

Other ways to insure, or not insure

Travel Insurance

Another great option might be travel insurance, especially if you’re on the road often and are only concerned about emergency care. I believe most travel insurance covers you if you’re more than 100 miles away from home – and I’m currently almost always more than 100 miles away from home.

A year of coverage through DAN costs me roughly $250 per year. ($500k medical evacuation, $100k medical expense)

This would generally not cover routine medical care, or any emergency care within 100 miles of your home address. So it’s quite limited, but that doesn’t mean it isn’t extremely useful. Especially for in a situation similar to my own, where I really only have the coverage to help pay for catastrophic events. I’m not managing current, chronic, ongoing expenses.

Global Insurance

If you’re outside of the USA for more than half of the year I know there are some really cost-effective worldwide insurance options out there that cover you in any country.

I don’t have a recommendation, but for an international nomad this is a great way to keep covered.

Healthcare sharing ministries

Ok, this one is way out there, but I know some people who are handling their healthcare by being a member of a ‘ministry‘ – which is essentially a way to share healthcare costs among a group of people without actually being a health insurance company. Here is an example of one group that works to share healthcare costs amongst people with "Christian principles".

It seems strange, and I’m not sure it’s for me, but it might be worth looking into if reasonably priced ACA coverage isn’t an option for you.

Medical tourism

If your life allows it there is a solid argument to at least consider having some medical procedures performed outside of the USA. Although this is a very personal decision, there are many stories of people who’ve done it successfully.

A serious dental operation alone could easily warrant a trip to Mexico, in the same way that other major procedures could easily pay for their travel costs many times over.

So whether it’s lower prices, or better specialists, it’s worth a look as part of your overall strategy.

Taking care of ourselves

This might seem obvious… But a great place to start is by simply taking better care of ourselves. A healthy diet, lots of water, frequent exercise, lower stress, and spending more time with loved ones won’t hurt your health. If we don’t have the basics covered it doesn’t do us much good to complain about healthcare costs and how we feel each day while chasing after more medications and treatments to help fix the problem.

Taking care of ourselves will do wonders for our quality of life – and our healthcare expenditures.

NO healthcare insurance

This is honestly an option that I’m considering, and when it’s paired with travel insurance it becomes particularly appealing to young and healthy individuals, who are hoping to earn a higher income in 2019 and travel frequently.

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Previously, with the healthcare marketplace, there was a financial penalty for not having health insurance. But my understanding is that Trump has removed the penalty in 2019 in an effort to help dismantle the ACA – which makes this an option for the first time.

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I’m sure this isn’t a great route for people with significant ongoing healthcare costs, but if you’re young, healthy, and have some savings to cover an emergency – I’m not convinced it’s an entirely terrible idea. This obviously has to do with your personal risk tolerance, and beliefs on your own risks.

Other cost considerations

I’ve found paying cash to be a fairly good option for routine healthcare costs, and I know people who have successfully settled large hospital bills (such as a broken leg large, not like…. terminal cancer large) for a few thousand dollars – well below the deductible on most high-deductible plans. But whether you’re getting insurance, or choosing to go without it – there are unavoidably costs to prepare for that you should save for.

No matter what path you take – make sure you earn, budget, and save accordingly for the healthcare costs that will arise.

… Which is hard to predict, of course, because with health insurance muddying the picture it can be hard to even know what some things cost.

I know this isn’t much, but here are a few things I’ve paid over the last year:

Annual doctors visit, with bloodwork: $150/yr Dental visit, with cleaning and annual x-rays: $250/yr (2 visits) Travel insurance: ~$250 Health Insurance: ~$170 (for 2018 i paid around $14_mo with a forecasted income of $20k)

It’s not a lot, but it still means that even if you go without insurance, without travel insurance, and don’t have a major uncovered accident, you’d still need at least $500 to cover your basics each year. (I say uncovered because many accidents are related to automobiles, and the automotive insurance should, in theory, cover your medical bills. So even without medical insurance you’re still covered against a major source of medical problems)

So should a serious problem arise, even WITH a high deductible health insurance plan, I’d argue that people should be aiming to have at least $7,000 on hand for medical emergencies. It’s big chunk of change, but it’s also likely enough to cover the deductible on a high-deductible plan, to cover a cash settlement for a broken arm, or to leave the country for a medical operation.

It won’t be enough to pay for chronic management of a major issue – of course – but for most relatively young and healthy people I’d think it would cover most things.

HSA Accounts

The Health Savings Account is a great thing, but only some of the plans on healthcare.gov are eligible for them.

The HSA is an account that lets you contribute money pre-tax for use on healthcare costs. This is a great way to make your cash go further for medical expenses, since that means you get to deduct that income from your taxes. You also don’t lose that money at the end of the year, like an FSA, it’s yours to keep year after year.

There’s even the incredible chance to use the HSA as an investment account, which is what I’m currently doing with mine. The Mad Fientist wrote a great article on this if you’re looking for a more advanced option.

I’m a huge fan of the HSA, and I’m even considering paying for a more expensive healthcare plan next year in order to be eligible to contribute more to mine. This is another weird situation where taxes, income, and benefits collide in this decision making process. Currently, at a target income of $20k next year, I’d have two good choices for healthcare through the marketplace:

• $1 per month (after ~$280 tax credit)
• $30 per month (after ~$280 tax credit)

Both have seemingly outrageously high ($6k+) deductibles, don’t cover non-emergency care outside of in-network providers near your home address, or anything else nice that you’d want your healthcare in a civilized 1st world country to provide… But anyway – the difference between the two is that the more expensive one is HSA-eligible.

I personally believe that would be the better option, because for an extra ~$350 per year it would allow me to contribute up to $3,500 to my HSA. So it would kinda be like paying ~10% to put that money into an account that will never be taxed again.

I think that’s probably a fair deal, especially if I purchased one of these coverage options next year and wound up earning more than $20k. The more my income went up, and the lower my tax credits went, the better and better the tax-free HSA plan would become.

This is one of the complicated examples of what a tangled mess this can be.

Conclusions

It’s hard to have any real conclusions here, other than that the system could use some work… But there is a lot to think about when it comes to getting (or not getting) health insurance next year.

I hope this has helped shine a bit of light on some of the interesting options, and how they are all tied together.

As for me?

I’ll continue to maintain my travel insurance. I’ll continue trying to eat healthier and exercise a bit more each day. I’ll continue to brush and floss each day. I’m thankful for the savings in my HSA account. And I’ll absolutely consider medical tourism if something big comes up.

And for the final piece of my puzzle, the actual health insurance decision… I’m debating between either aiming for a higher income, paired with no health insurance, or instead targeting $20k in income and going with the HSA-eligible coverage through the healthcare marketplace.

2018 is definitely a weird time to be buying health insurance in the USA.

How about you?

What’s your plan for 2019? How are you dealing with the crazy challenges around healthcare, finance, and insurance?