Health Insurance Basics for Pilots

Welcome back to BogiDope! We’ve taken a couple weeks off to enjoy the holidays with our families. We hope you got to do the same, though we know that many of you are deployed overseas defending the rest of us. Thank you for your sacrifice! It’s an honor to serve with you!

One of the benefits of serving on Active Duty or long-term Guard/Reserve orders is that you essentially get unlimited free health care. Even part-timers have access to some of the best health care on the planet. I didn’t realize how great a deal I was getting until I left Active Duty and started having to fend for myself.

Whether you’re considering if you stay in the Guard or Reserves after leaving Active Duty, or you’re already there and debating military vs civilian insurance options, health care needs to be a big consideration for you and your family. Today, we’ll look at the basics of health care plans for Active Duty pilots, Guard/Reserve pilots, and then some specific examples of what’s offered at major airlines.

Table of Contents

1. Basic Health Care Terminology
2. Tricare - Active Duty
3. Tricare Reserve Select (TRS) - Part-Time Guard and Reserve
4. Civilian Health Care Overview
5. Two Examples
6. Further Considerations
7. Conclusion

Basic Health Care Terminology

Before we get into specifics, we need to make sure everyone understands the basic vocabulary associated with health insurance plans. Here are the key terms:

• Premium - a monthly fee you must pay to the insurance company whether you use services or not. This would be like your membership to Costco or Amazon Prime. Paying it gets you access to services, but you may have to pay extra for some things.
• Deductible - like the insurance on your car, this is a dollar amount that you have to pay out-of-pocket before your insurance will cover anything. For cars, this might be something low like $500. For health insurance, this usually starts much higher. We’ll look at plans today with deductibles of $3,000 per person, and approaching $10,000 per family.
• Copayments, Cost Shares, or “copays” - a token fee that you pay for a given service. These are usually small amounts, on the order of $5-10 for a regular doctor’s visit. These fees seem obnoxious, but they’re based on long-term studies of human economics. If little Jimmy has the sniffles, a $10 copay is enough to convince most parents to keep him home and eating soup for a day or two. Usually, that’s long enough for him to get better and preclude wasting a doctor’s appointment just to be told to keep him at home and feed him soup.
• CoInsurance - It used to be that once you met your deductible, your insurance company would cover everything else. However, they started losing too much money. Instead of just raising their premiums and deductibles, they invented CoInsurance. Basically, it means they’ll still only cover a percentage of your costs, even if you’ve met your deductible. The market standard seems to be that CoInsurance covers 80% of all costs, requiring you to pay the remaining 20%.
• Annual Out-of-Pocket (OOP) Maximum - This is the true cap on your health insurance costs for the year. This includes all copays, you meeting your full deductible, and covering 20% of all your other CoInsurance costs up to this limit. In the examples we look at later, we’ll see this vary widely from $3,850 to $13,700. Most plans do not include your premiums in this OOP Max.

With these basic terms in mind, let’s look at the major health care plans applicable to BogiDope pilots.

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Tricare - Active Duty

Military members on Active Duty have arguably some of the best health care in the world. Administered through a health insurance provider called Tricare. The default plan is called Tricare Prime, and it covers the military member along with his or her spouse and children.

This plan assigns each member of your family a military provider on base as a Primary Care Manager (PCM). Any visits or issues will start with that doc, and he or she can refer a patient to a specialist, as required. If that specialist is available on base, you just make an appointment. If not, the doc can refer you to a civilian in the area, or a specialist at another base. Tricare even pays for your travel to and lodging at that location, if necessary!

The best part of Tricare Prime is that there are zero fees for members. I’ve known people to get eye surgery, back surgery, and much more through a variety of specialists. Any of those issues would have cost tens of thousands of dollars to address as a civilian.

Although many bases will cover some elective procedures like plastic surgery to let their docs keep their skills up, there are some services you can’t get through Tricare. You’d have to pay out-of-pocket to get them done off base.

For military members who want more choice, Tricare also offers a plan called Tricare Select. This plan has an associated deductible and some cost-share fees. (Here’s the full list.) However, you get to choose an off-base (civilian) PCM from a list of approved providers in your area. You won’t necessarily need to get a referral to see a specialist, but you may need approval from the Tricare system.

For a military pilot, the annual deductible is an absurdly low $150 per individual, or $300 per family. After that, cost-share (copay) fees range from free for a few services, to $20-30 for most types of doctor’s visits, to $83 for an emergency room visit. Those will sound like a lot to a young BogiDope reader just getting started on the Ultimate Military Pilot Career Path, but as we go on you’ll see that these fees are chump change compared to what civilians have to pay.

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Tricare Reserve Select (TRS) - Part-Time Guard and Reserve

A Guard or Reserve pilot who gets activated and/or placed on full-time orders may be eligible for coverage under regular Tricare Prime/Select for the duration of those orders. However, most of the time they only qualify for coverage under Tricare Reserve Select, or TRS. Don’t worry though, we’ll see that this is still an incredibly good deal.

TRS charges you a monthly premium. For a military pilot in 2020, this works out to $44.71 per month for an individual, or $228.27 per month for a family. They also have a deductible of $156 for an individual, or $313 for a family. Once you’ve met your deductible, each service has a cost-share fee very similar to those under Tricare Select. (Here’s the full fee schedule for TRS.)

Under TRS, you can see any “in-network” provider from a list that you can access online. You can also see providers that aren’t in the covered network, though your fees will be higher. You can also be seen on a space-available basis on military bases if you happen to live by one.

Again, our young BogiDope readers might see a total of $2739.24 in annual premiums, plus $313 in deductibles and think that this is pretty expensive. However, the access to care that this provides is truly incredible. A more senior pilot looking at leaving Active Duty should seriously consider continuing service in the Guard or Reserves just to maintain this health care coverage. If you’re healthy and don’t have any known, long-term health issues, you may not need this coverage. However, even one long-term issue could be costly enough to make TRS a life-saving benefit. Let’s look at the options to understand why.

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Civilian Health Care Overview

Like it or not, all health care is expensive. Any Tricare recipient who says otherwise just doesn’t realize who is paying those costs. The only reason they can enjoy health insurance plans with low (or no!) premiums and deductibles is that the American taxpayers are covering the rest of their costs. (When they thank you for your service, be sure to thank them for footing your doctor’s bills.)

Without that tax-funded subsidy, the worst case is a small business owner or wage worker who has to pay for his or her entire health care plan out of pocket. The lowest-income earners can get subsidies and coverage through the Affordable Care Act, but even then it isn’t cheap. The next level up is having an employer who will cover some of an employee’s health care costs as part of a benefits package. This is what the airlines and many other professional flying jobs do.

Under these plans, you’ll pay a monthly premium and you’ll have access to a network of doctors, just like Tricare Select or TRS. You’ll have to pay 100% of your costs out of pocket until you meet your deductible. After that, you’ll still have copays and/or CoInsurance costs requiring you to pay part of your health care costs, up to your annual OOP Max. We’ll get into specific examples in a moment, but let’s look at an important caveat first.

In order to reduce the burden of health care costs, our government allows people covered by High Deductible Health Plans (HDHPs) to fund a Health Savings Account, or HSA. You’re allowed to fund your HSA tax-free, up to $3,150 per year for an individual or $7,100 for a family. As long as you use the money in this account to cover authorized medical expenses, it’s also tax-free when you withdraw it from your account. This means that the money in an HSA may never be taxed.

But wait, there’s more! HSAs are administered by banks. You’re welcome to keep the money in cash, but you’re also allowed to invest your funds just like an IRA, TSP, or 401k. This means the money you put in there can grow, tax-free, and that you can withdraw your gains tax-free.

Why does this matter? There’s no requirement for you to pay for medical services directly from your HSA. Instead, you can pay for your expenses out-of-pocket and allow your HSA to continue accruing interest, for decades if you want. As long as you keep track of your medical expenses (a serious spreadsheet or app, including receipts) you’re allowed to reimburse yourself from your HSA. That’s still considered an approved medical expense, so you still don’t have to pay taxes.

If you’re interested in learning more about the power of the HSA as an investment account, I discuss it in my book, Pilot Math Treasure Bath. Another great place to get more on the basics is this post: HSA - The Ultimate Retirement Account, by one of my favorite Financial Independence writers.

There’s something to be said for the simplicity of Tricare. If you have a problem, you go see a doc and get taken care of. Worst case, you pay token premiums and copays under TRS. However, there’s also a lot to be said for getting access to an investment account like an HSA. The government defines an HDHP as one that has a deductible of at least $1,400 for an individual or $2,800 for a family. For better or for worse, no flavor of Tricare is ever likely to qualify...meaning you’ll likely never be able to fund an HSA while on Tricare.

For a healthy family not planning on having any more kids, I can see an argument for passing on TRS even if you serve in the Guard or Reserves. You could use those years to start funding an HSA that will be worth a lot in the future. It should be possible to go back to TRS in the future if necessary. The major advantage here would be the knowledge that health care costs tend to skyrocket when you get older. It’d sure be nice to have a giant bathtub full of tax-free treasure to cover those costs when the time comes.

The decision to choose an HSA over lower current costs through TRS bears some risk, and you’d want to run the math to compare the options. We’ll take a stab at the math later in this post, but I recommend talking with a professional financial planner before you make any big decisions on this front.

We’ve thrown out some specifics on numbers here, but we still don’t know how military health care (Tricare) compares to civilian options. I happen to have the numbers for Delta and United, so we’ll look at them for comparison.

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Two Examples

Delta and United offer a couple of different health care plans, with varying coverage and costs. If you were trying to choose between specific options, you’d want to do some research and get advice from a pro. However, we’ll try to do a side-by-side comparison using high- and low-end examples to give you an idea of the range of your possible costs.

The charts that follow only include a few major categories of expenses. The real charts have all kinds of caveats and little fees. Thankfully, those caveats only represent a fraction of these major costs. For the sake of readability, we’re going to leave them out today. Here are the basics of these plans:

	Delta Bronze HSA	Delta Gold HSA	United Core HDHP	United Healthy Advantage HSA
Monthly Premium (Individual)	$47	$113	$185	$134
Monthly Premium (Family)	$155	$373	$509	$371
In-Network Deductible (Individual)	$3,100	$1,350	$2,500	$2,500
In-Network Deductible (Family)	$9,300	$2,700	$5,000	$5,000
CoInsurance	80/20	80/20	95/5*	80/20*
Annual OOP Max (Individual)	$6,400	$3,850	$3,000	$3,425
Annual OOP Max (Family)	$13,100	$7,700	$6,000	$6,850

* - The United plans have 100/0 for CoInsurance costs on some services.

Let’s try to translate this into something reasonably useful. Let’s say that a young family on one of these plans expects to have a baby in 2020. A post from The Economist last year put the average price of delivering a baby in the US at $10,808. (This doesn’t include any prenatal care, complications, or care after birth.) Let’s also say that a member of the family (other than the one having the baby) gets injured at an axe-throwing party and has an ER visit with a total cost of $3,000.

(Yes, this is a simplistic example. There would be costs for follow-up visits and undoubtedly some medications. For the sake of simplicity, we’re going to assume that those costs scale with the overall costs we calculate. The point here is more to show you how these different fee schedules work.)

We’ll do our best to compare costs for the different plans we’ve discussed, including TRS.

Premiums

First off, you’ll note that our family has to pay monthly premiums under each of these plans. That family’s total premiums for 2020 will be:

Premiums	TRS	Bronze HSA	Gold HSA	Core HSA	HA HSA
Annual Premium	$2739	$1,860	$4,476	$6,108	$4,452

So far, none of these plans shows a clear advantage. The Bronze HSA looks cheap at first glance, but we’re just getting started. Remember that our baby delivery cost $10,808 and our ER visit was another $3,000. We’ll start by looking at each deductible situation by health care plan.

Deductibles

Tricare Reserve Select

The TRS deductibles are $156/$313 (Individual/Family). Those are so low that you’re virtually guaranteed to hit the maximum with almost any medical issues in a year. Thankfully, we’ll see shortly that these maximums are ridiculously low compared to the rest of the market.

Total deductible paid: $313.

Bronze HSA

The Axe-Thrower’s $3,000 ER visit is expensive, but it isn’t even enough to meet his or her individual deductible of $3,100 per year. However, the labor and delivery deductible exceeds the individual deductible by $7,708. You’d think that we could apply this remaining balance toward the family limit of $9,300, but that’s not how it works. You can only apply a maximum of $3,100 in deductible expenses per person toward the family limit. The rest will be accounted for in our next section under CoInsurance.

Total deductible paid: $6,100.

Gold HSA

The occurrences in our example exceed the individual maximum in both cases. That’s also all you need to reach the family maximum.

Total deductible paid: $2,700.

Core HSA and Healthy Advantage HSA

We’ll group these together for deductibles since the numbers are the same. Both expenses exceed the individual deductible, so our hypothetical family ends up paying the maximum family deductible for the year.

Total deductible paid: $5,000.

This chart summarizes the deductible costs for our family under each of these plans:

Deductibles	TRS	Bronze HSA	Gold HSA	Core HSA	HA HSA
Total Deductible Paid	$313	$6,100	$2,700	$5,000	$5,000

It’d be nice if this were the end of the story, but we also need to consider CoInsurance costs. We’ll look at these individually again.