Health insurance is a complicated topic and one that most find very personal. After all, no two individuals have the same health needs or consume health services the same way. Many of us want different things from our policies. Here is an overview of the health care marketplace and the many policy choices available, along with related tax implications.
Essential Health Benefits
All health insurance plans offered in both the employer-based market and the individual market must include “essential health benefits” such as:
- ambulance and emergency services
- hospitalization
- pregnancy
- maternity and newborn care
- mental health and substance abuse services
- prescription drug coverage
- rehabilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- lab services
- preventative and wellness services
- pediatric dental and vision services
Metal Tier Designations
Metal tier designations – bronze, silver, gold and platinum – for health care plans are based on the amount of coverage provided compared to how much the average person will pay in “out of pocket” expenses like deductibles and copays.
A bronze plan on average will cover 60% of an individual or family’s health claims, while silver covers 70%, gold 80% and platinum 90%. How the plans implement this is up to them as long as they can provide actuarial data like past claims history if requested.
So, a bronze plan is the lowest-cost plan but bronze policies have the highest deductibles. A platinum plan is the most expensive plan but it has no deductible and very low-copays for most services, prescriptions, etc. Silver and gold plans fall somewhere in between.
Types of Plans
Health plans are also divided by plan type: HMO, PPO, EPO, and more. The most common types of health plans are your HMO and PPOs, with the latter Preferred Provider Organization (PPO) offering the most flexibility while the Health Maintenance Organization (HMO) is more restrictive but more competitively priced.
A PPO offers a preferred list of providers known as “in-network.” These plans also provide limited “out-of-network” coverage for doctors who are not contracted with the plan. Generally, the out-of-network coverage is subject to a higher deducible and because there are no contracted prices for services between the provider and the carrier, the plan pays only 50% of Usual, Customary and Reasonable (UCR) treatment, which may equal 50% of the actual invoice.
An HMO on the other hand, is a closed-provider network and there is only coverage for those doctors and providers who are contracted with the carrier. HMOs also institute a referral requirement, this means you are required to select a PCP (Primary Care Physician) whom acts as a gatekeeper. He or she must refer you to specialists when needed and they are responsible for managing your care and use of the network. With a PPO, there is no such requirement and you can go see any specialist you choose.
Coverage area differs, too. An HMO generally only provides coverage within your home area, with only emergency care covered throughout the country. With a PPO, you can choose to obtain care from a specialist out of state. An EPO, (Exclusive Provider Organization) operates similarly to a PPO but without the out-of-network coverage that a PPO offers.
Health Savings Accounts
Lastly and certainly not least are the tax implications of health insurance. Health Savings Accounts or HSAs, were signed into law in 2003. These tax-advantaged savings accounts allow you to save money tax-free to pay for your qualified medical expenses. You are required to choose a high-deductible health plan (HDHP), though. These are designated by having HDHP, HSA, or the word “Savings” in the name of the health plan.
The idea behind HSAs is that as a consumer, if you take more control of your health expenditures by paying claims from your own savings rather than via health insurance, you are less likely to burden the system. However, opponents say HSAs may worsen healthcare results rather than improve them overall, because consumers may postpone the care they need that would normally be covered, or they may spend the money unnecessarily to avoid tax penalties. Withdrawals from an HSA for non-medical expenses are treated similarly to early withdrawals from retirement accounts.
Obamacare Tax Subsidies and Credits
Other tax implications lie in the more recent individual mandate and tax subsidies for Obamacare, or the Affordable Care Act. The individual mandate states you and your dependents must have health insurance or pay a penalty for each month that coverage is lacking.
There is a two-month exemption available, so if you are uninsured for no more than two consecutive months, you avoid the penalty for the entire year. The penalty is the higher of 2.5% of household income with a maximum penalty equal to the total yearly premium for the national average price of a bronze plan, or a per person fee of $695 per adult and $347.50 per child with a maximum penalty of $2,085.
In many cases, the penalty is less than the cost of obtaining coverage but you put yourself and your family at risk for catastrophic losses while still having to pay a penalty. Paying for a minimum level of coverage may make more sense when looking at total value provided.
For those at certain income levels who are not offered coverage through an employer, there are tax credits or subsidies available. These begin at 400% of the Federal Poverty Level (FPL), which is $97,000 for a family of four, with the credit increasing as you approach 138% of the FPL, which is $33,465 for a family of four. At income levels below this, there may be free or low-cost coverage provided through the Medicaid program.
Talk to An Expert
Health insurance is very complicated and there are many moving parts. In addition, laws vary from state to state. It is important now, as much as ever, to use your local insurance professionals, brokers, and agents to help successfully navigate the ever-changing health insurance landscape.
Originally published on iGrad.com. For more iGrad articles by Mike Fusco, click here.
