Money Problems: Day 9 – Health Insurance

Today, I am continuing the  series, Money Problems: 30 Days to Perfect Finances.   The series will consist of 30 things you can do in one setting to perfect your finances.  It’s not a system to magically make your debt disappear.  Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not running the series in 30 consecutive days.  That’s not my schedule.  Also, I think that talking about the same thing for 30 days straight will bore both of us.   Instead, it will run roughly once a week.  To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

On this, Day 9, we’re going to talk about health insurance.

The first thing to understand is that there is a difference between health care and health insurance.   Health care is what the doctors do.   Health insurance is when the insurance companies pay for it.  Or don’t.    They are not the same thing.   I won’t be addressing who should get care or who should be paying for insurance.   That’s political and I try to avoid that here.

I won’t spend much time discussing health care as a “right”.   It’s not.   If a right requires somebody to actively do something for you, it’s not a right.   It can’t be.    The logical conclusion of requiring somebody to provide you care gets to be a intellectual exercise to be completed elsewhere.   That, too, is political.

What I will discuss are the components of a health insurance plan is the U.S. and what to watch out for when planning your insurance coverage.

Premium

This is the amount you pay for your health insurance.   For people with employer-sponsored insurance, this is usually paid out of each paycheck, deducted pre-tax.   For those with an individual plan, it’s almost always a monthly payment.  There generally isn’t much you can do to lower this much.  Most employers offer, at most, 2-3 options, ranging from a good plan for a high premium to “we’ll mail you leeches if we think you’re dying” for a much smaller price.

Copay

This is a flat fee paid out of pocket when you get medical care.  Depending on your plan and the type of visit, this could be $10-50 or higher.   For example, with a plan I participated in recently, the copay was $15 for an office visit, $25 for urgent care, and $100 for an emergency room visit.  The office visit and urgent care visit were billed the same amount to the insurance company, so the price difference was entirely arbitrary.    Currently, all health insurance plans are required to pay preventative care visits at 100%, meaning there is no copay.

Coinsurance

This is the payment split between the insurance company and the insured.    80/20 is a common split for plans with coinsurance.   That means the insurance company will pay just 80% of the bill, until the insured has paid the entire out-of-pocket maximum.  After that, the coverage is 100%.

Deductible

This is the amount that an insurance company won’t pay.   It has to be covered by the insured before the insurance company does anything.   For example, if you have an insurance plan with a $25 copay, 80/20 coinsurance and a $100 deductible, and paying for an office visit costing $600 would look something like this:   $25 for the copay, followed by $75 to max out the copay, leaving $500 to be split 80/20 or $400 paid by the insurance company and $100 paid by the insured.  That office visit would cost $200 out-of-pocket.   The next identical visit would be cheaper because the deductible is annual and doesn’t get paid per incident.    That one would cost $115 out of pocket.

HSA

Health Savings Account.  For people with a high-deductible plan–that is, a plan with a deductible of at least $1200 in 2011–they are eligible to open an HSA.   This is a savings account dedicated to paying medical expenses, excluding OTC medication.  It can be used for vision, dental, or medical care.    Payroll contributions are taken pre-tax, which makes it a more affordable way to afford major medical expenses.  Unfortunately, there are annual contribution limits.  Currently $3050 for an individual account and $6150 for a family account.    HSAs do not expire, so you can contribute now, and save the money for medical expenses after retirement.

FSA

Flexible Spending Account.  This is similar to an HSA, but the contributed funds evaporate at the end of the year.  It’s “use it or you’re screwed” plan.

Individual Plans

If you’re not getting health insurance through your employer or another group, you are on an individual plan.  These cost more because they A) don’t benefit from the economy of scale presented by getting 50 or 100 or 1000 people on the same plan, and B) you don’t have an employer subsidizing your premium.

Employer-Sponsored Plans

If your employer provides health insurance, you have an employer-sponsored plan.    Possibly the fastest way to correct problems with the health insurance industry would be to make individual plan premiums tax-deductible, while eliminating that deduction for employers and letting insurance companies work across state lines.   That would eliminate the mutated pseudo-market we have right now, and force the insurance companies to compete for your business.   Honest competition is the most sure way to increase efficiency and service while reducing costs.   It beats “one payer” or “socialized” care which add overhead to the process and hide the premiums in increased taxes.

Open Enrollment

Most employer-sponsored plans only allow you to make changes at a specific time of the year, unless you have a “life changing event”, like marriage, divorce, death, or children.

Explanation of Benefits

After you use your health insurance, the company will send an EOB, showing you what was billed, what they paid, and what you’ll be responsible for.   It’s fascinating to see the difference between what gets billed by the doctor and what the insurance company is willing to pay, by contract.   You should read this, to at least understand what you are consuming and how much is getting paid for you.

Maximum Dollar Limit

If your insured care cost more than your maximum dollar limit, or maximum annual limit, the insurance company stops paying.   this was supposed to be going away under the Patient Protection and Affordable Care Fraud Act. Unfortunately, if an insurance company offers a crap plan, they have been allowed to apply for waivers based on the fact that they offer a crap plan.   The deciding factor in whether the waiver is granted seems to be the amount of the political contributions the insurance company has made to the correct political entities, but maybe I’m just bitter.

Out-Of-Pocket Maximum

This is the most you will have to pay directly with coinsurance.  After you pay this amount, the insurance company will cover 100% of expenses, subject to the maximum limit.

COBRA

The Consolidated Omnibus Budget Reconciliation Act of 1985 is, in short, an opportunity to continue your employer-sponsored health plan–minus the subsidy–after you have left the employer.   It’s expensive, but it keeps you covered, and will eliminate issue with pre-existing conditions when you get a new plan.

Catastrophic Health Insurance

This is an extremely-high-deductible plan, typically $10,000 or more.   For the people who can’t afford coverage, this is insurance-treated-as-insurance.   It’s coverage when you absolutely need it, not when you feel a bit ill.   $10,000 isn’t a bankruptcy-level bill, while $100,000 usually is.   This plan prevent medical bankruptcy for a small monthly fee.    For the people who got screwed by a PPAACFA waiver, it bridges the gap between a plan that’s useful for minor things and protection when something goes really wrong.

Things to Watch Out For When Applying For Health Insurance

Now that we’ve looked at the terms you need to understand, we’re going to talk about some things to check before deciding what coverage is right for you.

Individual, Individual + 1, Individual + Family

Do you need coverage for yourself, or yourself and your family?  If you and your spouse are both working, make sure to run the math for every possible combination that will cover everyone.    Is it cheaper to have one of you cover yourself and the kids, while the other just gets an individual plan?

Maximum annual coverage

It’s really easy to blow through a $3000 annual maximum.  If you’ve got a low annual max, look into a supplemental catastrophic plan.

Primary and Secondary Coverage

For years, my wife paid for insurance that covered herself and the kids, while I covered myself. When we were expecting brat #3, I added her to my insurance plan, without having her cancel hers.  When the bill came, my insurance plan covered the coinsurance and deductible, which saved us thousands of dollars when the baby was born.

Pre-Existing Conditions

If you’ve got a pre-existing condition, it can be difficult to get insurance if you don’t already have coverage.   This makes sense.  It prevents someone from corrupting the idea of insurance by waiting until something goes really wrong before getting a plan.  Without this, all of the insurance companies would be bankrupt in a year.   This is one of the biggest benefits of COBRA.   It’s a short-term bridge plan that eliminates the idea of a pre-exisiting condition deadbeat.   If you’ve got insurance, you can transfer to a different plan.  If you don’t, you can’t.

Homework

Your homework today is to get a copy of the details of your health insurance and look up all of the above terms and situations.   How well are you covered?  Did anything surprise you?