Bronze May Be the Most Precious Metal Under Obamacare
Up until now, health insurance has been an issue of great concern for people who looked to change their jobs or potentially retire before age 65, when they were eligible for Medicare. With the passage of the Patient Protection and Affordable Care Act (PPACA), portability of and accessibility to health insurance is supposed to go away as a concern, since you cannot be denied health insurance coverage, and there will only be four factors included in determining your rates (not provided in any sort of order):
- If you’re single or have a family
- Where you live (to make cost of living adjustments)
- Tobacco use (it’s nasty, so stop using it)
In its place is a supposedly simpler way of choosing healthcare. You get to choose from one of four (or five) types of plans. More on that in a bit.
Previously, depending on the coverage you had (or didn’t have), you could still face high medical costs. You didn’t want to be the one who had to have super expensive medical treatment lasting years and go bankrupt in the middle of your care, forcing you to move to Albuquerque and start selling meth (for those of you who think I’m encouraging you to become a drug dealer, this is a reference to the show Breaking Bad). So, as a result of the fear of the blackest of black swans (aside from outright death) hitting you, you were (and maybe still are) tempted to get the Cadillac of healthcare plans.
If you have such a plan, you’re almost completely cost insensitive. You probably think that a blood test, X-ray, and prescription all cost $10 – your copayment. At this point, you remain willfully blind to the true costs of your medical care because Monkey Brain wants to justify your spending on the Cadillac plan (“MAY GET HIT BY BEER TRUCK AND NEED TO DRINK BEER THROUGH STRAW!”). Plus, he’d rather go through pain one time – paying the health insurance premium, no matter how high – than go through multiple sets of pain in paying for treatment as needed.
This cost insensitivity also encourages you to avoid preventive treatment, since you can hop over to the doctor or the emergency room at any old time and get that sneeze checked out. By paying so much for health insurance, you run the risk of becoming complacent about your own health, since you’re tempted to abnegate the responsibility for your own care and hand it over to your doctor.
With the 2014 implementation of the Patient Protection and Affordable Care Act (PPACA), I expect one of the consequences to be that many employers who have 25 or more employees will choose to pay the fine for not providing health insurance, bump up pay of their employees slightly, and allow employees to choose their own health plan. Even though at my last company, we had a high contractor to employee ratio, we often had enough people receiving checks from us that if we were to convert them all to employees, we’d fall under the auspices of Obamacare, and that’s the choice I would recommend we make were I in that position.
If you buy your own health insurance now or are going to be buying your health insurance in the future and are going to have to go out onto the healthcare exchanges rather than having a grandfathered plan, you’re going to be facing a new realm of choices for what types of insurance plans you can buy. You’ll be asking yourself:
Which Obamacare plan should I choose?
The plans (bronze, silver, gold, and platinum) reflect an effort to share costs between insurer and insured (that’s you). The table below does not reflect discounts for people below 400% of the federal poverty line (as of 2013, for the lower 48 states and DC, it’s $45,960 for singles, $62,040 for a married couple with no kids, and $94,200 for a family of four), and it does not include the catastrophic coverage option.
|Plan Type||Expected Cost Share|
If you want to see the actuarial discounts for people below the 400% federal poverty threshold, check out the Kaiser Family Foundation PPACA actuarial analysis, page 2.
If you stop right there, though, you’ll be tempted to believe that you could be on the hook, for example, if you chose the Bronze plan, for 40% of your overall health costs.
You’d be wrong.
Regardless of the plan that you choose, as it stands now, your maximum out of pocket cost for health care, aside from your insurance premiums, will be the federal limits for high deductible healthcare plans (HDHP). In 2014, the limit will be $6,350 for singles and $12,700 for families.
Since everyone’s out of pocket maximums will be the same, regardless of the plan they choose, unless each state decides to change the limits for higher plans (such as California has done with Platinum plans) the math of choosing the plan becomes relatively simple, assuming that you have all of the proper information – namely, how much your healthcare would have cost if you didn’t have insurance covering you (note, this lack of information will make it very difficult for people to make informed decisions).
The way that the insurance companies will get to where you’re sharing the actuarial cost based on your plan level will be through deductibles, copayments, or both.
Therefore, the total cost estimates are simply a factor of premium + expected co-pays/deductibles where expected co-pays/deductibles won’t exceed your out of pocket maximum. If you have high healthcare costs each year, then it will seem to make almost no sense to get anything except a Bronze plan (or, if you qualify, catastrophic coverage plan) because you would hit your out of pocket maximum regardless of what type of plan you choose, so why pay the extra premiums? Of course, if your state lowers the out-of-pocket maximum for a Platinum plan (like California does), then you’ll need to do the comparisons. I’ve done a comparison as an example below.
On the other end of the spectrum, if you’re healthy as a horse and never go to the doctor, then you’d also want to get the highest cost share plan you can get (catastrophic coverage, if you qualify, or Bronze), because, barring an unexpected event – hence catastrophic coverage – you won’t pay the medical profession for any of their services. Thus, why pay the extra premiums for coverage that you don’t need?
Somewhere along the spectrum of medical care spending, there may be a sweet spot for each type of plan. Unfortunately, there are currently no calculators for estimating premiums aside from the Silver Plan calculator at the University of California Berkeley. California has released their standard plan co-pays – there are no deductibles apparently – for each of the plans as well as sample premiums that each of the insurers will charge (see p. 5 for the standard co-pays). Let’s assume you live in California’s Region 1 and are a 40 year old male to see what the costs are using Anthem’s PPO (the cheapest option).
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Jason Hull is a Fort Worth fee only, hourly financial planner who serves clients in Fort Worth, TX and Dallas, TX as well as serving clients nationwide.
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