After I gave my resignation, the first order of business was to buy health insurance. My former employer’s health insurance covers me until the end of the month. I need insurance starting on the first of the following month. Basically I have four choices:
- Self-insure
- Join a healthcare sharing ministry or program
- Sign up for COBRA
- Enroll in Affordable Care Act (ACA) marketplace
Self-Insure
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 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. Other members then pay you when you have healthcare expenses.
Before 2019, if you were a member of a healthcare sharing ministry program, you didn’t have to pay a penalty for not having health insurance. That was a selling point for the healthcare sharing ministries and programs. Now that the penalty is reduced to zero, it’s less of a motivation but the co-op nature still remains the same.
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.
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 catastrophic expenses than “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.
This video segment from John Oliver highlighted some problems with healthcare sharing ministries.
We decided not to join a healthcare sharing ministry or program.
COBRA
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. Employees pay the full cost of the employer’s group coverage plus an administrative fee of up to 2%. 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 18 months. 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 | |
|---|---|---|---|
| Unsubsidized Premium | $850/month | $950/month | $1,250/month |
| Deductible | $9,600 | $9,600 | $9,600 |
| Out-of-Pocket Maximum | $13,100 | $13,100 | $13,100 |
We don’t 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.
We would choose Blue Shield PPO among these three. 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. The ACA policy comes out to be slightly less expensive after the self-employed health insurance deduction.
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 18 months anyway. In the 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 18 months.
By enrolling in COBRA for dental and vision coverage, we also preserve our right to get back on 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. We will have a second chance if for some reason we see COBRA as a better option.
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. I was able to continue online within minutes of verifying my identity with Experian.
After I completed the application, I was directed to a page to pay the first month’s premium. I gave them a credit card to charge. Everything went smoothly.
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msf says
“Federal law requires … 18 months of … COBRA. In California, the state requires [an] additional 18 months. …
“Employees pay the full cost of the employer’s group coverage plus up to 2% administrative fee.”
Almost. The second 18 months is technically not COBRA coverage but Cal-COBRA coverage. This distinction is important because under Cal-COBRA the former employee can be charged a 10% administrative fee. That can significantly alter the cost comparison with ACA coverage.
Note that some other states also extend COBRA benefits, with their own administrative charges, e.g. New York retains the 2% fee for the full 36 months.
sdk says
We are going to be on COBRA for 10 more months. I wonder if we will be able to get Cal-COBRA once the COBRA benefits are exhausted since the former employer (a large company) was self-insured.
sdk says
My wife and I have very large medical expenses year after year. We are thankful for the access to healthcare that we have but it we would be all too precarious if we were to take a false step. I looked into ACA but could not find a Covered CA plan that would be accepted by physicians at the Stanford University Hospital, the nearest facility.
See https://stanfordhealthcare.org/for-patients-visitors/health-insurance-plans/covered-ca.html
COBRA was the only option that made sense. Later this year, we’ll be actively looking into Cal-COBRA or HIPAA guaranteed issue.
See http://www.insurance.ca.gov/01-consumers/110-health/frequently-asked-questions.cfm
Igor says
Decisions, decisions… Just think about “Medicare for ALL.” It would be much better for all citizens, employers, and especially for small businesses! It would be a substantial quality of life improvement at a lesser cost without any negative affect on healthcare. Contrary to government intrusion argument, it would make all of us free. In similar situation just two years ago ACA had more options and was substantially less expensive than COBRA but Republicans are killing it. Will ACA last? That is nonpartisan analyst in me talking but any argument will lose to ideology.
Dental decisions are much easier. General dental insurances, like those you mentioned, have restrictions and limitations not worth the money. For years I was self-insured on dental expenses. Look for low cost plans like Dental Works or Humana, if they have a plan for CA and a good dentist taking them. These plans guaranty rates on basic dentistry like cleaning, fillings, and crowns.
vi says
I used to like the idea of “Medicare for all” till I looked at the numbers.
for example: Medicare withholdings are around 3%; so a person with an annual income of 100k (more than 3x the median annual income) would be paying $3000 for a year but getting value of $12000 a year (since premiums thru COBRA/ACA are around $1000 a month).
How is that sustainable?
BB says
Medicare taxes pay for medical care for people on Medicare, not for your own medical care. “Medicare for all” just means single payer, and the cost would be way more than your medicare tax. But then you are paying now for medical insurance; way more than your medicare taxes.
vi says
I don’t think many people would go for it if they have to pay the same premiums with MEdicare for all – just to a government entity.
The theory is that single payer MEdicare for all will have lower costs in line with current MEdicare costs. But MEdicare can keep its costs low since it reimburses at a lower rate than private insurance. So in effect , Medicare costs are low because private insurance subsidizes it. With Medicare for all , to see cost savings, all reimbursements would be the same and down to Medicare levels.
So doctors and hospitals would take a hit. Don’t know if hospitals can survive.
Tino says
“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.
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.”
I’m confused why you went with ACA and not COBRA until at least the rest of the year, since it would have been cheaper for you.
Harry Sit says
ACA policy is less expensive this year after self-employed health insurance tax deduction.
furuwt says
“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.”
Employers never wanted to offer COBRA in the first place and I don’t think they would be keen to offer it indefinitely.
It’s well known that people in the workforce are healthier, as a group, then people who are not. Employers get a break when purchasing group insurance to cover their employees because of this. An employer who now has to also insure some number of ex-employees under COBRA, some whom could have left for medical reasons, may have to pay a higher premium.
P.S. – Given the uncertainty surrounding ACA, as of right now, I’d stay on COBRA unless I was sure I could manage my income to allow a large ACA tax credit.
Bruce Berris says
Good for Covered CA. If you lived in Minnesota, you would have Mnsure. Changing my address required three phone calls and being on hold a total of 75 minutes. The web site doesn’t do it. I had to prove my income three times so far for 2018 coverage and we may not be done yet. That required letters and statements sent through the mail.
The state and federal aid spent on Mnsure (the website, not the insurance) was well over 100 million.
Mike says
Every state had issues, recall Nov 2013? National headlines and lead news stories every day for a month. We had “Minnesota Care” for several years and it was a wonderful plan. I was underemployed at the time and chose it over the employer’s offering. Monthly premiums were less than a phone bill, nearly unlimited choice and given it was an HMO no deductible and low copays. Then the final ACA, aka MNSure, product was unleashed on the state. I had much better employer insurance by then thank goodness.
As long as there are lobbyists with deep pockets and “representatives” happy maintain the status quo in exchange for some contribution money, we will continue to see premiums rise at 10-20x CPI while we continue to move farther away from every other “developed” country in every one of OECD’s national rankings except of course expenditure per capita (despite having the lowest coverage ratio).
The playbook is so worn yet astoundingly effective. It’s absurd. Starts with a vague, overly simplified argument against. Use one or two primary false arguments that are both vague and easy to grasp. Must be vague so it can be argued but not debated, facts can’t refute it. Simple makes it easy to distill down to a headline/slogan that is parroted on the Sunday shows, partisan radio and TV, websites, tweets, etc.
Simple and vague keeps it more or less on message as it reaches critical mass and takes off among the party faithful who may not be too up on whatever policy they are arguing for so being dead wrong on the message just gives it a new angle to keep it alive and in the headlines. Nearly impossible to deviate far from the handful of recycled, time tested false arguments.
We know them well, always rooted in some nationalistic “principle” that stokes fear, hate, greed, and division. For healthcare I believe they went with the classic “free market can do a better job” as if the “market’s” ever been free. This one is just code for let the healthcare industrial complex run amok in the market that’s been laid out just as they requested it to be.
Another was a variation on “keeping government out of your life” as if that is at all genuine let alone possible. Hell, that’s their biggest fear, losing control over society. Then a few variations to stoke fear and division, recall the “Obama death panels”? Not sure if Sarah Palin came up with that one or she was the assigned parrot but it caught on…
While the propaganda storm raged, the GOP majority was busy “fine tuning” the bill in ways that made it more expensive and inflexible in the initial stages and untenable over the long run. Finally, to ensure they’d get the headlines they wanted depicting mass mayhem of a failed system they eliminated the funds budgeted for training all of the state and county bureaucrats across the country that were going to be responsible for administering it and my experience is these aren’t people that embrace or even adapt to change of any kind.
But it was useful as it allowed “our representatives” to reaffirm their tired arguments about the “free market’s” infallibility while effectively further damaging an already damaged system and taking comfort in the fact they were unaffected. And the party dedicated, through their blind confusion felt as though they won. Smarter than the other side…as we all together sit and bear the ever increasing brunt. And those that led the opposition were all voted back in despite wasting two years of time and money in bitter partisan combat fighting against what could have been, with some cooperation and the good of the people in mind, an actual truly free and accessible to all market based healthcare system.
Alas, money and power, two sides of the same coin, aren’t gained by allowing the opposition a win. Several years on and despite healthcare being the top concern in a recent poll. I’m pretty sure many polled included those so horrified and angry about made up death panels a mere 4 years prior. But the money’s all been spent on the Pentagon, I believe the President said he gave the generals everything they asked for and then some, the rest spent financing tax cuts, and servicing debt. And despite it being the top concern with taxes I believe 5th or more down the list, healthcare in general is completely absent from any public discourse.
All that said, I have hope as in the end this Frankenstein of a system that couldn’t be much worse if both parties set out to make the worst possible system, will eventually collapse under it’s own weight and hopefully they’ll eventually see the suffering and that duct tape and bailing wire aren’t enough and expand the ACA into a nationwide system. Not much different than Social Security or Medicare/aid – direct those deductions to a national pool that contributes to the premium very much like Congress has today:
https://www.marketplace.org/2017/07/17/health-care/ive-always-wondered/here-where-us-congress-buys-its-health-insurance
Ryan says
Thanks for the interesting post. It looks like in California there is competition between ACA insurers and therefore good options to choose between.
ACA is very local and people in other locations may not be so fortunate. For example, in Illinois, Blue Cross Blue Shield of Illinois is the dominant ACA insurer. Virtually every medical provider is in the BCBS IL PPO network. A few years ago, for its ACA PPO plans, BCBS IL created a separate and much more limited “Preferred” PPO network. The large research hospitals and other more costly providers are excluded from the new network. Many people relying on an ACA insurance plan had to either find new doctors or pay punitive out-of-network deductibles.
Hopefully someday there will be Medicare for All to solve situations like this.
Sam says
You can pay for COBRA premium with your HSA funds.
Susan @ FI Ideas says
As early retirees, my husband and I have been on Covered CA since the ACA got going in 2014. First, I would say that you missed the hell of dealing with Covered CA for the first 2 years or so. They took over 90 minutes to answer calls, if ever, and then would not produce our 1095A forms to the point we had to file a tax extension. We have had bronze plans each year, which have affordable premiums. But they don’t really pay much until you hit your deductible, so they are pretty expensive to use for lab work, occasional need for antibiotics and such. As a result, tests like a colonoscopy are very expensive and people sometimes just can’t pay and skip these.
Who knows what will happen as the years go on. I know people think it’s political and try to blame various “sides”, but in the USA, our health care system is so broken that solutions are very difficult. People suggest Medicare for all, but don’t realize that those of us younger than 65 are subsidizing that through higher prices. We have to tackle the issues that drive prices up. The current system is sort of like going grocery shopping with no prices, and being able to put anything in your cart with a copay. We need to bring back the market and let people shop.
msf says
“As a result, tests like a colonoscopy are very expensive and people sometimes just can’t pay and skip these.”
Standard periodic colonoscopies are covered for no fee as preventive treatment under ACA. As this NPR column explains, no-fee coverage of more frequent tests (characterized as “surveillance” not preventative) is less clear.
However, the scheduling of those more frequent (though less than yearly) tests is usually known in advance. Such patients can plan for these tests and purchase something higher than a bronze plan as appropriate.
Note that ACA coverage may be superior to Medicare coverage with respect to colonoscopies. Again citing the NPR column, the no-fee preventative care colonoscopies covered by ACA do not allow charging even if a polyp is removed as part of the procedure. In contrast, Medicare will charge a copayment.
Bill W says
As noted in another comment above, you can pay for COBRA premiums with HSA funds, unlike ACA premiums.
Also, you can qualify for 36 months of COBRA if you lose coverage because of Medicare eligibility. So I opted for COBRA medical and both of us for COBRA dental, because my spouse terminated employment when going on Medicare. Later, after some level of growth, we’ll use HSA funds to reimburse our COBRA premiums.