ON THE MONEY: The new health insurance paradigm
The State of South Carolina, like 36 other states, does not offer a state-operated health insurance exchange. Six states fall into the category of active purchasers of insurance coverage for their citizens, while nine states operate their exchanges as clearinghouses for insurance companies. One state, New Mexico is rolling out a clearinghouse type of exchange.
The brutal realities of the Affordable Care Act are that consumers are being faced with smaller networks with fewer physicians, higher deductibles that require covered individuals to pay more out of pocket costs than pre-ACA, and new drug pricing provisions that could substantially raise drug costs.
Higher deductibles are now the norm, whether one purchases coverage through the Federal Exchange or has coverage provided through an employer. According to the Kaiser Family Foundation, 38 percent of covered employees now have a deductible of $1,000 vs. 18 percent 5 years ago. Moreover, 15 percent now have a deductible for $2,000 or more vs. 5 percent five years ago.
For those individuals who purchase coverage through the Obama Care exchanges, the deductibles for the lowest priced (bronze) plan, now average $4,343, while the medium-priced (silver) plan carries an average deductible of $2,567. The higher priced gold and platinum plans have smaller deductibles, but considerably heftier premiums.
Policies purchased on eHealthInsurance.com prior to the ACA rules took effect had a deductible of $3,319 and a monthly premium of $197. During the open enrollment period, Obama Care-compliant policies had a deductible of $4,164 and a monthly premium of $271.
If these numbers cause you indigestion, you may want to consider establishing a Health Savings Account, either through your employer or on your own. If your policy has an individual annual deductible of at least $1250 or a family deductible of at least $2,500 in 2014, you may be eligible to establish an HSA. Any unused monies in the account at year-end are not forfeited and grow on a tax- deferred basis to be used in later years.
In 2014, you can contribute as much as $3,300 for an individual plan or up to $6,550 for family plan and these amounts are tax-deductible, and monies that are utilized for eligible medical expenses are not taxable. If you use these funds for other than paying for medical costs, withdrawals are taxable, but no penalties are levied.
Naturally, any medical expenses that are paid with funds from your HSA may not be included as itemized deductions on your 2014 income tax return.
If you are interested in obtaining more information on HSA options, check out www.hsasearch.com.
If you have a high deductible health plan, it will behoove you to review each explanation of benefits statement that you receive from your insurer to make certain that you are paying the insurer's negotiated rate for the services you received. Additionally, keep a running total of your out of pocket expenditures to make sure that your insurer properly credits your out-of-pocket payments. These receipts will help you to document that your HSA withdrawals were for covered medical expenses.
When you reach you deductible level, schedule your medical services within the current year to take advantage of your insurance coverage, rather than delaying these services to the following year when you will not have met the deductible.
In next week's column, we will discuss shrinking networks and higher drug costs.
The genesis for this column was an excellent article by Kimberly Lankford in Kiplinger's Personal Finance Magazine.
Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience. Got a financial planning question for Greg? You may email him at firstname.lastname@example.org.