After I gave my resignation, the first order of business was to buy health insurance. My former employer’s health insurance covers me to the end of the month. I need insurance starting on the first of the following month. Basically I have four choices:
- Join a healthcare sharing ministry or program
- Sign up for COBRA
- Enroll in Affordable Care Act (ACA) marketplace
Self-insure sounds better than “don’t have insurance” but that’s exactly what it is. You just pay everything out of pocket. I think the highest total billed amount for us in any given year in the last 20 years was never more than $20,000. In most years it was less than $2,000. Paying everything out of pocket would indeed be less expensive than buying insurance.
By the same token we never filed any claim on our homeowner’s insurance or umbrella insurance. Our auto insurance never paid more than $10,000. Not expecting high expenses isn’t a reason for not buying insurance. The purpose of having insurance is to cover the unexpected extreme cases.
In healthcare, the extreme can be much worse than in auto and home. Of course the premiums are also much higher.
Self-insuring isn’t a good option for us.
Healthcare Sharing Ministry or Program
A healthcare sharing ministry or program is like a co-op. Members pool money together to pay the members who happen to have healthcare expenses. When you have healthcare expenses other members then pay you. If you are a member of a healthcare sharing ministry program, you don’t have to pay a penalty for not having health insurance. Now that the penalty is reduced to zero starting in 2019, it’s less of a motivation, but the co-op nature still remains the same.
A healthcare sharing ministry or program is not insurance in that other members are not legally obligated to pay your expenses. Because we worry more about the catastrophic expenses than the “normal” expenses, we prefer to have traditional insurance. A $50k expense would be unpleasant but we can pay it if we have to. If the ministry or program chooses not to share a $5 million expense it would be a disaster for us.
For more about healthcare sharing ministries or programs, please read How Healthcare Sharing Programs Compare To Traditional Health Insurance by Jake Thorkildsen on Nerd’s Eye View.
We decided not to join a healthcare sharing ministry or program.
COBRA is the 1985 law that required employers to offer continued coverage to recently terminated employees. People now also refer to such continued coverage as COBRA.
Federal law requires the employer to offer 18 months of coverage under COBRA. In California, the state requires the employer to offer additional 18 months. If we decide to sign up for COBRA, we can stay on it for a total of 36 months.
Employees pay the full cost of the employer’s group coverage plus up to 2% administrative fee. The COBRA premium for the same high deductible plan I had is about $1,000/month, versus $280/month when I was an employee.
However, COBRA coverage isn’t eligible for any premium tax credit under the Affordable Care Act. Nor is it eligible for the self-employed health insurance deduction because it isn’t considered to be established by the self-employment employer.
COBRA can be an easy option for us for the next 3 years. The coverage is good. We are familiar with the plans and the providers. Whether it’s the best option for us is only a matter of cost.
ACA (Covered CA in California)
The state of California operates its own ACA exchange called Covered California. It’s very easy to shop and compare plans there. Because we are healthy and we have low expenses, we chose to look at only HSA-eligible plans there. For our ages and zip code, we have three choices. All of them are Bronze plans.
|Kaiser HMO||Anthem EPO||Blue Shield PPO|
We do not expect to meet the annual deductible regardless. Therefore the insurance only matters when we have catastrophic expenses. Kaiser HMO has no out-of-network coverage unless it’s an emergency or under other limited exceptions. Anthem EPO is similar to an HMO, except we don’t have to go through a Primary Care Physician. Blue Shield PPO has the broadest coverage. It’s also the most expensive option.
Among these three we would choose Blue Shield PPO. Again having coverage is more important to us than the cost, both in premiums and in providers’ billing rates.
COBRA and then ACA?
We are not eligible for a premium tax credit this year. It’s possible to sign up for COBRA for the rest of this year and then switch to ACA at open enrollment for next year. For this year, it’s going to be $1,000/month on COBRA versus $1,250/month on ACA. After the self-employed health insurance deduction, the ACA policy comes out to be slightly less expensive.
I don’t know whether we will be eligible for a premium tax credit next year. It will depend on how successful I am with my self-employment.
If I’m not that successful, we will be eligible for a premium tax credit. The net premium of the ACA policy will be $470/month.
If I am successful, we won’t be eligible for a premium tax credit. The current $1,250/month number for the ACA policy will likely go up quite a bit more. In that case we are better off paying $1,000/month for COBRA. We have only 60 days to decide whether to sign up for COBRA. After the window closes, the COBRA option will disappear.
If we decide to sign up for COBRA, it only covers us for 36 months anyway. Long-term we will have to get on ACA. If I am successful with my self-employment, then the success can pay the extra premium. So we don’t have to worry about the increased premiums after all.
Paying $1,250/month for insurance we don’t expect to use sounds like a lot, but it’s considerably less than the taxes we used to pay. It’s not that bad when you see it from that angle.
We decided to enroll in ACA right away. Either we will pay less when my self-employment isn’t that successful, or we can afford to pay more when my self-employment is successful.
Dental and Vision
Covered CA offers dental and vision plans as well. There is no premium tax credit on dental or vision coverage. The two major carriers for large employers, Delta Dental and VSP, also offer individual plans. After comparing costs and benefits, we decided to use COBRA for dental and vision for the next three years.
By enrolling in COBRA for dental and vision coverage, we also preserve our right to get back onto COBRA for medical coverage at open enrollment for next year. Active employees who opted out of medical coverage now can add medical at open enrollment for next year. So can we as COBRA enrollees. If for some reason we see COBRA as a better option we will have a second chance.
I see a policy intervention here. By extending the COBRA period indefinitely, people who don’t get a premium tax credit on ACA policies will have an out. It doesn’t cost the taxpayers anything. It doesn’t cost the employers either because former employees pay the full premiums under COBRA.
Enrolling in Covered CA
Enrolling in Covered CA was relatively easy. I did it online. When I had a problem with my password, customer service answered in one minute and helped me reset it. Because I froze my credit, I had to do a verbal ID verification with Experian. Covered CA gave me a toll free number to call and a referral ID. Within minutes of verifying my identify with Experian, I was able to continue online.
After I completed the application I was directed to a page to pay the first month premium. I gave a credit card for them to charge. Everything went very smoothly.