Health Insurance Exchanges Gear Up for Action

Kiplinger

Circle October 1 on your calendar. If you're under 65, you may be less than three short months from a whole new outlook on your health, wealth and retirement security.

October 1 marks the start of open enrollment on the new state-based health insurance exchanges created under the 2010 health care overhaul law. And it will give many older consumers their first opportunity to sign up for health insurance plans that guarantee comprehensive coverage regardless of health status, in many cases subsidized by tax credits. Coverage will begin January 1, 2014, when most people are required to have insurance or pay a penalty.

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People who have long been charged hefty premiums because of their age, denied coverage for preexisting conditions or rejected completely will suddenly find multiple insurers competing for their business. For people in their fifties and early sixties who are not yet eligible for Medicare, the health law provisions taking effect in the coming months "really are a game-changer," says Sara Collins, a vice-president at the Commonwealth Fund, a nonprofit research group in New York. "People won't have to make career decisions based on whether or not they have health insurance through a job," she says. That dream of entrepreneurship or early retirement could become a reality.

The launch of the exchanges should reverse a troubling decline in insurance coverage among older adults not yet eligible for Medicare. In 2012, 20% of people 50 to 64 did not have insurance for the full year, up from 15% in 2005, according to the Commonwealth Fund. A previous survey found that cost concerns caused 75% of people in this group to skip needed health care, including avoiding doctor visits when they were sick.

A decline in workplace coverage and rising long-term unemployment among the age 50-to-64 group have contributed to the coverage gaps. "Even someone with hefty savings and a lot of retirement income could find themselves in a lot of trouble in the individual market today," particularly if they have a chronic condition such as diabetes, says Karen Pollitz, senior fellow at the Kaiser Family Foundation. "Even if you do get a good rate when you're healthy, if something happens to you, kiss it goodbye."

People with employer coverage should pay close attention to the exchanges, too. Workers and early retirees offered only skimpy employer plans can shop for their own coverage on the exchanges.

The upcoming changes remove some big question marks from the retirement planning process, reducing the risk that you'll have to go uninsured and limiting the premiums you can be charged as you grow older. That should bring relief to people like Ray Swartz, 61, a retired public speaker in San Francisco. The premium on his individual health plan, now about $600 a month, has climbed roughly 10% year after year. Health care, he says, "is the number one expense I have, by far." He's planning to look for other coverage options when the exchanges open later this year.

There are still big challenges ahead for consumers seeking affordable coverage. A 62-year-old who is eligible for tax credits on the exchange, for example, could still spend as much as 27% of his income on premiums and out-of-pocket costs if he incurs a very high level of health care charges, according to a Commonwealth Fund report. Consumers may also find that plans on the exchange don't include the broader provider networks they're used to seeing.

The details of insurance offerings are not available yet, but you don't have to wait until October to start exploring your health care choices. Here are answers to some key questions that will help prepare you for the new health care marketplace.

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Will I be required to switch plans? If you're currently covered by a plan that you purchased on the individual market, you may not have to change plans, but you may want to shop on the exchange anyway.

If your policy was active before March 23, 2010--the day that health care reform was signed into law--your plan may be "grandfathered," meaning you can simply keep your current coverage. But you may miss out on some of the benefits that the health law requires for newer plans, including the elimination of annual coverage limits and free coverage of preventive services. Grandfathered plans must, however, comply with some other aspects of the law, such as the elimination of lifetime coverage limits and protections against insurers canceling your coverage after you get sick.

Individual or family policies purchased after March 23, 2010, and with coverage effective before January 1, 2014, are not grandfathered. Some insurers may simply notify people with such coverage of plan changes that will meet the health law requirements, says Robert Hurley, a senior vice-president at online insurance marketplace eHealthInsurance.com. Others may require consumers to actively switch plans. In the next few months, Hurley says, "it's really important to read anything you're mailed from your health insurance company," because insurers will be notifying policyholders of the process for moving to new plans.

No matter what type of plan you have currently, it can make sense to at least explore your options on the insurance exchange. One big reason: Premium tax credits are only available to people who enroll in plans through the exchange. The credits are available to people with income between 100% and 400% of the federal poverty level. In 2013, that means income between $11,490 and $45,960 for an individual.

People with income between 100% and 250% of the poverty line ($28,725 for an individual in 2013) can also qualify for cost-sharing subsidies on the exchange that can reduce their co-payments and other costs. To estimate subsidies you might get on the exchange, use the calculator at www.kff.org/interactive/subsidy-calculator.

What types of plans will be available? Plans offered on the exchange will be categorized as bronze, silver, gold or platinum, based on the percentage of health care costs that they cover for a standard population of policyholders. A bronze plan should cover at least 60% of costs, on average; a silver plan, 70%; a gold plan, 80%; and a platinum plan, 90%.

Bronze plans represent the minimum coverage that most new health plans can provide in 2014--and that means a major improvement for many people in the individual market. In 2010, more than half of people in the individual market had "tin" plans that covered less than 60% of costs, according to a study published last year by the journal Health Affairs.

In bronze plans, consumers will generally see lower premiums but higher deductibles and maximum out-of-pocket costs, while platinum plans will typically have higher premiums but lower deductibles and out-of-pocket limits. All new plans must cover a set of "essential health benefits," including hospitalization, prescription drugs and lab services.

Consumers may find that their exchange doesn't offer plans in all four categories. Of particular concern to older consumers: Insurers have shown some reluctance to offer the most generous platinum plans--precisely because they'll attract older and sicker people, experts say. As of May, for example, Washington state had received proposals from nine insurers to offer 57 health plans. "We've been pleasantly surprised" at the level of competition, says Michael Marchand, spokesman for the state's exchange. But insurers did not propose any platinum plans, he says.

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How can I find the plan that's best for me? While the metal categories offer a quick gauge of a plan's generosity, consumers shouldn't read too much into these labels. "Just because you're in a gold plan doesn't mean 80% of your charges will be paid for," says Ryan Lore, research associate at consulting firm Towers Watson. "If you're a low user of health care, you may not have any charges paid for at all" if you don't meet the deductible, he says.

To get a better sense of the plan that's best for you, look beyond the premium and metal level and consider your maximum out-of-pocket costs and deductible, as well as the types of services that require co-payments (a fixed dollar amount you pay for a service) and co-insurance (a percentage of the cost of services that you must cover).

Two plans at the same metal level can mean dramatically different out-of-pocket costs for consumers. Researchers at Towers Watson and the National Opinion Research Center recently compared two silver-level plans: One plan covers 74% of costs for a standard population, has a $5,300 out-of-pocket maximum, and charges co-pays for doctor visits and prescription drugs but doesn't apply its $1,000 deductible to those services. The second plan covers 76% of costs for a standard population, has a $2,500 out-of-pocket maximum and requires that policyholders meet the $1,200 deductible before covering anything except preventive services.

Only the biggest health care users are better off in the 76% plan. A person who racks up the median level of health-care charges (about $1,600 in this study) would face out-of-pocket costs of $1,274 in the 76% plan, versus just $765 in the 74% plan. Meanwhile, someone with much higher health care charges of about $19,000 would have out-of-pocket costs of $2,500 in the 76% plan, versus $4,731 in the 74% plan.

Review your health-spending patterns when assessing plans. If you have an expensive chronic condition, deductibles and co-pays may matter less to you than the annual limit on out-of-pocket costs. If most of your spending is on drugs, however, you might focus on plans that have low drug co-pays.

When comparing plans, pay attention to drug coverage and the choice of providers in the plan's network. Insurers trying to hold down costs may offer "much narrower provider networks than people who get coverage through employers today are used to," says Sandy Ageloff, health and group benefits leader for the Southwest at Towers Watson.

Subsidies may also have an impact on the type of plan that works best for you. The premium tax credit, for example, is tied to the second-lowest-cost silver plan in your area. If you choose a gold or platinum plan, your tax credit will cover less of the premium. And the cost-sharing subsidies available to people with income below 250% of the poverty line apply only to silver plans. "If you jump down to a bronze plan, it might look like the premiums are cheaper, but you're not going to get the cost-sharing help," says Cheryl Fish-Parcham, deputy director of health policy at Families USA, an advocacy group.

How much is this really going to cost me? The law's standardization of plan benefits should make it easier for consumers to compare plans and promote healthy price competition on exchanges. In California, for example, 13 insurers have tentative approval to offer plans on the exchange. Statewide, the average monthly premium for the cheapest silver plan is $304.

Proposed rates can still vary widely. In the Portland, Ore., region, a sample of proposed monthly premiums for bronze plans for a 60-year-old single non-tobacco user ranged from $359 to $896. Gold plan proposed premiums ranged from $585 to $1,255.

The new premium tax credits and other cost protections may substantially reduce your costs. For a family making $69,150 to $92,200, for example, the premium for a silver plan is limited to 9.5% of income and out-of-pocket costs capped at about $8,300, according to the Commonwealth Fund. Roughly 3.2 million people 55 and older will be eligible for premium tax credits next year, according to Families USA.

Other features in the law are expected to drive down costs for many older consumers and women. Currently, insurers often charge older consumers five or six times what they charge younger people. Starting next year, insurers can't charge older people more than three times the amount they charge younger policyholders or vary premiums based on gender.

How will I navigate the exchange? Many state exchange Web sites are already open for exploration. Some have posted information about the insurers proposing to offer plans on the exchange and calculators that can help estimate your monthly premium costs. You can find links to state exchange Web sites at www.kff.org/state-health-exchange-profiles. (In 27 states, the federal government will run the exchanges, while 23 states and the District of Columbia will operate their exchanges independently or in partnership with the federal government.)

Consumers nationwide will complete a single standard application for coverage through the exchanges. To look at the application, go to www.cms.gov/cciio and click on "Marketplace Consumer Application."

Every exchange will have "navigators" who will help consumers prepare applications. Navigators can't receive compensation from health plans for enrolling consumers. If the state permits it, agents and brokers can enroll people in exchange plans and receive compensation from insurers for doing so.

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Some financial advisers are also gearing up to help clients with their new health care choices. Tim Kober, a fee-only planner in Beaverton, Ore., plans to contact clients later this year to review their potential health cost savings on the exchange. Kober, 52, is also watching the exchange closely on his own behalf. When he became an independent planner seven years ago, he had to drop his corporate coverage and find his own insurance. He applied to eight insurers, was denied by seven and wound up with a high-deductible plan. Kober will be shopping for a new plan on the exchange this fall. "I get to make informed decisions about my health care," he says, "because I can make apples-to-apples comparisons across plans."

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