Shopping Individual Health Insurance in an Affordable Care Act Market
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The Affordable Care Act (ACA) has resulted in a variety of changes in the health insurance industry, affecting both private and group major medical insurance. Few people, unless they qualify for a subsidy, would consider today's insurance "cheap," but under the right circumstances, you may qualify for a comparatively low cost policy. In order to know how to choose, it will be helpful to understand the types of policies available in today's market.
Health Insurance 101
Major medical Insurance: Major medical is thought of as a type of individual health insurance that pays most of the costs of your health care while you pay a deductible and then a small co-insurance. Before Obamacare, there were considerable variations from one company to another. These variations applied to deductibles, the percentage a person would pay after the insurance, and to the types of events covered. For example, some companies covered pregnancy while others only included it as a rider. Some included prescription drugs, while for others a person had to pay additional premium. Few companies covered things like vision and dental without additional premium.
Today's major medical insurance covers nearly identical benefits from one company to another because the law requires "minimum" coverage in all insurance packages regardless of gender or age. That is, policies for both men and women, of all ages, must include pregnancy, counseling for drug abuse, and other concerns regardless of whether or not a person believes he/she needs such coverage. However, there are still variations.
Benefit Levels: The benefits that must be provided by today's policies are the same from one company to another. However, premiums are determined partly by the benefit level you chose. The ACA exchange polices are Platinum, Gold, Silver and Bronze. The Platinum has the highest premium and also the most complete coverage. Your out of pocket max for an individual is $4,000, not counting the premium. The Bronze is the lowest level of coverage with a $5,000 deductible, 30% co-insurance and over 6,000 in out of pocket costs, not counting the premium. Thus the policy with the cheapest premium may not actually be the lowest cost unless you are healthy enough to be able to avoid using it.
Premium Calculations: Before the ACA, you could shop from one company to another and look for the cheapest plan with the best coverage. The ACA has changed that. Your premium is now determined by two factors—the benefit level you choose, and your income. The premium is supposed to be limited to no more than 9.8 percent of your income. However, you could purchase a Silver plan, for example, and have a different premium from your neighbor's identical plan just because you have a different income.
Subsidies: Because the AFA requirements of broader coverage regardless of pre-existing conditions or an individual's personal feelings about the need for certain coverage elements, along with the expansion of government employees to manage the system have resulted in higher premiums for all ages, the government also provides a subsidy for those who qualify. If your income qualifies, the government will send part of your premium payment to the company for you, often greatly reducing your premium. Of course, the amount paid for you by the government can be reported to you on a 1099 form, forcing you to claim it as income. And if you accept a subsidy you do not qualify for, you will receive a bill to pay it back.
Catastrophic Policies: If you are young and in good health, it is possible to get a waiver excusing you from purchasing one of the major medical policies. In such a case, you can purchase a catastrophic policy which would pay if you developed a major illness that required continuous and expensive care. The deductible for a catastrophic policy can be over $10,000.
Private Insurance: If your state does not have a state exchange, or if you do not qualify for a subsidy, you may be able to find a more affordable policy on the private market. There are fewer major companies than there were prior to the ACA, and their policies must still conform to the ACA minimum coverage requirements, but the premiums may be less, depending on your situation. If you qualify, it is possible to get a subsidy to help pay the premiums even for a privately shopped policy.
Cost sharing Organizations: Cost sharing organizations have become an alternative to AFA policies for some people. They are types of co-ops in which all the members belong to the same organization and have agreed to pay a monthly "share" (premium). The member shares are distributed to pay the cost of health care for the members. Some of these groups take new members regardless of pre-existing conditions. Interestingly, these organizations are exempt from the requirements of the ACA and the penalties for not having insurance do not apply.
Common Insurance Terms: The following are some of the more common terms you will find associated with insurance in today's market.
- Catastrophic Coverage: A type of coverage permitted to people who are young and in good health.
- Co-insurance: The percentage of health care costs you must pay.
- Deductible: The amount you must pay before insurance benefits begin.
- Discount plans: It is this writer's opinion that, discount plans are good plans to avoid. The plans claim to negotiate a lower rate with doctors and hospitals, and you pay that rate. The plan actually pays nothing to any provider. You simply pay the company in return for the negotiated discount.
- High Risk Insurance Pool: Available in some states, this is insurance owned by the state. Individuals who are unable to get insurance anywhere else are guaranteed coverage. It is expensive.
- HSA: Health Savings Account. The policies with high deductibles still allow you to have a health savings account that you can use to pay deductibles and copay.
- Indemnity Plans: Plans that pay according to a fee schedule. These plans are not considered insurance, but may be less expensive than insurance. In most cases, you will not be declined for pre-existing conditions, but you may have a waiting period for coverage. You can keep these plans even if you have major medical. While not recommended as an alternative to insurance, many people have purchased them as an alternative to having nothing.
- Medicaid: Insurance managed in partnership between the states and the federal government. Designed for those with very low income.
- Medicare: a government plan available to people over 65 or to those who are disabled or have certain conditions such as kidney failure. Covers part of hospital and medical costs.
- Medicare Advantage: an alternative to Medicare. Available to people who already have their Medicare card. Plans include prescription drugs and you pay copays similar to Medicare. You cannot use your Medicare card and are not eligible to purchase anything to pay your out of pocket costs. You could, however, draw money out of health savings account (HSA) if you have one.
- Medicare Supplement: Private health insurance that works with Medicare to cover the out of pocket costs not paid for by Medicare.
- MOOP: Max out of pocket. Your max out of pocket varies with the benefit level you choose.
- Platinum, gold, silver, bronze: The coverage levels applied to plans on the government exchange.
- Pre-existing conditions: Conditions you had prior to purchasing insurance. Companies can no longer deny coverage for these conditions, but they can charge you a higher premium.
- Subsidy: A government allotment that will help pay your premium if you qualify.