Is Health Insurance Worth the Cost?

Dear Carrie,

I just looked at my health insurance bill and the monthly premiums are almost as much as my car payment! I’m 23 and in good health. The one time I did need to see the doctor, I still got stuck with a $700 bill! It seems like paying for health insurance is just a waste of my money. Do I really need it?

—A Reader

Dear Reader,

I’m empathetic to your plight and I’m worried about young people and many families who are thinking of skipping health insurance due to the costs. I understand that it can be frustrating if you're faced with big out-of-pocket expenses even if you have coverage. But going without health insurance can be catastrophically expensive. So yes, you 100 percent need health insurance.

That said, there are some strategies that can reduce your costs—without sacrificing quality or coverage. Let’s take a look.

How health insurance can save you money

Health insurance helps you save money by enabling you to transfer a big financial risk to the insurer in exchange for a (comparatively) small premium. I’m not saying that health insurance isn’t expensive. Health insurance costs have been rising faster than overall inflation and worker earnings for years. I’m just saying that not having health insurance can be financially devastating.

For example, imagine how expensive it would be to cover the costs of staying in the hospital or paying for a trip to the emergency room. You could easily rack up a bill in the thousands, potentially costing all of your savings—or more!

Options and strategies to help lower your costs

Like clothing, there is no one-size-fits-all when it comes to health insurance. Choices abound, so it’s important to think carefully about your own needs and the needs of your family before you decide.

Once you have insurance, make sure to review your coverage annually or if you have a major life change like getting married or moving to a new community. Understanding health insurance isn’t easy, so don’t hesitate to ask for help from your employer, an advisor, or someone you trust.

Coverage options for young people 

Under the Affordable Care Act (ACA), young people are now able to stay under a parent’s plan if it covers dependents until the age of 26. This can be the case even if you’re married, not living with your parents, or have left school. Check with your parent’s plan about specific enrollment periods.

Students still in college may be able to find health insurance through a student health plan. This can be an affordable option, but be sure to check to see if the coverage counts as "qualifying coverage". Otherwise, there might be more limited benefits or certain exclusions. That being said, a student plan might be a backup option if you can’t be covered through a parent’s plan.

What about short-term, limited duration (STLD) plans?

I’m not a big fan of short-term plans and am worried that some people will choose these plans based on lower premiums alone, without understanding what they're buying.

These plans generally last up to a year and are cheaper than traditional plans, but this is partly because these plans have more limited coverage and reduced consumer protections than plans that qualify under ACA standards. This means these plans often exclude coverage for things like pregnancy and mental health and you can be turned down for pre-existing conditions like asthma or cancer.

These plans can make sense in some situations and “some” insurance is better than none, but if you’re tempted by this type of plan make sure you understand what is—and isn’t—covered.

Coverage options for workers

About half of Americans have health coverage through work. This type of coverage is often subsidized by the employer to help reduce the costs to employees.

You may have more than one option with different premiums, co-pays, and deductibles as well as access to a different network of health professionals, so take the time to determine the best fit. Make sure to consider health insurance when you're changing jobs and during your employer’s enrollment period when you can make changes.

High Deductible Health Plan (HDHP)/Health Savings Accounts (HSAs)

HDHPs offer lower monthly premiums, but have higher deductibles. An HDHP/HSA combo can be a great choice for people who don’t use medical services a lot and can help you save money by allowing you to pay for out-of-pocket health costs tax-free.

The mistake that I often see people enrolled in HDHPs make is neglecting to use the cost savings from the lower premiums to fund an HSA. If you sign up for an HDHP, make sure you 1) Open up an HSA. 2) Fund it every month. 3) Put your savings to work by investing your savings when possible.

Coverage through the Affordable Care Act (ACA) Marketplace exchanges

If you don’t have coverage through work, you can find health insurance at one of the federal or state exchanges at healthcare.gov. Premium Tax Credits (PTCs) may help lower your monthly premiums. Or you may be eligible for coverage through expanded Medicaid programs in some states if your income is low enough.

Keep in mind that special enrollment windows and conditions apply so you have to plan in advance of signing up. Health care Navigators offer unbiased, free help over the phone and in-person guidance and can help you shop for and enroll in affordable coverage.

Coverage if you’re self-employed or a small business owner

If you’re part of the growing "gig" economy, working as a contractor, your own boss, or you own a small business, make sure to check out options available through healthcare.gov.

You may also be eligible for a tax break by deducting the cost of health insurance as a business expense to help lower your costs. Check with a tax advisor for details.

Health insurance helps secure your financial future

For many young adults like yourself, paying for your own health insurance coverage is something new and may seem like it’s not important. But the opposite is actually the case. Having good health insurance is one of the most crucial pieces to your financial plan. It’s vital to your financial health by helping protect you from financial calamity. In fact, having the right kind and the right amount of health insurance is one of the smartest money moves you can make.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.