Who provides health insurance?

Health insurance can come from one of several places; the most common is from an employer. Individuals may also purchase their own health insurance (commercial or co-op) from Exchanges, insurance brokers, or directly from the insurance company. The federal government provides Medicare and also some funding to states, who fund and manage state-specific Medicaid programs.

Employer Sponsored Health Insurance

Employer sponsored health insurance is that which is chosen by the Employer for all employees and their families. Sometimes employers pay some or all of the monthly premiums for individual (and less common – family) plans. Most often, employees have to pay some of their own individual monthly premiums and all of their family premiums. Depending on the size of the employer, the company may be in a relatively small risk pool (the total number of people covered under one plan).

Pros:

• Your employer may cover some or even your entire individual premium, and, although it’s increasingly unusual, your family’s premium.
• Monthly premiums (and, if applicable, contributions to HSA’s, HRA’s, and FSA’s) are pre-tax.
• It may seem relatively easy (at least until you have to use it), since your employer makes all the decisions.
• If you’re a relatively high consumer of healthcare services, and/or if you’re not eligible for one of several subsidies, it may be less expensive overall (your part of premiums plus all other out of pocket expenses) and/or offer better benefits than alternative individual plans, although this is unusual.

Cons:

• It is temporary, and goes away when you loose or change your job. This means your provider network goes along with it unless you can find an alternative individual plan with the same provider network.
• It is ‘one size fits all’, and is usually chosen with the employer’s best interests in mind (usually lowest individual deductibles if they contribute). You have little or no latitude to choose the type of insurance plan (ie PPO, HMO, or HDHP/HSA); nor can you usually choose an alternative package of benefits or combination of higher/lower monthly premiums, deductibles, co-insurance, or annual limits based on you or your family’s unique circumstances. If you have specific providers you would like to use and they’re not in the selected plan’s network, you would either need to switch to in network providers or pay much higher out of pocket fees with an independent out of network deductible.
• If your employer is in a small risk pool, the previous year’s consumption of healthcare services by even one individual or family member can cause a disproportionate increase to everyone’s premiums, or a decrease in benefits, the following year.
• If you’re a relatively low consumer of healthcare services, and/or if you’re eligible for one of several federal subsidies, it may be more expensive overall (your part of premiums plus all other out of pocket expenses) and/or offer less benefits than alternative individual plans.
• There is a chance, although probably slight, that your employer could cancel your policy at any time. The most likely reason for this is an unusual spike in consumption within the employer’s risk pool.

Employer Administered COBRA

If you loose your job, and your employer has more than 20 employees, they are required to offer you continued coverage in your existing health insurance plan for up to 18 months under the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. The catch is that you have to pay 100% of yours and your family’s premium (which may be more than what had been deducted from your paycheck, since your employer may have paid some of your premium), AND your former employer is allowed to charge you up to an additional 2% administration fee.

Pros:

• It may seem relatively easy (at least until you have to use it), since it’s a continuation of the plan you’ve become used to while you were employed.
• If you’ve already paid a substantial amount of your annual deductible prior to losing your job, you may be able to forecast relatively low out of pocket expenses for the remainder of the year.
• You don’t need to legally commit to COBRA for 90 days, and if you choose to commit then your coverage is retroactive. So you can shop alternatives until you make your decision, and if you choose an individual plan and don’t need any healthcare related services within the 90 days (or you pay for them in cash), you can save up to the equivalent of 3 months of COBRA or individual premiums.

Cons:

• Since COBRA is a continuation of Employer sponsored health insurance, it inherits all the cons.
• COBRA is temporary, and goes away after 18 months.
• If your previous employer paid any of your premiums, it’s now even more likely that an individual plan will be less expensive and/or offer more benefits. But this depends on your individual/family situation; the time of the year you become unemployed; your relationship with existing providers and whether you can continue with them in a new plan; and the amount of your deductible you’ve already consumed that year. Those conditions would also drive the timing of a change – immediately, after the 90 day ‘grace’ period, at the end of the calendar year, or at the end of the 18 mo COBRA period.

Commercial – Individual Insurance

Individual health insurance is that which is chosen by the individual for either themselves or some/all of all their families, and is not administered or provided by an employer. Under some circumstances (such as when an employer opts for a ‘Direct Contribution’ plan), employers may offset some or all of the cost of monthly premiums with a payroll subsidy.

Pros:

• Plans are selected based on the unique needs or desires of an individual and/or their family. This means the combination of the type of insurance, monthly premium, deductible, co-pay, network of providers, and all other variables can be optimized for the specific conditions of one’s anticipated consumption of services.
• If you change jobs (without a significant geographic relocation), you keep your same policy.
• Your policy cannot be cancelled, nor the benefits changed, regardless of your consumption as long as you pay your premium.
• If you’re income is < 400% the poverty level, OR if your employer does not provide a qualified, affordable healthcare plan, you may be eligible for a federal tax subsidy that could substantially lower your monthly premium.

Cons:

• If your employer pays unusually high percentages of your monthly premiums for you or both you and your family; and/or makes substantial contributions to your HSA; and/or maintains low deductibles, annual limits, and copays; and/or you don’t qualify for any federal subsidies; and/or you consume more than average healthcare services and products; an individual plan may be more expensive than an employer sponsored plan.
• Relative to employer sponsored plans, monthly premiums (and, if applicable, contributions to HSA’s) are after-tax.

Non profit Insurance Co-operatives

Co-ops look and smell a lot like Individual health insurance plans, but they are essentially run as a non-profit in which the same people who own the company are insured by the company. That will typically mean lower premiums over time when compared to what you would pay for other individual plans offered by commercial (for profit) companies with all other attributes (deductibles, benefits, networks) being equal. They’re essentially the health insurance equivalent of a credit union. Co-ops can be formed at the national, state, and local level, but are not necessarily available everywhere. Co-ops are, for the most part, bitterly opposed by commercial health insurance companies, which should tell you something.

Pros:

• Like other co-ops or non-profits, Insurance co-ops are operated for the benefit of members.   Operating income in excess of administrative costs and benefits paid isn’t profit; it’s generally applied to increasing benefits or reducing the next year’s premiums for members.

Cons:

• If your co-op can’t establish a large enough risk pool early in it’s lifetime, and faces unexpectedly high consumption before it’s established enough reserves, there is a risk that it could go out of business. Most co-op’s have either federally backed or independent catastrophic polices to protect themselves and their members from this contingency.
• Relative to employer sponsored plans, monthly premiums (and, if applicable, contributions to HSA’s) are after-tax.

Medicare Parts A and B (Government sponsored)

A federal healthcare insurance program for all people over age 65 and certain younger people with disabilities. It also covers people with End Stage Renal Disease.   Part A is for inpatient care; Part B for outpatient care.

Pros:

• Best deal going for anyone over age 65.

Cons:

• ONLY kicks in at age 65. Those wishing to retire earlier must replace their employer sponsored healthcare insurance with an alternative plan to cover the gap.
• Some gaps in prescription drug coverage encourages people to subscribe to Medicare Part D or Medicare Advantage to help with prescription drug costs.
• Some gaps in overall coverage encourage people to pursue Medicare Advantage or Supplemental insurance to cover co-pays.

Medicare Parts C/Medicare Advantage (Gov’t sponsored, but commercially adminstered)

Private commercial insurance companies can contract with Medicare to provide Medicare Part A and B benefits to members. Medicare Advantage Plans include HMO’s, PPO’s, private Fee for Service Plans, Special Needs Plans, and Medicare Medical Savings Account Plans. Most offer prescription drug coverage (as an alternative to Medicare Part D).

Pros:

• Reduces OOP expenses for co-pays when healthcare services are consumed

Cons:

• Additional monthly/annual membership fees offset OOP savings

Medicare Part D (Government Sponsored)

A program that helps pay for prescription drugs for people with Medicare. Part D coverage can be either through a Medicare Advantage Plan or a Medicare Prescription Drug Plan.

Pros:

• Reduces OOP expenses when prescription drugs are consumed

Cons:

• Additional monthly/annual membership fees offset OOP savings
• Includes a ‘Donut Hole’; after the individual and the Part D plan have spent a certain amount for covered drugs, the individual has to pay all costs OOP until another yearly limit is hit. Then the Part D plan picks up all expenses.

Medicare Supplemental Insurance (Commercial)

Sometimes referred to as Medigap, Medicare Supplemental policies are sold by private companies, can help pay some of the health care costs that Original Medicare doesn’t cover, like copayments, coinsurance, and deductibles.

If you have Original Medicare and you buy a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered health care costs. Then your Medigap policy pays its share.

A Medigap policy is different from a Medicare Advantage Plan. Those plans are ways to get Medicare benefits, while a Medigap policy only supplements your Original Medicare benefits.

Pros:

• Reduces OOP expenses for co-pays when healthcare services are consumed
• Provides additional coverage, such as medical care when you travel outside the U.S.

Cons:

• Additional monthly/annual membership fees offset OOP savings

Medicaid (Government Sponsored)

Each state administers their own Medicaid insurance program for low-income families and children, pregnant women, the elderly, people with disabilities, and in some states, other adults. The specific benefits, details, and even names vary from state to state. The federal government provides some portion of funding for each state, and sets guidelines for the program.

Pros:

• Medicaid, while often considered the payer of last resort, is generally better than no insurance at all.
• By design, the programs are aimed at those least able to help themselves.

Cons:

• Reimbursement rates from Medicaid are generally the lowest of all payers. For many services, providers – especially primary care providers – often loose money on every Medicaid visit. This often compels PCP’s to limit the number of Medicaid patients in their schedule, which makes access to care more challenging. If Medicaid patients seek, but can’t find, primary care services for chronic conditions, they often end up being treated later in the local Emergency Room where the total cost to the state is much higher, and the efficacy of care may not be as good as it can be since care had been delayed.

Children’s Health Insurance Program (CHIP)  (Government Sponsored)

One of the least understood sources of insurance is the CHIP program, which is jointly funded by state and federal government and provides health coverage to low-income children and, in some states, pregnant women in families who earn too much to qualify for Medicaid but can’t afford to purchase private health insurance coverage. State specific information on CHIP programs can be found here.

Pros:

• For the target market, may be the only accessible or affordable option.
• No limited enrollment period.

Cons:

• None known.

TRICARE  (Government Sponsored)

A healthcare program for active duty and retired uniformed service members and their families.

Pros:

• Virtually all costs are covered by

Cons:

• Some areas of the country don’t have dense provider coverage.