We’ve written some articles on considerations to make for those who are selecting employer-based benefits and will write SO MANY more that you’ll not know what to do with all of them! But for today, since it’s the first day of the annual individual health plan open enrollment period (OEP for short, and it lasts Nov. 1-Dec. 15, 2018), this post focuses on those who are self-employed, contractors, gig-economy adventurers or, if you’re really lucky, already retired and way under 65 years old. If any of these scenarios apply to you, you’re likely eligible to buy an individual health insurance policy and individual-based other coverage, too. Here’s a few tips on what to look for and what to avoid.
How the Individual Market Works
Before the Affordable Care Act started its own public marketplaces for health insurance (and dental and vision coverage) in 2014, about 5 percent of Americans bought individual health insurance. That number has gone up since then largely because a lot of people, about 20-25 million of them, started getting coverage through either the ACA marketplaces (AKA “Obamacare”) or through Medicaid expansions in about half the states. Much of what you’ve seen in the debate over Obamacare — pre-existing conditions, short-term health plans, etc. — is related to the individual health insurance market.
What the ACA did was essentially standardize individual health insurance with something called “essential health benefits” (EHBs). This part of the law ensured that every plan a health insurer offers you includes basic coverage for things like maternit, mental health, ambulatory (emergency) services, and more. (Here’s a full list) It also made it unlawful for health insurance to not cover pre-existing conditions, which has become a huge issue in this year’s election and something that Americans widely support, even if a lot of them don’t understand exactly what it means to cover or not cover pre-existing conditions.
Also this year, the Trump Administration re-expanded and old type of plan, called “short-term, limited-duration” insurance, which does not cover the essential health benefits. It’s a lot cheaper as a result, but a lot of experts are saying “buyer beware” because of the things they can exclude, like pre-existing conditions and prescription drug coverage.
It’s super-confusing — and something I help companies and employees understand in my consulting work — but here’s what FI folks need to know:
- If you aren’t eligible for coverage through your employer, you’re not low-income (Medicaid), or you’re not retired or have a permanent disability (Medicare), you probably qualify for health insurance through a public marketplace.
- Different states have different online marketplaces. here are also third-party private marketplaces that can help you find subsidized ACA coverage. (Full disclosure again: I work with one of them, HealthSherpa, and if you decide to shop there, I’m NOT paid any sort of commission or referral bonus.)
- Depending on your income, which can be up to 400% of the Federal poverty level, you may qualify for an ACA subsidy that will reduce your monthly premium costs for insurance. These rates are NOT different from state to state.
- While there is no longer an “Individual Mandate” penalty, meaning you won’t have to pay a fine for not having health insurance, you should still buy it to protect your income from unforseen medical events, which can derail your debt paydown plans and/or FIRE retirement savings goals.
- When shopping for individual health insurance and other kinds of individual insurance, it’s important to be mindful of what kind of coverage you’re getting. The cheapest is often not only not the best, but could basically mean you’re throwing your money away.
What’s the Difference in Individual Plans Available to Me?
There are four basic plans available to you on the individual health insurance market:
- On-Exchange, ACA Plans – These are plans that provide essential health benefits coverage and have subsidies for those who qualify, based on income, age and family size.
- Off-Exchange Plans – These are plans that look a lot like the “on-exchange” plans but are not subsidy-eligible, meaning you’re paying the full premium cost out of your own pocket. They can be really pricey but also the best coverage available on the individual market for those with higher incomes.
- Short-Term, Limited-Duration Plans – These were available for only three months under President Obama but are now available for 12-month coverage periods and renewable for up to three years, thanks to the Trump Administration, which cited the really high price of the “off-exchange” plans for those with higher incomes as the reason for re-expanding STLDPs.
- Healthcare Ministries – In some areas, there is a plan that was exempt from the ACA that are sponsored by religious institutions and basically works like a co-op — you pay into it and get some medical services discounts and also some services paid out of the co-op fund.
What Should You Get?
I’m getting an ‘on-exchange’ plan. Here’s why.
I’m an independent contractor that’s rolling off of COBRA coverage, so this will be the first year that I’m buying individual coverage for my family. I’m going with an ACA plan for a few reasons:
- I have a large-ish family. There are six of us in my house that need coverage, four of them under the age of 18, so we end up have a lot of doctor visits every year no matter what.
- We have regular prescriptions and doctor needs. There’s nothing extensive but we benefit from the EHB coverage of things like mental health and well visits, and that combined with the financial protections for more serious medical issues if they arise, make it worthwhile to us.
- I may get a small subsidy. I will report back on my personal experience, but the available ACA subsidies go pretty high. As a family of six, we can make close to $100,000 in income and still get some kind of cost-reducing subsidy.
- Will this be more expensive than, say, a healthcare ministry or short-term plan? Yes. But for my circumstances and knowledge of what insurance does, I’m willing to pay a bit more to know that my risk of “adverse financial impacts” (AKA my savings gets screwed by bad luck or bad health) is greatly reduced.
If you’re thinking of getting an ‘off-exchange’ plan.
First, go to healthcare.gov or a site private marketplace and make sure that you don’t qualify for a subsidy for an “on-exchange” plan. It only takes a few minutes and, if you do qualify, you could save thousands of dollars. That’s not a clever marketing pitch, it’s advice that you shouldn’t leave money on the table when it comes to benefits, even when you’re and individual and not getting them through your employer.
If you’re thinking of a short-term plan.
Absolutely don’t buy anything until you read the fine print. Short-term plans most closely resemble auto insurance in the way they make you pay against the deductible, submit claims yourself, and will deny your claim if they find that your illness/injury is your fault. Short-term plans are being marketed, in some cases unscrupulously, as the “anti-Obamacare” option. Since they don’t have to cover a lot of things that ACA plans do, they can, indeed, cost you a LOT less in monthly premium. If you are in your late 20’s, you aren’t doing risking things like mountain biking, skiing, surfing, etc., and you don’t have a need for any prescriptions or mental health coverage and/or there’s no chance whatsoever that you or your partner will be having a baby in the next year, then a short-term plan might be a good bet for you. But keep in mind that it’s just that — a bet that you don’t get sick or hurt in any way, because if you do, you may find yourself with some major FIRE setbacks.
If you’re thinking of a healthcare ministry.
I’ve known several people who’ve gone this route and have had a good experience. They are somewhat like the auto insurance model as well but tend to focus more on family coverage needs, like finding doctors that are “in-network” and also providing discounts for frequently needed services, like flu shots and prescription drug coverage. Plus, they tend to apply a “moral code” of some kind as well, like being a regular churchgoer.
The big thing to know about healthcare ministries is that they are not actual insurance, so they don’t need to cover preexisting conditions or the ACA’s EHBs. So while the co-op may pick up most basic costs, if you get cancer or something else that will last for more than a year, you may have your costs covered for the current year but will be denied renewal the following year. So, again, a potentially good option for morally upstanding healthy families but only if you stay that way. Here’s a bit more information on healthcare ministry coverage.
What about other coverage?
While on-exchange coverage in particular tends to be comprehensive for medical and just varies based on coverage levels, other types of coverage should also be considered.
- Dental and Vision – The ACA’s on-exchange plans must include pediatric dental and vision coverage, but not always coverage for adults. The way both dental and vision work is that they usually charge about what it would cost to buy the annual services you need yourself, but they’re able to get them for just a bit less and still make a profit because they apply volume discounting (i.e. they pay an “in-network” dentist less than you would pay that dentist on your own). If you know a dentist, call them up and see if you can negotiated an out-of-pocket rate that is close and you might be able to to save yourself some money. Likewise with vision coverage, some places like PearleVision will give you the eye exam and glasses for the same price that insurance would cost you. And Warby Parker charges a lot less for glasses if you take care of your own eye exam. The benefit of coverage, of course, is the insurance component — if you have a dental or vision emergency, you have extra protection. But again, read the fine print because a lot of dental plans in particular have a minimum 12-month waiting period for major dental work.
- Income Protection – Supplemental life is mostly something that’s an added benefit through your employer because your employer is paying the monthly premium and you get a volume discount, without having to worry about medical underwriting, for additional coverage. You are likely best off focusing your life-insurance goals on term life insurance. If you have the income and you also have any inclination, like family history, to think you may have a terminal illness arise, it’s worthwhile to check out hospital indemnity coverage or critical illness coverage. This can especially apply in the individual market when you go with a high-deductible health plan (HDHP).
- Other Coverage – One thing that may also be useful for those on HDHP’s or short-term coverage, but not exclusively to those with these plan types, is telemedicine or direct primary care. Some telemedicine companies, like Doctor on Demand, have a monthly subscription for individuals, which gives you on-demand access to a doctor. These services can be especially helpful if you travel a lot and/or have children and don’t want to have to cart them to a doctor’s office during flu and cold season. As for direct primary care, this is like telemedicine except it applies usually to a local doctor. It may be good for older enrollees who may have more need for doctor visits, but it can cost a lot so it may not be as beneficial (or even necessary) for younger people.
If you still have questions about how the individual health insurance market works, the group Young Invincibles, which is sort of like an AARP for millenials, has a great PDF (here’s the link!) that gives you some more details. Be aware that Young Invincibles is an activist group with certain views on health insurance, but the information itself is straightforward and helps you understand how to make the best choices for your personal circumstances.
And if you have any questions for the Benefits of FI’s contributors, contact us!Like