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Health Insurance for Healthy People

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To someone who's never sick, health insurance seems like a big waste of money.

You know it's a good idea to have it, just in case. After all, it only takes one accident or unexpected serious illness to ring up hospital bills that could leave you with nothing. But it still hurts to see those premium dollars disappear from your bank account month after month -- money you could be using to invest, save for a down payment on a new home, or just put aside for a rainy day. Especially for young adults who are just getting started on their own, it's easy to find better uses for that money.

Even though you can't eliminate insurance costs, you can still make them as small as possible. By keeping the responsibility for paying some of your own health costs, you can save hundreds on health insurance premiums.

High-deductible plans
When it comes to setting policy limits and deductibles, health insurance isn't quite as flexible as other types of insurance. With car insurance, for example, you can usually pick from several options for every type of coverage available. You can choose the minimum coverage required by law, or you can buy higher policy limits that will protect you from really big claims. You can have the insurance company cover everything but the first $100 from an accident, or you can agree to pay the first $250, $500, or $1,000 -- the higher the amount you'll pay in an accident, the lower your premiums will be.

Health insurance usually comes in just a few prepackaged bundles, especially if you have coverage through your employer. But increasingly, insurance companies are offering high-deductible health plans (HDHPs) to consumers, and employers are starting to include HDHPs in their health plans. HDHPs can give healthy people big savings over more comprehensive health insurance.

Stay well and save ...
The lower costs that HDHPs offer are substantial, sometimes cutting premiums by more than half from what more comprehensive plans charge. If you're buying insurance on your own, that savings goes straight to your pocket. With an employer plan, however, you'll have to look closely to see what effect choosing an HDHP will have on your take-home pay. If your employer subsidizes full coverage, you may not get much personal benefit from choosing an HDHP -- although your employer might.

Having an HDHP also makes you eligible for a health savings account, which provides tax breaks that can put even more money in your wallet. You can open an HSA at a variety of banks and even some brokerage firms. But you don't have to open a health savings account to use an HDHP.

... but get sick and pay
The catch with HDHPs is that you're responsible for paying that high deductible amount, usually off the top. So if you have to go to the doctor one or two times, you'll probably have to pick up the whole tab yourself. Some HDHPs will cover preventive care, such as annual physicals, but many don't. For major health problems, the insurance will often kick in with full coverage after you've paid the entire deductible amount.

So it's important not to view the lower premiums you'll pay with an HDHP as free spending money. Instead, consider setting it aside in an emergency fund, so you won't be in a bind if this turns out to be the one year you actually have to see a doctor.

Stay insured
An HDHP can be a good option for someone who's just starting out as a financially independent young adult. And it's a heck of a lot better than going uninsured -- both for you and your family.

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This article, written by Dan Caplinger, was originally published in June 2007. It has been updated by Dayana Yochim. The Fool's disclosure policy always covers you.

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