What’s the true cost of not buying health insurance?


Adam Cecil

Adam Cecil

Former Staff Writer

Adam Cecil is a former staff writer for Policygenius, a digital insurance brokerage trying to make sense of insurance for consumers. He is a podcast producer, writer, and video maker based in Brooklyn, NY.

Published December 23, 2016|8 min read

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I've had employer-provided health insurance for two years. I only used it once. I fell on my wrist – hard – at a soccer game over the summer, and WebMD told me to see a doctor if it still hurt after three days. While WebMD is no replacement for a general practitioner you know and trust, it is useful for reassuring yourself that your wrist isn’t broken (but also that the pain is a symptom of something worse, like heart disease or face blindness).

Then I left my job and my cushy health insurance plan for a new job at a company where I am employee No. 2 of 2. There isn’t a lot in the way of employee benefits, let alone health care. For the first time in my adult life, I had to deal with the prospect of buying health insurance.

I had a few options. Since I’m only 24, I could rejoin my parents’ health insurance plan. This isn’t ideal, though: They live in a different state, making their plan effectively useless where I live. My girlfriend and I also could do a shotgun wedding so I can join her health insurance, but that doesn’t seem like a great idea, either. I could always use COBRA to continue my old employer’s health insurance plan, but this would cost upwards of $500 per month and would seriously cut into my comic book money. There’s also HealthCare.gov, or in my case, New York State of Health, where I could buy a private insurance policy.

Of course, the national cost of a private insurance policy on HealthCare.gov has increased 22% year-over-year, so maybe that’s not a great option.I could also skip buying health insurance. Sure, there’s a potential tax penalty, but who knows what that’s going to look like once President Trump takes office and a Republican-controlled Congress finally gets their hands on the Affordable Care Act?

But the true cost of skipping out on buying health insurance doesn’t have anything to do with the tax penalty. Instead, it’s all about the risk you’re taking that something bad could happen to you and you’ll be stuck in the hospital accruing more medical debt than you could ever dream of paying off.

Let’s talk about the health insurance tax penalty

One of the key tenets of the Affordable Care Act, also known as Obamacare, is the health insurance mandate. The mandate requires that every person in the United States has health insurance coverage. This coverage can come from a lot of places: HealthCare.gov, an off-exchange plan, your employer, your spouse’s plan, your parents’ plan, Medicare, or Medicaid, just to name a few.If you don’t have health insurance from an approved source and you don’t qualify for an exemption, you’ll have to pay a penalty on your tax return for the year you didn’t have health insurance. Didn’t have health insurance in 2016? You’ll pay for it when you file in April 2017.How much will you pay, exactly? It depends on a few factors, which makes this an annoying and complicated question to answer (welcome to healthcare in America, I guess).

There are two calculations used to decide your penalty. When you file your taxes, you’ll run both calculations and end up paying whichever is higher:

  1. A percentage of your household income (2.5% in both 2016 and 2017), with the maximum fee equalling the total yearly premium for the national average price of a Bronze plan sold through HealthCare.gov

  2. Per person ($695 per adult and $347.50 per child in both 2016 and 2017), with a maximum fee of $2,085

In my case, I’d probably end up paying about $900 for every full year I don’t have health insurance. That’s right, I said "full year" – turns out, if you have health insurance for part of the year, you can get partial credit.If you only lacked health insurance for one or two full months, you do not have to pay any fee at all. This is called a "short gap" exemption, and it’s designed to help out people who may lack coverage while switching jobs, for example. If you have health insurance for just one day in a month, you get credit for the whole month.If you had health insurance for part of the year, you only have to pay 1/12 of the penalty for every month you lacked coverage. Let’s say I lacked health insurance for four months. Using my estimate of $900 for a full year penalty, I’d only end up paying around $300.However, there is a bit of wonkiness when it comes to the end of the year, which especially affects me. I left my job in October, meaning that I qualify for a short gap exemption in 2016 because I was covered for 10/12 months in the year. However, the clock isn’t reset in 2017. If I don’t have health insurance in January (even if just for a single day), these two months in 2016 that I didn’t have health insurance will count against me in 2017.

The true cost of not buying health insurance

Of course, the true cost of not buying health insurance isn’t controlled by the IRS. Instead, it’s the risk you take on by not having coverage. When you don’t have health insurance, you could potentially get injured or sick and end up having to pay thousands of dollars in medical expenses. If you don’t have the money to pay it, you’re going into debt.Some argue that with high-deductible health insurance plans (like the catastrophic health insurance plans available to #millennials like me), you’re basically paying for the privilege of going into debt anyway. But at least high-deductible plans cap the amount of debt you can go into. If you develop a serious illness or get seriously injured without health insurance, there’s no limit to how much medical debt you could accrue.Take my example of my sprained wrist. When I visited my local clinic, I only paid $75 out-of-pocket. Without insurance, it would’ve cost well over $200 just so I could have a doctor tell me I was fine and give me a slightly better wrist-brace than the one I picked up at CVS. If the injury had been more serious – let’s say, a broken forearm – it could have easily cost me anywhere between $900 and $1,600 to get it fixed, according to the data wizards at Amino. If you’re on a high-deductible plan, that represents anywhere between an eighth and a quarter of your deductible.

All of this is to say is that health insurance costs can quickly pile up. Healthcare in America is expensive when you actually have insurance – you don’t want to see how expensive it can get when you don’t.But what if you’re someone who frequently visits the doctor, whether it’s due to general physical and mental maintenance or because you have a chronic health condition? Health insurance can help you save hundreds or thousands of dollars in out-of-pocket medical expenses, essentially paying for itself in any given year. And that’s not even including the many free benefits that all health insurance plans are mandated to provide, such as preventative care.

According to Amino’s data, which includes over 77 million doctor visits from 2016, people in my age group are the least likely to visit a doctor in a given year. Not only that, but men in my age group are way less likely to visit the doctor than women. Amino found that "in 2016, women in their 20s visited OB/GYNs almost as much men that age saw any type of doctor."This paints a picture of young men who are willing to forgo health insurance because they feel healthy and are willing to take the financial risk. You can almost hear the gears turning in our collective heads: "Oh, not having health insurance is risky and cool, just like skateboarding and smoking cigarettes!"

So what I am going to do?

As a personal finance and insurance writer, you don’t have to tell me twice about the risk I’m taking by being uninsured. However, as a young and relatively healthy 24-year-old, the idea of spending upwards of $200 per month on a high-deductible health insurance plan is ridiculous to me.However, there is a bit of good news for me, personally – even though my employer isn’t legally obligated to provide health insurance, we’re on track for getting coverage early next year. I’ll skip out on buying health insurance for now, with the idea that I’ll have an employer-provided plan in early 2017. I’ll be able to avoid the tax penalty for now, and by the time I have to pay for my 2017 taxes, there may not even be a tax penalty anymore.Admittedly, it’s a risky move, and you never know – I may find myself frantically trying to buy health insurance on the open market at the last minute just like the rest of you.Not everyone reading this is going to get this saving grace, however, and they’re going to be stuck making a decision between a plan they may not be able to afford and the risk of medical debt. If health insurance is too expensive for you, make sure you look into advanced premium tax credits, which may help you afford the monthly cost of your insurance plan. Additionally, you should utilize a Flexible Spending Account (FSA) or Health Savings Account (HSA) if one of them is available to you.