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originally published October 15, 2010, updated October 18, 2012
The passage of federal health reform law in 2010 triggered much change in consumer reaction to individual health insurance and medical care risks. Some of these changes were unanticipated by the insurance industry and our lawmakers. Never before have consumers had so many public and commercial health insurance options available. While traditional insurance remains unaffordable for many, the expansion of lower cost limited benefit plans now dominates state Medicaid plans as well as employer-provided and individual insurance markets. We anticipate this mini-med approach will eventually expand to Medicare, the nation's largest health plan.
Whether are covered under an employer's plan, a public health plan or private individual insurance, the coverage options are staggering. The primary issue most people mention is identifying and evaluating the various choices available. It doesn't help that a few unscrupulous health plans intentionally use misleading language to add to the confusion. This article outlines the options now available to individual consumers to improve benefits and reduce overall costs as well as a warning to avoid potential traps.
Recognize that health costs will take up a greater portion of our household budget in the future. In the past a typical middle-income American spent the largest amount of personal income on mortgage or rent, followed by car or transportation expense and then by health care costs at third place position. Like it or not, the majority of us alive today will live to see our health care costs become our single largest expense, surpassing car expenses and approaching the amount we now spend on a mortgage or on rent.
As a benchmark, some consumer finance advisers now suggest spending no more than 25% of your after-tax household income (take-home pay) on housing and not more than 13% of automobile expense. Health insurance should be budgeted at about 10% of take home pay and Health Savings Account savings (or other savings available for health care should be no les than 10%.
For the past five decades the focus of health insurance payments was on directly paying the doctors and hospitals that provide care. Yet the primary cause of financial stress and even personal bankruptcy of a person who underwent medical care is not triggered by medical bills but rather by ordinary expenses. Now most of the new commercial individual health insurance plans at Freedom Benefits and other commercial insurance exchanges offer the option of paying benefits directly to you. You can use the money where it is needed most - to cover lost wages and make payments to the mortgage, rent, auto or consumer debts. These are likely a higher financial priority and a more immediate source of stress for most of us than the bills of the doctor or hospital.
In the past families could often improve health coverage and save money by putting family members with high expected health costs on a different insurance plan than those healthy members with low expected health costs. A common example is a family with an autistic child. Autism treatment is a covered item under most health plans today, but the out-of-pocket cost is likely to be a few thousand dollars per year under most employer=provided health plans. In the pat it made sense to put the child on a CHIP plan or other individual health insurance plan with a low deductible with low co-payments while the rest of the family, without these expected health care costs, stayed on a high deductible policy. That strategy still works now, but only for adults. Child-only health insurance policies are no longer available in the commercial health insurance market.
2010 reforms had a two-edged result: children are guaranteed coverage under a parents' policy but can no longer enroll in major medical insurance on their own. In most cases those looking for child-only coverage do so because they anticipate that the child's medical expenses will be significantly more than the parents' expenses. In other words, we are primarily concerned with "sick child policies". Current options for child-only coverage, other than parents' policies, are 1) CHIP plans, 2) limited benefit student polices, 3) guaranteed issue commercial mini-med insurance plans or 4) short term major medical insurance. Individual commercial major medical insurance will likely be available to children again within the next few years.
Adult children up to age 26 have the option of returning to parents' health insurance plan when necessary. They prefer plans with no deductibles that can be used for the most common type of medical care, including healthy doctor visits for routine exams, blood tests and gynecological care. Freedom Benefits offers these plans at a price comfortably less than $100 per month in most states.
Make sure that you know about the availability and the enrollment procedures for the parents' policy just in case it is needed. Enrollment may be restricted to certain time periods and triggered by specific events.
This web site is independently owned and managed by Tony Novak operating under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator". Opinions expressed are the sole responsibility of the author and do not represent the opinion of any other person, company or entity mentioned. Tony Novak is not an agent, broker, producer or navigator for any federal or state health insurance exchange but may provide uncompensated advice, reviews and referrals to these official resources. Novak is compensated as an accountant, adviser, affiliate consultant, marketer, reviewer, endorser, producer, lead generator or referrer to some of the other commercial companies listed on this site. Information is from sources believed to be reliable but cannot be guaranteed.