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For many years, we’ve been helping our clients calculate the financial worst-case scenario, along with the average scenario, for all the plans they’re considering.
Determine your worst-case scenario.
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The worst-case scenario is pretty easy to determine. Just add the total annual premiums plus the maximum out-of-pocket for each plan, and see how they stack up. If you qualify for a premium subsidy, be sure to use the after-subsidy premium for each plan when you’re calculating how much the coverage will cost (you can find this even before you create an account with the exchange, by using the exchange’s plan browsing tool; it only takes a minute or two and doesn’t need any identifying data).
The ACA’s limit on out-of-pocket maximums makes this sort of financial comparison easier than it was in the past. In 2020, no ACA-compliant plan will have a maximum out-of-pocket that exceeds $8,150 for an individual or $16,300 for a family. And as has been the case since 2016, all family plans will be required to have embedded individual out-of-pocket maximums. That means no single individual on a family plan will be required to pay more than $8,150 in out-of-pocket costs, even if the family deductible has not yet been met.
But some plans – especially at the gold and platinum level – have maximum out-of-pocket limits that are significantly lower than those amounts. And they also cover more expenses before the out-of-pocket maximum is reached. Those factors are important to consider when you’re comparing the overall cost of various plans.
Let’s look at a hypothetical example for Kelly, a single 35-year-old applicant who doesn’t qualify for subsidies. She’s considering three different plans – one bronze, one silver, and one gold. All of them cover preventive care at no charge, as required by the ACA.
For this comparison, we’re assuming the gold plan is more expensive than the silver plan. But since 2018, that hasn’t always been the case, due to the cost of cost-sharing reductions (CSR) being added to silver plan premiums in many states (HHS has indicated that they might impose new regulations related to how the cost of CSR can be handled as of 2021, but for 2020 insurers have continued to add the cost of CSR to silver plan premiums). For 2020, there aren’t quite as many counties where gold plans are cheaper than benchmark silver plans, but it’s still nearly 30 percent of the counties nationwide, which is more widespread than it was in 2018 (and for perspective, there were only five counties in 2017 where gold plans were less expensive than the benchmark silver plan).
The following plan descriptions are overly simplified in order to make the math easy. Although bronze, silver, and gold plans pay an average of 60, 70, and 80 percent of average total healthcare costs, respectively, their plan structure varies significantly from one policy to another, even within the same metal level. Health insurance carriers began to have the option to offer standardized plans through Healthcare.gov starting in 2017, but HHS opted not to continue standardized plan designs for 2019. Some state-run exchanges offer standardized plans, and California’s exchange requires all plans to be standardized. But in most states, it can be challenging to make an apples-to-apples comparison of plans, even within the same metal level.
Some plans have separate deductibles for services like hospitalizations and prescription drugs, some have copays for office visits while others count office visits towards the deductible. There’s no way to really compare plans without reading at least some of the fine print. But for the sake of our back-of-the-envelope comparison, we’ll just look at deductibles, coinsurance, and maximum out-of-pocket exposure.
- The bronze plan is $270/month and has a $6,500 deductible with all claims applied to the deductible. After the deductible, Kelly would pay 40 percent of her claims until she reaches an $8,150 maximum out-of-pocket.
- The silver plan is $350/month, has a $3,000 deductible, and Kelly will be responsible for 30 percent of the claim after the deductible until she reaches a $6,000 maximum out-of-pocket.
- The gold plan is $420/month, has a $1,000 deductible, and Kelly will pay 20 percent of her claims after the deductible until she reaches the maximum out-of-pocket of $3,500.
We can easily calculate the worst-case scenario for the three plans: Multiply the premium by 12 months, and add it to the maximum out-of-pocket to see the total financial exposure for each plan:
- Bronze: $3,240 + $8,150 = $11,390
- Silver: $4,200 + $6,000 = $10,200
- Gold: $5,040 + $3,500 = $8,540
But for most people, large claims don’t happen very often. And although some people may not use their coverage at all during the year, most people fall somewhere in the middle. Especially if you have a pre-existing condition, you can be relatively sure that you’ll incur at least some claims during the coming year. That’s where it’s helpful to judge each plan based on how it would perform in the event of relatively minor – but still expensive – claims.
What if Kelly breaks her arm and incurs a claim that totals $4,200 after the network-negotiated discount? Here’s her total expense for the year (premiums + out-of-pocket costs) with each plan:
- Bronze: $3,240 + $4,200 (total claim applied to the deductible) = $7,440
- Silver: $4,200 + $3,000 (deductible) + $360 (30% of the remaining $1,200) = $7,560
- Gold: $5,040 + $1,000 (deductible) + $640 (20% of the remaining $3,200) = $6,680
If the only health insurance claims you make are for preventive care, a bronze plan is going to end up being the least expensive option, because the premiums are lowest and preventive care is covered 100 percent on all plans. But if you have other claims, a plan with a higher metal level might save you money over the course of the year, even though the premiums are higher. So even if the price is the most significant factor in your decision, it’s important to remember to include the cost of a claim as well as the cost of the plan itself.
But don’t focus entirely on the cost of claims
On the other hand, don’t let yourself get so enamored with the low out-of-pocket expenses on the more robust plans that you inadvertently end up paying more than you need to. We often see plan comparisons where the difference in premium is greater than the difference in potential out-of-pocket savings.
For example a plan with a deductible that is $1,000 lower than a competing plan, but that costs $100 more per month and offers similar coverage after the deductible. Buying it would mean that you’d spend an extra $1,200 in premiums, to possibly save $1,000 if you have a significant claim. That’s why it’s important to spend a little time crunching numbers before you select a plan.
And if one of the plans you’re considering is HSA-qualified, don’t forget to account for the tax savings you’d get if you contribute to an HSA during the year. Assuming you’d be willing and able to make contributions to an HSA, you’d want to subtract the tax savings from the total amount that each plan is going to cost you so that you can get an accurate overall picture of how each plan would affect your finances.
If your plan has tiered networks, pay attention to out-of-pocket costs
It’s also important to be aware that some plans have tiered networks, which have lower copays and deductibles as long as you go to doctors and hospitals in the top tier. There’s some controversy around tiered network plans, but they tend to be popular with consumers, as they offer a good combination of low cost-sharing (assuming the patient sticks with top-tier providers) and affordable premiums.
If you’re considering a plan with a tiered network, pay attention to the out-of-pocket costs for both the preferred and non-preferred provider tiers, and crunch the numbers both ways. If you pick a plan with a tiered network, your best bet will be to use doctors and hospitals in the top tier. But it’s important to also understand what your costs will be if you end up needing to see in-network providers who aren’t in the top tier.
Silver plans’ cost-sharing subsidies
Silver plans have proven to be by far the most popular choice in the exchanges, accounting for roughly two-thirds of all enrollments in the first four years. Silver plan enrollments have dropped off a little in 2018 and 2019 (we’ll get into the reason for that in a moment):
- In 2014, 65 percent of people who enrolled through HealthCare.gov selected Silver plans, and 95 percent of those Silver plans included financial assistance.
- In 2015, Silver plans accounted for 69 percent of HealthCare.gov enrollees.
- 71 percent of enrollees in the federally facilitated marketplace picked Silver plans for 2016, along with 59 percent of enrollees in states with their own enrollment platforms.
- For 2017 coverage, 71 percent of all enrollees (in HealthCare.gov and state-based exchanges combined) picked Silver plans.
- 63 percent of exchange enrollees picked silver plans in 2018.
- 59 percent of exchange enrollees picked silver plans in 2019.
One reason for the popularity of Silver plans – and the high percentage of Silver plan enrollees who received premium subsidies – is cost-sharing reductions, or CSR (also known as cost-sharing subsidies). If your household income does not exceed 250 percent of poverty, you’re eligible for cost-sharing subsidies in addition to premium subsidies (premium subsidies apply to virtually everyone who receives cost-sharing subsidies, but they also extend to people with higher incomes, up to 400 percent of the poverty level).
For 2020 coverage, 250 percent of the poverty level is $31,225 for a single individual and $64,375 for a family of four. The CSR benefits are strongest, however, for people with income that doesn’t exceed 200 percent of the poverty level, which is $24,980 for a single person, and $51,500 for a family of four.
Although the Trump Administration announced in October 2017 that funding for cost-sharing subsidies would be discontinued, the cost-sharing subsidies themselves continue to be available, and that’s still the case for 2020.
The cost-sharing subsidies are automatically included in silver plans for enrollees whose income makes them eligible to receive cost-sharing subsidies (cost-sharing subsidies are not available at the other metal levels, and do not show up among the available plan selections for people with income too high for CSR eligibility). These plans have lower out-of-pocket maximums and higher actuarial value than a regular silver plan – they’ll save you money when you need to use your health coverage. And you can apply your premium subsidy towards their purchase price.
Cost-sharing subsidies are generally not as well understood as premium subsidies, but as long as applicants are actively comparing the nuts and bolts of each available plan – as opposed to just looking at premiums – the silver plans that include cost-sharing subsidies will stand out as options that offer exceptional value.
They will be more expensive than bronze plans but will provide significantly better coverage. Their out-of-pocket maximums will be lower than that of comparably priced plans, and they will also cover more medical expenses before the out-of-pocket maximum is reached.
Gold plans: better value in some areas
Cost-sharing reductions (CSR, aka cost-sharing subsidies) were in the headlines throughout 2017, as the Trump administration repeatedly threatened to cut off funding for them, and then announced definitively in October 2017 that the funding would end.
But despite the elimination of funding, CSR benefits continue to be available. The Congressional Budget Office estimated that the elimination of CSR funding would increase average silver plan premiums by about 20 percent in 2018, and most insurers did add the cost of CSR to their premiums. In most states, the cost of CSR was added to silver plan premiums for 2018, but some states and insurers took other approaches. For 2019, insurers in even more states added the cost of CSR to silver plan premiums, and have continued to do so for 2020.
Because premium subsidies are based on the cost of silver plans (specifically, the benchmark plan in each area), the majority of the premium increase to cover the cost of CSR is ultimately still being paid by the federal government, in the form of larger premium subsidies.
But due to the CSR funding cut, silver plans in some areas now actually cost more than gold plans. As an example, consider southwestern Wyoming in 2020. For people with income below 200 percent of the poverty level (about $24,980 for a single individual in 2020; note that the prior year’s poverty level numbers are used for these calculations), it probably still makes sense to purchase a silver plan, as the out-of-pocket costs are much lower due to CSR, and premium subsidies will offset the higher premiums. But people with income above 200 percent of the poverty level might want to consider a gold plan instead of a silver plan if the premiums are quite similar (CSR is available up to 250 percent of the poverty level, but its effects are much less significant once you exceed 200 percent of the poverty level).
Because the cost of CSR is now being added to silver plan premiums in most areas, there continue to be gold plans that are less expensive than silver plans in some areas (as noted above, this is less common in 2020 than it was for 2019, but still dramatically more common than it used to be). Consumers should shop carefully and look at all of the available options before making a decision — don’t assume that pricing will follow the patterns we saw pre-2018 when premiums generally rose consistently from one metal level to the next.
Although premium subsidies offset the increased cost of silver plans for most people, silver plans are disproportionately expensive in most areas for people who aren’t eligible for premium subsidies. If they buy a silver plan, they’re paying not only for the regular cost of the coverage but also for the cost of CSR, since that cost is baked into the premiums for silver plans in most areas. This is a big part of the reason silver plan selections have dropped off since 2017; people who don’t get premium subsidies are generally better off with a plan at a different metal level.
One size does not fit all
If your household income doesn’t exceed 200 percent of poverty ($42,660 for a family of three during the open enrollment period in the fall of 2019), a silver plan with integrated cost-sharing subsidies will likely be the best choice for you, and will likely provide a better overall value than the bronze, gold, or platinum plans.
This might also be true for people with income between 200 and 250 percent of the poverty level, but as noted above, a gold plan might be a better value in 2020 in some areas, due to the way some states and insurers are adding the cost of CSR to premiums.
People who have pre-existing conditions and expect to file claims during the upcoming year will probably be better served by a higher-level plan (or a cost-sharing silver plan if they qualify for it), regardless of premiums.
But very healthy applicants may find that they prefer the lower premiums of a bronze plan, despite the potential for higher costs if they do need to file a claim. And enrollees with very serious medical conditions, who know they will meet their plan’s maximum out-of-pocket no matter what plan they select, might find that they’re also better off with a lower-cost bronze plan (or an HSA-qualified plan at any metal level) since the combined total cost of the premiums and out-of-pocket exposure might end up being lower. There’s no one-size-fits-all when it comes to health coverage; each person’s health history, risk tolerance, and budget have to be taken into consideration when selecting a plan.