October 22, 2013
Across the country, health insurance exchanges went live October 1 with mixed results, some nearly disastrous. At some point, you can bet, the technical issues will be resolved and these exchanges will become a fact of life. The truth is that the health insurance exchanges are perhaps the single most important element of the Affordable Care Act (ACA). Without them, the law doesn’t stand a chance. Despite this fact, a large percentage of people still don’t understand what the health insurance exchanges provide, who will use them, or why they’re important. But, we all need to know about them because whether we’re using them or not, we’re paying for them. The following is everything you need to know in less than 10 minutes of your time.
What Are State Health Insurance Exchanges?
Each state has its own health insurance exchange. Health insurance exchanges are online internet based market places where people who aren’t insured by their employer or the government can purchase health insurance plans that go into effect January 1, 2014. Through the exchange, consumers can also apply for financial assistance in the form of subsidies and tax credits if they meet certain family and income requirements. Depending on the state, some exchanges also process Medicaid applications for people making less than 133% of the federal poverty level (FPL), an expansion of state health care programs dictated by the ACA.
Who Can Use Them?
All citizens as well as lawfully residing immigrants who don’t have health insurance through the government or an employer can purchase health insurance through the exchanges and apply for financial assistance. Besides citizens, only immigrants who’ve lawfully resided in the US for more than 5 years can have access to Medicaid benefits. The health care exchanges are also open to workers whose employer-provided insurance costs them more than 9.5% of their income or if the employer-provided insurance is intended to cover less than 60% of medical expenses.
What Does the Health Insurance Cover?
Exchanges offer 4 main types of health insurance plans, Platinum, Gold, Silver and Bronze. They all cover the same benefits:
- ambulatory patient services
- emergency services
- maternity and newborn care
- mental health and substance abuse (drug and alcohol) services
- prescription drugs
- rehabilitative facilitative services and devices
- laboratory tests and services
- preventive and wellness services and chronic disease management
- pediatric services, including vision and dental care
They differ in how much the insured person pays for monthly premiums relative to the out-of-pocket costs for each medical treatment. A Bronze health insurance plan, for example, is intended to cover 60% of medical costs. As a result, it will carry a less expensive monthly premium but require the insured to 1.) pay a higher deductible and once that deductible is met and coverage begins 2.) pay a higher co-pay for each medical treatment. Platinum plans, intended to cover 90% of medical costs, will charge a higher monthly premium but require low or no deductible and lower or no co-pays. Gold plans cover 80% and Silver, 70%. A bare-bones catastrophic health plan is offered as well; but it is available only to adults under 30 years-old and cannot be subsidized. Like all health insurance plans sold beginning 2014, coverage cannot be denied to anyone because of age or medical condition; and starting 2015, annual medical cost limits will be eliminated.
Who Qualifies for Subsidies and How are They Given?
Citizens and legal residents with incomes between 100 and 400% of the Federal Poverty Level (FPL) who purchase health insurance through the exchanges may qualify for tax credits to reduce the cost of the premiums. Tax premium credits, often referred to as subsidies throughout the ACA, come in two forms: refundable and advanceable. Taxpayers are refunded their premium subsidies at the end of the year through a reduction in their taxes. However, advanceable credits are paid directly to the insurance company, thereby directly reducing the cost of insurance premiums each month.
There is also another form of financial assistance available to people with incomes at or below 250% FPL. These are cost-sharing subsidies that reduce, not the premium, but the insured’s share of costs for medical treatments: the deductible and co-pays. These are paid directly to the insurance company.
People who qualify for Medicaid in their state are ineligible to purchase health insurance or apply for subsidies in the health insurance exchanges.
How are the Subsidies and Tax Credits Calculated?
Eligibility depends on one’s 2014 household income, specifically, one’s Modified Adjusted Gross Income. (Supplemental Security Income (SSI), veterans’ disability payments, workers’ comp and child support, however, are not counted as income here.) Obviously, this is an estimate. Come 2015 tax time, if there’s a significant difference in the 2014 estimation, either the government or the insurance purchaser needs to be reimbursed.
Subsidies are calculated by assuming that the health insurance sold on the exchange should cost purchasers no more than a certain % of their household income. This percentage goes up proportionally with income. Someone with income at 150% FPL would pay no more than 3-4% of their income for health insurance while those at 400% FPL, would pay up to 9.5%. Using the cost of the Silver Plan as the basis, the subsidy becomes the difference between the cost of the insurance and the calculated % of income. It should be noted that insurance costs vary by state and areas within each state, causing subsidies to be significantly higher in areas with more expensive health insurance.
Are Exchanges the Only Way to Apply for Health Insurance & Subsidies?
Accepting and processing applications for health insurance and subsidies is not limited to the state exchanges. Most states offer applications by phone; and applications in person are available through public service organizations and state offices. But going through a certified licensed health insurance agent may be your best bet. They are the best qualified to advise and explain the health insurance plans offered by the exchange and are certified by the state to accept and process applications for the health insurance and subsidies offered through the exchange. Most importantly, as licensed insurance agents, they’ve already undergone state security clearances designed to protect your privacy.
The 2700 pages of the ACA and the 1000+ pages of detailed regulations issued so far specifically about the exchanges have much more to say about them than can be covered in 10 minutes. Future blogs will cover the most relevant ones. Our next blog will focus specifically on Covered California, the crown jewel of the ACA exchanges, serving the largest number of uninsured and receiving the lion’s share of federal exchange development grants.