How to Take Advantage of Obamacare for Less Financial Risk and More Freedom

by Philip Brewer on 25 September 2013 8 comments

In the US, buying health insurance has been a gamble: If you got sick, you were locked into whatever policy you bought when you were healthy. Once Obamacare goes into effect, that will no longer be true. This reduces your risk and increases your freedom. (See also: Freedom From the Day Job)

This post isn't on the specifics of the reforms. (See Wise Bread's post on how the Affordable Care Act's Health Insurance Exchanges work for that.)

This post is on tactics and strategies for taking advantage of the new circumstances: Using them to reduce your risk and increase your freedom.

Less Risk

In the United States, choosing a life-path that didn't include employment with a large firm has been a huge gamble, and the biggest piece of the gamble was health insurance.

In particular, choosing a life-path where you needed to buy an individual policy put your whole family's finances — and your life — in danger. If you became seriously ill, your policy would cover your expenses this year, but then you'd never be able to get a new policy, because insurers only wrote health insurance policies for people without preexisting conditions. Your premiums for your current plan would go up each year to cover the costs of your care (and others on the plan who had also gotten sick that year), and healthy people would drop the plan for new, cheaper, policies. Your insurance costs would spiral out of control, until they became unaffordable for anyone who wasn't wealthy.

Basically, buying an individual policy before 2014 was a gamble that you'd only ever get seriously ill once.

Starting next year, that's no longer true. Your rates won't go up. Thanks to community rating, you'll pay the same rate as everyone else in your age group, even if you get sick: Less risk.

A related issue for the non-wealthy was that health insurance — good health insurance, that actually protected your finances from serious illness or injury — was expensive. That prompted people to go with minimalist policies that didn't actually provide much coverage. Worse, it prompted insurance companies to create crappy "insurance" policies that might look like they provided pretty good coverage (if you didn't know how to read an insurance policy), but actually covered even less than a legit minimalist policy.

Under the new law you can get stripped-down coverage — a Bronze policy — that has lower premiums (and higher copays and deductibles). But even a Bronze plan has to cover all the same care that the better policies have to cover. You have real insurance: Less risk.

One other aspect to this is that you're guaranteed to be able to change your policy every year, if you want to.

That was true before — but only if you weren't sick. If you got sick, you were stuck with whatever policy you had. If you were worried that you might get sick, you had a strong incentive to pay up for pretty good insurance, so the policy that you were stuck with would be a pretty good policy.

The new situation enables an option that wasn't safe before. While you're young and healthy you can choose a Bronze-level policy. If you get sick, you'll have to pay the higher deductibles and copays this year, but you won't be stuck with the policy for the rest of your life. You can choose to stick with a cheap policy as long as you're healthy, without losing the chance to upgrade if you start needing more expensive care: Less risk.

Strategies and Tactics

With all that in mind, here's a few tactics and strategies for using your new individual health insurance options to help you live large on a small budget.

1. Get Insurance

There's no good reason not to. If you're living near poverty, you can get substantial subsidies to help with the cost. (If you're very poor, you can get Medicaid for free in most states. Some states are turning down free money from the federal government to support the expanded Medicaid. If you live in one of those states, you might want to move.) (See also: How to Leave Town Fast)

2. Get Your Preventative Care

It'll be free — and if you're young and healthy it won't cost you much in time or discomfort either. But if it catches some serious problem early, it could save your life. (You can't live large if you're dead.)

3. Figure Out If You Can Get a Subsidy

Everybody is pointing at the Kaiser Family Foundation's calculator. It'll take your income and your family size and figure out what subsidy you'll get, if any.

The subsidy is sized to make a Silver-level plan affordable, but you don't have to spend it on a Silver plan if you don't want to. It can make a Bronze-level plan quite cheap, or bring a Gold-level plan more within reach.

If you qualify for a subsidy, be sure to buy your policy on the public exchange — it's the only way to get the subsidy.

4. Choose a Metal Level

If you're young and healthy, consider getting a Bronze plan. If you get sick or injured, you'll have to pay a big chunk of the cost of your care, but you'll still be protected by the out-of-pocket maximum, which caps your health care expense at $6,350 for the year.

In addition to people who are young and healthy, this may be appealing to people who are middle-aged and healthy. In fact, it's particularly attractive for someone who has accumulated a chunk of capital. For example, someone who's saving hard with an eye toward early retirement might well be able to take a risk that they'd get hit with $6,350 in medical expenses, if the payoff was hundreds of dollars a year that they could add to their savings.

On the other hand, if you're in the bottom half of the low-income group getting a subsidy, consider getting a Silver plan. People with incomes between 133% and 250% of the poverty level who have a Silver plan get a further subsidy in the form of reduced deductibles and copays.

On yet another hand, if you have some chronic medical condition with a high level of ongoing expenses for health care, consider a Gold or Platinum plan. (See also: What to Do If You Have a Huge Medical Bill)

5. Reevaluate Annually

Many people will be able to stick with roughly the same plan year after year. But as circumstances change, it may make sense to make some changes.

As your income changes, your subsidy will change. (Even if your income doesn't change, the thresholds for the subsidy will change as the poverty line changes.)

As your health status changes, it may make sense to change your metal level.

You're locked in for a year at a time — but that's nothing compared to being locked in for a lifetime, the way people who get sick have been.

More Freedom

As I said when the Affordable Care Act passed, Obamacare is going to be good for people like me. It's likely to save me money — although I'm very healthy, I'm getting older, and the cost of my individual policy has started to climb, simply because of age. That will stop. But that's not the big win.

The big win is that I'm no longer risking my family's finances on the gamble that I'll only ever get sick once in my whole life. And that doesn't apply only to me.

A lot of people are drawn to some lifestyle where an individual policy is the way to go. Maybe, like me, they want to be writers — or pursue some other creative career, like musician, composer, actor, dancer, painter, sculptor, or a dozen others. Maybe they want to be entrepreneurs and start small businesses. Maybe they want to be subsistence farmers on a small plot of land. There are a lot of people like that, who are willing — even eager — to accept the lower standard of living and the risk of failure that comes with taking the leap away from working for a big company, but who have hesitated to take the additional gamble that injury or illness will bankrupt them.

This less risky version of the health insurance market is going to enable them to choose to take those other risks — the risk that their book won't sell, that their play is a flop, that they never make more than $50 a week as a musician, that their business will go bust, that their crops will fail — without adding on the risk that illness will bankrupt them. (See also: Make Your Dream Career a Reality for Under $100)

This is going to enable a whole lot of freedom — and unleash a whole lot of productivity and creativity that has been sitting idle in cubicles, on factory floors, in back offices, and behind service counters.

All that because individual health insurance policies are going to be less risky.

Are you ready for the opening of the ACA medical insurance exchanges? Will you be purchasing insurance via the exchange?

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Guest's picture

This is all good advice. I am in a tricky spot. I just turned 26 today actually (and therefore can no longer be covered by my parents insurance) and I just started a new job where the benefits don't kick in for 3 months. Annoying situation.

Guest's picture
Andy

While I agree that we might need health care reform I would dare to say this this reform that is currently being pushed has not only caused more problems but has and will hurt the same group of people that it was meant to help. I am a husband and a father of 2, both my wife and I have good jobs, are in our early 30’s, and have been blessed that we have all been reasonably healthy, we are the typical American family.

However every 2 weeks as we go over our pay stubs it never fails to absolutely frustrate me with the amount of money that is removed from my check for state and federal taxes. See because both of us have well-paying jobs, that we worked very hard to get and maintain, we are considered the wealthy. And because of that we will receive absolutely no subsidies and are expecting to see the amount that we are currently paying for health insurance almost triple. So as you write that “free money from the federal government” or as you try and make it sound as if this subsides are something that is materialized out of thin air please understand that someone is paying for it. Not only are we paying for it in the form of taxes, the young and healthy are paying for it in the form of higher insurance rates for less insurance.

I also have an intimate knowledge of how health care is run at the federal government level, I am a former US Marine and have been though the VA system. I am eligible for full health care from the VA at a large discount for both myself and the rest of my family. And even thou I am eligible I chose to pay for our health care because I would not, unless I have no other means, put my children through that process.

As I said before I agree that there is a need for reform but when a law is passed that no one understands it is bound to cause more problems than it solves.

Philip Brewer's picture

If you have good, high-paying job with good health insurance as an employee benefit, then holding out for perfect health care reform has a certain appeal.

If you're self-employed, or underemployed, or unemployed, or just work in a field where big corporate jobs with good benefits aren't the norm, then even health care reform that provides only incremental improvement can be pretty appealing.

Guest's picture
Andy

I certainly understand why it would be appealing for someone in that situation; however, it is those exact people that this law is hampering. We are doing nothing more than driving small to medium companies to have to make a decision if they are going to cross that 50 employee limit, and for companies that are already considerably over that limit they are making the cuts by moving people to part time. So in the end this is going to drive more people that are underemployed further down the income chain either by moving them to part time or completely eliminating their position. While it might bode well for people that are unemployed having companies hiring more part time works in the long run it is not a sustainable solution. Go ahead and add into this for people in my situation, the increased cost of health insurance has to come out from somewhere in the budget and the first place that gets cut is in the entertainment. I know, woe is me, but we are not going to be the only ones that are cutting back. So later in the year when major tourists areas start to see a decline in visitors what are the first positions that typically get cut, part time. Or next Christmas when retailers and manufactures are seeing lower than normal sales same thing. So you can quickly see that while this might work for some to witch the law was meant to help in the long run it is going to nothing but worsen their position and drive them further into dependency.

I will say that I completely and 100% agree with the children with preexisting conditions and there are a few other aspects that I could stand behind. As for the way that it has been planned and executed………

Guest's picture
Andy

And sorry forgot to mention that I don’t work for a large corporation, I work for a small family owned business where health insurance is not a benefit. It was up until 2 years ago before our provider decided they were not longer going to be in the health care insurance business.

Guest's picture
Guest

I just finished graduate school and I am unemployed without healthcare. I have been unemployed without insurance since May. I was just about to purchase health insurance, but now I want to know whether I should just wait until Jan. 2014 to start the Obamacare? I'm relatively healthy with no serious illnesses, but should get a checkup. What do you recommend? I have already been without insurance for so long, but I am worried they will deny me because I waited too long. I heard this is a problem if you don't get insurance right away.

Philip Brewer's picture

There is, of course, no way to answer this question, because we don't know the future. If you get seriously injured in the last months of the year, medical costs could bankrupt you. If pay up for a short-term insurance policy and then don't need medical care, the premiums will seem to have been wasted.

But you will be safe from one big risk. Without Obamacare, if you'd been diagnosed with a serious illness this year, you would have found it prohibitively expensive (or even impossible) to buy insurance next year. With Obamacare, you can be confident that you'll be able to buy a policy, and that your health status won't affect the premium.

Guest's picture

The savings on insurance won't be equally felt across age groups. Older people might find their premiums lower, but the far healthier 20-somethings are due for quite the shock.