Submitted by Dottie DeHart
DeHart & Company Public Relations
You'd love to spend the next month and a half decking the halls, enjoying festive parties, and shopping for gifts for your family and friends. Unfortunately, if you're one of the millions of Americans who buy their own health insurance, the "silver and gold" that will dominate your thoughts this holiday season is the silver and gold (and bronze and platinum) designations of the Obamacare health plans.
That's right. Millions who buy individual health insurance have received letters from their providers (or will soon receive them) saying their policies have been canceled because they don't meet the requirements of the Affordable Care Act. Often the letters suggest a "similar" ACA-compliant plan that is - surprise! - a lot more expensive.
"For most of the recipients these letters are an unwelcome holiday surprise," says financial counselor Eric Tyson, New York Times bestselling author of "Personal Finance For Dummies, 7th Edition." "They feel blindsided. In many cases they worry about whether they can afford hundreds of dollars more a month in premiums or pay a steeper deductible than before."
ACA supporters point out that the ACA-compliant "replacement" plans are pricier because they offer more benefits - but many people chose their (now canceled) plans precisely because they didn't want or need, say, maternity coverage or prescription drug coverage. When you pay for your own health insurance, you tend to make educated purchasing decisions aimed at conserving costs and getting value for your money, notes Tyson.
"Many of these people are self-employed and have unpredictable cash flows, or perhaps they found the individual marketplace offered a better value than a spouse's group plan," he adds. "They deliberately bought high-deductible plans to keep premiums low. Let's say you're a middle-aged woman with a home-based business. Since you're past childbearing age you chose a catastrophic plan without maternity coverage - and now you're finding out that's no longer an option. It's upsetting."
Tyson says he has fielded many questions from people seeking to understand the new health insurance rules and their personal finance implications. Here are some of them along with Tyson's answers:
•Why did my policy get canceled?
Individual plans that were in effect as of March 23, 2010, were "grandfathered," meaning that you get to keep them even if they don't meet the standards mandated by the ACA. However, if the policy has been altered since that date - i.e., if the deductible, co-pay, or benefits changed at all - you can't keep it. Most policies have been changed since that date, for a variety of reasons, so they are being canceled.
In addition, people who buy individual health insurance tend to change plans often anyway - so some people are losing coverage because they changed insurance policies in, say, 2011.
"I've seen estimates that as many as 80 percent of individual policies will end up being canceled," notes Tyson. "So if you haven't gotten a letter yet, chances are you will."
•Yikes! On the policy my insurance company recommended to replace my canceled one, the premium has doubled and the deductible has gone up by thousands of dollars. How can this be?
It's because of the essential health benefits that, by law, must be included in new insurance policies that take effect in 2014. These include maternity and newborn care, mental health and substance use disorder services, prescription drugs, pediatric services (including dental and vision care), to give a partial list. In the past, you were able to pick and choose from plans that excluded some of these services and thus were less expensive.
Plus, the ACA includes "consumer protection" provisions that have elevated prices. For example, it prohibits health insurance companies from limiting or excluding coverage related to preexisting health conditions. In order to absorb this cost and costs related to other provisions, insurance companies have raised rates across the board.
•Is my family eligible for a subsidy?
It depends on your family income and how many children you have. Beginning in 2014, subsidies will be available to qualified individuals and families whose incomes fall in the range of 138 percent to 400 percent of the poverty line (assuming they buy a policy on a government exchange). At the top of the spectrum, an individual making just under $46,000 would be eligible for a subsidy, as would a family of four earning around $94,000.
"If you are self-employed and end up receiving subsidies, be careful to keep track of your earnings," warns Tyson. "If you end up making more than you thought you would in a given year, you could end up having to pay back part of your subsidy. Of course, the converse is also true: If you make less than expected, you may receive a refund."
•What happens if I don't replace my canceled policy?
If you do not replace your canceled policy with a qualified health plan, you will have to pay a penalty fee on your tax return. The penalty fee for 2014 is $95 per adult and $47.50 per child (up to $285) or 1 percent of your annual income - whichever is greater. This penalty rises sharply thereafter; in 2016 it will be $695 per adult and $347.50 per child (up to $2,085) or 2.5 percent of annual income - again, whichever is greater.
•Wouldn't it be smarter to just pay the penalty? (It's much cheaper.)
Certainly, some people will choose to go this route. Tyson has noted some anecdotal evidence suggesting that an, "If I get sick then I'll get insurance since people with pre-existing conditions can't be turned down" mindset is prevalent.
One problem with this strategy is that beginning in 2014 you can purchase subsidized health insurance (barring special circumstances like the birth of a baby) only during Open Enrollment - between Oct. 15 and Dec. 7 of each year. If you miss that window and get diagnosed with a serious illness in January you would have to wait many months to buy coverage on the government exchanges.
You can, however, purchase a policy outside the exchange at any time - but Tyson says banking on the ability to get insured quickly enough is risky.
"A major car accident or illness can happen too quickly to allow you to buy a policy," he notes. "The medical bills that you would rack up almost overnight could devastate most people financially."
•How long do I have to choose a new policy?
To avoid a penalty fee you must apply for a Qualified Health Plan by March 31, 2014. This deadline was extended from Feb. 15 due to serious problems with the healthcare.gov website. But don't let the extension make you complacent, warns Tyson.
"If your current health insurance policy expires at the end of 2013, you will still need to make a decision by Dec. 15 to be covered by your new policy on Jan. 1," he notes.
•How can I find the best policy for me?
There are several ways to do so. You can visit either healthcare.gov or your state's exchange (www.nystateofhealth.ny.gov) if you think you might be eligible for a subsidy. If you have an independent insurance agent you like and trust, it might be best to call her.
Regardless of how you purchase your insurance you will find that qualified health plans have one of four designations: bronze, silver, gold and platinum. Bronze plans have the lowest monthly premiums and the highest out-of-pocket costs. Platinum plans are the opposite: They have the highest premiums and the lowest out-of-pocket costs.
"Generally, the high-deductible bronze plans are the way to go for most relatively healthy people," says Tyson. "They have the lowest premiums. You just have to be disciplined enough to set aside money for the higher out-of-pocket costs that could occur. In fact, choosing a bronze plan that's compatible with a Health Savings Account is even better, as it allows you to set aside money for medical expenses on a tax-free basis."
•I've talked to several insurance agents and insurers and have heard conflicting information. How can I know what to believe?
Obamacare is deeply confusing and not just to consumers. The insurance company employees and agents have to learn many new rules and regulations and this takes time. That's why Tyson suggests you talk to several different insurers and agents and do a fair amount of research before making a decision.
"It's important to invest some time in this decision," he notes. "A woman told me she was looking for an HSA-compatible plan and, at first, her insurance agent told her the company was no longer offering them. The agent had been told this by two insurance company representatives. After making several more phone calls and asking some probing questions, the agent found out the company representatives had been wrong. If something doesn't sound right, it pays to keep questioning."
•Why is this happening only to individual policyholders? Is it going to affect people who get their insurance through their workplace?
Basically, most group policies already had more comprehensive (and expensive) coverage in place that met more of the standards of the ACA. So far it appears that most larger employer plans are seeing smaller changes. However, some employers are choosing not to offer coverage, asking employees to cover more of the cost, or deciding to go with more part-time employees (fewer than 30 hours/week) for whom they don't need to provide coverage.
"To see exactly what happens to most group coverage, we'll just have to wait," notes Tyson. "Almost certainly, though, some smaller businesses will face rate increases - and how this directly affects employee pocketbooks will vary wildly."
•It seems that this has happened to a lot of people in my state. However, I have heard from people in other states that their costs haven't increased. How can this be?
There are various reasons for the disparity. Experts suggest that costs spiked more dramatically in states that have fewer regulations on insurance to begin with. Thus, states that previously did not require insurers to provide benefits like preventative care and contraceptives now have to - so their prices necessarily rise. Also, in general, states where more insurers are competing for customers will have lower prices.
"The truth is, Obamacare is helping some people in the short-term and hurting others," says Tyson. "As a financial counselor, it is not my place to offer an opinion on whether this law is a positive or negative force for our country. I can only advise individuals to educate themselves, seek out the best value for their needs and their wallet, and go into this transaction - like any transaction - with their eyes open."
Five Ways to Cope with Higher Health Insurance Prices
•Don't just go with the plan mentioned in the cancellation letter. Shop around. When you hear people say, "My premium doubled!" they are generally referring to the comparable plan the insurance company suggested in the cancellation letter. But Tyson says not to take the number so literally - it's the price of just one of the possible plans available to you.
"Call your agent and ask to see a side-by-side comparison of various plans," he suggests. "Check out other companies. If you are eligible for a subsidy, check out the exchanges. Chances are you'll find something a little more reasonable if you're willing to make trade-offs in the area of deductibles and out-of-pocket expenses."
•Be patient and do your homework. "Talk to as many insurers and agents as you can," advises Tyson. "Spend some time on the computer. Ask friends and colleagues what they're doing. While you do need to be mindful of the end-of-the-year deadline, you don't want to rush into what is really a very important financial decision.
"Plus, keep in mind the deadline has already been moved once," he adds. "You never know, if the website problems don't get straightened out, it could be delayed again."
•If you go with a bronze plan, consider one that is compatible with an HSA. A bronze plan may be best for people who are generally healthy. These have the lowest premiums. Of course, they also have the highest deductibles, which means that in the event you do get sick, you'll have to cover more of your costs out of pocket. And that, says Tyson, is why it's important to select a bronze plan that's compatible with a Health Savings Account (not all of the bronze plans are).
Here's how it works: You open a Health Savings Account at your bank and contribute as much to it as you can each year. Because contributions are tax deductible, the government sets limits on how much you can set aside. In 2013 the limit is $3,250 for an individual and $6,450 for a family. In 2014 these numbers will go up to $3,300 and $6,550 respectively. This money grows, tax free, year after year so that you can use it to pay medical expenses that aren't covered by your health insurance policy.
"I have always recommended HSAs as a great tax-saving strategy, and now that deductibles are so high, they make more sense than ever," notes Tyson.
After all, if you have to have a high deductible anyway, it makes sense to at least get the tax break on the out-of-pocket expenses you have to pay.
•Do what you can to get and stay healthy. Chances are you will now be paying more out of pocket for non-preventative care, so good health has to become priority one, notes Tyson. Of course, health insurance is needed because some conditions are unpreventable, but there are plenty of others you can affect with lifestyle improvements.
"Obviously, if you smoke, stop now - smoking is the only 'preexisting condition' health insurance companies are allowed to charge you more for," he says. "But it's also important to start eating more healthfully, exercising, and losing weight if you need to. The healthier you are, the less you'll need to seek medical care - and the less you'll have to pay out of pocket for your care."
•Look for places to cut costs. Like it or not, many people are just going to have to come up with more money to pay the higher premiums and deductibles required under the Affordable Care Act. And most people do have some excess "fat" that can be trimmed from their budgets. We can dine out less, bargain shop, cut out expensive cell phone and cable plans, take less expensive vacations. In short, we can simplify - and that's not necessarily a bad thing, says Tyson.
"Some people may find that Obamacare is the impetus to reevaluate how they're living their lives," he notes. "Challenges have a way of bringing priorities into sharper focus. No one wants to pay more for their health insurance - but instead of focusing on the anger and fear we may be feeling, we can focus on slowing down and paying more attention to friends, family, simple joys, and the things that really matter in life."
Tyson is an internationally acclaimed and bestselling personal finance book author, syndicated columnist, and speaker. For more information visit www.erictyson.com.