Should You Supplement Your “Affordable” Obamacare Plan?


MagicI have been reminded several times that this month is National Breast Cancer awareness month.

Men, you remember it.  This is the month when our NFL heroes wear those hot pink shoes and wrist-bands.  There is also an increase in the number of walk-a-thons populated by women in pink T-shirts and the accompanying local TV “human interest” story.

Those activities, and countless others, are all well and good, but the money they raise goes to scientists and doctors.  Very little of the money that is raised go to women who suffer from this terrible disease.  They have other bills that have to continue to be paid whether they are sick or not.

In 2009, one of the arguments for Obamacare, was that it would prevent financial hardships if an American got sick.  Now that the Obamacare plans and rates have been made public, I find that is just another lie that our President and his supporters have told us.

There are a couple of traps in Obamacare that I want to point out in this post.  If, and when, you are required to enroll in one of the Obamacare Essential Benefit Plans, keep these warnings in mind.  If you have had a parent or sibling battle cancer, you should consider getting a Critical Illness plan to supplement what you are able to get through Obamacare.

HMO

In my county, there are 40 different plans that are offered in the federal “Marketplace.”

( There are an additional two insurance companies who offer Essential Benefit Plans outside of the federally facilitated “Marketplace.  Their plans are identical to those offered in the “Marketplace” but the leaders of those companies have chosen not to put-up with much of the government regulations that are required to participate in the government’s “Marketplace.”)

Of the 40 different plans, 15 are HMO style plans.  In most, if not all, of these plans, Americans are limited to only the doctors and hospitals that are in the network.

If an American, who bought a HMO style plan, does not abide by the HMO rules and goes to a more convenient hospital, rather than one that is in the network, the insurance company may not pay anything at all.

That means that the American who purchased that HMO policy, but did not read it, will be treated as if he had no health insurance at all.  He would have to pay the full hospital bill out of his own pocket.

At least with a PPO style plan, if you make a mistake and go to a non-network hospital, although your health insurance will pay a reduced amount to your hospital, it will not deny your entire claim.

Here is a story, that actually happened to one of my clients a couple of years ago.  I hope that it will help you understand how big a risk you are taking if you elect to get the cheapest HMO plan that is available.

In 2012, one of my clients, I’ll call her Ellen (not her real name), was very upset when she called me.  She had just gotten her Explanation of Benefits (EOB) from her insurance company letting her know that her insurance company was going to pay less than she expected for her son’s hand surgery.

Apparently, her son suffered a crushed hand in an accident and required surgery.  His emergency room bill was paid exactly like she had anticipated but she elected to have his surgery done in a non-network clinic rather than a network hospital that was 2 miles further down the road.

Here is what actually happened with her PPO plan and what might have happened if she had a HMO plan and went to a more convenient hospital rather than one inside the plan’s network.

Both PPO and HMO plans will pay full benefits for emergency medical treatment, regardless of any network requirements.  However, they have major differences in how they pay for non-emergency surgeries.

The PPO reduced the amount they paid the hospital by 20%.  If she had taken her son to the network hospital for his surgery, the insurance company would have paid 80% of the hospital’s bill.  However, she did not do that.

Since she took her son to an out-patient surgical clinic that was out of the network, her PPO plan only paid 60% of the bill.  She was responsible for an addition $18,000 because she elected to use a non-network hospital.

That is bad, but it could have been worse.  If she had a HMO type plan, the son’s emergency medical bills would have been paid but since she elected to use a hospital outside of the network, none of that hospital’s bill would have been paid by her health insurance.  She would have been liable to pay 100% of the hospital’s bill.

In other words, she would have gotten a bill from the hospital for over $30,000 and would have gotten no help to pay it.

An $18,000 liability for making a mistake with her insurance is terrible but at least some of her son’s medical bills were paid.  A mistake with a HMO plan would have been almost twice as costly.

If you elect a HMO plan because you can save an extra $50 a month in premium, ask yourself if the extra exposure is really worth it.  It would take several years for your $600 a year in savings to make up for what one surgery could cost you if you make a mistake.

DEDUCTIBLES

Another thing that I noticed was that the more affordable plans have extremely high deductibles.  Many of the plans, that are available in my county, have deductibles of $5000 or more.

That pretty much guarantees that if you have to go into the hospital, you will pay the full Out-Of-Pocket maximum.

Here is another story about a client who got the least expensive health insurance available and then called me, with a plea for help, after he got a hospital bill.

A few years ago, two brother, Don & Brad (not their real names) purchased  Health Savings Account (HSA) compatible plans.

Unfortunately, Brad did not understand that the reason the plan was less expensive was because it had a very high deductible.  He was supposed to put money into a Health Savings Account at the same time he paid his monthly health insurance premium.  That way if something major happened, there would be money available to pay the doctors and hospital.

Don dutifully “funded” his Health Savings Account.  He put money aside for a future, potential medical need.  Today, he has enough money in that account to pay the full deductible for every member of his family.  The plan he elected pays 100% of medical bills after he has paid his deductible.  In other words, if he were to have an accident or illness that required extensive hospitalization, or treatment, all of his medical bills would be paid.

Brad, on the other hand, never even bothered to set up a Health Savings Account.

Unfortunately, one of his daughter’s was injured at school and required surgery.  Brad had to pay $5000 out of his savings, unexpectedly, before the health insurance would kick in.

I learned, from that story, that although “Consumer Driven Health Plans” (a.k.a. Health Savings Plans) are less expensive in the short-run, they can be very costly to people who do not set up the Health Savings Account.

Now I avoid even talking about them to families with children.

SUPPLEMENTS

A new day has arrived for health insurance.  If you live in an area where all of the Essential Benefit Plans have high deductibles and you have several thousand dollars in your “Rainey Day Fund” you are probably going to be all right if someone in your family requires hospitalization or expensive medical care.

However, if you do not have a sizable “Rainey Day Fund” and your only options for major medical insurance have high deductibles, you should consider using low-cost supplements to build your portfolio.

Supplements are provided by several different insurance companies but unlike the Obamacare plans, they are not necessarily guaranteed approved.  For example, you cannot wait until you are in the hospital to enroll in a  Hospital Income plan.  Neither can you wait until you have been diagnosed with Cancer to enroll in a Critical Illness type plan.

Below are brief descriptions of the three most common supplements, how they are used and who should get them.  If you are interested in adding either of these supplements to your portfolio, contact a licensed, health insurance professional in your area whom you trust.

Apply

Hospital Income –  This type of supplement is for the person who is concerned about the high cost of being admitted to the hospital.  In comparison to the cost of Obamacare’s Essential Benefit Plans, it is very inexpensive.

If you already have $6350 in your Rainey Day fund, for each person in your household who has Obamacare health insurance, you do not need this type of supplement.

However, if you do not have sufficient money in your Rainey Day fund, I recommend that you add this type of supplement to your portfolio until you do.

Hospital Income policies help pay part of your medical bill that your Obamacare plan does not, if you are required to go to the hospital.

Critical Illness – The newest form of insurance in America is called Critical Illness insurance.  It pays a lump sum of cash in the event you are diagnosed with Cancer, Heart Attack or Stroke.

Many insurance companies cover several other critical illnesses, but all such policies will provide a cash benefit for the 3 main problems of cancer, heart attack or stroke.

These plans are very inexpensive.  Although they are a good idea for everybody, they are especially recommended for people who have had a parent or sibling battle one of the covered diseases.

In addition to the same risks that every American faces, they have the additional risk of genetic propensity to those diseases.

If you are concerned about your risk of getting a critical illness, you should consider adding a Critical Illness plan to your health insurance portfolio.  If you do, you will have enough money to at least pay the portion of your medical bills that your Obamacare plan does not if you are diagnosed with a covered illness.

Many people elect to buy enough Critical Illness insurance to not only pay the medical bills that their main health insurance does not, they also want enough extra money to pay the extra bills that accrue while they are recovering.

That way they are not forced to rush their recovery.  They are free to wait until they are fully recovered from their disease before they return to work.  They are not required to go back to work prematurely because bill collectors are calling all day.

Accident Supplement –  This type of supplement is also very inexpensive.  It is for people who are concerned about paying the medical bills if they suffer an accident.

Just keep in mind that these type of plans pay different amounts of money depending on the type of accident.  For example, most plans will only pay you a few hundred dollars if you just break a leg, however, if you suffer severe burns or lose a body part, they will likely pay you several thousands of dollars.

Although all of these supplements are fairly inexpensive there are two things you need to remember while you are shopping.

  1. Each company has different policies and cover different things at different amounts.  Make certain that you read your policies when you get them and that they provide the coverage you want.
  2. These are just some of the more popular supplements that are available.  There are other types of insurance to pay for other exposures that are not covered by Obamacare plans.  However, they will have to wait until a later post.

Balance

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