By Eric Tiedtke, CFP, TDA Financial Services Insurance Program
Anyone that had to get individual health insurance or is in the process of getting coverage via the federal marketplace has figured out that “affordable” and “reasonable” apparently have different meanings in Washington, D.C., than they do in Texas. The reality is that premiums are higher, as are deductibles and out-of-pocket maximums. Unless you receive a subsidy or premium tax credit based on your income and family size, your health insurance premium is probably higher than what you were paying before the Affordable Care Act (ACA).
The ACA provides comprehensive coverage has many good features: guaranteed issue—no pre-existing-condition limitation or riders, and no lifetime benefit limits (based on dollar amounts); first-dollar preventive care for essential benefits including physicals, well woman exams, well child care, pediatric dental and immunizations—all without an office-visit copay or deductible if done in-network; no restricted annual limits (on the dollar value); and full maternity coverage and dependent coverage up to age 26. However, these mandated benefits add costs, and not everyone wants or needs them. For example, very few dentists want to purchase dental insurance for their children.
Insurance companies are now limited on how they can differentiate themselves because the plan designs are dictated by ACA. The companies try to do this by having different deductibles for their plans, additional or different deductibles or copays for prescription drugs or specialist visits, or by limiting office-visit copays. The reality is the plans are very similar when you consider the actual out-of-pocket exposure (the most you’ll pay before the plan pays 100%).
The biggest difference among companies is their managed care networks. You need to understand what PPO, EPO, and HMOs are, as 2 of the 3 don’t have any out-of-network coverage, except in emergencies. You should also be aware that companies often have more than one network, so simply calling your physician’s office and asking if it takes Blue Cross, Aetna or United Healthcare, for instance, isn’t enough. It’s critical you understand and check each company’s managed network, and understand the terms above, before you get coverage.
What can I do to keep my premium down?
Now that you’re completely confused and/or depressed, what are some options to help with the overall cost? The best way to reduce your premium—other than limiting your network (in and out) with an HMO or EPO—is having a higher deductible. If you want the convenience of an office-visit or prescription drug copay, consider a plan with the highest deductible you’re comfortable with. But before you enroll in this plan, compare it to an HSA High Deductible Health Plan (HDHP) offered by the same company or a competitor. Look at the difference in the premium between these plans: it can be 20-30% or more. If the amount you spend on a monthly basis for prescriptions and office visits is substantially less than this difference, it makes sense to consider the HDHP with an HSA.
What is an HSA?
What exactly is an HSA? It’s a bank account you own and control and can make tax-deductible contributions to, if you have a qualified HDHP. The HSA allows you to pre-fund future expenses and build up your own self-insurance account. Dentists typically make too much money to deduct medical expenses, so this is a way to deduct expenses that you’re currently paying for with after-tax dollars.
For 2015, you can contribute a maximum of $3,350 for an individual plan and $6,650 for a family plan. A family plan is defined as having two or more insureds. Contributions not used in one year can be rolled over to the following year—it’s not “use-it-or-lose-it” as it is in health care flexible spending accounts. Contribution amounts are scheduled to be indexed annually for inflation. Persons between ages 55 and 65 can make additional “catch up” contributions of up to $1,000 a year. Contributions can be made as late as April 15 of the following tax year. A $7,650 HSA contribution in the 28% tax bracket is $2,142 that Uncle Sam doesn’t get to spend.
Want more information? Go to: http://www.irs.gov/pub/irs-pdf/p969.pdf or check with your CPA or tax professional to be sure this makes the most sense for your particular situation.
What about the big deductible?
Okay, you picked the least expensive HSA plan, set up an HSA and funded it. Unfortunately, you still have a $12,000 (or higher) in-network out-of-pocket maximum, double that for out-of-network, or no coverage out-of-network (other than for emergencies) if you have an HMO or EPO plan. Maybe that’s not something you worry about, as you’re in good health and haven’t been a big user of health care. Do you like to ski? Hike? Travel? How about your spouse? Are any of your children accident-prone or just plain active? What if a distracted texter runs a light and hits you? Ever been t-boned by an Escalade? You can be out of pocket thousands of dollars in a hurry through no fault of your own. If you have several years of contributions in your HSA, you may feel pretty comfortable. If not, there are some products and services you might want to consider to protect yourself in the interim.
Supplemental insurance plans typically pay a cash benefit to the insured. There is no coordination of benefits with other health or disability insurance. The money can be used to pay medical bills, cover a mortgage, or anything else you want. You’re in complete control of how the funds are used.
There are different types of coverage available, so you can select coverage that fits your situation best. Two of the most common and popular are critical illness (for a specific disease) and accident health insurance. They each pay a set amount to the insured when a qualified event occurs. Critical illness insurance typically provides the full policy benefit in a lump sum payment upon diagnosis of a critical illness listed in the policy, such as heart attack, stroke, cancer, Alzheimer’s disease, or the need for an organ transplant. Accident health insurance typically reimburses you for medical costs resulting from accidents. These plans can include a hospital benefit that pays a set amount when you’re admitted to a hospital. Premiums are usually low and no medical exam is required. These are good options for helping offset the risk of having a high deductible and out-of-pocket maximum.
What about Travel?
Even with the most comprehensive health insurance, there are coverage gaps. Most plans will cover you for emergencies when you’re traveling overseas, however the related charges are almost always out of network. Sometimes there’s no coverage at all. International medical coverage is an inexpensive option if you’ll be traveling outside the US. In most cases, you purchase a set amount for the period of time that you’re traveling, and the policy would reimburse your medical expenses up to the benefit amount if you’re outside the US and need medical care.
What if you’re injured or have a heart attack and need surgery when traveling overseas or in Alaska? No health insurance pays to get you and your spouse back home. What if you need lifesaving treatment and the closest hospital or surgeon is not up to the task (heard of Ebola?)? Air ambulances costs tens of thousands of dollars or more, and the companies expect payment upfront. If you travel, especially out of the country, or volunteer your dental services in underserved areas, look at pre-paid emergency assistance. These plans will coordinate and pay for your medical transportation—by plane, helicopter or ground ambulance—to get you where you can get proper treatment.
Supplemental, travel and pre-paid emergency assistance all can help offset the risk of unexpected medical related charges, and can eliminate or reduce the cost of a high deductible or out-of-pocket maximum. These plans are inexpensive partly because the likelihood of needing them is relatively low. Peace of mind is worth something; and you could have these plans for many years without using them, need them once, and get all your premiums back and more.
If you’d like more information on any of these programs for you, your family, or staff, please contact TDA Financial Services Insurance Program at 800-677-8644, or visit TDAmemberinsure.com.