Health Insurance Before Medicare

Re-Evaluating Healthcare Expense Coverage: Employer-Offered Insurance, the Affordable Care Act, and Health Care Sharing Ministries

By Nick Parker, CFP, MS

It’s what many call that most wonderful time of the year, so let’s talk about the deadline that’s quickly approaching–Open Enrollment.  You may find this article timely since you have until December 15th to decide if you’re going to enroll in a health insurance plan offered under the Affordable Care Act, but this may also come in to play if you are considering leaving your ‘crappy old job’ before you’re eligible for Medicare or are otherwise re-evaluating your healthcare coverage.  

In this article we’ll address the importance of having a plan in place for your healthcare expenses–of both the expected and the unexpected varieties–and what options you have to address this important part of your financial plan.  The inspiration for this article hits close to home for me personally.  A close friend confided in me that the premiums alone for the health insurance plans offered by his employer to cover this associate, their spouse, and their children would end up costing over 25% of his gross pay each month next year.  With that in mind, I hope this space helps others who are in a similar situation to be more aware of the options available to them while still protecting their family and the assets they have stewardship over.

You Need A Plan For Healthcare Expenses

We’ll start with the non-negotiable here.  You need a plan for your healthcare expenses, both those that you anticipate and those that may come up unexpectedly.  An unfortunate fact of life is that each of us can likely think of someone who was perfectly healthy and then through no fault of their own was put in a situation where a long hospital stay or expensive medical procedures were necessary to get them back on their feet again, more than likely at a significant cost to their wallet even with health coverage.  Lest we need to be reminded about the fragility of our existence, a 12 foot wide patch of asphalt with 10 foot long lines on either side is all that separates us from other 2,000+ pound missiles driving at 70 miles per hour on the highway.  

We’ll take a look at three different strategies one can use to cover health costs–employer-sponsored healthcare, the Affordable Care Act, and health sharing organizations.  

Employer-Offered Health Insurance

Let’s start with what for many of us is the most straightforward way to cover our healthcare costs.  The Kaiser Family Foundation’s 2020 Employer Health Benefits Survey has a wealth of knowledge on all things to do with employer-offered healthcare, so let’s start there with the basics.  

Background

The Kaiser Family Foundation estimates that employer-sponsored insurance covers approximately 157 million people.  As a whole, they found that 56% of firms offer health benefits to at least some of their workers, but this figure skews heavily towards large firms (defined by the study as having 200 or more workers).  A full 89% of workers are employed by a firm that offers health benefits to at least some of its workers.  Essentially while the number of small firms is higher than the number of large firms, large firms employ more people, so the percentage of workers covered is at nearly 90%.  Also keep in mind that these percentages are referring to WORKERS covered, not dependents of said workers nor those who are unemployed.  In most cases, health benefits are offered only to full-time workers but can often be extended to spouses and certain dependents.

Health Insurance Premiums

It may be surprising to discover that the average premium for both covered workers and family coverage is relatively close for both small companies and large companies.  Again citing the Kaiser’s Foundation’s findings, the average annual premium for single coverage of a covered worker at a small company versus a large company in 2020 is $7,483 vs $7,466, respectively, while for family coverage the figures are $20,438 compared to $21,691, respectively.  Similarly, the average premium for single coverage has grown 20% since 2015, nearly keeping pace with the 22% increase in the average family premium over the same time period.  When looking at HMOs, PPOs, POSs, and HDHPs as a whole, these figures hold true for the percentage of premiums employees are responsible for at 20% of premiums for single coverage and 33% for family coverage.  

Using the average of a sample doesn’t tell the whole story, but these figures suggest that the average worker on a single plan is paying slightly more than $100 a month and the average worker covering their family pays over $450 a month just in insurance premiums, before factoring in deductibles and maximum out of pocket expenses.  These two components can vary even more wildly than premiums depending on factors such as type of plan, network size, and HSA eligibility.  Oftentimes, especially in companies with less than 1,000 employees, a worker’s choices are either a plan that has lower premiums but a higher deductible (sometimes with HSA eligibility), or a high-premium, low deductible plan.  In either case, health insurance plans have federally-mandated out-of-pocket maximum amounts of no more than $8,150 for single coverage and $16,300 for family coverage in 2020.  

COBRA

In the event that one leaves their job but wishes to keep their health insurance benefits, they may have some options available to you.  The Consolidated Omnibus Budget Reconciliation Act (now you see why we stick to calling it COBRA) gives most workers and their families the right to choose to continue group health benefits provided by their group health plan for limited periods of time, and under limited circumstances.  Qualifying events are standardized and can include voluntary or involuntary job loss, a decrease in the number of hours worked, adding or removing a family member (such as marriage, divorce, birth, or adoption), and a dependent turning 26 and aging off of one’s insurance plan.  In essence if one likes their health insurance plan, they can keep their plan for a defined period of time.

When one experiences a qualifying event, they generally have 60 days to elect whether they will be making any changes to their health insurance plan.  In the case of the birth of a child this can be keeping the same plan but adding an additional member, whereas in the situation of quitting one’s job the election can be made to stay on the employer-sponsored insurance as opposed to signing up through their new employer or the ACA.  One very important aspect of the COBRA decision is that if a worker chooses to keep their former employer’s plan, the worker would then be responsible for up to 102% of the employer’s premium costs, meaning that the employer would no longer be subsidizing coverage.  That being said, paying this extra money could make sense, such as if you are close to maxing out your responsibility of the plan’s expenses for the year, you work with a specialist who accepts limited insurance providers, or after crunching the numbers you get better value on this plan relative to one on the Marketplace.  

The amount of time one can stay on their health insurance plan is determined by the qualifying event and is generally 18 months if the qualifying event is related to the worker’s termination, resignation, or reduction of hours.  In certain circumstances this can be extended out to 36 months if you experience a second qualifying event.

Now that we know what we’re up against from employer-sponsored insurance, let’s take a look at the ACA.

The Affordable Care Act

Background

The Patient Protection and Affordable Care Act, also known as the ACA or ‘Obamacare’, was signed into legislation on March 23, 2010.  The Congressional Budget Office estimates that 9 million individuals were covered by policies purchased under the ACA marketplace in 2019, with 8 million of those with these types of policies receiving premium subsidies.  Fifteen states have their own state-based marketplaces that are created and maintained by the individual state itself, whereas residents of the remaining 35 states use Healthcare.gov.  In addition to Open Enrollment, a qualifying life event can also open up a window for you to move to an ACA plan during the year, and you can start coverage as soon as the next month depending upon when you choose a plan.

ACA Premiums

Regardless of whether your state has their own marketplace or not, most plans will fit into one type of metallic category–Bronze, Silver, Gold, or Platinum–with each progressive tier covering a higher percentage of plan expenses, generally having a lower deductible, and consequently having a higher monthly premium.  While these plans cannot deny you coverage for pre-existing conditions nor gender, they can set premiums based on age, location, whether you use tobacco, single versus family coverage, and the aforementioned level of coverage.  For this reason the price of a bronze plan in my home state of Washington may differ from a plan in Josh’s native Georgia even though actuarially they are designed to pay out the same amount.  

As an example, I ran a quick search on Healthcare.gov to see what it would cost to cover myself and my wife (both in our mid/late-20s) and our young child on a plan in eastern Washington where we live, Casco, Maine where Josh grew up, and Atlanta, Georgia.  I then sorted by the lowest premiums of a plan that was at least rated bronze (for ease of comparison only, price isn’t everything!) and came back with the following:

  • Washington: 
    • Estimated Monthly Premium: $600
    • Individual/Family Deductible: $8,300/$16,600
    • Individual/Family Out of Pocket Maximum: $8,300/$16,600
  • Maine: 
    • Estimated Monthly Premium: $693
    • Individual/Family Deductible: $7,800/$15,600
    • Individual/Family Out of Pocket Maximum: $15,600/$17,100
  • Georgia: 
    • Estimated Monthly Premium: $760
    • Individual/Family Deductible: $6,500/$13,000
    • Individual/Family Out of Pocket Maximum: $6,900/$13,800

Here are the results of the same exercise run with a hypothetical husband and wife age 60 and 58, respectively: 

  • Washington: 
    • Estimated Monthly Premium: $1,130
    • Individual/Family Deductible: $8,300/$16,600
    • Individual/Family Out of Pocket Maximum: $8,300/$16,600
  • Maine: 
    • Estimated Monthly Premium: $1,293
    • Individual/Family Deductible: $7,800/$15,600
    • Individual/Family Out of Pocket Maximum: $15,600/$17,100
  • Georgia: 
    • Estimated Monthly Premium: $1,420
    • Individual/Family Deductible: $6,500/$13,000
    • Individual/Family Out of Pocket Maximum: $6,900/$13,800

In my family’s particular case, even using the cheapest premium of these three states means we would be spending $7,200 on premiums for the privilege of capping our out-of-pocket expenses at an additional $16,600 in the event that we were hit by a bus.  For our friends a little closer to age 65, that premium amount jumps to about $13,500 a year with the same out-of-pocket maximum.  For people that are pretty healthy and don’t anticipate needing much in the way of health coverage over the next 12 months, these prices can seem exorbitant.  Are there better deals to be had trading off a higher premium for lower deductibles or out-of-pocket-maximums?  Perhaps, but the point still stands–that’s expensive coverage.  

ACA Premium Subsidies

Things get a little better when we factor in premium subsidies.  If one’s income, adjusted for the number of household members, is between 139% and 400% of the federal poverty level (FPL), they may be eligible to receive a subsidy that reduces the amount they must pay.  In the case of a three person household, being just under the 2021 400% FPL ceiling of $86,880 brings premiums on the same plans listed above to the following:

  • Washington: $523/month ($117 tax credit)
  • Maine: $498/month ($194 tax credit)
  • Georgia: $474/month ($286 tax credit)

For a two-person household, ducking under the 2021 400% FPL amount of $68,960 leaves us with a bit of a surprise: 

  • Washington: $171/month ($958 tax credit)
  • Maine: $225/month ($1,068 tax credit)
  • Georgia: $138/month ($1,281 tax credit)

As one’s income gets lower and lower below the 400% FPL, the amount of the subsidy increases.  If however, one goes even a dollar above 400% of the FPL for their family size, any and all premium subsidies disappear completely in what is known as the ‘subsidy cliff’.  If one is looking at an ACA plan and is towards the top of this limit it is paramount that they look at their income and make sure that they take appropriate measures to keep their income below this figure, as even a dollar more than the limit can leave you on the hook for thousands more in premiums each year.  As we can see here, the magnitude of falling on the wrong side of this ‘cliff’ increases the closer one gets to 65.

On the other end of the spectrum, If a family of three’s income were just above the poverty limit of $21,720 (any lower and they would qualify for Medicaid, which is outside the scope of this article) their premiums would be completely offset by tax credits albeit with the same deductible and out-of-pocket maximums.   This sort of coverage naturally lends itself to the paradox of ‘my income is so low that I don’t have to pay anything in the way of healthcare premiums, so what good does it do me if my deductible is more than I earn in a year?’  For those whose income is closer to the premium subsidy ceiling, capping one’s family costs at around $15,000 would still in all likelihood lead to some tough financial decisions.  

Hybrid Employer Healthcare/ACA Combination

In some cases like that of my friend, it may be tempting to have the working spouse covered by their own employer-sponsored plan, then have the rest of the family covered by an ACA plan, thinking that premium subsidies will keep costs relatively low.  Perhaps everyone is relatively healthy to the point where it makes sense to roll the dice on a lower premium in exchange for a higher deductible/out of pocket maximum should something go bad healthwise during the year.  Unfortunately, that is nearly never an option.  When calculating whether a health insurance plan is ‘affordable’ or not, the ACA looks to see if the coverage covering only the employee costs 9.83% or less of the employee’s household income.  If the plan is ‘affordable’ for the employee, even if the costs are outlandish to cover other family members, you’ll be on the hook for the entirety of the plan’s premiums.  This conundrum is known as the ‘family glitch’ and although it has been known about for years, no legislation has been put in place to remedy this issue.  As my friend’s employer covered most of the employee portion of his own premium, this is the issue we ran in to when looking at his situation.

With that in mind, let’s take a look at Health Care Sharing Ministries

Health Care Sharing Ministries

For a certain subset those who are in need of coverage and yet do not qualify for employer-subsidized health care nor sufficient ACA subsidies for their budgets, Health Care Sharing Ministries (HCSM) can make sense.  Some of these organizations have been around since the 80s, and in recent years have been gaining in popularity as folks look for ways to reduce their healthcare expenditures.  There are some VERY IMPORTANT DISTINCTIONS  from health insurance that we need to cover, but for many folks these organizations can make a lot of sense and save you a chunk of change if you know what you are getting into.  

Health Care Sharing Ministries are NOT insurance

Health Care Sharing Ministries are NOT insurance, nor do they purport to be insurance, nor are they legally obligated to pay claims as insurance companies are.  Health Care Sharing Ministries may use terms similar to that of traditional insurance contracts (‘share’ as opposed to ‘premium’, for example) and are designed to pool resources of a common group to pay healthcare costs incurred by individuals, but they do not have the contractual guarantees of insurance, nor are they regulated by state insurance boards.  What this means is that if an HCSM decides that your treatment is for a pre-existing condition (more on that in a moment), is outside of the organization’s guidelines (treatments deemed experimental in nature, for example), or is otherwise not in good order, they can decline to share your bill with the community, leaving you on the hook for the entire amount with little to no recourse.  While stories of bills being declined are not exactly hard to find on the internet, by and large the majority of these cases seem to eventually come out as treatments being for pre-existing conditions that were not properly disclosed by the applicant before they joined.  The fact that a handful of these organizations have been around longer than I have would suggest that they share expenses to the extent the expenses reflect shareable treatments.  

Health Care Sharing Ministries may not cover pre-existing conditions

In order to keep costs low, an HCSM may choose to either deny you coverage on a pre-existing condition, or phase in coverage of an issue you have previously had treated over a period of a few years.   It is important to talk with any organization you are considering signing up with to see how they define a pre-existing condition and talk through your situation with them so as to determine to what extent you would be eligible to share should that issue come up again.  Different HCSMs may have different opinions on whether an issue is pre-existing or has been fully cleared up, so it may be wise to contact multiple companies in the event that your medical records are less than spotless.  

Health Care Sharing Ministries often share claims on a per-incident basis

We’ll get to how HCSMs charge later on, but I want to point this out as a potential negative.  With a normal insurance plan if you break your arm in February and then are hospitalized for pneumonia in November, the bills for both amounts will be added together to help you reach your deductible.  With an HCSM, expenses are generally covered on a per-incident basis.  What this would mean is that if you chose to cover the first $2,500 of your care on your own and you received a bill for your broken arm of $3,000 and your hospital stay for pneumonia was $8,000, you would pay the first $5,000 in care since they were two separate instances.  If you did need coverage in excess of your personal responsibility, you may need to pay up front and float the funds for a period until you are reimbursed.  This may not be a good option for you if you don’t already have an emergency fund that in this case can withstand a temporary four- to five-figure hit.

There may be per-incident maximums

Some HCSM’s share claims, but only to a certain dollar amount.  As we’ve discussed, different organizations can have drastically different per-incident coverage rantes, perhaps as low as  $50,000 up to potentially unlimited amounts being shareable across the group in some cases.  Check with a few and see what makes sense for your situation.

Health Care Sharing Ministries frequently require an attestation to Christian beliefs 

As part of joining a HCSM, oftentimes you will be required to confirm that your beliefs are in harmony with that of the ministry’s.  The rigidity of these beliefs can again vary from organization to organization, with some as strict as requiring ecclesiastical confirmation of regular Christian worship attendance and others as broad as essentially ‘I look to do good among my fellow man and acknowledge that everyone can worship in their own way’.  In most cases the use of illegal drugs is prohibited, alcohol and tobacco consumption is discouraged if not outright prohibited, and pregnancy out of wedlock may not be covered.  Requests for the sharing of expenses proceeding out of situations where those factors are in play may be declined by the ministry, so again this is a case where due diligence on the front end is necessary to prevent surprises on the back end.

So then what good are Health Care Sharing Ministries?


Now that I’ve highlighted the main things that could go wrong, let’s talk about what brings people to HCSMs in the first place–the cost-to-coverage ratio.  Monthly costs can be as low as about $75/person per month depending on the amount you’ll have to pay before sharing begins, and some programs charge all members the same rate as opposed to the ACA where premiums increase as one gets older.  

Many ministries offer coverage for two spouses and an unlimited number of children for somewhere in the neighborhood of $500/month depending on the amount you choose to pay up front before sharing begins.  You’ll generally have the ability to choose the initial per-incident amount you want to personally cover each year before the rest of the cost is shared with the HCSM.  I have seen limits of paying as little as $500 before sharing begins (and on the high end I’ve seen limits up to $10,000), with larger dollar amounts corresponding with lower premiums and higher dollar amounts corresponding to higher premiums. 

You’ll simply have to evaluate how often your family needs medical coverage and remember that you’ll be paying for each new incident as opposed to having each incident add up to your deductible under ‘regular’ insurance. 

When you do need coverage, you’re essentially a cash payer not locked in to any particular network or medical professional.  You’ll request a cash price from the provider you received service from, pay that amount, and then send the bill on for reimbursement if it exceeds the amount you self-cover.  For larger procedures such as surgery unrelated to a pre-existing condition or pregnancy (which is generally covered as long as you were not pregnant when you joined and sometimes a month or two before), the process is that you work with your provider to get an itemized bill of planned services rendered, then work with the HCSM to ensure that everything will be taken care without any surprises.  

That being said, the combination of low upfront monthly commitment, a fixed per-incident responsibility and fact that there is no coinsurance after this initial amount is met may be worth forgoing the higher premiums, deductibles, and maximum out of pocket amounts of traditional insurance, especially if a) you don’t have access to employer sponsored insurance that YOU deem affordable for you and your budget, b) you are not eligible for ACA premium subsidies, and c) your belief system is already in line with that required of these organizations.  Again and I cannot stress this enough, PLEASE take the time to do your due diligence before making a final decision, as cutting corners could end up putting you in serious financial jeopardy if you don’t understand what you’re getting yourself into.  

You Need A Health Insurance Plan!

As we close out 2020, it is still as important as ever to have a plan for your healthcare expenditures, both foreseen and unforeseen.  If employer-sponsored insurance is not available to your entire family or the costs will be too much for your budget to handle, know that you have options.  If your employer does not offer insurance at all or you are self-employed, not working, or have exhausted COBRA eligibility, you can look to the ACA Marketplace to see if you are eligible for subsidies that would get premiums down to a level that works for you and your family’s financial situation when accounting for premiums, deductibles, and maximum out of pocket amounts.  If an ACA plan does not work for you and your family, you have clean bills of health, are religiously inclined, and can work among a non-traditional system, a Health Care Sharing Ministry can be an alternative that keeps your healthcare expenses at a more manageable level. 

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