Updated Nov. 9, 2017: You hope to never use your life insurance or long-term disability insurance. But your health insurance? You’ll probably use that at least once a year for the rest of your life. Many people, however, are used to simply signing up for health insurance through their employer. So, as the Affordable Care Act's 2018 open enrollment period moves along, there are no doubt plenty of first-time health insurance shoppers logging onto the exchanges.
Policygenius can help you compare on- and off-exchange health insurance plans here, but consider these five questions before jumping in to make sure you get the most out of your purchase.
Do you need health insurance?
Short answer: Yes.
Long answer: Yes — and for more than one reason. For starters, healthcare in the U.S. is expensive, so much so 60% of personal bankruptcies are linked to medical bills. And, if you’re self-employed (as many exchange shoppers are), any financial distress can bleed over into your business, putting your financial security even more at risk.
There’s also the matter of health insurance being legally required (for the time being, at least). If you don’t have health insurance coverage, you’re subject to an individual mandate tax penalty of $695 ($347.50 for minors) or 2.5% of your household income. And, while the current political climate has put the future of the ACA in doubt, the Internal Revenue Service says it plans to be a stickler about the individual mandate this tax year.
We mention this as first-time health insurance shoppers might not be used to the consequences of not having coverage. It’s important to understand the short-term and long-term implications of being uninsured.
What are the basics of health insurance?
First-time health insurance shoppers, relying on the guidelines of their workplace, may not know that they actually have some control over how much they pay for health insurance. In a 2016 PolicyGenius health insurance literacy survey, only 4% of respondents were able to correctly define the most common health insurance terms affecting the overall cost of a policy.
Knowing these terms factors into the coverage you receive and the amount you’ll pay for that protection, which is a pretty big deal when you consider how much you pay for health insurance over the course of a year. So, let’s take a closer look at the most important ones:
Premium: the upfront amount you’ll pay each month to have health insurance
Deductible: the amount you’ll pay for healthcare services before your insurance kicks in
Copayment: Also called a copay, it’s a flat amount you’ll pay for specific services or medication, even if you’ve reached your deductible.
Coinsurance: Unlike a copay, which is a flat amount, coinsurance is a fee you pay that is a percentage of the cost of a covered service.
Out-of-pocket maximum: This the the most you’ll pay for covered health services in a single year, including your deductible, your copay, and your coinsurance. In 2018, the out-of-pocket maximum is $6,650 for individuals and $13,300 for families.
Subsidy: Subsidies are the government’s way of helping you pay for health insurance. The ACA technically provides three subsidy types: advance premium tax credits, cost-sharing reductions and Medicaid. However, earlier this year, President Donald Trump elected to stop making cost-sharing reduction payments to insurers. We'll talk about this more in a minute.
How do you shop for health insurance?
OK, so how does shopping for private health insurance actually work? You can’t rely on your HR department to tell you when to sign up, which plans you can choose from, and take care of the heavy lifting for you, right?
For most people, the only time you can purchase a private policy is during Open Enrollment. This year, federal open enrollment began on Nov. 1 and ends on Dec. 15, making it much shorter than in years past.
The reason there’s a set period is to share the risk involved in insurance; insurers don’t want healthy people only buying health insurance when they need it, and then dropping it for the rest of the year.
However, if you don’t purchase health insurance during open enrollment, you may be eligible to shop during a special enrollment period. Each person receives a special enrollment period whenever their coverage changes. So if you’re a first-time shopper because you left your job and lost your employer-provided health insurance, you’d be eligible to buy a private policy. The same goes for if you get married or have a baby: Your coverage needs have changed, so you can shop. However, this doesn’t apply if you just stop paying your premiums and drop your current coverage. In that case, you’re just out of luck.
When you’re shopping, you have the choice of applying to on-exchange or off-exchange plans. On-exchange plans are bought through government marketplaces like HealthCare.gov or a state marketplace like CoveredCalifornia. Off-exchange plans can be purchased through independent marketplaces like Policygenius.
In order to receive a subsidy, you'll have to buy a plan through the ACA exchange. However, if you don't qualify for a subsidy, it's worth comparison-shopping off-exchange plans. That's because insurers have more flexibility when structuring them, which could make a plan more affordable, especially if you don't qualify for government subsidies.
Note that all plans, no matter if they’re on-exchange or off-exchange, have the same consumer protections, like providing 10 essential benefits and covering preventative care.
How do you find the right health insurance plan?
Choosing a health insurance plan through an employer is easy, because your options are usually limited and your HR department is on hand to answer questions. But when first-time health insurance shoppers have every plan at their disposal, things can be overwhelming. Luckily, you can follow these three steps to make sure you find the right plan.
- Study up. The ACA has a lot of moving parts, but, if you're reading this guide, you’re already on the right track! We've got more resources for buying health insurance in 2018 over in our HealthGenius section, and, if you’ve never really had to dig into your health insurance plan before, it's a good idea to check it out. If you get frustrated during the shopping process, there’s a good chance you’ll just throw your hands up, pick a plan that looks "good enough," and probably regret it later on in the year. If you know your stuff, you’ll be more easily able to understand what you’re looking at and move on to actually making a decision about your coverage needs.
- Figure out your budget. The average consumer spends around 5% of their annual income on health insurance premiums. Keep in mind this doesn’t take into account other expenses you’ll pay for out-of-pocket. Don’t worry, we’ll go into some ways to save on health insurance below. But you should have a monthly budget anyway, keeping track of how much you eat out or how much you’re putting toward a house down payment, and your healthcare costs should be built into this. If you do this, you can immediately dismiss plans that are outside of your budget, which should help you refine your options quickly. Think of it like car shopping: If your budget is Camry-level, you don’t need to bother looking at Lamborghinis, and you’ll still end up with something that fits your needs.
- Have a plan. In addition to your budget, you need to decide which plan benefits are most important to you. Do you have a doctor that you absolutely need to have in your network? Is there a prescription drug that you’re willing to take the generic version of? Do you not care whether or not you need a referral to see a specialist? These are all decisions you’ll need to make. We recommend making a must-have and nice-to-have list – things that you can’t budge on, and things that you’re willing to compromise on. If you go with this method, you’ll know which plans you have to keep on the table (because they include your must-haves) and where you can be flexible.
How can you save on health insurance?
Just because you have to buy your own health insurance doesn’t mean you have to bust your budget to get covered. (Seriously — we've talked to people shopping the 2018 ACA exchange who found affordable care.) In order to get your hands on the best plan possible, take these four things into account:
Subsidies. If you make between 100% and 400% of the poverty line, you’re eligible for federal subsidies. Depending on your individual circumstances, you may qualify for an advance premium tax credit, which you can receive with your annual tax return or as monthly installments toward your premium; cost-sharing reductions, which lower the out of pocket costs you’ll pay throughout the year; or Medicaid. (Note: Trump nixed reimbursing CSRs to insurers, but moves by some state insurance regulators, coupled with language in the ACA, have largely kept this from affecting consumers who qualify for them. More here.) Subsidies won’t automatically be included when you purchase health insurance, so make sure you note your eligibility when you apply.
High-deductible plans. High-deductible plans come at a (literal) cost: You’ll pay less each month in terms of premiums, but if you do have to use any medical services, you’ll pay out of pocket for longer thanks to that high deductible. Still, if you’re looking to lower your monthly costs and you’re someone who doesn’t frequent the doctor often, high-deductible plans are a valid option. Catastrophic plans are a specific type of high-deductible plan available to shoppers who are under 30 years old. And, if you can't afford health insurance at all, here are some alternatives.
Health savings accounts. If you have a high-deductible health insurance plan, you can get a health savings account, or HSA. An HSA lets you put money aside pre-tax, similar to a 401(k), but rather than using it for retirement, you can use it for qualified healthcare purchases. That allows you to pay for your out-of-pocket medical expenses and lower your tax bill at the same time.
Your coverage needs. Health insurance plans are split into metal tiers, with platinum being the most robust (and most expensive) and bronze being the cheapest, most basic tier. Silver plans are in the middle — and most popular among people who qualify for subsidies since they're the plan CSRs are associated with. In previous years, silver plans were likely your best bet in terms of finding an affordable, but still comprehensive plan. This year, however, comparison-shopping is more important than ever since many states frontloaded rising premiums onto their silver plans (here's why), meaning the more robust Gold plan could actually be more affordable.
One more note on coverage needs: Each insurer will also have a drug formulary that lists what medicines are covered; these are also divided into tiers, ranging from specialty medication to brand name drugs to generics. If you’re able to substitute a more expensive brand name drug with a generic, you may be able to save some money that way, too. Overall, take a look at your coverage needs and avoid plans with bells and whistles that will cost you more but won’t actually benefit you.
First-time health insurance shoppers may feel lost if they’ve relied on employer-sponsored health insurance up to this point. But health insurance doesn’t have to be complicated. Once you know what you’re looking for, where to shop, and how to keep it affordable, health insurance will be a regular part of your health – and your financial safety net.
Confused about Obamacare? We've got 45 ACA facts for 45 days of open enrollment right here. Feel free to share them on social media using the hashtag #SpreadtheHealth.