Upside, Downside

April 10, 2006 by bob.

I have encountered two people in the last week who have asked about dropping their major medical insurance and setting up some kind of asset protection plan to protect them from creditors. In other words, they don’t want to be responsible for paying their medical bills, they would rather have someone else pay them in the event they have a catastrophic illness or accident.

Moral issues aside, and I am not sure one can look at this without weighing in on the morality of shirking your responsibility; there is the financial cost of taking such drastic action.

These are not low income people, they are middle to upper middle class people who simply feel they no long want to fund health insurance.

The upside to this situation is quite simple. The money they now pay for health insurance can be used in some other fashion besides covering their risk. As long as they only have nominal medical events, they come out ahead.

The downside is a bit more complex.

To protect your assets you most likely need a series of trusts as well as a Family Limited Partnership to hold title to your personal residence. This is something only a handful of attorneys are capable of setting up in such a way as to make one appear penniless. Of course this means relinquishing control of those assets, and your residence. Since you no longer hold title to your home you forfeit the tax deduction for mortgage interest and real estate taxes.

You may very well hide all of your assets but your wages are still subject to seizure by creditors. So while you have protected your home and other assets you could forfeit a significant chunk of your paycheck, all for the sole purpose of escaping health insurance premiums.

By the time all this is accomplished, those who seek to save money by hiding assets may well end up paying much more than they ever would had they simply purchased a cat health insurance plan.

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