The ICHRA (Individual Coverage Health Reimbursement Arrangement) is a new insurance model for company healthcare. Employers offer tax-free stipends that employees can use to purchase their own individual health insurance plans, leading to greater choice for employees and fixed costs for employers.For Brokers & Advisors
It’s officially “open enrollment season” -- the once-per-year opportunity to enroll in benefits for the following year, which includes health insurance. Though tempting to close your eyes and select the default option or simply hit “Next” on multiple screens, we believe that spending a few minutes to understand your health insurance options could save you thousands of dollars down the road.
Health insurance plans may be offered through your company or on the individual market. Individuals can buy plans on the public marketplace or a private exchange like Stride and HealthSherpa (don't sweat -- all 3 options are nearly identical in price and selection).
Health insurance boils down to two concepts: risk and cost. When it comes to your health, risk includes getting sick or injured and needing medical care. As we all know, this can get expensive fast. Generally, the cheaper your plan, the bigger your bill if something goes wrong and you need to pay for medical care. The more expensive your plan, the less you will end up paying if you have a lot of medical expenses. Cheaper plans = more risk, more expensive plans = less risk.
If you are young and healthy, you might decide you are open to taking on more risk and buying a cheaper plan. If you have a family with kids or a certain health condition, it could make a lot of sense to pay more upfront and get really great coverage if you need expensive medical care.
There are 6 key features to understand when choosing your health plan: the premium, deductible, coinsurance, copay, out-of-pocket max, and network. We explain each in detail below.
Premium is what you pay every month. This will stay constant throughout the year and you must continue paying it to remain covered. This cost can range from $300 to $2,000 per month, depending on the plan features (discussed below).
If you work for a company, they will typically cover 50-100% of the cost. The portion of the premium that you pay will be tax-free, which can save you ~30% - 40% depending on your tax bracket. Pretty nice! If you work for yourself or a small business and buy your own plan on the individual market, you can take advantage of recent rule changes and use an HRA to get all the same tax savings that big companies get.
In the event you need medical care, the deductible is the dollar value that you pay before your health insurance policy kicks in. You can think of this as the amount you are on the hook for before your insurance company starts footing the bills. The deductible will typically range from $0 to $8,000+.
For example, if you were to get a $2,000 x-ray and your deductible is $2,000, you would be responsible for the full cost of the x-ray. Any future expenses for the plan year will be covered by your health insurance policy (according to the features below).
One thing to note is that preventative care is typically included in policies and does not affect the deductible. This means your annual physical and vaccinations are likely covered, so be sure to get your routine check-ups!
Coinsurance is a percentage, which means that after you hit your deductible, you could still be on the hook for some portion of the medical cost. If your coinsurance is 50%, after you meet your deductible you will still cover 50% of any medical expenses. Your health insurer will cover the other 50%.
Copays are fixed dollar amounts that you pay for doctor visits, including primary care, specialists, and prescription drugs. Plans can include copays before or after you meet your deductible -- it depends on the details of the individual plan. Any additional costs for these visits or drugs will typically be covered by the health insurer and will not affect your deductible.
Remember, preventative care like your annual physical will typically be covered without copays.
In a year where you have many medical visits or drug costs, the out-of-pocket maximum becomes relevant. This dollar value is the most you can expect to pay in any plan year. After the sum of your personal costs from the deductible, coinsurance, and copays hits this amount, your insurance company will cover 100% of all other medical expenses. Every year, the government sets a limit on how high out-of-pocket maximums can be.
We think of this number as your total risk exposure in any given year. In the worst case scenario, this is the most you will have to pay.
The network is the group of hospitals and providers that have already agreed to work with your insurance carrier. Many health plans reduce their coverage, which increases your out-of-pocket cost, for any medical visits to doctors or facilities that are not in a specified network.
For many plans, coinsurance rates will be much higher, meaning you will be responsible for more of the cost if you see out-of-network doctors. For some plans, out-of-network costs are 100% on you.
As a general rule, always look up whether a facility is in-network with your health plan before a visit. If there is a specific doctor you like, ask the insurance carrier if that doctor is in-network before selecting their health plan.
The diplomatic answer is it all depends on your own unique characteristics. But no-one likes diplomatic answers, so we've put together a few scenarios.
Given how expensive medical care can be and the risk of large hospital bills, we strongly advise getting a health plan, even if it's basic. If money is tight, check to see if you qualify for Medicaid or visit the individual marketplace and see if you qualify for insurance premium subsidies, which will reduce your monthly cost.
If you are looking for the lowest cost plan, you'll want to look at the high deductible plans. Just remember that, in the case of illness or injury, you could end up paying more with a high deductible plan.
If you are in this bucket, you probably want a high deductible plan. You will pay a lower monthly premium, but will pay more if you get hurt or sick. Still, it's much better to have insurance, even a high deductible plan, if you have a major accident or sickness with huge medical bills.
You should also look into pairing your plan with a Health Savings Account (HSA), which is a 401k for healthcare that you can use with high deductible plans. HSAs allow you to put aside tax-free funds for all future out-of-pocket health expenses.
You may consider a low or medium deductible health plan. You could look for deductibles between $200 and $1,000, depending on what amount you are comfortable paying. Make sure to look over the other plan features, as you may want a plan that applies copay rates for medical visits before you have hit your deductible.
Let's face it... kids are great but constantly get sick or injured! Given this uncertainty, or if you yourself have a known condition, you probably want to look for a low deductible plan, ideally also with low coinsurance and copays. Premiums will be higher but the cost is likely well worth it.
We hope this guide is helpful in demystifying health insurance. Happy shopping this open enrollment season!