Health Insurance

What is the Individual Mandate??

Hi Guys,

We’ve got a special edition v-blog here because, as you may have heard, there’s a lot going on over in Washington about repealing the individual mandate in the proposed tax reform bill.

Now, most folks are probably so confused about what the heck they are talking about and what the implications would be. So today I’m going to simplify some concepts and terms so that you can make your own decisions about what you think would be best for yourself, your family, and/or the People.

*Note- it is actually much more complicated than this but I’m going to keep it very simple for now.

First concept you need to understand is called a Risk Pool.

Risk Pool– the group of people that are in the same insurance plan. By being in that specific insurance plan, or risk pool, you are sharing risk across the other folks in the plan. For example, Medicare is a risk pool because it is one group of people that enter into the insurance plan and receive medical services in return. Other risk pools might be your company, if you work for a really large employer that pays for your health insurance, or a commercial insurance product like a BlueCross BlueShield, for example.

Before we continue, let’s learn more about risk pools by clicking on the photo below!

Health Insurance Risk Pools Thumbnail

Now that you have a greater understanding of risk pools and how they work let’s talk about the Individual Mandate.

Individual Mandate: the requirement that all individuals purchase health insurance or else pay a small penalty for not having health insurance.

*Note- For the 2017 plan year, the fee is calculated 2 different ways – as a percentage of your household income or per person. You’ll pay whichever is higher when you do your taxes. The fee is 2.5% of household income or $695 per adult + $347.50 per child. 

Now, why was the individual mandate built into health reform? In order to combat Adverse Selection, whereby people don’t pay their dues into the system but then when they become sick they purchase and use their health insurance. And don’t forget, all of us get sick at some point in our lives…

Adverse Selection: people who are sick are more likely to purchase health insurance.

So then what effect does removing the individual mandate have?

Cost of Care: when you have less healthy people paying into the system then the cost sharing (premiums, deductibles, etc.) is going to increase for everyone else who is paying into the system.

Let’s use an analogy of an amazing dinner buffet. I live in Los Angeles so I’m going to use delicious Souplantation as my example. Now the Brentwood Souplantation offers their dinner buffet at $11.99 per person for all you can eat. What a great deal! But what happens if people like me who only eat a small salad, soup, and dessert stop coming to Souplantation and people who are severely obese and eat five plates of food start coming to Souplantation? In order to cover their costs, Souplantation is going to have to increase their prices for the buffet for everyone who is coming to the restaurant or risk shutting down the restaurant. Now Souplantation might start charging $19.99 per person. But what if they start losing the business of the healthy people who say you know what, I don’t even eat $19.99 worth of food so it’s not worth coming, and Souplantation starts to lose more of the healthy customers it needs. This leads to…

Market Instability: the inability of health insurance companies to predict their risk pools’ enrollment numbers, risk profiles of those enrolling, and the cost of those enrollees.

Let’s continue on with the Souplantation example. Their customers are turning over like crazy! They’ve increased their prices but now they are getting more heavyset folks and they are having difficulties predicting how much food is going to be eaten and sometimes they don’t order enough and they run out of food, etc. You can see what a mess this has turned into! Now what happens? Souplantation decides to shut its doors and find a new location where the clientele is more predictable with a steady mix of customers who eat a lot and customers who eat a little.

So now that the insurance companies have increased prices and/or pulled out of the market as an option for the people, the third area of impact is coverage.

Coverage: The CBO estimates that due to adverse selection, the cost of care and market instability will increase such that an estimated 13 million people will lose coverage because they won’t have an affordable option for themselves and their families.

Who the heck is the CBO??

Congressional Budget Office (CBO): a strictly nonpartisan (doesn’t take political sides) group of economists and budget analysts who provide objective, impartial analyses of Congress’ proposals. CBO does not make policy recommendations, and each report and cost estimate summarizes the methodology underlying the analysis.

Now I hope I have provided enough of the basics for you to better understand what the individual mandate is and how it works so you can think about it for yourself and not necessarily along political lines!

As always, please let me know if you have any questions or comments and I hope you’re having a wonderful week!

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Health Insurance

Intro to Health Insurance 101

Hello Ladies and Gents! It is officially that time of year (not just the flu season…not just the holiday season…) but it’s time to select your insurance plan for the 2018 calendar year!! Very exciting stuff!

Now I’m sure you must be looking at the options and thinking… “What the heck do these words mean?” “Which plan is the most cost-effective for me and my family?” “Which plan is going to cover the health care that I need?” Maybe you are even thinking “Where the heck do I even start??”

I’m here for you!!! 

Throughout the next few weeks I will post about the basics of the health insurance system so that you feel more confident in the decisions you are making about which health insurance plan to select.

First important point to make:

Make sure you have health insurance! Just one accidental hospitalization can cost up to six figures so if you don’t have that money in the bank you should get health insurance!

Hopefully someday soon it will be easier for everyone to have health insurance but right now it is still really tricky. Here are some recommendations based on your potential situation:

  • If you work for a large employer that’s great- you can take the offered insurance and cover as many members of your family that you can.
  • If you are under 26, you can have your parents claim you on their health insurance. The only requirement is age so don’t worry if you don’t live with them, are married, etc.
  • If you are not offered insurance through your employer, you can go to your state’s health insurance exchange website. (See links below)
  • If you are an independent young adult who is not offered insurance through your job or your parents and you are very healthy, you can go onto your state health insurance exchange website, just like I mentioned, but you can opt for a very lean health plan that is inexpensive. That way you are covered if something should happen and you avoid the tax penalty at the end of the year for not having insurance.
  • If you are over 65 or have kidney failure, sign up for Medicare!
  • If you are not offered insurance through your employer and are having trouble financially affording health insurance, you can check your state’s Medicaid requirements. You may be eligible for insurance based on your current situation. If you have children, they may be eligible for the Children’s Health Insurance Program (CHIP).

Here are some links to help you navigate purchasing health insurance if your employer doesn’t offer it:

https://www.healthcare.gov/ -This site will lead you to your state-based health insurance exchange that I mention above. Click on “Find Local Help”.

https://www.medicare.gov/ -Here’s where you can sign up your parents, grandparents, or other loved ones for Medicare.

https://www.medicaid.gov/ -Here’s the site where you can learn about Medicaid and CHIP and whether your current financial status allows health insurance coverage for you and your family.

And on a side note, you might be wondering about this tax penalty…

The concept here is that all individuals across the country should have health insurance- both for their own health but also for the sake of the risk pool and societal contribution (which I’ll explain in a different post once we get through the basics).

If you can afford health insurance but choose not to buy it, you may pay a fee called the individual shared responsibility payment. This is typically called the “tax penalty” or “individual mandate.”

For the 2017 plan year, the fee is calculated 2 different ways – as a percentage of your household income or per person. You’ll pay whichever is higher. The fee is 2.5% of household income or $695 per adult + $347.50 per child. 

Ok, everyone! It’s time to get out there and purchase your 2018 Health Insurance Plan! The market closes in December!

This is just the beginning of the Health Insurance 101 series so please feel free to send questions below or through the website contact page so I can be sure to address them in future blogs. Together we can simplify the health insurance complexities!

Cheers to Health and Happiness! 

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