Health Insurance for Cheapskates: Why You Shouldn't Just Pay the Fine
The Affordable Care Act has had glitches. Here's why you should apply for insurance despite the problems.
Getty Images It's no secret that the rollout of the Affordable Care Act has been suffering from some serious glitches. (Ahem, including a website crash.) But if you're one of those insurance-free people who hasn't actually tried to sign up because you have no intention of buying health insurance anytime soon (we're talking to you, I'm-gonna-live-forever people), here's why you should think again.
First, the most obvious reason: Not having health insurance is like playing Russian roulette with your financial future. More than half of all personal bankruptcies in the United States can be traced at least partly to medical bills. According to one survey, 80 million adults are struggling under the weight of medical bills or medical debt.
And something as seemingly commonplace as a fracture from a skateboard accident could easily rack up $20,000 in bills.
"It doesn't take much to leave people in a medical lurch," says Karen Pollitz, a senior fellow at the Kaiser Family Foundation in Washington, D.C.
If you need a reminder of the bad old days before the Affordable Care Act—which, we must be honest, we're not sure are over yet—read How I Lost My Insurance, Stopped Taking My Medication and Had a Heart Attack.
Now, if you're still thinking, "Hey, the penalty for not having insurance is only $95 and my monthly premium will be way more than that!" the following Q&A is for you.
Q: The penalty for not having insurance is only $95 and my monthly premium will be much higher. Why shouldn't I just pay the fine?
You're right, the penalty for not having insurance the first year is $95 or 1% of your family income, whichever is greater. Sounds great! But there's that tricky "whichever is greater," says Taylor Burke, associate professor of health policy at George Washington School of Public Health and Health Services in Washington, DC.
While most people will indeed end up paying only $95, there's a possibility that your penalty could be higher, up to $288 per family.
But that's just next year. The penalty will be higher after that. In 2015, count on 2% of income, up to $325 per adult or $975 per family. In 2016, you're looking at fines of 2.5% of income, up to $695 for each adult or $2,085 per family.
That fine may still seem piddling compared to the insurance premiums you'd pay, but remember that if you don't buy health insurance, you'll be paying the fine plus 100% of any medical costs you incur. Almost 30 million adults have used up all their savings to deal with the financial consequences of an illness or accident. How long until your savings run out?
Q: What's the deadline for choosing a plan?
You have until March 31, 2014 to choose a plan before the individual mandate (the part of the law requires that you buy a plan or get hit with tax penalties) kicks in. However, it can take six weeks from application until coverage starts, so keep it in mind when shopping for a plan. If you sign up on March 31, 2014, your coverage won't start until May.
Q: What's the cheapest plan I can get away with? What about a Catastrophic Plan?
You may not qualify for this one. Under Obamacare, catastrophic insurance plans are only available to people under the age of 30 and people over the age of 30 who can show that no plan, even with subsidies, would cost less than 8% of their income.
Under this type of plan, the essential health benefits (see below) have to be covered but, other than that, you are responsible for all of your medical costs up to $6,350 per person. Only after you have forked over this $6,350 deductible will your coverage kick in and only for the rest of that year. It starts all over again come January 1.
"It's truly for only the young invincibles," says Burke.
Q: OK, I'm thinking about buying a policy instead of paying the penalty. What's the cheapest one?
Insurance plans under Obamacare come in four basic levels of coverage: Bronze, Silver, Gold, and Platinum. Bronze and Silver plans have lower premiums (the amount you pay every month), but higher out-of-pocket costs (the amount you pay for hospital and doctor's bills before your insurance kicks in) than the Gold and Platinum varieties.
The lowest average premium nationally for a 27-year-old in most states is $129 a month for a Catastrophic Plan, $163 for a Bronze Plan, and $203 for a Silver Plan. This is before tax credits or subsidies (more on this later).
Your premium will vary depending on where you live (rural areas with fewer insurance providers and less competition, may be more expensive); family size; your age (older people tend to pay more); and whether or not you smoke. (Yes, smokers pay more—a lot more—than non-smokers, as much as 50% more in premiums. The take home message? Cheapskates should quit smoking, along with everyone else.)
But a cheap premium does not always mean a cheaper plan, says Burke, unless you never get sick or see the doctor.
Next Page: Q: I never get sick or see a doctor. What's the best plan for me? [ pagebreak ]Q: I never get sick or see a doctor. What's the best plan for me?
If you are relatively healthy and don't have any chronic conditions, then a Bronze Plan might be your best bet. Keep in mind all insurance plans have to cover 10 basic areas, what's known as the 10 essential benefits. These are outpatient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services such as cancer screening and pediatric services.
You won't have to pay anything for preventive services but you will have to pay for the other services. How much? Depends on which Bronze Plan you choose. It makes sense to check that any plan you're considering covers your favorite doctor and any specific brand-name prescription medications and also has a good network of providers.
If you get a Bronze Plan instead of paying the fine, at least you get something in return, says Christina Postolowski, senior policy analyst with Young Invincibles, a nonprofit organization in Washington, D.C. that represents the voice of 18-to-34-year-olds in the healthcare debate.
This coverage is already better than most types of insurance you used to get on the open market, which usually didn't cover a pregnancy or treatment for depression or drug abuse. The Affordable Care Act also puts a limit on how much you'll have to pay out of pocket if you get sick. Meanwhile, it prohibits insurers from putting caps on how much they'll spend on you each year or over your lifetime.
"You may see a bit of a price bump but when it comes time to dig into your pocket and pull out your insurance card, it's going to cover some stuff that wasn't covered before," says Burke.
Plus, if you do take advantage of essential benefits, many of which are preventive, it means you're in charge of your life and health—and studies have shown that you'll probably live longer and healthier as a result. With fewer medical bills.
Q: I'm cheap, why would I want to pay for a Silver Plan?
In general, a Silver Plan is going to balance out higher premiums with fewer out-of-pocket costs. So it might make sense if a particular Silver Plan has better coverage for specific needs you know you will have.
Also, you can get cost-sharing subsidies under Silver Plans, but not under other plans. (Cost-sharing refers to the deductibles and copays you have to pay yourself.) These subsidies are available to families that earn up to 250% of the federal poverty level.
Q: Is there any reason a cheapskate would want a Gold or Platinum plan?
Peace of mind is one reason: Knowing you have excellent coverage no matter what fate throws your way.
Bear in mind that the government also provides subsidies for single and family plans for incomes up to 400% of the poverty level (about $92,000 for a family of four). These subsidies are available for all plans and they're paid directly to your provider. "A chunk of the premium gets sent right to [the insurance company] from the U.S. Treasury," says Burke.
Depending on what you earn and what subsidies you're eligible for, it might be worth your while to go Gold or Platinum. You can estimate your subsidies by using this calculator on the Kaiser Family Foundation website.