Understanding self-funded health insurance is as simple as sneezing with your eyes open. And depending on which state you’re in, the system you’ll use to purchase or receive it could make your life easier or harder. Let me roll through a few examples:
Buying your own insurance: In Massachusetts, for example, if you are self-employed or want to retire early (and we’re talking too early for Medicare) and will self-fund your health insurance, you’ll start by seeing if you’re eligible for free Mass Health insurance. If you’re self-funding due to job loss, disability, or other impairment, you may be eligible. Most, however, will end up on the Health Connector, where you’ll choose a plan based on your needs. We’ll talk about Health Connectors in a bit.
Getting on your employer’s plan: Some employers, like public school systems and public safety, offer health insurance once you meet a certain age and after you have worked for a certain number of years (usually 10+). You don’t necessarily need to be 65 to receive this benefit, and in fact, the age may be 50 or 55. This benefit may come with a bill with your name on it, or the state may pay it. In general, these plans are much better than the Health Connector plans.
Paying out of pocket: For many people, especially those who don’t spend much time at the doctor, paying out of pocket is one way to skip insurance altogether, albeit a risky move. Paying out of pocket is also a trend with companies who declare themselves self-insured and pay for their employee’s medical bills out of pocket.
This list isn’t exhaustive, but it covers some of the most common situations you may relate to if you’re self-funding health insurance. If you are interested in self-funding Medicare because you’re not eligible for one reason or another, we’ve covered that in our article about finding health insurance for seniors without Medicare.
Understanding Self-Funded Health Insurance Through a Health Connector
Since most who are self-funding their health insurance will end up at their state’s Health Connector, let’s dive into that. Every Health Connector has its share of issues, but one thing you can be sure of is that these plans have deductibles. Gone are the days of no-deductible plans for the most part. Even the most expensive insurance plans can come with a minimum $2,000 deductible. It can make anybody cringe with the question, “why pay so much per month when I still pay $2,000 extra per year if I want to see a doctor?” It’s a valid question and likely one that leads people to go with the option of paying out of pocket. These plans pay for tests and bloodwork but don’t be surprised if you get a $900 cat scan bill.
Shouldn’t health insurance cover those costs? Those days are over, friend. If you are understanding self-funded health insurance correctly, it’s that health insurance is an expense, rarely an investment.
In terms of financial freedom, a monthly bill from the Health Connector isn’t cheap, and it will chip away at your savings quickly. So if you’re planning to retire early, build those costs into your budget until you’re eligible for Medicare at age 65.
We’ve written quite a bit on this topic, so take a look at our posts on choosing the most affordable health insurance and also health care sharing plans which are group plans. With shared plans, stipulations are generally that you’re in good health, and sometimes even “moral health” if provided by a religious organization.
Start a Healthcare Savings Account (HSA)
One way to save when self-funding health insurance is to take an eligible high-deductible plan, which will cost less per month, and then save what you would have spent inside an HSA.
An HSA is an account where you can save money on a pre-tax basis, and as long as it’s used for medical expenses, you won’t be taxed on it.
The only place you can’t use the money in your HSA is on the health insurance premiums themselves (some exceptions apply). Still, you can use them for your deductibles, any medical bills, lots of health-related products such as prescriptions, and at-home tests that are now out in the market, like allergy testing kits that don’t need to be prescribed by a doctor. More and more, you’ll see the term “HSA-eligible” on products in the online marketplace, which makes an HSA a massive benefit for tax savings on items you might have purchased anyway.
When looking at self-funded health insurance and its prospect of an investment (in both health and assets), nine healthy people out of ten will benefit from going with a high-deductible plan paired with a well-funded HSA, which results in keeping more of your money.
Do you have a better understanding of self-funded health insurance? What else would you like to know that will help you save for the future?