Insured and Broke: The Problem of Underinsurance

Unfortunately, having health insurance doesn’t mean you’ll be able to afford the out-of-pocket expenses not covered by your insurer.

The Commonwealth Fund released a survey in 2014 that found 31 million adults aged 19 to 64 were underinsured. It defines an underinsured person as someone whose out-of-pocket medical expenses — not including premiums — are 10 percent or more of their household income. Another way to determine whether someone is underinsured is if their income is under 200 percent of the federal poverty level and their out-of-pocket costs equal five percent or more of their household income.

Underinsured people not only risk financial ruin, they have greater health risks, since they’re usually less likely to seek medical attention. To avoid this situation, know what you’re purchasing when you choose a health insurance plan.

Beyond Premiums: Your Plan’s Real Costs

When you purchase health insurance, you choose among plans with different actuarial values. Actuarial value is the percentage of covered expenses that an insurance policy will pay. A plan with 60 percent actuarial value means the policy will pay for 60 percent of your covered medical expenses; you’ll pay the remaining 40 percent. The difference is called coinsurance. On the Affordable Care Act’s insurance exchange, a bronze plan provides 60 percent actuarial value, a silver plan 70 percent and a gold plan 80 percent. Plans with higher actuarial values will pay more when you have a claim, but you’ll pay higher premiums every month.

In addition to the coinsurance, you’ll also have a deductible. A deductible is the amount of money you have to pay before the insurer will pay its portion of covered expenses. Except for certain preventive services that have “first dollar” coverage, you’ll pay 100 percent of your medical and drug expenses until you meet the deductible. After you pass that hurdle, your insurance company shares the costs with you, although you still must pay coinsurance.

The deductible ensures the insured has “skin in the game” and understands the costs associated with receiving medical care. Without a deductible, an insured person might say yes to every test and procedure, regardless of need or usefulness. Higher deductibles discourage unnecessary medical expenditures.

Even after you meet your deductible amount, you’ll continue to have coinsurance for using medical services, such as visiting the doctor, going to the emergency room or buying prescription drugs. Remember, the lower the actuarial value of your plan, the higher your coinsurances.

The good news is that the Affordable Care Act limits how much you pay from your own pocket. For 2017, a family that does not have a grandfathered plan will pay no more than $14,300 and an individual won’t pay more than $7,150 out of pocket. Once you reach the out-of-pocket limit, your insurance will pay 100 percent of covered charges. Out-of-network charges have no out-of-pocket cap.

What to Look for in a Health Plan

To ensure that your out-of-pocket costs are less likely to bankrupt you, consider more than just the cost of premiums when you’re comparing health plans.

First, make sure you don’t just automatically re-enroll in the same plan year to year, although many people do. Insurance company Aflac commissioned a study that found nine out 10 employees stay with the same plan from one year to the next. Instead, review your choices to see what has changed, which could include the benefits, premiums, cost of prescriptions or doctors you have access to.

Next, look at how much you and your family spent on out-of-pocket health expenses during the past year. That will give you a good idea of what you might need to spend in the coming year.

Finally, check the deductible, which can range from $500 to $5,000 or more. If you think you’ll be spending a lot on healthcare expenses, you can come out ahead in the long run by paying higher premiums for a lower deductible.

If you have a plan with a high deductible or low actuarial value, a critical illness policy or hospital indemnity plan can provide extra cash to cover your out-of-pocket expenses.