Transitioning your coverage

Each state once had its own laws as far as health insurance coverage went, so there was no one-size-fits-all approach. In the past in most states, an adult child generally lost health insurance coverage under a parent’s policy upon college graduation or when turning a particular age (for example, 25 or 26). Each state had a unique set of laws. Consider, for example, three state rules I pulled at random:

• Connecticut required that group comprehensive and health insurance policies extend coverage to unwed children until the age of 26, provided they remained residents of Connecticut or were full-time students.
• Florida allowed for dependent children up to age 25 who lived with a parent or were students, and those up to 30 who were also unmarried and had no dependent children of their own, to remain on their parents’ insurance.
• Wyoming allowed a child who was unmarried and a full-time student to remain on a parent’s insurance up to age 23 if the parent was covered by a small group policy.

What a headache! And then the Affordable Care Act, also known as Obamacare, was passed in 2010 so states had to amend their approach to conform with Obamacare’s requirements — detailed in the next section. (At the time this book goes to press in late 2017, it is unclear what, if any, changes may be coming out of the new Congress and President.)

So what are the best ways to negotiate keeping health insurance coverage in your 20s without spending a small fortune for coverage? Here’s my advice:

• Consider staying on your parents’ policy until you secure full-time employment. As soon as you’re eligible for your employer’s health plan, sign up for it.
• If you don’t have access to your own coverage through your employer, look to COBRA. The Consolidated Omnibus Budget Reconciliation Act (COBRA) enables you to stay on your parents’ policy for up to 18 months from the time you lose coverage on that policy. Just be aware that you have to pay the full premiums.
• If you’re self-employed, or your employer doesn’t offer health coverage, or the coverage isn’t very good, get your own policy with a high deductible. A deductible is the amount of medical claims you must first pay out of your pocket before insurance coverage kicks in. Check out the later section “Finding Your Best Health Plan” for advice. You can then sock money away in a health savings account (HSA) if you desire. See the section on HSAs later in this chapter.

Seeing how the 2010 healthcare laws (Obamacare) changed your coverage

In 2010, Congress passed, and President Obama signed, two comprehensive healthcare reform bills that affect how you can get health insurance coverage. Summarizing thousands of pages of legislation in a concise space is challenging, but the reality is that the highlights that apply to young adults aren’t that extensive.

Obamacare implemented the following changes to group health plans offered through employers:

• They must offer coverage to their employees for their adult children up to age 26 who aren’t eligible for coverage under another employer’s health plan. So if your mother or father is covered under a group health plan, you may get coverage through that plan through age 26, even if you aren’t a dependent for income tax purposes. The coverage isn’t taxable to the employee or dependent.
• They may not impose lifetime limits on claims paid (annual limits became prohibited as of 2014).
• Employers must offer minimum coverage to full-time employees or make payments to the government.
• Group health plans must limit cost sharing and deductibles to those in a health savings account–eligible, high-deductible health plan.
• Group health plans must remove all preexisting-condition exclusions on all participants.

Higher-income earners are subjected to some higher taxes to help pay for the health bill:

• Single taxpayers with earned income above $200,000 and married couples filing jointly with earned income above $250,000 pay an extra 0.9 percent Medicare tax on wages and self-employment income in excess of these thresholds.
• Taxpayers with modified adjusted income (MAGI) from any source (including investments) above these thresholds are subject to a 3.8 percent tax on the lesser of their net investment income (for example, interest, dividends, and capital gains) and the amount by which their modified adjusted gross income exceeds the thresholds.

Trumpcare?

At the time that this book went to press in late 2017, the new Congress and President Trump had been working to repeal and replace Obamacare but hadn’t made any progress. A more probable outcome could be modifying Obamacare rather than repealing and replacing it, but only time will tell.

For updates, please visit my website at www.erictyson.com.

Selection of doctors and hospitals

Open-choice plans that allow you to use any doctor or hospital you want are less common and generally more expensive than restricted-choice plans, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). These plans keep costs down because they negotiate low rates with selected providers.

HMOs and PPOs are more similar than they are different. The main difference is that PPOs still pay the majority of your expenses if you use a provider outside their approved list. If you use a provider outside the approved list with an HMO, you typically aren’t covered at all.

If you want to use particular doctors or hospitals, find out which health insurance plans they accept as payment. Weigh whether the extra cost of an open-choice plan is worth being able to use the services of particular medical providers if they’re not part of a restricted-choice plan. Also be aware that some plans allow you to go outside their network of providers as long as you pay a bigger portion of the incurred medical costs. If you’re interested in using alternative types of providers, such as acupuncturists, find out whether the plans you’re considering cover these services.

Plan benefits and features

Healthcare plans typically offer many bells and whistles. The following identifies the key features to search for to ensure a quality plan at the most reasonable cost:

• Major medical coverage: This includes hospital care, physician visits, and ancillary charges, such as X-rays and laboratory work. If you’re a woman and you think you may want to have children, make sure your plan has maternity benefits.

• Deductibles and co-payments: To reduce your health insurance premiums, choose a plan with the highest deductible and co-payment (the amount you pay when service is rendered, such as $10 to $30) you can afford. As with other insurance policies, the more you’re willing to share in the cost of your claims, the less you’ll have to pay in premiums. Most policies have annual deductible options (usually $250, $500, $1,000, or higher) as well as co-payment options, which are typically 20 percent or so of the claim amount. With the passage of Obamacare and plans compatible with health savings accounts, many plans have a deductible of several thousand dollars. Insurance plans generally set a maximum out-of-pocket limit such as $1,000 or $2,000 on your annual co-payments. The insurer covers 100 percent of any medical expenses that go over that cap. Many HMO plans don’t have deductible and co-payment options.

  If you have existing health problems and you have a choice of group plans through your employer, consider plans with low out-of-pocket expenses. Because you’re part of a group, the insurer won’t increase your individual rates just because you file more claims.

• Lifetime maximum benefits: Health insurance plans specify the maximum total benefits they’ll pay over the course of time you’re insured by their plan. The national health insurance bill signed into law in 2010 prevents insurers from setting lifetime maximums. Should Obamacare be modified or repealed, keep in mind that with the high cost of healthcare, you should choose a plan that has no maximum or that has a maximum of at least $5 million. See the section “Seeing how the 2010 healthcare laws (Obamacare) changed your coverage” earlier in this chapter.

Uncovering the best policies

When shopping for health insurance, you basically have two options: You can buy a health plan through an agent or you can buy directly from an insurer. When particular health insurance plans are sold both ways, buying through an agent usually doesn’t cost more.

Obamacare provided a new way in some states to buy health insurance — through state-based exchanges. Whether these continue depends on what Congress and President Trump can agree to. As of the publication of this book in late 2017, most state-based exchanges continue to operate.

If you’re self-employed or you work for a smaller employer that doesn’t offer health insurance as a benefit, get proposals from the larger and older health insurers in your area. Larger plans can negotiate better rates from providers, and older plans are more likely to be here tomorrow. Nationally, Blue Cross Blue Shield, Kaiser Permanente, Aetna, UnitedHealth, CIGNA, Assurant, and Anthem are among the older and bigger health insurers.

Many insurers operate in a bunch of different insurance businesses. You want an insurer that’s one of the biggest in the health insurance arena and is committed to, understands, and has more experience in that business. If your coverage is canceled, you may have to search for new coverage if the law continues nationally that mandates coverage for folks with an existing medical problem.

Before the passage of Obamacare, which included requiring coverage for everyone with pre-existing conditions, many states offered coverage for those folks. (Check out the next section for more info.)

Also check with professional or other associations that you belong to, as such plans sometimes offer decent benefits at a competitive price because of the purchasing clout they possess. A competent independent insurance agent who specializes in health insurance can help you find insurers who are willing to offer you coverage.

Health insurance agents have a conflict of interest that’s common to all financial salespeople who work on commission: The higher the premium plan they sell you, the bigger the commission they earn. So an agent may try to steer you into higher-cost plans and avoid suggesting some of the cost-reducing strategies that I discuss in this chapter, such as opting for a higher deductible.

Handling insurance rejection

Before the passage and implementation of Obamacare, those with so-called preexisting conditions sometimes got turned down when applying for health insurance or had to pay substantially higher premiums. A similar phenomenon happens with other types of insurance when you’re deemed too great a risk. For example, you may have problems with getting life or disability insurance or have to pay a much greater price if you’re not in the best of health. If you’ve had a bunch of car accidents and speeding tickets, obtaining reasonably priced auto insurance may be a challenge.

When you try to enroll in a particular life or disability insurance plan (discussed in Chapter 15), you may be turned down because of current or previous health problems. That may happen (but isn’t likely to) in the future with health insurance, depending on what happens with Congress and President Trump. If your current health causes you to be charged a high premium or be denied coverage outright, try these strategies to find out why and get approved:

• Ask the insurer why you were denied. If you’re denied coverage because of a medical condition, find out what information the company has and determine whether it’s accurate. Perhaps the company made a mistake or misinterpreted some information that you provided in your application.

• Request a copy of your medical information file. Just as you have a credit report file that details your use (and misuse) of credit (see Chapter 4), you also have a medical information report. Once per year, you can request a free copy of your medical information file (which typically highlights only the more significant problems over the past seven years, not your entire medical history) by calling 866-692-6901 or visiting www.mib.com (click on “Request Your MIB Consumer File”). If you find a mistake on your report, you have the right to request that it be fixed. However, the burden is on you to prove that the information in your file is incorrect. Proving that your file contains errors can be a major hassle — you may even need to contact physicians you saw in the past because their medical records may be the source of the incorrect information.

• Shop around. Just because one company denies you coverage doesn’t mean that all insurance companies will deny you. Some insurers better understand certain medical conditions and are more comfortable accepting applicants with those conditions. Although most insurers charge higher rates to people with blemished medical histories than people with perfect health records, some companies penalize them less than others. An agent who sells policies from multiple insurers, called an independent agent, can be helpful because she can shop among a number of different companies.

• Find a job with an employer whose insurer doesn’t require a medical exam. Of course, this shouldn’t be your only reason for seeking new employment, but it can be an important factor. If you’re married, you may also be able to get into an employer group plan through your spouse’s plan.

• Find out about state high-risk pools. A number of states, before the implementation of Obamacare, acted as the insurer of last resort and provided insurance for those who couldn’t get it from insurance companies. State high-risk pool coverage is usually quite basic, but it beats going without any coverage. The Health Insurance Resource Center website provides links to all state health coverage high-risk pools on its website at www.healthinsurance.org/risk_pools. Alternatively, you can check with your state department of insurance (enter your state and “department of insurance” into your favorite search engine) for high-risk pools for other types of insurance, such as property coverage.