Buying individual and family health insurance can be a simple affair if it’s obtained through your employer.
But if you need to buy an individual plan, the process is far more complicated. You’ll most likely need to purchase a plan through your state’s health insurance exchange.
If you haven’t attempted to apply on an exchange up to this point, it can be an incredibly mysterious undertaking.
In this guide, we’re going to attempt to pull back some of the mystery and explain the process.
What is Individual and Family Health Insurance?
Our discussion in this guide is going to center on the Affordable Care Act (ACA), and health insurance plans provided by your state’s health insurance exchange.
But before we dive into those, let’s first take a quick look at the primary alternatives.
We’re not going to cover Medicare or Medicare supplements in this guide, since that’s an entirely separate – and very extensive – topic.
Employer-Sponsored Health Plans
If you have health insurance available through your employer, it will almost always be the most cost-effective coverage you can get.
Though the overall monthly premium of an employer plan may be comparable to plans available on the health insurance exchanges, you’ll typically get the benefit of an employer subsidy.
For example, while the premium may be $2,000 per month, if your employer pays 70%, your portion will be just $600 per month.
In addition, employer plans often have lower deductibles and out-of-pocket maximums than what you’ll find with typical policies on the exchanges.
Christian Health Sharing Ministries
These plans are exactly what the name implies, which is to say they’re not traditional health insurance. However, at least superficially, they closely resemble traditional health insurance.
Members pool their money together through monthly contributions to cover the health expenses of those in need.
They have features similar to health insurance plans, such as deductibles and copayments, but they’re called by different names. They’re fully ACA compliant, although they typically cost no more than half the premiums paid for traditional health insurance.
There are important factors to be aware of with these ministries. For example, you must be a Bible-believing Christian, adhering to a lifestyle consistent with those beliefs.
And much as was the case with health insurance prior to the ACA, you can be excluded for pre-existing health conditions, or charged higher premiums.
Also, these ministries may cap total benefits at levels well below those of traditional insurance.
Medicaid is a federal health plan, administered by each individual state. It’s designed specifically for low-income individuals who can’t afford traditional health insurance. But, in addition to income guidelines, there may be certain other requirements, such as pregnant women or families with dependent children. However, specific eligibility requirements vary somewhat from state to state.
In total, more than 72 million people participate in the plan. When you apply for coverage on your state health insurance exchange, you may be referred to Medicaid if you’re deemed qualified. Covered services include doctor visits, hospitalization (both inpatient and outpatient), prescriptions, preventative care, pre-natal and maternity care, and mental health services. Medicaid can also be a supplement to Medicare for low-income seniors.
Eligibility is determined by the percentage of your income compared to the federal poverty level for your state of residence. Your income can exceed that level by a certain percentage, which is higher for those with children and for pregnant women than it is for adults.
Health Savings Account (HSA)
Another viable option you may want to consider is opening up an HSA, or Health Savings Account.
Established in 2003 as a form of savings account to be used toward qualified healthcare expenses, HSAs are ideal for portability, annual rollover, and tax-free earnings. Most individuals sign up for an HSA with their bank, insurance company, or employer. Funds can even be allocated toward qualified healthcare expenses during retirement.
But, since enrolling in a High-Deductible Health Plan (HDHP) is required to take advantage of any HSA benefits, account holders often experience financial hardship paying the associated high deductibles. Not everyone has enough money set aside to cover often unforeseen medical expenses out-of-pocket. And savings or retirement options may be slim and more costly compared to a 401(k).
Yes, lower premiums encourage account holders to more readily contribute to their HSA (keeping annual HSA contribution limits in mind), but high annual fees, recordkeeping, and early withdrawal penalties may mean HSAs are decreasing in popularity.
If you decide to take advantage of employer-funded coverage, you’ll want to compare an FSA (Flexible Spending Account) to an HSA. Unlike an HSA, an FSA is an employer-funded savings account where a portion of your paycheck is deposited into your account for certain IRS-deductible medical expenses.
Even though there’s no maintenance fees and FSAs are compatible with any type of healthcare plan, funds are considered void if not used by the end of the year. This is why it’s important to estimate your personal level of contribution when it comes to FSAs.
But, if you’re currently stuck with high deductibles, there are various ways to maximize your HSA’s value in the long-term.
Buying Individual and Family Health Insurance Through Your State Health Insurance Exchange
When the ACA was rolled out in 2010, it effectively consolidated the health insurance market. The entire process now takes place on your state’s health insurance exchange. As a result, there are far fewer providers than there were previously, and the plans can be prohibitively expensive.
Let’s go through the process detail by detail.
The ACA has open enrollment from November 1 to December 15, offering eligibility for anyone to purchase health insurance for the following calendar year.
However, you can purchase a plan outside the open enrollment window based on certain qualifying life events. These include losing your employer health coverage, having a baby, getting married, moving to a different state, becoming a U.S. citizen, being released from prison, or losing Medicaid or COBRA coverage, among several other events.
Once such an event takes place, you’ll be entitled to a 60-day special enrollment period, within which you’ll be eligible to purchase coverage.
Probably the most important benefit of the ACA was that it removed the ability of insurance companies to decline an individual for coverage. Under the Act, you can no longer be excluded from coverage due to pre-existing health conditions. What’s more, you cannot be charged higher premiums for those conditions. Those two provisions alone enabled millions to get health insurance who couldn’t under the previous system.
The only situation in which you can be charged a higher premium is if you’re a smoker. Otherwise, premium rates will be identical for individuals of the same age (premiums do increase with age).
ACA Essential Coverage
- Ambulatory patient services (outpatient care you get without being admitted to a hospital).
- Emergency services.
- Hospitalization (like surgery and overnight stays).
- Pregnancy, maternity, and newborn care (both before and after birth).
- Mental health and substance use disorder services, including behavioral health treatment (this includes counseling and psychotherapy).
- Prescription drugs.
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills).
- Laboratory services.
- Preventive and wellness services and chronic disease management.
- Pediatric services, including oral and vision care (but adult dental and vision coverage aren’t essential health benefits).
- Birth control coverage.
- Breastfeeding coverage.
Plans may also (but are not required to) offer dental and vision coverage, as well as medical management programs for specific needs, like weight management, back pain, or diabetes.
ACA Plans Offered
Even though all plans offered must cover the services above, there are four different plan levels based on the percentage of costs each pays:
- Platinum: This is the ACA premium plan, covering 90% of eligible costs. It also has the highest premiums.
- Gold: Pays 80% of eligible costs.
- Silver: Pays 70% of eligible costs.
- Bronze: This is the least expensive plan, and it covers 60% of eligible costs.
Important Health Insurance Provisions
When purchasing health insurance, it’s important to know and understand the many provisions a typical policy involves.
Copayment: This is a flat amount you’re required to pay for a healthcare service. For example, your co-pay may be $50 for a doctor visit, $25 for a prescription, or $250 for an emergency room visit.
Deductible: Each policy comes with a flat amount that you must pay before the insurance company will begin paying benefits. For example, if a policy has a $3,000 deductible, you’ll be responsible to cover all expenses up to that amount. Once the threshold is reached, insurance benefits will begin to apply.
Coinsurance: This a little understood term by most consumers. It refers to the percentage payment amounts listed in the previous section. For example, under the Gold plan, the insurance company pays 80% of eligible costs in excess of the deductible. You will be responsible for the remaining 20%. That will continue until you reach the out-of-pocket maximum.
Out-of-pocket maximum: This is the total amount of your financial responsibility under a health insurance plan. For example, if the out-of-pocket maximum is $10,000, you’ll be responsible for covering a $3,000 deductible and all copayments. You’ll also be responsible for the coinsurance until the limit is reached. In the case of the Gold plan, if you pay a $3,000 deductible, plus $1,000 in copayments, you’ll be required to pay $6,000 (for a total of $10,000) on medical costs in excess of the $3,000 deductible. Once you reach the out-of-pocket maximum, 100% of costs are covered by the insurance company.
Health Maintenance Organization (HMO): This is a health plan covering services only offered by providers that are members of the HMO. Non-HMO providers are generally not covered except under emergency circumstances.
Preferred Provider Organization (PPO): These offer larger networks of healthcare providers than HMOs. PPOs will also provide benefits for non-network providers at reduced payment levels.
Prescription Drug Coverage: All ACA plans provide coverage for these medications. However, each will have several tiers of drug types that will have a different co-pay level. For example, the copayment on a generic drug may be $25. But on a name brand drug, it might be $100. If you’re on any prescriptions, you’ll need to check with each insurance company to determine a) if the specific medication is covered, and b) what tier it’s considered and what your copayment amount will be.
Just to give you a ballpark on ACA premiums, we’re going to run scenarios for a fictional family using the Gold, Silver and Bronze Plans from Healthcare.gov. If you like, you can run your own scenarios using the 2019 health insurance plans & price site provided by Healthcare.gov. It’s an estimate only, and it’s much simpler to navigate than the full site.
The family profile will be a husband and wife, each 40 years old, with two minor children residing in the Atlanta metropolitan area. The entire family are non-smokers. We’re going to present premium levels both with and without the federal tax subsidy, officially known as the premium tax credit.
The premium tax credit represents a reduction in your federal income tax for the payment of health insurance premiums based on your income level. The lower your income, the higher the credit will be, and the lower your monthly premium will be. However, you can also choose to take the credit as a tax refund, in which case you will pay the standard premium for the policy each month. (You can get a ballpark on the credit value by using the Health Insurance Marketplace Calculator provided by the Henry J. Kaiser Foundation.)
Example Without the Premium Tax Credit
In the first scenario, the family has a total household income of $150,000. At that income level, the premium tax credit will not be available, and the full premium will need to be paid. Below are the results for the lowest priced Bronze plan, which has a family deductible of $13,500 and a maximum out-of-pocket of $15,800 (the individual deductible and out-of-pocket maximum are half that of the family amounts in each case).
For the sake of comparison, the other plan levels are as follows (there are a total of 33 plans offered):
- Silver: The least expensive plan is $1401.46 per month, with a $12,000 family deductible and a maximum out-of-pocket of $15,800.
- Gold: The least expensive plan is $1587.86 per month, with a $2,000 family deductible and a $12,700 out-of-pocket maximum.
- Platinum: None available.
Example With the Premium Tax Credit
In this example, we’re going to use the same family, but the only difference will be the total household income will fall to $75,000. At that level, the premium tax credit is $808. Below are the plans available to this family when the credit is reflected.
Notice this plan offers the same coverage as the first example, but the premium is reduced to $202.09 per month, reflecting the premium tax credit of approximately $808.
The other plan levels are as follows (once again, there is a total of 33 plans offered):
- Silver: The least expensive plan is $$593.79 per month, with a $12,000 family deductible and a maximum out-of-pocket of $15,800.
- Gold: The least expensive plan is $$780.19 per month, with a $2,000 family deductible and a $12,700 out-of-pocket maximum.
- Platinum: None available.
As you can see, the premium tax credit makes a big difference in the premium this family will pay.
This is, of course, a summary of the plans offered on the Georgia health insurance exchange. Out of the total 33 plans, you can choose a variety of deductibles and out-of-pocket maximums, as well as premium levels. To keep it simple, the plans selected above represent only the least expensive for each plan level.
Final Thoughts on Buying Individual and Family Health Insurance
In the examples above, we provided only the basic information – monthly premiums, deductibles, and out-of-pocket maximums. But when you’re actually shopping for a policy, pay close attention to the details under each policy. Each will tell you exactly what the deductibles are for any major medical procedure.
It will also let you know whether the plan is an HMO or PPO. Whichever plan it is, you’ll also need to verify that your preferred doctors and medical facilities are covered under the plan. This will be particularly important in the case of an HMO plan.
Fortunately, each plan presented on the exchange will provide plenty of detail. Study it carefully rather than focusing primarily on the monthly premium. It’ll do you little good to pay the lowest premium possible but not get the coverage you need.
Finally, if you’re not a frequent user of healthcare services, you can take a chance on a low premium with a high deductible. But, if you have a health condition that requires ongoing treatment, you’ll almost certainly be better served with a plan that has a low deductible and a higher monthly premium.
And if you’re too confused by the process – which is a typical outcome with health insurance policies – you might be better served by working with an independent health insurance broker. He or she will work for you, not the insurance companies, and help you make an informed choice.