Individual Health Insurance 101

Recently, I had the opportunity to sit down with a friend of mine to discuss health insurance. Admittedly, this is one of my least favorite insurance subjects just because it is so unclear. Individual plans are often confusing in their pricing, while group plans are rarely a “one size fits all” option. It always seems that no matter which type of plan you choose, someone is unhappy. However, individual health insurance is a vital piece in your business’ risk management puzzle. With that in mind, let’s unwrap the confusing world of individual health insurance.

Follow along with the Financially Simple podcast:

Podcast Time Index for “Individual Health Insurance – Interview with Expert Michael Crane”:

• 01:08 – Health Insurance
• 02:49 – What is Health Insurance
• 03:41 – In Network & Out of Network
• 04:34 – Co-Pay
• 05:18 – Out of Pocket Deductibles
• 09:07 – Types of Plans
• 10:56 – Grandfathered Plans
• 14:03 – Health Savings Accounts
• 15:59 – Scenario for Business Owners
• 18:51 – MediShare Plans
• 20:01 – What if You Can’t Get Insurance
• 21:11 – Wrap Up

Many thanks to Michael Crane with the Crane Group in helping with this article.

Health Insurance Basics

In its most basic form, health insurance is a means of buying access to doctors at a prenegotiated rate. Health insurance companies begin by determining how much they are willing to pay for a set of services and then negotiate their terms with the physician. If the doctor agrees to the pricing, they become an in-network healthcare provider. If you choose to see an out of network doctor, your insurer may not cover the full amount of the bill, if any at all.

Most health insurance plans will carry some form of a co-pay. Typically, the amount of the co-pay is listed directly on your insurance card and is broken up into categories. For example, you might have a $50 co-pay at your doctor’s office, but pay $100 for a trip to the emergency room. You might think of a c0-pay as your entrance fee for each medical visit.

Explaining Deductibles

Just like auto insurance, your health insurance carries a deductible. The deductible rate is the amount of money that you agree to pay towards your medical expenses before the insurance kicks in. A higher deductible will usually lower your monthly premiums, while a lower one will raise them. It is important to note that the deductible and out of pocket expenses are not exactly the same thing.

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Let’s say you’re hiking in the mountains of East Tennessee and you stumble over a rock, breaking your legs. After getting x-rays and casts, you receive a bill for $10,000. Assuming that you have a $5,000 deductible, you are automatically responsible for half of the total bill. However, you still have your co-insurance percentage or out of pocket expense to consider.

If you have a 20% co-insurance rate on a $12,000 total maximum out of pocket, this means you will cover 20% of every medical expense until you have reached that $12,000 total. In our previous scenario, you have now met your deductible but there is still $5,000 remaining on the bill. Despite the fact that your deductible is paid in full, you still owe 20% of $5,000, which is $1,000. Thus your total out of pocket cost for this emergency room visit is $6,000.

Since you have met your deductible, you only have to pay the 20% out of pocket for any services you receive for the remainder of the year until you reach the total maximum. Once you have reached your total maximum out of pocket cost, the insurance company pays 100% of the claim.

Individual Health Insurance Plans

When choosing your plan, you have three basic varieties. The individual plan is found in the individual marketplace and is a product of the Affordable Care Act. Insurance providers are not allowed to discriminate on the basis of previously existing conditions when providing an individual plan. Without a qualifying event, you must purchase an individual policy during the open enrollment period between November 1st and December 15th.

At this point, you might be saying, “Justin, what do I do if I’m uninsured and I don’t have a qualifying event to allow me to enroll in an individual policy before the open-enrollment period?” Well, that’s where a short-term medical plan can be very useful. You can get a short-term medical plan to carry you for up to 364-days until the next open-enrollment period. There is a downside to this type of plan, however. It is susceptible to health exclusions for pre-existing conditions.

The Truth About Medi-Share Plans

Another option for individual health insurance is what’s known as a medi-share plan. Technically, a medi-share policy isn’t really insurance. Rather, it is a large group of people who are sharing the medical expenses. These plans are backed by a reinsurance plan to help cover the larger costs.

The major benefit to a medi-share plan is that because it is not insurance, it’s not as highly regulated. Therefore, medi-share plans are able to have a lot more control over their pricing. Furthermore, a medi-share policy is based on your individual health. The higher your health risk is, the greater your premium will be.

Once again, there are limitations. Depending on the organization that is backing the medi-share plan, they may or may not cover certain claims. For example, with one of the Christian Ministry plans, they will not cover you in the event that you are injured in an accident that is caused by drunk driving. So it’s important to really understand the pros and cons of each type of coverage when choosing the one that is best for you.

Insuring The Uninsurable

Now that you are equipped with the basic individual health insurance information, you can feel a little more confident when choosing a plan. What do you do if you or a loved one is deemed uninsurable though? The short answer is to enroll in an individual plan during open enrollment. Because they are bound by the affordable care act, individual plans have no restrictions on pre-existing conditions.

While you are waiting for open-enrollment, your best option is to get a short-term plan to cover yourself or your family member until then. There will be individual underwriting for each person covered by the plan and it may not be a perfect situation, but it can be the safety net that’s needed until you are able to enroll in the individual marketplace. I am not a licensed insurance expert so it is important to speak with a licensed agent to determine which option is best for you. Insurance can be complicated, but with the right guidance, it can at least be financially simple.

Be sure to check back for my next installment in the risk management portion of Personal Finance for the Business Owner, as I will continue to look at health insurance from the perspective of the business owner. Until then, let’s at least keep things financially simple!