Health care and the policies that govern it are complex. The government’s involvement via the Affordable Care Act (ACA), commonly known as Obamacare, only adds to that. People are confused. They’ve heard that Obamacare is dead, yet they can still purchase a health insurance policy on one of the exchanges and may still have to pay a penalty if they don’t. And even if you do get a policy, how the heck do you know what it covers and what you have to pay?
So how does health insurance work in the U.S.? Let’s cover the two issues above separately to understand where our system stands today and what you need to know about policies to do some comparison shopping.
The Current Status of Obamacare
Obamacare remains alive, at least for the moment. The 2017 tax cut package eliminated the Obamacare mandate — the requirement that you purchase insurance or pay a penalty — after 2018. So the mandate and penalty are still in effect for this year, with some caveats.
The rest of Obamacare survives. You can purchase an insurance policy on an exchange. All qualified plans still cover pre-existing conditions. You can stay on your parents’ insurance until age 26. Medicare is still expanded to cover many who were not covered before. Plus, the premium offsets that make the insurance “affordable” for many people remain.
The caveats are that there are more ways to get around the penalty. For example, if the county in which you live has only one insurer on the exchange, you have no penalty.
If you liked Obamacare, great — you still have it. If you didn’t like it, still great — you have no mandate after this year.
That said, insurance premiums will likely increase. A major problem with Obamacare is that it failed to draw in healthy young people to subsidize higher-cost health-care users. Without a mandate, this ain’t gonna get better.
How Health Insurance Works: What Are the Costs?
Many people focus on the premiums associated with their health insurance policy. But premiums are only part of the story, and they are, in my opinion, where Obamacare really failed. The failure becomes quite apparent when you look at the total cost of your health care under the most affordable — i.e. lowest-premium — policies.
In addition to a premium, policies have other costs. This includes, most notably, a deductible and copayment or coinsurance.
A deductible is your out-of-pocket expense before the insurance company picks up anything. Under all Obamacare policies, preventive care is covered and not subject to the deductible or copayments.
Preventive care is not the same for each policy. Some cover routine physical exams, others don’t. You have to meet the deductible amount each policy year before the insurance company starts to pay for your care.
For example, a $1,000 deductible means that you have to pay for the first $1,000 of nonpreventive health care each year before your insurance company begins to pick up the tab. If you are very healthy and don’t have any accidents, you could go for years without ever using more than the deductible in any given year.
Deductibles can also be measured by the individual insured person, as well as by the policy. For example, you could have a deductible of $1,000 per insured person, and $2,000 per family. In this case, the policy will kick in for any insured person who reaches $1,000 in out-of-pocket costs. It will kick in for all insured people once $2,000 in out-of-pocket costs has been reached.
Copayment or Coinsurance
In addition to your premium and any deductible, most policies have either copayment or coinsurance requirements. These are quite similar — they are two forms of getting you to pay for a portion of your care.
A copayment is a flat fee that you pay for medical services. For example, a $20 copay would require you to pay the first $20 of any office visit or medical service.
A coinsurance is a percentage that you pay toward your health services. It's usually expressed with both your portion and the insurer’s portion. For example, an 80-20 coinsurance has the insurance company paying 80 percent of covered services and you paying 20 percent.
Obamacare’s Affordability Problem
A major problem with the ACA’s goal of affordable health care is that it isn’t very affordable when you consider all the costs. Most people signed up for the lowest level (or bronze) plans, which had lower premiums but higher deductibles and copayments.
Lower-income people often signed up for policies for which they could never reasonably pay the deductible.
They didn’t think they could afford to go to the doctor or hospital if they were sick, since $1,000 or $2,000 out-of-pocket was far too much money for many. They had an insurance policy, but as far as they were concerned, it wasn’t really worth anything. It just prevented the imposition of a penalty that they also couldn’t afford. They bought the policy with the premium they could afford, but lived like they had no insurance.
In-Network and Out-of-Network Health Insurance Costs
Most policies have a network of preferred providers. This can be in the form of a health maintenance organization (HMO) or a preferred provider organization (PPO). Make sure you receive care from doctors within your network to the greatest extent possible. These individuals or organizations have agreed to accept the insurance companies’ payment amounts, and you will be responsible only for your share via copay or coinsurance — after, of course, your deductible.
Going outside your network can cost you a lot more. You can find the cost or cost-sharing arrangement for out-of-network services detailed in your policy. Naturally, you need to do what’s best for your health. However, be aware that going out of network will cost more.
Obamacare limits your annual maximum out-of-pocket expenses. For 2018, these maximums are $7,350 per individual and $13,700 per family. So even with deductibles and copayments, there are limits to what you can be on the hook for — good news if you are very ill.
For higher-income people, it’s all about the numbers and your ability to choose your favorite doctors. For the lower-income brackets, it’s a bit tougher. Once you make too much for Medicaid, you can run into a jam. You make too much for the truly free insurance, but not enough to pay your medical bills if you get sick. The very people the ACA was supposed to help are in the toughest predicament.
Understanding Health Insurance: The Bottom Line
Choosing health insurance isn’t easy. But if you understand what your policy does and how it works, you can make a more informed decision — a better-educated guess — about which health insurance plan makes the most sense for you. Unfortunately, many people felt it was necessary to take the lowest-premium option, without realizing that it didn’t necessarily result in the lowest costs.
And even once you understand how health insurance works, choosing the right plan can be difficult. Consider using sites like eHealth to help find one that works for you.