In The Basics of Insurance for Artists, I discussed two types of insurance coverage to help protect your business: property insurance and general liability insurance. Broadly, property insurance covers your “stuff” – say, your equipment, or the studio space where you make your art – while liability insurance covers you for debts you may become obligated to pay because of some incident – usually from some sort of accident or mistake. Property and liability insurance essentially protect your business interests (just as your auto and homeowner’s or renter’s policies protect your personal property and activities).
For many of us with full-time jobs, health insurance is taken for granted because it’s such a common part of an employer’s benefits plan. But if you’re running your own business, you’ll need to think about getting your own health insurance. In fact, as we’ll see below, as of 2014, you’re required to have it.
What is Health Insurance?
Health insurance is perhaps the most widely known and ubiquitous form of insurance protection for individuals. As the name suggests, health insurance covers basic healthcare costs, including everything from routine physicals and blood tests, to major medical issues such as chronic ailments, severe illnesses, and accidents. If you have a full-time job there is a strong likelihood that your employer offers a health insurance plan as part of its benefits package. Some companies pay the full cost of their employees’ insurance, but far more commonly, the employer pays a portion and the employee pays a portion. Costs associated with covering dependent children or a spouse are typically the responsibility of the employee.
Thanks to the Affordable Care Act (known more commonly as “Obamacare”), as of January 1, 2014, most Americans are required to carry health insurance by law. The penalties for failing to comply with the so-called individual mandate can be steep: up to $695 per adult (and $347.50 per child under the age of 18) or up 2.5% of total household income up to the national average cost of the lowest level ACA-compliant policy available on the marketplace). So, aside from the security that health insurance provides in the event you are ever, say, hit by a bus, the costs associated with not having it can add up. Simply put, you should have health insurance.
Where to Buy Health Insurance
If you’re a full-time artist – or even a part-time artist with a part-time job that doesn’t offer health benefits – then it’s up to you to find your own coverage. Thankfully, despite all the criticisms of Obamacare, the law has actually made it easier to find policies because it’s standardized the offerings somewhat and created one-stop outlets for comparing and buying insurance policies. These outlets are called insurance exchanges, and they function just like any other online shopping website where you can compare features and prices, and ultimately buy a policy for yourself and your family. Each state has its own exchange, either run by an appropriate state agency, or by the federal government on the state’s behalf. In California, for example, the state established Covered California to administer the exchange. It’s website, http://www.coveredca.com/, asks some basic questions about your age, household income, and ZIP code, and then returns a grid of health insurance plans available in your area:
To find the exchange for your state, visit www.healthcare.gov, the federal government’s health insurance portal, and click “Get Coverage” to find the exchange for your state.
Why Does Household Income Matter?
Household income has nothing to do with how much insurance carriers can charge you for your policy, but if you make below a certain amount (depending on the size of your household) then you may qualify for a subsidy – essentially a discount off of the cost of your health insurance. The formulas used to figure out whether you qualify, and how much you receive, are too complex to describe here, but most exchanges will do the calculations for you based on your income figure…which is why they ask.
If you’re interested in learning more about the calculations, healthinsurance.org has a useful chart. Note, though, that to qualify for a subsidy you must buy your insurance through the exchange. Even though you can also buy insurance policies directly through insurance companies’ own websites, you can’t qualify for the subsidy that way.
The Basic Characteristics of Health Insurance Plans
I won’t even try to sugar coat it: health insurance plans are complicated. And boring. Incredibly boring. But fortunately, you don’t need to be an insurance expert to understand the basics. What follows is a summary of the major characteristics of a health plan, what they mean, and why they matter when deciding what coverage to buy.
Generally speaking, health insurance plans fall into three broad categories:
- In a Health Maintenance Organization (HMO), you may only see medical providers that operate within the HMO network, and your care must be coordinated by a primary care doctor who issues referrals to specialists on an as-needed basis. Typically, the doctors in an HMO plan are employed by the HMO, which also operates its own medical facilities. The result is a cost efficient and highly convenient approach to healthcare, but also one that is fairly limited, since HMOs won’t cover the cost of medical providers outside of their own network, except in emergencies.
- An Exclusive Provider Organization (EMO) plan, allows you to see any medical provider within the network, but typically does not require a referral, and therefore a primary care doctor is not required either. EMOs are more flexible than HMOs, but are generally a bit more expensive, but not as expensive as a PPO (see below), because an EMO won’t cover out-of-network medical providers.
- A Preferred Provider Organization (PPO) plan offers the most flexibility in terms of medical providers, but you pay for the convenience: PPO plans are also typically the most expensive among health insurance options. A PPO is the most flexible because you can see any medical provider you want without a referral, and in most cases, the insurance company will even pay for providers that are out of its network, just at a significantly reduced rate.
So, to summarize: HMOs are the cheapest, but also the most limiting because you always have to start with your primary care physician, and you have to stay within the network. PPOs offer the most flexibility because you can see anyone you like (though it’s cheaper if you stay within the network), but they’re also the most expensive. EMOs sit somewhere in between – they offer some flexibility because you don’t need a primary care doctor, but also don’t offer any coverage for out-of-network medical providers.
Costs and Coverages
Insurance, of course, isn’t free. The amount you pay every month for your insurance policy is called the premium, and it’s based largely on your age. In exchange for that premium payment, the insurance company agrees to cover certain medical bills you incur during the policy period. The Affordable Care Act requires that insurance plans cover, at a minimum, the following services:
- Outpatient care (outside of a hospital), known officially as “ambulatory patient services;”
- Emergency services;
- Pregnancy, maternity, and newborn care (including birth control and breastfeeding-related costs);
- Mental health and substance use disorder services, including behavioral health treatment such as counseling and psychotherapy;
- Prescription drugs;
- Rehabilitative services and devices to help injured or disabled people recover;
- Laboratory services;
- Preventive and wellness services and chronic disease management; and
- Pediatric services.
Certain services, like annual physical exams, are required to be covered at 100%, but many of the coverages are subject to other features of your insurance plan, such as deductibles, copayments, and coinsurance. A deductible is the amount you are required to pay before your health insurance kicks in. So if you see a plan with a $2,000 deductible, you know that you’ll have to pay the first $2,000 of medical bills before the insurance company covers anything. Similarly, a copayment is a small amount of each medical bill that, once you have exceeded your deductible, you still have to pay out of pocket. Copayments are typically seen at doctors’ offices or when filling prescriptions, and are a fixed amount – typically something like $20 per visit, or $10 per prescription.
Finally, coinsurance is a fixed amount – typically expressed in percentage terms – of each medical bill that you pay yourself, above your deductible. Together, copayments and coinsurance are called out of pocket costs. So, let’s put this into concrete terms. Let’s say you have a plan with a $2,000 deductible, a $20 copayment, and a 20% coinsurance provision. You bump your head and it requires a $10,000 hospital visit. Assuming you haven’t had any medical bills yet this year (and so you haven’t paid off your deductible yet), how much will you pay, and how much will the insurance company pay?
Well, $10,000 less the $2,000 deductible that you have to pay leaves $8,000. Of that amount, there is a $20 copayment, leaving $7,980. Your 20% coinsurance means that you’re responsible for 20% of that amount ($1,596), leaving the insurance company to pay $6,384, and the total of your portion to be $3,616. If you need medical assistance again in the same year, you won’t have to worry about the deductible, because you’ve already spent $2,000 in medical costs. You’ll only need to worry about the copayment and coinsurance. But even then, you only need to worry about those to a certain point. The Affordable Care Act also requires plans to cap out-of-pocket charges, which means that no matter what your copayment or coinsurance requirements are, you’ll never be on the hook for spending more than the out-of-pocket maximum, so in the event of a catastrophic medical issue (like a major accident), your medical costs will be covered in their entirety.
Obamacare’s Metal Levels
Now that you understand a bit about what you’re getting when you buy health insurance, let’s look at how insurance plans are categorized. Under the Affordable Care Act, insurance companies define their offerings in terms of four “metal” levels: platinum, gold, silver, and bronze. There is also a fifth level called “minimum coverage.”
First off, an important note: the levels have nothing to do with the quality of care. Instead, the distinctions are based entirely on costs and benefits – in other words, who pays what, and how much. Minimum coverage is exactly what it sounds like: it’s the absolute minimum coverage required by the ACA. A minimum coverage plan is typically fairly inexpensive (relatively speaking), and pretty light on coverage, but because such plans are compliant with the requirements of the ACA, having one will allow you to avoid the penalty for not having insurance as described above.
As for the other categories…as you might have guessed, the platinum plans are the “best” in terms of coverage – they offer a wide network and lower out-of-pocket costs, but the premiums are typically higher. Bronze plans are generally cheaper, but have more restricted networks and higher out-of-pocket costs. According to the government agency charged with administering the Affordable Care Act, an average platinum plan participant will pay about 10% of his or her own medical costs, while the insurance carrier picks up the remaining 90%, whereas with a bronze plan, the participant covers about 40% and the insurance carrier covers 60%.
Head spinning yet?
Health insurance can be complicated, but fundamentally it’s pretty straightforward, and despite all the criticism politicization of Obamacare, you can thank the new law for streamlining things a bit. (Now, the cost of healthcare? That’s a different matter…and thankfully one that’s well beyond the scope of this article!) For more information about health insurance, your rights and obligations under the Affordable Care Act, what insurance providers are required to offer, and more guidance on how to pick a plan that’s right for you check out www.healthcare.gov. It’s a government site, run by Department of Health and Human Services, and is the authoritative source for all things Obamacare.
Good luck, and stay healthy!