Health Insurance or Medical Cost Sharing. How Might the Bills Be Paid?

Over the next three columns, I will compare several real-world ways of paying for health care. Today, I am comparing an Affordable Care Act plan with a medical cost-share. A medical cost-share membership is not health insurance. It is a community whose members voluntarily share one another's eligible medical expenses under a written set of guidelines.

Every person's situation is different, so this is an illustration, not a promise of how every bill will be handled. For this comparison, Mary is a single, 35-year-old, reasonably healthy person who earns $50,000 a year and has no employer coverage. The most cost-effective ACA plan available to her costs $324 per month after the applicable premium tax credit, or $3,888 per year. The medical cost share membership with a $3,000 Annual Unshared Amount costs $358 per month, or $4,296 per year.

The Annual Unshared Amount, or AUA, is the amount of eligible, repriced medical expenses Mary pays during the program year before additional eligible expenses are shared. In these examples, I assume Mary's care is medically necessary and eligible, the condition is not pre-existing, all required advance notifications are completed, the providers accept the repriced amounts, and Mary has not already paid anything toward either her AUA or the ACA plan's deductible and out-of-pocket maximum.

Assume Mary becomes pregnant after joining the cost share and has been a member for 60 days, and the allowed cost of her prenatal care and delivery is $12,700.

With the health share, Mary would pay her $3,000 AUA. The remaining $9,700 in eligible expenses would then be shared among the members.

With the ACA plan, Mary would first pay its $5,500 deductible and then 50% of the remaining $7,200, or another $3,600. Her total medical responsibility would be $9,100.

Now consider an in-network emergency room visit. The original bill for the examination, diagnostic X-rays, supplies, and follow-up physical therapy is $2,800. The health share reprices that bill to $924. Mary pays the entire $924, and it counts toward her AUA.

Under the ACA plan's negotiated rates and cost-sharing rules, Mary's responsibility is $1,900.

Finally, consider a knee replacement. Assume the final eligible or allowed cost is $60,000 and that the procedure has been approved in advance as required. Mary would pay the first $3,000 under the health share membership. Under the ACA plan, she would reach its $10,500 annual out-of-pocket maximum.

The ACA plan in this illustration is eligible for a Health Savings Account. If Mary contributes to an HSA and pays these medical expenses with those tax-advantaged dollars, her effective cost may be lower, as I have discussed in past columns on how HSAs work.

Income also changes the ACA comparison. At an annual income of $60,000, the same plan would cost approximately $396 per month. At $40,000, it would cost approximately $220 because of differences in premium tax credits. At lower incomes, cost-sharing reductions may substantially reduce deductibles and other out-of-pocket expenses.

The health share includes categories of care that some people value, including naturopathic care, nutritional counseling, telehealth, and low-cost generic drugs. However, membership is not guaranteed, and pre-existing conditions may be temporarily limited or permanently excluded. The program currently limits sharing to $1 million per incident per year.

Neither choice is automatically best for everyone. The right comparison includes the monthly cost, likely medical expenses, provider access, prescription coverage, eligibility rules, and the financial risk a person is willing and able to accept.

In my next column, I will explain examples of short-term medical insurance claims.

Glen Riensche, CLU, RHU, REBC, LUTCF Advanced Insurance Group 402-202-2550 [email protected]