Thinking About Health: Facing the realities of high-deductible insurance
March 30, 2014
Pat Mallett, a self-employed businessman in Littleton, had heard a lot about Obamacare and thought that a policy available in the new state shopping exchange would offer him a better deal than the coverage he had. The policy that covered him, his wife and two teenage kids cost about $400 per month and came with a $5,000 deductible, which meant they paid cash for routine office visits and annual physicals — up to a total of $5,000 per year.
Mallett had heard the praise for Obamacare. "It sounded like I was going to do better, and it might be a good fit for me," he said. So he let his policy lapse at the end of the year and started shopping. Much to his surprise, the premiums and deductibles for family coverage on the exchange were a lot higher.
"I didn't believe what I was seeing," he told me. He decided to focus his shopping on the products offered by Kaiser Permanente, a health plan that appealed to him because of its reputation for preventive care and controlling costs. He looked at a bronze plan that would cost $821 per month. Deductibles were $10,000 for a family and $5,000 for each family member, and there was 30 percent coinsurance, a percentage of the bill he would have to pay, on "practically everything." When he asked the Kaiser customer representative what that meant, "she said you pay 100 percent of the charge until you reach $10,000 (for the whole family) or $5,000 for a family member and 30 percent of what they charge after that," Mallett told me.
His family is eligible for a tax credit this year of $510, and that seemed helpful. Mallet's income depends on commissions, and his income, he said, is like a roller coaster. A high subsidy he qualifies for now may turn into a low one next year. Then he started doing the math based on a subsidy of $510, which the state's calculator determined was the amount he could get.
The numbers showed that based on this subsidy and the $10,000 family deductible, he could be paying 18.3 percent of his income for this policy if his family used a lot of medical services. The policy was, in effect, meant for catastrophic illnesses, not run-of-the-mill health care. When he crunched the numbers again assuming his family income would be at the maximum for qualifying for a subsidy — around $94,000 — he would be paying more than 21 percent of his income for insurance and health care.
Mallett had bumped against the important and seldom discussed distinction between affordable health insurance and affordable health care. In the publicity blitz to get people signed up and the constant backlash from Obamacare opponents, this distinction has blurred.
The insurance Mallett was considering was affordable; the subsidies brought the monthly premiums down to $311, but if unexpected health problems surface, the family is on the hook for a lot of money. Then their health care may not be affordable. The Affordable Care Act states that the maximum out-of-pocket the family will have to spend this year is $12,700. Next year, it goes up to $13,200. A family with the U.S. median income of about $53,000, for example, might find health care unaffordable if they have to pay the maximum out-of-pocket amount the law allows.
High-deductible policies have become the reality in the new insurance market places partly because they lower the premiums but also because they may deter people from seeking medical care. Plans with high deductibles were becoming an insurance reality long before Congress passed the Affordable Care Act, but Obamacare has helped make them more common.
Given that they are now the norm, here are a few things to keep in mind:
• Smaller deductibles generally go hand in hand with higher coinsurance.
• Not all copays, a flat amount you pay for a service, count toward satisfying the deductible. Drug copays may not count.
• A deductible that equals the federal out-of-pocket maximum, this year $6,350 for an individual, is a red flag. It means you have a policy that is intended to pay very little except in case of a catastrophe when you reach the maximum expenses. Many people never reach that maximum.
As for Mallett, he has decided to pay the tax penalty this year for not having health insurance and continue evaluating his options. "It's all so confusing," he said.