How Health Insurance Exchanges Will Transform a Segment of the Market

Nearly 49 million people are uninsured in the United States. Health insurance exchanges are supposed to help millions of uninsured people get insurance on a private plan. These new exchanges will be the most visible part of President Barack Obama’s health care overhaul law in everyday life. Open enrollment starts on October 1, 2013, less than 10 months away.

Exchange is really just another word for marketplace. The plans sold in the new markets will start covering patients on January 1, 2014. Each state will have its own exchange serving people who buy their health insurance directly, as well as a separate exchange for small businesses.

There will be three types of exchanges at the beginning: those run by states, those run by the federal government, and partnerships. Most Republican governors opposed to “Obamacare” are letting Washington run the exchanges in their states. For consumers, the healthcare benefits offered should be the same no matter who runs the exchange.

The exchanges are supposed to have the feel of an online travel site – think Orbitz or Expedia. “Middle-class” earners will be able to pick from a range of private insurance plans, and most people will be eligible for help from the government to pay their premiums. “Low-income” earners will be steered to safety-net programs for which they might qualify. This could be a problem in states that choose not to expand their Medicaid programs under a separate part of the health care law. In that case, many low-income residents in those states would remain uninsured.

People will need to disclose their income, marital status and number of dependents to the exchange at the time they apply for coverage, and the exchange will calculate any potential financial assistance they might be offered. Only legal residents of the United States can get financial assistance.

The health care law offers sliding-scale subsidies based on income for individuals and families making up to four times the federal poverty level, about $44,700 for singles, and $92,200 for a family of four.

Break Away from the Static

There will be four levels of coverage, from “bronze,” which will cover 60 percent of expected costs, to “platinum,” which will cover 90 percent. “Silver” and “gold” are in between. Bronze plans will charge the lowest premiums, but they’ll have the highest annual deductibles. Platinum plans will have the highest premiums and the lowest out-of-pocket cost sharing.

The government’s subsidy will be tied to the premium for the second-lowest-cost plan at the silver coverage level that’s available in each area. One could take it and buy a lower cost bronze plan, saving money on premiums. But they’d have to be prepared for the higher annual deductible and copayments.

All plans in the exchange will have to cover a standard set of “essential health benefits,” including hospitalization, doctor visits, prescriptions, emergency room treatment, maternal and newborn care, and prevention. Insurers cannot turn away the sick or charge them more. Middle-aged and older adults can’t be charged more than three times what young people pay. Insurers can impose penalties on smokers.

As an example, a family of four headed by a 40-year-old earning $35,000 will get a $10,742 tax credit toward an annual premium of $12,130. They’d have to pay $1,388, about 4 percent of their income, or about $115 a month.

A similar hypothetical family making $90,000 will get a much smaller tax credit, $3,580, meaning they’d have to pay $8,550 of the same $12,130 policy. That works out to more than 9 percent of their income, or about $710 a month.

Although it’s called a “tax credit” the government assistance goes directly to the insurer. The subscriber does not receive a check. More information on exchanges will be provided as we move closer to the October 2013 open enrollment date.

Best regards,
Kirk Reinitz, CPA