Health Care Costs

"I was gratified to be able to answer promptly.
I said I didn't know."

-Mark Twain

I'm quite confident that within a few years I can get to the point where my passive investment returns will cover my mortgage, my groceries, and my utilities. I'm also reasonably confident that I'll be able to cover most of the discretionary expenses that I'm likely to run up. I'm even moderately confident that my investments will be able to cover the inflation increases that all of these expenses will encounter going forward. But healthcare...that is overwhelmingly the big wildcard and I profess no confidence whatsoever in my ability to pay for it without being gainfully employed.

This blog has several readers from different countries, so to make sure everyone is on the same page, let me provide a very terse summary of the U.S. healthcare system.

1. The medical care itself is good. I have no complaints about that.


2. Medical care is very expensive, and if you have to pay for it directly, it is even more expensive because you do not get the negotiated rates that an insurer does. I have received bills where the direct cost of service was 3 or 4 times the negotiated rate.


3. Unless you are part of a special program like Medicare or the Veterans Administration, you will be expected to pay for your own medical costs, either directly or by purchasing health insurance.


4. If you don't have any money and can't pay, you (probably) won't be denied medical care for serious issues, but you (probably) will still owe the money.


5. Any significant medical issue can totally wipe out the savings of even moderately wealthy people if they don't have health insurance. When something major goes wrong, it's very easy to quickly rack up bills in the tens of thousands of dollars or even the hundreds of thousands.


6. Health insurance is also quite expensive, as you might expect from points #2 through #5.


7. Most people who are insured get their insurance through their employer. In a lot of cases, the employer pays for a significant portion of the insurance premiums. In other words, health insurance is often a benefit of your employment.


8. Health insurance premiums have been rising more rapidly than the overall rate of inflation for a number of years.


9. Health insurance premiums escalate with age. The premium you pay if you are in your late 50's is generally about 3 times what you pay if you are early 20's.

So as you can see, the above is not exactly the system one would design if one were hoping for an early retirement! Consider how things are stacked against that:

1. If you stop working, it is highly unlikely (except in certain rare circumstances) that your health insurance will be subsidized by your employer. You will be paying for it.


2. Without health insurance, you run the risk of losing all of your savings if a significant medical event occurs.


3. You face the prospect of paying rapidly escalating health insurance premiums, partly because of significant medical care inflation, but also because you are always aging and being bumped into higher age brackets with even higher costs.

Last year I began to investigate the cost of medical and dental insurance and the first thing I looked at was how much my current policies cost me AND my employer. (Most workers who are not self-employed don't have a good handle on these numbers, as the employer cost is not always prominently disclosed and the employee part is spread throughout the year via deductions from your paychecks.) What I discovered was quite frightening: the total cost of my family medical and dental insurance was almost $19,000 per year! And the next thought I had was that if this is what it costs a large company, then as an individual, I would probably have to pay far more than that.

However, I recently spent a fair amount of time looking through the eHealthInsurance website, which is a clearinghouse for insurance providers. In many cases, the policies look far cheaper than my employer policy, which on the surface does not make sense to me. It would appear that one could obtain a roughly similar policy for perhaps half the cost. (And interestingly enough, many of the policies offered on eHealthInsurance are provided by my current insurance provider.) I'm an analytical person, so I looked through all the fine print on the coverage details of many different policies, and checked the doctor and dentist list of each as well. But I very well may be missing something obvious. I've been relatively sheltered from the true cost of insurance because most of my employers throughout the years have paid for most of it. So like the Mark Twain quote above, I really just don't know.

This is no small matter for early retirees who will pay for insurance themselves. If health insurance costs $20K per year instead of $10K per year, that will likely mean that an additional $250K (or more) in savings will be necessary to support the difference.

So does anyone know what's really going on here? What are your experiences with health insurance policies that were not sponsored by an employer? Can they really be less expensive than policies provided by a large company to their employees?