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Healthcare Choices When You Separate or Retire

This content is provided courtesy of USAA

By J.J. Montanaro
USAA Certified Financial Planner® Practitioner

It seems like only yesterday I made that leap from military life to the civilian world. While I know it can be an exciting time, for me there were a lot of question marks and uncertainty surrounding the big move of taking off that uniform. Many of the benefits I took for granted on active duty now fell squarely in my lap — like health insurance.

If you're separating from service, but not retiring, the healthcare you may have griped about — but was always there — becomes a thing of the past and you're now facing some significant financial implications. I still remember the shock I felt when I found out having a child was going to cost us $2,200 — and that was 13 years ago!

This article will focus on deciphering the choices and challenges of covering healthcare needs as you transition from active duty. As I write this, the policymakers in Washington are crafting the future of civilian healthcare, so a follow-on article may be necessary, but for now we'll focus on the landscape as it exists today. When it comes to healthcare there is only one non-negotiable: protect you and your family.

Transition Benefits

I was lucky enough to transition from the military directly to corporate America and enjoyed fairly robust healthcare coverage. But a few years later I ventured into the world of small business and faced a whole new set of healthcare challenges and choices that you may face. Immediately picking up coverage from a new employer is ideal, but if that doesn't happen let's first look at what the military makes available for you during your transition:

Transitional Assistance Management Program (TAMP). This program provides TRICARE coverage for 180 days following your departure from active duty. If you're in a TRICARE Prime service area you may be able to enroll, otherwise, you'll be covered under TRICARE Standard. Visit the TRICARE website for a complete rundown of the coverage and costs, but they are the same as for active duty family members. This bridge coverage may be all you'll need to get hooked up with a new plan under your post-military employer.

If that's not the case, the Continued Health Care Benefit Program (CHCBP) can provide an extra 18 months (in some cases up to 36 months) of coverage. You have to enroll within 60 days of losing entitlement to TRICARE or TAMP. However, the BIG difference is that you pay a monthly premium for this coverage. Right now the cost is $933/quarter for individuals and $1,996/quarter for families. It's a new expense, but still fairly reasonable in the realm of healthcare. The coverage is similar to TRICARE Standard, so in addition to the monthly premium you could also have expenses associated with the care you receive.

Finally, for those who decide to continue to serve in the National Guard or Reserve there's TRICARE Reserve Select (TRS). For only $49.62 per month (or $197.65 for a family) you can purchase coverage similar to TRICARE Standard. That's a really good deal while you're serving in the Guard or Reserve and is certainly something to consider as you weigh continued service.

If you've exhausted the above options, don't have coverage through your employer, or have decided to venture into the world of small business you'll be  looking for individual health insurance.
Plan Types

Although there are a variety of names for the different plans available and the mechanics of how and where you receive care — as well as what you pay — in my mind the options can be broken down into four different types of plans.

Health Maintenance Organizations (HMO):  An HMO is similar to the military's TRICARE Prime. For members of an HMO, there is a specific network of providers and facilities that you must use for your healthcare. Typically, you have a primary care physician who acts as a gatekeeper prior to getting any type of care outside of a medical emergency. Preventive care like checkups, immunizations, physicals are normally included as part of the plan at little or no cost and normally there is no deductible. From the consumer perspective, an HMO offers lower out-of-pocket expenses with reduced choice of from whom and where the care comes.

Preferred Provider Organizations (PPO):  With a PPO plan you receive care from a network of providers that have agreed to certain payments for specific services in order to participate in the network. This is similar to TRICARE Extra. Unlike an HMO, you can go outside of this network for care, but your costs may increase for out-of-network services. Here again, non-emergency care will likely need to be approved through a "pre-certification" process. This type of plan provides more choice and typically higher out-of-pocket expenses.

Point of Service (POS):  With this type of plan you get characteristics of both an HMO and a PPO. Like a PPO you can obtain care from non-network doctors. However, if you use providers within the POS network you generally have no deductibles and smaller copayments. You will have a primary care physician as a gatekeeper within the network (like an HMO), but not for the more expensive care outside the network.

Fee-for-Service or indemnity plan: This type of plan allows you the most choice. You can choose whatever doctor or hospital you prefer. However, you may have higher deductibles and pay higher copayments in this type of plan and often you are required to pay the doctor directly and submit claims to your insurance company for reimbursement. With this type of coverage the deductible you choose can have a major impact on the cost of the coverage. For example, if you're healthy and don't anticipate a lot of medical expenses, a high deductible plan, normally at least $1,000, can protect you in the event something serious happens and reduces your monthly insurance premium. If your high deductible health plan meets certain IRS limits, you may be able to open a special Health Savings Account that can be used to accumulate funds for future health care expenses on a pre-tax basis.

So, now that we've looked at the major types of plans available, we'll do a quick boot camp on the basics of health insurance terminology to help you decipher the terms you'll encounter.

Co-insurance: The percentage of coverage you are expected to pay yourself. For example, if the policy's co-insurance is 80/20 and the medical bill is $100, insurance would cover $80 and you would pay $20 until you reach an out-of-pocket maximum, then the insurance pays 100%. Typically this type of arrangement is common with POS, PPO and indemnity plans.

Co-payment or Co-pay:
Normally part of HMO/PPO type plans. Usually a fixed-dollar amount you're required to pay to receive services. Typical co-pays might be $15 for a doctor visit or prescription, and $100 for a trip to the emergency room.

Deductible: For non-HMO or POS out-of-network care this is the amount you pay toward your healthcare before insurance begins covering eligible medical costs. As a general rule, the higher the deductible, the lower the plan's premium will be.

Health Savings Account: This type of account is paired with a high deductible health plan and allows you to set aside pre-tax money for future health care expenses. Withdrawals from the account are tax-free if used for qualified health care expenses. There are a host of specific requirements and limits, but the HSA can be a nice addition to your health insurance plan.

Medical Underwriting:
A process in which an insurer investigates and reviews your health history when you apply for insurance. The findings help insurers figure out the future risk of you getting sick, which affects how much you'll pay in premiums.

Out-of-pocket maximum or stop-loss:  This limits how much of your care you will be responsible for in a single year. Like a deductible, the lower the stop-loss, the higher the monthly premiums.

Pre-existing Condition: A medical condition or diagnosis that existed — or was treated — before your health insurance coverage began. It may affect whether you can get coverage or care for a specific condition.

Regular payments you make in order to have insurance coverage or belong to an HMO.

Primary Care Physician (PCP):
  With HMO, POS, and PPO plans the PCP is your "go-to" physician. He or she will have to be consulted prior to seeing specialists within the network of providers. Sometimes known as the "gatekeeper."

All right, so you've narrowed your search and picked two or three plans to compare. How do you decide?  Obviously, overall costs (the premium and other out-of-pocket costs) play a big role, but don't forget the following factors:

  • Financial Peace of Mind: You certainly want your insurance to be there, when you need it. The last thing you need in the middle of a health crisis is to see your insurance company go under!
  • Waiting Periods:  Some coverages may not protect you or your family right away, so make sure you have a plan for the interim. Also, coverage of preexisting conditions can vary from plan to plan. Obviously a shorter waiting period is better.
  • High Benefit Ceiling:  This is the lifetime limit to how much the policy will payout. You should get a policy where this number is in the millions.

Hopefully, this primer starts you down the path to making an informed decision when it comes to your healthcare. The right plan is a cornerstone of your financial security.

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