What should I do about Health Insurance?

RBIHealthInsPIctEach week the RBI office receives calls from pastors and churches asking what to do about health insurance. It is a challenging question and has certainly been in the national news for several months. Churches and pastors have many options available to them.

The driver of all of this is the Patient Protection and Affordable Care Act. Referred to as healthcare reform in the past and as ‘ObamaCare’ by some, this article will use ACA to refer to the primary federal law regulating medical insurance.

Regardless of the source, health insurance is not available for purchase until the next open enrollment period, which resumes in November of 2016, unless you experience a life event change (such as marriage, or loss of employer-based insurance).

“The open enrollment period, when people can buy an individual plan for 2017 directly through the health insurance marketplace or outside it from an insurer or agent, is November 2016 and runs until the end of January 2017.

The law requires that health plans sold either through the marketplace or outside it be comparable in many ways, including the benefits that are covered and consumer cost-sharing requirements, such as the rule that plans pay at least 60 percent of medical costs. In addition, all plans sold on the individual market, whether through the exchange or outside it, must offer open enrollment during the same time period.

So there’s no easy way to game the system by waiting to buy a plan until you get sick. If you skip open enrollment, you’ve generally missed your chance to buy coverage for the year unless you have a significant change in circumstance, such as losing your job-based insurance. You’ll also face a penalty for not having insurance: $695 or 2.5 percent of your income, whichever is greater.”

The ACA was designed to address several needs but most specifically provide more access to affordable and minimum essential coverage (MEC). However, the definition of affordable and MEC is set within the law, subject to regulatory guidance and may not meet a given individual’s definition or desire.

Larger employers (those with 50 or more employees) must provide health insurance to their full time employees. The provision is still law, but its effective date has changed since the law’s passage. Interestingly, most of these employers already provided coverage, so this will not ‘close the gap’ for many people. However, the law also stated that full time meant 30 hours a week and that the coverage offered had to meet the MEC standards. These last two provisions have required substantial changes within most employers’ insurance plans as well as in internal staffing and benefit policies.

Smaller employers do not need to provide insurance, but the insurance they provide must meet ACA MEC standards. Again, this provision of the law has been delayed, but many insurance carriers, regulators and employers had already complied or were prepared to be compliant prior to the provision being delayed.

As has been well-documented, individuals are not untouched. Indeed, many in the PCA are covered on individual policies. And under the ACA individuals must have ACA-compliant coverage or pay a penalty. Individuals may get coverage through their employers, but they may also purchase individual coverage. Many individual policies were cancelled (or had to be early-renewed) because the policies were not ACA-compliant. This provision was also delayed, but again many insurance carriers and state regulators had already made health plan changes that they could not easily undo. As a result, some may keep their non-compliant policies, some may not be able to keep them and many are simply confused or frustrated.

However, the above scenarios describe what has happened without talking about any of beneficial features of the law – and there are some that are helpful.

First, the law sets minimum standards as to what each plan is supposed to cover, from annual exams, to removal of limits. Second, there is the ability to choose different levels of plans (platinum, gold, silver, etc.) even within the minimum standards. Third, ACA-compliant plans are guaranteed-issue (you cannot be denied for pre-existing conditions). Fourth, there are substantial premium tax credits (subsidies) available on healthcare.gov (up to 400% of the federal poverty level by household income and family size), as long as one is enrolled in a “Silver” plan or higher. Fifth, the minister’s housing allowance is subtracted from the income used in the means testing for household income. Between the housing allowance not being included and the size of many PCA households, numerous PCA families could qualify for substantial tax credits if covered on a marketplace plan. Sixth, individuals can shop a private exchange (like www.ehealthinsurance.com) for ACA-compliant plans without shopping healthcare.gov.

It is important to note here that the health exchange plans could be very different (fewer doctors, fewer hospitals, fewer insurance carriers, etc.), but for most the new plans will be less expensive than and at least no more expensive than their prior coverage (unless the prior coverage was a very high deductible policy).

Beyond the ACA, there is the possibility of Christian sharing ministry plans that allow individuals to share costs with others. These operate in some ways like medical insurance, but these are largely unregulated and are not medical insurance. However, they are allowed (exempted) under the ACA. Generally speaking, while we know of those who are pleased with them, since these are not regulated insurance entities we strongly encourage you to fully consider risks before considering such plans.

Insurance is designed to protect against losses that would cause financial harm to the purchaser if the purchaser had to pay loss (claim). In most areas of insurance with which we interact, we hope to never file a claim or at least regret filing them when we do (auto, home, disability, life, etc.), but medical insurance is different. We plan to file (incur) claims. Lots of them. In order to be functionally viable, insurance carriers must be able to predict (underwrite) what the claims (losses) will be each year and set a loss ratio (cost of paying claims) at a sustainable rate. While the ACA strictly regulates how much the carriers must pay out each year, the claims themselves must be paid for – by insurance premium payers and by taxpayers.

We encourage you to look at the ACA-compliant plans available on www.ehealthinsurance.com and to review www.healthcare.gov. View the material and sample the premium tax credit (subsidy calculator) available on the Resources > Healthcare tab at www.pcarbi.org to determine the impact of such subsidies to your plan. And, you may also call RBI with questions.

— Dave Anderegg, Financial Planning Advisor