Federal authorities released on Sept. 25 tentative premium rates for health insurance policies to be offered, beginning next week, in federally-operated or facilitated health insurance exchanges (also known as “Marketplaces”).
The rates for some coverage−in some places−are provocatively low and driving intense media interest. However, the rates depend significantly on the level of benefits offered, the policy’s deductible and other cost-sharing requirements borne by the insured, limitations on access to certain doctors and hospitals, and other factors.
In short, the frenzy surrounding this week’s rate announcement is not unlike the excitement attending a low sticker price on a shiny new car. Price is important, but it tells only part of the story. What’s under the hood? How robust a motor? How many passengers can ride along? What sort of gas mileage does it get? Where can it go, and how fast can it get there?
Employers might be interested in the published rates because some employees might think they would receive better coverage, or at least less expensive coverage, in the Marketplaces than the coverage offered by the employer. That might be true for some employees, but not for many others. In any event, employees might mistakenly draw raw cost comparisons without considering other aspects of the employer’s coverage.
First Some Background to Make Sense of the Hype
What’s a “Marketplace” and Why Do They Exist?
The Marketplaces are online purchasing portals for individual and small group insurance through which uninsured individuals may apply for commercially-offered health insurance. In some cases, they’ll receive federal subsidies that defray the cost of the coverage, and even shrink deductibles and other out-of-pocket cost requirements.
The Patient Protection and Affordable Care Act (PPACA, or ACA) requires virtually every resident of the U.S. to have at least some health insurance beginning next year, or risk a modest tax penalty; this is the ACA’s individual mandate. Where are we to obtain this coverage? Medicare, Medicaid and other government programs do the trick for some of us. Others might be offered 2
coverage by an employer; the law requires larger employers to offer coverage to full-time workers and their children, or risk penalties.
Most everyone else is expected to turn to the Marketplaces to fulfill their obligation under the individual mandate.
The ACA requires each state to establish a Marketplace, but fewer than two dozen states have done so. The federal government is providing or facilitating Marketplace access for residents of other states.
What is Offered in a Marketplace, and Who Offers it?
Commercial health insurers choose whether to offer policies in the Marketplaces. Insurers are not required to offer coverage, and if they offer coverage in one state they are not required to offer it in others. But if an insurer chooses to play in a Marketplace, it must abide by both federal and state rules.
Federal law requires insurers to issue a policy to anyone who applies, regardless of health condition, and cover their pre-existing conditions. Policies sold in a Marketplace must also cover specific items and services, and not impose dollar limits on key benefits. States may require insurers to add other benefits and services to policies sold in the state.
The Marketplaces offer several levels of coverage, named for precious metals. Bronze coverage has high deductibles and large out-of-pocket expense requirements, and is designed to pay approximately 60 percent of an insured’s expected medical expenses, leaving the insured to pay the other 40 percent. Silver, gold and platinum policies tend to have progressively lower deductibles and out-of-pocket expense requirements, designed to pay approximately 70, 80 and 90 percent of expected medical expenses, respectively.
A Few Words about Subsidies
Individuals might qualify for subsidies to defray the cost of Marketplace coverage. Many Americans, however, don’t realize they do not qualify for subsidies if they’re eligible for Medicaid or Medicare, are enrolled in an employment-based health plan, or if their employer merely offers them “bronze”-similar coverage at a cost the law considers “affordable,” even though as a practical matter it might not be.
Lockton Comment: Due to an apparent ACA drafting glitch, the family members of an employee who is offered affordable bronze-like coverage are also ineligible for subsidies if the employer offers them coverage too, even if that coverage is not considered “affordable” to them.
The amount of subsidies a Marketplace shopper may qualify for depends on household income. Generally, maximum subsidies are available to individuals with household incomes around 100 percent of the poverty level (about $11,500 for an individual or $23,500 for a family of four). Subsidy amounts diminish as household income increases, and phase out when household income reaches 400 percent of the poverty level (about $46,000 for an individual or $94,000 for a family of four). 3
Subsidy amounts are based on a low-cost silver plan design. Whatever the sticker price of the low-cost silver policy, the subsidy-eligible individual’s share of the premium is fixed, as a percentage of household income. The American taxpayer pays the balance of the premium cost. If the individual chooses a more generous policy, such as a “gold” policy, he or she pays the additional cost for that.
Individuals who receive larger subsidies than they’re entitled to may be asked to pay back their excess subsidies, to the extent the IRS is able to connect all the dots. The IRS hopes to do this by cross-checking the individual’s tax return with special reports insurers and employers will make to the IRS beginning in early 2016.
The Announced Rates: An Optimistic Start
The rates announced Sept. 25 are for policies offered through the federally-operated or facilitated Marketplaces. (Take a stroll through the virtual aisles of the Marketplace operated by the federal government at http://www.healthcare.gov.) The announced rates are for Marketplace shoppers in 36 states. Other states are operating their own online Marketplaces, and many of them released tentative rates over the past several weeks.
The rates reflect the monthly premium “sticker price” for individual insurance policies (policies covering an individual or the individual and his or her family). Although average rates are slightly lower than Congress projected, rates vary by state, and often between different locations in a given state. Many individuals won’t pay the sticker price, but rather a reduced price, net of federal subsidies.
Of course, different rates apply to the different “metal” levels of coverage; coverage with higher deductibles and out-of-pocket expense requirements typically costs less than coverage with lower deductibles and lower out-of-pocket expense requirements.
Rates cited by prominent media outlets are those for bronze or silver levels of coverage, with relatively high deductibles and/or higher-than-typical out-of-pocket expense requirements. In addition, the unexpectedly lower cost for some policies is the result of substantially narrowed networks, that is, significantly limiting the doctors and hospitals from which the insured may receive care under his or her policy.
The rates released on Sept. 25 also reflect estimates of the net-of-subsidies premium to be paid by individuals, assuming they’d be eligible for subsidies. The rates assume the individual’s household income is $25,000 for a single individual, $50,000 for a family of four (about twice the federal poverty level).
Residents of most states will have at least two insurance companies to choose from. Some larger states have 10 or more insurers vying for customers in the Marketplace. Depending on the state, there may be as few as six different policies available among the various “metal” levels, or as many as 169. On average, around 50 different policies will be available to choose from.
The Department of Health and Human Services released an Issue Brief summarizing the announced rates. 4
The modest premium rates in many states give a boost to supporters of the ACA. Success of the Marketplaces over time, however, will depend on a number of factors: How many insurers will remain in each Marketplace, to drive competition? Will the millions of healthy uninsureds enroll in the Marketplaces, stabilizing an insurance environment that in these early months and years will attract mainly the sick? How effectively will the Marketplaces, and the IRS, be able to ensure that subsidies are going only to those legitimately entitled to them, and in the correct amounts?
For some employers, the immediate challenge may be demonstrating to employees the differences between the employer’s group coverage, and the terms and conditions of individual coverage available through a Marketplace. In many cases the employer’s group coverage will reflect lower deductibles and wider networks than coverage available in the Marketplace.
Edward Fensholt, J.D.
Health Reform Advisory Practice
© 2013 Lockton Companies