Shopping for insurance online - a quick guide

My last couple posts have all been about the new healthcare laws.  Its not entirely intentional, it just seems like that's the thing to be talking about right now.

Do you have any Obamacare questions?  How it works, what it requires you to do, etc?  If so, I'd love to hear them!  You can send questions to economystified@gmail.com, or post it to my facebook page, and I'll answer your question in a blog post.


The online marketplaces

In my last post, I described the new online health insurance marketplaces, the websites where American's can go insurance shopping online.  There are 27 of these sites: 26 states have their own state specific marketplace, everyone else shops at healthcare.gov, a federally run site.

Now remember, starting this year, you must have health insurance - it is the law.

If you get insurance through work or school, or if you're still on your parents' insurance: great!  You're all set, you don't have to do anything. 

If you get Medicaid or Medicare, also groovy - you're all set, and you don't have to do anything.

But what if your just flat out uninsured?  Then your stuck buying insurance privately.  In the past, buying insurance solo was incredibly expensive, and hugely complex.  Thanks to Obamacare, its now just expensive and kinda complicated...oh, progress!

Who can buy from the online marketplaces?

The short answer is "everybody."  

If your a resident of a state with a state-specific website, you have to buy from your state's marketplace.  You can find out if your state has its own exchange (and get a link to it if it does) here.

Even if you can get insurance from work, or school, or your parents, you can always drop it and get your own plan, if you come across something that looks like a better deal.

What's the advantage of "marketplace shopping"?

First off, you have more options.  For example, I get insurance through my employer.  We have only three plans you can pick from.  Any insurer can sell plans through the online marketplaces.  

Second, you get lots of information.  Through the marketplace, shoppers can compare a variety of plans and prices, giving them a better idea of what is a good deal, and what isn't.  With every possible insurance plan in the state listed in one spot, it makes it harder for insurers to cover up their plan's weak spots, and can foster some more intense competition.

But the big advantage is the subsidies.  Anytime a person is purchasing insurance through the marketplace, they can apply for some money from the federal govt to help pay for it.

How the subsidies work

The subsidies won't take the form of direct cash, but as tax breaks.  That is, if you have to buy insurance this year, the fed will either take less from your paycheck in taxes, or give you a bigger tax return.  So say you have to buy $2000 worth of insurance, you'll pay $1000 less in taxes, stuff along those lines.

That's why I figure the "sticker" price of insurances on the marketplaces is going to look a bit high.  Insurance companies know most plans they sell will get a little kick of money from Uncle Sam, and I'm sure they'll be building that into their pricing.

However, not everyone will get these subsidies!  The architects of Obamacare didn't want everyone in the country to drop out of their employer's healthcare plans, and flock to the web where they can buy insurance on the govt's tab.  They've set up some hurdles to keep those who can buy insurance without the government getting involved from doing so.

For example if your employer offers health insurance that is "affordable," you would not be eligible for an insurance voucher from the gov't.

And what constitutes "affordable," you ask?  Why it just so happens to be any plan that costs "9.5% or less of the employees after tax income."

Where we got 9.5%, I don't know, but that's the guide line.  But if can be buying insurance from work, and it would only be costing you 9.5% of your total take home pay, no govt subsidized health insurance for you.

This hurdle alone will bill hard for most people to clear.  Every time a person drops their employers insurance, and goes and buys insurance privately from the marketplace, the employer gets a $3,000 fine.  In essence, they get penalized if their employees are unhappy with the company health plan.  Meaning your boss has financial incentives to offer insurance that is inexpensive and good value.

And what about price?

When you boil it all down, the true goal of the online marketplaces is to make insurance for the unemployed cost the same as what it does for the employed.

I have an insurance plan called "Cigna Choice Fund OA Plus."  I pay $25 dollars a week for it, my employer picks up the rest. 

If an unemployed, 29 year old, male, with no children or spouse can go online and buy himself some Cigna Choice Fund OA Plus at a cost of exactly $25 a week, then the online marketplaces have done what they set out to do.

Start asking around now, what people are paying for their insurance.  Information is vital to good decision making!  Ask your parents, your friends, your facebook friends.  And remember, the insurance market is going through some major transformations right now.

Old plans will be discontinued, new ones will be created, prices will fluctuate for a few years before finding their new equilibrium.