Your Work Health Insurance May Not Be Your Best Option

So we always reference work plans and put them in a pretty high tier when it comes to health insurance. You know, it's the best of the best. And in a lot of cases, that's true. But I want to cover some of the more intricate situations where the employer plan might not be the right plan for you, or maybe your spouse and your kids shouldn't be on it. And what all these things do to your eligibility, and just how you should think about that.

that employer plan, especially if you're just getting started in one.

Matt Allen (01:51)
Whew, there's a lot to unpack there.

Aaron (01:55)
Let's talk about employer plans and the just variety of employer plans that are out there.

Matt Allen (02:01)
Okay. There are an infinite number of employer plans available because when you create an employer plan as an employer, you can sort of design the plan to be what you want. But there are a few main types of employer plans that we can discuss. Two of them are structured very formally.

They are what's known as qualified health plans or major medical. These are gonna fall into one of two buckets. One is gonna be called fully funded, which means the coverage is guaranteed issue for the group when they start it. And it's a very good coverage. If you pick a PPO style plan, HSA eligible, whatever you're looking for, you can modify the plan and customize it.

But this is going to be by far the most expensive plan because no matter the health of your group, the plan has to be issued. So even if everybody's unhealthy, they still can apply for and receive the plan. And so that's where you see a lot of these very high premiums because the health insurance can't assess the risk before they give you the plan. They got to kind of charge you a lot of money. So this would be like.

If you go to Blue Cross Blue Shield and say, hey, I've got a company of 20 people, I want health insurance, they'll go, great, here it is. We don't even need to do any underwriting. It'll be high quality, but also high cost. The second tier, yeah, go ahead.

Aaron (03:36)
So on those plans, the employer has to pay at least fifty percent. Is that right? So yeah.

Matt Allen (03:41)
Yeah. So, so when we go through the second tier,

we'll talk about the employer's obligation on those. Yeah. So

Aaron (03:52)
Okay. Got it.

Matt Allen (03:54)
the second tier of these major medical type plans isn't fully funded. Fully funded is the expensive guaranteed issue one. And there's this other thing called self-funded. Those plans

have the same style of benefits, meaning network, PPO, go anywhere you want, customizable, change your deductible, HSA eligible, whatever you want, but the health insurance company is actually gonna assess the health of the group before they tell you what your premium is. And so with fully funded, you're guaranteed to get it, so the premium's gonna be a little higher, and the self-funded can be higher too.

if you have an unhealthy group, if you've got a younger, healthier, larger group, those self-funded rates are gonna go way down because they have assessed the risk to ensure the group and they know that the risk is low and they do that through medical underwriting. They take a look at the health histories. Now to your point and the question that you were asking, all right, what's the employer's obligation here? Like if I'm the employer and I wanna start this group plan,

What's my skin in the game? What do I gotta pay? And so the employer, if they start one of these group plans, whether level funded or self funded or fully funded, any of the fundeds, they owe and have to pay at least 50 % of the employee only premium for all their full-time W-2s who want to have the health insurance. So that is not contributing anything to dependence.

that they are legally required to. They're only legally required to do at least 50 % of the employee only premium, which I think is where you're going with your question.

Aaron (05:44)
That's exactly where I'm going because I'm thinking about this. Let's make up a family of four, right? They're gonna be offered this fully funded plan, but the employer is only gonna pay fifty percent of that employee. And so now I have a huge chunk getting taken out of my paycheck because I've been offered this plan if I were to take it. Am I am I understanding that right?

Matt Allen (06:11)
Yeah, so let's work with some numbers here. Let's make it simple. If the health insurance that they're offering, let's just pretend it's $500 a month total cost if you're an employee. So Matt, if I were single, 40 years old, I'm working at this job and my employer says, hey, I'm going to contribute 50%. Well, then the employer is going to pay $250 a month. And then out of my paycheck,

I'm going be paying $250 a month and now I got coverage. Alright, $250 a month for a 40 year old and it's high quality coverage, that's a pretty good deal. That's not bad. But let's say I'm married like I am and my wife wants to get on the plan. Well now the employer plus spouse, employee plus spouse coverage, probably be about $1,000. Let's say it's $1,000 just to make it simple. Well if my employer doesn't contribute anything to my wife's plan,

Well, now my employer is still only paying 250, but now I got to pay 750 a month. The 250, the other 250 for me and the full 500 for my wife. But now we've got kids. So now the employee

Aaron (07:21)
Mm.

Matt Allen (07:22)
plus family rate, let's say it's 2000 a month. So now my employer still only has to contribute that 250 a month. That's all they have to contribute. Now most employers will contribute more than that, either more towards the employee or maybe they'll chip in a little bit for dependents.

But a lot of them, they just help the employee because the costs are so high. So now Matt Allen, if I've got a family and I'm offered this coverage through my job, my employer's chipping in 250, but now I gotta come with the 250 for me, the 500 for my spouse, and the 1,000 a month for my family. Now I'm chipping in 1,750 a month out of my paycheck for that plan. Is the employer offering me a benefit? Absolutely.

Are they contributing to my health insurance? Absolutely. But if I want that coverage for my entire family, now I'm paying, what is that? That's $14,000 a year, something like that on my paycheck. $11,000 a year. I don't know, it's astronomical. Oh, it's even more than that actually. It's even more than that.

Aaron (08:26)
It's a lot. yeah.

Matt Allen (08:30)
It's like $20,000. Yeah, it's crazy. It's a lot of money.

Aaron (08:35)
ton of money. And so the employer probably thinks that they're doing a huge sell and I'm setting up this great plan. What are the kind of downstream effects for the employee getting this offer?

Matt Allen (08:51)
So, it's gonna all depend on the individual situation. But if this were like a small employee, like a small business owner, and he's offering this plan, and maybe he does think like, hey, I'm doing all my employees a solid. I found this Anthem Blue Cross Blue Shield plan, it's a PPO, and I'm chipping in for the employee, man, I'm killing it. I'm doing so good. But the employee is sitting here saying,

Jesus I got to pay over 20 grand a year just for health insurance. No wonder everybody says this is so expensive because let's say let's say that that guy's a 40 year old husband and His wife stays at home with the two kids and he makes a hundred grand a year. He makes good money Well now you're asking him to put a fifth of his earnings just for health insurance for his family as opposed to if this small business owner

just offered nothing, at $100,000 a year in income with four dependents, if I were to just go to the ACA marketplace for a health insurance plan, I'd qualify for a tax credit. I'd get a huge subsidy on a plan. I could probably find a major medical for $500 a month total for all my family. I could add a supplement to deal with the network restrictions on it for another $200 a month.

Then I could get dental and vision for the whole family for another 150 a month. Now I'm paying 850 a month. I got a major medical, covers pre-existing, pediatricians are in network, prescriptions are covered when we travel. We got dental and vision coverage and it's for 850 a month. Whereas through that major medical, before I was paying 1750 a month. And that's if my employer doesn't help me at all. I'm now saving money with better coverage.

So that's the downstream effects of that employer saying, wow, I want to be a really good person. I want to offer some health insurance to my people. When in actuality, actual use case, it's actually hurting them.

Aaron (11:00)
And so the person who gets offered this through their job, if they say no, can they still go and get that plan on their own? That that that ACA plan?

Matt Allen (11:10)
So if

they say no to the employer plan because the coverage is deemed affordable for just the employee, so that's how they do the affordability, is they look at what does it cost for the employee? Because it's deemed affordable for just the employee, if the entire family said no, we don't want the health insurance through the employer, they would be disqualified.

from getting a premium tax credit on the marketplace. The way around that though is there was a loophole act that was passed which actually can work in certain situations where the employee, if they still accept the plan but just accept it for themselves and then say, hey, it's affordable for me but it's unaffordable for my spouse and kids since my employer's not contributing, we make a hundred grand a year but I gotta pay

18 grand a year for their premiums, that's unaffordable. The three of them, or however many kids it is, they can go to the ACA marketplace in that situation and still go get a tax credit and still qualify for one of those. So in a lot of those situations, we're wanting to look at, hey, is there an alternative option outside of the whole family going on the employer coverage? And a lot of employees think it's a take it or leave it situation. They think either the whole family's got to be on it.

or we got to just absolutely all be on something else. There's a real gray area there. And now I'm going to throw an additional wrinkle at you because let's pretend that employee makes 200 grand a year. Let's say he's killing it. And so there's not even a tax credit available to begin with. There's no tax credit, but the employer is still only chipping in that 250 a month. Well, depending on the health of the wife and the two kids and the ages,

$17.50 a month is a ton of money for health insurance. They likely qualify for something way cheaper and possibly even better than that group coverage by just going to the open market, by working with a broker, dialing in their prescriptions if they have any, dialing in their pre-existing conditions if they have any, or if they're totally healthy, just getting them a catastrophic plan. You can save thousands of dollars a year, but yeah, hey, I'll still opt in as the employee.

Because $250 a month for a healthy 40-year-old, that's about the going rate anyway. But $1,500 a month for a wife and two kids? Nah, let's go find an alternative. So in a lot of scenarios, depending on what the employer is contributing month to month, because if they're contributing a bunch to the dependents, then we got to really take a good look at it. Then it might make sense for the wife and kids to be on it. But if they're not contributing at all, that opens up

these other avenues to go and get coverage.

Aaron (14:08)
Yeah, and I want to go back to something you said that families don't all have to be on the same plan. And I think that's a lot of some misconception out in the market is that people think, you know, we all have to stick together, gotta be on the same plan. But we see this, you know, splitting all the time. Are people ever confused with that or why that's the case?

Matt Allen (14:34)
People are totally confused about the splitting because they have it in their minds and this is true in some situations, but they have it like locked in their minds that we all need to be on the same plan so we can have this family deductible because that's gonna be, you know, it's like our last podcast. We gotta get money going towards the deductible. It's so important. We gotta get this cumulative deductible. And in very rare instances, will bifurcating the family on different plans actually amount to

any discrepancy within the family deductibles because each person has an individual deductible no matter how you slice it. And then other people think, well, there's such a cost savings. I have a family plan as opposed to individual plans, I get this huge cost savings. When in actuality, a lot of times it works against you to have a family plan, especially if you just have one kid. If you just have one kid

Aaron (15:28)
Yeah.

Matt Allen (15:28)
and you go and get a family plan from your employer.

it's going to be the same premium as if you had six kids. Whereas if you go instead to the individual market, you're going to get priced based on how many people are actually on the plan. And so there's a lot of misconceptions about even wanting everybody to have the same coverage. And we see this a lot even outside of employer plans. Like when people are shopping individual health insurance as self-employed people, when they go out and get a plan, a lot of times if there's just one unhealthy person in the family,

putting them on a different plan to make sure all their pre-existings are covered appropriately, make sure all their prescriptions are covered appropriately, and then have the rest of the family on a medically underwritten plan that maybe is a little more just catastrophic coverage, and save thousands a year by bifurcating coverage within the family. So there's so many layers to this and there's so much nuance, but I would never say, just assume that the whole family should be on the same plan until we look under the hood.

We see what the employer is contributing to everybody. We see the health of the family. We see if it's a self-employed family. Hey, does anybody have an expensive prescription? Is everybody healthy? You really have to look under the hood to make an accurate assessment as to should the whole family be on the same plan or not.

Aaron (16:50)
Yeah. And I've come across people who, you know, they just take one look. I mean, they're my age, they're early thirties, late twenties. They're like, Yeah, my wife gets it through her job. It was like eight hundred bucks to add me. And so we just said no and I'm going without. And you know, obviously that's not the right right result that we're looking for, but it it can be cost prohibitive for people and that can bring in the questions of should I have it at all?

Matt Allen (17:18)
That's a really good point for younger, healthier people who maybe are just starting off at a job and they do get married. Maybe they're 26 and they come off their parents' And for the employee, so what's a very common thing with employers is to pay a substantial portion of the employee's coverage and then to not contribute anything to the dependent coverage because they want to take care of the employee but they're not necessarily willing to chip in for the spouse and the kids.

but they want their employee to be covered. And so maybe you might have a situation where, I mean, you're getting married in less than a month. I know your wife's got, your soon to be wife has a great plan through her job. And should we add Aaron to that plan or not? Well, depending on what it costs, probably not. Because if it's six, seven, $800 and her employer isn't willing to contribute anything to it.

Well, why on earth is a healthy 29 year old paying six, seven, $800 a month for health insurance? You need to understand that just because your wife gets it through her job doesn't mean that's your option. It's just, do I have it or do I not? If you decline that, you can go and get other individual health insurance and a healthy 29 year old probably shouldn't be paying more than three, $400 a month for health insurance. But what happens is on these group health insurance plans,

is it's not just a bunch of 29 year olds usually. It's a bunch of 29 year olds and 40 year olds and 50 year olds and 60 year olds. And so they just do an aggregate rating where now the employee only premium is based on all the age ranges of everybody who's on the plan. And so a 29 year old coming in looks at 800 a month and goes, that's crazy. But the 63 year old comes in and looks at 800 a month and maybe they've got a couple of pre-existing things. They're like, oh my God, it's so expensive or it's so affordable.

Oh my god, this is amazing coverage. Are you kidding me? Only 800? And the 29 year old's like, oh my god, my wife's paycheck is just getting butchered. We don't have any money

Aaron (19:19)
Yeah.

Matt Allen (19:20)
left over. Like, how are we gonna pay the mortgage? I don't even need health insurance. I haven't been to a doctor in two years. So, a lot of times it just takes looking at it because there are so many other options. There's gonna be a lot of situations where it makes sense for the whole family to be on the employer plan.

I'm not saying we need to reinvent the wheel and go through a whole bunch of, you know, cost cutting maneuvers and everything, but sometimes it's just blatantly obvious. Like three people adding to an employee plan for another 18 grand a year, or we can get them a 10 grand a year private plan. Let's just do the 10 grand a year private plan. Let's have the employee opt in and the wife and kids opt out and everything's great.

Aaron (20:02)
Yeah. That email's going out today. We're gonna find out what the yeah, cost is to add a spouse. So we'll find out.

Matt Allen (20:11)
And if they're chipping in, you know, maybe they chip in 50%. And then at that point, yeah, maybe it would be nice to just have the same plan as your wife. And maybe it's like a cost neutral move, because I know you have an individual plan right now. If it's the same cost as that, yeah, go get on your wife's plan. But if it's something crazy where they don't contribute and it's $800 a month and you're over here paying a little over $300 a month, what are we even talking about, you know?

Aaron (20:36)
Yeah. Yep. Absolutely. All right. So we've covered fully funded and self funded the funded. I believe we you said that there's a third option in the mix.

Matt Allen (20:50)
So

there's another option and it's growing in popularity and quite honestly, I don't understand why. Because I personally

Aaron (20:56)
Ha ha.

Matt Allen (20:57)
think it's not a very good fit, but it's these things called health reimbursement arrangements. And I got to tell you, you heard me on one sales call in the office where I actually recommended one, where I actually go, you know

Aaron (21:09)
Yeah.

Matt Allen (21:09)
what? That makes sense. And you about fell out of your chair. Like, dude, I've been doing this with you for years. You always say don't take the ICRA. You always say they're stupid.

So it was a very niche, nuanced situation where I said, honestly, Icarus. So, okay, what is a health reimbursement arrangement? So these things are either called ICHRA for individual coverage health reimbursement arrangement, or a QSERA, which is a qualified self-employed health reimbursement arrangement. Essentially, both of them, they have a little bit of nuance in between them, but essentially what you're doing is you are putting money forward as an employer

on a monthly basis for your employees to utilize either for health insurance premiums or qualified medical expenses. Essentially, all that means is instead of putting together a group plan, the employer is saying, hey, I'm going to earmark 300 bucks a month, 400 bucks a month, 600 bucks a month, whatever it is. I'm going to earmark this tax advantage, tax free, per employee.

for them to then go get reimbursed for either health insurance premiums or qualified medical expenses. So that individual now has to go and procure coverage on their own. So it can be coverage through their spouse, or more likely, it's going to be going and getting an individual health insurance plan. Now, here's the catch. The only way you can have access to those HRA funds is if you have something called a qualified health plan.

The only way for individuals to get something called a qualified health plan is by signing up for an ACA marketplace plan. Okay, everybody's on the same page still. So I get 300 a month from my employer in this this ICRA. I go to the ACA marketplace. I find the right plan for me. I now get a $300 a month discount. Okay. We have been working over a decade with individuals helping them find the right health insurance and by and large

The majority of people who we recommend having an ACA marketplace plan are people who qualify for an ACA tax credit. So what that means is when we see somebody who needs individual coverage, we are saying, hey, how much money are you gonna make? And if they make in the right amount, low enough money,

to get an ACA tax credit, we are gonna take them to the ACA so they can get that tax credit. The tax credit will discount their plan, that's why it's called the Affordable Care Act. If they do not get a tax credit, we are rarely recommending taking an ACA marketplace plan, we are typically recommending having a non-marketplace private health insurance plan, because the benefits are better, deductibles are lower, networks are better, premiums are cheaper. Okay.

So why am I even going through all this? Because if you have to have an ACA plan in order to get the HRA dollars, and I'm only going to recommend an ACA plan if you get a tax credit, what's the problem? Well, the problem is you cannot get the tax credit and the HRA funds. You have to get one or the other. And so I do not think for employees going to the ACA,

without getting a tax credit and only getting these HRA dollars is in their best interest. Because if I am, let's go back to that earlier example. Let's say Matt makes 100 grand a year and Matt's got a family of four and a family of four with 100 grand a year, we're gonna get a huge tax credit on the ACA. Probably like $800 a month. Well, let's pretend.

My small business owner, the guy that I work for, goes, you know what? I don't want to start a small group plan, but I've been hearing about these ICRAs. I'm going to start an ICRA because this guy at my BNI, he talked me into it. And I think it's going to be a really good plan because now I can just put $500 a month into this bucket and then all my people just go find the best plan for them. This can be great. I'm such a nice guy. I'm such a good guy. I figured this out. OK.

Now Matt Allen goes to work. And I'm over here on an ACA plan. Let's say the ACA plan's normally $1,200 a month. But I've got an $800 a month tax credit because I make $100 grand a year. So I'm paying $400 a month for my family of four on this ACA plan. We got the pediatrician dialed in. We even have room for dental and vision. We pay $150 a month for that. We got a supplement because we really like to travel for another $150 a month. So all in, we're paying like $700 a month. That's qu-

We get our full $800 a month tax credit. But then I walk in and my boss goes, hey guys, I did all you guys a solid. I'm $500 a month into an HRA. You are so welcome. I am the benevolent business owner. You're welcome. And I think, man, this is pretty cool. I'm only paying $700, now I'm gonna get another $500. I'm only gonna pay $200 a month for health insurance? This is incredible. So then I go onto the marketplace and I let them know,

I get HRA dollars now. How cool is that? So that 800 a month tax credit, I'm gonna get even more off of me. Free health insurance plan, this is great. Not so fast. You then have to pick between do you want the $500 from your employer or do you want the $800 tax credit that you already qualify for?

Obviously, I'm going to take the $800 tax credit every single time. So now my business owner actually isn't helping me at all because I'm not even taking the $500 and I can't even take it to then use for qualified medical expenses. I have to do one or the other. So that is actually no benefit to me. And so that benevolent business owner, so what we're finding is the ICRA doesn't even really make any sense.

Because in that same scenario, if I instead make 200 grand a year, okay, if I make 200 grand a year, I don't qualify for a tax credit. Well, I'm not even gonna be on an ACA marketplace plan in that situation. I'm gonna be on a private, underwritten individual health insurance because the ACA plan's not any good anymore unless I get a tax credit. Well, guess what? I can't use that $500 a month ICRA for one of those private, underwritten health insurance plans. I have to use it.

on an ACA plan, which is not a good fit for me because I don't qualify for a tax credit. So there's just no scenario outside of that very specific one where there were people all over the country and they all made 200 grand a year and none of them got a tax credit and they were all unhealthy. It was a very unique situation. But for the standard mom and pop small business who want to do something for their people, if they're willing to pay 500 a month,

just give them a $500 a month raise. Now, I get that whole $500 less my payroll taxes and I can go buy whatever health insurance makes the most sense for me. I can still reap that entire $800 a month tax credit on the ACA. I can still, then I can use that $500 a month to actually buy the right health insurance for me. And so, the IKRAs are available, the QSERAs are available, but it completely wipes out the...

the ability for them to use any of their ACA tax credit and it forces them to be on an ACA plan. So it's just not a good fit.

Aaron (28:51)
I mean, it it's funny to me how much we hear I mean, just in the industry talk, like people are really for these Icras and QSARs. Like w is it the

Matt Allen (29:03)
Well,

Aaron (29:04)
tax advantage? Is it what is it?

Matt Allen (29:06)
Okay.

So the reason that these are being pushed so much more is because the employee, the employer can define their contribution. They can say, I want it to be 200 a month, 300 a month, 400 a month, 500 a month. And they're being sold on the idea that this allows their employee more flexibility, more freedom to choose the right health insurance plan for them. And every time

Aaron (29:33)
I see.

Matt Allen (29:34)
you go to the ACA marketplace,

and you see all the different options, yes, they are different networks. Yes, they are different companies, but all the plans cover all the same stuff. They all fundamentally work the same way. They're all different wings on the same bird. It's all the same stuff. They cannot take those Iqra dollars and go get a private plan. They can't go get a short-term medical. They can't go get a cost-sharing plan. They can't go get an indemnity plan. They have to get an Obamacare plan with it.

and they can't get a tax credit. So they're being told, hey, there's 89 different plans available in that zip code. You're being so benevolent because you're letting them all choose whichever of these 89 plans makes the most sense for them. But they can't get a tax credit and they have to go to the ACA for it. And so they're being told, hey, it's gonna be cheaper for you and more freedom and flexibility for your employees. But what the employer typically doesn't know is that with a small group plan,

you can give your employees something called a PPO network where they can go anywhere for their care. On the Affordable Care Act, which is what the ICRA and the QSERA relegates your employees to, it's all HMO network, EPO network, POS network. They can't go anywhere they want. So it's this illusion of choice and this illusion of freedom and flexibility that they're being sold these ICRAs on when it just ain't so.

Aaron (31:02)
All right. So all you small business employers out there, if you want to help your people, actually help your people. And if you're, you know, coming up to your open enrollment period as a family inside of a group plan, you know, if you're paying too much, maybe check out something else.

Matt Allen (31:23)
It's always free to look.

Aaron (31:25)
Always free to look. That's what we got today.

Matt Allen (31:28)
Alright, that was a good one. You might have time to get out there.

Aaron (31:33)
I think we might. I got a call. Got a call coming up.

Matt Allen (31:37)
He's got a call coming up. All right. This has been another episode of Talking Shit. Shit, course, is an acronym for Straight Health Insurance Talk. I am Matt Allen.

Aaron (31:50)
And I am Aaron Miller. Talk

Matt Allen (31:52)
Thanks for your time.

Aaron (31:53)
to you next time.

Right.

Does my whole family have to be on my employer's plan? No. Family members can be on different plans. If your employer pays little or nothing toward dependents, your spouse and kids may get better or cheaper coverage elsewhere while you stay on the work plan.

How much does my employer have to pay toward family coverage? Often nothing. Small-group plans commonly require the employer to pay at least 50% of the employee-only premium, but not for spouses or children. That's why adding a family can cost you much more per paycheck than covering yourself.

Can my family get ACA tax credits if I'm offered work coverage? Possibly. If your own coverage is affordable but family coverage isn't, your spouse and children may qualify for Marketplace tax credits. You keep the employer plan for yourself. If the whole family declines an affordable offer, no one gets a credit.

Is a family plan always cheaper than separate plans? Not necessarily. An employer family tier usually costs the same whether you have one child or six. Individual plans are priced per person. Splitting the family can also put one member with health needs on an ACA plan and everyone else on a cheaper underwritten plan.

What is an ICHRA, and is it a good deal? An ICHRA is an employer-funded account that reimburses you for an individual health plan. It must be used with an ACA-compliant plan. You generally can't take both ICHRA money and a Marketplace tax credit, so if your credit is larger, the ICHRA may not help you at all.