The High Cost of Skipping Insurance

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If you are setting up a recession-adjusted budget for 2009, experts agree there is one item that should not be eliminated: health insurance.

Medical expenses are the number one cause of bankruptcy, states Jim Cramer in his personal finance advice book Stay Mad For Life. (A 2005 Harvard study supports this statement and found that medical bills are the leading cause of personal bankruptcies in the U.S.)

Still, it seems many folks, particularly younger workers, are content to gamble with their health and their finances. A recent Kaiser/HRET survey found that 49% of employees 26 years old or younger opted out of coverage in firms that offer health benefits where more than 35% of the employees are younger than 27.

"Some of the young uninsured people think they're safe, 10 feet tall and bulletproof, especially the guys," says Alan Jones of TPA Benefits, a Virginia-based benefits broker.

Not true, says Keith Newcomb, a financial planner and wealth manager for Full Life Financial. Three years ago one of his clients, an Iraq War veteran, was at home with a month in between his tour and a civilian job with health benefits. He did not secure temporary insurance to cover the gap. While bobsledding with his kids he broke his back. The medical bills bankrupted his family, Newcomb said, but it all could have been prevented with temporary health insurance. "Unfortunately, he wasn't my client at the time, and I found out after they went through bankruptcy," he says. "It was an unfortunate, needless set of stressors on that family, and it impaired [their] standard of living for a long period of time."

KNOW THE RISKS
For most uninsured folks there are two significant risks, says Robert Slayton, president of Robert Slayton Associates, a licensed independent insurance agency. First, if a person has a health problem he or she could be out thousands of dollars. Second, if a patient is diagnosed with a condition that causes him or her to be uninsurable (in those states that don't have guaranteed issue policies), then he or she won't be able to get individual health insurance.

Other risks include missing out on an early diagnosis. "Those without health insurance are more likely to not go to the doctor, when necessary," says Philip Micali, CEO and founding principal of bWell-Informed.com, an online health benefits education and consulting company. "[This drives] up health care costs for uncompensated care in emergency rooms."

CONSIDER COST REDUCERS
There are steps to bring costs down. "Employees should talk to their employer about their concerns because there are alternatives that employers can put in that can be very inexpensive from a premium stand point," says Josh Senders, a partner at Pilot Group Companies. "Employers are very sensitive to their employees. Once you take away benefits, it takes away a perk from working there."

Newcomb adds that people can reduce healthcare expenses easily by not smoking, eating right and losing weight. "All of that adds to lower insurance rates," says Newcomb.

LIVING ON THE EDGE
Still, some chose risks. Chase Spencer, 24, says he plans to go the next three months without insurance to save for other living expenses such as rent, food and student loans. Spencer, who runs Liberty Credit Management, an online debt management consulting business based in Irvine, Calif., says he lives a healthy lifestyle. However, he's still nervous. "If I were to get into an accident," Spencer says, "my parents are there to help me out if I ever did need it."

Not everyone has deep-pocketed parents. David L. Knowlton, board member of the HealthWell Foundation, which provides financial assistance to underinsured individuals, says health insurance can be the most important protection. "If someone gets sick, you’ll empty the coffers to help a sick loved one, but it’s not always enough," says Knowlton. "You can replace a car or a house – even if you have to replace a Cadillac with a Chevy – but you can’t replace your life or the life of someone you love."

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