Out of Pocket Maximums: Health Insurance Reform
As the health insurance reform discussions continue, another important set of issues for consumers is the out of pocket maximum and the importance of going beyond the simplistic, "After X dollars everything is paid," in order for us to understand what will greatly impact how much out of pocket liability we'll face. (Naturally, disclaimer included, you should always consult whoever it is you consult regarding the matters discussed below for your particular situation).
Consumer demands on government as the nonpublic employee middle class, whether Obamacare is repaired, replaced or simply repealed are crystal clear when we examine out of pocket maximums:
ONE: No law that RAISES the threshold of how much we must spend of our income to be eligible for the MEDICAL EXPENSE DEDUCTION THRESHOLD is acceptable to the middle class.
Before Obamacare we had to reach 7.5 percent of our adjusted gross income to be eligible for the medical expense deduction. By letting that legislation lapse, under Obama we had to reach a 10 PERCENT threshold in order to get the deduction. This was ANTI-MIDDLE CLASS, because first it required us to spend 25 percent more before reaching the threshold for the deduction and SECOND, obviously working middle class people earn LESS than the rich and therefore would reach 7.5 percent of their income SOONER than the rich. Republicans are talking about doing away with deductions: Doing away with the medical expense deduction will HURT the middle class even more than Obama did.
Further, the medical expense deduction can end up being the only relief for those with health insurance plans with participating provider networks or network providers under PPOs and HMOs, because out of network coverage in PPOs is usually only a fraction of what we actually pay for medical services and under HMOs out of network coverage is nil, nothing, zero.
For instance if you saw an out of network provider for a service for whatever reason, if you're charged $1,000 for the service your HMO will likely cover nothing of the cost and NOTHING of the cost will count towards out of pocket maximum under your plan, because it's UNCOVERED under your plan.
In the PPO scenario, where you are perhaps covered for 30 percent of out-of-network costs, you must still consider ALLOWABLE CHARGES, which go by other names such as negotiated rate or customary rate, all meaning the same thing--The INSURANCE COMPANY decides whether the service you were charged $1,000 for should have only been, for example, $900 or less. (See https://www.healthcare.gov/glossary/allowed-amount/).
If that happens then the insurance company will pay 30 percent or whatever percent they've agreed to of that $900 they determine the amount should have been rather than 30 percent of the ACTUAL charges. This has two effects, first, the money you actually paid doesn't all count towards your out-of-pocket maximum, second, you still have to pay the full amount charged by the provider. This is called balance billing. Balance billing does NOT count towards Out of pocket maximum.
If you require a specialist or want to use a facility out of network, these types of restrictions apply as well which is why we're told to see if our doctors or providers or centers who are affiliated via provider or network under our health insurance plan choice.
Non-network and out-of-network providers and the MEDICAL DEDUCTION. Remember, unreimbursed medical expenses over the 10 percent threshold of adjusted income DOES include just about any and all of your medical expenses that are unreimbursed. (Expenses paid for out of your HSA don't qualify for the medical deduction because you've already received the tax benefit of using pre-tax dollars.) The medical deduction can be critical to your financial wellbeing if you end up using services out of network, have prescriptions or medical devices that are excluded from insurance coverage.
For instance, in the above scenario, where you pay $1,000 for a service out of network, if you have an HMO, you're out that money. It doesn't count towards out of pocket maximum nor does it get covered at all by insurance. BUT, save your receipt and pay that bill (since the bill must be paid to qualify) and that $1,000 does count towards meeting the 10 percent of adjusted gross income in order to begin taking the medical expense deduction.
Similarly, if you go out of network on your PPO to obtain the service and you are charged $1,000 but the PPO decides that $900 is the ALLOWABLE rate, you'll only have $270 of that fee covered, you'll be paying $730, in this case 73 percent of the fee. For purposes of the medical expense deduction on your taxes, the full $730 counts towards meeting your 10 percent threshold eligibility for the medical deduction.
It's now apparent that government decisions that raise the threshold for the medical expense deduction or desire to do away with that deduction will injure the working and middle classes, since we're all charged the same for medical services (rich and poor) and 10 percent of our INCOME is a lot lower than 10 percent of richer people's income. Obviously, 10 percent of a smaller number is less than 10 percent of a larger number.
TWO: No law that erases the prohibition against lifetime limits on health benefits is acceptable because health insurance doesn't pay ANYTHING beyond those lifetime limits, especially because we have not done anything to limit how much we're charged by providers in a national way and they charge whatever the market will bear. Therefore, if we have lifetime limits where insurance companies pay nothing beyond a certain amount, again it is the middle class, not the rich who will be hurt.
Obamacare did get rid of lifetime limits. This feature should be retained.
THREE: CLARITY: If the government believes that there are benefits that SHOULD be covered by every health plan, instead of "Essential Health Beneifts," as we have under Obamacare where everybody is paying for this coverage even if they don't need it, the government could instead require that all insurance companies use a government-provided list of these benefits and itemize specifically yes/no whether the particular plan covers those benefits and require us to sign or initial that we understand that our choice of plan doesn't provide one of these recommended benefits.
Currently Obamacare has essential health benefits, which include services that some people might sacrifice in exchange for CHEAPER health insurance. However, right now such coverage is required and we all must pay for it. Republicans want to do away with the 10 essential benefits, which is OK as long as we KNOW and understand which of those governmentally recommended benefits we're opting out of.
FOUR: Premium Surcharges: Pre-existing conditions. Covering pre-existing conditions is mandatory, especially as the number of people with pre-existing conditions has increased over time. What consumers require is a range, much as there's a governmentally defined limit on HOW MUCH MORE in premiums they can be charged for pre-existing conditions.
Under Obamacare, people can be charged more in premiums if they smoke or if they are older. These surcharges single out certain groups for increased premium charges. Illogically, Obamacare prohibits such premium increases for any variety of other conditions such as non-tobacco drug use, alcoholism, obesity, of child-bearing age, or other pre-existing conditions.
While nobody should be excluded for pre-existing conditions, the same way Obamacare has the provision for charging certain people more should be incorporated for others with the limitations similarly based on percent of premium or ratio of premium charges to the charges of others, like the 1.5 percent of premium for tobacco users or a ratio of 3:1 of premium that is currently used in Obamacare for the case for people based on age.
Coverage of pre-existing conditions does not REQUIRE the same premium rate, this was a step too far under Obamacare that chose tobacco use and age as the only categories for charging people more rather than the myriad of situations where insurers calculate that expenses and therefore premiums are likely to be higher for individuals.
BUT to expand premium surcharges and assure that coverage remains affordable, those surcharges MUST be limited, they MUST include a LIMIT on how much more can be charged, whether it's 1.5 percent of premium charged to other people, as in the case of tobacco users, or it's a 3:1 ratio limit as is used currently in Obamacare for age.
FIVE: If for no other reason, consumers should pay extra attention to HSAs, health savings accounts, because BOTH government and insurance companies push these plans on us (though public employees and insurance company employees don't prefer them for themselves).
HSA products, originally dubbed the healthy-wealthy plans indicate their weakness, they work as another place to shelter pre-tax dollars for the wealthy and the healthy, because obviously, the 2018 contribution limits of $3,450 for an individual and $6,900 for a family will (https://www.irs.gov/pub/irs-drop/rp-17-37.pdf) be unlikely to be useful once you begin accruing medical expenses for anything beyond the most basic medical care. In other words, if you face a situation that actually requires sufficient health insurance for needed medical care, the HSA "savings" disappear since medical expenses exceeding $3,450 for an individual or $6,900 for a family can go pretty fast if you actually have a health need requiring that you use your health insurance.
Under our current tax code, there is another feature of these pre-tax dollars HSA savings that could end up preventing individuals from reaching the 10 percent of adjusted gross income threshold necessary to take the medical expense tax deduction. Expenses paid from a pre-tax HSA savings account CANNOT be counted as medical expenses for purposes of reaching the 10 percent medical deduction threshold, the theory being you've already gotten a tax benefit by using those pre-tax dollars.
In terms of your annual real out-of-pocket costs in purchasing and having health insurance, naturally, money you put into HSAs is an expense, not a savings. Your paycheck is less if you put money in these plans and those are real amounts, real costs that require real money to pay for. Therefore, money you put into an HSA for practical purposes is an out-of-pocket medical expense, the money can only be used for medical expenses. That is in addition, naturally, to your premium charges for the plan, which for each of us is a medical expense each year. Whether you use your health insurance or not, you're paying these amounts.
Then there's the HSA coverage, which begins with your health insurance plan deductible. Since HSAs are only available with high-deductible plans, you can again refer to the IRS to find out that the annual deductible of a high-deductible plan can NOT be less than $1,350 for an individual or $2,700 for a family and can NOT be greater than $6,650 for an individual and $13, 300 for a family. (https://www.irs.gov/pub/irs-drop/rp-17-37.pdf)
It's easy to see that the "savings" permitted for an individual or a family will not nearly cover the amount of money that must be laid out to meet the HIGH DEDUCTIBLE if the deductible of your high-deductible plan nears the government established 2018 limit of $6,650 (for an individual, about 50 percent of the amount you can "save" pre-tax dollar.)
Therefore, it's important to know what your deductible is and to understand that to lower that high deductible to the lower range will cost you more money in premium. One note, your premiums likely will contribute to reaching the 10 percent threshold after which your medical expenses are eligible for the medical expense deduction.
It's important to know that HSAs are sold to the public as "tax-favored health plans," (https://www.healthcare.gov/glossary/high-deductible-health-plan/) not as better or more affordable health plans.
Government and insurance companies LIKE HSAs for specific reasons: First, they save on their expenses in processing claims, there's less administrative paperwork in processing claims, you submit a claim it gets paid for out of your pre-tax dollar account.
Second, the "savings" focus discourages people from incurring medical expenses because psychologically, they're dipping into "savings" to pay for such services which in many cases will discourage incurring such expenses.
In other words, as they have always been, HSAs are essentially for those who DON'T NEED health insurance, the wealthy or the healthy.
Third, the definition of high-deductible specifically what amounts can be used for "high deductible" is conjured up by government and tends to go up every year, for 2018 NOT be less than $1,350 for an individual or $2,700 for a family and can NOT be greater than $6,650 for an individual and $13, 300 for a family, in other words BETWEEN (for an individual) $1,350 and $6,650, while ALLOWABLE pre-tax dollar contributions to 'SAVINGS' accounts are ALSO determined by government and do not go up nearly as fast, this year 2018 limited to $6,650 for an individual and $13, 300 for a family. Obviously, with the power to control those two numbers, the attractiveness of an HAS for a consumer can vary greatly even if they are a person who doesn't anticipate having medical expenses exceeding their "savings."
Even if you can create that situation when you're in a certain moment in your life, you must also remember that the "savings" in your HSA are subject to PENALTIES also established by government if you spend the money for anything else besides medical expenses until you reach the age of 65.
Consumer demands on government as the nonpublic employee middle class, whether Obamacare is repaired, replaced or simply repealed are crystal clear when we examine out of pocket maximums:
ONE: No law that RAISES the threshold of how much we must spend of our income to be eligible for the MEDICAL EXPENSE DEDUCTION THRESHOLD is acceptable to the middle class.
Before Obamacare we had to reach 7.5 percent of our adjusted gross income to be eligible for the medical expense deduction. By letting that legislation lapse, under Obama we had to reach a 10 PERCENT threshold in order to get the deduction. This was ANTI-MIDDLE CLASS, because first it required us to spend 25 percent more before reaching the threshold for the deduction and SECOND, obviously working middle class people earn LESS than the rich and therefore would reach 7.5 percent of their income SOONER than the rich. Republicans are talking about doing away with deductions: Doing away with the medical expense deduction will HURT the middle class even more than Obama did.
Further, the medical expense deduction can end up being the only relief for those with health insurance plans with participating provider networks or network providers under PPOs and HMOs, because out of network coverage in PPOs is usually only a fraction of what we actually pay for medical services and under HMOs out of network coverage is nil, nothing, zero.
For instance if you saw an out of network provider for a service for whatever reason, if you're charged $1,000 for the service your HMO will likely cover nothing of the cost and NOTHING of the cost will count towards out of pocket maximum under your plan, because it's UNCOVERED under your plan.
In the PPO scenario, where you are perhaps covered for 30 percent of out-of-network costs, you must still consider ALLOWABLE CHARGES, which go by other names such as negotiated rate or customary rate, all meaning the same thing--The INSURANCE COMPANY decides whether the service you were charged $1,000 for should have only been, for example, $900 or less. (See https://www.healthcare.gov/glossary/allowed-amount/).
If that happens then the insurance company will pay 30 percent or whatever percent they've agreed to of that $900 they determine the amount should have been rather than 30 percent of the ACTUAL charges. This has two effects, first, the money you actually paid doesn't all count towards your out-of-pocket maximum, second, you still have to pay the full amount charged by the provider. This is called balance billing. Balance billing does NOT count towards Out of pocket maximum.
If you require a specialist or want to use a facility out of network, these types of restrictions apply as well which is why we're told to see if our doctors or providers or centers who are affiliated via provider or network under our health insurance plan choice.
Non-network and out-of-network providers and the MEDICAL DEDUCTION. Remember, unreimbursed medical expenses over the 10 percent threshold of adjusted income DOES include just about any and all of your medical expenses that are unreimbursed. (Expenses paid for out of your HSA don't qualify for the medical deduction because you've already received the tax benefit of using pre-tax dollars.) The medical deduction can be critical to your financial wellbeing if you end up using services out of network, have prescriptions or medical devices that are excluded from insurance coverage.
For instance, in the above scenario, where you pay $1,000 for a service out of network, if you have an HMO, you're out that money. It doesn't count towards out of pocket maximum nor does it get covered at all by insurance. BUT, save your receipt and pay that bill (since the bill must be paid to qualify) and that $1,000 does count towards meeting the 10 percent of adjusted gross income in order to begin taking the medical expense deduction.
Similarly, if you go out of network on your PPO to obtain the service and you are charged $1,000 but the PPO decides that $900 is the ALLOWABLE rate, you'll only have $270 of that fee covered, you'll be paying $730, in this case 73 percent of the fee. For purposes of the medical expense deduction on your taxes, the full $730 counts towards meeting your 10 percent threshold eligibility for the medical deduction.
It's now apparent that government decisions that raise the threshold for the medical expense deduction or desire to do away with that deduction will injure the working and middle classes, since we're all charged the same for medical services (rich and poor) and 10 percent of our INCOME is a lot lower than 10 percent of richer people's income. Obviously, 10 percent of a smaller number is less than 10 percent of a larger number.
TWO: No law that erases the prohibition against lifetime limits on health benefits is acceptable because health insurance doesn't pay ANYTHING beyond those lifetime limits, especially because we have not done anything to limit how much we're charged by providers in a national way and they charge whatever the market will bear. Therefore, if we have lifetime limits where insurance companies pay nothing beyond a certain amount, again it is the middle class, not the rich who will be hurt.
Obamacare did get rid of lifetime limits. This feature should be retained.
THREE: CLARITY: If the government believes that there are benefits that SHOULD be covered by every health plan, instead of "Essential Health Beneifts," as we have under Obamacare where everybody is paying for this coverage even if they don't need it, the government could instead require that all insurance companies use a government-provided list of these benefits and itemize specifically yes/no whether the particular plan covers those benefits and require us to sign or initial that we understand that our choice of plan doesn't provide one of these recommended benefits.
Currently Obamacare has essential health benefits, which include services that some people might sacrifice in exchange for CHEAPER health insurance. However, right now such coverage is required and we all must pay for it. Republicans want to do away with the 10 essential benefits, which is OK as long as we KNOW and understand which of those governmentally recommended benefits we're opting out of.
FOUR: Premium Surcharges: Pre-existing conditions. Covering pre-existing conditions is mandatory, especially as the number of people with pre-existing conditions has increased over time. What consumers require is a range, much as there's a governmentally defined limit on HOW MUCH MORE in premiums they can be charged for pre-existing conditions.
Under Obamacare, people can be charged more in premiums if they smoke or if they are older. These surcharges single out certain groups for increased premium charges. Illogically, Obamacare prohibits such premium increases for any variety of other conditions such as non-tobacco drug use, alcoholism, obesity, of child-bearing age, or other pre-existing conditions.
While nobody should be excluded for pre-existing conditions, the same way Obamacare has the provision for charging certain people more should be incorporated for others with the limitations similarly based on percent of premium or ratio of premium charges to the charges of others, like the 1.5 percent of premium for tobacco users or a ratio of 3:1 of premium that is currently used in Obamacare for the case for people based on age.
Coverage of pre-existing conditions does not REQUIRE the same premium rate, this was a step too far under Obamacare that chose tobacco use and age as the only categories for charging people more rather than the myriad of situations where insurers calculate that expenses and therefore premiums are likely to be higher for individuals.
BUT to expand premium surcharges and assure that coverage remains affordable, those surcharges MUST be limited, they MUST include a LIMIT on how much more can be charged, whether it's 1.5 percent of premium charged to other people, as in the case of tobacco users, or it's a 3:1 ratio limit as is used currently in Obamacare for age.
FIVE: If for no other reason, consumers should pay extra attention to HSAs, health savings accounts, because BOTH government and insurance companies push these plans on us (though public employees and insurance company employees don't prefer them for themselves).
HSA products, originally dubbed the healthy-wealthy plans indicate their weakness, they work as another place to shelter pre-tax dollars for the wealthy and the healthy, because obviously, the 2018 contribution limits of $3,450 for an individual and $6,900 for a family will (https://www.irs.gov/pub/irs-drop/rp-17-37.pdf) be unlikely to be useful once you begin accruing medical expenses for anything beyond the most basic medical care. In other words, if you face a situation that actually requires sufficient health insurance for needed medical care, the HSA "savings" disappear since medical expenses exceeding $3,450 for an individual or $6,900 for a family can go pretty fast if you actually have a health need requiring that you use your health insurance.
Under our current tax code, there is another feature of these pre-tax dollars HSA savings that could end up preventing individuals from reaching the 10 percent of adjusted gross income threshold necessary to take the medical expense tax deduction. Expenses paid from a pre-tax HSA savings account CANNOT be counted as medical expenses for purposes of reaching the 10 percent medical deduction threshold, the theory being you've already gotten a tax benefit by using those pre-tax dollars.
In terms of your annual real out-of-pocket costs in purchasing and having health insurance, naturally, money you put into HSAs is an expense, not a savings. Your paycheck is less if you put money in these plans and those are real amounts, real costs that require real money to pay for. Therefore, money you put into an HSA for practical purposes is an out-of-pocket medical expense, the money can only be used for medical expenses. That is in addition, naturally, to your premium charges for the plan, which for each of us is a medical expense each year. Whether you use your health insurance or not, you're paying these amounts.
Then there's the HSA coverage, which begins with your health insurance plan deductible. Since HSAs are only available with high-deductible plans, you can again refer to the IRS to find out that the annual deductible of a high-deductible plan can NOT be less than $1,350 for an individual or $2,700 for a family and can NOT be greater than $6,650 for an individual and $13, 300 for a family. (https://www.irs.gov/pub/irs-drop/rp-17-37.pdf)
It's easy to see that the "savings" permitted for an individual or a family will not nearly cover the amount of money that must be laid out to meet the HIGH DEDUCTIBLE if the deductible of your high-deductible plan nears the government established 2018 limit of $6,650 (for an individual, about 50 percent of the amount you can "save" pre-tax dollar.)
Therefore, it's important to know what your deductible is and to understand that to lower that high deductible to the lower range will cost you more money in premium. One note, your premiums likely will contribute to reaching the 10 percent threshold after which your medical expenses are eligible for the medical expense deduction.
It's important to know that HSAs are sold to the public as "tax-favored health plans," (https://www.healthcare.gov/glossary/high-deductible-health-plan/) not as better or more affordable health plans.
Government and insurance companies LIKE HSAs for specific reasons: First, they save on their expenses in processing claims, there's less administrative paperwork in processing claims, you submit a claim it gets paid for out of your pre-tax dollar account.
Second, the "savings" focus discourages people from incurring medical expenses because psychologically, they're dipping into "savings" to pay for such services which in many cases will discourage incurring such expenses.
In other words, as they have always been, HSAs are essentially for those who DON'T NEED health insurance, the wealthy or the healthy.
Third, the definition of high-deductible specifically what amounts can be used for "high deductible" is conjured up by government and tends to go up every year, for 2018 NOT be less than $1,350 for an individual or $2,700 for a family and can NOT be greater than $6,650 for an individual and $13, 300 for a family, in other words BETWEEN (for an individual) $1,350 and $6,650, while ALLOWABLE pre-tax dollar contributions to 'SAVINGS' accounts are ALSO determined by government and do not go up nearly as fast, this year 2018 limited to $6,650 for an individual and $13, 300 for a family. Obviously, with the power to control those two numbers, the attractiveness of an HAS for a consumer can vary greatly even if they are a person who doesn't anticipate having medical expenses exceeding their "savings."
Even if you can create that situation when you're in a certain moment in your life, you must also remember that the "savings" in your HSA are subject to PENALTIES also established by government if you spend the money for anything else besides medical expenses until you reach the age of 65.
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