Bouncing between plans with Obamacare is costly
Insurance is confusing, and the Affordable Care Act, otherwise known as Obamacare, hasn't made things any easier.
Choosing a health insurance plan is even trickier if your income changes throughout the year. If you work construction and have fewer hours in the winter, are a ski instructor and work only in the winter, or just haven't found the right niche, then your income probably fluctuates from month to month.
Say, for example, when you sign up for an Obamacare plan through the healthcare marketplace, you meet the income requirements to qualify for a subsidy. (Approximately $30,000 for a single person, but varies WIDELY depending on whether your state has set up its own marketplace.)
If your income goes down significantly, you may qualify for a Medicaid plan, but don't count on this. In the 15 states that have not enacted Medicaid expansion, qualifying monthly income for a single person with no children is ZERO. Meaning if you are paid for working even one day, you're ineligible.
A New York Times article recently estimated that 28 million Americans experience income changes each year, forcing them to bounce between health insurance plans. This is called "churning" and it's happening more and more, particularly as companies raise their rates and customers shop around for better plans. Researchers at George Washington University say this costs taxpayers. They estimated the government spends more on people who are enrolled in Medicaid half the year than people who are enrolled a full year.
More importantly, switching plans can also cost you money. Most plans operate on an annual deductible system, meaning you pay a certain amount of healthcare costs up front. If you change plans mid-year, any medical expenses you had under the previous plan disappear and your deductible starts over. And these deductibles keep getting bigger: a 2014 study by PwC's Health Research Institute showed 44 percent of employers are planning to offer only high-deductible plans to their employees.
Some employers offer Health Savings Accounts (HSAs) in conjunction with high-deductible plans. As a result, HSA enrollment is on the rise -- up 53.7 percent since 2013, according to the Society for Human Resource Management. A recent Forbes article explained how to maximize your HSA benefits if you know you'll be switching jobs this year.
While HSAs offer several tax benefits, the portability of the accounts may be their most attractive feature. Rather than being attached to a job or an insurance policy, an HSA belongs to the individual. It stays with you, whether you switch jobs, switch insurance companies or decide to take a break from working. The money is also rolled over from year to year.
"With a health savings account, the money stays with you even if you don't spend all of it during the year," accountant Bernadette Schopfer said in a U.S. News article. Even if your employer doesn't make health savings contributions, you're not entirely out of luck. HSAs are available through some high-deductible plans offered in the marketplace under Obamacare. Setting aside some tax-free money now could make things easier if you have to pay a big medical bill later.
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