Why Cheap Health Insurance Isn’t Better Insurance

Purchasing the ideal healthcare plan for you and your family comes down to not only calculating your monthly budget, but being able to realistically look at your projected medical needs for the next year. For individuals that are eligible for cost assistance on their health plan in the form of a tax subsidy, getting coverage for a low monthly rate can be attractive. However, simply looking at the monthly cost alone doesn’t mean you will have the right coverage for your medical needs.

Here is how you can shop smart and get the best health insurance coverage for you and your family:

Understand Metal Plans

You might be familiar with HMO or PPO health insurance plans, but the plan types under the Affordable Care Act are best known by the color of their metal level: Bronze, Silver, Gold or Platinum (Catastrophic is also a metal level, but it is only for individuals under the age of 30 and is not eligible for a tax subsidy). As a rule of thumb, Bronze plans are the least expensive, but they only pay for an average of 60% of healthcare costs overall, leaving 40% of medical costs the responsibility of the consumer. The amount the health insurance company will pay increases the higher the metal level. A Platinum plan pays an average of 90% of medical costs. So, if you have a chronic medical condition, a richer metal level plan might cost more each month, but over the course of a year, might pay for a substantial amount of medical bills and reduce your out-of-pocket costs overall. It pays to do the math.

The Network is a Big Deal

After you decide which metal level is best for you, look at the network – and remember that metal plans can have different networks. For example, one Silver plan might have a network for an urban region of a city only, while another Silver plan could have coverage for nearly the entire state. Again – you have choice. If you have settled on a specific metal level, decide if you are okay with a narrow network or need a wider network to get all of your doctors covered.

Shop on All Marketplaces

The biggest myth today is that you can only buy from your state exchange or the federal marketplace. Not true. There are website entities like HealthCare.org and others who offer the same plans the federal marketplaces do, and offer health insurance plans that can’t be found on the federal marketplace. To qualify for cost assistance in the form of a tax subsidy, you need to buy a federal plan, but most web entities identify if a plan is on- or off-exchange. If you do not qualify for a subsidy because your income it too high, there might be plans better suited to your medical lifestyle on the private marketplace (which means, they are not available on the federal marketplace). These plans are still qualified Obamacare plans. They just don’t offer a subsidy, which is why they are not featured on state or federal websites.

Understand What Deductible Level You Can Afford

Deductibles are rising every year, and individuals who buy their own health insurance will have to pay thousands out of their own pocket before the health insurance company is responsible. This is a fact of life in the healthcare space. While there are ways to avoid medical debt when your insurance deductible is high, it’s critical to gage whether you can afford to pay for medical costs until your health insurance deductible is met.

Coinsurance Comes After Deductible

Another calculation to put in your final overall tally is coinsurance. Once you meet your insurance deductible, you will most likely still be responsible for a percentage of your medical costs. For example, if you have met your $2,000 deductible and have a $200 doctor office visit, your insurance company will most likely not pay the entire amount. Typically insurance plans have a coinsurance rule of 80/20 or 70/30. If you have 80/20 coinsurance, then you have to pay 20% of the $200 doctor bill ($40 dollars). It’s another equation to place in your yearly medical budget.

Out-of-Pocket Maximum

The good news? You have an out-of-pocket maximum built into your health insurance plan. The out-of-pocket maximum amount is the most you will have to pay for medical expenses in during the course of the plan year. That means, once you have met your deductible and paid coinsurance up to the out-of-pocket amount, your health insurance company will begin paying 100% of in-network medical expenses.

Why Health Insurance is Important

Getting hurt or sick isn’t something a person wants to happen, but unexpected medical events do occur. Having a health insurance plan helps pay for some of those unexpected costs, and provides financial protection against ongoing large medical bills. Here are some of the advantages of health insurance:

  1. With the passing of the Affordable Care Act, or Obamacare, there is no longer a limit on how much your health insurance will pay.  Before Obamacare was law, health insurance policies had a lifetime maximum of $1 million, $2 million, or sometimes $5 million dollars. Someone with ongoing cancer surgeries and treatment could hit that $1 million mark easily, and then be left without health insurance unless they enrolled in an expensive, high risk insurance program. Today those barriers are gone, and individuals who need health insurance to treat chronic illnesses are able to get the care they need without worrying about hitting a maximum amount on their healthcare plan.
  2. Health insurance companies can no longer cancel an individual’s health policy because they have a chronic disease, or discriminate against individuals with a critical condition and charge them more for health insurance. There is equality for all under the Affordable Care Act.
  3. Anyone with a pre-existing condition can still buy health insurance, and should buy health insurance, to help combat conditions that need extra medical care, and provide some financial backing to help pay for doctor and hospital visits.
  4. Insurance companies offer network services that cost far less that out-of-network physicians and hospitals, making healthcare more affordable for policyholders.
  5. Preventive services are now covered for free under the Affordable Care Act mandate. This is especially helpful for screenings, vaccines and checkups, and you don’t have to meet your deductible in order to get these services at no cost.
  6. Cost assistance is available to help lower the monthly expense of health insurance. Know as a tax credit or tax subsidy, federal money helps those that make between 100%-400% of the Federal Poverty Level. (For an individual that is between $11,770 – $47,080, depending on the state.) With cost assistance, individuals paid an average of less than $100 a month for a plan on the marketplace in 2015. That is a $268 savings each month.
  7. If you carry a qualified health insurance plan, you won’t have to pay a penalty for not having health insurance. In 2016 the fine for failing to have health insurance is $695 per person in the household, $347.50 per child, or 2.5% of your total household income, whichever is greater.

There are many great advantages of health insurance insurance, and money-saving opportunities to get covered.  

Health Insurance Facts: Tax Subsidy and Tax Penalty

The Affordable Care Act ushered in a new level of benefits and complexity for individuals and families that purchase their own health insurance. On the positive side, anyone who falls between 100%-400% of the Federal Poverty Level (a family of four that makes between roughly $23,000 and $95,000 on average, depending on their state of residence), is most likely eligible to receive a tax subsidy on their health insurance premium. The subsidy provides cost assistance to lower the overall cost of health insurance each month. The IRS requires the completion of an additional tax form if a subsidy is granted (form 1095-A helps you complete the required 8962), but the extra paperwork can be well worth the time to save money on a healthcare plan. The average marketplace enrollee with an Obamacare plan paid an average of less than $100 for health insurance in 2015. It totaled an average of $268 savings each month.

The flip side for not carrying a health insurance plan is a tax penalty, payable when taxes are filed. When the Affordable Care Act was initially launched, the penalty was designed on an ascending scale, small to start the first year, with incremental increases each following year. In 2016 the tax penalty for not having health insurance on a per household basis is $695 per person, $347.50 per children, or, 2.5% of overall income, whichever is greater.

To qualify for a tax subsidy and receive cost assistance on your health insurance plan, the IRS requires the following:

  • You must be in the 100%-400% percentile of the Federal Poverty Level to qualify for a tax subsidy (if you make less than 138% of the Federal Poverty Level and your state expanded its Medicaid program, you could be eligible for Medicaid assistance instead).
  • You must file a joint tax return. (There are certain exemptions for those who have suffered domestic abuse or spousal abandonment. If you believe you might qualify, ask your tax professional.)
  • You cannot be claimed as a dependent of another individual.
  • You are not eligible for health insurance through an employer.
  • You are not eligible for any other government program, like TRICARE.
  • You must be up-to-date with your IRS tax filings.

It is vital that you contact your state exchange or the federal marketplace during the year if you have a life situation that changes your household size or income status. If you receive a pay raise but fail to tell the marketplace your total household income has changed, you could owe the IRS money at tax time. If you have a baby or adopt a child, your household size increases, and you might be eligible for additional subsidy dollars to lower your health insurance cost. Communication with the marketplace over these types of life changes will reduce financial consequences.