Consider Start Dates for Health Insurance Applications

Throughout life, the need to change health insurance providers or plans may arise. For example, you may:

  • Need to add a dependent or spouse to your plan
  • Move from an employer sponsored plan to an independent plan
  • Change your policy with different care options
  • Start a new, individual health insurance plan

If you plan on making such a change, you definitely want to consider how long application approval can take.   One may (rationally) assume, “I’ll submit my application, be approved within 24 hours, and coverage will be in place.”  Unfortunately -like many things in health insurance- approval is not that fast or easy.  What’s worse is that your application has a chance of being rejected, which would leave you back at square one.

Looking at a recent health insurance application reveals that this provider only offers two start dates per month for when coverage begins.  These are the 1st and 15th of each month.  That’s it.  Whether this results from streamlining accounting/operations, approval time, or incompetence, the world may never know.   Other providers may be the same, and this is worth noting.  The goal is not to allow a gap in coverage to occur, as this creates a condition of unlimited medical liability should something awful happen.

With most things in life, it is best to prepare and apply early.  If you will require an upcoming change in coverage, it is best to apply now and begin the process.  You can always elect for the coverage to begin in the future, but if you wait until the last minute, you may temporarily go without insurance coverage.  Applying 30-60 days in advance seems to be a safe time horizon.

Here are some steps you can take to prepare for making the switch:

  • Examine your situation.  What type of coverage do you need?  How much does your budget allow?  What amount of deductible are you comfortable with?  Do you prefer a PPO or HMO?
  • Begin researching how insurance plans are compared and what each term means.
  • Have your medical records handy, as you will need information on past insurance as well as any doctor’s visits.  Here is a good system for organized medical record keeping.
  • Find a broker that allows you to compare plans.  I recommend ehealthinsurance.com
  • Compare quotes and plan offerings, select one and begin the application process.

Hopefully -with a little foresight and planning- you can avoid the risks associated with being uninsured and your insurance transition will be smooth and painless.

 

How to Select a HSA Health Insurance Plan

When searching for health insurance plans, it can be difficult to understand exactly what you are getting.  Besides the medical jargon, there are a host of acronyms that aren’t clearly defined.  These combine to make this important decision all the more difficult.

Before evaluating specific plans, broadly consider your finances and medical situation to determine your needs and constraints.  What is your goal with coverage?  What is your budget for health insurance per month?  How much of a deductible can you handle each year?  How strong is your emergency fund?  Do you have any medical conditions that require frequent visits?  Do you have a family doctor that you would like to continue visiting?

HMO vs. PPO – Understand the Plan’s Network
An insurer has a unique network of doctors, care centers and hospitals that you can visit.  This is considered in-network care and is significantly cheaper than any other alternative.  Basically, you want to receive care in-network if possible. Out of network care exists outside of this realm and is generally more expensive.

The best way to evaluate the insurer’s network – and how it fits your location and needs – is through their website.  You can see what offices are close by and how extensive the coverage is.

This is a good time for a primer on HMO’s vs. PPO’s.  Health Maintenance Organizations (HMO’s) generally assign a designated primary care physician who you visit first.  That physician then directs your care and schedules other services as needed, most likely in-network.  With HMO’s there may be no deductible for in-network care but monthly premiums are generally the highest.  HMO networks are smaller and more local so choices may be limited.  However, the care is coordinated and the costs for procedures may be lower.

Preferred Provider Organizations (PPO’s) have a vast network of preferred medical providers who you can visit.  Generally, they will require a copay for each visit and any additional costs will be at a very favorable rate as you are in network.  Moreover, if you venture out of network, your PPO may reimburse you for a percentage of those costs.  Unlike an HMO, no referral is needed before seeing a specialist, which allows for more flexibility in this type of plan.

A Health Savings Account is separate from a PPO or HMO; it is merely a qualifier that lets you open the tax advantaged savings account.  Thus, you may have an HSA with either an HMO or PPO.

Evaluating Plan Characteristics
Below is a run down of the main qualifications you will encounter in choosing a health insurance plan.  While certain factors weigh more heavily, it is the mix – combined with your health care needs – that enables you to choose the best plan for you.

Here is what it looks like comparing quotes on eHealthInsurance.com:

 

EHealthInsurance Quotes

Explanations:

  • Premium – the amount you pay each month to maintain your insurance.  This amount is paid regardless of services received.
  • Deductible – the amount you must pay before the provider pays for any services.  Note that during this time, you pay favorable, reduced rates for in-network care.  After incurring costs equal to your deductible, your provider will pay part (coinsurance) or all of the additional charges.
  • Coinsurance – a % of charges you must pay after the deductible kicks in, but before our OOP max.  Think of it as a reduced rate for coverage in this range – neither party is paying 100%. Prior to reaching your deductible, you paid 100% of the charges. After surpassing your out of pocket max, your insurance pays 100%. In between, you both pay coinsurance, which is quoted in terms of your share.
  • Out of Pocket (OOP) Max – your maximum financial liability for the year.  Note that this does not include monthly premiums.  Generally, one will reach their OOP max by incurring charges over their deductible and straight past their coinsurance period (if any). Your OOP max may also called the co-pay max.
  • Office Visit – how much an office visit to an in-network doctor will cost.  Sometimes, there is no benefit; you simply pay what the provider charges.
  • Co-Pay – the amount that you must pay out of pocket when purchasing services (visit) or prescription drugs.

Hopefully this makes plan selection easier for you.  Drop me an email or leave a comment if you have any questions.


The HSA – an Unemployment Safety Net

What if you lost your job tomorrow?  Just the thought of unemployment makes most people cringe.  Besides wrecking havoc on your finances, unemployment causes emotional stress and discomfort.  For the vast majority, their employer is their single biggest source of income.

Dealing with a job loss is easier if you have prepared.  As you will see, there are ways an HSA can help you during an unemployment spell.  Hopefully you are in the planning stages now and can take action.  If you are eligible but haven’t opened an HSA yet, it might be a good time to take 5 minutes to do so.

HSA contributions can benefit you in the following ways during unemployment:

Pay for Health Insurance Premiums
If you are receiving state or federal unemployment aid, you can use your HSA to pay for your health care premiums.  Yes, you read that correctly: while unemployed your health insurance premium is considered a qualified medical expense.  As you probably know, this is not the case when you are employed.

A good strategy is to build your HSA so that the account could cover 6 months of health insurance after a job loss.  There are a number of benefits to this.  For one, you continue coverage that limits your total financial liability– an important part of protecting your assets.  Moreover, you will not need to write a check for health insurance each month; you simply use your HSA funds.  This definitely helps with cash flow as money will be tight.

Thirdly, it is great piece of mind to know that no matter what happens, you can cover X months worth of health care premiums with your HSA.  You have a plan and have cash reserves to get through the worst of it.  Once your situation brightens, you can rebuild your HSA fund.

Tax Free Cash Withdrawal
Your HSA can also function as a backup emergency fund, allowing you to withdraw tax-free cash in times of need.  You can only do this by reimbursing yourself for previous Qualified Medical Expense (QME) paid out of pocket.  I call this strategy using your HSA as an ATM. The way it works is this: if you incur a QME and elect to pay it out of pocket (i.e. not with your HSA), you can reimburse yourself for it from your HSA at any time in the future.  This simply involves transferring money from your HSA to your checking account in the amount of the initial QME.  For example, if you incur a $50 expense for a doctor visit, and you pay for it in cash, you are allowed to transfer $50 from your HSA to your checking account in the future.  This functionally makes the purchase tax-free, and these credits can be carried forward indefinitely.

Why would one want to carry forward Unreimbursed QME?  For one, you are allowing your HSA to compound and grow.  Due to the contribution limitations, each dollar in your HSA is somewhat valuable.  Paying medical expenses out of pocket protects your HSA, allowing it to grow from the highest possible base.

Additionally, carrying forward Unreimbursed QME allows you access to cash when needed.  If an emergency occurs, you can cash in your Unreimbursed QME credits for cash.  This is not the most ideal investment strategy, as you are reducing your principal, but sometimes emergencies require this action.  This is an advantage over accounts such as 401(k) that have a penalty for most cash withdrawals,

Cash Withdrawal w/ tax and penalty
This option is the most painful of the three, but it is still an option.  Perhaps you do not have any UQME with which to reimburse yourself.  At any time, you may make a non-qualified withdrawal from your HSA to pay for anything you want.  Basically, being non-qualified means the expense is not a qualified medical expense.  You simply ‘undo’ or take back your HSA contribution.

However, this comes at a (steep) price.  A non-qualified withdrawal invokes the following:

    1. Tax Man – This amount withdrawn is added to your current year’s gross income, which means it will be taxed.  Initially, you contributed tax free, but since you will be using this money for non qualified purchases, you must now pay tax on this.  For example, if your tax rate is 20% and you withdraw $500, you owe $100 in taxes.
    2. Penalty – Secondly, there is a 20% penalty for non-qualified withdrawals.  This amount is due to the IRS come tax time, and it is not fun.  Back to the prior example, besides the $100 in taxes, there is also a $100 penalty due.  Note:  if you are over 65, this penalty does not apply to you.  That is why an HSA is a great long term savings vehicle for the young, as you only owe income taxes on non-qualified withdrawals in your golden years.

The math shows why this option is so poor.  In our example, a $500 non-qualified withdrawal results in only $300 in your pocket.  You give away a huge percentage of your hard earned money to the government in this maneuver.  But sometimes you have no other option.

If you are at risk of having to make a non-qualified withdrawal during normal (employed) times, perhaps you are being too aggressive with your contributions.  One suggestion would be to park your HSA contributions in your emergency fund before contributing to your HSA.  Here, your money is much more liquid and you avoid penalty for withdrawing it.  At the end of the tax year, once any possible emergencies or costs have arisen, you can make a lump sum transfer to your HSA for that year’s contribution.  Contributing late in the year is far better than a 40% hit.

Conclusion
Having both a strong HSA balance and unreimbursed QME credits puts you in an advantaged financial position.  During a spell of unemployment, these provide cover for 1) insurance premiums and 2) random cash needs.  I make it one of my goals to pay all of my QME out of pocket so I can pull tax-free cash later.    This is an excellent safety net for an unexpected job loss.

In the worst case, you are prepared for difficult times.  In the best case, you have more in your HSA to compound and grow.  Get strategic with your HSA to better prepare for your future.