Mit­i­gat­ing Med­i­cal Costs

Here’s how to use the health care sys­tem to ef­fec­tively ease clients’ big wor­ries.

Financial Planning - - Contents - BY CAROLYN MCCLANAHAN

Here’s how to use the health care sys­tem to ef­fec­tively ease clients’ big wor­ries.

Med­i­cal costs have run amok in our bro­ken health care sys­tem. With higher pre­mi­ums, co­pays and out-of­pocket costs, health care ex­penses are a con­cern for ev­ery­one, not just re­tirees.

Since you have very lit­tle power to fix the health care sys­tem, what can you do in your prac­tice to help clients with this big worry? Pick­ing the right health in­sur­ance and learn­ing to use the health care sys­tem ef­fec­tively can help mit­i­gate the costs.

Em­ployer-based cov­er­age: About half of the pop­u­la­tion con­tin­ues to re­ceive their health in­sur­ance through em­ployer-based cov­er­age.

In gen­eral, for sin­gle peo­ple, em­ployer-based cov­er­age is go­ing to be the best deal. For a fam­ily, it de­pends. If the em­ployer does not pay part of the fam­ily pre­mium, it may be worth­while to buy sep­a­rate cov­er­age for the fam­ily on the in­di­vid­ual mar­ket, es­pe­cially if the fam­ily is healthy and doesn’t ac­cess ser­vices of­ten.

The dan­ger in this ap­proach is if a ma­jor health event oc­curs, there will be two sets of de­ductibles to meet, so it is im­por­tant to have sav­ings set aside to cover these costs.

Us­ing a health sav­ings ac­count el­i­gi­ble plan and fully fund­ing an HSA ac­count can save taxes and serve as a great ve­hi­cle to set aside money that may be needed to cover large ex­penses. Cov­er­age can be re­vis­ited and changed yearly de­pend­ing on the cir­cum­stances.

CO­BRA cov­er­age: CO­BRA can of­fer tem­po­rary cov­er­age at group rates, in the event that your client loses a job or a death or di­vorce re­sults in the loss of cov­er­age un­der a spouse’s plan. This op­tion can be very ex­pen­sive, though, as CO­BRA re­cip­i­ents are usu­ally re­quired to pay the en­tire pre­mium.

It of­ten pays to com­pare in­di­vid­ual cov­er­age or short-term cov­er­age to CO­BRA be­fore mak­ing a de­ci­sion.

Once CO­BRA is elected, in­di­vid­ual cov­er­age is not an op­tion un­til CO­BRA runs out or un­til open en­roll­ment sea­son oc­curs from Nov. 1 through Dec. 15.

In­di­vid­ual cov­er­age: The Af­ford­able Care Act is still alive and cov­er­age is still guar­an­teed is­sue, but the in­di­vid­ual man­date goes away in 2019. At that time, pre­mium costs are ex­pected to in­crease sig­nif­i­cantly since many peo­ple will quit buy­ing cov­er­age.

If in­come is be­low 400% of the poverty level (which amounted to $48,560 for an in­di­vid­ual and $100,400 for a fam­ily of four in 2018), the best in­sur­ance will be an ACA mar­ket­place plan ob­tained through health­care.gov as tax cred­its can be sig­nif­i­cant. In our firm, if pos­si­ble, we help clients plan in­come to max­i­mize their health in­sur­ance tax cred­its.

If in­come is above 400% poverty level, there are other op­tions.

• If a client is a high health care user or has sig­nif­i­cant health prob­lems, it is usu­ally bet­ter to buy a tra­di­tional plan. Based on cur­rent pric­ing struc­ture, gold level plans tend to be the best deal.

• If a per­son is healthy and a low health care user and can’t af­ford a tra­di­tional plan, con­sider short-term cov­er­age or Chris­tian med­i­cal cost-shar­ing plans. The cur­rent ad­min­is­tra­tion is plan­ning to ex­pand as­so­ci­a­tion plans, so keep your eye out for these op­tions, too. Short-term cov­er­age, cost-shar­ing plans and as­so­ci­a­tion plans have many lim­i­ta­tions. Es­sen­tial ben­e­fits may not be cov­ered, there can be caps on cov­er­age, and there are re­stric­tions to en­try.

The good news? If a client de­vel­ops a sig­nif­i­cant ill­ness, they can change to a tra­di­tional plan dur­ing open en­roll­ment. You only have to hope that se­ri­ous ill­ness does not oc­cur in Jan­uary be­cause it can be a long wait un­til Novem­ber.

Network is­sues: Most peo­ple un­der­stand de­ductibles, co­pays and max­i­mum out-of-pocket ex­penses, but health care net­works are harder to com­pare. Two in­sur­ance poli­cies may look iden­ti­cal but have vastly dif­fer­ent pre­mi­ums. The dif­fer­ence is they usu­ally vary on the avail­able network of doc­tors and hos­pi­tals.

Cheaper poli­cies may have nar­row net­works and not cover many physi­cians. If a client needs flex­i­bil­ity, have them choose the big­ger network.

When mak­ing an ap­point­ment with a physi­cian, it is im­por­tant to ask if the doc­tor is in network, not if they take cer­tain in­sur­ance. Just be­cause a doc­tor takes in­sur­ance doesn’t mean they are in network.

Since much of what doc­tors do drive up the bill, pa­tients need to make them aware that money is an is­sue.

Make cer­tain that test­ing fa­cil­i­ties are also in network. Sim­i­larly, if in the hos­pi­tal, write on con­tracts “only use doc­tors and labs in my network”.

Why is this im­por­tant? Out-of-network cov­er­age can be very ex­pen­sive for three rea­sons:

1. The pa­tient is charged full price for a ser­vice in­stead of the lower rate ne­go­ti­ated by the in­surer. If the hos­pi­tal charges $10,000 for a ser­vice and the in­surer only pays $2,000, the pa­tient will be sad­dled with the other $8,000. This is called bal­ance billing.

2. The in­surer may pay only a per­cent­age of the al­lowed in-network charges. For ex­am­ple, if the in­surer pays $2,000 for a ser­vice in network, it may cover only 50% of that when the ser­vice is de­liv­ered out of network.

3. The bal­ance bill does not ap­ply to the max­i­mum out-of-pocket limit.

Be­ing an em­pow­ered pa­tient:

Doc­tors mostly think about pa­tient care and not the cost to the pa­tient. Since much of what they do drives up the bill, pa­tients need to make them aware that money is an is­sue.

If test­ing is or­dered, the pa­tient should ask what the doc­tor hopes to learn from test­ing and how the re­sults will change their ap­proach. If the doc­tor can­not pro­vide a clear an­swer, the test may not be nec­es­sary.

If med­i­ca­tion is or­dered, it is im­por­tant to ask if there is any­thing that can be done other than med­i­ca­tion. Some­times lifestyle changes or watch­ful wait­ing are suit­able al­ter­na­tives. Doc­tors of­ten won’t take the time to dis­cuss al­ter­na­tives be­cause they think pa­tients are not mo­ti­vated to fol­low through. Pills are an easy fix, but may not be the best so­lu­tion.

Make Change Hap­pen

Beat the drum for fix­ing the sys­tem: Peo­ple worry about the cost of health care in the fu­ture. The an­nual in­fla­tion rate of med­i­cal costs in the U. S. has av­er­aged 7.76% an­nu­ally since 1970, based on data from the OECD.

If this rate con­tin­ues, in the next 30 years, health care will con­sume about 50% of GDP. This is not sus­tain­able.

We all must fight to fix the health care sys­tem and our only power is to bar­rage our elected of­fi­cials to do some­thing con­struc­tive. If enough peo­ple call their leg­is­la­tors, change will be made.

Make it a point to take five min­utes a week to con­tact one of your rep­re­sen­ta­tives. I can vouch that they lis­ten and some will even en­gage. Other coun­tries have good sys­tems with rea­son­able costs, and we should fol­low their lead.

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