What is Health Insurance?

Health insurance protects you or your family from the medical costs associated with illness or injury. Under the Affordable Care Act (commonly known as Obamacare) health insurance also covers essential health benefits, protects you from exorbitant medical costs, free preventative care, and exempts you from paying the penalty that those without coverage must pay.

There are several key terms to know about health insurance including premium, deductible, co-payment, and out-of-pocket maximum. Your premium is the amount you pay to the insurance company every month. The premium has to be paid every month, regardless of whether you use your health insurance or not.

Your deductible is how much you have to spend for covered medical services before the insurance company pays anything. A co-payment is a payment you make each time you get a medical service after reaching your deductible.

Your out-of-pocket maximum is the greatest amount of money you have to spend for covered health care services throughout the course of a year. After you reach this total, your insurance company pays 100 percent of covered services.

Each health insurance plan has a different premium, deductible, co-payment, and out-of-pocket maximum, so it is important to do your research and discover which plan works best for you.

How Can I get Health Insurance?

Health insurance is typically obtained through your employer, or individually either through a private firm or government marketplace. For most states, the open enrollment period for health insurance ended January 31. You may still purchase a short-term health insurance plan, so you have some form of coverage until the next enrollment period begins.

These short-term plans; however, do not meet the ACA’s minimum essential coverage requirements. Minimum essential coverage requirements include: the health status of the customer cannot influence the price of the plan, insurers cannot discriminate against customers who have pre-existing conditions, and there has to be a set of minimum essential health benefits.

To find out more about minimum essential coverage, check out our resources below. If your short-term insurance doesn’t meet the minimum essential coverage requirements, this means that you will have to pay a tax penalty, for each month you or your dependents do not have coverage.

There are exceptions to having a gap in health insurance coverage, such as if the gap is under two months. These “short coverage gaps”, and other exceptions, are defined here and here.

What is Short-Term Health Insurance?

Short-term health insurance plans offer short-term coverage for you or your family for a period, generally ranging between, 30 and 360 days. These plans offer coverage as early as the next day after you apply and offer comprehensive medical insurance coverage.

Short-term plans can be beneficial if you missed the open enrollment period, and are not subject to any of the special enrollment periods. Though, as previously stated, these plans are not compliant with the ACA’s set of minimum essential health benefits, meaning you will still be subject to tax penalties.

Additionally, these plans are not required to include the ten essential health benefits required by the ACA, can decline you because of a preexisting condition, usually will not cover maternity care, have a dollar limit on coverage, and may not cover prescription drugs.

What is Open Enrollment?

Open enrollment is the period, during which you may sign up for an insurance plan outside of your employer-offered plan. The open enrollment period for 2016 ended January 31, 2016. Open enrollment for next year begins November 1, 2016, and ends January 31, 2017.

It is important to note that your coverage, unlike a short-term plan, will not begin immediately. If you sign up between Nov. 1, 2016, and Dec. 15, 2016, your coverage will start Jan. 1, 2017. If you sign up between Dec. 16, 2016, and Jan. 15, 2017, your coverage will begin Feb. 1, 2017. If you register between Jan. 16 and Jan. 31, 2017, your coverage will start March 1, 2017.

Open enrollment dates for employer-sponsored health coverage are usually different. Every employer with an average of 51 or more full-time equivalent employees is required to offer an open enrollment period.

Even if your employer is smaller than this many still hold an open enrollment period, during which you may change your coverage options.  An employer’s open enrollment usually begins in October, but make sure to double-check the exact date with your HR representative.

What are the Different Categories of Health Insurance?

There are four main categories of health insurance plans: Bronze, Silver, Gold, and Platinum. There is also a Catastrophic plan, but only people under the age of 30, or those with a hardship exemption can purchase these.

Each of the categories is based upon how you and the insurance company split the costs of your health care; they don’t pertain to the quality of care you receive.

Bronze plans have the lowest premiums but the highest deductibles and other out-of-pocket costs, while Platinum plans have the highest premiums but the lowest deductibles and other out-of-pocket costs.

Catastrophic plans have low monthly premiums but have an extremely high deductible ($6,850). These plans follow their name, they are there to protect you in the case of a catastrophe, such as a serious illness or injury, but you will pay most routine medical expenses yourself.

What are the Different Types of Plans?

The four main types of health insurance plans are Exclusive Provider Organization (EPO), Health Maintenance Organization (HMO), Point of Service (POS), and Preferred Provider Organization (PPO). The two most popular plans are HMOs and PPOs.

HMOs require you to have one primary care physician and then obtain referrals from this physician to see specialists. An HMO limits coverage to providers who work for or contract with the HMO, which means you will have a narrower network, and will have limited or no coverage for out-of-network care except in an emergency. HMOs typically offer better pricing, because you are receiving the least flexibility.

PPOs allow you to visit any doctor without getting a referral. Similarly, they enable you to get care from either in-network or out-of-network providers. If you use an in-network provider, or preferred provider, you will receive lower rates as negotiated by the insurance company.

Still, you can seek out-of-network treatment, but your deductible and co-pay will likely be higher. PPOs are more costly than HMOs, but afford you more flexibility in the search for treatment. The last two, uncommon, types of plans are POS and EPOs.

Under a POS you will choose a Primary Care Physician from a list of participating providers, and will need a referral to see other network providers. You can visit an out-of-network provider, but you will again need a referral from your primary care physician.

With an EPO plan, you won’t need to choose a primary care physician, and you don’t need a referral to see a specialist. An EPO strictly limits you to in-network care providers, and you will pay all costs of an out-of-network provider, except in emergencies.

It is important to note that your health insurance plan should have both a plan category and a plan type. For example, you can have a Bronze HMO or a Gold EPO.

Read more about HMO vs. PPO health plans.

Individual vs. Group Plans

Group plans are health insurance plans purchased by your employer and offered to all eligible employees. The company selects which plan or plans they will offer to their employees, which gives you little say in what plan you have. The employer then pays all or some of the cost of the premium.

Each month the amount you have to pay is deducted from your paycheck. Group plans are helpful because the price you pay for your premium is less than it would be for an individual plan, but they often hold fewer benefits and have fewer protections. A 2015 Kaiser Family Foundation survey found that the average yearly amount an employee paid for their employer-based health insurance premium was $1,071.

An individual plan is one you would purchase for yourself and your family. You can shop around for a plan from the different categories and types that fit your specific needs.

If you are unemployed, self-employed, your employer doesn’t offer healthcare, or you employers provided healthcare doesn’t meet federal guidelines (they are required to inform you if it doesn’t) then an individual plan is a necessity for you, as you may be forced to pay a penalty without it.

Under an individual health plan, you will be solely responsible for purchasing a plan and making all monthly premium payments.  Individual plans can be selected from the various categories and types described above.

How Does a Subsidy Work?

A subsidy is a financial assistance that helps you pay for something, in this case, health insurance. The ACA provides people with two kinds of subsidies a premium tax credit and a cost-sharing reduction. A premium tax credit lowers the amount you have to pay for your monthly premium.

A cost-sharing reduction reduces the out-of-pocket costs (deductible, coinsurance, co-pays) you pay during a policy period for health care services you use.  Three factors determine whether you qualify for a subsidy: Your income compared to the Federal Poverty Level, your family size, and how much health insurance costs where you live.

You can find out if you qualify for any subsidies when applying for and purchasing your health insurance plan. To calculate your estimated eligibility for subsidies, click here.

What is a Health Savings Account?

A Health Savings Account (HSA) is a tax-favored savings account that you put money into to help pay your deductible. An HSA must be paired with a high-deductible insurance plan. For 2016, the minimum annual deductible for an individual was $1,3000 and $2,600 for a family.

To qualify for an HSA you also can have not other primary health coverage, be enrolled in Medicare, or be claimed as a dependent on another’s tax return. There are several benefits to having an HSA. The first is that all contributions to your HSA are 100 percent deductible, up to the legal limit.

For 2016 these annual limits are $3,350 for an individual, $6,650 for a family, and those who are 55 and older can contribute an extra $1,000. The second advantage is that all withdrawals for qualified medical expenses are not taxed (this includes dental and vision).

Other benefits are that your funds grow tax-free, and your balance can be carried over year to year. Finally, after you reach 65, you can make withdrawals from your HSA for any reason, without penalty. The biggest drawback to owning an HSA is that they are paired with high deductible plans, which means you will be subject much higher deductibles than most others.

 

Large vs. Small Employers

It is important when deciding whether you should offer your employees health benefits to determine whether you are a large or small business. This year the new rule goes into effect that any employer with greater than 50 full-time equivalent employees (FTEs) has to offer a package of essential health benefits.

An employee is considered full-time under the ACA if they work an average of 30 hours per week, or at least 130 hours per month. To calculate your full-time equivalent employees, click here. If you employ greater than 50 full-time equivalents, and you do not offer affordable, essential health benefits; you will be subject to a penalty.

If you are an employer with 50 or less full-time equivalents, you can use the Small Business Health Options Program (SHOP) Marketplace to offer health insurance to your employees. Additionally, to participate in the SHOP Marketplace you must offer coverage to all full-time employees, and at least 70 percent of employees you offer insurance to must either enroll in it or receive coverage from another source.

References

https://www.healthcare.gov/why-coverage-is-important/coverage-protects-you/
https://www.healthcare.gov/choose-a-plan/your-total-costs/
https://www.healthinsurance.org/short-term-health-insurance/
http://www.cnbc.com/2016/06/08/government-moves-to-curb-short-term-health-insurance-to-boost-obamacare-risk-pool.html
https://www.uhone.com/insurance/short-term
https://resources.ehealthinsurance.com/affordable-care-act/short-term-major-medical-plan
https://www.healthcare.gov/quick-guide/dates-and-deadlines/
http://employee-benefits.lawyers.com/employee-benefits-basics/open-enrollment-for-benefits-at-work.html
http://www.latimes.com/business/la-fi-healthcare-watch-20151009-story.html
https://www.healthcare.gov/choose-a-plan/plans-categories/
http://obamacarefacts.com/health-plan-types-hmo-ppo/
https://www.healthcare.gov/choose-a-plan/plan-types/
https://www.ehealthinsurance.com/health-plans/epo
http://www.bcbsm.com/index/health-insurance-help/faqs/topics/buying-insurance/difference-between-group-and-individual-coverage.html
http://www.bcbsm.com/index/health-insurance-help/faqs/topics/buying-insurance/individual-health-insurance-right-for-me.html
http://www.bcbsm.com/index/health-insurance-help/faqs/topics/buying-insurance/eligible-subsidy.html
http://www.hsacenter.com/what-is-an-hsa/
https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204025
http://obamacarefacts.com/health-insurance/health-savings-account-hsa/
https://www.medmutual.com/For-Individuals-and-Families/Health-Insurance-Education/Health-Insurance-Basics/Understanding-an-HSA.aspx
http://www.ncsl.org/research/health/small-business-health-insurance.aspx#Large_employer_2015
https://www.adp.com/tools-and-resources/adp-research-institute/insights/~/media/696C3879BDB14C56A98BE58C1F85E363.ashx
https://www.healthcare.gov/small-businesses/provide-shop-coverage/qualify-for-shop-marketplace/