Health Insurance: Dizzying Choices

Just in time for the upcoming benefit enrollment period, the Kaiser Family Foundation is out with its annual survey of employer health plans, which cover over half of the non-elderly population, or 147 million people. Costs are up a seemingly small 4 percent in 2015 from a year ago, but that is still twice the pace of inflation and more than the average wage gains for most families. A family plan now costs $17,545, of which workers pay $4,955. That’s up by 83 percent over the past decade and by 24 percent since 2010. Deductibles are also higher—on average now $1,077 per individual, up 67 percent from just five years ago and 255 percent over the past decade!

With more of the burden shifting to consumers, it is imperative that you take control of your health care decisions. Start by choosing the right plan for you. Know what each plan covers, how much it costs (premiums plus out of pocket costs for deductibles, coinsurance and co-pays) and whether your doctors are in the network.

The most widely used plans are Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). In an HMO, you select a primary care physician, who directs your health care decisions and makes any necessary referrals. In most cases, the plan will not cover care outside of the network. A PPO provides more flexibility, because you can see any health care professional without a referral, either inside or outside of your network. The enhanced choice comes with a heftier price tag.

Many large employers are offering high-deductible health plans (HDHP), which offer lower premiums. These plans are usually paired with Health Savings Accounts (HSA), which allow you to set aside pre-tax money to pay for unreimbursed costs. If you're generally healthy and want to save for future health care expenses, this may be an attractive choice. But if you think you might need expensive medical care in the next year and would find it hard to meet a high deductible, it might not be your best option.

You should also consider using Uncle Sam to help you pay for health care costs, by taking advantage of flexible spending care accounts. FSAs allow you to use pre-tax dollars to pay for unreimbursed medical expenses or dependent care up to $2,500. You can carryover up to $500 of unused balances to the following year.

Although most health care providers are mindful about limiting patient costs, it doesn’t hurt to ask whether a generic/cheaper version of a prescription drug exists and whether the test/procedure/prescription is really necessary. And of course, it is important to check every medical bill for coding errors.

I should also mention Medicare Open Enrollment begins October 15 and runs through December 7. This is the only opportunity for people currently on Medicare Advantage and Prescription Drug Plans to switch to a new plan for the following year.

While most medigap supplement policies can be switched throughout the year, financial planner Greg Hammer notes, “your initial enrollment is the one opportunity to enroll on a guaranteed basis. If you want to enroll into a traditional medigap policy later, in the year, you will be subject to medical questions and your medical history could prevent you from qualifying for the traditional plan.”

And just like employees who need to read the fine print, so to do retirees who are selecting prescription drug plans. Hammer advises, “Your decision should not be driven by premium alone. Because of the differences in formularies and Tier Coverage, you need to look at your out of pocket cost. A lower premium doesn't always result in the lowest out of pocket cost.” He recommends that before making the decision, participants should use medicare.gov, where you can enter your prescriptions and zip code, and the site will guide to the best program for your needs.

Medicare's Golden Anniversary

It’s the 50^th anniversary of Medicare, the U.S. government’s sprawling health care initiative, which President Lyndon Johnson signed into law on July 30, 1965. Today, Medicare covers over 55 million people including 9 million beneficiaries who are under age 65 and permanently disabled. In honor of the golden anniversary, it’s time to tackle the thorny program. A few basics: If you are an American citizen or a legal resident in the United States for at least five years, you are eligible for Medicare when you turn 65 and have paid a payroll tax for at least 10 years. You may also qualify based on your spouse’s work record. To qualify, you must be at least 65 and your spouse must be at least 62. You must officially enroll in the program, unless they already receive Social Security, in which case, you are automatically enrolled. If you or your spouse works beyond age 65 for an employer that provides you with health insurance, you can delay enrollment until you retire.

About three months before Medicare coverage starts, the government sends an Initial Enrollment Questionnaire (IEQ). I encourage you to access the robust web site MyMedicare.gov, where you can complete the IEQ, view your eligibility information, track your health care claims and check your deductible status.

There are four different parts of Medicare coverage:

• Part A: hospital services and skilled nursing facility stays of up to 100 days, as well as home health care, and hospice care. All eligible people get Part A and most receive the coverage “premium free”; others pay a premium of up to $407 per month.
• Part B: doctor visits/outpatient services/lab work/preventative services. If you earn less than $85,000 individually ($170,000 jointly), your monthly premium is $104.90. Premiums rise with income, topping out at $335.70/month (over $214,000 individually and $428,000 jointly)
• Part C: Medicare Advantage Plans are private insurance alternatives to Original Plans
• Part D: prescription drugs. If your income is above a certain limit, you'll pay an income-related monthly adjustment amount in addition to your plan premium, up to a maximum of $70.80/month

While Medicare covers a large swath of health care costs, you are on the hook for premiums, deductibles, coinsurance and copayments, unless you qualify for a low-income program, like Part D’s “Extra Help” and state assistance for Part B premiums and other costs. If you want to attain coverage for out-of-pocket expenses, you can purchase Medicare Supplemental Insurance (“Medigap”), which is sold by private insurance companies. Speaking of gaps, there are a few categories of care that the Medicare system does NOT cover, including: long-term care; routine hearing, vision, foot or dental care; or medical services provided outside of the United States.

THE NUMBERS: In 2014, net Medicare spending was $505 billion, accounting for 14% of the federal budget. Medicare is funded primarily from three sources: general revenues (41%), payroll taxes (38%), and beneficiary premiums (13%), but the current system has big financial issues. According to the 2015 Trustees of the Social Security and Medicare trust funds report, “the Medicare Hospital Insurance (HI) Trust Fund will be depleted in 2030… At that time dedicated revenues will be sufficient to pay 86 percent of HI costs.” (Current law provides funding for the other parts of Medicare, which is why the analysis focuses on the hospital side.)

The problem with the Medicare system is easily diagnosed: although the pace of health care spending has slowed over the past five years, it’s still projected to balloon due to an aging population, as well as a bloated payment system. The bitter pills offered to fix the system include: charging higher Medicare premiums for those able to afford them, raising the age of eligibility and increasing cost-sharing by beneficiaries to deter unnecessary use of medical care. Considering that the Kaiser Family Foundation recently found that by two-to-one margins, people of all political persuasions favor preserving Medicare in its current form, as opposed to replacing it with vouchers or other forms of premium support, most experts believe that Americans will have to swallow a cocktail of medicines to cure the disease.