Anyone shopping for insurance on the new Obamacare exchanges knows – or needs to know – that the premiums there don’t tell the full story on costs.
Some 80 percent of applicants for policies on the federal and state exchanges are eligible for subsidies. Under the current federal subsidy structure, the annual income cut-off for premium subsidies is $45, 960 for a single person and $94,200 for a family of four. That means that those making under $100,000 (and with larger families) are far more likely to obtain help with out-of-pocket costs in the form of lower premiums.
Even so, those premiums, which vary by state and type of plan, reflect only a portion of the total expenses a policyholder could pay for out-of-pocket charges. In buying any insurance plan, it's the combination of the premium with likely out-of-pocket expenses — copays and deductibles — that comprise your total cost.
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Top-tier "platinum" plans pay 90 percent of expenses, but you'll pay high premiums to obtain that kind of coverage. Calculating the real out-of-pocket expenses you might face with lower-tier plans can be more complicated. You have to weigh the plan’s deductible and examine a range of other factors, including co-pays (flat fees per visit), co-insurance (percentage of the bill) and covered services.
Every plan's coverage is slightly different. Some items like generic drugs are covered generously while "specialized" drugs may be subject to a $150 co-pay plus 10 percent to 20 percent co-insurance. One Blue Cross "silver" plan I perused, for example, imposed a $500 co-pay for emergency room visits – plus 20 percent co-insurance. While I understand insurers want to discourage people from expensive emergency room visits, this is quite a stiff penalty and may be onerous if you or your family ends up in the ER frequently.
To make matters simpler, you can simply weigh the classic trade-off in insurance between premiums and out-of-pocket costs. If you want to cover more out-pocket costs, you will pay a higher premium and vice versa. When American Enterprise Institute fellow and Forbes blogger Dr. Scott Gottlieb looked at the most expensive HealthCare.gov plans, he found that they were a "waste of money":
"Unless you plan to use enough healthcare services to spend your entire deductible, for many people, buying the costlier gold or platinum plans will be wasted money. If you’re not sure that you’re going to max out your deductible, you may be better off buying a cheaper bronze plan and using the money saved on premiums to put some cash away to pay for your out of pocket costs."
Trying to Find an Accurate Estimate
When I started carefully researching plans on HealthCare.gov for my family of four, I tried to calculate our out-of-pocket costs for a year and encountered a blizzard of confusion. Under our current plan, we have an annual deductible of $5,800 and a $600 monthly premium, or $7,200 a year.
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Since the premium range of the "bronze" plans seemed closest to our current premium – although all were more expensive than our current policy – I started there. I sampled a "Blue PPO Bronze 005" plan.
Like most preferred provider organization programs, this Blue Cross/Blue Shield of Illinois plan offered the best coverage for doctors and hospitals in their "preferred network." That's been the case in private insurance for years. Insurers negotiate the biggest discounts with providers in their networks.
If we go outside the network, though, the co-insurance – a percentage paid for out-of-pocket expenses – jumps from 20 percent to 40 percent. Overall, though, the maximum out-of-pocket would be $12,700 per family or $6,250 per person. Like all Bronze plans, only 60 percent of expenses are covered; 100 percent after you meet the deductible.
The annual premium for this plan is nearly $8,000 – $800 more than we’re paying now – and since we don’t qualify for a subsidy, the HealthCare.gov plan is a non-starter for us. We’re sticking with the private plan we already had.
You'll have to do some more homework to come up with the plan that's right for you. What kinds of services do you utilize the most? Are they covered by the plans you're eyeing? What are the co-pays and co-insurance for the services you need? Are your providers in the insurers' PPOs?
Ideally, you can find a "sweet spot" in coverage that provides the essential coverage you need at an affordable price. Yet doing this on your own is burdensome and bound to lead to some unpleasant revelations on how much will truly come out of your pocket every year. None of these plans is perfect.
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