My employer offers health insurance but I cannot afford it. This is a common refrain with a possible solution – depending on your situation.

People working at small businesses and those with large families can often find a cheaper and/or better plan by buying individual coverage through the exchange.

Low-income families, pregnant women, the disabled, and seniors age 65 and over may find that Medicaid or Medicare is the better alternative.

However, single men and women with no kids who think 9.56% of income is too expensive are out of luck. Your group plan at work is the most affordable option – unless you are under 26.

Read on to learn when and why it could make sense to decline your employer coverage and enroll in a private or public alternative instead.

Employer Health Insurance Too Expensive

What should you do if your employer health insurance is too expensive and you cannot afford the premiums? The Affordable Care Act (ACA) is supposed to make this problem go away. However, people still fall into common cracks and may not have enough money.

One ACA rule requires that certain employers offer plans costing no more than 9.56% of an employee’s household income for an employee only plan. This rule applies to certain people and not others.1

  • Small businesses with less than 50 full-time equivalent workers are exempt
  • Large groups with more than 50 full-time equivalent workers must comply
  • Part-time workers are exempt from the requirement even at large groups

Cost of Individual Plans

Individual health insurance may be more expensive than your group employer-based coverage – or you could pay far less in premiums to cover the entire family. It all boils down to how the 9.56% rule noted above applies in your situation.

  • The rule does not apply: You are eligible for subsidies that lower the cost – if your income falls below federal government poverty guidelines
  • The rule does apply: You are ineligible for subsidies and pay the full amount – regardless of where your income falls relative to poverty guideline

However, there is a loophole for those seeking family coverage in the individual marketplace. Your spouse could purchase a parent/child plan and qualify for subsidies even though your employer offers a qualifying plan. Therefore, splitting plans could save you a bundle.

The best option for young adults could be their parent’s plan up until age 26 – as many remain single and unable to split coverage with a spouse and/or dependents.

Declining Employer Coverage

You can decline your employer health insurance during open enrollment. You do not have to take it if it is too expensive and you want to find cheaper coverage elsewhere. It is your choice. However, you should be aware of the rules and consequences before opting out.

  • You may not be able to opt back in after open enrollment ends – unless you lose coverage through your spouse due to job termination, or experience another qualifying life event such as a move.
  • You may not qualify for premiums subsidies on an individual plan. People whose company offers a plan costing less than 9.56% of household income for an employee-only option do not qualify for this help.

In addition, make sure that you research the alternatives before declining your employer-based option. Jumping on as a dependent at your spouse’s group plan is often the more viable option when compared to a personal or individual plan.

Buying On Exchange Instead of Employer

If your employer offers health insurance that you cannot afford buying through the exchange is a possible alternative. However, this does not guarantee that you will find something cheaper and better.

Be sure to explore the pros and cons of group versus personal health insurance before committing to an exchange-based program. Also, Medicaid and Medicare are options that might fit well for people fitting into target populations.

Employer Vs Personal

Compare the pros and cons of health insurance through your employer versus personal coverage before buying through the exchange. The alternative may not be any better.

The projected premium costs, tax impacts, and design features could affect your decision.

Premium Costs

People most frequently look first at monthly premium costs when comparing employer-based versus personal policies bought through the exchange. The group option is often cheaper when you consider the amount you actually pay yourself.

  • Employer paid premiums usually lower costs for the employee across all income ranges. Also, your company may also contribute a smaller percentage towards coverage for dependents (spouse, children).
  • Premium subsidies may lower upfront costs for personal plans for people in the lower income ranges. However, you do not qualify for these subsidies if your company offers a plan that costs less than 9.5% of your household income for employee-only coverage.

Tax Effects

Do not overlook the tax consequences of buying through an employer when comparing personal policies bought via the exchange. These expenses are tax deductible. However, only one channel guarantees maximum savings.

  • Pre-tax payroll deductions for group health insurance premiums provide first dollar tax savings. You do not need to meet any thresholds before getting three possible breaks.
    • Federal income tax
    • State income tax
    • FICA tax (up to 7.65%)
  • Personal health insurance premiums are tax deductible as medical expenses on Schedule A. However, you must meet two different thresholds in order to see any savings.
    • Medical expenses must exceed a percentage of AGI
      • 2019: 7.5%
      • 2020: 10.0%
    • Itemized deductions must exceed your standard deduction
      • Single: $12,000
      • Head of Household: $18,000
      • Joint: $24,000

Plan Designs

Plan design is another overlooked point of contrast between employer-based versus personal policies acquired via the exchange. Make sure you are comparing apples to apples. Unfortunately, this is rarely the case are hard to do, as there are many different design features.

  • Cost-sharing components
    • Deductibles
    • Co-insurance
    • Copayments
  • Network of participating doctors and hospitals
  • Prescription drug formulary
  • Mental health coverage

In addition, companies choose the plan design to offer employees. It is more one size fits all. On the other hand, you may have a wider selection when looking for individual coverage. It depends on what is available in your local area. Some markets have few insurance companies competing.

Medicaid

You can possibly get Medicaid even though your employer offers health insurance. You can begin your application for Medicaid on your state exchange. However, the odds that you will qualify vary by the state where you work and other factors.

Medicaid is a federally funded program administered by each of the states. Medicaid provides low-cost health insurance to low-income families, pregnant women, and children. Each state has different eligibility criteria (income and resources) and programs (CHIP, Pregnancy Medicaid, etc.).

Having a job that offers health insurance could mean that your income exceeds your state limits. Contact your local Medicaid office for income limits.

Medicare

You can still get Medicare if your employer offers health insurance. Medicare is a federal program that provides healthcare benefits to seniors over the age of 65, and people with disabilities. You are not required to keep your group coverage – but you can if you find it the more affordable option.2

  • Medicare Part A covers hospitalizations and is premium-free for most people. If this describes your situation, you should opt into Part A during your initial open enrollment regardless of other coverage you might have.
  • Medicare Part B covers medical expenses with income-based premiums. Employer size determines which plan is primary or secondary. Paying for secondary coverage is rarely cost-effective.
    • Less than 20 employees Medicare is primary
    • 20 or more employees the group plan is primary
  • Medicare Part C covers prescription drugs and has income-based premium adjustments that do not affect most people – only those with incomes above certain levels.
    • Individual: $85,000 plus
    • Married: $170,000 and above

The bigger concern lies with people who delay enrolling in any Medicare program because they have group coverage already. You could face surcharges later if you delay enrollment and do not follow a complex set of rules.

Sources:

  1. 9.5% rule
  2. Medicare
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