By David Ross
Every American under age 65 has one of three kinds of health insurance. Either you have government health insurance, private health insurance, or you're self-insured.
What does it mean to be self-insured? It means if you have a medical bill, you're expected to pay it. If you don't have cash to pay the bill, or can't get a loan to pay the bill, then your assets – house, car, whatever you own – can be taken from you in a lawsuit. Bankruptcy may be your only means of eliminating your medical bill debt.
The whole point of health insurance is this: To transfer risk from you to an insurance company, in exchange for a certain sum of money, known as the premium. You pay a small amount now so you won't have to pay a large amount later.
If you don't have health insurance, you're liable.
By government insurance, I'm not talking about health insurance provided by a federal or state agency to its employees.
I'm calling “Obamacare” government insurance. Through the misleadingly-named Affordable Care Act, the federal government has mandated certain requirements and coverages by health insurance policies that are offered through the federal or state “exchanges,” now known as “The Marketplace.”
Policies offered through The Marketplace are required to provide certain services, known as the 10 Minimum Essential Benefits. Don't be fooled by the phrase – there's nothing “essential” about some of the benefits. Since the law doesn't allow for any kind of discrimination, maternity coverage, for example, is required for males and post-menopausal women. Pediatric services must be included, even if the policyholder has no children. Coverage is required for substance use disorder services, including behavioral health treatment, counseling, and psychotherapy... even if you don't want or don't need such services.
Additionally, government insurance – Obamacare – forbids the rejection of any applicant. It's guaranteed-issue health insurance, which means that already-sick people must be accepted. While this may be great for already-sick people, it drives the cost of the policy to astronomical heights. This is why so many insurance companies have abandoned selling through the Marketplace. The “risk pool,” i.e, the group of people being insured, has become heavily weighted with people who are running up high medical bills because of their pre-existing conditions.
Insurance companies must charge higher premiums so they have money to pay the claims of so many sick people. In every year since the ACA went into effect, premiums have risen by double-digit percentages, and each year, fewer and fewer insurance companies are selling their policies in The Marketplace.
Contrary to popular belief, insurance companies aren't “getting rich by jacking up prices.” As part of the ACA law, insurance companies that sell in The Marketplace must return 80% of the premiums they receive in claims benefits. That leaves a 20% gross profit, from which they must pay salaries and other business expenses. Can your business thrive on a 20% gross profit?
Many people get “tax subsidies” which reduce their cost of Obamacare health insurance. When asked what the true cost of an Obamacare policy is, they usually have no real idea. They think that the $75 or whatever they actually pay is what the policy actually costs. In reality, it costs (and taxpayers are paying) five to ten times what the policyholder pays.
Obamacare policies also usually have very high deductibles that people don't figure into their “low-cost” insurance. If you have to pay $5,000 to $7,500 of your medical expenses before the policy begins to pay anything, how much is the insurance really costing you?
Stuck in the Middle
Many Americans feel “stuck in the middle,” wanting health insurance but not being able to afford it. Small business owners, especially, are feeling the pain. Owners earn too much money to qualify for government subsidies to help pay the high price of an Obamacare policy. If you don't qualify for subsidies, the price of insuring yourself and your family with government insurance is truly staggering. A family of four may have a monthly premium of $1,400-$1,800 or more a month for a basic Obamacare plan! That is not “affordable health care” for very many people. Many of these people have said “no more!” and have by default become “self-insured,” risking their assets and their future on the hope they will never get sick or be involved in an accident that requires medical care.
Private Health Insurance
There are at least two alternatives to Obamacare and to being “self-insured” — group health insurance and personal health insurance. Both are referred to as private insurance, to distinguish them from government-mandated Affordable Care Act policies.
Group Health Insurance
If you're employed by a midsize or large company, chances are that you have or have been offered group health insurance. By law, in most cases, if a company offers group health insurance, the employer must pay at least 50% of the premium for the employee. Some employers also help pay for some or all of the coverage for employee's families.
The amount paid per person on a group policy is determined by how healthy or how sick the group is, on average. One person who has had a high claims can raise the rates for the entire group when it's time for a renewal. Already-covered employees can't be bumped from a group plan, but their being in the group does indeed affect rates for everyone.
With group health plans, there is but one policy covering all participating employees. Each member of the group is insured under one policy. New employees can be added to the policy, and retiring or terminated employees are usually dropped from the policy. Coverage is not portable; you can't take it with you, except under COBRA laws, which allow an employee who leaves the company to be covered for up to 18 months. The downside here is that the employee must pay the entire premium without contributions from the employer.
Group plans usually have deductibles, and may or may not allow you to see certain doctors or have certain treatments. The guidelines are spelled out in the policy, and depend on agreements between the insurance carrier and the employer. Some of the requirements are mandated by state or federal laws, but not to the extent that individual Obamacare policies are.
Individual Health Insurance
Personal health insurance has been around a long time. The idea is simple. You pay a certain amount each month to an insurance company in exchange for the company accepting the risk that you will have medical expenses. It's a contract between the customer and the carrier. What is or is not covered is spelled out in the policy, and prices are set based on your age and health status.
The insurance company evaluates the risk of covering you. It can decline to accept you, or charge you more, or “rider out” (not cover certain health conditions), based on your health status. Certain pre-existing conditions may make you uninsurable, because the risk to the company is more than they are willing to accept.
Many people are offended by the above paragraph, or think it's “unfair.” Those people forget that insurance – health insurance, life insurance, homeowners and car insurance – is a business, not a birthright.
Personal, private insurance is much less expensive than insurance policies sold in the ACA-compliant Marketplace. It usually costs 30-50% less. Why? Because the risk pool — people covered by a certain company — are healthier and will have statistically fewer claims, costing the insurance company less money. Why are they healthier? Because unhealthy people weren't accepted as policyholders.
Contrast that with ACA-compliant Obamacare policies that by law must accept anyone who applies. With Obamacare, the insurance companies have a huge risk pool of already-sick people, running up massive healthcare bills. This is why so many insurance companies have pulled out of The Marketplace. Obamacare just isn't a good business model.
If you work for a company that offers group health insurance, take it. Consider yourself one of the fortunate ones. Keep in mind that you may lose coverage if you leave your employer.
If you have pre-existing health conditions that would keep you from being covered under private health insurance, or if you have a low income which qualifies you to get subsidies, then sign up for Obamacare. You may still have to meet a high deductible before you can actually get any useful benefits from the policy, but at least you're covered in the event of a major medical catastrophe. Consider also buying a private supplemental plan, also known as a GAP Plan, to help cover your deductible.
If your income is too high for subsidies, or if you're fundamentally opposed to socialized health care a.k.a. Obamacare, get a private health insurance policy.
Here's the takeaway from your having read this far: Do not let yourself be self-insured. Unless you're a multi-millionaire, an unexpected sickness or accident can bankrupt you.
David Ross is a licensed life and health insurance agent providing both group and individual health insurance policies, as well as supplemental GAP plans, cancer plans, life insurance, and dental insurance. Call 678-654-9500 or email him at firstname.lastname@example.org. Visit his website at http://davidrossandassociates.com.
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