The healthcare exchanges that were created under the Affordable Care Act (more commonly known as “Obamacare”) are due to open tomorrow, October 1st, 2013. Through these exchanges, anyone who wants to purchase health insurance, should be able to purchase it from a health insurance company, with coverage to begin on 1/1/14. To access the exchanges and a host of additional information around how the exchanges will function, go to www.healthcare.gov. That portal will contains links to the Federal exchange as well as links to the State exchanges in the case that you live in one of the states that have set up their own exchange. The 36 states that will use the Federal exchange are: Alaska, Alabama, Arkansas, Arizona, Delaware, Florida, Georgia, Iowa, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Michigan, Missouri, Mississippi, Montana, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wisconsin, West Virginia and Wyoming. All others, including Washington, D.C. will have their own exchange. The portal will guide you to the right place.
The exchanges will have plans grouped into the following 4 coverage tiers: Bronze, Silver, Gold, and Platinum. All plans must provide essential health coverage including prescriptions, preventive care, doctor visits, emergency services and hospitalization. The characteristics of each plan will fit the general model under one of these tiers so that those exchanges that have multiple insurers providing coverage can present apples-to-apples comparisons among those plans, but some insurers may offer additional coverage in certain areas (e.g. physical therapy). Bronze plans will generally be the lowest cost plan from a monthly premium perspective, but will be the highest cost from an out-of-pocket perspective if you need non-preventative care. Platinum plans are the opposite, with Silver and Gold fitting in between. You can expect a Bronze plan to cover about 60% of out-of-pocket costs after a deductible, Silver to cover 70% after a lower deductible, Gold to cover 80% after a still lower deductible, and Platinum to cover 90% after a low deductible.
The insurers themselves will provide a quote for the monthly cost of coverage based on some basic information that you provide. It’s important to note that pre-existing conditions are not a consideration for coverage or for the cost of coverage. There are a number of other government imposed rules, like not being able to charge older applicants an unreasonable amount more than younger applicants, that influence pricing. Of course the biggest influence, in theory, is that the insurers will be competing with each other for the business.
Once pricing for an applicant is determined, potential Federal subsidies could apply and reduce the cost of the monthly premiums. If you fall under 4x the Federal poverty level for the size of your family (~$46k for individuals + $16k per additional family member), you’ll usually qualify for a subsidy. You’ll have to estimate your income for the following year in order to receive the correct subsidy. If you estimate your income will allow you to qualify, but then your income is actually higher and you don’t qualify, this will be reconciled on your tax return and you will wind up paying back the subsidy amount. Kaiser has a calculator that can help estimate your subsidy.
On the other side of subsidies, those who opt not to purchase insurance and who are not covered by another plan (e.g. an employer-sponsored group plan), will face a penalty starting in 2014 at $95 or 1% of household income, whichever is higher. By 2016, it rises to $695 per individual or 2.5 percent of household income, whichever is greater. This is known as the “Individual Mandate”. The penalty will be paid as a tax when filing your tax return if you can’t prove that you have coverage.
In general, the exchanges will benefit those who are older, have income below the subsidy threshold, have pre-existing conditions, and/or don’t have employer-provided coverage. Most people fall into one of the following four groups as it pertains to health insurance, so I’ll divide the rest of this message accordingly. If you:
1) Have coverage through a large employer’s group plan – you are welcome to shop the exchanges for better or cheaper coverage, but are unlikely to find it. Large employer’s usually provide heavy subsidies for the cost of group insurance that makes that insurance cost less than the individual policies that you’ll find on the exchanges. Still, it doesn’t hurt to look and see what’s out there.
2) Have coverage through a small employer’s group plan or through your spouse’s or parent’s employer’s group plan – since small employers usually provide less of a subsidy for group plan, and many employers, regardless of size, provide less of a subsidy for spouses and dependents, the exchanges could provide a better option for you. Again, it doesn’t hurt to look and you might be surprised to find a better plan, especially is your income is below the subsidy threshold.
3) Have individual or family coverage that is purchased directly through an insurer (not a group plan) – you should definitely re-shop your insurance needs on the exchange. It’s similar to having a website that aggregates all auto insurance information for you so that you can compare between insurers. You’re likely to find a better deal than you’re getting today, especially if you’re over age 50 and have an income below the subsidy threshold. Note that there are no subsidies for individual or family policies that are purchased off-exchange.
4) Have no coverage – if you don’t have coverage because you have a pre-existing condition or because you can’t afford it, you’ll almost certainly benefit from the exchanges and should shop them during the open enrollment period. If you don’t have coverage because you have chosen not to have it, then you’ll need to compare the cost of the tax penalty for not having coverage with the cost of coverage you can obtain from the exchanges. While it may be cheaper to maintain no coverage and pay the tax penalty, when you consider the potentially catastrophic exposure to medical bills, I have to think you’re almost certainly better off with the insurance.
Again, www.healthcare.gov is the starting point for all of this. Expect a few technical glitches in the system over the first few days / weeks, but remember that coverage doesn’t start until 1/1/14 and open enrollment lasts until 3/31/14, and can be extended by certain life events after that date.