This is a first in a two-part post about health insurance. With so many people dealing with health concerns and employment issues, I thought I’d try to clarify key points about health insurance and why it is needed for building a strong financial foundation.
From a personal standpoint, I can tell you how important it is. As I was growing up, my younger brother was diagnosed with a major heart defect. He would later be one of the first patients in the country to have a new type of open heart surgery. Without the coverage, he would have never been able to have the procedure he needed as our family was of humble means.
In the FinancialVerse, one of the eight key financial risks that you need to protect against is the risk of becoming ill and not having sufficient resources to pay for the costs of care. There is nothing worse than to have an illness and not be able to get the treatments needed. Having access to affordable medical care is one of the most important protections you can possess in today’s COVID-19 world.
In these posts, I will try to highlight the keys to consider as you determine what coverage you need and where you can obtain that coverage. I am not going to cover all aspects of this type of insurance, just the major points. As with other insurance coverage, I recommend that you seek out a qualified licensed professional to assess your coverage needs and to work with you to make sure you buy what you need.
What is Health Insurance?
In its most simple form, health insurance pays for medical expenses (i.e., surgical, prescription, dental, vision) specified in the policy that are incurred by you, the insured. Health insurance can either reimburse you for expenses incurred from illness or injury or pay the care provider directly. It covers you if you get sick or injured. Most health insurance plans today also cover preventive care.
The Coverage Basics
Health insurance is not designed to always cover 100% of your costs. In fact, it’s designed to share costs with you with what is called the out-of-pocket limit. Out of pocket means it will repay you after you have incurred a certain amount of your own money. After you hit the out-of-pocket limit, health insurance will usually pay 100% of your health care costs. Different policies have different limits as we will discuss.
The cost sharing is done using four key mechanisms: your deductible, your copayment, your coinsurance, and your out-of-pocket limit. We’ll discuss them in more detail in our second post. All health insurance plans are regulated by the states in which they are sold.
What Types of Coverage Are Available?
Generally, there are two types of health insurance: public or government provided health insurance (like Medicaid, Medicare, and The Children’s Health Insurance Program (CHIP) and private health insurance. You can get these coverages through the following major sources:
Public programs such as Medicaid, Medicare, and The Children’s Health Insurance Program (CHIP)
Group employee coverage plan through your job or your spouse or partner's job
A plan you purchase on your own directly from a health insurance company or through the federal government’s Health Insurance Marketplace at healthcare.gov
The Veterans Administration or TRICARE for military personnel
Your state, if it provides a health insurance plan
Your parents' insurance plan, if you are under 26 years old
Continuing employer coverage (if you leave your job) from your former employer, on a temporary basis under the Consolidated Omnibus Budget Reconciliation Act or COBRA as it is commonly referred.
The 10 Essentials Benefits
The Affordable Care Act (ACA), also known as Obamacare, made covering certain health care conditions or treatments a requirement for all health insurance plans available to consumers and guaranteed that everyone could buy coverage (guaranteed issue) regardless of any preexisting conditions. Recently the Trump Administration has championed the use of another form of coverage called Short Term Plans that provide less than the essential benefits and are not guaranteed issue policies.
The 10 essential benefit categories are:
Ambulatory patient services (outpatient care that you can receive without being admitted to a hospital)
Emergency services
Hospitalization for surgery, overnight stays, and other conditions
Pregnancy, maternity, and newborn care
Mental health and substance use disorder services
Prescription drug coverage
Rehabilitative and habilitative services and devices (treatment and devices that help people gain or recover mental and physical skills after an injury, disability, or onset of a chronic condition)
Laboratory services
Preventive and wellness services, as well as chronic disease management. According to healthcare.gov there are 21 different preventative services that must to be covered. I encourage you to go to this website for detailed information.
Pediatric services, including dental and vision coverage for children.
Please understand that these benefits may differ slightly from state to state. State, federal, and private exchanges will show you exactly which services each plan covers before you apply.
Short-term Plans – A New Coverage Possibility
Short term medical insurance, also called temporary health insurance or term health insurance, can provide a temporary solution to help fill gaps in coverage. These plans offer reduced benefits in exchange for lower premiums than ACA policies with essential benefits. Term lengths vary by state, but in some states you can apply for up to nearly 12 months of coverage or can keep this coverage for up to three years using renewals. You will need to carefully understand the policy to see its provisions before making a purchase. Key considerations are:
In most cases these plans do not cover preexisting conditions
Preventive care can sometimes be covered
Prescription drugs may be covered on some plans
You will need to check if your current doctor is included in the insurance company’s network for this coverage
Short term plans do not meet “minimum essential coverage” as defined by the ACA. The federal tax penalty for not having minimum essential coverage no longer applies as of January 31, 2019. However, tax penalties may still exist at the state level. Consult your tax advisor for more information
Short term plans do not qualify for tax subsidies as under the ACA
Short term insurance plans can be enrolled in at any time. There’s no need to wait for Open Enrollment to apply
Lastly, dental, vision and critical illness plans are often paired with Short Term plans to provide broad coverage of medical concerns
Summary
Having health insurance coverage is one of the essential building blocks for your financial foundation. As we have all seen, health events can take place at the most unexpected moments or through no fault of your own. You must protect against this risk. We will continue to look at this insurance during our next post.
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