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.

CoInsurance

Tricare Reserve Select

While TRS does nickel and dime you on cost sharing, the fees are still very low. Since we’re only looking at labor and delivery, the best I can see is that you’d pay $62 of cost sharing to have a baby under this plan. Emergency services would be another $41 for the axe-throwing injury. In an effort to make this seem a little more expensive, I think it’s reasonable that you’d have to pay cost sharing for a few follow-up visits at $15 each. Even if we assume 6 of those visits, it’s only another $90.

Total CoInsurance paid: $193.

Bronze HSA

Calculating CoInsurance costs for HSA plans is where things really start to get complicated. For the labor and delivery costs, we already noted that the $3,100 deductible we paid still left $7,708 in expenses. Our family will be on the hook for 20% of that, or $1,541.60.

$10,808 – $3,100 (deductible) = $7,708 x 20% (CoInsurance) = $1,541.60

The individual CoInsurance maximum under this plan is a whopping $3,300, so she’d need to have a second child or similarly costly medical expense to get anywhere near it. Our new mom is also short of reaching her individual OOP Max of $6,400 per year.

Our axe thrower’s costs didn’t even reach his individual deductible, so CoInsurance doesn’t apply.

Total CoInsurance paid: $1,541.60.

Gold HSA

This plan has a nice, low deductible, but that leaves an even larger portion of our expenses eligible for CoInsurance. After the $1,350 deductible, our family will owe $1,891.60 in CoInsurance for labor and delivery costs.

$10,808 – $1,350 (deductible) = $9,458 x 20% (CoInsurance) = $1,891.60

This is a pretty good illustration of the balancing act between deductible, CoInsurance, and premiums that you have to consider when choosing a health care plan. In this case, the total of deductible and CoInsurance is also close to the individual OOP Max for this plan, $3,850, but didn’t quite get there. Those two items come out roughly $350 more expensive with this plan when compared to the Bronze HSA, but remember that we aren’t finished yet.

Our axe-throwing injury met the $1,350 deductible, leaving a bill for $330 of CoInsurance.

$3,000 – $1,350 (deductible) = $1,650 x 20% (CoInsurance) = $330

Adding the two CoInsurance charges together makes things look even less even. Wait to pass judgement until we add everything up though.

Total CoInsurance paid: $2,221.60

Core HSA

Both of the United Airlines’ plans have individual/family deductibles of $2,500/$5,000. The Core HSA is unique in that is has a 95/5 CoInsurance plan afterward meeting that deductible. The labor and delivery costs left $415.40 in CoInsurance costs, and the axe throwing injury adds another $25.

$10,808 – $2,500 (deductible) = $8,308 x 5% (CoInsurance) = $415.40

$3,000 – $2,500 (deductible) = $500 x 5% (CoInsurance) = $25

Total CoInsurance Paid: $440.40

Healthy Advantage HSA

This plan has the same deductible as the Core HSA, but 80/20 CoInsurance terms similar to Delta’s HSA plans. Here’s the first shot at the math for our family’s labor and delivery:

$10,808 – $2,500 (deductible) = $8,308 x 20% (CoInsurance) = $1661.60

The low deductible and high CoInsurance percentage deliver a big expense here. If we add the two together we get:

$2,500 (deductible) + $1,661.60 (CoInsurnace) = $4,161.60

However, it’s also important to note that this plan comes with an Out-of-Pocket Maximum of $3,425 per year per individual. Our sum of $4,161.60 exceeds that by $736.60, meaning our family gets a good deal. It turns out that this will limit the CoInsurance portion of our family’s bill to $925 for this service, meeting this individual’s annual OOP Maximum of $3,425.

Our axe thrower met his individual deductible, but adding his CoInsurnace payment doesn’t get him anywhere near his OOP Max.

$3,000 – $2,500 (deductible) = $500 x 20% (CoInsurance) = $100

Total CoInsurance paid: $1,025.

Here’s the comparison of CoInsurance costs for our family under each of these plans:

CoInsurance	TRS	Bronze HSA	Gold HSA	Core HSA	HA HSA
Total CoInsurance Paid	$193	$1,541.60	$2,221.60	$440.40	$1,025

Out of Pocket and Total Costs

Now that we’ve looked at each set of costs individually, let’s put them together to get a true annual cost. Remember that each plan publishes an OOP Maximum for the year. (The upper limit of that value is actually mandated by the ACA.) The following charts will add up deductible, and CoInsurance costs. Then, we’ll account for annual premiums (that don’t count against the OOP Max) to get a true annual cost for our family.

	TRS	Bronze HSA	Gold HSA	Core HSA	HA HSA
Total Deductible Paid	$313	$6,100	$2,700	$5,000	$5,000
Total CoInsurance Paid	$193	$1,541.60	$2,221.60	$440.40	$1,025
OOP Subtotal	$506	$7,641.60	$4,921.60	$5,440.40	$6,025
OOP Max (Family)	–	$13,100	$7,700	$6,000	$6,850
Annual Premiums	$2739	$1,860	$4,476	$6,108	$4,452
Total Annual Health Care Cost	$3,245	$9,501.60	$9,397.60	$11,548	$10,477

Note that our scenario doesn’t reach the family OOP Max for any of these plans, though we’re pretty close for a few of them. For the Gold HSA and the United Airlines HSAs, even if the rest of the year was really bad for our family, their additional OOP costs would be very small thanks to the low OOP Maximums. By contrast, the Bronze HSA makes up for its very low premiums with a large OOP Maximum value.

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Further Considerations

We should note that I didn’t even address dental, vision, or prescription drug costs in these charts. All of these plans include drug coverage and I’ll let you trust me that this coverage scales with the other costs in each plan.

Dental and vision are usually offered separately by an employer. They’re relatively cheap, but they don’t cover very much. If your family has notoriously bad teeth, you should start brushing, flossing, and eat less sugar. (Sorry, my wife is a dentist and I can’t help myself. This is truly all it takes for most people.) If you can’t manage those simple behaviors, or your family needs a lot of vision services, these might be additional factors in favor of finding a job that gives you access to TRS.

Whether trying to decide whether to leave active duty vs staying for retirement, or deciding whether to serve in the Guard or Reserves after Active Duty, you should consider your family’s health care needs and costs. If you’re planning on having more children in the near future, or someone in your family has an expensive, lifelong medical condition, you should definitely consider one of the Tricare options.

However, if you’re healthy and don’t have a definite reason to expect expensive medical bills anytime soon, you may be okay on a civilian health care plan. When I try to do the math associated with the stay/go decision, I account for the worst-case cost of health care every year–that $13,000+ OOP Max. However, as we saw here, even a pretty expensive year didn’t get anywhere near that level. The truth is that even if you account for health care, staying on Active Duty in the military costs you big-time in the long run.

However, maintaining access to TRS has some significant financial advantages. Although the difference in total annual cost looks pretty significant ($3,245 for TRS vs $9,397-$11,548 for our HSAs) this still isn’t the whole story. We need to account for the value of investing $7,100 of tax-free-forever money into an HSA.

Let’s assume for a moment that you’re going to invest the full $7,100 per year and that it will grow at a very conservative 5% for the 9 years between leaving Active Duty and retiring from the Guard or Reserve. In a tax-free-forever HSA, these 9 years of investing will end with a balance of $78,228.

If you were to invest the same amount of money in a regular taxable brokerage account, you’d have to pay taxes on both ends. We’ll assume you’d pay an effective income tax rate of 25% before investing the money, and a 15% capital gains tax when withdrawing the money. This means that for $7,100 of income, you’d only actually get to invest $5,325 per year after taxes. After 9 years the value of that investment (minus capital gains tax) is only $49,908.

The difference in value between those two investments is $28,379. If you divide that by 9 years, you get a difference of $3,153 per year. Even if you account for that as an expense in addition to the $3,245 in total health care costs under TRS, the HSAs still look like a worse deal.

A full comparison of airline vs Guard/Reserve income would also have to take into account the cost of spending at least one week per month flying for the Guard or Reserves instead of the airlines, as we did in our post on Guard and Reserve Pay and Benefits. Once you upgrade to Captain at an airline, part-time military service cost you at least $32K per year in total compensation. This more than makes up for the $28,379 in investment differences that we just calculated.

To be fair, we should also consider the fact that an airline pilot under TRS could invest more than just $7,100 per year into the taxable brokerage account that he or she is using in lieu of an HSA. We should allow for this pilot to invest the difference between total out-of-pocket health care costs compared to an HSA plan. Using our examples above, this would yield:

$11,548 (HA HSA) – $3,245 (TRS) = $8,051 (extra to invest) + $7,100 (HSA-equivalent) = $15,151

Then, accounting for 25% income tax, this would yield a total of $11,363 per year to invest:

$15,151 – 25% (income tax) = $11,363 investable each year

Even when you account for 15% capital gains tax when withdrawing any money from this taxable brokerage account, and the $32,000 per year you’d be giving up in regular pay by spending a week per month flying the Guard or Reserves, the HSAs still don’t perform as well as keeping TRS and investing the difference yourself.

All this boils down to the fact that you’re better off financially, from a pure health care perspective, finding a way to stay with Tricare Reserve Select. When you dive deep into the math, the difference isn’t that huge, but it’s there.

Conclusion

I don’t believe that health care should be an anchor keeping you on Active Duty or in the Guard or Reserves if continued military service doesn’t work for your family. However, if you can find a way to make it work for you, then it offers some big advantages. Also, if anyone in your family has known health care issues that will likely drive you to hit an OOP Max every year, you’re probably better off staying with TRS. In either of these cases, you should start shopping BogiDope’s job postings immediately!

I also don’t believe that differences in health care plans should play a large role in deciding which airline to choose from. Sure, our example varied by more than $2,000 in total annual costs between the different HSA plans, but as a major airline pilot, you’ll quickly reach the point where you’re earning more than $200,000 per year. (See that discussion here.) As long as you’re properly applying Pilot Math to save as much as possible, that $2,000 difference will be insignificant to your family’s overall well-being.

Although health care seems overly complicated in the US these days, this post should give you the tools you need to evaluate and compare different plans. Remember these general points:

• Total annual health care cost = Premiums + Deductibles + CoInsurance
• Don’t forget that there are individual and family Out-of-Pocket Maximum costs for Deductibles, CoInsurance, and the sum of the two.

Although health insurance will represent a significant cost if you have to go the all-civilian route, you should still be okay. Between statutory OOP Max limits and your high salary as an airline pilot, even a really bad year should be manageable for most families.

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Image Credits:

The feature image for this post was taken by by Natasha Spencer on Unsplash.

The shot of a military member about to get his blood drawn is from https://www.dvidshub.net/image/5859593/39th-mdss-airmen-draw-blood-save-lives.

The photo of the family with the new baby is by Taylor Harding on Unsplash.

The burly axe thrower photo was taken by Abby Savage on Unsplash.

The shot of the operating room was taken by Piron Guillaume on Unsplash.

The Army dental picture is from https://www.dvidshub.net/image/5577120/joint-forces-provide-no-cost-medical-care-during-new-york-irt.