Health insurance for US-based freelancers

Note: this post originally appeared as a newsletter to my mailing list, but I received so much feedback on it that I decided to publish it here as well. Thanks to all the readers who responded with your own stories about health insurance!

Here in the US, it’s health insurance open enrollment time, which means that you can purchase a new plan, change plans, switch to a new flavor of plan, etc. For many freelancers (and from here on out, by “freelancers,” I mean those who work in the US), health insurance is a source of great stress and frustration, not to mention great expense, so let’s look at various options, and some out-of-the-box options as well.

-Under the Affordable Care Act, the good news is that ACA-compliant policy issuers cannot decline you because of your health history, cannot refuse to cover pre-existing conditions, and cannot drop you for using the insurance too much. Under the ACA, insurance companies can only ask your age, income, family size, address, and what type of coverage you want. For those of us who purchased (or tried to purchase) individual insurance on the private market in the pre-ACA days, these two things are a huge relief.

-But…even under the ACA, health insurance premiums can be extremely expensive. If you want to geek out on the statistics, here’s the report from the National Conference of State Legislatures on that topic. Many people do qualify for subsidies under the ACA, so it’s worth talking to an insurance broker about what the options are in your state and whether you would qualify for a subsidy.

–With premiums (and deductibles) rising–anecdotally, I’ve talked to freelancers who make just over the subsidy cutoff (about $52,000 if you’re single) and who pay close to $1,000 a month for an individual policy–people start looking at other options. Ed Gandia recently devoted an entire episode of his High-Income Business Writing podcast to the topic of medical cost-sharing plans and health indemnity plans. Long story short, these are health coverage plans that–because they are not technically insurance–are not subject to ACA requirements. This podcast episode is great, in that it gives actual case studies with costs, from people who had catastrophic health events and used this type of coverage. Definitely a recommended listen if you’re considering this type of coverage.

-If you’re under 30 years old (in which case, enjoy it while it lasts!!), or if you meet certain “hardship” criteria, you may be able to buy catastrophic insurance that is ACA-compliant. This coverage has lower premiums, but a very high (about $8,000) deductible.

My take: The US health insurance system is very problematic by any definition. Many people are in the unenviable position of paying a lot of money for an insurance policy that they are still reluctant to use, because they have high deductibles or co-pays. Still, there are two facts you can’t get around:

1. No healthy person anticipates having high medical expenses (i.e. “purchase this high-deductible plan if you don’t expect a lot of medical bills”). This kind of language–which a lot of insurers use, drives me crazy, because no one anticipates a stage 4 cancer diagnosis, or a life-threatening car accident, or the sudden onset of a chronic condition. Yet, these things happen to previously-healthy people every day.

2. No one, aside from people in the Warren Buffett and Bill Gates category, has enough money to pay out of pocket for US-priced care for a catastrophic event, or even–and this is important–to pay out of pocket for such an event and then be reimbursed. This reminds me of my accountant’s adage, that “Everyone has a retirement plan. Either you’re financially planning to retire, or you’re planning to work until you drop.” In the case of health insurance, either you have a health plan with decent coverage, or you’re planning that you’ll exhaust your savings and then declare bankruptcy if something truly catastrophic happens to you.

Here’s an example: in my family, we have the polar opposite examples of health insurance costs versus medical expenses. I’ve been an adult (off my parents’ insurance policy) for exactly 25 years. In those 25 years, I’d conservatively estimate that I’ve paid about $60,000 in health insurance premiums and perhaps closer to $100,000, while my medical expenses–including having a baby in a hospital–have probably totaled less than $25,000; perhaps even less than $15,000. The insurance companies are clearly on the winners’ side here, but that’s what insurance–whether it’s health, car, homeowners, or something else–is all about: paying for coverage that you hope to use as little as possible.

The other side of the coin is my husband, who is a case study in the two factors I mention above. Literally out of nowhere–“something didn’t feel right” after a hike in the mountains above our house–he landed in urgent care and then the emergency room with severe fatigue related to low blood pressure and low heart rate. And we’re talking about a guy who’s a lifelong endurance athlete and a vegetarian–if you made a list of 100 people who might develop a sudden and catastrophic health problem, he would be nowhere on that list. After two years and over $200,000 of medical expenses including a pacemaker, he was finally diagnosed with an obscure neurological problem that causes his central nervous system to mis-regulate his heart rate and blood pressure. On most days, he feels OK, and is able to continue working and doing his endurance athlete thing. This condition is not life-threatening or catastrophically debilitating, but it will require lifelong management and also means that he cannot go without insurance for even a day, ever again. This experience showed me a few things:

1. Catastrophic medical events come out of nowhere and have to be treated immediately. Saying that if you have high medical needs, you’ll shop around or perhaps be treated in another country is fine if you’re talking about something non-emergent. But in an emergency, you’ll be terrified, and you’ll just do what the doctor tells you to do, which will be expensive.

2. Medical procedures can cost more than you want to pay out of pocket, even if you get reimbursed later. A hallmark of many out-of-the-box health plans (like most health cost sharing plans and medical indemnity plans) is that you must pay your medical expenses up front and then be paid back by the plan. This is fine for things like routine checkups or even minor procedures. However, having been on the receiving end of a $50,000 bill for one procedure, I now see that requirement in a different light.

Like most middle-class people, the majority of our family’s wealth (term used lightly!) is tied up in our house, and in assets like retirement accounts and mutual funds that cannot be immediately accessed. We don’t keep $50,000 in our liquid bank accounts, and we don’t even have a credit card that would allow us to charge that amount. After I published this article in my newsletter, I heard from readers who’ve had sudden, emergency hospitalizations that totaled even higher amounts, well into the six figures. Were I to consider a cost-sharing or indemnity plan, I would ask the company that question: what happens if I get a bill that exceeds the amount of cash or even credit that I have on hand? If I get a bill for $150,000, am I still expected to pay it and wait to be reimbursed?

In light of these factors, I still think that the best option for most freelancers is–if you don’t get insurance through another route, such as a spouse’s job–to purchase an ACA-compliant plan, combine it with a health savings account, and make sure that you see the deductible as a likely cost rather than an unlikely one. If you’re using an out-of-the-box option, I’d love to hear about how it’s gone for you. General rants about the US health insurance system are also welcome in the comments!