When you are self-employed, you have a lot of responsibilities. One of those responsibilities is to ensure that you have adequate health insurance for you and your family.
Fortunately, you have a number of choices, including the government’s health insurance exchange and off-exchange insurance policies. Another option is short term health insurance, also called temporary health insurance. Your needs, wants and budget will help dictate which type of insurance and which of these options is right for you.
This article will explain some of the main differences between these alternatives, to help you make a wise decision for you and your family.
Differences Between Exchange and Off-Exchange Health Insurance Plans
(A note on terminology: Although it is sometimes referred to as the “health insurance marketplace,” in this article we will use the term “exchange,” since the marketplace for health insurance really is much wider than just the products that the government has organized into its exchange. If you are not considering alternatives to the government exchange products, you are missing important options and opportunities to make a more defined choice for your health insurance. “Off-exchange” refers to health insurance that you purchase directly from an insurance company, either through a licensed insurance agent or through an online portal.)
There are a few important differences in the health insurance plans you find on the exchange and those you find off the exchange. They vary in terms of available types of plans, deductibles, medical provider networks and drug coverage.
Type of Plan
Exchange: Over the last couple of years, the number of choices of health insurance plans has decreased on the exchange. In many areas, there are now more Health Maintenance Organization (HMO) plans than traditional health insurance plans. And, in some regions, there are only HMOs offered. It’s important to know that with an HMO, some of your choices are taken away from you. For example, you must go through a primary care physician before you see a specialist, even if you already know what type of specialist you need. In addition, you usually can only receive benefits if you utilize the medical providers that are part of the HMO network.
The number of health insurance plans offered in a particular region on the exchange has decreased. In addition, the number of insurance companies that offer health insurance products on the exchange has plummeted as 2017 approaches.
For 2017, most of the major health insurance companies have curtailed or exited the exchange in many states. By August 2016, the following actions had already taken place:
- UnitedHealthcare said it would not market on the exchange in 31 of the 34 states where it had been selling policies.
- Aetna said it was quitting 11 of the 15 states where it had participated in the Obamacare exchange.
- Humana announced it was exiting 8 of the 19 states in which it had sold on the exchange, reducing its presence to just 156 counties across the nation––that’s down from 1,351 counties just a year ago.
According to the Kaiser Family Foundation, for 2017 only 57 percent of exchange enrollees have a choice of three or more insurers, down from 85 percent in 2016.
Off-Exchange: If you purchase health insurance off-exchange, you generally have a much wider choice of insurance companies and insurance plans.
Off-exchange, insurance companies can provide you with a wider choice of health plans, with different types of benefits. However, to qualify as ACA-compliant (ACA stands for Affordable Care Act), the plans still must conform to a set of required benefits.
Some of the off-exchange health insurance plans are the same as what insurance companies offer on the exchange. For some people, being able to consult with an insurance agent is an important part of the selection process, and in many cases you have that opportunity with off-exchange products.
The Congressional Budget Office estimates that about nine million people buy their health insurance off-exchange.
Deductibles
Exchange: As the number of insurance plans has decreased on the exchange, so has the choice of deductibles. In addition, in order to keep the cost increases from becoming even higher, insurance companies have increased the deductibles on many plans to be at or near the out-of-pocket maximums that are set by the federal government. The government has increased the out-of-pocket maximums each year since Obamacare began.
2017 Out-of-Pocket Maximums:
$7,150 — Individual
$14,300 – Family
That’s an increase of over 12.5 percent in just 3 years:
$800 for Individuals
$1,600 for Families
Off-Exchange: In most cases, you have a greater choice of deductibles off-exchange, because the insurance companies offer a greater variety of plans and benefit structures.
Medical Provider Networks
Exchange: This is an area of particular concern to people who have established relationships and trust with certain doctors and hospitals. Exchange plans, in general, have narrower networks of doctors and hospitals. That means you have fewer choices. If you purchase an HMO, you generally do not receive any insurance benefits if you use a medical provider that is outside the network. On other types of plans, you will pay more out of your own pocket if you use a doctor, hospital or other medical providers that are not in the network.
Off-Exchange: You generally have more choices of networks in off-exchange products. Although the premium costs are higher for a broader network, some people are willing to pay the extra cost to include the in-network doctors and hospitals that they already know and trust.
Prescription Drug Coverage
Exchange: Because prescription drug cost increases have been and continue to be a significant part of the reason for increasing health insurance premium costs, this is an area to watch closely when you purchase a health insurance plan. You may have more medications in higher “tiers” of coverage (meaning you pay more out-of-pocket), or your copayments or coinsurance may be higher in exchange plans.
A recent study showed that consumers with exchange plans paid more than twice as much out of pocket for prescription medicines overall as they would under a typical employer plan.
Off-Exchange: The prescription drug benefits available on some off-exchange health insurance plans are more in line with the type of coverage available under typical employer insurance plans, so the out-of-pocket costs can be lower than on many exchange plans.
Why Short Term Health Insurance Can Be a Good Option for the Self-Employed
When you compare types of plan, deductibles, medical provider networks and prescription drug coverage, a short term health insurance plan can provide you the optimal range of choice and options that you need.
Short term health insurance is another choice for empowering you with control over the coverage you choose, the doctors you choose, the hospitals you choose and the budget you choose. These plans usually do not have the restrictions of medical networks; you are free to choose your desired doctors, hospitals and other medical providers, with the security of knowing that your insurance will cover the costs.
Keep in mind that the term of coverage does not need to be as “short” as you may initially think. The current market for insurance products–– including rising premium costs and rising out-of-pocket costs even for those with insurance––makes this an ideal time to think about health insurance in a new way, even if temporarily.
What Is Short Term Health Insurance?
Short term health insurance, also known as temporary health insurance, is health insurance that is available for periods of time from one month to 364 days, depending on your state of residence.
- Short term medical insurance covers doctor visits, hospitalizations, emergency care, lab tests, prescription drug costs and more.
- Most short term medical insurance policies are “network-free.” This means you can choose any doctor or hospital. That’s important because when you need medical care, you really want to be able to choose where you go for that care. However, some short term plans offer PPO network plans. You just need to look for the type of coverage you wish to have.
- Short term medical operates similarly to permanent health insurance, which means monthly premiums, deductibles, coinsurance, copays and out-of-pocket maximums apply.
- Short term health insurance does require consumers to answer medical questions in the application, as some pre-existing conditions disqualify an individual from applying.
How Costs Compare: Exchange, Off-Exchange and Short Term Insurance
The cost of exchange health insurance plans is rising rapidly. The average price increase on the exchange for 2017 is 25 percent over 2016 premiums. That is more than three times the increase that took effect in 2016.
You may be asking, “Wasn’t the ‘Affordable’ Care Act supposed to reduce the cost of health insurance?” The views on that vary with political stance, but the simple fact is that premium costs are increasing steeply on the exchange. Part of this has to do with the financial losses experienced by the insurance companies as more consumers entered the market and began using healthcare services at a higher rate. The insurance companies tried to estimate these changes; unfortunately, they underestimated the total costs across the board. Therefore, they have been losing money on their exchange insurance plans…a lot of money.
There have been almost $2 billion in losses this year for the big insurance companies. When that happens, premium costs go up. In addition, insurers selling products on the exchanges are also projected to have higher taxes and fees because the exchanges charge fees for plans purchased there.
Some off-exchange products can provide lower premium costs, depending on the benefit structure. However, the off-exchange products that are the same as those offered on the exchange have to be priced the same both on and off the exchange.
Short term insurance plans do not have these same restrictions. Primarily this is due to the fact that they have more latitude in benefit structure, but it’s also because they usually require a certain amount of medical information that individuals are required to provide in order to qualify for coverage. Ultimately, these factors allow them to keep their premium costs lower.
Short term health insurance plans typically cost one-half the price of individual health insurance plans.
When You Can Buy: Exchange, Off-Exchange and Short Term Insurance
Both exchange and off-exchange health insurance plans have a narrowly defined window each year when these plans can be purchased. This is called “open enrollment.” For 2017 coverage, the open enrollment window runs from November 1, 2016, to January 31, 2017. After that, you have to wait until 2018 to have coverage, unless you have a qualifying event that allows you to qualify for a short “special enrollment period.”
Short term insurance plans are not available on exchanges. Short term insurance products can be purchased at any time; you are not limited to purchasing them only during the annual open enrollment period.
Short Term Medical Can Be the Solution for Many Self-Employed
Self-employed individuals looking to find economical health insurance plans––ones that allow choices in benefit structure, with freedom to choose doctors and hospitals ––should consider a short term health insurance plan. These type of plans could fulfill a range of medical needs for up to 364-days, at an affordable cost.
One Final Note: Supplemental Insurance for Those High Deductibles
For self-employed people who decide to purchase exchange or off-exchange traditional health insurance plans: you will need to deal with high deductibles on the coverage you purchase. In that case, you may want to consider supplemental insurance to help you cover the out-of-pocket deductible and coinsurance costs in the case of a serious illness or accident.
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