A world-wide pandemic and widespread unemployment have a way of concentrating our minds on the subject of health insurance. So, between current circumstances and the approach of the annual insurance marketplace enrollment period, now is a good time to be thinking about how to choose the best coverage for your family.
Often overlooked in debates about health coverage is the fact that Americans’ reliance on employer-provided insurance is something of a historical accident. It’s one of the reasons that our system differs so sharply from how many other nations pay for medical care.
If you get health insurance as a benefit from your job, as a majority of American families do, this is an indirect result of wage controls imposed during World War II. Unable to attract workers with higher pay, some war industries decided to offer health insurance—what was called a “fringe benefit” in those days. Among the first to do this were Henry Kaiser’s shipyards, which was the origin of the huge West Coast-based Kaiser Permanente network of hospitals and insurance plans. Other employers followed suit, and in the postwar decades corporations and unions help spread employer-based health insurance throughout the economy.
But those employee plans left millions out: the self-employed, workers in many small businesses, the unemployed, people with disabilities, and many retirees. Attempts to create a full-blown national health insurance program during the Truman administration stalled, blocked by opposition from doctors and fears about “socialized medicine.” I won’t get too deep into more history, other than to mention that Medicare and Medicaid, enacted in the 1960s, created a system of governmental coverage for the elderly, the disabled and many poor people.
Since then, rapidly rising medical costs have driven up health insurance premiums, most sharply for those who had to buy their coverage on the open market. After several more failed attempts at comprehensive health-insurance reform, Congress finally passed the Affordable Care Act – “Obamacare” after its presidential sponsor – in 2010. And despite various setbacks and some whittling away at the program by courts and Congress, the ACA is still the source of health coverage for millions. Besides setting certain rules for insurers – best known is the requirement that coverage can’t be denied because of pre-existing medical conditions – the ACA provides a government subsidy for eligible insurance buyers.
To qualify for an “Obamacare” insurance subsidy, your income must fall within a specified range, which varies depending on whether you are single or applying for your family. If you are above the top limit, even by a few dollars, you may not be eligible for any ACA subsidy.
At the lower end of the income scale, Medicaid covers many families, but some states including North Carolina have chosen not to take ACA-provided federal dollars to expand their Medicaid programs. That means that some families that earn too much for Medicaid but not enough for an Obamacare subsidy must search for their own options for health coverage.
Ordinarily, it’s just at the end of each calendar year that you can apply for a policy and subsidy for the following year. But a very important exception provides for a “special enrollment period” if you experience a significant life event. Examples include birth of a child, a death in the family, or most pertinent this year, loss of a job.
So whether you are applying right now because you have lost employer-sponsored medical coverage, or if you will be signing up during the normal application period starting in November, you will need to work through the online federal “exchange” at HealthCare.gov. The website will ask you to identify the members of your family who will be covered. That can include adult children up to age 26. The site will then walk you through the process of documenting your income. That includes the tricky task of predicting whether the numbers in your most recent tax return are likely to remain the same into next year.
When you have completed the income part of the process, you will be presented with a daunting array of choices among insurance companies and policies. Those are grouped in three categories based on levels of coverage. And now it gets really tricky!
Your out-of-pocket costs – the premium minus the federal subsidy – will be higher if you choose a “gold” plan, which requires smaller co-pays and deductibles than lower-priced “silver” or “bronze” plans. Coverage details, including such important matters as prescription drugs, will also vary. So how to choose from the dizzying array of options?
It’s important to think through what your actual health-care spending is like. Do you have a chronic condition that frequently requires you to see medical professionals? Do you depend heavily on specialists? Need a steady supply of expensive medications? Then you may find that lower co-pays and deductibles are worth the higher monthly premiums. On the other hand, if you and your family are healthy and expect to need medical care just for routine check-ups and emergencies, then a plan that requires higher out-of-pocket payments may make better sense. For some families, the lower premiums of a “bronze” plan that mainly protects against huge costs from a “catastrophic” illness or injury may make best sense.
You may find it useful to add up all your medical expenses for a year. Compare that with your current insurance premiums so you’ll have an idea of your total medical spending. When you know that baseline it will be easier – though not easy! – to evaluate how various policies may affect both your health and your finances.
If you’re in the unhappy position of having lost a job, and with it your company’s group coverage, that does at least give you a starting point. Compare what that previous policy provided and what you paid for it, if anything, with the benefits and premiums of the individual policies you’re considering through the ACA.
Whatever your decision, don’t stumble into one very dangerous pitfall. If your income changes substantially after you initially qualify for a subsidy, it’s likely to change your eligibility. The law requires you to report that change. If you don’t, you may find yourself on the hook, required to pay back some or all of your ACA subsidies!
What if your income is too high for a subsidy? You’ll still have to choose from competing policies, at every level of coverage, on the open market. The same considerations apply to your choice as if you were shopping in the ACA “marketplace.”
Needless to say, all this represents a significant burden, if only on your time and attention. The costs and complexities are why debates about the best approach to a national health care policy have been such a central part of recent political contests. Space does not permit me to touch on the challenges of matching supplemental coverage with Medicare, of long-term care insurance, and other health coverage concerns for retirees. I will address some of those in a future article.
Helping you make sense of the medical insurance marketplace and fitting your health care into the rest of your financial planning, is something that knowledgeable experts can help with. The financial-planning experts at Old North State Trust can offer assistance about how to navigate these treacherous waters.
Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends. The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics. Readers should be aware that the facts may vary depending upon individual circumstances. The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.