Everyone has heard that under the ACA, everyone is required to have insurance. I do recommend that everyone acquire an insurance plan. At that same time, I do not for a moment want you to confuse insurance with medical care or the legal definition of “affordable” with a reality definition of affordable. Many people buying “affordable” insurance will not be able to afford to use it.
All those topics are for another post though. First, I want to start by reviewing some basic definitions so that as we get into more detail down the road, you will know what I’m talking about. As you shop for insurance, there are a lot of confusing terms out there that can make it difficult to know what you are looking at. When I was a kid and first married, it was easy. The insurance premium was dealt with behind the scenes through your employer and the most you’d see was your portion on your pay stub; at the doctor’s office, you paid a small flat rate copay, often $5 or $10. Nowadays, you have to sift through a mishmosh of deductibles, coinsurance, copays, premiums, and tax credits. So what does it all mean?
Premium: This is the amount you pay every month in order to have insurance. It is similar to (but more expensive than) the premiums you pay for your car insurance, life insurance, or homeowners insurance. For instance, you might pay $1000 a month for insurance for a family of 4.
Deductible: This is the amount you have to pay for your own medical expenses before your insurance starts paying. For instance, our car insurance has a $500 deductible. This means that if we are in a car crash, we have to pay the first $500 of the bill before the car insurance picks up the rest. With health insurance, the deductible is usually more like $2000 to $4000 before it starts paying. Under the ACA, insurance policies that are not “grandfathered in” are required to pay for certain limited preventative services without a deductible. In layman’s terms, your well visit is free.
Co-insurance: This is usually a percentage of the bill you are still responsible for, even after you have met your deductible. For instance, you might have a 70/30 plan with a $3000 deductible. What this means is that after you have spent $3000 on your medical care for the year, your insurance will foot 70% of the bill and you are still responsible for 30% of the bill up to a maximum out of pocket expense for the year.
Copays: These are increasingly obsolete. If you happen to have a “comprehensive” plan, you are paying copays instead of a deductible. Occasionally with the high deductible plans, you are still charged a “copay” for certain services such as a trip to the emergency room.
Out of pocket maximum: The law dictates that at some point you don’t have to keep paying your percentage co-insurance. For a family, the legal limit in the small group and individual market is $12,500 for a year. So let’s say something totally dreadful happens and you rack up hundreds of thousands of dollars in medical bills and you have a 70/30 plan with a $3000 deductible and a maximum out of pocket (also referred to as a cost sharing limit) of the legal maximum $12,500…you would pay the first $3000 in bills, then 30% of the bills until you’ve doled out a total of $12,500 and then you’re done. Your insurance will pay 100% your bills for the rest of the year.
HSA (Health savings account): Certain HDHPs (high deductible health plans) can be combined with an HSA; they are designed to work together. An HSA is a tax-deductible savings account that can only be used for medical expenses. In 2013, an HSA compatible plan has to have a minimum deductible of $2500 for a family and the maximum contribution to an HSA is $6450 for a family. Here is a list of medical expenses you may pay for from your HSA.
Tax credit for health insurance (also known as premium subsidies): This is part of the ACA that is supposed to make insurance affordable. Based on your previous year’s income, the government will pay a certain amount directly to the insurance company to help you buy insurance. The amount is determined by calculating how much subsidy you would need in order to pay a certain percentage of your income (the exact percentage is determined based on what percent of the federal poverty line you fall at) for a silver level plan (a silver level plan is one that has an actuarial value of 70%…I’m still a little unclear on what that means but just know it’s one plan up from the worst plans that are still legal). You can then use that subsidy amount towards whatever level of insurance you want. If you want to spend less on your premiums up front but also get less coverage, you can opt for a bronze level plan. If you want to have better coverage, you can use the subsidy towards a better plan such as a gold or platinum level plan. Here’s a brief going into the details.
Cost sharing subsidies: This is an acknowledgement that lower income families and individuals will have trouble paying the higher deductibles and coinsurance associated with the cheaper plans. This subsidy will help defray those costs. There is also a lower maximum out of pocket based on income.
Only time will tell if there is any correlation between access to insurance and access to care. My guess is that while there may be fewer people who are uninsured, there will be many more who are underinsured. What does underinsured mean? Come back for the next installment to read about how to determine if you will be able to afford to use the insurance you buy individually or through your workplace.