Millennials face a ton of financial challenges.
Student loan debt. Wage stagnation. High cost of living. High cost of childcare. Credit card debt.
The list goes on and on.
Of all the financial pressures that millennials face, nothing quite compares to health care, specifically the cost of health care and how it is currently structured from a financial standpoint. In the rest of this post I’ll explain why this is my biggest financial concern for millennials today, as well as what can be done about it.
Why Health Care Is My Biggest Concern for Millennials Today
Health care in the United States is expensive and complex. Many would argue that the care is also the best in the world…for those who can access and afford it.
There are three specific things that cause health care to be my biggest concern for millennials today. It starts with the financial risk of forgoing insurance.
Prior to the passing of the Affordable Care Act, access to health insurance was difficult. If you didn’t have insurance through your employer, and you had any pre-existing conditions, it would be difficult or impossible to find insurance that would cover a pre-existing condition. That’s no longer the case today, but there are still many who go without health insurance for one reason or another.
Forgoing health insurance is a huge financial risk. I recently read an NPR piece about a hospital that has a practice of suing patients who don’t pay their bills. Many of these patients are likely uninsured. The story of a 24 year-old who had a hospital stay due to a mental health issue was shared. What’s devastating is not only is she now strained financially, but that financial strain is likely straining her mentally, the very thing she went to the hospital for in the first place!
At any given time something could happen to someone who is uninsured that would land them in the hospital. It could be a freak accident, a heart attack, or any other number of things. Those hospital bills could easily reach $10,000+. It’s unlikely someone who is forgoing insurance can afford a hospital bill, since the reason they are forgoing insurance likely has something to do with their finances. Which leads me to my next cause for concern with health care…high deductible health plans, or HDHPs.
For those who aren’t aware, high deductible health plans are insurance plans that offer a relatively low monthly premium with the trade-off being a high deductible. A deductible is what you must pay before your insurance kicks in. HDHPs can have deductibles as high as $6,000 or more.
HDHPs have their benefits, as low-premium plans are more popular than high-premium plans. They are becoming more and more commonplace, too, and in many workplace benefit plans and ACA exchanges they are quickly becoming the only option available. Additional benefits that are often touted with these plans is the fact that consumers will be more price conscious with their consumption. They may “shop around” for a service (I did do this for a CT scan, paying $300 instead of $1,000).
But there is one huge flaw with this: the average American does not have stable enough finances for HDHPs to work effectively. According to a report by the Federal Reserve, approximately four in ten adults can’t afford a $400 emergency expense without borrowing money or selling something. Yet HDHPs can have deductibles well into the thousands.
There’s a reason there are so many fundraising pages related to medical expenses. Recently the CEO of GoFundMe told CBS News that one-third of all donations made on GoFundMe go towards health care costs.
With the financial strains on millennials, it’s difficult to argue that HDHPs are an ideal form of insurance. They do keep premiums low, but at what cost? Many (who are able to) are looking for alternatives such as Health Sharing Ministries (which I am not a fan of), because they find insurance to be so expensive and the deductibles so high that the insurance feels worthless. Upon even surface-level analysis, HDHPs becomes another example of how the health care system works, but only if you can afford it.
Another aspect of health care that concerns me isn’t a short-term risk for millennials, but something they need to get ahead of: the rising cost of health care later in life.
There have been many estimates thrown around about the projected cost of health care in retirement. The most cited number is one that was cited in a study published by Fidelity, where they projected that the average 65-year-old couple retiring this year will need about $280,000 to cover healthcare in retirement. And that’s a couple retiring today, not in thirty years.
What’s underlying the high cost of care is a good thing: better medicine and health care to keep people alive longer. End-of-life care can be expensive, and if you factor in the expensive assisted living facilities that are popping up all over the country to accommodate an expected influx of boomers, it can be expensive to be 65+. This concerns me for millennials because most have enough of a challenge with getting out of debt and surviving in the short-term. that they aren’t able to sock away large sums of money in their 20s and 30s, and possibly not even in their 40s. They may have enough to retire, but everyone wants to be able to afford the best health care in retirement. There is no guarantee millennials will be able to do so without a drastic change in the system or, on an individual basis, a large enough salary to invest a decent amount for retirement year-after-year.
The issues I bring up aren’t new ones. Senator Kamala Harris shared a story in a Presidential debate about the Mom parking outside an emergency room, praying that her child’s fever would go away so she didn’t get billed thousands of dollars she couldn’t afford.
What You Can Do to Deal with High Health Care Costs
There is only a limited amount we can do to prepare our finances for health care, and unfortunately it’s something that can be challenging for millennials and non-millennials alike: an emergency fund.
The only way for those who have HDHPs to protect themselves is by having enough in an emergency fund to cover their deductible. Unfortunately that deductible can be in the thousands of dollars. Regardless, emergency savings is a must.
Once someone has built a cash emergency fund, I recommend they focus on contributing money to a Health Savings Account, or HSA. HSAs have tax advantages that include:
- Grow Money Tax Free – With an HSA you are typically required to keep somewhere around $2,000 as a cash balance. Once you get past that minimum benchmark, though, you can move money into the investment portion of your HSA. Similar to a 401(k) or an IRA, there will be a variety of mutual funds you can invest in. The gains on these investments are tax free, and you can shift the money back into the cash portion of your HSA at any time.
- Take Money out Tax Free – When you withdraw funds from your HSA for qualified medical expenses (think prescriptions, doctor bills, etc.) you are not taxed on the withdrawal. If you withdraw money for non-qualified medical expenses, the amount will be taxed as regular income and incur a 20% penalty. An important point on this: No withdrawals from an HSA after age 65 are penalized, though withdrawals for non-qualified medical expenses are taxed as regular income, meaning withdrawals are treated similar to a standard IRA.
This helps both with the short-term issues that HDHPs pose as well as the expected high cost of health care later in life. I realize many, especially those in their 20s and 30s, do not have money to put into an HSA. In this case I recommend working through this personal finance checklist to identify what changes can be made to improve your cash flow (and in turn, your overall financial situation).
The other thing people can do is educate and advocate. Health care is complex, which is a true statement, but oftentimes that is used as a way to minimize the opinions of people advocating for a more sensible and realistic health care system. The best way to advocate is first gaining some knowledge on our health care system and how it works. The next is to advocate your views and opinions of what should change. Even simply reaching out to your Senator or Representative can have an impact.
Ultimately everyone needs to recognize what a risk health care costs are to their overall finances and take steps to protect themselves. Beyond that, education and advocacy are important steps to impact health care on a broader scale.
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I’m at least old enough to have had a “Cadillac plan” right after college. Fast forward 11 years and the same monthly premium gives you a $10,000 deductible in my current state of residence.
We belong to a health-sharing ministry because its monthly cost is a fraction of what we would pay for an exchange policy before subsidies. It’s the one way we keep health care from being our largest monthly expense. As a cash customer, I can at least pick which doctor I like and don’t have to go through the referral process which can delay treatment.
I read your recent article about sharing ministries and agree with several of your points. It essentially is insurance by another name,
I don’t have a good proposition to fix.
HSAs are a good legal way to save for the future. I’m also a fan of medical tourism if you have the time for more expensive medical costs. Medical tourism is an option we have explored more than once to price shop.
Healthcare costs are probably one of the few expenses that are almost impossible to accurately estimate. Depending on the severity of an illness the costs can send an individual broke. Health insurance therefore is probably the most important household expense and should be maintained at all costs. I myself have been diagnosed with a serious illness and my insurance has ensured I am getting the best treatment. Don’t ever think it can’t happen to you, cause it does and just when you don’t want it!