Health Insurance — ACA Marketplace, Enrollment, and Plan Tiers

Disability income insurance replaces a portion of the insured's income when they cannot work due to illness or injury. Short-term disability (STD) covers shorter periods: elimination period of 1-14 days (waiting period before benefits start), benefit period of 3-12 months. Long-term disability (LTD) covers longer periods: elimination period of 30-180 days (often 90 days), benefit period of 2-5 years, until age 65, or until retirement. Many employers provide STD; LTD is often purchased through employer-sponsored or individual policies. Benefit amount is typically 50-70% of pre-disability income, sometimes capped. Definition of 'disability' varies: 'own occupation' (cannot perform your specific job — most generous), 'any occupation' (cannot perform any job for which you're qualified — most restrictive), and modified definitions like 'own occupation for two years, then any'.

Long-term care insurance covers custodial care — help with activities of daily living (ADLs) — that health insurance and Medicare do not. The six standard ADLs are bathing, dressing, eating, toileting, transferring (moving from bed to chair), and continence. Benefits typically trigger when the insured cannot perform two or more ADLs (definitions vary by policy) or has severe cognitive impairment. Settings covered: nursing homes, assisted living facilities, adult day care centers, and care at home from family or hired caregivers. Medicare covers short-term skilled nursing care after a hospital stay but does not cover ongoing custodial care; Medicaid covers nursing home care only after assets are depleted to state poverty levels. LTC insurance helps avoid asset depletion or family caregiver burden. Hybrid life-LTC policies have become popular.

COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) is a federal law allowing employees who lose group health coverage from an employer with 20+ employees to continue the same coverage temporarily by paying the full premium (employee + employer share) plus up to a 2% administrative fee. Coverage continuation periods: 18 months for most qualifying events (termination, reduction in hours); 29 months if the qualified beneficiary is disabled; 36 months for qualifying events like divorce or a dependent aging out. COBRA is expensive because the former employee bears the full cost without employer subsidy, but it provides continuity for those between jobs, awaiting Medicare eligibility, or with pre-existing conditions. State 'mini-COBRA' laws may extend coverage to smaller employers. ACA marketplace coverage often becomes the more affordable alternative to COBRA.

A waiting period in group health insurance is the time between starting employment (or other eligibility) and when health benefits begin. Under ACA rules, employer-sponsored health plans cannot have waiting periods longer than 90 days for eligible employees. Some employers offer immediate coverage; others use the full 90 days. The waiting period is distinct from: (1) elimination period in disability insurance — the wait between disability onset and when benefits begin paying; (2) probationary period — the time during which a new condition is excluded under some older policies (now banned under ACA in individual/small group). Understanding waiting periods is important when timing job changes — coverage gaps can leave significant exposure.

The out-of-pocket maximum (OOP max) is the total amount the insured can pay for covered services in a plan year. Once the insured reaches this limit (through deductibles, copays, and co-insurance combined), the plan pays 100% of covered services for the rest of the year. Premiums do not count toward the OOP max. Out-of-network costs do not count for many plans. ACA-compliant plans had OOP max limits around $9,450 for individuals in 2024 (the limit is indexed annually). The OOP max provides protection against catastrophic costs from a serious illness or accident. When comparing plans, the OOP max is often more important than the deductible because it represents the worst-case annual exposure.

Coordination of benefits (COB) rules determine the order of payment when a person is covered under more than one health plan (e.g., spouse's plan plus their own). Standard rules: (1) Employee's own plan is primary for the employee; (2) For dependent children, the 'birthday rule' applies — the parent whose birthday falls earlier in the calendar year provides primary coverage; (3) For divorced parents, court-ordered responsibility takes precedence; otherwise, the parent with custody is primary; (4) Active employee coverage is primary over retired or COBRA coverage. The primary plan pays first; the secondary plan may cover some remaining costs (deductible, co-insurance, services the primary did not cover) up to its own limits. COB prevents one person from receiving more than the cost of care.

A Health Savings Account (HSA) is a tax-advantaged savings account available only to people enrolled in a High Deductible Health Plan (HDHP). Triple tax advantages: (1) Contributions are tax-deductible (or pre-tax through payroll); (2) Growth is tax-free; (3) Withdrawals for qualified medical expenses are tax-free at any age. Contribution limits in 2024: $4,150 individual, $8,300 family, with a $1,000 catch-up for those 55+. HDHPs in 2024 had minimum deductibles of $1,600 individual / $3,200 family and maximum OOP of $8,050 / $16,100. HSA funds roll over year to year (no use-it-or-lose-it). After age 65, non-medical withdrawals are taxed as ordinary income without penalty. HSAs are popular for tax planning and retirement healthcare savings. FSAs (Flexible Spending Accounts) are similar but more restrictive and tied to employer plans.

HIPAA (Health Insurance Portability and Accountability Act of 1996) has two main pillars: (1) Portability — limited pre-existing condition exclusions, prohibited discrimination based on health factors in group coverage, and certificates of creditable coverage to reduce pre-ex exclusions when changing plans (mostly superseded by ACA's complete ban on pre-ex exclusions); (2) Privacy and Security — the Privacy Rule (which protects how health information can be used and shared) and the Security Rule (which protects electronic health information). Most consumer awareness of HIPAA today centers on privacy: medical records cannot be shared without authorization, with limited exceptions for treatment, payment, and healthcare operations. Producers must comply with HIPAA when handling applicant health information.

Medicaid and Medicare are easily confused but serve different populations. Medicaid is a joint federal-state program (states administer with federal matching funds) providing health coverage to low-income individuals and families, based on income and family size. Eligibility rules and benefits vary by state, especially after the ACA gave states the option to expand Medicaid to all adults under 138% of federal poverty level. Medicare is a federal program for Americans 65+, certain disabled persons, ESRD patients, and ALS patients, based on age or disability rather than income. Some people qualify for both (dual-eligibles); Medicare is primary in that case. Medicaid covers nursing home care (after asset spend-down); Medicare provides only limited skilled nursing facility coverage.

Disability income benefit taxation depends on who paid the premium and with what dollars. If the employer paid the premium (or the employee paid with pre-tax payroll deductions): benefits are taxable as ordinary income. If the employee paid the premium with after-tax dollars: benefits are received tax-free. If premium responsibility is split, the benefits are split proportionally. This is one reason individually-purchased disability income insurance is so valuable — the same benefit dollar goes further if it is tax-free. Some employers offer a choice: pre-tax premium (lower current cost but taxable benefits) versus after-tax premium (higher current cost but tax-free benefits). For high-income earners, choosing after-tax is usually preferable.