Amid the political controversy over the Affordable Care Act, the new health-insurance exchanges
have rightfully captured much of the Obamacare spotlight. However rocky, their launch last week marked a major change in the way that millions of Americans buy health coverage.
The law’s insurance reforms apply to the entire industry, not just to the new state marketplaces — and that makes their influence even wider.
While the exchanges offer the best deals for moderate and lower-income consumers who qualify for subsidies, some higher earners, particularly self-employed boomers, are also likely to find them to be a useful tool in a complicated landscape. These consumers now face an important question: Should they shop on the exchanges, or on the “outside market”?
Should You Buy From an Exchange?
Those who earn up to 400 percent of the federal poverty level will likely find a better value on the state exchanges, since tax credits will help them defray the cost of purchasing insurance on the exchanges but can’t be applied elsewhere. That income threshold is $94,200 for a family of four, $62,040 for a family of two and $45,960 for a single person.
(MORE: 6 Things Boomers Need to Know About Obamacare)
Currently, about 11 million Americans buy coverage on the individual insurance market as opposed to getting it through their employer or from the government and roughly half of them will be eligible for subsidies, according to the Kaiser Family Foundation.
Today, these individual shoppers look for coverage in a variety of venues, either through an online broker like eHealthInsurance.com
, or through independent insurance agents. Some health-care experts now refer to this patchwork as the "outside market," with the state exchanges being the “inside market.”
The outside market has no shopping portal comparable to the state exchanges, since many brokers only show products that will pay them commissions.
“On the exchange, you have this convenient spreadsheet you can look at, while off the exchange you have to do a lot of homework,” said David Axene, a fellow of the Society of Actuaries who runs an eponymous health-care consultancy based in Murrieta, Calif. (Axene succeeded in accessing the California exchange and said he found it easy to navigate.)
(MORE: 5 Obamacare Scams and How to Avoid Them)
Obamacare's Impact on Boomers
The health insurance reforms that begin Jan. 1 will take effect on and off the exchanges. Boomers will be among the biggest beneficiaries of the law’s new protections, since they’re more likely than younger folks to have health issues — and insurers will no longer be able to deny people an individual policy or charge them more based on pre-existing conditions. Insurers also cannot issue individual policies that exclude coverage for a policyholder’s particular pre-existing condition. (Most employer-sponsored, group plans offer these protections already.)
What’s more, starting Jan. 1 all policies everywhere must include a group of essential health benefits, including mental-health benefits, maternity care and drug and hospital coverage. The first two benefits in particular were often excluded from individual policies before, and their addition to plans — along with the mandate that insurers take all comers — will mean rate increases for some consumers who hold individual policies now.
(MORE: How to Get the Most Out of Your Health Savings Account)
Details will depend on factors such as the consumer’s plan, state and age. Effective Jan. 1, the law will restrict how much more insurers can charge older consumers versus younger ones. Among consumers who aren’t subsidy-eligible, those likeliest to experience the smallest increases in their current individual premium rates — or who may even see a decrease — are older consumers in the handful of states, such as New York, that already guarantee coverage for all regardless of health status.
People whose income exceeds the subsidy level can still buy a plan on their state exchange without the subsidy, or they can look to the outside insurance market. (Residents of Washington, D.C. and Vermont don’t have a choice: In these places, the only place to shop for individual and small business coverage will be on the exchange.)
Where to Start Shopping
Many experts suggest that all consumers, regardless of where they live or how much they earn, begin shopping for insurance on their state exchange to get a sense of what’s available. (Since technical problems continue to plague websites for both the federally run and state-run exchanges, some may have to wait before they’re able to accomplish this.)
The trade-off here: The exchange will have fewer options, but in many cases it will make price comparisons simpler, by presenting side-by-side information on premiums and other plan details.
The only plans shown on state exchanges are those for which subsidies can be used. Shoppers will get a premium quote based on their reported income; those who qualify for subsidies can choose to have them applied to the premium immediately in the form of an advanced tax credit, which lowers the premium, or they can choose to take the credit at tax time instead.
Those who aren’t subsidy-eligible will generally find a wider variety of plans available in the outside market.
In Nevada, for example, there are four carriers participating on the exchange and eight off the exchange, according to an analysis by consultant Oliver Wyman. (These are statewide figures; actual plan availability varies from area to area within most states.)
Some big-name insurance companies aren’t participating broadly on the exchanges this year, preferring to wait and see in most regions.
UnitedHealthcare is participating in a handful of individual exchanges, while Aetna has taken a “measured approach” to the new marketplaces, according to a spokesman; Aetna currently offers plans on fewer than 10 exchanges, with a handful more if you count plans offered by Aetna’s newly acquired Coventry Health Care unit. One exception is the Blue Cross and Blue Shield companies, which are participating on 47 states’ marketplaces as well as the exchange in Washington, D.C.
Shoppers on the exchange will also notice some new names. The Affordable Care Act — also known as “Obamacare” — provided for the creation of Consumer Operated and Oriented Plans, or CO-OPs, which are new, nonprofit health-insurance issuers. Also on the exchanges are insurance companies that previously served only the Medicaid market.
While some consumers might prefer to stick with an established name, all exchange participants were thoroughly vetted, Axene said: “No one got onto the exchange without going through a lot of scrutiny.”
Shopping for Precious Metals
The metal-tiered coverage levels, a signature feature of the new exchange plans, will extend to individual plans off the exchanges, experts say. So regardless of where you purchase individual insurance, you’ll likely be choosing from among bronze, silver, gold and platinum plans. Bronze plans come with lower premiums and higher out-of-pocket costs, while platinum plans have the highest premiums and the lowest out-of-pocket costs.
Those who visit the doctor a lot may experience lower overall costs in a platinum or gold plan, experts say. That’s why it’s important to look closely at plan details. In addition to the premiums, compare required copayments (the fixed amount you pay every time you go to the doctor), deductibles (the amount you pay out of pocket until insurance kicks in) and coinsurance (the percentage of each bill you’re required to pay).
Boomers take note: It’s also important to pay close attention to the prescription drug coverage, said Carrie McLean, director of customer care for eHealth Inc., parent company of eHealthInsurance.com, the country’s largest private online health exchange for individual and family health insurance.
Every plan must cover drugs, but different plans might require different payments for generic versus brand-name pharmaceuticals. Also, check to make sure your doctors participate in the plans you’re considering. It’s best to call your providers to confirm whatever information you see online, experts say.
Those who don’t qualify for subsidies but find a plan they like on the exchange might consider going to an independent insurance broker to see if the broker can connect them to anything cheaper, Axene said. Brokers advise consumers on which health insurance plan to buy and are compensated through commissions by the company whose product their client chooses. It’s possible that a broker will be aware of products on the outside market that are cheaper than comparable non-subsidized exchange offerings, Axene said.
People shopping on the exchanges who want coverage beginning on the first effective day of coverage, Jan. 1, 2014, must enroll by Dec. 15. Those who currently have individual policies may have a different timetable, depending on their carrier and state. Some carriers are allowing consumers to renew their individual policies now and keep their current coverage and costs through 2014.
The ehealthinsurance.com website has a map showing the states where most insurers will allow customers to keep their plan through the end of 2014.
With few exceptions, everyone must purchase insurance by March 31, 2014 or face a penalty at tax time. This gives consumers some time to weigh all their options, and experts say a complex decision like health coverage needn’t be rushed. “Why buy a plan now that doesn’t start until January 1?” McLean said.
Elizabeth O'Brien is a retirement healthcare reporter for MarketWatch. Email:Elizabeth.O'[email protected]
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