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.
This is the second 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 as part of building a strong financial foundation. As with other insurance coverage, I recommend that you seek out a qualified professional to assess your coverage needs and to work with you to make sure you select what you need.
Who Should Buy Coverage?
The health insurance risk is one of the rare financial risks that everyone should buy coverage to protect against. Medical costs are simply too much for most individuals and families to cover out of pocket. Medical bills are a leading cause of consumer debt and related financial problems (e.g., bankruptcy and home foreclosure). It is imperative that you have some coverage rather than none. In most states the Affordable Care Act (with its premium subsidies) and the availability of Short Term plans has made coverage available for most families who do not get coverage through their employer.
My suggestion is that you work with a financial professional to make sure your coverage needs are properly met. This applies if you purchase coverage for yourself or get coverage through your or your partner’s employer. Coverage will differ if you are buying for a single person, your family or if you are a student. If you’re on a low income or tight budget, you should look into whether or not you qualify for Medicaid in your state, if it is available. The most important thing to remember is to have some sort of coverage in place. A serious health issue can turn into a financial disaster if you’re not careful.
The Financial Moving Parts
When you shop for a health insurance plan or select coverage at work, it’s important to know what the key features are that decide how much you’re actually going to pay for health care. The health insurers have not made this easy. There are five major parts to how much you will pay out of your pocket. These are:
Cash Premium to The Health Insurer
It’s easy to think of your premium as it is the cash outlay to the insurance company. This amount, in addition to what you pay for deductibles, copayments, and coinsurance will total what you pay for health care costs. Those buying coverage outside work will find that the Affordable Care Act has set-up a mechanism to provide tax credits based on income levels to reduce the cost of policies purchased.
Your Policy Deductible
A deductible is how much you need to pay for health care services out-of-pocket before your health insurance kicks in. For example, your coverage may have a $500 deductible which means no insurance coverage kicks in until you exceed this amount in covered medical bills. Once you exceed your deductible you then have to consider your policy’s copayment and coinsurance provisions.
Copayments
A copayment or “copay,” is a fixed amount that you pay for a specific service or prescription medication. For example this could be $40 for each doctor’s visit or $20 for each prescription you fill. You will pay copayments until you hit your maximum out-of-pocket amount.
Coinsurance
Coinsurance is another way that health insurers will split costs with you. Unlike a copayment, coinsurance isn’t a fixed cost – it’s a percentage of the cost that you pay for covered services. For example, if you have a coinsurance of 20%, you’ll pay 20% of the cost of covered services after you pay your deductible and copay amounts. Coinsurance stays in effect until you reach your out-of-pocket maximum.
Maximum Out-of-Pocket Amount
The maximum out-of-pocket amount or out-of-pocket limit is the most you’d ever have to pay for covered health care services in a year (some services such as plastic surgery is not covered medical costs). The total amount you pay for your deductible, as well as any copayments and coinsurance payments, go toward your out-of-pocket limit. Monthly premiums do not count. This is the cap on what you pay and is a key benefit to all ACA policies.
According to healthcare.gov the maximum out-of-pocket limit for 2020 is $8,150 for individual plans and $16,300 for family plans. These amounts increase each year.
What are the ACA Tiers?
If you are buying coverage outside of your employer offered plans the Affordable Care Act offers four types of policies with different premiums depending on the mix of deductibles, coinsurance and copayments. These are confusing to some people but are in actuality rather straight forward. They are called tiers and generate premiums from low to high broadly as follows based on the relative cost sharing that goes on between the consumer and the insurer. The following basic rules of thumb should help you see the relative cost sharing of each tier:
Bronze – 40% consumer / 60% insurer
Silver – 30% consumer / 70% insurer
Gold – 20% consumer / 80% insurer
Platinum – 10% consumer / 90% insurer
Catastrophic Plans – See below
The key here is that bronze plans have lower premiums (because you share more of the costs) but offers lower coverage amounts. You will need to decide what mix is right for you from a coverage and premium standpoint.
There’s a fifth category of health insurance plans that you may see on the marketplace, called “catastrophic” plans. Catastrophic health insurance is a type of health plan that offers coverage in times of emergencies as well as coverage for preventive care. Catastrophic health plans typically come with low monthly premiums and a high deductible. You pay for any emergency medical care you receive until you meet your deductible and most preventive care is covered at 100%. Catastrophic health coverage is available to people under 30, who are looking for minimal coverage and low monthly premiums, and, to those of any age who are eligible due to financial hardship.
Supplemental Health Insurance Products
Health insurance doesn’t always cover every aspect of your health-related costs, which is why you often need to buy what are called supplemental products to go along with your health insurance plan. These products include dental insurance, vision insurance, gap insurance (which is a supplemental health insurance policy that helps you pay for out-of-pocket costs associated with your health care expenses) and critical illness insurance. Critical illness insurance is a type of insurance product that helps you pay for expensive illnesses that impact you and your ability to earn money for multiple years such as cancer, stroke and memory impairment.
When You Can Buy Coverage
Generally, there is only one period of time each year in which you are allowed to shop for a new health insurance plan on the ACA marketplace. This is the called the open enrollment period. You cannot purchase a health insurance plan outside of the open enrollment period unless you start a new job and get group health insurance, or if you qualify for a special enrollment period. The open enrollment period is usually November 1 to December 15 of each year. A special enrollment period begins with a qualifying event such as moving to a new location, turning age 26, and other specific life events detailed in the law.
Summary
Finding a health insurance plan that fits your needs doesn’t have to be a a difficult process. Life anything else worth having it takes some thought and planning. 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.
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