Ready or not the Affordable Care Act, which is best known as Obamacare, is readying to kick off its second year of open enrollment beginning this Saturday, Nov. 15.
Things will be markedly different this year, with a much shorter enrollment period, more insurers participating in the exchanges, health plan prices vacillating up and down dramatically in some cases, and more than seven million people needing to think about the reenrollment process for the first time under Obamacare.
But, before consumers can even begin to think about the enrollment or reenrollment process they first need to decide what level of monthly premium payment they're comfortable with, as well as what type of out-of-pocket deductible suits them best. Obamacare's health exchanges attempt to make this decision process pretty easy with a four-tiered system of plans – platinum, gold, silver, and bronze – that are designed to make every decision cut-and-dried for consumers. Of course, when is anything as vital as choosing health insurance ever cut-and-dried?
With that in mind, today we'll take a closer look at what these tiered plans actually mean for you, the consumer, why one might be beneficial or detrimental to your financial situation, and how these tiers affect the insurers behind these health-benefit plans.
Understanding the four tiers
As noted above, Obamacare's tiers are broken down into four components: platinum, gold, silver and bronze. As their "value" would indicate, platinum plans cost the most upfront, but require the least amount of money to be paid out-of-pocket by the consumer. On the other end of the spectrum a bronze plan is the least expensive on a monthly basis, but it will have the highest annual out-of-pocket costs of the four tiers.
Because plan pricing and coverage can and will vary by state and insurer I can't give you exact pricing figures on these tiers, but the general rule is this:
- Platinum plans cover 90% of all medical expenses, with the consumer picking up the final 10%.
- Gold plans cover 80% of medical expenses, with the consumer picking up the final 20%.
- Silver plans cover 70% of medical expenses, with the consumer picking up the final 30%.
- Bronze plans cover 60% of medical expenses, with the consumer picking up the final 40%.
Now relax: There is a maximum out-of-pocket amount that you can be charged per year, so having $100,000 in medical expenses, per se, doesn't mean you'll be on the line for $10,000-$40,000 in expenses if you have insurance.
In addition, it's important to understand that just because a plan falls into a tier it doesn't mean that all plans in that tier are identical. Silver plans, which were the most popular in 2014, all need to offer a minimum level of medical benefits to consumers, but some plans may actually offer more. Prices for these plans can vary notably from each other, too. Therefore, it pays to take the time to thoroughly research multiple plans within the tier you eventually choose so you can ensure you're getting the best value for your purchase.
Cheaper may not be better
Truth be told, if Americans had their choice they'd rather purchase a higher priced upfront plan, such as a platinum or gold plan in exchange for lower out of pocket costs, than pay a lower monthly premium and have to deal with potentially higher out of pocket costs. An AP-NORC poll conducted between July and September noted that 52% preferred higher-tiered plans while just 40% would choose the lower-tier plan.
As you might imagine there are advantages and disadvantages to each of these plans. A bronze plan, for instance, is going to allow consumers to keep more of their money since it has the lowest monthly premium. However, if bronze-level consumers do require medical care it could potentially hurt their pocketbook. Speaking in a general sense, most bronze plans have out-of-pocket expenses of around $6,000 per year. Chances are that a decent number of people who purchased a bronze plan did so in order to save cash and obtain the least expensive plan possible. In short, this is a plan ideally suited for healthier young adults who are unlikely to seek medical care often.
On the flip side, a platinum or gold plan is going to cost a lot of money upfront for consumers, but it'll provide markedly lower out-of-pocket expenses. According to HealthPocket in August, the average out-of-pocket cost for specialty drugs in a platinum plan is 64% lower than the average gold plan, 74% lower than the typical silver plan, and a whopping 78% less than a bronze plan. Platinum plans tend to be best-suited for older individuals and/or those who are more likely to seek out regular medical care. Realistically, though, not everyone can afford a platinum plan.
The surprising plans insurers hope you choose
From the perspective of a health insurance company, the primary objectives this upcoming year are to get new people enrolled and to ensure that members who signed up last year don't jump ship. It'll be no easy task given the changes to Obamacare in 2015 as well as the non-universal reenrollment process. But, if insurers had their choice of which plan they'd prefer you buy, you might be surprised what they'd pick.
You might be under the impression that higher-priced platinum and gold plans would put more upfront money in insurers' pockets and lead to better profitability. Unfortunately, insurers are put on the hook for the bulk of their members' medical expenses this way since the user is only required to cover 10% of their medical expenses. In addition, most people buying platinum plans would be expected to be sicker and would seem likelier to use their medical coverage more than the other three tiers.
In actuality, bronze and silver plans are the bread and butter of the insurance industry despite lower upfront premium collections. The reason the insurance industry loves these lower-priced plans so much is they require the consumer to spend more money out of their own pocket initially for medical care. In turn, this makes consumers more choosy about when they do and don't go to the doctor. It can also mean less money comes out of insurers' pockets, which could boost their margins and profitability.
From the perspective of an investor it'll be worthwhile to pay attention to the tier breakdown in 2015 because a significant jump in platinum and gold plan purchases relative to 2014 could signal the potential for lower margins for insurers.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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