Even though the Patient Protection and Affordable Care Act (PPACA) was signed into law in 2010, America’s solution to health care is still hotly debated. The law, commonly referred to as Obamacare, aimed to revamp the health care industry by making it more accessible and affordable. Unfortunately, while the the law has helped 20 million more Americans access health insurance, it’s also set off a series of unintended consequences that have made coverage worse and even more expensive for a certain segment of the population.
Now that President Obama is leaving office, the fate of Obamacare is more up in the air than ever. President-elect Donald Trump has promised to dismantle the new law right away, and a Republican-controlled Congress would likely help, although it’s unclear how the legislation would be replaced.
Still, it’s important to keep abreast of how health insurance works as the landscape changes. As an informed consumer, understanding the building blocks and types of health insurance can help you avoid confusing and misleading lingo, which will ultimately end up saving you money. Regardless of the particulars of any plan, some concepts are applicable to all of them.
This guide will take you through all the health insurance essentials, teaching you how to go about making the stressful financial and medical decisions without compromising your coverage.
I. Health Insurance Fundamentals
A. Coverage Options: Types of Health Insurance
Currently, insurance plans fall into two categories: group coverage and individual coverage. Group plans are provided by an employer, government agency, or worker’s union while individual plans are negotiated between an individual policyholder and their insurer. Generally, group coverage is less expensive because the provider pays most of the premium for the user.
If a group insurance plan is available to you, it will probably provide more comprehensive coverage than an individual plan. This is because group plans pool policies within an organization and ultimately reduce costs for insurers. Under these plans, you’re more likely to be covered for maternity care, well-baby services, preventive care, vision, and dental care.
Keep in mind that the way your group plan is set up can make a difference. Group plans are either self-funded or fully insured. What this boils down to is who makes decisions regarding your coverage.
Self-Funded vs. Fully Insured Group Plans
In a self-funded plan, your employer pays all medical costs and assumes all risk for its employees. Instead of paying a fat premium to a partner insurance company, self-funded plans are allowed to calculate a maximum annual risk and then keep that amount in reserve until it might be needed. For instance, if it’s anticipated that a company’s maximum risk is $1.5 million per year, the company is allowed to keep that money and even invest it. At the end of the year, anything that wasn’t spent out of these funds goes back into the company coffers.
In what’s called a fully insured plan, an employer partners with an insurance company and pays it a premium to manage its employees’ health care claims. The premium amount is based on the company’s maximum annual risk, and the insurer assumes all administrative and legal responsibilities related to claims management. If we use the same example as above, the $1.5 million potential risk is paid directly to the insurer, where it remains regardless of what is spent.
A key difference is that self-funded plans are exempt from state laws, which govern fully insured plans. This leaves your employer with considerable leeway in deciding what kind of coverage you get and whether an expensive surgery or procedure will be approved. If, for example, a benefit included in the plan ends up costing your employer more than they bargained for, they are freely allowed to rescind that benefit if they so choose. State mandates that dictate the breadth of coverage do not apply to these plans.
Self-funded plans are cheaper for employers and are often promoted to employees, but they operate in the company’s best interest, not yours
If you appeal, you are appealing to an employer, not an insurance company. Your only access to legal action is in Federal Court, should it come to that. If your group health insurance plan is self-funded, be sure to carefully inspect the details of your coverage. Self-funded plans are cheaper for employers and are often promoted to employees, but they operate in the company’s best interest, not yours. Also keep in mind that self-funded plans are not required to provide all “essential health benefits” required by the PPACA.
Individual plans are sometimes referred to as single-payer plans. You purchase an insurance plan independently from the open market and your employer is not involved. Single-payer plans are generally much more expensive than group coverage and provide limited coverage. While some states created their own state insurance pools where consumers could buy coverage online, the vast majority sell Obamacare-approved plans through Healthcare.gov.
What Do Individual Plans Have to Cover?
Before the passage of the new healthcare law, individuals who bought coverage on their own would usually have to purchase additional “riders” to cover specific conditions such as pregnancy. With the passage of the Patient Protection and Affordable Care Act (PPACA), however, all health plans are required to offer a minimum number of “essential benefits.” The new essential benefits offered by all healthcare plans in the post-Obamacare era include:
- Ambulatory patient services (outpatient care you get without being admitted to a hospital)
- Emergency services
- Hospitalization (like surgery and overnight stays)
- Pregnancy, maternity, and newborn care (both before and after birth)
- Mental health and substance use disorder services, including behavioral health treatment (this includes counseling and psychotherapy)
- Prescription drugs
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (but adult dental and vision coverage aren’t essential health benefits)
On top of these essential benefits, Obamacare has broadened the scope of coverage for all Americans. Upon the passage of the PPACA, health insurers can no longer discriminate against individuals or families based on their prior medical conditions or “pre-existing conditions.” In the past, someone who had cancer or diabetes would be barred from buying new coverage outside of state-sponsored, high-risk pools. But with the new law in place, everyone has access to the same health insurance plans regardless of their health.
B. Cost Terminology
Regardless of where your insurance plan comes from or how it works, all of them have cost-sharing methods in place. A premium is simply a monthly bill that keeps your insurance policy active; sometimes this may be partially or wholly paid by an employer.
While they structure them differently, all insurance companies use three specific cost-sharing mechanisms: co-pays, deductibles and coinsurance.
Co-pays are flat fees that consumers must pay when receiving a medical service. These are fixed amounts and specified for things like emergency room visits, primary care physician visits or specialist visits.
- Your co-pay is the amount you pay for each prescription refill or doctor’s visit. (Usually this is around $15-30, respectively.)
Deductibles refer to an out-of-pocket expense ceiling that you must meet before some facets of your plan begin to pay. Deductibles apply to a given benefit period, usually of one year at a time.
- For instance, you may be expected to pay the first $1000 toward any hospital visits before your plan begins to cover expenses.
Coinsurance stipulates that the insured pay a certain percentage of the total cost for services; this feature commonly kicks in after deductibles are met.
- Many coinsurance plans involve an 80/20 split in which you assume 20% of costs and your insurance plan covers the remaining 80%.
Flexible Spending Accounts, or FSAs, are pre-tax deductions from your wages that can be applied toward health care in a given benefit period. If an FSA is part of your insurance coverage, you can use these funds for co-pays, coinsurance bills, over-the-counter products and other out-of-pocket spending. As of 2017, FSA contributions are capped at $2,600 per plan year. These plans can be funded on a pre-tax basis by employers or employees, or both. Please note, however, that the $2,600 limit applies to employee salary deferrals only.
II. The Current State of U.S. Health Insurance
It’s been six years since the Affordable Care Act passed Congress, but the U.S. health care landscape is far from settled. Not only have some of the provisions of the ACA been pushed off, but the entire law could be repealed as early as 2017.
Of course, publicly funded U.S. health care has always had its fair share of skeptics. For many of the 64.2% of Americans that are already privately insured, the constant changes and upheaval can seem unsettling or confusing. And those of us who do have private group insurance may not want to miss out on the advantages.
But, what are those advantages? Consider this list of pros and cons for both group coverage and public insurance as you ponder the future of health care:
A. The Advantages of a Group Insurance Coverage
- Choice: Most sponsors of insurance, whether an employer, union or association, offer several group coverage options from recognizable brands like Aetna, Humana or Blue Cross & Blue Shield. Users have the luxury of choosing the plan that best suits their needs from a number of options. This also creates a competitive marketplace for the insurance companies and drives them to create better products.
- Affordability: Group plans by definition have a large pool of users that spreads risk out among the group so costs are lowered for everyone in the plan. This also has the added benefit of attracting more users to participate; ultimately, fewer Americans may forgo insurance entirely. That means your tax dollars won’t be spent on medical care for the uninsured.
- Risk Management: Large groups of insured in a private plan all pay the same premium, so an employee with a chronically ill spouse pays the same as her healthier co-workers for a family plan. Mitigating the risk of cost over a large group allows insurers to charge lower premiums to the everyone, meaning less money out of your pocket.
- Effective Payment: Premium payments made by a large private entity are more reliably paid, as are claims for medical services. Individuals responsible for premium payments may pay erratically or late, or may even skip payments in lieu of other expenses. Under-insured and uninsured citizens’ health care is paid by your tax dollars.
- Enhanced Job Market: Companies strive to be attractive places to work, and offering comprehensive health insurance is considered a major benefit. Additionally, promoting an attitude of wellness and health maintenance not only makes the workplace more pleasant, but it reduces company losses from paid sick days and loss of productivity.
While on the surface group policies appear to be the least financially restrictive, in some cases they may not be the best option for you and your family. It’s important to remember that while initial cost is definitely a primary concern, insurance policies should be evaluated with more than cost in mind.
B. Limitations of Group Insurance Coverage
- Restricted Options: While we may be given a handful of insurance options, it’s not the same as we would find on the open market. Many companies push their self-funded plans to employees, sometimes offering bonuses or other incentives to choose a plan that best serves the company. In smaller companies there may be no choice at all. Choosing something as important as health insurance should give us the same autonomy we have choosing auto insurance, for instance, but it doesn’t.
- Insurance Networks: You must operate within your plan’s framework and see only plan-approved doctors if you want your expenses covered. If you have a tricky medical condition, this can be problematic. Some plans will cover out-of-network medical services at a lower rate, but in the end, this means more out of your pocket. If you travel frequently and find yourself ill and away from home, you may end up paying the full price for your health care. Single-payer insurance, while expensive, offers more flexibility.
- Tax Implications: Many users of group insurance are able to have premiums deducted from their pay prior to taxes. Single-payer insureds have no choice but to pay premiums with after-tax dollars, and health insurance for the self-employed is only partially deductible.
C. What is Public Insurance?
One feature of the Patient Protection and Affordable Care Act was the expansion of public insurance, and specifically Medicaid. Since the implementation of the PPACA, millions more people have qualified for Medicaid and begun to receive affordable health care for the first time in their lives.
There is at least one other type of public insurance currently available as well. Here are the basic facts about the two main government-sponsored forms of insurance currently available:
- Medicaid is a state-managed program that provides health insurance to those who cannot afford it, to children in lower-income families and sometimes to the disabled. Eligibility is based on income; while each state has its own rules, income requirements are usually tied to the federal poverty line. Disabled adults who don’t meet Social Security guidelines for Medicare assistance may also qualify.
- Medicare is also state-managed and is eligible to seniors over age 65, disabled adults who receive Social Security benefits and to citizens with end-stage renal disease. Medicare uses a combination of government funds and premium payments for its programs, and works much like a group insurance plan. You’ll find a more extensive breakdown of Medicare plans in Part V of this guide.
The type of health insurance that best meets your needs may very well be driven by the stage of life you’re in. As you’ll see in the Parts III and IV to follow, your coverage needs will change substantially from when you are a college student to when you start a young family.
Making an informed choice about your health insurance should be based on an understanding of your specific needs.
III. Types of Health Insurance for Young Adults
A. College Students
Thanks to the Affordable Care Act, college students may now be covered under their parent’s insurance policy up to their 26th birthday. The ACA also instituted new mandates for what campus insurance will cover. Previously designed for healthy young adults who likely only needed coverage for catastrophic events, campus insurance plans now function as full-service plans with comprehensive coverage. Plan benefits can be extensive, often including maternity coverage, substance abuse treatment, vision and dental care.
Usually, universities collaborate with a third-party insurance provider and bill premiums to student accounts. While the expansion of coverage mandated by the ACA has driven up the cost of premiums at many schools, campus insurance is still generally cheaper than purchasing an individual policy. Premiums for an academic year range from a few hundred bucks to a few thousand.
Some students can’t stay on their parents’ insurance plan, such as in my personal experience. My oldest daughter attends an out-of-state university and our family policy doesn’t extend to every state, notably not to the one where she goes to school. We purchased campus health insurance for her; she has a pre-existing condition so we were relieved she could get comprehensive coverage.
Most students must use the campus health center as a primary source of treatment; when necessary, universities will refer students to specialists. Pre-existing condition restrictions are not uncommon, and some schools do not insure students over the summer or pay claims made at a distance from the university. Coverage may mimic either an HMO where in-network claims are covered at 100% or a PPO with the standard 80/20 cost split.
B. Single Young Adults
Newly minted college graduates face a health insurance choice. No longer covered by campus insurance or on the family plan, some young adults reason that since they’re young and in good health, insurance isn’t a worthy expense. But we can’t predict illness or injury, no matter how many good health habits we practice. The costs of a sudden hospitalization or the need for urgent tests have driven 62% of all bankruptcy filings in the U.S.; it’s much wiser to spend your money on premiums now than face staggering debt for years to come.
If you’ve previously been covered under a family insurance plan, you can opt for Continuation of Coverage (COBRA) to extend the policy’s coverage for up to 36 months. COBRA is expensive; you pay 100% of the premium your parents may have only paid a small percentage of. But if you’re still looking for a job with health care benefits, COBRA can be a good short-term option for you. COBRA does not apply to campus insurance policies.
If you’re employed, your choices are to purchase an individual plan or opt in to your employer’s health plan. Employers often pay part (sometimes most) of the premium, which offers a financial advantage over buying your own plan. Today’s job market is unstable, though, and some feel that the risk of losing a job and the insurance that goes with it outweighs the price. If you’re confident in your health, you may be comfortable with this risk.
If you have ongoing health problems, you may experience more peace of mind knowing that your medical care isn’t going to be disrupted if you lose your job.
Let’s break down some basic costs. Using the Kaiser Foundation’s Employer Health Benefits 2016 Annual Survey, we can estimate your out-of-pocket cost for health insurance as follows:
Average cost of employer-sponsored group coverage for a single adult: $536.25
Average premium percentage paid by employees: 18%
Further, the average annual premium contributions for 2016 are $1,129 for single coverage and $5,277 for family coverage. As the Kaiser study notes, covered workers’ average dollar contribution to family coverage “has increased 78% since 2006 and 28% since 2011.”
So, while individuals with group coverage still have the bulk of their premiums covered by their employers, they are still paying considerably more for that coverage now than a few years ago.
IV. Young Families and Their Health Insurance Needs
When you marry and consider starting a family, the big picture changes when it comes to insurance needs. This is a time to investigate every option you have so that you make the best choice for your growing family. You may both be employed and have two different employer plans to choose from, or you may consider it wiser to pre-empt employer-sponsored plans and purchase your own.
A. How Do I Choose?
Costs are the primary consideration when most people choose an insurance plan. In a recent study by Kaiser Health Tracking, half of Americans tried to reduce their healthcare costs by skipping preventive care and delaying a doctor’s visit when they began to experience symptoms of illness. This is unwise; much better to select a policy that’s both affordable and understandable.
Three U.S. governmental departments – Health and Human Services, Labor and the Treasury – teamed up to create a document called a Summary of Benefits and Coverage, or SBC. This document is designed to help you compare policies, using standardized language to break down exactly what coverage you are being offered. You have the legal right to request an SBC when evaluating plans; a glossary of terms should also be available to you.
Half of Americans tried to reduce their healthcare costs by skipping preventive care and delaying a doctor’s visit when they began to experience symptoms of illness. This is unwise
There are several variations of health insurance plans that you may encounter in your search.
- PPOs: Preferred Provider Organization plans, or PPOs, cover participants within a specific hospital and physician network. PPOs will cover out-of-network costs at a reduced rate. Typically, PPOs split the cost with you after the deductible is met. 80/20 plans, which take 20% of costs out of your pocket in addition to the premium, are common.
- EPOs: Exclusive Provider Organization plans are much like PPOs, with the exception that no out-of-network charges will be covered by the plan. In some cases, the plan may cover out-of-network costs for emergency room visits.
- HMOs: Health Maintenance Organizations (HMOs) are built around a strict arrangement with participating providers in a network. If you stay within this network, usually based on where you live, coverage is often 100%. Because the providers in an HMO are under contract, premiums are usually lower.
- POS: Point of Service plans are a hybrid of PPOs and HMOs, and allow reduced coverage of out-of-network medical services. Three tiers of services are available: use a contracted HMO provider and pay no co-pay; use an in-network PPO provider and pay a co-pay; or see a provider outside of the network and, after your deductible is met, split the cost by a percentage rate.
- HDHPs: High Deductible Health Plans are structured to provide you with tax savings. The plans themselves may be associated with an HMO or PPO and are tied to Flexible Spending Accounts (FSAs). An FSA provides you more flexibility in spending your healthcare dollars, allowing you to set aside pre-tax funds to use toward future medical expenses. Typically, HDHPs have higher deductible than other plans and preventive care does not count toward the deductible. Since FSAs are currently under IRS scrutiny, the future of HDHPs in the healthcare market remains unclear.
Premiums are generally the first thing we consider, since this is often a paycheck deduction. However, there is much more to cost than a premium. Questions to ask when evaluating your potential out-of-pocket costs could be:
- Do I want a safety net for catastrophic events or do I want comprehensive coverage?
- Is my family typically healthy with few needs for medical services, or does a family member have chronic illness that requires monitoring?
- Do I or any family members have jobs or hobbies that are risky?
- How much of the premium will my employer pay?
- What are the deductibles for each type of service?
- What coinsurance is offered after my deductible is met?
- Do I want prescription coverage?
- Do I require brand name drugs or can I get by with generics?
- What are the specific co-pays for each kind of service?
- Is there an annual or lifetime limit to what the insurer will pay?
- What policy provisions increase or decrease my deductibles?
- Is there a maximum out-of-pocket expense where my plan begins to cover everything?
- How restricted is my provider network?
Choosing an insurance plan can be mind-boggling, and it’s often difficult to distinguish the particulars of one plan from another. Even if you are fortunate enough to have several employer-sponsored plans to choose from, it is probably worthwhile to price-compare against single-payer plans on the open market.
B. Young Families
Couples who are both employed may face a decision on which employer-sponsored plan to choose a lucky problem to have. Whatever the source of your health insurance, there are certain particulars about this stage of life that should be taken into consideration. If you’re planning on having children, the list of requirements increases.
Some questions you could ask yourself when choosing an insurance plan for a young family might be:
Will we both continue to work indefinitely?
If one of you decides to stay home when children arrive, consider all of the changes going from a single policyholder to a family policy. Evaluate potential costs and investigate coverage for children before they arrive. If the two of you are covered on one employer-sponsored policy, does it still make sense to use that policy when you have children?
Is a Flexible Spending Account an option?
FSAs allow you to deduct funds from your paycheck prior to tax deductions; these funds are designated for medical expenses and can cover many over-the-counter expenses and co-pays. Using pre-tax dollars to meet these expenses can add up to considerable savings, especially when little ones are so prone to the sniffles.
Is a Health Savings Account (HSA) an option?
If your health insurance plan comes with a high deductible, you may be able to qualify for a tax-advantaged Health Savings Account. With an HSA, families can set aside up to $6,750 in pre-tax dollars for health care expenses provided their annual deductible exceeds $2,600. Individuals, on the other hand, can deposit up to $3,400 in an HSA in 2017 provided their health insurance deductible is at least $1,300.
How is pregnancy and childbirth covered?
Examine your policy for details about prenatal vitamins, prenatal testing and screening, emergency procedure and delivery options. If you are considering an alternative birth, such as a home birth or use of a midwife, ensure that those options are covered or set aside funds for the out-of-pocket expense.
Do I have a choice in my child’s pediatrician?
Choosing your child’s doctor is an important decision. Make sure that you have enough options to adequately research potential candidates, and ask for background information on medical school, residency and other training in pediatrics. Many new parents like to interview pediatricians before the baby’s arrival; inquire whether your plan will cover these visits if you are charged fees for them.
When must I register my newborn or newly adopted child?
All insurance companies have a window within which you can add a dependent outside of the normal open enrollment period. While it is generally around 30 days, don’t make that assumption without first checking with your plan. If you miss the registration window, you may have to wait until the next open enrollment period for your child to have health insurance.
Using pre-tax dollars to meet [over-the-counter expenses and co-pays] can add up to considerable savings, especially when little ones are so prone to the sniffles
Starting a family is an experience that will use up every ounce of your strength, your courage and your ability to function without sleep. Health insurance is not something you need to hassle with during this time, so make your choice wisely.
V. Health Insurance Concerns When Approaching Retirement
Regardless of your insurance status as a working or retired adult, you qualify for Medicare coverage on your 65th birthday. Medicare is a complex system designed to provide public insurance to workers in retirement age, and is at this point guaranteed to every American.
For many seniors, joining Medicare is a seamless transition from employer-sponsored health care or more expensive single-payer plans. Unfortunately, the U.S. is foundering in debt and the Medicare program is strained for funding. While details have yet to be hammered out, the Affordable Care Act hopes to address these funding issues.
Functioning as a group plan backed by the government, Medicare is funded partially by tax dollars that you contribute your entire working life. Low-cost premiums and deeply discounted prescription pricing make this an affordable and attractive option for many people, including disabled citizens on Social Security and end-stage renal disease patients. There are numerous plan structures available, all with nationally recognized insurers who partner with the government to provide medical care to this patient population.
A. The Ultra-Basics of Medicare
Part A: Medicare Part A essentially covers any billable charge related to a service received at a medical facility, such as hospital admissions, nursing home care, home health services, skilled nursing services and hospice. There is no premium for Part A coverage. If your doctor has accepted Medicare assignment, you will be responsible for reduced co-pays and deductibles as per Medicare guidelines.
Part B: Medicare Part B covers any medically necessary expenses to manage your health, including preventive services. This covers doctor’s office visits, ambulance service, mental health expenses, medical equipment and the cost of a second opinion before surgery. Part B requires a premium, and most people who paid taxes into the system pay a little over $100 per month.
Drug Coverage: Plans strictly related to prescriptions operate independently of Parts A and B. Drug coverage is purchased from a private insurer or a Medicare-approved private company. Each insurer maintains a formulary, a list of covered medications, that usually breaks drug products into tiers. Your out-of-pocket costs include a monthly premium, an annual deductible, prescription co-pays according to tier and extra costs if you exceed the plan’s annual spending cap. You may not purchase drug coverage from Medicare if you do not have Parts A and B.
Medigap Coverage: Since Parts A, B and D can still leave you with substantial out-of-pocket costs that could be burdensome on a fixed income, Medicare has allowed the purchase of supplemental insurance plans. These plans are purchased independently from an approved insurer and require an additional premium, but can go a long way toward meeting the expenses that Medicare doesn’t cover. Medigap plans do not cover prescriptions and can only cover one individual.
This information barely scratches the surface of the complexities of the Medicare system. In later articles I will discuss Medicare Advantage (Part C), tips and tricks on navigating the system, and delve into how to research and choose the right plans for you each step of the way.
VI. The Changing Face of Health Insurance in America
It’s more important than ever to understand the ins and outs of health insurance regardless of how long the Patient Protection and Affordable Care Act (PPACA) sticks around. While the scope of the legislation’s impact is somewhat murky, its provisions have affected every American at every stage of life, impacting college students and small business owners alike. Here are a handful of the biggest changes we’ve experienced so far:
- For college students and their parents, one of the first changes was a boon. Previously, students were limited to either campus insurance (see Part III) or single-payer plans (see Part I). Campus insurance, while low-cost, was not intended to serve as a comprehensive health plan. Single-payer plans that provide better coverage have always been pricey, and up to one-fifth of U.S. college students simply gambled on their youth and went without health insurance. This risk is no longer necessary.
- Young adults beginning their career have also already benefited from Obamacare. New graduates can take advantage of ACA legislation that allows them to remain on a family plan until age 26; a survey by the Centers for Disease Control (CDC) attributed the subsequent 6% drop in uninsureds in that age group directly to the new legislation. The act’s prohibition of discrimination due to pre-existing conditions, effective Jan. 2014, also made transitioning out of campus or family insurance plans easy for young adults with chronic illness.
- Young families have already experienced some positive changes and can expect more in the near future. As of Jan. 2014, health plans are no longer able to impose lifetime benefit caps; if your child is sick, you can rest assured that your health plan can never suspend coverage. Employer-based group plans are also required to cover birth control, which may assist to your family planning efforts.
- American seniors (and other citizens who are eligible) perhaps stand to benefit most from the ACA’s changes to Medicare. The much-reviled donut hole that can cost thousands of your out-of-pocket dollars will be phased out. Preventive services that once fell under co-pay and deductible restrictions will also be offered free of charge, making it possible for you to proactively maintain your health at less cost.
When it comes to the future of health care, we’ll all have to stay tuned. With a new president making his way into the oval office, the future of the PPACA is surely in jeopardy. What comes next is anyone’s guess.
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