Hi. This is Mr. SixFiguresUnder. Because today’s topic is one that I like more than Stephanie, she has graciously allowed me to handle it. The topic: health insurance.
We get frequent comments and questions from readers on our budget items. Several people have asked about our health insurance and if/how it has changed under Obamacare (technically, the Patient Protection and Affordable Care Act, which I’ll just call the “ACA”). The short answer is that rather than paying $453/month in premiums, as of January 2014, we pay $114/month, leaving an extra $339 to go toward debt each month. The longer answer continues below.
When we moved to California and looked for insurance, the best individual plan we could
find in our area was available only to members of the California Farm Bureau. It was so
much better than any other plans that we joined the Farm Bureau as associate members,
happily paying the $72 annual membership fee to save hundreds of dollars on our insurance premiums. Because it was a high-deductible policy, monthly premiums were only $394 for our family of five. (See my discussion of the benefits of the high deductible plan in the comments to this post.)
By the end of 2013, our monthly premium had increased to $453. The increase was
due largely to the ongoing implementation of ACA provisions requiring insurers to cover
additional types of medical risks for all insured. Even so, $453 was considerably less
than any other comparable policy, so we happily continued.
On January 1, 2014, our plan, like most high deductible plans, was discontinued because it
was deemed “substandard” under the ACA. We needed new health insurance. The much-discussed “individual mandate” in the ACA requires every individual in the country to have health insurance that meets ACA standards, and prescribes a penalty for those who don’t. While the penalty for this first year is minimal, it increases over the next several
years to become very substantial. The penalty, however, wasn’t the main issue for us. We simply won’t go without health insurance, especially with kids as reckless as ours.
With the new ACA requirements for policies beginning in 2014, insurance premiums went up for most people, very substantially for some. Because our preferred style of high-deductible policy was now extinct, we were faced with a bunch of vastly more expensive options. Of course, the government foresaw this and the ACA provides subsidies for lower income folks facing a higher premium in 2014. I’m not crazy about signing up for taxpayer funded subsidies, but paying the entire premium of any ACA-approved policy with coverage worth having would have put an enormous hole in our already tight budget and cut out any meaningful payoff of our student debt.
Here in California, the way to obtain the ACA subsidy is to purchase a policy through Covered California, our state online insurance exchange. There are a total of four insurance providers who offer exchange plans in our area, so it was easy to choose. Because of our income, we qualify for an Enhanced Silver plan, which means that although the monthly premium is more than 2.5 times that of our old premium, we only pay $114 of it. The taxpayers pay a subsidy of more than $1000 a month to cover the rest of the cost of our plan. I don’t mind the smaller premium, but I would honestly rather have our old plan, where it cost more to us, but we could take care of it ourselves. Given our minimal historical use of medical services, it’s unlikely to make a lot of difference in our actual medical bills, although if we did use medical services heavily, it would take us longer on our new plan to reach our maximum out of pocket amount.
An unexpected twist was that to qualify for a subsidized exchange plan, I had to convince my employer to NOT offer me insurance. One of the normal benefits of my position would be health insurance, fully paid, for me, but none of my dependents. The trouble with that is that the ACA does not allow subsidies for any dependents of a person who has been offered affordable insurance through work, even if the work policy doesn’t cover dependents. So if I had been offered my normal benefit (even if I chose not to accept it), we would have been stuck paying the unsubsidized version of our new policy’s premium. That premium would equal almost half our monthly income, which is just not doable.
I explained the situation to my firm’s partners. They changed the employee benefits rules, and I no longer qualify for insurance. This seems like a backwards way of going about things, but many small businesses faced with the same situation have simply dropped insurance as a benefit because if they can’t provide it for the employee’s whole family, they’re actually making it worse for him by offering it just to him. Some of those businesses have also given a one-time raise to employees in the amount the business used to pay for insurance, to help the employee with the premium on their exchange-offered plan.
Getting insurance through the exchange wasn’t as easy as jumping online and signing up. We had some serious technical problems with the website. We couldn’t even look at plans for the first month after the site was open, and couldn’t sign up for a plan for another month. When we finally got signed up, they lost all of our information and we had to mail paper versions of application information instead. Without the help of a local insurance agent, there was no way we could have completed signup. He pushed our application through when we reached a total impasse, twice. However, in the end, we got through it, and we are now insured.
One thing I have to be careful about is to watch and report any changes in income to Covered California. Our subsidy level is determined by the estimates of income for this year we made when we applied for the plan. If our income goes up faster than expected, the ACA requires that we report the new income to the exchange, which will adjust our subsidy accordingly. If we don’t report, then the overpaid subsidy, plus penalties, hits us on next year’s tax return. This rule applies to anyone receiving an ACA subsidy who experiences a change in income.
So that’s that. Under the ACA, we pay about 25% of what we used to pay for health insurance. The taxpayers subsidize our policy at an amount about 250% of our old premium. We expect our medical bills to remain about the same. This should free up $339 each month from our previous budget to contribute toward debt repayment. Every little bit helps!
What about you?
- How has the federal health insurance overhaul affected you and your budget?
- Have there been any unexpected side effects for you?