In a recent blog post, we covered important information about being underinsured, including recent trends in who is underinsured and the potentially significant financial and health consequences for those individuals.
Dr. David U. Himmelstein, co-author of academic research on bankruptcy in the U.S. (2018-2019) summarized that health insurance is only “very partial protection,” and that health insurance alone may not be enough to protect from high medical costs.
If you have major medical health insurance are you potentially exposed to high out-of-pocket costs?
Keep reading to find out. Or, if you know you want additional benefits, find out which supplemental health insurance products may be available to help you.
1. Get to Know Your Major Medical Coverage
Most of us don’t like to get into the details of our health policies. The terminology is confusing. The math is murky. It’s easier to put the policy in a filing cabinet, hope we don’t need to use it, and if we do, hope that it is adequate.
Unfortunately, with the trends identified in our recent blog post about being underinsured along with other factors, like narrow network plans, it’s more important than ever to understand your coverage.
So, dust off that medical policy, pull out a pen or highlighter and find these numbers:
- Deductible – It will usually be a larger number, several hundred dollars up to several thousand.
- Coinsurance – This value is stated as a ratio like “80/20” or a percentage.
- Out-of-pocket maximum – Again, this will typically be a value of several thousands of dollars.
- Copays – Usually included on your insurance card, many policies have an “office copay”, a nominal fee like $25.
You should have a list that looks something like this:
- Deductible: $1,500
- Coinsurance: 80/20
- Out-of-Pocket Max: $4,000
- Copay: $25
2. Determine if You Can Afford Your Out-of-Pocket Costs
Now that you know your numbers, it’s time to assess your level of out-of-pocket spending, particularly as it relates to your deductible and annual out-of-pocket maximum, and determine if it’s affordable for you.
The question to ask yourself about your deductible is, “Do I have the funds to pay this entire amount, either for one large medical bill or as smaller bills throughout the year? Do I have funds on top of this amount to pay my share of the coinsurance?”
Your annual deductible is the amount you’re responsible to pay out of your own funds (e.g., your bank account, health savings account (HSA) or credit card) before your insurance will pay anything.
Once your insurance starts to pay, it will only pay a percentage of your covered medical costs as indicated by the first number in your coinsurance rate. You’re still responsible for the other percentage of the coinsurance even after meeting your deductible.
A few details about reaching your annual deductible:
- Only the cost of covered medical services are credited towards your deductible. If you receive treatment that isn’t a covered service, you’ll pay for that service yourself and it won’t count towards your deductible.
- Major medical policies cover preventive services like your annual health checkup at no additional cost to you other than possibly an office copay. So preventive care typically isn’t subject to your deductible and as a result won’t count towards it.
Read your policy closely to fully understand what is and is not subject to your deductible.
Annual Out-of-Pocket Maximum
The question to ask yourself about your out-of-pocket maximum is, “If I experience a worst-case medical scenario, like a cancer diagnosis, can I pay this amount (ideally without going into debt or having to work a second job)? Do I have funds on top of this to help with other costs that major medical doesn’t cover?”
Your annual out-of-pocket maximum (or “limit”) is the total out-of-pocket amount you’re responsible to pay for covered medical services in your policy year. After this amount is reached, your policy will pay 100% of your covered medical costs.
A few details about reaching your annual out-of-pocket max:
- Deductible, copays and coinsurance do count towards the limit
- Premium does not count towards the limit.
Major medical is considered a solution for high-dollar medical costs (and it is since there is no annual or lifetime benefit cap for essential health benefits).
However, if you experience a serious, acute or complicated medical condition, like cancer, heart attack or injuries from a serious car accident, there can be other expenses that your major medical policy will never cover, for example:
- Supporting alternative therapies you may want to seek like naturopaths, acupuncture, or health supplements.
- Needed out-of-network services – for some narrow network plans you may not have access to an in-network specialist. If you are unable to obtain a network exemption or just prefer to use an out-of-network provider, you’ll have to pay all or a portion of the costs.
- Rehabilitation and home health services that may not be covered by major medical.
- Lost income due to being unable to work during treatment and/or a lengthy recovery.
Putting it Together
Your answers to the questions above will depend on what your personal financial situation is, including how much money you have in a checking or savings account, an HSA, or additional supplemental insurance you may already have.
If you’re not clear about your employer-provided benefits package, make sure to speak to a representative at your workplace to fully understand the benefits you’re enrolled in.
If your answer was that you do not have access to the necessary funds to cover your out-of-pocket expenses (and more), it may be a good idea to consider some options for additional financial protection as discussed in the next section.
3. The Gaps in Your Current Coverage + Potential Solutions
You may find that you want additional supplemental insurance, a short term policy or to open an HSA, flexible spending account (FSA) or traditional savings account to help with potential out-of-pocket medical costs. We’ll cover the following scenarios below:
- How to pay for a high deductible
- Being able to afford your annual out-of-pocket maximum
- Being temporarily uninsured
- Missing coverage for dental and vision
You’re Concerned About How to Pay for Your High Deductible
If you have a high cost-sharing major medical policy (e.g., a high deductible) buying supplemental insurance coverage could help by providing you additional benefits. Your options include:
Gap health insurance pays a lump sum benefit when a covered accident or illness occurs, and you can use the payment toward your major medical deductible, household expenses, childcare and more. Premiums are generally affordable and there is no deductible for this type of policy. You can enroll year-round.
Hospital indemnity insurance helps pay for the costs associated with being hospitalized, including hospital room and board, inpatient physician visits, and inpatient surgery. This type of coverage pays a fixed indemnity benefit regardless of what you’re charged for medical services.
You can then use the benefit to help pay your major medical policy out-of-pocket costs. Learn more about fixed indemnity coverage. Again, these policies are available year-round.
In addition to a supplemental insurance policy, you could consider enrolling in an HSA or FSA:
Health Savings Accounts (HSA) are available to people with individual or group plans that qualify as “high deductible health plans” (HDHPs). HSAs provide pre-tax dollars to help you pay for qualified medical expenses, including office co-pays, prescription medication, and anything your insurance bills you for.
You won’t be charged income tax on money you place in your HSA and when an employer matches or makes contributions for you it can be an effective way to accrue funds to pay for healthcare. For 2019, the maximum individual HSA contribution is $3,500; $7,000 for a family. Your HSA is yours and goes with you if you leave your job.
Flexible Spending Accounts (FSA) are only available to those in employer-sponsored group plans and are also usually funded by pre-tax dollars along with employer contributions. These accounts can be used with any type of health insurance or no health insurance at all. Funds can be used towards deductibles, copays, coinsurance and qualified medical expenses that are not covered by health insurance.
FSA funds are “use it or lose it” and don’t carry over for the next calendar year. The ACA sets contribution limits for these accounts. For 2019 it is: $2,700.
You’re Concerned About a Serious Illness + Reaching Your Out-of-Pocket Max
If you’re concerned not just about being able to afford your deductible, but the costs associated with a serious disease or injury, remember, your major medical policy has no benefit limit on covered essential health benefits after you reach your annual out-of-pocket maximum.
If your medical care is so costly as to cause you to reach your out-of-pocket limit, you’ll be glad you have a major medical policy. But the process of reaching that limit, along with non-covered costs, is where people incur financial hardship, bankruptcy and so on.
If a medical “worst-case scenario” is a real concern for you or someone on your policy, for example, if you or your family has a history of cancer or heart disease, you may want to consider taking some additional steps to increase your coverage and/or savings.
Gap Health insurance – Similar to those that need help with high deductibles, a gap health insurance policy can help by paying a lump sum benefit to be used however you want, including towards any and all out-of-pocket medical costs up to your annual maximum.
An HSA or FSA may be a good option to help save money on a tax-deferred basis. Or, if those aren’t available to you, opening a regular savings account and depositing a portion of your monthly income is better than not proactively saving at all.
Some additional supplemental insurance policies to consider to help replace your income include:
Long or Short Term Disability insurance (or a combination of both) can help provide funds in the event you’re unable to work due to an illness or injury like cancer, debilitating back pain, or a heart attack. Short term disability typically lasts from a few months up to a year while long term disability can provide benefits for several years.
Accidental Death + Dismemberment (AD&D) insurance can provide ongoing additional financial protection in the event of an accidental critical injury that results in disability.
Supplemental accident and critical illness health insurance policies may include AD&D as additional coverage that you can add on for additional premium.
You’re Temporarily Uninsured
If you’re in a new employee waiting period it may be several weeks before you can access your major medical benefits. If you don’t have any medical coverage you may want to consider a temporary insurance plan.
It can help if you experience an accident or illness between now and your new policy’s effective date, especially something that requires costly emergency room care or hospitalization.
Premiums are usually very affordable because the plans cover less than major medical insurance (e.g., no preventive care or essential health benefits) and short term medical policies are not guaranteed-issue, meaning you can be denied due to a pre-existing condition.
You’re Missing Coverage
If you’re missing coverage for dental + vision, whether your employer doesn’t offer it, you overlooked it when you initially enrolled, or you have coverage through the individual market (ACA-qualifying major medical plans do not include dental and vision as essential health benefits for adults), you may want to supplement your medical policy with dental and vision coverage, especially for routine care like eye exams and teeth cleanings.
Dental insurance helps cover costs relating to cleanings, root canals, extractions and fillings (among other things) for relatively affordable premium and deductible. Major medical health plans do typically provide coverage for non-cosmetic dental work resulting from an accident.
Most people can obtain a dental policy and you can enroll year-round. Plans are flexible – you can select from a variety of coverage levels to find a plan that fits your needs and budget.
Vision insurance helps cover the costs of routine eye care like eye exams or corrective lenses. Your major medical policy will provide coverage for medical care related to eye injury or disease.
Make Adjustments to Your Benefits Next Time You Enroll
The last thing to remember is to make necessary changes when ACA open enrollment or your workplace enrollment period rolls around next time.
Your policy’s out-of-pocket costs may change year to year, so you need to go through the process of reviewing your premium, deductible, coinsurance, copay, and out-of-pocket maximum each year and reassess.
Some of the types of actions you may want to consider when it’s time to re-enroll include:
- Opting in to your employer’s AD&D policy, short or long term disability or increasing your existing benefit level.
- Opting in to an HSA or FSA if one is offered along with your employer’s HDHP, especially if your employer makes or matches contributions to your account.
- Adjusting your premium and deductible amounts if you can, paying more in premium typically results in lower out-of-pocket costs.
- Going from a family to individual-only coverage if that’s an option – sometimes it’s a better value for a married couple to both carry their own policies than to be covered under a single plan with a higher deductible.
Remember, you can apply for non-ACA qualifying health insurance like gap medical, hospital indemnity, dental and vision insurance right now to supplement your employer or individual major medical policy.
Summary + Next Steps
We discussed the basic steps for figuring out if you may be underinsured and what financial products, including supplemental insurance, may help.
If you have questions or want to discuss your options with a professional, call [phone_number] to speak with a licensed agent.