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The (Foolish) Decision to Self-Insure for Medical Services

Dear Colleague,

Over the years, I’ve heard far too many people say they would rather self-insure than pay healthcare premiums. Let’s be honest, self-insuring is in reality a euphemism for being uninsured. It is often a young person who says something along the lines of “I am totally healthy, I don’t use medical services and I don’t have any assets. So even if I’m hospitalized and have large bills, there is nothing I own to come after.”

First, believing that there are no consequences to leaving medical bills unpaid can be foolish as we’ve seen young people unable to even open a checking account due to rather small medical bills they ignored.

But let’s return to the issue of why health insurance – and, in particular, being in-network, is such an important protection (watch our “The Network” video under “Health Insurance Basics”). When you are in-network with your plan, providers have agreed to negotiated rates with your insurer. After you meet your in-network deductible, your insurer will pay the portion of a claim for which it’s responsible. You typically continue to have some “member responsibility” in the form of a copayment or coinsurance, but you have an extremely important financial protection.

Even when you don’t meet your deductible, you know that you are being charged the rate the insurer and provider of service negotiated rather than being billed anything the provider chooses to bill.

When you are so-called “self-insured” or even out-of-network, you don’t have this protection because the provider has no obligation to charge amounts that are similar to their negotiated rates or even what most would consider in the realm of reasonable. In fact, charges are often quite deliberately maintained at very high levels to take advantage of one’s vulnerable position in this situation.

An example of this we see time and time again are charges for lab work. Routine lab work can be billed at rates of $500 and often more. It is common to see the “allowed amount” of this lab work be somewhere around 10% of the billed rate. If you are uninsured, you will likely be on the hook for the total billed charge of $500 plus.

We are also asked this question by affluent individuals who want to resist enrolling in Medicare Part B and those resisting enrollment in a Medicare drug plan because they are not currently taking any drugs. The fact is that no one can predict the course of serious illness. Not having adequate coverage puts whatever assets you might have at risk and could compromise your finances for years to come if large medical bills have to be negotiated.

We believe it should be the goal of every person to maintain coverage without a gap for their entire lives. Yes, it’s serious businesses. Treat it that way.