Health care is provided by skilled professionals with many years of experience and training. Medical equipment and medications must be manufactured to stringent standards and undergo many years of testing before approval. These are some of the reasons why health care costs can be quite high. A single doctor visit can be hundreds of dollars, an emergency room visit is typically many thousands of dollars, and an extended hospital stay can easily cost several years of an average family’s income. To reduce the possibility of going into debt or even bankruptcy to cover medical expenses, most people obtain health insurance, paying an insurance company to take on the risk of covering some or all of the person’s medical expenses.
The following terms apply to most health insurance policies and original Medicare:
California requires residents and their dependents to carry health insurance that provides minimum essential coverage, or pay a shared responsibility penalty for not having health insurance.
While it’s possible to purchase individual health insurance directly from an insurance company, most people buy health insurance through the California Health Benefit Exchange, known as Covered California, as that is the only way to receive federal tax credits to help pay for the coverage. If your income is too high or too low to qualify you for any premium assistance, or your immigration status prohibits you from using Covered California, skip ahead to Off-Exchange Policies. Otherwise, read on to understand how premium tax credits put the A
(Affordable) in the ACA (Affordable Care Act).
US citizens and lawfully present immigrants who aren’t eligible for Medi-Cal (coverage for low-income families), Medicare (coverage for seniors and disabled individuals), most TRICARE (for active duty and retired military families) or affordable coverage through an employer may sign up for subsidized health insurance coverage through Covered California. The subsidy comes in the form of federal tax credits that, instead of being claimed when you file your taxes, are paid in advance to the insurance company every month to lower the effective cost of your policy. The monthly advanced premium tax credit (APTC) is the amount needed to reduce the annual cost of the second lowest cost silver plan available to the household to a specified percentage of household income (see table).
Many of the terms used above have specific meanings in the context of Covered California that differ from their plain-language meaning, such as what is affordable
and what is a household.
Read the following list to understand what these terms actually mean.
poverty linepublished by the federal government for households of a given size. It is used in determining premium tax credits as well as cost sharing reductions and eligibility for Medi-Cal programs. Covered California publishes a chart showing the income cutoffs for all Covered California and Medi-Cal plans.
Covered California applicants state their estimated household income for the benefit year by listing their anticipated sources of income and amounts on the application. The estimate is used to determine the APTC the applicant is eligible for. If the household income changes substantially during the year, the applicant should report the change of income, which will cause the APTC for the remainder of the benefit year to be adjusted so that the total APTC for the year is correct (see example).
Each January, Covered California mails the primary tax filer a form 1095 which lists what the second lowest cost silver plan premium was for each month of the prior year and how much APTC was paid for each month. This information is used to fill out IRS form 8962, which is filed with the federal tax return and reconciles how much APTC was received with the premium tax credits the tax filer is entitled to based on their actual household income for the calendar year. Taxpayers who received more APTC than they were entitled to must pay back the difference, and those who received less get the remainder back as a tax refund. It is possible to request less APTC than what is calculated, which would result in a higher monthly payment for insurance; this could be appropriate for someone who is expecting their income to increase (such as when seeking a new job) and wants to avoid owing the IRS at tax time.
Matt is 32 years old, in good health, single with no dependents, and lives in Placerville. He quit his job that offered health benefits in December to start his own business and his health coverage will end on 12/31/2023. With his accountant’s help, Matt estimated that his modified adjusted gross income for 2024 would be $40,000. Matt applied with Covered California in December, and decided to shop for silver-tier plans. He was offered the following:
| Plan | Premium | CA Premium Credit | APTC | Monthly Cost |
|---|---|---|---|---|
| Aetna Silver 70 HMO | $471.70 | $1.00 | $319.25 | $151.45 |
| Western Health Silver 70 HMO* | $486.05 | $1.00 | $319.25 | $165.80 |
| Kaiser Silver 70 HMO | $519.81 | $1.00 | $319.25 | $199.56 |
| Anthem Blue Cross Silver 70 EPO | $553.83 | $1.00 | $319.25 | $233.58 |
| Blue Shield Silver 70 PPO | $836.35 | $1.00 | $319.25 | $516.10 |
Notice that the APTC for every plan is the same: $319.25. As stated earlier, the APTC is the amount needed to make the second lowest cost silver plan affordable for Matt. Matt’s estimated 2024 income of $40,000 is 274% of the federal poverty level ($14,580 for a household size of 1). The premium cap for that percentage of FPL works out to 4.974% of Matt’s income, which comes to $165.80 per month. The second lowest cost silver plan premium is $486.05, but $1 of that is excluded for premium tax credit purposes (here’s why), which is why California pays a $1.00 monthly premium credit to the insurer for every person enrolled in a Covered California plan, for a net premium of $485.05. The APTC of $319.25 is the difference between the net premium of $485.05 and the maximum affordable premium of $165.80.
Matt had a Kaiser group plan through his employer and decided to buy the Kaiser Silver 70 HMO plan so that he could keep seeing his Kaiser doctor. Although Matt will receive enough APTC so that the monthly cost of the Western Health Silver 70 HMO (the second lowest cost silver plan) would equal his maximum affordable premium of $165.80, he will pay the difference in price between the SLCSP and the Kaiser plan premium, an additional $33.76 per month, to get the plan that he wants.
In June, Matt lands a big client, which should result in him finishing the year with a net income of $50,000, 25% higher than he originally projected. His APTC at that income level should be $190.33 per month. But Matt has already received six months of APTC at $319.25, which is $128.92 per month too much. If Matt continues to receive the higher APTC for the remainder of the year, he will have to pay back $1,547.04 (12 x $128.92) to the IRS when he files his 2024 tax return. Instead, Matt reports his change in income to Covered California, which reduces his APTC for July-December to $61.41. Matt will pay $546.46/month for his health insurance for the next six months, but will not have to pay back any premium tax credits when he files his taxes. The following ledger illustrates these different income reporting scenarios.
| APTC Received When $50,000 Income Is Reported As… | |||
|---|---|---|---|
| $50,000 for 12 months | $40k/6mo, $50k/6mo | $40,000 for 12 months | |
| January | $190.33 | $319.25 | $319.25 |
| February | $190.33 | $319.25 | $319.25 |
| March | $190.33 | $319.25 | $319.25 |
| April | $190.33 | $319.25 | $319.25 |
| May | $190.33 | $319.25 | $319.25 |
| June | $190.33 | $319.25 | $319.25 |
| July | $190.33 | $61.41 | $319.25 |
| August | $190.33 | $61.41 | $319.25 |
| September | $190.33 | $61.41 | $319.25 |
| October | $190.33 | $61.41 | $319.25 |
| November | $190.33 | $61.41 | $319.25 |
| December | $190.33 | $61.41 | $319.25 |
| Total APTC Received | $2,283.96 | $2,283.96 | $3,381.00 (must pay back $1,547.04) |
Some people have the ability to manage their taxable income for a given year, for example by taking or deferring deductible business expenses, deciding whether or not to take a taxable retirement plan distribution versus a non-taxable distribution from a Roth IRA, or by deciding whether to sell an investment now or in the coming year. Actively managing your income can unlock thousands of dollars in premium tax credits. Here’s an example.
Isabella is a 64 year old retiree living in El Dorado Hills. She has about $250,000 in liquid assets outside of her retirement account. She receives $3,000/month from social security and takes a $200,000 distribution from her IRA each December to replenish her savings. At the end of the year, Isabella will turn 65 and leave Covered California for Medicare.
With a taxable income of $236,000, Isabella would receive no premium tax credits. However, if instead of taking her $200,000 IRA distribution this year, she defers it until January of next year, she will be eligible for $1,115.28 per month in advanced premium tax credits this year, as well qualify for a cost-sharing reduction plan with no deductible and reduced copayments. That’s over thirteen thousand dollars of tax savings for deferring a distribution by one month.
As you can see from the above example, families with the ability to defer part of their income can use strategic planning to obtain significant reductions in their health care costs. Because deferring income to future years can have other effects on your tax situation, such as affecting your tax bracket, you should speak with your accountant or tax professional before implementing your plan.
Covered California plans are grouped into four metal tiers: platinum (90), gold (80), silver (70), and bronze (60). The numbers in parentheses correspond to the percentage of an average person’s healthcare costs the plans are designed to pay for, but just as you wouldn’t buy a pair of pants based on what the average person’s waist size is, you need to look at the specifics of each tier to see if it’s a good fit for your individual healthcare needs. The following chart compares some common cost sharing elements of the various tiers. Preventative care is free under the Affordable Care Act, regardless of tier.
| Platinum 90 | Gold 801 | Silver 70 | Bronze 602 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Medical Deductible | $0 | $0 | $5,400 per person $10,800 per family | $6,300 per person $12,600 per family | ||||||||
| Deductible Applies To | — | — | only hospitalization and outpatient surgery | all but ER, lab tests, and first three doctor visits | ||||||||
| Drug Deductible | $0 | $0 | $150 per person $300 per family | $500 per person $1,000 per family | ||||||||
| Out-Of-Pocket Limit | $4,500 per person $9,000 per family | $8,700 per person $17,400 per family | $9,100 per person $18,200 per family | $9,100 per person $18,200 per family | ||||||||
| Primary Care Doctor or Urgent Care Visit | $15 | $35 | $50 | $60 | ||||||||
| Specialist Visit | $30 | $65 | $90 | $95 | ||||||||
| Emergency Room Visit | $150 | $350 | $450 | 40% | ||||||||
| Imaging | 10% | 25% | $325 | 40% | ||||||||
| Hospital Inpatient |
|
| 30% | 40% | ||||||||
| Prescription3 | tier 1: $7 tier 2: $16 tier 3: $25 tier 4: 10% ($250 max) | tier 1: $15 tier 2: $60 tier 3: $85 tier 4: 20% ($250 max) | tier 1: $19 tier 2: $60 tier 3: $90 tier 4: 20% ($250 max) | tier 1: $17 tiers 2-4: 40% ($500 max) |
Looking at the chart, it’s clear that your costs for services increase as you move from the highest tier (platinum) to the lowest tier (bronze). Not surprisingly, the premiums decrease as you shoulder more of the cost for services. For most healthy people, the sweet spot is the silver tier, with predictable copayments for all services except hospitalization and outpatent surgery. Gold and platinum HMO plans, with their fixed costs for hospitalization, provide the most cost certainty. Bronze plans make sense for those who can afford to self-insure several thousand dollars of health care expenses and are only looking for catastrophic coverage. There is also a special bronze plan designed to work in conjunction with a health savings account, a tax-advantaged account that lets you set aside the money you save through lower health insurance premiums and never pay taxes on that money when you use it to pay for medical expenses.
Households with income up to 250% of the federal poverty level are eligible for special silver tier plans with no deductibles and reduced out-of-pocket limits and copayments. Combined with the premium tax credits that offset the cost of premium, these cost-sharing reduction plans help make the cost of health care manageable for low to moderate income families. The following chart summarizes the three available cost-sharing reduction plans.
| Silver 73 | Silver 87 | Silver 94 | |
|---|---|---|---|
| Deductible | $0 | $0 | $0 |
| Out-Of-Pocket Limit | $6,100 per person $12,200 per family | $3,000 per person $6,000 per family | $1,150 per person $2,300 per family |
| Primary Care Doctor or Urgent Care Visit | $35 | $15 | $5 |
| Specialist Visit | $85 | $25 | $8 |
| Emergency Room Visit | $350 | $150 | $50 |
| Imaging | $325 | $100 | $50 |
| Hospital Inpatient | 30% | 20% | 10% |
| Prescription | tier 1: $15 tier 2: $55 tier 3: $85 tier 4: 20% ($250 max) | tier 1: $5 tier 2: $25 tier 3: $45 tier 4: 15% ($150 max) | tier 1: $3 tier 2: $10 tier 3: $15 tier 4: 10% ($150 max) |
Actuarially, the silver 73 plan is comparable to a gold plan and the silver 87 comparable to a platinum plan (the silver 94 is better than platinum). However, the cost-sharing reduction silver plans do not offer the fixed copayments for surgery or hospitalization that gold or platinum HMO plans do. Therefore, most people who are eligible for a cost-sharing reduction plan should take it, although people expecting a surgery or hospital stay might be better off with a gold or platinum HMO, depending on the difference in premium.
Most people are better off purchasing health insurance through Covered California, so that they can receive subsidies (known as APTC or advanced premium tax credits) and cost-sharing reduction plans to reduce their health insurance cost. But there are situations where you may prefer to purchase insurance directly from an insurance company (with our assistance as your agent):
As arguably the whole point of Covered California is to receive APTC to reduce your health insurance costs, you don’t need it if your income is too high for you to get any. That said, there are reasons for applying through Covered California anyway:
Insurers charge more for silver plans on the exchange to account for the cost-sharing reductions those plans must offer to lower-income households. If you don’t qualify for APTC, a silver 70 off-exchange plan will cost less than its on-exchange counterpart; all other plans cost the same whether on or off-exchange.
Only a standardized set of plans is offered through Covered California. Some carriers make other plans available off-exchange. These are usually silver-level plans that offer different deductible/copayment/coinsurance structures or are compatible with a health savings account. Giving up APTC to get one of these plans doesn’t typically make sense, so they are usually purchased by high-income households who are ineligible for APTC.
Not every doctor takes Medi-Cal patients. If a family member is in poor health, paying full price for health insurance that has their desired doctors in its network may be preferable to having to change doctors or pay out-of-pocket to continue seeing their desired doctors.
This applies to Deferred Action for Childhood Arrival (DACA) recipients, who are not considered lawfully present and are unable to get coverage through Covered California.
If you want Covered California for some household members and off-exchange coverage for others, you need to include the off-exchange members and their income on your Covered California application, but mark them as not applying for coverage.
A health savings account (HSA) is not an insurance policy; it is a tax-advantaged account that is paired with a high deductible health plan like the Bronze 60 HDHP offered through Covered California. Health savings accounts allow you to reduce your taxable income by the amount you contribute to your account. Any growth in the account is on a tax-deferred basis, and funds in the account may be used to pay for medical expenses with these pre-tax dollars. You may only contribute to an HSA while you have an HSA-compatible health plan (and no other plan may be paired with it); such plans must meet the following requirements in 2024:
If your health plan covers one person only, you can contribute up to $4,150 to your HSA account in 2024; if your health plan covers more than one person (family coverage) then you may contribute up to $8,300. If you will be 55 or older on
For more information on HSAs, see IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans.
Medicare is a federal healthcare benefit for seniors and the disabled, open to US citizens with no residency requirement and to lawful permanent residents who have continuously resided in the US for at least five years. Eligibility begins the earlier of:
OriginalMedicare
Covers inpatient hospitalization, care in a skilled nursing facility, and hospice care. Drugs received while a hospital inpatient are also covered. A deductible applies, as well as coverage limits after 60 consecutive days of care. There is no charge for Part A if you or your spouse paid Medicare taxes for ten or more years or if you receive Social Security disability benefits; otherwise you have to pay a monthly premium for it.
Most medically-necessary treatments and supplies that aren’t covered by Part A are covered by Part B, such as physician fees, durable medical equipment, home health care, lab tests, and preventative care. The notable exception is prescription drugs, which are covered separately under Medicare Part D. Part B has limited coverage for accupuncture and chiropractic services.
Part B generally covers 80% of the allowed costs, but preventative care is free. You must pay a monthly premium for Part B. The amount changes every January and is set at 25% of Medicare’s estimate of the average cost to provide Part B services. In addition to the base monthly premium, you may have to pay a late enrollment penalty of 10% for every year you were eligible for part B but didn’t sign up. Individuals with higher incomes may also pay an IRMAA (income-related monthly adjustment amount) which increases the premium from the standard 25% of the expected cost of Part B services to as much as 85%. The IRMAA for a given year is based on your income tax return from two years prior (for example, the 2024 IRMAA would be based on your 2022 tax return).
If you are receiving social security benefits, you’ll be automaticaly enrolled in Medicare parts A and B upon your eligibility date; otherwise, you can sign up starting three months prior to your initial eligibility month. If you don’t sign up after three months following your eligibility month, you will pay a late enrollment penalty when you do sign up, although the penalty doesn’t apply if you had health coverage through you or your spouse’s employer and signed up within eight months of losing that coverage (note that electing COBRA coverage does not extend the eight month period).
While most health insurance policies have an out-of-pocket maximum that caps your medical costs for a calendar year, original Medicare has no out-of-pocket maximum, potentially saddling Medicare recipients with large medical and hosptial bills to pay. Most Medicare recipients purchase insurance to cover these gaps in Medicare, either in the form of a Medicare supplement or a Medicare Advantage policy.
Medicare supplement policies are intended to cover the gaps in original Medicare, which is why they are also known as Medigap policies. There are several types of medigap policy sold; each type is assigned a letter, and every policy with the same letter offers the same set of benefits. The most popular plans with the greatest benefits are plans F and G, which are identical except that plan F covers the annual Medicare Part B deductible, which changes each year and is $240 for 2024. Plan F is available only to people who were initially eligible for Medicare prior to 2020. If you have a plan F policy and its annual cost exceeds the cost of plan G by more than the Part B deductible, you should consider switching to plan G. Here is a list of plan G benefits:
Your enrollment in a Medicare supplement is guaranteed during your initial eligibility period for Medicare. After then, the insurance company can ask questions about your health and decline you based on your responses. Once accepted for coverage, you cannot be dropped as long as you pay your premiums on time.
Medicare Advantage plans, also known as Medicare Part C, were first offerred in 1999. They are sold by private insurance companies and resemble individual health insurance plans, with deductibles, copayments for most services, and out-of-pocket maximums. Prescription drug benefits are usually included. The monthly premium for Advantage plans is less than for a Medicare supplement plus prescription drug plan, especially for older seniors, as Advantage plan rates are flat while medicare supplement rates increase as you age. The premium is in addition to the Medicare Part B premium and any Part B and Part D late enrollment penalties and income-related monthly adjustment amounts.
Like individual plans, you can only sign up for an Advantage plan during an annual open enrollment period (October 15th to December 7th), or right after a qualifying life event like becoming eligible for Medicare or moving (see full list) Once enrolled, you generally cannot be dropped as long as you pay your premiums on time.
Like individual health plans, Most Medicare Advantage plans have a network of doctors, with reduced or no coverage if you obtain care outside of the network except in an emergency. If you travel extensively or don’t want to be bothered with having to choose in-network providers, or if you are a frequent user of medical services where the copayments would start adding up, then Original Medicare plus a Medicare supplement with prescription drug plan is likely preferable to an Advantage plan for you.
Prescription drug coverage, or Medicare Part D, is an optional coverage that began in 2006. Prior to then, prescription drug coverage could be purchased as part of a Medicare supplement plan. Now it is purchased as a standalone policy or bundled with medical coverage as part of a Medicare Advantage plan. All prescription drug plans have the same basic structure, with four stages of coverage:
TrOOP) reaches the catastrophic threshold, you move to the catastrophic coverage phase.
Like Part B, Part D has a late enrollment penalty if you don’t sign up during your initial eligibility period for Medicare. The penalty is waived if your part D coverage starts within 63 days of losing creditable coverage (prescription drug coverage through another source, such as an employer or grandfathered Medicare supplement policy, that is actuarially as good or better than part D). If subject to a late enrollment penalty, you pay an additional monthly amount ($0.347 in 2024) for each month you were without coverage. An income-related monthly adjustment amount (IRMAA) may also apply; for 2024 the Part D IRMAA varies from $12.90 to $81.00 per month, depending on your income in 2022.
REQUIRED MEDICARE ADVANTAGE AND PRESCRIPTION DRUG PLAN DISCLOSURE TO EL DORADO COUNTY RESIDENTS: We do not offer every plan available in your area. Currently we represent three organizations which offer sixteen products in your area. Please contact Medicare.gov, 1–800–MEDICARE, or your local State Health Insurance Program to get information on all of your options.
According to the U.S. Census Bureau, as of 2019, 56.4% of Americans received health insurance coverage through their (or their spouse’s or their parent or guardian’s) employer. Employer-sponsored coverage is still the backbone of the U.S. healthcare system. Employers with 50 or more full-time equivalent employees are required to provide health insurance to their employees who work thirty or more hours per week. The coverage must meet certain affordability and minimum value standards. Call us if your business is reaching the threshold of the employer mandate for health insurance or if you are interested in changing your current group health insurance offering or want to switch health insurance brokers to our firm.
Small employers with less than 50 full-time equivalent employees can choose to offer health insurance for their employees, but typically it is more cost-effective for both the employer and employees for the employees to instead receive federally-subsidized individual coverage through Covered California. Instead of group medical coverage, consider offering your employees benefits for which they don’t get tax credits under the Affordable Care Act, such as dental, vision, and group life insurance.
Most health insurance plans have little or no coverage when you are outside of the United States. A noteable exception are Medicare supplement plans C, D, F, G, M, and N, which cover 80% of emergency care after a $250 deductible when traveling outside of the United States; however, there is a lifetime maximum benefit cap of only $50,000. To protect against severe financial loss due to a foreign medical emergency, we recommend obtaining foreign travel medical insurance before leaving the U.S. The cost is quite reasonable, and policies typically cover medically necessary services, along with costs to return you to the United States if necessary for your care. Payment is typically on a reimbursement basis, although our preferred product, GeoBlue®, does have a network of providers whom will bill GeoBlue directly for services.
If you’ve purchased travel insurance for your trip (which covers delays, cancellations, lost bags, and the like) that policy may already provide medical benefits, although probably not as comprehensive as a dedicated medical policy; check with us to see what your travel insurance offers and if you think that’s enough. If you will be overseas for an extended period of time, such as a missionary or an expatriate, you’ll need a different product than the short-term plans designed for vacations.
GeoBlue is the trade name of Worldwide Insurance Services, LLC (Worldwide Services Insurance Agency, LLC in California and New York), an independent licensee of the Blue Cross and Blue Shield Association. GeoBlue is the administrator of coverage provided under insurance policies issued by 4 Ever Life International Limited, Bermuda, an independent licensee of the Blue Cross Blue Shield Association. We are an authorized agent of GeoBlue.
Dental and vision plans can be purchased year-round without waiting for open enrollment. Some medical plans provide limited dental and/or vision benefits; call us to discuss your needs.