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