Note: This article is intended to give you a framework for how to evaluate different ACA plans. Based on the Obamacare plans available in your state, your results may be different. This framework is based on the initial plan released by California in June 2013 and is illustrative.
Up until now, health insurance has been an issue of great concern for people who looked to change their jobs or potentially retire before age 65, when they were eligible for Medicare. With the passage of the Patient Protection and Affordable Care Act (PPACA), portability of and accessibility to health insurance is supposed to go away as a concern, since you cannot be denied health insurance coverage, and there will only be four factors included in determining your rates (not provided in any sort of order):
- If you’re single or have a family
- Where you live (to make cost of living adjustments)
- Tobacco use (it’s nasty, so stop using it)
In its place is a supposedly simpler way of choosing healthcare. You get to choose from one of four (or five) types of plans. More on that in a bit.
Previously, depending on the coverage you had (or didn’t have), you could still face high medical costs. You didn’t want to be the one who had to have super expensive medical treatment lasting years and go bankrupt in the middle of your care, forcing you to move to Albuquerque and start selling meth (for those of you who think I’m encouraging you to become a drug dealer, this is a reference to the show Breaking Bad (#aff)). So, as a result of the fear of the blackest of black swans (aside from outright death) hitting you, you were (and maybe still are) tempted to get the Cadillac of healthcare plans.
If you have such a plan, you’re almost completely cost-insensitive. You probably think that a blood test, X-ray, and prescription all cost $10 – your copayment. At this point, you remain willfully blind to the true costs of your medical care because Monkey Brain wants to justify your spending on the Cadillac plan (“MAY GET HIT BY BEER TRUCK AND NEED TO DRINK BEER THROUGH STRAW!”). Plus, he’d rather go through pain one time – paying the health insurance premium, no matter how high – than go through multiple sets of pain in paying for treatment as needed.
This cost insensitivity also encourages you to avoid preventive treatment, since you can hop over to the doctor or the emergency room at any old time and get that sneeze checked out. By paying so much for health insurance, you run the risk of becoming complacent about your own health, since you’re tempted to abnegate the responsibility for your own care and hand it over to your doctor.
With the 2014 implementation of the Patient Protection and Affordable Care Act (PPACA), one of the consequences was that many employers who have 25 or more employees changed the mix of what plans they offered, with 52% of employers offering a high deductible healthcare plan, and 41% of employees choosing that option. Some will choose to pay the fine for not providing health insurance, bump up the pay of their employees slightly, and allow employees to choose their own health plan. Even though at my last company, we had a high contractor-to-employee ratio, we often had enough people receiving checks from us that if we were to convert them all to employees, we’d fall under the auspices of Obamacare, and that’s the choice I would recommend we make were I in that position. I could not find statistics on how many employers paid that penalty, but, before the ACA mandate penalty was revoked, 4.5% of individuals chose to pay the penalty for not having health insurance.
If you buy your own health insurance now or are going to be buying your health insurance in the future and are going to have to go out onto the healthcare exchanges rather than having a grandfathered plan, you’re going to be facing a new realm of choices for what types of insurance plans you can buy. You’ll be asking yourself:
Which Obamacare plan should I choose?
The plans (bronze, silver, gold, and platinum) reflect an effort to share costs between insurer and insured (that’s you). The table below does not reflect discounts for people below 400% of the federal poverty line (as of 2020, for the lower 48 states and DC, it’s $49,960 for singles, $67,640 for a married couple with no kids, and $103,000 for a family of four), and it does not include the catastrophic coverage option.
|Plan Type||Expected Cost Share|
If you want to see the actuarial discounts for people below the 400% federal poverty threshold, check out the Kaiser Family Foundation PPACA actuarial analysis, page 2.
If you stop right there, though, you’ll be tempted to believe that you could be on the hook, for example, if you chose the Bronze plan, for 40% of your overall health costs.
You’d be wrong.
Regardless of the plan that you choose, as it stands now, your maximum out of pocket cost for health care, aside from your insurance premiums, will be the federal limits for high deductible healthcare plans (HDHP). In 2020, the limit will be $6,900 for singles and $13,800 for families.
Since everyone’s out of pocket maximums will be the same, regardless of the plan they choose, unless each state decides to change the limits for higher plans (such as California has done with Platinum plans) the math of choosing the plan becomes relatively simple, assuming that you have all of the proper information – namely, how much your healthcare would have cost if you didn’t have insurance covering you (note, this lack of information will make it very difficult for people to make informed decisions).
The way that the insurance companies will get to where you’re sharing the actuarial cost based on your plan level will be through deductibles, copayments, or both.
Therefore, the total cost estimates are simply a factor of premium + expected co-pays/deductibles where expected co-pays/deductibles won’t exceed your out of pocket maximum. If you have high healthcare costs each year, then it will seem to make almost no sense to get anything except a Bronze plan (or, if you qualify, catastrophic coverage plan) because you would hit your out of pocket maximum regardless of what type of plan you choose, so why pay the extra premiums? Of course, if your state lowers the out-of-pocket maximum for a Platinum plan (like California does), then you’ll need to do the comparisons. I’ve done a comparison as an example below.
On the other end of the spectrum, if you’re healthy as a horse and never go to the doctor, then you’d also want to get the highest cost share plan you can get (catastrophic coverage, if you qualify, or Bronze), because, barring an unexpected event – hence catastrophic coverage – you won’t pay the medical profession for any of their services. Thus, why pay the extra premiums for coverage that you don’t need?
Somewhere along the spectrum of medical care spending, there may be a sweet spot for each type of plan.
Update for November, 2019
Below is what I wrote back in 2014; however, if you go to healthcare.gov and put in your information and estimated income, you can see specific plans and premiums that are available to you. The calculations and conclusions should use the same methodology, and, were we to need an ACA plan in 2020, my wife and I would choose a Bronze plan still.
Unfortunately, there are currently no calculators for estimating premiums aside from the Silver Plan calculator at the University of California Berkeley. California has released their standard plan co-pays – there are no deductibles apparently – for each of the plans as well as sample premiums that each of the insurers will charge (see p. 5 for the standard co-pays). Let’s assume you live in California’s Region 1 and are a 40 year old male to see what the costs are using Anthem’s PPO (the cheapest option).
|Plan Type||Expected Premium|
The difference between Bronze and Silver is $75 a month. Depending on what service you receive, you’re paying between $5 and $50 less per visit, except for lab testing and X-rays, where you’re paying a percentage co-pay in the Bronze plan versus a fixed dollar co-pay in the Silver plan.
|Preventive Care Copay (1 visit/year)||No Cost||No Cost||No Cost||No Cost|
|Primary Care Visit Copay||$60 for 3 visits||$45||$30||$20|
|Specialty Care Visit Copay||$70||$65||$50||$40|
|Urgent Care Visit Copay||$120||$90||$60||$40|
|Emergency Room Copay||$300||$250||$250||$150|
|Lab Testing Copay||30%||$45||$30||$25|
|Generic Medicine Copay||$25 or less||$25 or less||$20 or less||$5 or less|
|Max out of pocket||$6,350 for single; $12,700 for family||$6,350 for single; $12,700 for family||$6,350 for single; $12,700 for family||$4,000 for single; $8,000 for family|
|Monthly premium, region 1 minimum, 40 y/o single||$234||$309||$376||$436|
|Difference from next lowest plan||$900||$804||$720|
Thus, you’d have to go to the emergency room more than once a month but not so much that you’d hit your out of pocket cap ($6,350 per year) for it to make it worthwhile to get a higher level of coverage. Of course, lab tests and x-rays are a wild card, but how many of you get that many tests and x-rays but wouldn’t hit the spending cap? I doubt I’d see many hands raised.
What about the person who would normally hit a spending cap? Which is better? Bronze or Platinum?
Since you, as a 40 year old male living in Region 1 in California, are going to spend at least $6,350 on your out-of-pocket costs, the calculation winds up being pretty simple.
- Bronze Plan. You’ll spend $2,808 on your annual premium and $6,350 on your out of pocket expenses for a total of $9,158.
- Platinum Plan. You’ll spend $5,232 of your annual premium and $4,000 on your out of pocket expenses for a total of $9,232.
The winner in this case is the Bronze Plan, costing $74 less than the Platinum Plan. The reduced out of pocket expense does not justify the increased premium. The instances where getting a Premium Plan are justified are pretty rare – for example, only having between 17 and 26 emergency room visits in a year and nothing else.
I don’t know how each state’s premiums are going to emerge, but I’m willing to hazard a guess that in most (if not a high percentage of) cases, it’s going to be more economically viable to buy the Bronze plan and work to save up a pot of money for out of pocket expenses. Furthermore, the Bronze plans will qualify as high deductible healthcare plans (HDHP), so use health savings accounts (HSA) to sock away the money for out-of-pocket expenses.
Ask me how much we would have spent out of pocket with no insurance in any other year, and I’d give you a blank stare with my mouth gaping open like a fish going after a tasty worm. Aside from people who already have HDHPs and HSAs, I imagine the question of actual costs for any given family would evoke a similar response.
Do you need to go back and do a whole bunch of forensic work and harass your doctors, pharmacists, and hospital administrators for information back to when you were knee high to a grasshopper? No. I don’t recommend it.
Here’s what I do recommend if you’re going to have to purchase health insurance through an exchange in 2014 after the implementation of the PPACA (or, pejoratively, Obamacare):
- Save money so that you have enough to cover out of pocket expenses. The worst that could happen is you do get hit by the beer truck. You already know what your maximum out of pocket cost will be. Plan for it. If you don’t have to spend it, whoo whee! Roll it over into the next year and keep saving.
- Start out with a Bronze plan. Again, once your state rolls out their premiums, you can calculate what your absolute maximum out of pocket expense is going to be. Then, track your spending. See how much more (or less) you would have spent had you purchased another plan. If necessary, change in the future, but also look at your medical care needs in 2014 compared to previous years to see if it was an outlier or if it was truly representative.
Monkey Brain is going to bristle at going with what he perceives as less coverage. He’s going to feel like you’re walking out on a tightrope with no net, particularly if you’ve had a more comprehensive plan that didn’t require you to pay much in out of pocket expenses for your health care. The reality of having a Bronze Plan (or any plan under the PPACA) is that there will be a safety net – your maximum out of pocket expenses for a given year. If you have sufficient assets, then the bigger financial risk is overinsuring for the illusion of peace mind. That additional peace of mind isn’t necessary in a higher tier plan because, if you have sufficient assets to self-insure the out-of-pocket maximum, you won’t need the lower co-pays provided by the higher tier plans.
Remember the example of the 40 year old male in Region 1 in California. In his best-case scenario, he never went to the doctor. By choosing a Bronze over a Silver plan, he saves $900 per year. A disaster scenario would be having only one lab test costing $9,071.43, requiring him to pay his out of pocket maximum under the Bronze plan but only $65 in the Silver plan, leaving him, overall, $5,450 worse off.
I see no reason to try to insure for the far extreme edge cases of medical need under the PPACA plan structures given the limit of damage for the worst cases. Why pay $900 (or $2,424 in the case of upgrading to a Platinum plan) a year more for an extremely low probability outcome that has a limited downside?
The purpose of insurance is to protect you from catastrophe. The limits of financial catastrophes, at least based on the premiums and rate structures for Obamacare released by California, mean that it’s not worth paying the additional cost for coverage for the bizarre set of circumstances that would justify getting the additional insurance.
Based on what I’ve seen, smart money is going Bronze.
Don’t forget to check out the companion pieces “How the Obamacare Subsidy Threshold Could Make You Pay a Lot More for Health Insurance” and “Is Obamacare Viable for Early Retirees?”