Health Insurance Terminology and Technology Tools

Barbara O’Neill, Ph.D., CFP® Rutgers Cooperative Extension

oneill@aesop.rutgers.edu Twitter: @moneytalk1

Do You Understand Health Insurance?

• Take the 4-question quiz used by Loewenstein et al. (Journal of Health Economics, September 2013, p. 850-862)

• Only 14% of survey respondents got all 4

questions correct

Health Insurance Sources

• Employers

• Private Market (Individual/Family Policy)

• Government-Facilitated Exchanges

• Government Programs

Private Health Care Plans • Health Maintenance Organization (HMO)

– Contracts with selected care providers, – Requires a PCP and referrals; – Does not pay for out of network care – Focus is on prevention and wellness

• Preferred Provider Organization (PPO) – Network of providers to choose from – Costs more than an HMO – More choices, fewer restrictions than an HMO – If you go to a non-PPO provider, you pay more

• Point-of-Service (POS) – Combines features of HMOs and PPOs (referrals, out of network claims)

• Exclusive Provider Organization (EPO) – Exclusive network of providers; does not require a PCP and referrals

• Employer Self-Funded Health Plans – Company runs self-insured insurance program – Collects premiums from employees; pays medical benefits as needed

Government Health Care Programs • Medicare

– Federally funded health insurance program – Covers those age 65+ and certain disabled persons – Does not cover everything – Patient liable for the difference in costs – 4 parts: A, B, C, D

• Medicaid- Health care program for the poor that is jointly administered and funded by the federal and state governments

Other Health Insurance • Hospital Indemnity

– Pays you a fixed amount for each day you are hospitalized

– Does not cover medical costs

• Dental Expense Insurance – Covers exams, cleaning, x-rays, fillings, root canals, and oral surgery

• Vision Care – Exams, contact lenses, and glasses

• Dread Disease Policies – Pays for very specific conditions (e.g., cancer) – Illegal in many states

• Long-Term Care Insurance – Virtually unknown 30 years ago – Covers daily help if seriously ill or disabled – Nursing home, assisted living, and/or in-home care

9-6

Key Terms • Health Care Plan- Generic name for any program

that pays or provides reimbursement for health care expenses

• Group Health Care Plan – Health coverage sold collectively to an entire group of persons rather than to individuals

• Open Enrollment Period – During this time, you can begin or make changes in coverage or switch among alternative plans

– Requirements are generally waived for family changes (e.g., birth of a child, adoption, marriage)

Policy Features That Limit Coverage (All Types)

• Benefit coordination clauses

• Deductible

• Elimination period

• Co-payment

• Co-insurance

• Policy limit

Five Key Health Insurance Terms

• Deductible

• Copayment

• Coinsurance

• Out of-Pocket (OOP) maximum

• Premium

Definitions • Deductible: The amount you pay for medical costs each year before

your health plan begins to pay.

• Copay: A set price for some health care (for example, $25 per office visit). Some plans don't have a copay.

• Coinsurance: The costs you and your health plan share. For example, you pay 20% of the cost of a doctor's office visit or hospital stay, and your plan pays the other 80%. Some plans do not have coinsurance.

• Out-of-Pocket Maximum: The most you have to pay for covered medical costs in a year.

• Premium: The monthly amount you pay for your health plan. Usually a lower premium comes with a higher deductible.

Reference: https://www.bluecrossmn.com/Page/mn/en_US/how-health-insurance-works

Health Plan Example You’ve had a serious accident. Your medical bills are $50,000. Below is information about your health plan:

• Annual deductible: $5,000 (High-Deductible Plan) • Coinsurance: 20% • Annual out-of-pocket maximum: $6,000 In this example, you pay the first $5,000 in medical costs (deductible) before plan starts paying. After that, you're responsible for 20% of costs until you reach the $6,000 out-of-pocket-maximum. Health plan then pays the rest of covered costs for the year, no matter how high they are.

• Total $50,000 • You pay: $6,000 maximum ($5,000 deductible + $1,000 coinsurance) • Health plan pays: $44,000 Reference: https://www.bluecrossmn.com/Page/mn/en_US/how-health-insurance-works

You Figure This One Out Your health insurance policy requires the payment of an annual deductible of $500 per person or $1,000 per family. After meeting the deductible, you must pay 20% of covered charges until you reach the OOP Maximum of $5,500. Assuming no previous medical bills, if your child requires emergency surgery and total covered charges are $20,000, all incurred in the same plan year, how much will you end up paying out of pocket?

Calculation Process • Determine if annual deductible has been met

• If not, subtract deductible from medical bill

• Multiply remaining amount by the copay percentage paid by the insured (e.g., 20%)

• Compare the co-pay calculation to the health plan’s Out of Pocket Maximum amount

• Determine your OOP cost by adding together the deductible and coinsurance up to the Out of Pocket Maximum amount

Math Calculations 1. Deductible for first person: $500 2. Remaining balance: $19,500 3. Coinsurance: $19,500 x .20 (20%) = $3,900 4. $3,900 is under the $5,000 OOP Maximum 5. You pay $4,400: $500 + $3,900 6. Insurance pays $15,600 ($20,000 - $4,400)

If bill was for $40,000… 1. $39,500 x .20 = $7,900 (> $5,500 OOP Maximum) 2. You pay $5,500: $500 + $5,000 3. Insurance pays $34,500 ($40,000 - $5,500)

The Cost of Health Care • 3% increase in employer health plan cost (Kaiser)

• Average family plan premium: $16,834 in 2014

– 29% of family plan premium ($4,823) paid by employees

http://online.wsj.com/articles/cost-of-employer-health-coverage-shows-muted-growth-1410357841

• 22% of large employers offered ONLY high-deductible plans in 2014; predicted to be almost 1/3 in 2015

• Employers want to curb costs and motivate workers to “shop around” for medical services; very hard to do

http://www.nytimes.com/2014/09/02/business/increasingly-high-deductible-health-plans-weigh-down-employees.html?_r=0

Health Care Reform • About 8 million people picked plans through exchanges in 2014;

estimate of 13 million in 2015: http://online.wsj.com/articles/health-law-coverage-expansion-gets-tougher-1411944893

• “Some of this population has never had insurance. They may not even know the term copay”

• About 85% of people who enrolled in private coverage through the ACA obtained premium subsidies, according to HHS: http://online.wsj.com/articles/hundreds-of-thousands-face-health-law-subsidy-deadline-1412006417

• Effective March 31, 2014, Americans must be enrolled in a health insurance plan

• With few exceptions, if you are not insured, and your income is over 138% of the FPL, you will be required to pay a penalty (tax) on income tax return

– Penalty for no coverage is rising from $95 for adults or 1% of family income, whichever is greater (2014), to $695 or 2.5% of family income… (2016) http://kff.org/infographic/the-requirement-to-buy-coverage-under-the-affordable-care-act/

ACA for Consumers: The Individual Mandate

Essential Health Benefits Qualified Health Plans in the Marketplace must cover:

Ambulatory patient services Maternity and newborn care

Emergency services Prescription drugs

Mental health and substance use disorder services

Laboratory services

Rehabilitative and habilitative services and devices

Chronic disease management

Preventive and wellness services

Pediatric services, including oral and vision care

Different Levels of Plans • 4 Levels of Coverage – Bronze, Silver, Gold, and

Platinum

• Each has a different value for level of coverage • Bronze: 60%. Silver: 70%. Gold: 80%. Platinum: 90% (adequacy

values, how much plan vs. insured pays) • Any costs not covered by the plan are paid by individuals through

deductibles, co-pays, co-insurance

• Each plan level must cover same minimum essential health benefits

• What differs is amount of cost-sharing required • Example: Bronze plan will have the least generous coverage (60%)

with more out-of-pocket costs

Health Insurance Subsidies Two provisions to lower health insurance premiums and out-of-pocket costs for LMI households • Premium Tax Credits- Help people pay monthly cost of

having a Marketplace plan; based on family size and household income from 100% (138%) to 400% of FPL

• Cost-Sharing Reductions- Decrease the charges that people having a Marketplace plan must pay OOP for deductibles, copayments, and coinsurance; must have income up to 250% of FPL and be enrolled in a Silver plan

Advanced Premium Tax Credit (APTC) vs. PTC

APTC • Determined by the

Marketplace during application process

• Based on estimated household income and family size

• Paid to insurance company on behalf of consumer on a monthly basis

PTC • Determined by tax law

with submission of federal tax return

• Based on actual household income and family size

• Paid to consumer (taxpayer) after the end of tax year

APTC Reconciliation • IRS will reconcile total APTC received during the year

with amount of PTC that people actually qualify for

• This is done when people file their income tax return

• If APTC was < PTC amount on Form 8962, refund will increase by the difference or taxes owed will be lower

• If APTC was > PTC amount on Form 8962, the

difference will increase the amount owed and refund will be smaller or there will be a balance due

Fees Related to ACA Non-Payment

• Refunds (current year or future years) can be attached by the IRS to pay an ACA penalty due to – Having taken too much APTC – Not having insurance

• If no refund, amounts owed due to ACA penalty and ordinary income tax will be “separated” and not treated the same

• Congress did not give IRS authority to prosecute or use liens/levies for those who don’t pay health care fee

https://www.healthcare.gov/fees-exemptions/fee-for-not-being-covered/ http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision

Compare Available Options

Benefits Premier Plan Standard Plan

In Network Deductible $500 / $1,000 $1,000 / $2,000

Out of Network Deductible $1,000 / $2,000 $1,500 / $3,000

In – Network Co-Pay per Office Visit Co-insurance

$20 PCP/ $40 Specialist 90% after deductible

$30 PCP /$50 Specialist 80% after deductible

Out of Network Co-insurance 70% after deductible 60% after deductible

Compare Available Options

Tier 1

Tier 2

Tier 3

Retail

$10 Co-pay 30 Day Supply

$30 Co-pay 30 Day Supply

$50 Co-pay 30 Day Supply

Mail Order

$20 Co-pay 90 Day Supply

$60 Co-pay 90 Day Supply

$100 Co-pay 90 Day Supply

Health Care Savings Accounts

• Health Spending Accounts (HSAs) – Money contributed by workers to a pre-tax dollar account – Must have a high-deductible policy

• Health Reimbursement Accounts (HRAs) – Also tied to high-deductible policies – Funded solely by employer – Unused funds carried over to next year

• Flexible Spending Accounts (FSAs) – Workers contribute pre-tax dollars – Funds managed by employer – Unused funds are forfeited

Healthcare.gov

Annual Limits Publication

“The Bible”: Annual Limits Relating to Financial Planning (College for Financial Planning): http://www.cffpinfo.com/annual-limits/

ACA Income Tax Resource New IRS Publication 5187: Health Care Law: What’s New for Individuals and Families http://www.irs.gov/pub/irs-pdf/p5187.pdf

University of Maryland Extension Smart Choice

Health Insurance Workbook • https://www.extension.umd.edu/sites/default/files/_im

ages/programs/insure/My%20Smart%20Choice%20Health%20Insurance%20Guide%204-3-13.pdf

• Uses “Rule of Three” approach (compare 3 options)

SHIP

Health Insurance Terms Video

https://www.youtube.com/watch?v=kT3H9pBP8fg

PPO and HMO Video https://www.youtube.com/watch?v=ii2H5eCGxx8

How Do I Choose the Healthcare Plan That’s

Right for Me? Video https://www.youtube.com/watch?v=ai38NtMyJwk

How Can You Get the Most Out of Your Health

Insurance? Video https://www.youtube.com/watch?v=-5rUVkRK7zI