True Cost of Health Insurance

When planning for FI, you really should consider current and future cost of health insurance. I have seen many in this community who only consider the NET cost of health insurance, after other people have paid part of the premiums. If you don’t consider the entire cost, then you may be in for a rude awakening later in life.

Cost of insurance varies by state, like many other things. Here in the Northeast US, premiums for those under 18 are around $250/month. Everyone older than that pays more, based on their age. By the time you are 55+, premiums are $1,000 per person per month or more, for the same plan with a high deductible and total out of pocket.

If you receive a subsidy for part of that – good for you. In order to get that subsidy, you need to have low income – about $48K for a single person; $65K for a couple or $100K for a family of 4. (These are 2019 figures). These are very reachable numbers for those who truly stop working, but some people in the FI community aren’t interested in completely stopping their career; they just want flexibility to do the work that interests them. That may mean income greater than these amounts.

For many people, their employer pays most or all of their health insurance premiums. It can be a rude awakening to realize how expensive the plan is, once you leave their employ.

The other factor to consider is that many of the exchange plans are inferior to the health insurance plans you can get off the exchange, by either using a broker or going direct to the insurance company.

I have seen some plans on the exchange that have poor coverage of doctors, hospitals or service areas compared to off-exchange plans. This sometimes factors in to your decision on which plan to take.

Since the cost of health insurance is so high, especially as you age, you should factor this in to your long-term budget to make sure you have the funds to cover it.

Once you are 65, Medicare takes over. The costs for Medicare plus a supplemental plan and prescription drug coverage is much less than regular health insurance, unless your income is very high and you are subject to penalty premiums.

Once again, these are reasons to use a fee-only financial advisor who can help you with all areas of financial planning, to help you navigate what kind of plan is best for you. A good financial advisor will also have resources and referrals of vendors that can help you.