The average premium for individual health insurance coverage has more than doubled in the past five years. So if you’re paying for your own insurance, unless your income has also doubled, you’ve felt the sting. If you’re ineligible for a subsidy, your monthly premium can rival your mortgage payment. “There’s GOT to be something cheaper out there!” you say.
The good news: There is.
The bad news: That’s the rest of this article.
Medical inflation and the high cost of specialty drugs push premiums up across all health insurance carriers. But since the passage of the Affordable Care Act (ACA, or “Obamacare”), two big contributors to individual premium increases are:
- Insurance companies selling fully insured individual coverage must accept all applicants regardless of health risk or current health status; they cannot either reject or offer higher premiums/lower benefits to those with pre-existing conditions; and everyone of the same age in the same geographic area pays the same amount for the same benefit.
- All coverage (even high-deductible plans) must include a standard list of preventive services (annual physicals, well-baby checkups, OB/GYN visits, etc.) at no cost to the insured.
In both cases, the medical care provided isn’t “free” – even if the insured isn’t being billed, somebody pays the provider and facility. The insurance company covers those costs, and then spreads them evenly (see Point 1 above) across the premiums of everyone enrolled in their insurance.
So when ads on the radio or online offer “full coverage” insurance for half the cost of ACA-compliant insurance, remember: The only way to charge significantly less is to provide significantly less.
There are many versions of these cheap medical insurance plans. A client brought a typical one to our attention just last week. The coverage offered was actually two insurance products bundled together, a sickness/accident indemnity plan and a short-term medical plan. The marketer called it a perfect plan for “a healthy individual”; that’s a BIG red flag.
An indemnity plan pays you, the insured, a set amount if you encounter a certain expense – for instance, hospitalization, or a cancer diagnosis. (Most people see this kind of plan through AFLAC or another source of worksite supplemental coverage.) This specific plan guaranteed to pay $400/day for hospitalization, or $800/day (limit 30 days) for the ICU. That sounds great… until you realize that the closest hospital to our office averages $2,000 per day, just for the room. (That doesn’t even cover physicians, medications, tests, operating rooms, etc.) Most indemnity plans are sold as “supplemental” insurance: They can be great in addition to fully insured coverage, but are not a good substitute for fully insured coverage.
A short-term medical plan is just what it sounds like: Coverage that “fills a gap” between other insurance, such as when you change jobs or move to a new area. Short-term plans are very picky on who they accept: You cannot have any current health problems or pre-existing conditions. They also don’t continue indefinitely; this one could last for up to 6 months (the maximum length for a short-term medical policy here in Utah, by state law), and could not be renewed. You could apply for a second short-term policy thereafter, but in this case, any medical problem during the first short-term policy would count as a pre-existing condition for your second short-term policy.
As the marketer told our client, this insurance coverage would be great for a healthy individual… But by that logic, home insurance that doesn’t cover house fires is terrific if you know that your house will not catch fire. The main value of health insurance isn’t access to services you expect to use, like annual physicals or prescription copays; it’s to guard against financially devastating catastrophes that you don’t expect. No one expects to contract cancer, or burst an appendix, or fall off a ladder and break both legs. But these things can and do happen. And “cheap” insurance can leave you unprotected from long-term medical expenses. That’s tens or even hundreds of thousands of dollars that your “coverage” doesn’t cover.
Compare that to fully insured plans: Even if you strip out office visits, prescription copays, etc., and go with the highest deductible possible, you’re almost guaranteed to have an annual out-of-pocket maximum of $8,000 or less. So no matter how catastrophic a medical incident becomes, your insurance shields you from astronomical expenses which could otherwise push you right into medical bankruptcy.