Sunday, June 14, 2009

My travails with health insurance

I recently took a 6 month paid internship at a think tank. While the firm is a smaller employer, it is quite generous indeed with its health benefits. In the US, if you lose your employer-sponsored insurance, you have the option to continue it under COBRA (the Consolidated Omnibus Budget Reconciliation Act). You do have to pay 102% of what it actually costs your employer to provide those benefits for you; the 2% extra is for their administrative fees.

My internship is ending. I study health policy for a living, but I was still a bit shocked when our administrative assistant told me that the full cost of my benefits was $400 a month. There is a subsidy provision in the recent stimulus bill that has the Federal government paying for 65% of the cost of that insurance for up to 9 months. I'm unsure if I'm eligible, because I was neither a permanent resident nor a citizen while working for the organization (was on a student visa). If I am, I would pay $135 a month for up to (I think) 9 months. While working for them, I was paying $17, and my employer was eating the rest.

I will be able to get an individual insurance policy for $52 per month. Neither my fiance nor I will be employed for an unknown amount of time, so we may just have to do this. However, the individual plan is really bare bones. It has far higher cost sharing. Let's go through some insurance terms.

Premiums: a monthly fee you pay to enroll.

Cost sharing: amounts you pay out of pocket for services, meant to discourage you from going to the doctor unnecessarily. Cost sharing includes the deductible, co-pays and co-insurance.

Deductible: A fixed dollar amount you must pay out of pocket before your insurance kicks in. The individual plan I'm looking at has a $8,000 deductible. My present one doesn't actually appear to have one - this is known as first dollar coverage. Some rather weasely policies exclude certain things from the deductible, like mental health services. Kaiser Permanente, my present and probably future insurer, doesn't do this.

Co-pay: a fixed dollar amount you pay for each service. For example, a $5 co-pay for generic drugs means that for every generic drug I'm prescribed, I pay $5 and the insurance covers the rest, no matter how much it is (generic antidepressants might be as much as $30-100 a month). To encourage use of generics, insurance companies have tiered co-pays, where they charge you more for branded drugs. This is generally a good thing - the drug companies aren't having trouble paying the bills.

Co-insurance: a percentage amount you pay for each service. For example, 20% co-insurance for hospitalization means that if (God forbid) I got hospitalized, I'd pick up 20% of the cost.

Out of pocket maximum: some policies have OOP maximums. I would pay no more than, say, $10,000 a year including premiums and cost sharing no matter what happened to me on the individual policy I'm considering. Not all policies have this. In fact, some have...

Maximum annual benefits: Policies which have these won't cover anything over a certain amount. Some employer-sponsored policies won't cover amounts over $1 million. Massachusetts Young Adult Plans, which are cheap bare-bones plans for young adults, often cover no more than $50,000. At the latter amount, one hospitalization could land you in a lot of debt. I would like to see these abolished or curtailed, frankly. The individual policy I'm considering doesn't do this.

When shopping for insurance, DO NOT look only at the premium. All else equal, a lower premium means higher cost sharing and possibly lower max annual benefits. The reverse is also true.

There is nothing inherently wrong with cost sharing for most people except the poor. Cost sharing discourages unnecessary use. However, it's a blunt instrument - cost sharing also discourages use of necessary services. Some surveys have found that as many as 1/3 of Americans aren't filling their prescriptions these days due to cost. Needless to say, the poor have far less slack in their budgets than the middle class or the rich, and Medicaid plans usually impose zero or minimal cost sharing. This is good.

At the end of the day, if I get that Kaiser plan, I can be confident that my maximum possible liability in the event of major illness will be a high but manageable amount. I'll also get the advantage of Kaiser's purchasing power for generic and some prescription drugs. However, the financial protection isn't really adequate. I'm in a less usual situation among young people in that I could afford $10,000 in out of pocket costs if I really had to, without going into debt. Many young folks starting their careers are not in that situation, as are many poor people. And I am insurable - I'll touch on the issue of pre-existing conditions in the next post.

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