Illness and accidents can happen to anyone. Health insurance is essential to financial planning because the costs of medical care and medicines can easily get out of hand. Instead of setting aside a health fund for rainy days, getting a health insurance plan is still the more manageable way to prepare for the risk.
The way health insurance typically works is: participant pays a monthly premium for a policy; after an annual deductible is satisfied by the participant, the health plan starts to pay for a percentage of the healthcare cost until the maximum out-of-pocket (MOOP) amount is reached; the participant is 100% covered after reaching the MOOP. The cost-share percentage (i.e., coinsurance), deductible, and MOOP vary by plans.
To calculate the cost share, the insurance companies consider so-called the usual and customary charge (UCC) which is the average for certain medical service/procedure in a geographical area. This can result in additional cost for the beneficiary (if the provider charges more than the UCC). The health insurance industry has evolved toward so-called managed care plans which allow the better control of healthcare quality and associated costs.
HMO (Health Maintenance Organization), PPO (Preferred Provider Organization), and POS (Point of Service) are examples of managed care. These plans have a network of providers (hospitals and physicians, etc.) who agree to negotiated fees. If you look at a summary of benefits statement that the insurer sends you, you will see that the contracted charges for specific services are often significantly lower than the providers’ published charges.
Obamacare & the Marketplace
Unfortunately, still not everybody can afford a private health insurance plan. The Patient Protection Affordable Care Act was signed into law in March, 2010, aiming to make health insurance affordable to all Americans. It even made health insurance mandatory and penalized people that did not have a policy. The penalty lasted for a couple years until the Trump administration removed the mandate.
Under the Affordable Care Act (ACA, commonly known as the ObamaCare), Americans making between 100% and 400% of the federal poverty level (FPL) may qualify for a health insurance subsidy. A Federally Facilitated Marketplace (FFM) is open for ‘shopping.’ In the marketplace, health plans are divided into categories called ‘metal levels:’ bronze, silver, gold, and platinum representing ‘actuarial values’ or roughly the cost share the insurance plan will pay. (For example, a bronze plan is 60%.) If you income is above the limit, you will get no government subsidy, and you might as well purchase private plans outside of the marketplace. On the other hand if your income is below the range, you are eligible for Medicaid (a jointly sponsored health plan by the state and the federal government).
One of the most important aspect of the ACA is that it makes all marketplace plans guaranteed issue. The insurance carriers have to accept all enrollments. They cannot decline coverage based on health conditions (pre-existing conditions). For the same reason, participants can change plan freely every year. However, the marketplace only has an open enrollment period once a year during November 1st and December 15th, except for certain special circumstances (life events). For example, the Biden administration added a special enrollment period between April and August of 2021). The annual Obamacare open enrollment of 2022 has also been extended by 30 days to Jan 15, 2022.
The ACA Subsidies
The Obamacare subsidy comes in 2 forms: advanced premium tax credits (APTC), and cost sharing reduction (CSR). The ACA uses the APTC to pay for your health insurance premium. An estimated income (provided by the participant) is used to calculate how much you can ‘advance’ to pay the premiums. As discussed earlier, the annual income has to be lower than certain criteria for the enrollee to qualify for the APTC subsidy. The final income discrepancy will be used to adjust the premium and calculate your tax. Form 1095, for this purpose, will be available for tax return.
The 2nd type of subsidy, CSR, is available for enrollees with annual income in the range of 100% and 250% of FPL. CSR helps you pay for deductibles, co-payments, and coinsurance. This is called ‘extra savings.’ If you are qualified for CSR, and would like to take advantage of this subsidy, you must enroll in a silver plan.
The American Rescue Plan Act
In March of 2021, in an effort help Americans with the distress caused by the COVID-19 pandemic, the new Biden administration signed into law the American Rescue Plan Act, which further relax the limitation of ACA eligibility and benefits.
If you need any assistance in enrolling in Marketplace healthcare plans, feel free to email us (Our email address is cs@pan-insurance.org)