State or Private Insurance?

Steve stays home with the kids. His wife's income isn't enough money to pay for health insurance, so they get it through the state. Should they continue to use the state or go private?

QUESTION: Steve in Iowa has a wife who teaches while he stays home with the kids. They are debt-free and investing. She doesn’t make enough money to pay for health insurance, so they get it through the state. If they stopped investing, they could afford their own insurance for everyone. Should they continue to use the state or go private?

ANSWER: I think you should ask yourself—and I think you are asking yourself this—are you the type of person this insurance was intended for? When the government put together this program that you are utilizing, was it your type of family that was envisioned?

Normally these things have some kind of a net worth test. From what you’re telling me, you could have $10 million in mutual funds and, based on the fact that your wife earns a low income, you still qualify for subsidized government insurance. Apparently it’s poorly designed, because it was designed for poor people.

You’ve got to search your heart on that and decide. It’s kind of like if you guys could qualify for food stamps because her income was low, would it be appropriate for you to take food stamps if you have $1 million in mutual funds through some nuance in the law. I’m guessing the program is designed for people who are struggling financially.

If it is just designed generally and these are the rules, then there is not an ethical problem at all. But if it was designed for poor people, and you guys aren’t, and it’s a glitch in the law, then I probably would have a problem taking it if I were in your shoes.

If I were you, I’d want to know if this is a program intended for poor people. You have to look into that. If that is the intention of it and it’s why the program was put together, you aren’t poor people and I wouldn’t be willing to take it if I were in your shoes. If, however, it’s just intended for people with low incomes, even if they have a high net worth, then that’s fine.

But in a sense, the state is giving you money to save or give by giving you virtually free insurance. It’s an indirect transaction, but that’s actually what is happening in your budget.