The Affordable Care Act Part IV: Understanding Health Exchanges

[TexasTowelie]

By Dr. Brian Carr
President, Behavioral Health Associates, Lubbock, Texas, 1991-Present
Chairman, City of Lubbock Board of Health, 2013
Submitted on September 6, 2013 - 8:41am


When you find yourself hungry what do you do? In meeting the growl of your stomach you travel to the grocery store. You walk the aisle in the supermarket and buy items you need based on the perceived benefits to you and relative to their price. A health insurance exchange is set up the same way as the supermarket except you are not buying milk and meat but health insurance coverage.

The exchanges will be regulated by the federal government. This regulation will require that the insurance companies that offer policies there will have to meet specific standards. This will help the consumer to contrast and compare among the policies offered. For some of the people who shop for coverage at the exchange they will be provided financial assistance by the government to reduce the price they pay for insurance. For those who do not qualify for financial assistance the exchange will help them obtain coverage by pooling people together into a large group so that premiums will be more affordable.

The exchanges are expected to improve the current systems in a number of ways:

1. Increased Choice: By requiring insurance carriers to streamline offered services the consumer will be better able to review a variety of plans.

2. Standardization: Plans offered by different insurance companies must contain identical levels of benefits at specific tiers of coverage so consumer can make “apples-to-apples” comparisons between the plans.

3. Consumer Protection: Consumers will have confidence that they are not being sold an inferior policy because each plan must cover “essential health benefits”

4. Economies of Scale-Because the exchanges will be places where millions of consumers shop, they will foster healthy competition among insurance companies.

You will be able to consider which insurance is best suited to your needs by several methods. You can drive to the government office that manages the exchange, you can discuss your options with a representative over the telephone, or you can visit the exchange’s website portal.

Four standardized plans: Bronze, Silver, Gold, and Platinum

In the past consumers would be overwhelmed with the complexity of different plans offering different services, at different rates, with different deductibles, at a confusing premium. One of the biggest benefits of the exchanges is that they cut through this complexity and simplify the decision-making process for those who go to buy health insurance.

The quality of these plans should also be high as each one, regardless of the amount of coverage it offers, will be required to include so-called “essential health benefits”. Generally speaking, these benefits will be comparable to what can be found in a typical employer-based plan today. In each of these plans insurers must provide benefits in 10 broad categories as follows:

1. Ambulatory patient services

2. Emergency services

3. Hospitalization

4. Maternity and newborn care

5. Mental health and substance use disorder services

6. Prescription drugs

7. Rehabilitative services and devices

8. Laboratory services preventive and wellness services and chronic disease management

9. Pediatric services, including oral and vision care

Building off of these essential services, the four levels of insurance coverage will differ based on what is called “actuarial value.” This is the amount of financial coverage that the plan offers to its covered members. The lowest financial coverage is associated with the Bronze plan, with 60 percent of healthcare costs covered on average, followed by the Silver plan at 70 percent, the Gold plan at 80 percent, and the Platinum plan at 90 percent. The premium price for each plan increases as more coverage is added with the Bronze plan being the least expensive and the Platinum being the most expensive.

In addition, the baseline out-of-pocket limit for each plan will match the limits of that apply to Health Savings Accounts ($5,950 for individuals and $11,900 for families in 2010). For those who receive financial assistance from the government their out-of-pocket limits will be lowered just as their premiums will be lowered as a function of this assistance.

To further assist the consumer in making decisions about which insurance company to sign up with the exchange will offer information about specific performance information such as enrollment levels, the number of people who dropped out of the plan and the amount of denied claims. This data will be particularly useful as it provides information about the actual performance of the insurance company in providing coverage and not just the flowery marketing quotes that one sees now.

The most comprehensive study on Obamacare to date finds that Americans’ insurance premiums under the health law will be “lower than expected.” Many Americans will pay even less than the top-line rates after factoring in government subsidies for their health coverage, with some paying nothing at all for crucial medical coverage.

The Kaiser Family Foundation (KFF) looked at individual policy prices in the 17 states, plus the District of Columbia, that have released comprehensive numbers for their Obamacare insurance marketplaces. Since premiums under the law will vary based on factors such as age and geographic location, KFF chose to examine how much the second-least expensive “Silver” mid-level plan and the least-expensive bare-bones “Bronze” level plan would cost for 25-year-old, 40-year-old, and 60-year-old Americans in those 17 states’ largest cities. The report includes both the top-line prices for those demographics, as well as what their costs would be after factoring in government subsidies based on varying income levels.

According to KFF’s findings, a single 40-year-old in Los Angeles could buy the second-cheapest mid-level plan for $255 per month — but if that person makes just under $30,000 per year, he or she will only have to pay $193 per month after receiving a government subsidy.

Strikingly, in every city analyzed, a family of four with two 40-year-old adults and a household income of $60,000 per year would pay $409 per month for the second-cheapest Silver plan after receiving subsidies. That’s more or less in line with the average $4,565 per year that workers currently contribute towards their employer-sponsored health insurance plans.

The report also finds good news for younger and older Americans. In Seattle, a 25-year-old making $28,725 per year will pay $193 per month for a Silver plan after subsidies and $138 per month for the cheapest Bronze plan after subsidies. For a single 60-year-old with the same income, those number would be $193 per month and $44 per month, respectively, after factoring in subsidies. And in Burlington, Vermont, both a single 25-year-old making $25,000 per year and a 60-year-old couple making a combined $30,000 per year would pay nothing at all for the cheapest, bare-bones Bronze plan.

Lower out-of-pocket limits are the levels that an individual or family must pay before their insurance plan begins to cover their medical expenses. The subsides are given out according to a sliding scale pegged to the federal poverty line, with people in the lowest income range receiving the most help. The baseline out-of-pocket limit on each exchange is equal to the out-of-pocket limit for Health Saving Accounts (currently $5,950 for individuals and $11,900 for families) and is lowered from that ceiling level according to where an income level falls in that range.

In 2010 dollars this means that a family with an income that falls in the lowest range (100 to 199 percent of the federal poverty level) will reach its out-of-pocket limit at $3,967-or 33 percent of the amount for a Health Savings Account ($11,900) used by a high-income family.

A third major perk of the ACA is designed to help decrease the number of uninsured by offering tax credits to small businesses that provide coverage for their employees. This is a significant benefit for small businesses as the current system tends to penalize these employers with higher documentation costs and higher premiums because of the small pool of covered individuals. The workers in small business will benefit because of being able to switch jobs or work independently without fear of losing coverage.

On average, current premiums are about 20 percent higher for small businesses compared to large businesses.

For those businesses that pay very low wages they may drop coverage and low-wage workers will turn to state exchanges to get health insurance. Such would be the case with a large business such as McDonald’s where health benefits are not a strong incentive to gain employees.

To prevent this dropping of coverage the ACA provides a tax credit to encourage small businesses to offer health insurance. Since the tax credit went into effect in 2010 it has had a positive effect as businesses with fewer than 10 employees that offered health insurance to their workers jumped from 46 to 59 percent that first year alone.

Right now, a company that has up to 10 employees, average annual wages under 25,000 and contributes to at least 50 percent of their healthcare premium costs is eligible for a 35 percent tax credit against the amount it pays for its workers’ insurance.

For those businesses with over 50 employees they will pay a fine of 2000 for every full-time employee who receives a government subsidy for purchasing coverage through an exchange, excluding the first 30 employees.

In the short-term small businesses will have to determine whether or not it’s in their interest to provide health insurance for their workers and receive a generous tax credit (which decreases the cost of the premiums that they pay by as much as 50 percent) or to drop coverage. If they make the latter decision, the pain will be softened considerably because the state based, government-subsidized exchanges will be available for the workers to obtain coverage at an affordable cost.

As reported by Jared Bernstein in The New York Times:

“Since the Affordable Care Act requires businesses with at least 50 full-time workers to provide them with coverage (or it will, when the employer mandate kicks in a year from now), critics claim that it is prompting employers to shift to more part-time jobs. But as I have noted in various postings, there is no evidence to back up that claim — in fact, both involuntary and overall part-time work are declining as a share of all jobs.”

For states like Texas (where our governor has refused to cooperate with the federal government in rolling out the exchanges) the health exchange will be maintained by the federal government. This exchange is already set up and you should review it here.

For additional details on the exchanges and other important “fact sheets” you can view these at the AARP site.

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http://lubbockonline.com/interact/blog-post/dr-brian-carr/2013-09-06/affordable-care-act-part-iv-understanding-health

Cross-posted in Texas Group.