Individual, group, or Medicare health care plans — more and more people are worrying how exactly to pay out-of-pocket (OOP) costs.
The costs of access to plans keeps increasing at double digit rates, while benefits decrease dramatically. In Medicare, we worry about what CMS (Centers for Medicare and Medicaid Services) will limit coverage for care in order to finance total costs for beneficiaries. In addition, prescription drug costs are leaping upwards each year as new medications come to market and older drugs are shoved into a higher tier level.
This blog post is a bit about “why,” but mostly some ideas for “how” to provide cash to cover those areas not covered by an insurance plan, without incurring debt.
Does this scenario have a ring of truth — premium of $600 per month to insure you and your family. The plan you’ve chosen has a $5000 deductible and a $6850 OOP maximum for up to two family members. So, after an annual premium of $7,200, in a bad year you could also be facing an additional $13,700 in OOP expenses.
In the few years since Obamacare was implemented, health plan premiums have increased, on average, 11-12% per year. In order to keep a plan with similar benefits, however, we have heard from many clients that prices are as much as 80-90% higher.
It is not unusual this year to find plans with premiums that actually exceed the OOP max. Moreover, we are beginning to find that some plans today do not cover all care services.
In the Obamacare world (under 65 — what I term “commercial” health plan coverage), it is a mistaken assumption that health plans are required to cover “100% of everything.” In fact, there are only 10 essential benefits (11 including pediatric dental) and the only mandate on levels of benefits is that there are no limits on lifetime benefits. Annual benefits for specific elements of care can still be limited within an Obamacare compliant plan.
In the Medicare world, beneficiaries know that Medicare doesn’t cover all care, and doesn’t pay anywhere near 100% of the cost of services that it does cover — hence the need for either Medigap or Medicare Advantage coverage. Additional concerns include OOP expenses under a Medicare Advantage plan and copay/coinsurance amounts with a Part D plan, which has no OOP max.
With the extraordinary growth in the number of new Medicare beneficiaries (currently around 325,000 per month, and over 400,000 per month by 2030), the financial health of the program is long past the stage of “growing concern” and needs to get onto the road of serious reform.
In both cases, the central issue for the insured is how they might protect themselves from unlimited financial risk for the costs of uncovered health care. Here are some ideas that may work for you.
Ancillary/Supplemental Coverage Plans
Plans that coverage specific instances of health care have existed in the insurance marketplace for some time. One well known example is a plans that cover accidents, offering a specified amount of cash in the event of an injury or accident. Newer versions of these plans sometimes offer a limited doctors office benefit. In general these sorts of plans are inexpensive (ie. $35/mo for a $5000/incident cash benefit for a single)
For the last few years, plans have sprouted up that cover hospital expenses, chronic illness, cancer treatment, short term or recuperative care, etc. The purposes of these plans is to mitigate the costs to the insured of major medical events that might otherwise fall under the deductible or coinsurance parts of a health care policy, or even outside the plan’s coverage limits.
The advantage of such plans is to provide a specific amount of coverage for a specific event.
A relatively new type of plan provide a cash or bridge coverage which is not specifically tied to the type of care.
Other Cash Creation Tools
1) Permanent life insurance:: whole life, universal life, indexed universal life. The cash value accounts of these plans, particularly when overfunded, provide a significant resource that can be used for various personal purposes, including funding unexpected health care costs;
2) RMDs:: often times, people who have put money away in 401K or IRA instruments, and are forced after age 70½ to begin required minimum distributions do not have immediate uses for the after-tax funds. These surpluses can be re-invested into other instruments, including securities, annuities or life insurance, all of which can provide a cash fund that can be tapped for excess health care costs;
3) HSAs/Emergency Cash Funds:: people who have regularly contributed to HSA accounts quite often have a significant amount of cash accumulated in these accounts. Without creating a taxable event, these funds can be used for health care purposes, even after age 65. While additional contributions cannot be added to an HSA account after age 65 when one is signed up for Medicare, funds within the account can be used until they are extinguished. Cash contained in instruments such as CDs or money market accounts can easily be devoted to the same purposes;
4) Social Security:: not everyone claiming social security has an income need for these funds. As such they can be placed into any of the instruments mentioned elsewhere to build up a cash fund to handle extraordinary health care costs;
5) Reverse Mortgage:: after age 62, a homeowner can apply for a reverse mortgage, tapping the home’s equity and stopping any regular mortgage payments for the remainder of the time they reside in the home. The new proceeds of this program creates a cash fund that can be used for various purposes, and can easily be set aside to pay for health care costs.
The threat of out-of-scale health care costs is real, whether due to plan premiums or coverage limitations, and should be part of your financial plan. Give us a call to discuss options that will work best for you.
February 1, 2016
R Allan Jensen
Southwind Financial Services/InsuranceProfessor.net
303.912.5490 / AJ@InsuranceProfessor.net