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Overview

In the United States, the average cost of a vaginal birth is over $9,000 and the average cost for a cesarean section is almost $13,000. Health insurance is important because it will help to cover some of these costs and minimize the amount you will need to spend on medical bills. The first step is to find the right insurance coverage for pregnancy and birth. This article is going to get you off on the right foot to minimizing your costs and making sure you are covered. You should know how your insurance works so you aren’t surprised by medical bills after your baby arrives. If you already have health insurance that you are happy with this episode is going to help explain how health insurance works during your pregnancy and birth and how to understand what your cost is going to be. If you do not have health insurance or you are in the process of changing your insurance this article will help you figure out how to choose the right plan.

Article and Resources

Disclaimer

I want to start off by saying I am not an expert on health insurance. This article is intended as a very brief overview of how this works, so you can better understand your insurance. Your best bet is to get on the phone with your insurance company, compare plans online, and read the full explanation or summary of benefits. If you are choosing a new health plan and you have a human resources department or someone at work who is helping to set these up ask them questions. Another great resource is your care provider. If you are confused and not getting answers, ask for help. Ask someone from your midwife or doctor’s office to get on a call with you and the insurance company. Or just call up your insurance company and start asking questions so you understand what is covered and what isn’t. The more you know, the more you can prepare, and the less likely you will be surprised or stressed out.

Cost of having a baby

Fair Health is a non-profit that collects data on health insurance. They released data from 2017 on how much it costs to have a baby in each state. This was broken down by vaginal and cesarean births both with and without, insurance. The average cost for a vaginal birth with insurance was about $6,500 without insurance it was $12,000. The average cost for a cesarean birth with insurance was $9,300, and without insurance, that cost was an average of $16,500.

Right off the bat, you can see that having insurance greatly decreases your costs. This is because health insurance companies often have negotiated rates with hospitals and care providers. It seems counter-intuitive that two people would be charged different amounts for the same procedures. An insurance company will pay less than an individual without insurance. These costs are the total bill from the hospital. If you have insurance you can expect to pay less depending on what is covered by your policy. The least expensive state to give birth in is Alabama, and Alaska is the most expensive. In Alabama a vaginal birth with insurance averages just below $5,000 and in Alaska, this same birth would be more than double at $10,600. You can see a big range here. Prices are going to vary depending on where you live, your care provider, the venue where you are having your baby, the particulars of your pregnancy and birth, and whether or not you have insurance. For a breakdown of average costs by state see this article.

How Health Insurance Works

Health insurance is like any insurance in that you pay a small amount, in the event something happens which is very expensive and then that cost is partially covered by insurance. You could have insurance and never need to take advantage of it, or you could have insurance and have something happen that your insurance would pay for. If you are expecting a baby you can definitely expect to have some medical bills. Overall, health insurance is not that different from car insurance, or homeowner’s insurance, except that there are a lot more intricacies.

There are a few definitions that will help you understand insurance:

  • Coverage: is what your insurance will pay on your behalf
  • Premiums: are usually paid on a monthly basis and that is your cost to be covered under the insurance.
  • Copays: are amounts that you pay for a doctor’s visit or a prescription that come out of pocket. Many policies have something like a $40 copay for each visit. These amounts go toward your deductible.
  • Deductible: is a minimum amount that you have to pay, out of your pocket before your health insurance will begin to help cover the costs of your health expenses. The higher the deductible, the lower the premium. Things like copays will go towards your deductible.
  • Co-insurance: is the percentage of expenses you pay. Every plan should break down specific things like an ER visit or delivery of a baby and list the percentage you are required to pay.
  • Out of pocket maximums: this is a key one for pregnancy and birth and maybe the most important to pay attention to. The out of pocket maximum is the most you will pay in one calendar year, so it is a cap on your expenses. Do keep in mind this only applies to covered expenses. If you see a provider who is out of network or undergo a procedure that is not covered you could go over your out-of-pocket maximum.
  • Explanation of benefits: this looks like a bill, but it explains your benefits and what was covered or not by your insurance. There is a difference between what your care provider charges and what the insurance company pays. This is shown here as the actual vs. allowable charge. Insurance companies have negotiated lower rates, which could potentially mean that you pay more if you are uninsured.

Provider Networks (PPO vs HMO)

PPO stands for preferred provider organization and HMO stands for health maintenance organization. In general, if you have a PPO you can go see any doctor or specialist without a referral. If you want to make an appointment with a dermatologist, you can do that. With an HMO you need a referral from your primary doctor to go see a specialist. Sometimes this requires an additional appointment, one to your primary doctor, before you can make an appointment with a specialist.

With both PPOs and HMOs there are Provider Networks. You want to pay attention to this because using care providers in the network is going to be cheaper. In some cases out of network providers may not be covered at all. PPO plans allow you to see a wider network of care providers. When I had my son at a birth center, it was in and out of network. My insurance considered the birth center in-network for the prenatal care, but out-of-network for the birth.

Prenatal Care Coverage

Well visits and preventative care are often covered. Plans should cover prenatal care 100% but there is some grey area on things like lab work or ultrasounds. In general, if your doctor is ordering it you would think it is covered. If you are requesting additional tests or procedures that are out of the scope of what the insurance company deems you need you may end up with some extra bills. You would have to comb through the explanation of coverage, which is going to be a huge document, to know for sure what is covered. I have read through a lot of these and even after reading this it can be confusing and unclear. If you have questions on exactly what is covered you should ask.

Costs for Pregnancy and Birth

When you are billed for your pregnancy and birth everything is a la carte and you will get a breakdown of all the costs, which will include: ultrasounds, lab work, doctor visits, tests, birth, anesthesiologist, medications, IVs, hospital stay, etc. Trying to figure out which of these costs you will incur and how much it will be and what your insurance covers is nearly impossible. The easiest thing to do is to look at your deductible and your out of pocket maximum. Let me give you an example so you can see how this works.

  • Example: As a quick example, let’s say you have a health insurance plan with a deductible of $1,000, an out-of-pocket max of $5,000 and a coinsurance amount of 20%. After you have your baby the total bill comes out $10,000, about the cost of an average vaginal birth. These are just arbitrary numbers to keep it simple. Your deductible is $1,000 so you pay that first. Then the remaining $9,000 of your bill is split 80% to the insurance company, and you pay 20% because that is your coinsurance amount. 20% of $9,000 is $1,800. So you have paid a total of $2,800, which is under your out-of-pocket max of $5,000. All said and done it cost you $2,800 to have your baby. In this case, you didn’t hit your out of pocket max, but if you have a cesarean birth or additional expenses you could max out at $5,000.

Below are four different health insurance plans for HMO and four PPO and an estimate of what you would pay total out of pocket. I didn’t just make these numbers up. These are actual quotes for health insurance for myself. Based on my age of 36 and my zip code, I live in San Diego, CA. This is a very simplified example and I used the total cost of $10,000 for easy math. This will give you a good idea of how you may want to compare health insurance plans. The cheapest plan when looking at premiums, may not be the cheapest plan overall. In some of these examples going with more expensive health insurance actually means that you will pay less overall, even though your monthly premiums are higher.

Sample HMO Health Insurance Cost & Plan Comparison Bronze Silver Gold Platinum
Deductible (calendar year) $6,300 $4,000 $0 $0
Out of Pocket Maximum (calendar year) $7,800 $7,800 $7,800 $4,500
Prenatal Care $0 $0 $0 $0
Maternity Labor & Delivery Co-insurance 40% 20% 20% 10%
Estimated Cost of Vaginal Delivery $10,000 $10,000 $10,000 $10,000
Deductible $6,300 $4,000 $0 $0
Co-insurance for Labor & Delivery $1,480 $1,200 $2,000 $1,000
Total $7,780 $5,200 $2,000 $1,000
Lower of Total or Out of Pocket Max $7,780 $5,200 $2,000 $1,000
Monthly Premium $335 $371 $432 $516
Total Annual Cost of Insurance $11,794.60 $9,650 $7,179 $7,198

 

Sample PPO Health Insurance Cost & Plan Comparison Bronze Silver Gold Platinum
Deductible (calendar year) $6,900 $4,000 $0 $0
Out of Pocket Maximum (calendar year) $6,900 $7,800 $7,800 $4,500
Prenatal Care $0 $0 $0 $0
Maternity Labor & Delivery Co-insurance 100% 20% 20% 10%
Estimated Cost of Vaginal Delivery $10,000 $10,000 $10,000 $10,000
Deductible $6,900 $4,000 $0 $0
Co-insurance for Labor & Delivery $3,100 $1,200 $2,000 $1,000
Total $10,000 $5,200 $2,000 $1,000
Lower of Total or Out of Pocket Max $6,900 $5,200 $2,000 $1,000
Monthly Premium $409 $542 $596 $761
Total Annual Cost of Insurance $11,802.00 $11,706 $9,157 $10,135

 

An important thing to keep in mind is that health insurance works on a calendar year.  On January first all of the numbers like the deductible, the out of pocket maximum reset. So if you have maxed out your deductible in December, that goes back to zero on January 1.

There are a lot of different ways you can get health insurance:

  • Group health (through an employer or your partner’s employer)
  • Individual coverage
  • Military
  • COBRA is a program that allows you to continue your health insurance from your employer if you are laid off.
  • Medicaid is federally funded insurance for low-income individuals.

The Affordable Care Act

The goal of the Affordable Care Act that went into effect years ago was to give all Americans access to affordable health care. A noble idea but it has its flaws. I’m not going to get into the politics of this. Anyway, ACA/Obamacare has its pros and cons and it has put some significant changes into effect. This expanded Medicaid and gives tax credits on government-sponsored health plans if your income is low enough to qualify. It also made some changes like not allowing companies to deny you coverage based on a preexisting condition. It also standardized how plans are labeled so it is easier to compare different plans from different companies. Bronze plans are the cheapest but only pay 60 percent of your medical costs. Platinum plans are the most expensive but pay 90 percent.

You can check out HealthCare.gov and when you click on sign up you select your state and it will either let you continue on the healthcare.gov site or take you to your state’s marketplace. Either way, you will get to find out if you qualify for any subsidies based on your income and see what plans are available. A plus of these marketplaces is that they make it easy to compare plans across different insurance carriers. Even if you do not qualify for assistance based on your income, these marketplaces give you access to compare plans across multiple carriers and purchase insurance.

If you are thinking that you cannot afford health insurance, you really need to take a look at the resources available and see if you qualify for Medicaid or subsidies under the ACA. Trump signed an executive order to make some changes to the government subsidies going to insurance companies. Overall the only way this affects us as consumers is that rates went up, nothing really changed with who qualifies for subsidies. We can expect that more changes are coming, but we do not know what those are at this point. If major changes go into effect that change the info in this episode I will certainly make sure to update it.

Also, talk to the hospital or birth center where you want to have your baby and find out if they offer reduced rates based on income or any type of discounts. Some organizations or care providers will base rates on a sliding scale based on income. You can also negotiate a payment plan. Even if money is tight you have options.

Working With Your Existing Coverage

If you already have coverage, find a provider that is covered by your insurance, website or on the phone. If you are signing up for new coverage you can find your ideal provider first (Midwife or OBGYN?), then work backward to find a plan that covers them. This will be similar with finding insurance for your new baby and choosing a pediatrician.

Health Care Expenses and Your Taxes

When I was pregnant the first time I kept track of all my expenses thinking I could write them off on my taxes. I was disappointed to find out this was not exactly the case. If you itemize, rather than take the standard deduction, and your qualified medical expenses are more than 10% of your AGI you can write them off, otherwise, you would probably be taking the standard deduction and not writing off specific medical expenses. This is confusing, right?

The standard deduction for 2020 is $12,400 for individuals and $24,800 for married couples. The majority of people take the standard deduction, which means that you are not able to deduct any additional medical expenses. If you itemize you may be able to deduct some of what you spend on medical bills. For example, if you make $100,000, multiply that by 10%. If you spend over $10,000 on medical expenses you can write is off as a deduction. Instead, if you spent $5,000 that year you would not be able to deduct it. I will defer you to your CPA or tax professionals for specific questions on this topic. My point is, do not assume you will be able to write off your medical bills. For more information on deducting medical expenses check out this article from Turbo Tax.

Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA)

Another way you can pay for medical expenses pre-tax is to use a flexible spending account or a health savings account. Again, This article is not intended to be used as tax advice. You really should discuss this with your CPA, accountant, or tax professional. You also may be able to talk to your human resources department if your employer offers this type of account. But this should give you a brief overview so you have an idea of how these accounts work.

Flexible Spending Account (FSA)

A flexible spending account with an employer-sponsored account. If your employer offers this and you are pregnant you should look into it. The first step is to estimate your health insurance costs for the year. If you are having a baby in it is likely you will be paying more than the funding limit.  The ACA put a limit on how much you can put into an FSA to $2,750 for 2020, this amount will be inflation-adjusted for future years. Divide the total by the number of pay periods you have and those funds come out of your check pre-tax. If you elect to max out the account and are paid twice a month you can expect to have about $115 deducted from each paycheck. When you incur an eligible expense, like a doctor bill, you submit that to your HR department or whoever manages the FSA plan and they reimburse you.

This saves you money because you are not taxed on this amount. There is a catch, risk is involved for both you and your employer. If you elect to have $2750 taken out for 2020 and you have your baby in January, you pay $2750 out of pocket, submit your receipts, get reimbursed the $2750, you have only paid 1/12 into this. If you quit your employer loses out on that money, you are not required to pay this back. On the other hand, if you elect $2750 and only spend $2K, you lose that extra $750 at the end of the year. If you find yourself in this position there are some expenses like OTC meds that can qualify so find out what qualifies and stock up on stuff so you don’t lose those funds.

Health Savings Account (HSA)

If your employer does not offer an FSA or you are unemployed or self-employed you may be able to utilize a health savings account this can be established by your employer or by you. HSAs have higher limits than FSAs but you must use it with an eligible insurance plan. To be eligible you must be enrolled in a High Deductible Health Plan (HDHP). Translation: Your health insurance plan must have an annual deductible of at least $1,400 for an individual and $2,800 for a family. On top of that, the total yearly out-of-pocket expenses cannot be more than $6,900 for an individual or $13,800 for a family, this includes deductibles, copayments, and coinsurance. Health insurance plans will note if they are high deductible health plans, abbreviated HDHP. If you are planning to utilize an HSA make sure that your insurance is a qualified high deductible health plan.

The limits on HSAs are much higher than FSAs. For 2020 you can fund the account with $3,550 for an individual and $7,100 for a family. These funds grow tax-free and if they are pulled out for qualified medical expenses then it is tax-free. There are strict guidelines for what is considered a qualified medical expense and you want to make sure you know what is qualified and what is not. If you set this up through employer contributions are coming out tax-free from your paycheck and if you set this up on your own then you deduct the contribution on your tax return.

If you withdraw money for something that is not a qualified medical expense, like a vacation, you would be taxed on the full amount of the withdrawal, plus a 20% penalty. Ouch! The good news is that these funds don’t go away, and after age 65 you could potentially pull funds out without the penalty, even if it is not used for a qualified medical expense, but they would be taxed. In this way, after age 65 an HSA works similarly to a traditional IRA. The HSA needs to be established before you incur the expense, but it does not have to be funded. So you could potentially open an HSA and fund it and reimburse yourself as you go or even at a later date. As long as the account is opened prior to you incurring the expense.

Putting in Work to Figure This Out Now Will Save You Later

I know all of this stuff is confusing and a huge pain to deal with. The work you do upfront will pay off later, plus you will be prepared to take on these expenses. When I first was pregnant with my son I had no idea how expensive it was going to be just for my prenatal care and for him to be born. In the end, it cost us close to $7,000, not including the cost of my insurance. That was an out of pocket cost. My second birth was a home birth, which was not covered by my insurance at all. By the time my baby was born I paid around $6,000 for my prenatal care and birth with my midwife, plus labs, ultrasounds, supplies for a home birth. And again, not including the monthly premium I am paying for my insurance.

 

Thank you to Zahler for supporting this episode.

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