We are about to enter a brand new world of health care in the US, as the Patient Protection and Affordable Care Act, also known as “Obamacare,” takes effect. The new health insurance marketplaces (aka “exchanges”) will open for enrollment beginning October 1st. Yes, this October 1st. The coverage on these plans will start as soon as January 1, 2014, at which time just about everybody (with some exceptions) will be required to have a health insurance policy in place or face penalties. The first open-enrollment period will last six months, from October 1, 2013 to March 31, 2014. It generally takes two weeks for a policy to go into effect after enrolling, so you will need to sign up by December 15 to get coverage starting January 1.
You may be wondering, how do these exchanges affect me? For those who have affordable insurance through an employer, or if you have coverage through a government program such as Medicare or Medicaid, you will not be affected by the exchanges. However, a lot of misinformation has been spread about what exactly the new health care exchange will mean for consumers. Here are answers to some of the most frequently-asked questions about the exchanges, coverages and new tax law.
Will this make shopping for health insurance easier or harder?
Theoretically, it should be much easier—for four reasons. First, all the policies offered in your area—with prices and policy provisions—will be listed side-by-side on the exchange website. Before, this “total market” information was available only to health insurance agents. This should provide for a much more transparent, apples-to-apples shopping experience.
Second, you don't have to search high and low for a policy that allows coverage of your pre-existing conditions, or go through a lot of medical underwriting where the insurance company would look for reasons to charge you more or deny you coverage altogether. Private insurers who participate in the network cannot turn you away or charge you more because you have an illness or preexisting medical condition—and they must cover treatments for those conditions.
Third, the policies are now somewhat standardized into four categories, making the comparison of features much less complicated than before.
Lastly, if you believe in capitalism, the competition should help drive insurance premiums lower. If one company is offering a better price on a particular policy than all the others, and raking in all the business as a result, other insurance companies will be motivated to drop their prices to be competitive. However, this isn't a guarantee of lower premiums; initially, some insurance companies will set higher prices until they can get a better handle on claims experience, and some are worried that so many people with big health problems will sign up that it will overload the system. But over the long haul, insurance company profits should be lower than they have been in the past.
Are these plans run by the government?
No. They are offered by private insurance companies.
What's different about the policies offered through the exchanges, compared to what I'm used to?
The biggest change is the fact that there is no underwriting or additional charges (or denial) due to pre-existing conditions. The only health-related question they can ask (and charge more for) is tobacco use. But even this will have limits. The second-biggest change is that the plans will be somewhat standardized, which makes it a little bit less complicated to comparison shop.
Beyond that, all plans are required to cover a core set of benefits, called “essential health benefits,” including preventive and wellness services, chronic disease management, pediatric services, many prescription drugs, rehabilitative services if you get injured, mental health and substance disorder services, maternity and newborn care, hospitalization and emergency services.
Unlike the previous environment, no plan will be allowed to have deductibles, co-payments or co-insurance greater than the limits for high-deductible plans (roughly $6,000 for an individual, $12,000 for a family) or impose a limit on lifetime healthcare benefits.
Finally, under the exchange system, women cannot be charged higher health insurance premiums than men.
So what are the differences between the policies that I'll be choosing from?
The exchange divides its health plans into four categories: bronze, silver, gold and platinum. The category you choose affects how much your monthly premium costs, what portion of the bill you pay for things like hospital visits or prescription medications and your total out-of-pocket costs. Before poking around the exchange in search of a plan that is right for you, it is important that you understand your own medical spending personality.
If you do not use health care very much and do not visit a doctor very often, you might prefer the least expensive option: a bronze plan, which will cover 60% of all health care costs for the average person, leaving you to pay 40%, overall, out-of-pocket. If you opt for the bronze plan, just like with any risk management strategy, we suggest you set aside some money in case something big happens.
A silver plan covers, on average, 70% of a policyholder's healthcare costs, a gold plan covers 80% and the platinum plan, for people who are frequent medical consumers and can afford the cost, covers 90% of medical expenses, leaving you with 10% out-of-pocket.
Young adults under the age of 30 will be able to purchase a catastrophic plan, where they would pay the out-of-pocket costs for all health services except preventive services up to an annual limit of $12,700 (in 2014, rising with inflation thereafter). Remember, under the Affordable Care Act, children under the age of 26 can be added or kept on their parents’ health insurance plan.
How do I compare the plans and buy them?
You will be able to compare plans (and, most importantly, costs) side-by-side on the web portal of your state exchange—or, if your state has not created an exchange, then through a federal web portal. You can put in the name of your state on a very helpful website set up by the government: www.healthcare.gov, and get links to the state exchanges—plus a lot of other explanatory information. For those who live in California, Covered California is the health insurance marketplace: www.coveredca.com. Additionally, there will be toll-free consumer assistance hotlines that can be found on the exchange website.
What else should I be comparing?
Look at whether the plan lets you visit the doctors and hospitals that you're currently comfortable with. Many of the policies are going to be network-dependent, which is a fancy word that means you will be confined to working with their preferred provider professionals and facilities.
How workable is this exchange idea, anyway?
There have been a lot of commentaries on both sides of the political spectrum, which might lead you to believe that the exchange concept was conceived in heaven or hell. But one thing to remember is that Medicare has operated as an exchange (although it isn't called that) for decades. Each Medicare-eligible person picks from a number of plans, more in some states than in others, each with a variety of benefits. So, to the extent that seniors are happy with their Medicare coverage, there is at least one significant example that the concept can work effectively.
Of course, consultants will tell you that most seniors tend to pay more in out-of-pocket expenses under Medicare than necessary, because they don't know how to match up their personal health profile with the right package. That may also prove to be true with the exchanges.
Am I required to buy one of those policies?
Yes and no. If you're covered by Medicare, Medicaid, TRICARE, the veteran's health program or a plan offered by your employer, then the requirement to have health insurance is satisfied. You are not required to buy health insurance if your family income is below $10,000 (individual) or $20,000 (joint).
Otherwise, the answer is still no, but you have to pay a tax penalty if you are not covered by health insurance.
What kind of a penalty?
In 2014, that penalty is $95 per adult and $47.50 per child up to $285 for a family, or 1% of family income above the aforementioned thresholds ($10,000 or $20,000)—whichever is greater. For a family with more than $900,000 in income, the penalty will be higher than the cost of a typical silver-level plan; below that, the decision not to be covered becomes more complicated.
The penalty steps up in subsequent years. In 2015, it jumps to $325 per uninsured adult and $162.50 per uninsured child, up to $975 for a family, or 2% of family income above the thresholds–whichever is greater. In 2016 and thereafter, the penalty steepens to $695 per uninsured adult, $347.50 per uninsured child or 2.5% of family income above the thresholds. In all cases, the penalty is prorated by the number of months without coverage.
How will the government know whether I have health coverage or not?
Health insurance plans will provide documents to the people they insure, that will be used to prove they have the minimum coverage required by law.
Would it make sense to drop the coverage I get from my employer and buy one of these new policies?
It depends on what you're paying now, and what you're getting–but in most cases, the answer is no. In most job-based health insurance plans, your employer pays a portion of your premiums. If you choose a plan from the exchange, your employer does not need to make a contribution to your premiums.
What if I own a business?
Similar to the exchange available to individual and families, there is a Small Business Health Options Program (SHOP) exchange available to employers with less than 50 full-time employees (that number increases to 100 full-time employees in 2016). The SHOP exchange will work similarly to the current small group market, but employers may be eligible for small business health care tax credit only available through the SHOP exchange.
If you own a business where you are the only employee or you use only independent contractors to help with the work, you can apply for coverage through the general exchange and not through SHOP.
Does the government subsidize some of the cost of health insurance premiums? If so, for who, and how much?
An estimated two-thirds of the American population will receive some form of subsidy. You qualify if your income is under four times (400%) the federal poverty level—that’s $45,960 for a single person and $62,040 for couples. These tax-credit subsidies will provide immediate savings off your monthly premiums.
The Kaiser-Permanente organization has created a calculator telling you what credits and assistance you qualify for: http://kff.org/interactive/subsidy-calculator/. A family of four with two children, where nobody uses tobacco, earning $90,000 a year in 2014 dollars (382% of the poverty level), falls right on the threshold. An unsubsidized silver plan would cost $9,869, but the rules only require a person in this income category to pay a maximum of 9.5% of income for health insurance, so the government will issue a tax credit of $1,319 a year, dropping the actual premium price to $8,550.
The same household with an income of $50,000 is only required to pay 6.73% of its income, which means it would receive a government subsidy of $6,504—66% of the total premium expenses.
All subsidies are based on the premium for the silver plans. If an individual receiving the subsidy wants to purchase a gold or platinum plan, he or she will need to pay the difference between the premium credit amount and the cost of the more expensive plan.
When should I do my insurance shopping?
Sooner is better than later. As the January 1 deadline approaches, you can expect that many millions of people will suddenly decide they had better get coverage. The result could be a lot of confusion around the end of the year that you would be better off avoiding.
I think there is no doubt that there will be issues as this is being rolled out—as there are with anything new—but we are here to help should you have any questions.
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