Today I get to talk about health insurance options. Yup, I know you’ve been waiting for this part of the Financial Safety Net series. Nothing gets your blood running quite like a good health insurance discussion.
Health insurance may not be that exciting, but not having health insurance can be exciting in all the wrong ways. A cushion against the cost of health care is an essential part of your financial safety net. Usually, this takes the form of a health insurance policy. Whatever form it takes, some protection against the catastrophic expenses occasioned by medical needs is one of the primary parts of your safety net. It is a question of when, not if, you will need to rely on its strength to keep you from plummeting to financial disaster.
The health insurance landscape has changed since the Patient Protection and Affordable Care Act (I’ll call it the ACA) . In the spirit of personal finances made public, I’ll outline the story of our evolving insurance situation, and note a few options that we have not tried, but may work for you. Feel free to wade through as much or as little of this as you like, but if you do skip sections, make sure to check back in at the bottom for a non-insurance option you may not be aware of.
1. Insurance Through Employers
I used to have insurance through my employer. Actually, our whole family did. It was fantastic. All I had to do was go to work, and all of us automatically got health, dental and vision insurance, and a small disability and life policy. If you are fortunate enough to still get health insurance through your employer, it may be the best deal you can find. With few exceptions, the plan your employer offers will meet the “minimal essential coverage” guidelines of the ACA, and you may even get additional benefits. Many insurers offer Health Savings Accounts (HSAs) or flexible spending plans (sometimes called cafeteria plans) that let you use pre-tax dollars to pay for health-related expenses, reducing your overall tax burden. If you have such an option, go talk to your HR person and see if it makes sense for you to enroll.
Businesses with at least 50 employees are required to offer insurance to them. Many employers pay all or most of the premium, leaving you with good coverage at minimal cost.
No business is required to offer insurance to the dependents of the employee. If your employer offers insurance to you, the employee, but not to your dependents, it may be impossible for anyone in your family to receive a premium subsidy on an exchange plan. Because of this, many small employers are cancelling company plans and letting their employees purchase insurance directly on the exchange, through which they can receive a premium subsidy.
2. Insurance Through School
After I left my insurance-providing job to return to school, I had insurance through the university. My whole family did. It was pretty fantastic too. All I had to do was go to class and pay my insurance policy premiums. I guess technically I didn’t even have to go to class, but paying all that money to NOT go to class would have been even more crazy than paying it TO go to class. The premiums were relatively modest because the student population was relatively healthy. There was no dental, vision, disability, or life insurance, but we had private life insurance and the others weren’t essential.
Many universities are seeing declining enrollment in their student plans because the ACA allows students to stay on their parents’ plans longer, and those who aren’t on their parents plans can often find a better deal on the insurance exchange. Consequently, many school-provided insurance plans are becoming smaller and more expensive, and may either disappear altogether or begin to offer benefits not included on the exchange, to differentiate themselves and justify their continued existence. If you still have access to an insurance plan through school, it would be worth it to compare it to an exchange plan and see which works better for you.
3. Insurance Through a Private Purchase
When I graduated with my law degree and MBA, the university decided not to offer me or my family insurance. It wouldn’t have worked anyway, because the student health center was far away in the Midwest, and we were in California. We had to find another option.
Before the ACA was in effect, our family purchased our insurance through HealthNet. It was a policy offered to members of the Farm Bureau, so we joined the Farm Bureau, then joined their insurance plan. Our plan was perfect for us. We are generally healthy, but wanted to insure against the catastrophic cost of something really bad happening. We chose a high-deductible plan (details here) that minimized our monthly premiums and left us with the bill for any medical services we did use, until the total medical expenses reached a certain limit. There were minimal co-pays for most preventive care, like well-baby visits or annual checkups. As long as we kept an emergency fund with sufficient cash to cover our high deductible in the case of a real emergency, the rest of our costs could be handled as they accrued each month.
The ACA killed this plan. It didn’t meet the “minimum essential coverage” requirements, so our insurer discontinued it, leaving us, and somewhere between 2.5 million and 4.7 million (both figures have their advocates) searching for a new option. At least we had company.
Note that you can still purchase private insurance off the exchange, you just won’t receive a subsidy. If that works for you, or you don’t qualify for a subsidy anyway, this option may be a good one.
4. Insurance on the Exchange
If you’ve been reading SixFiguresUnder for a while, you’ll know that Stephanie and I are now covered by a plan offered on our state insurance exchange, CoveredCA.com. Don’t ask my why it’s not CoveredCalifornia.com. My honest guess is that the program administrators don’t think people can spell “California”.
If you’ve seen our monthly financial reports, you know that we now pay $156/month in premiums for a “silver tier” health plan by Blue Shield. That’s less than half the actual premium, because with our income and family size, we receive a subsidy, funded by generous taxpayers with higher income and smaller families, that covers the rest of the premium. If you are part of that second group, thank you. We hope to join your side of the equation soon.
We receive a further subsidy in the form of Medi-Cal coverage for the kids. Medi-Cal is California’s version of Medicaid. If we want a plan on the exchange (and for now, that’s our best option), then the kids are automatically enrolled in Medi-Cal. Because California chose to expand the Medi-Cal pool when the ACA was passed, we would have to double our income to get the kids off Medi-Cal and onto our own exchange plan.
Our current insurance is the least expensive for the most coverage we’ve ever had. Subsidized exchange plans can be very attractive. Most people who don’t receive insurance through their employer are eligible to buy it on the exchange. If, however, one of the parents in the family is offered affordable coverage at work, no one in the family can receive a subsidy. They can still enroll in the plan, but they pay the entire premium.
5. No Insurance
You may decide that having no health insurance, and therefore paying no premiums, is the best choice. I strongly discourage it. I don’t know why you would listen to me, but I hope you do.
The first reason to not NOT carry insurance is that if something awful happens, you pay for all of it! While figures vary between region and hospital, the average trip to the emergency room costs nearly $2000. An emergency appendectomy a few years ago cost a friend over $120,000. If either of those would destroy your financial well-being, please consider finding some way to make health insurance part of your financial safety net. Again, it’s when, not if, you’ll need to use it. If it’s at all possible to carry health insurance, even if you have to cancel your cable or negotiate your phone bill to get there, please do it.
The second reason to NOT not carry insurance is that you’ll have to pay more taxes. Yes, with the ACA, if you fail to carry minimum essential coverage, and you don’t qualify for an exemption, you’ll pay a penalty on your tax return for each month of the previous year that you didn’t have qualifying insurance. Some of my good friends, and many other people I don’t know at all, discovered this tax season that their insurance coverage or non-coverage is costing them money on April 15. This was not a really compelling reason last year. It becomes a more compelling reason this year, and even more so next year.
This chart shows the penalty for not being covered in each year. It’s either a flat amount or a percentage of your income, whichever is greater, and maxes out at the average amount a family of the same size would pay in premiums for a bronze plan for the time you lacked coverage.
6. An Exchange Hybrid: Bronze + HSA
When the ACA happened, no one was sure whether the Health Savings Account would survive. I’m happy to report it has. One option is to minimize your premiums by purchasing a bronze-level exchange plan, which has lower premiums but a higher responsibility for your own expenses, (in some ways similar to our pre-ACA high-deductible plan). Then enroll in a Health Savings Account and enjoy all the benefits that offers. There’s not enough room today to detail those benefits, but I’ll plan on getting back to that topic later. In the meantime, Nolo Press provides a short summary of the Bronze + HSA option for your review.
For those who need “minimum essential coverage” and don’t qualify for a subsidy, this option might make a lot of sense.
7. Non-Insurance: Avoid the Penalty
There are many exemptions available to avoid the penalty if you don’t carry anything, or carry something that doesn’t qualify as “minimum essential coverage”. The Congressional Budget Office estimates that 90% of uninsured folks won’t actually have to pay a penalty at all. If you wonder if you fall into an exemption, IRS Form 8965 will become your friend. The Instructions for Form 8965 give a full list, but here are some of the exemption categories:
Individuals with income below the threshold amount to file a tax return
Households where insurance premiums would exceed 8% of household income
Members of an Indian tribe or a recognized religious sect
Coverage gaps that total less than three consecutive months during the year
Individuals with hardships during the year (eviction, domestic violence, bankruptcy, homelessness, utility shutoffs, etc.)
Citizens living abroad and non-citizens who are not lawfully present in the United States
Members of a health care sharing ministry
8. Health Care Sharing Ministries
This is one of the most interesting options I’ve seen. I was surprised when I was talking to another local attorney who claimed exemption from the individual mandate because he was a member of a “health care sharing ministry.” I had never heard of such a thing. Reviewing the law, I confirmed the exemption, and found this definition: