Your Health Insurance Toolbox

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When I was in rehab they would talk about our toolbox. Most addicts have no tools for living, and so they tried to give us life coping mechanisms. Most of the time the tool for me was “it’s ok to feel feelings” and that seems to be mirrored in my money life as well.

I don’t think many average people have a money toolbox. They go through life just trying to herd as much money in their corner as possible with no real economic coping mechanisms, not knowing about how money really works.

In the U.S. health care environment no one can afford not to have a toolbox. Every year costs go up and fewer people can afford to stay covered. Seems to me that eventually something’s gotta give. There’s only so much squeezing consumers will endure.

Your health insurance toolbox will vary depending on your age, income, family size, location, and circumstances. This guide is mainly for freelancers, small business owners, and people whose jobs don’t offer health insurance. If you’re medicare age or a college student The Simple Dollar wrote an excellent guide last year that is more all encompassing.

Cost Structure

One of the things that scares me most about buying health insurance is the supposed high costs of care. When I started writing this post I knew nothing about health insurance costs so I’m not sure why I just figured they were high.

Oh, probably because the news has been telling me the costs are high for like my entire adult life.

Well, I don’t believe in blind fear.

This post shall be the light that shines on health care monsters.

Those who profit and perpetuate our health care system would like you not to have the tools of a smart consumer. They try to make understanding U.S. health insurance unbearably boring because they hope you’ll just pay the premiums and go away.

Unfortunately you’ll need to do some reading to gain these tools. Or pay out-of-pocket later.

Private Insurance vs. Public Insurance

Public insurance is any health insurance provided by the government. That would be medicare, which is for people over 65, and medicaid, which is for the poor and disabled.

Private insurance is every other type of insurance. Private health insurance is costly to the consumer, with the average premium $321 per month and deductible around $4,000. If you didn’t need health care during a given year, you’d still spend $3852 in premiums. That’s about what other countries spend per person on actual health care services in a year.

Group vs. Individual Insurance

Group insurance refers to any pooled group of insurance policies provided by an employer, labor union, or the government. All public insurance is group insurance but not all group insurance is public insurance. Group coverage is less expensive because often the provider (employer) pays part of the premium. It also covers more because groups have more bargaining power.

Individual Insurance is an insurance policy negotiated between one person and a private health insurance company. Individual coverage generally sucks more. It’s more costly, it has less breadth of options and it covers less.

Types of Private Insurance

PPOs- Preferred Provider Organizations cover people within a network of health care providers but will still cover out of network health care costs at a lower rate. If you have this type of health insurance you can choose your doctor for the most part.

HMOs- Health Maintenance Organizations cover people only within a strict network of providers. If you go outside that network nothing is covered. Premiums are generally lower but you pay for it in reduced options.

EPOs- Basically an HMO except you don’t need referrals to see specialists.

POS- Point of Service are a mixture of PPO and HMO. They still use a network but some out of network services are still provided as a reduced cost. Patients may see a general care practitioner that acts as their “point of service” for referrals to specialists. This type of insurance has many of the freedoms of PPOs but isn’t as expensive.

Cost Terms

Oh, you thought it was just premiums and deductibles then you’re covered? Muahahahahaha!

Premium- Monthly bill you pay to keep your health insurance active.

Co-Pay- A fixed amount you pay extra to get actual health services like a doctor visit or an x-ray.

Coinsurance- A certain required amount of money you have to pay no matter what. Many plans are 80/20 which means the health insurance company pays 80% and you pay 20% of any medical costs.

Deductible- A payment level you must hit before your health insurance will pay for anything, except for preventative services like doctor visits.

Out-of-pocket Maximum- The most money you will have to pay out of pocket period.

I was surprised to see all these cost terms at first. I wouldn’t be surprised if some people are not saving any money. They’re actually paying for their own cost of health care with an insurance company as the middleman.

All these fees interact with each other confusingly and I was perplexed myself so here are some examples:

Example 1

Your health plan:

$300 plan premium
$0 Outpatient Copay
$100 Inpatient Copay
$1000 deductible
80/20 Coinsurance
$3000 Out of Pocket Max

You need an outpatient surgery that costs $5,000. You will first pay the copay, but since it’s $0 for outpatient care you’re pretty stoked. You’ll then pay deductible of $1000. The remaining bill is $4000. After deductible is met your plan says it will pay 80% coinsurance, leaving you to pay 20% of the remaining $4000 bill. You pay the additional $800. Total paid was $1800, which means you could still incur costs for the year since you didn’t hit your maximum out of pocket.

Example 2

A few months later you end up in the hospital. Your total bill for the one night stay is $19,000. First you owe the inpatient copay of $100. Then you pay your deductible of $1000. The remaining bill is $17,900. According to your 80/20 plan you will have to pay 20% coinsurance of $3580. However, you have already paid $1800 towards out of pocket maximum, which means you only owe $1200 and the insurance picks up the rest.

Assuming you paid the premium every month for your health insurance, you spent a total of $6,600 this year for health care.

3 Macbook Pros

A new Jet Ski

9 round trip flights to Paris

A lifetime supply of fidget spinners

Network Nonsense

Why do networks exist you ask? Networks are groups of doctors, hospitals, and health care organizations that negotiate sale prices with the health insurer. It is these sale prices that are key to the health insurer’s profit. When a provider enters the health insurance network they agree to the rules of the contract and agree to provide reduced prices to patients. This is why it’s so costly to be out of network. If health insurers allowed patients to go anywhere they would be subject to the actual real prices of health care and they would not be able to operate.

Indeed, if consumers could access these sale prices on their own no one would need the health insurance company.

Fee-for-Service: Used to be that health insurance worked with a fee-for-service system. Whatever health services the doctor provided would be paid for (within coverage). In this system the doctor is encouraged to do more services she can bill for, which means the incentives go towards more frivolous services and generally higher costs. Medicare and Medicaid still use this system. Fee-for-service is seen mostly as the old way to do things. It’s not used much by private health insurance companies anymore.

Capitation: A physician or health care provider is paid a lump sum once a month based on how many patients they are caring for. If their patients need more care they get paid the same amount. The incentive is to talk patients out of costly procedures and theoretically provide less care. Both capitation and fee-for-service are payment structures used within networks.

Concierge Care: This is a payment method that’s been gaining steam in recent years as people wish to free themselves. This type of care mainly arose from rich people who were more willing to pay a high price for care upfront. In this model patients just pay the doctor directly. The provider may charge a yearly fee to give the patient access to extra health services, or just have them pay per visit. This method does have some limitations such as the high cost of a hospital stay. For this reason, people often find themselves having to retain health insurance for emergencies.

Affordable Care Act

I’m going to start by saying that the ACA, or its proper name PPACA  Patient Protection and Affordable Care Act, has benefitted me tremendously. It went into effect when I was 18, and it has essentially given me free health care well into my 20s.

Free health care is a benefit that would be blissfully taken for granted somewhere like France, Germany, or Canada.

But not here.

I’ve been quite critical of the ACA because it attempts to pay the bill, not solve the economic woes of the system.

The ACA is me buying a Maserati then taking cash advances and payday loans to pay for it. Eventually economic forces are going to intervene on this poorly thought out buying decision.

Trust me, I’m far from one of those free market whackos. However, we do have to grapple with some simple math realities about spending and health care.

Though it isn’t often quoted or discussed directly, many aspects of our economy (including health care) reflect the idea that the poor will always exist and no one can really help them. In essence, someone is always going to get the short end of the stick and there’s nothing we can do about that.

Our current system favors those who are able-bodied, can work, and produce value for the economy. They are thus rewarded with health care. The sick, old, and poor have a tougher time getting affordable health care because they don’t have access to a job to pay for the health insurance premiums, or they don’t have much money to pay for health services, or both.

The system says to these people, you deserve it. You are not valuable, economically speaking. This idea that someone is always going to lose is clearly false.

It’s also pretty much ripping us apart in politics right now. There is a not-so-subtle survival of the fittest mentality going on that’s quite toxic to the naturally loving and cooperative nature of human beings.

But that is a blog post for another day.

The Affordable Care Act attempted to do a number of ostensibly useful and needed things

1) It expanded Medicaid so more nearly poor people could access health insurance.

2) It loosens the grip of employers on people who need the insurance afforded by their job.

The classic setup has been that job-provided health care premiums are paid for before tax. That means if your employer offers health insurance, the money you pay for it is not subject to taxation. No wonder most people who have access to employer health insurance use it. That’s a pretty sweet deal. PPACA gets rid of most tax exemptions for employer health insurance payments, in the hopes that more people would buy their insurance through the health care exchange.

3) It requires all people to buy insurance or pay a fine.

This penalty system has begun to fail because the current political administration isn’t enforcing the fines and is actively sabotaging PPACA for the most part.

There’s also some question whether a fine makes sense at all. To be economically viable it has to be small enough that people can afford it but not so small people would rather pay it than get health insurance. From talking to the millennials I know, a lot of them are ok with paying the fine.

In case you were wondering, the fee for 2017 is $695 per adult or 2.5% of yearly income, whichever is larger.

4) It requires insurers to charge everyone the same fee for services, instead of high fees for the sick and low fees for the well.

This is good for sick people but bad for the healthy.

5) It instituted 10 essential health benefits that have to be covered by a health insurance plan

Health insurance costs have created a vicious cycle. As insurance premiums rise, healthy people who don’t need much health care drop out. As more healthy people drop out the insurance company doesn’t have as many able-bodied to pay for the sick, and they must raise premiums. Then more healthy people drop out and the cycle repeats.

In my opinion the ACA resembles our current health care system too much. It’s complicated, ineffective, and it’s not really trying to lower costs.

Health care is fundamentally at odds with motives for profit. I believe any system that upholds an insurance company’s motive to provide less care and save money, will not deliver good health care.

Your New Tools

So we’re left with a system of health insurance companies that act more like wholesalers of health care than insurers. Because our system is based on somewhat of a “free market” of health care you have to act as a smart consumer rather than a patient.

You are to be proactive as opposed to reactive. You have to do the research before you need the care. Here are the best tools I know of.

Tool #1 Healthcare Exchange

Apply at your state’s healthcare exchange. Enrollment for the year happens November 1st- December 15th. Both age and income factor in so don’t immediately assume you don’t qualify for a tax credit. Generally, if your income falls below 400% of the poverty line you qualify for some kind of subsidy or medicaid. If you’re only applying for medicaid you can apply all year long.

Don’t let prices frighten you. What’s shown on the health care exchange doesn’t reflect whatever tax credit you might qualify for. Health Insurance tax credits are odd because they are given before you file your taxes, as a monthly stipend to offset the cost of a monthly health insurance premium. More reading on irs.gov.

PPACA health insurance plans are given a rating system based on how much of your out-of-pocket expenses they cover. Platinum pays around 90% of out of pocket costs. Gold pays 80%, silver pays 70%, and bronze pays 60%.

The plans that cover the most out-of-pocket costs cost more. So if you think you won’t have many out-of-pocket costs then a cheaper plan is for you. It’s nearly that simple.

Tool #2 Compare Health Plan Options

For those who are unlucky enough to be part of the middle class I suggest you comparison shop as much as possible. My favorite health comparison tool is PolicyGenis because they won’t try to collect your email address. Just answer a few questions about age, income, and health care priorities and they’ll show you the best plans.

Some other comparison tools to choose from:

Joany

HealthSherpa

eHealthinsurance

 

Tool #3 Health Sharing

This one won’t be most people’s cup of tea because generally health sharing is religiously affiliated. Health sharing organizations essentially lower the cost of health insurance by having members commit to pay a portion of other people’s care. These non-profit organizations negotiate lower prices with providers much the same way health insurance companies do.

Health Sharing organizations are exempt from the individual mandate imposed by PPACA under the 501(c)3 non-profit exemption. However, they are also exempt from the expanded health care benefits all health insurance plans must provide:

-Outpatient Care
-Emergency Services
-Hospital Stays
-Pregnancy/Maternity
-Mental health/Addiction services
-Prescriptions
-Rehabilitation services/Devices
-Lab Tests
-Preventative Care
-Pediatric care, including dental and vision for children

I have met people who are so angry with the new health care laws that they don’t wish to participate at all in the system. This health sharing idea could be a good option for those people as they are just about the closest thing I’ve found to being outside the reach of health care law.

Medi-share even touts its “Biblical Healthcare” if that doesn’t sound attractive I don’t know what will.

Tool #4 Use Direct Primary Care

Direct Primary Care is a system in which patients pay the physician directly for health advice. It’s usually set up as a monthly payment, around $40-$80 depending on the doctor. The cost covers basic lab tests and imaging as well as 24-hour access to the doctor.

Most Direct Care practices are small and doctor visits are generally longer and more personalized to the patient’s needs. It offers the consumer a way to be closer to the actual price of health care and helps cut out the dependence on insurance companies. More here.

The difference between concierge care and direct primary care is that concierge care still works through insurance. The payment part of concierge care is mainly for non-covered health services like insurance plans that don’t cover much. Direct pay is much more geared towards purely uninsured people.

I think most citizens and doctors wish they could stop working for the health insurance company. This option does that in some aspects. However, it does not answer the question of hospital stays and specialist visits. For someone older who expects to need emergency room care or an overnight hospital visit Direct Pay is a non-option.

Tool #5 Get Catastrophic Coverage

Catastrophic health coverage is designed for generally healthy young people who don’t mind paying a lot out-of-pocket. Usually only people under 30 who qualify for a hardship exemption can get catastrophic insurance though there are some exceptions.

You pay for all your health expenses until you reach the deductible, which for me was quoted at $7,000. These plans work really well with so-called concierge care, where you pay a monthly fee to the doctor directly. See concierge care.

Tool #6 Know Your Tax Options

Turns out some health insurance costs are deductible, outside of whatever tax credit you get through PPACA. Health insurance costs are deductible over the threshold of 10% of Adjusted Gross Income (AGI).

Joe makes $70,000, but his AGI is $60,000 after alimony. He spent $5,000 on health insurance premiums and $5,000 in additional health care costs for a grand total of $10,000. 10% of $60,000 is $6,000 so Joe may deduct $4,000 from his end of year taxes. Be like Joe, know about tax things.

HSAs are a kind of tax advantaged savings investment account provided to those with a high deductible health insurance plan. HSA money is only used for qualifying health care expenses and can only be contributed up to around $3500 per year.  The money that goes in is pre-tax, the money is not subject to tax on earnings, and there is no tax associated with withdrawing money from it. However, HSAs are generally associated with insurance provided by an employer which doesn’t apply to freelancers.

If you’re self-employed you can actually deduct the entire amount you paid for health insurance premiums and you are not subject to the 10% AGI rule. However, you also can’t deduct extra health expenses not covered by insurance.

If you’re a small business owner consider having your business buy your health insurance. This tactic is particularly helpful if your household doesn’t qualify for health tax breaks because an employer can pay health insurance premiums with pre-tax money, something an individual can never do.

Tool #7 Chat with a doctor

There are a number of health tech websites that will connect you with a doctor on demand. HealthTap offers services like live chat, voice calls, and video consultations for a monthly fee. This is a good option to get a quick prescription written or individual advice to reduce your health care costs. This is especially helpful for people who have high co-pays for doctor visits.

Tool #8 Compare Services

Earlier we talked about comparing the price of health plans. Well, now we have tools that will help you understand what you should be paying for that hip replacement. When price transparency is there, the consumer always wins. This service is kelley blue book for health care. If you must pay cash for a service you should know what the market price for it is. Visit Healthcare Bluebook.

Tool #9 Consider Moving

Just like there are good and bad places to rent an apartment there are good and bad places to buy health insurance. It’s always good to assess what your priorities are with health care. Are you willing to pay $7,000 every year for just ok health insurance coverage? Compare U.S. states.

Tool #10 Keep Your Income Low

I realize that for many people this isn’t much of an option. People have families to support, expensive debt to service, and small businesses to run.

But for those early retirees earning dividends and withdrawing from investments, you can keep your income around $27,000 and stay in a very desirable health insurance bracket.

I actually did this by accident this year. I ended up taking a $15,000 annual pay cut when I hurt my back and changed careers. The change was enough to qualify me for medicaid.

$30,000 is a ridiculously abundant salary for someone unmarried, debt free, and renting a room.

I’m also very fortunate to live in California which has had one of the most generous medicaid expansions of any state.

Final Thoughts

I don’t know about you, but I read through these tools and I thought to myself these choices suck.

The most recent episode of our favorite show Snowfall features Avi, the Israeli drug lord who’s in bed with the CIA. He gives our main character Franklin an ultimatum.

“You let me shoot you with the kevlar vest on and I’ll front you the ki of cocaine. If you stand further away my aim won’t be accurate, and if you stand closer it’s gonna hurt more,” he says

Franklin replies “those are bad options.”

I kind of feel like U.S. health care consumers are Franklin, the poor underprivileged black kid who’s just trying to take care of his family. The health insurance companies are the crazy Israeli drug lord who’s giving us all bad options.

For now we have to choose which bad option we hate the least.

We are all individuals working in competition instead of with one another. We are, in essence, factory workers with no union. Oppressed minorities with no Martin Luther King. The allied nations of WWII with no United Nations.

Basically, we’re all separated and disorganized.

This is why universal health systems work so well. They are a big group of people, representing the entire population of a country. They say we will not buy your drugs, your medical supplies, or your hospital stay if it isn’t the right price. The consumer has the power, which is how it should be.

Health providers should be in competition to give us the best care at the best price, not the other way around.

Whoever invents a way to unify people along economic lines instead of dividing them along political ones, will be the champion of the new health care system.

In the meantime, give these tools to your friends and family. Unite and collaborate with others to lower costs. People are quite confused about health care and often vote against their interests. Try to give those people kind words instead of fruitless bickering.

I’ve been talking to so many people about health insurance in preparation for this post. I’ve heard mostly angst, frustration, and fear. Comment your own health insurance story below.