The real reason why you need health insurance

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The real reason why you need health insurance

This isn't an article about the Affordable Care Act's individual mandate that requires everyone (unless exempted by hardship) to have health insurance starting this year. By now you probably know about the penalty for not having health insurance, which in 2016 is the higher of $695 or 2.5% of your annual income (up to a maximum penalty of the national average yearly premium for a bronze plan). No, this article is about the real reason why you need health insurance: the material risk of financial catastrophe.

Milliman, an actuarial consulting firm, estimated what the uninsured might incur in health care bills. First, the good news: for the typical uninsured person under 65, total health care bills would be $2,700. Seems manageable, right? Especially compared to the cost of health insurance plans, which for an individual can run up to $5,000 to $6,000 per year.

The risk, however, that this 2013 New York Times article points out is that you don't know whether your year will be a "typical" health care year. Unfortunately, health conditions can change suddenly, whether by an accident or the onset of a serious illness. Milliman estimated that, among the uninsured:

  • 20% will incur health care bills exceeding $13,300
  • 5% of the uninsured will incur health care bills exceeding $47,300

How could bills rack up so quickly? First, the truth we all know: health care is expensive. For example, a hospital stay can run about $11,600 a night. Second, a truth some might not know: uninsured patients are billed about 30% higher prices than insured patients (who benefit from insurers' negotiated rates).

The odds of racking up excessive health care bills are material.

Consider the 2.6% chance of hitting a number in roulette (which, anyone who's ever played, can tell you isn't so uncommon) vs. the 5% chance of health care bills exceeding $47,300. Tweet

And consider these facts: medical bills are the biggest cause of bankruptcies in the US and medical problems are behind half of home foreclosures.

So if you don't have health insurance, stay tuned for our upcoming article on how to pick the right health insurance plan. And check out our articles on why you need long-term disability insurance to protect against the 1-2 punch of medical bills and lost earnings from illness.

Have you had unexpected health costs? How did you deal with them? Did your health insurance help? Please comment below, we'd love to hear your stories.