A
CONSUMER’S GUIDE TO HEALTH CARE REFORM
A.
INTRODUCTION
Health care reform, otherwise known
as Obamacare, is the product of two acts passed by Congress in 2010:
The Patient Protection and
Affordable Care Act (PPACA), signed into law March 23, 2010
The Health Care and Education
Reconciliation Act, which amended the PPACA and became law on March
30, 2010.
Taken together, the two acts are
frequently referred to as the Affordable Care Act (ACA).
Between 10/1/2013 to 3/15/2014,
Marylanders will be able to sign up for Obamacare through the
Maryland Health Connection - the state’s health care exchange - or
by telephone (details are provided later). The exchange will serve
as a market place where insurance companies will display their
products and consumers will be able to compare the plans, identify
the plans they are eligible to enroll in, (3) determine their
eligibility for tax credits and subsidies to help them pay for
premiums, deductibles and co-payments.
B. A BRIEF
TRIP DOWN MEMORY LANE
In 1961 the American Medical
Association paid Ronald Reagan to make a recording in which he warned
of the disastrous consequences that would follow if the United States
were to adopt “socialized medicine”. He was referring to
Medicare.
Reagan warned that Medicare would
inevitably lead to full blown socialism,
“
Behind it [Medicare] will come
other government programs that will invade every area of freedom as
we have known it in this country until one day as Norman Thomas said,
we will wake to find that we have socialism.”
He concluded by saying that if
Medicare became law, “We are going to spend our sunset years
telling our children and our children's children, what it once was
like in America when men were free."
C. IS
OBAMACARE SOCIALIZED MEDICINE?
The Merriam-Webster dictionary
defines socialism as follows:
A way of organizing a society in
which major industries are owned and controlled by the government
rather than by individual people and companies
Any of various economic and
political theories advocating collective or governmental ownership
and administration of the means of production and distribution of
goods
Obamacare is clearly not
socialism. With the exception of the VA
and a small number of Public Health Service hospitals, the government
does not own healthcare facilities nor does it employ health care
providers. Except for Medicaid, the insurance companies that
participate in the health care exchanges are privately owned.
In actual fact,
Obamacare comes closer to approximating classical free-market
capitalism than than the system that it replaced. With Obamacare, as in the old
system, insurance companies are forced to compete for enrollees.
What makes Obamacare a better model of free market capitalism is that
insurance companies are now forced to be much more honest and transparent about
the products they offer. In the past, they could present their
products in any way they wanted and typically used misleading
marketing tactics that concealed limitations in both their coverage
and the full cost of that coverage. Moreover, they could shape their
benefit packages to exclude potentially expensive individuals. With
Obamacare insurance companies are prohibited from excluding anyone
and are not allowed to structure their benefits in ways that have the
practical effect of excluding certain types of potentially expensive
enrollees.
Under Obamacare, every plan offered by an insurance company must
contain the same set of essential health care benefits and the
insurance company must describe these benefits accurately. For the
first time, consumers are able to make “apples to apples”
comparisons of plans, a virtually impossibility under the old system.
Plans are still free to offer additional benefits, but the really
important benefits must be included in their offerings.
HOW THE ACA
HELPS CONSUMERS
(1) An End to the Pre-existing Conditions
Exclusion.
No one can be denied coverage because of a
pre-existing condition. People who do have insurance cannot be
charged more because of their medical condition, nor can they be
denied treatment for a condition on the grounds that it existed at
the time of enrollment. These practices have been widely used by
private insurance companies to exclude applicants who would be a
drain on company profits.
(2)
An End to Lifetime And Yearly Dollar Limits On Coverage Of Essential
Health Benefits
(3)
Financial
Assistance Based on Family Size and Income
The ACA provides substantial financial assistance to
low to moderate -income individuals and families to help with
premiums and cost sharing payments. Individuals with annual incomes
as high as $45,960 and families of four with annual incomes as high
as $94,200 can receive some degree of financial assistance. Not only
will premiums be reduced for lower income subscribers, but annual
cost sharing payments will be capped so that individuals and families
who require a lot of medical care will be protected from unaffordable
premiums and cost sharing payments. Financial assistance will be
discussed in more detail a little later.
(4)
An End to “Job Lock”
At
present, people who change jobs often experience a gap in insurance
coverage during the transition from one job to the other. COBRA
is available, but is very expensive. Even though a new employer may
provide insurance coverage, new hires are often required to wait a
month or more before that coverage begins. What’s worse, they can
be denied coverage entirely due to a pre-existing medical condition.
The latter threat effectively eliminates the possibility of changing
jobs for many people and is often referred to as “job lock”.
The ACA puts an end to all of these problems by providing affordable
individual coverage for people who are between jobs, eliminating the
waiting period for people who change jobs, and eliminating the
pre-existing condition exclusion.
(5) A Consumer Friendly Market Place
Standardized
Benefit Packages
For
the first time, insurance companies will be required to offer plans
that contain a uniform set of core benefits.
Ambulatory patient services -
These include outpatient services such as doctor visits.
Emergency services - These
include care received in an Emergency Room
Hospitalization - These include
medically-necessary surgeries and other inpatient procedures
Maternity and newborn care
Mental health services
Substance use disorder services
Prescription drug coverage
Rehabilitative and habilitative
services and devices - Rehabilitation covers services such as
relearning to walk after a stroke. Habilitative services involve
learning a new skill such as a speaking without a speech impediment.
Laboratory tests and services
Preventive and wellness services
as well as the management of chronic diseases
Pediatric services (including both oral care
and vision care)
- Insurers are required to design and present
plans in a way that allows consumers to make “apples to apples”
comparisons.
Plans Must Be of Comparable Value
Plans will be grouped into categories
three of which will be designated as Gold, Silver, and Bronze just
like Olympic medals. There will be one additional category that will
be designated as Platinum. Within each of the four categories, the
plans must have the same “actuarial value”. I will explain the
meaning of this term in more detail a little later, but for the time
being the important thing to understand that what this means to
consumers is that plans within each category will have equal value in
terms of the dollar amount of the medical care, on average, that will
be covered by their premiums.
(6) Mental Health
Parity
Health care policies
must now include mental health benefits with the same cost sharing
requirements as other medical services. In the past, insurance
policies either did not include mental health benefits at all or
charged subscribers 50% coinsurance when regular medical services
carried a 20% coinsurance requirement.
(7) Limits on the Amounts that
Insurers Can Spend on Overhead and Profits
Insurers
offering plans in the large group market must spend at least 85% of
their premium revenues on medical care for their enrollees. The
corresponding figure for offerings in the individual and small group
markets is 80%.
D. WHO WILL BE AFFECTED?
(1) No Impact
Large segments of the population will
not be affected by health care reform. Groups that will see
no change in their health insurance coverage include individuals and
families currently enrolled in:
Medicaid
Medicare
The Veterans Administration
health system
Tricare (active members of the
military services and their families)
Businesses with fewer than 50
employees
(2) Partial Impact
(a) Large Employers
(over 100 employees)
All employers with more than 100
employees will be required to provide health insurance coverage to
their employees. Employers who already purchase health insurance
coverage for their employees in the private large group insurance
market will be continue to do so as in the past. The major
difference will be that employer sponsored plans will have to include
the core benefits established by the ACA, but the vast majority
already do so. Employers will also have to cover a minimum
percentage of premium costs but, again, most employers already meet
this requirement.
Employees who currently receive
health care coverage through a large employer will probably see
little change when health care reform takes effect unless their
employer sponsored plan fails to meet one or both of the requirements
just mentioned. In such cases, employees will see an increase in
benefits, an increase in the share of premiums paid by the employer,
or both.
(3) Full Impact
(a) Businesses With 50 to 100 Employees
All businesses with more than 50 to 100 employees must offer their
employees health insurance coverage and must pay a percentage of the
premiums. Failure to offer coverage or to cover a minimum percentage
of the premiums will make an employer subject to financial penalties.
Assuming that there are no additional delays, businesses with 50 to
100 employees will begin using a state sponsored small group health
exchange to select the level of health insurance coverage they wish
to provide to their employees.
As
already indicated, businesses with more than 100 employees will
continue to purchase insurance coverage in the large group insurance
market as they are doing at present. States will have the option in
2017 of establishing and additional exchange to serve these larger
companies.
(b) Individuals
Individuals and families with incomes below 133% of the Federal
poverty level (Table 1) will be able to enroll in Medicaid provided
that they live in a state that has chosen to participate in the
expansion of Medicaid. The ACA expanded Medicaid eligibility by
increasing the threshold for eligibility from 100% FPL to 133% FPL.
Surprisingly, 26 states have refused to participate, even though they
are rejecting what is about as close to free money as they are ever
likely to see again. The ACA covers 100% of the cost of the
expansion for the first two years and 90% of the cost in subsequent
years. Unfortunately, residents of those states whose incomes fall
between 100% and 133% of FPL will not only be ineligible for Medicaid
but they will also be ineligible for tax credits or subsidies if they
purchase coverage through the state health care exchange.
Table 1
2013
Federal Poverty Levels (133%)
Family
Size
|
1
|
2
|
3
|
4
|
133%
of FPL
|
$15,282
|
$20,628
|
$25,975
|
$31,322
|
Individuals and families with access
to employer-sponsored health insurance must participate in their
employer’s plan
or be subject to a financial penalty as described in Section E(1).
Individuals
and families who do not
have access to employer-sponsored health insurance and are not
eligible for Medicaid are also required to obtain coverage or face
the penalties described in Section E(1).
E.
PENALTIES FOR NON-COMPLIANCE
(1) Individuals
Failure to enroll in a qualified
health plan will result in financial penalties that will be
relatively small in 2014 but will increase over the next two years.
Table
2
Individual
Penalties for Non-enrollment
Year
|
Penalty
|
| 2014 |
$95 per adult and $47.50 per child (up to $285
for a family) or 1.0% of family income, whichever is greater
|
| 2015 |
$325 per adult and $162.50 per child (up to $975 for
a family) or 2.0% of family income, whichever is greater.
|
| 2016 |
$695 per adult and $347.50 per
child (up to $2,085 for a family) or 2.5% of family
income, whichever is greater
|
(2) Employers
Businesses with 50 or more employees
will be penalized if they fail to offer at least one qualified Bronze
level health plan. They will also face a penalty if an employee’s
share of the premium is too high relative to his or her income and
the employee qualifies for Federal assistance. Table 1 gives
examples of the maximum monthly premium contribution employers can
require without incurring a penalty. For example, a penalty would be
imposed if an employer required an employee earning $25,000 a year to
contribute more than $145.98 per month to their health care premium.
Table 3
Adjusted Gross
Income
|
Maximum Monthly
Premium
|
$15,000
|
$ 42.55
|
$20,000
|
$ 87.87
|
$25,000
|
$ 145.98
|
$30,000
|
$ 210.49
|
$35,000
|
$ 277.08
|
F.
HEALTH EXCHANGE BASICS
(1) Overview
The ACA created two kinds of
Exchanges:
Individual Exchange for
people who do not have employer sponsored coverage and are
purchasing their own coverage,
Small Business Exchange
(known as Small Business Health Options Program or SHOP).
SHOPs were originally intended to
allow businesses with 50 to 99 employees to enroll employees in
health plans for calendar year 2014, but implementation has been set
back a year in response to complaints from employers that they need
more time to comply with reporting requirements. The Maryland SHOP
exchange is still available to businesses with fewer than 50
employees who wish to provide health insurance for their employees on
a voluntary basis.
The ACA gave states the option of
setting up their own health care exchange or leaving it to the
Department of Health and Human Service (HHS) to do so. Many states
delayed making this decision until the last minute and HHS ended up
having to assume responsibility for far more state exchanges than
expect - 27 in all.
Large Businesses (more than 100
employees) will not participate in the exchanges and will continue to
purchase their coverage in the existing large group health insurance
market. However, States will have the option of setting up exchanges
that to serve the large group market. In states that elect to do
this, the exchange will open in October, 2016 and large employers
will be able to purchase insurance coverage for calendar year 2017.
Information and Assistance
|
(2) Using the Exchanges
(a) Businesses
that wish to provide health care coverage for their employees will
need to take the following steps:
Register with their state SHOP and select the level of care
(Platinum, Gold, Silver, or Bronze) they wish to offer their
workforce. Employers will choose a level of care rather than a
specific plan or plans. Employees will then select a plan that
provides the selected level of care. Multiple insurers are expected
to offer plans for each level of care so it is likely that employees
will have multiple plans to choose from, at least in the Bronze and
Silver categories. Within each level of care, plans will have the same core benefits and the same actuarial value. They will differ
primarily in terms of how cost sharing requirements are distributed
between deductibles and co-payments or coinsurance.
Make
a decision about the percentage of the premiums the company will
cover. Businesses are free to choose any percentage, although they
will be subject to financial penalties if an employee’s share of
the premium exceeds a certain percentage of the employee’s income
as described in Section E(2).
Provide
employees with information about their insurance benefits and how
they can access the state exchange and select a plan.
As indicated earlier, businesses
having fewer than 50 employees that chose to provide health insurance
on a voluntary basis may do so. As of 10/1/13 they will able to
access the small group health exchange and will be able to select
coverage that will begin on January 1, 2014.
(3) Plan Types - the
“Metal” Categories.
Insurance companies participating in
the exchanges may offer plans with up to four levels of care. Each
business that plans to offer health insurance to its employees will
select the level of care it wishes to provide - Bronze, Silver, Gold,
or Platinum. Once that selection is made, employees will then use
the exchange to select a plan that offers the level of care selected
by their employer.
While the high-end plans may offer
some additional benefits, the “metal” variations differ primarily
in terms of the percentage of medical care costs that will be covered
by the insurer and the percentage that will be paid by the
subscriber. These percentages are shown in Table 4.
Table
4
Share of Medical
Expenses
Paid by Plans and Subscribers
Plan Option
|
Actuarial Value
(% of Medical Costs Paid
by Plan on
Average)
|
Actuarial Value
of Subscriber Cost Sharing
|
Platinum
|
90%
|
10%
|
Gold
|
80%
|
20%
|
Silver
|
70%
|
30%
|
Bronze
|
60%
|
40%
|
Two additional options are available
to young adults:
- Young adults under the age of 26
may remain on their parent’s policies as long as they do not have
the option of enrolling through their employer.
- Young adults up to the age of
30 will also have the option of purchasing a low-cost “bare
bones” catastrophic insurance plan.
G.
UNDERSTANDING PREMIUMS
AND COST SHARING
(1)
Financial Basics of Health Insurance
Payments for health care can be
categorized in two different ways - by type of payment (premiums vs.
cost sharing, or by payer type - (who is making the payments).
(In this section, I will make
frequent use of the term subscriber, and I want to make sure that the
reader understands what is meant by this term. “Subscriber” is
used to designate the individual named as the holder of an insurance
policy. In the case of employer-sponsored plans, this would be the
employee. With individually purchased plans it could be either
parent. Family members other than the subscriber are considered to
be dependents or enrollees on the same policy.)
(a)
Payment Type - Premiums vs. Cost Sharing
Deductible - Is paid directly to
the provider of care. (Subscribers pay 100% of the cost of medical
care until the sum of their payments equals a plan’s deductible
requirement.)
Coinsurance or co-payments -
Once the deductible requirement is met, subscribers are typically
required to pay for a portion of the individual charges for services
like office visits, diagnostic procedures, and medications but the
specifics will vary from one plan to another. These payments are
referred to as “co-payments” when they are a fixed dollar amount
per service, and “coinsurance” when they are a percentage of the
allowable charge.
I have already
noted that the main difference between plans in the four “metal”
categories is the percentage of the full cost of coverage that is
paid for by premiums vs. the percentage that is paid for by cost
sharing. I will explain the significance of these differences in
detail a little later.
(b) Payer Type -
Who Makes the Payments
The parties involved in paying for
health care coverage will depend on whether the insurance is employer
based or individually purchased and, if the latter, whether the
subscriber is eligible for financial assistance. Payments can be
made by employers, subscribers, or by the Federal government in the
form of tax credits and cost sharing subsidies. The breakdown of
payments along these two dimensions will differ depending on whether
coverage is employer based or individually purchased. Figure 1 shows
the former, Figure 2 the latter.
(c) Payments - Employer Sponsored Plans vs.
Individually Purchased Plan
Employer Sponsored Plans
Figure 1 shows the breakdown of
payments for an employer-sponsored plan. Payer and payment types are
shown on the left and the distribution of those payments is shown on
the right.
Premium payments go to the insurance
company. As already noted, a minimum of 85% of premium revenues in
the large group market must be used to pay for medical care. In the
individual and small group markets, the requirement is 80%. The
remaining premium payments are divided between administrative costs
and profits, which, in the large group market have generally been
about 11% for the former and 4% for the latter. The requirement that
plans devote a minimum percentage of premium revenues to medical care
is important to consumers because it limits the financial incentive
to withhold medical services in order to increase profits.
Cost sharing payments are paid by
subscribers directly to their providers. Insurers are free to set
deductibles and co-payments as they choose but must demonstrate that,
on an actuarial basis, the combined total equals the percentage
appropriate to the “metal” category of the plan (Table 4).
Figure
1
Cash
Flows - Employer Sponsored Plans
It is important to note the
distinction between what I have called the full cost of coverage
(FCC) and the full cost of medical care. Basically, the FCC is the
full cost of medical care (subscriber cost sharing payments plus plan
payments) plus Plan Administrative Costs plus Plan Profits. The
significance of this distinction will become apparent below.
Individually Purchased Plans
The break down of payments made by
individuals who purchase their own coverage is quite different than
for an employer sponsored plan. Instead of having the employer as a
participate in making the payments, we have the Federal government
making payments in the form of tax credits and cost sharing
subsidies..
Figure 2 shows the way payments are allocated between the subscriber
and the two types of Federal financial assistance (shown in blue).
For higher income subscribers, the blue bands in the left hand column
would be absent since all costs would be born by the subscriber. As
in Figure 1, payer and payment types are on the left and the
distribution of those payments is on the right.
Figure
2
Cash
Flows - Individual Plans
Premium tax credits are paid by the
federal government directly to the insurer. For practical reasons,
cost sharing subsidies are routed through the insurance company to
the providers. The pass through of subsidy payments is required by
law.
(d) The Relationship Between Premiums and Cost
Sharing
As Table 4 clearly shows, there is an
inverse relationship between cost sharing payments and premium
payments, which is to say the higher the one, the lower the other.
At the end of the day, the combination of premium payments and cost
sharing payments must equal a plan’s costs (including
administrative costs and profits). Platinum plans have the highest
premiums and the lowest cost sharing requirements. If you get your
coverage through your employer and the employer covers a good part of
the premiums, you will be getting a very good deal, since
out-of-pocket costs for the average enrollee amount to only 10% of
actual medical costs. A Bronze plan, on the other hand, would have
lower premiums but would require subscribers to pay four times as
much (40%) out-of- pocket for their cost sharing obligations. People
who are in good health would want a plan with low premiums and high
cost sharing since they are likely to utilize few health services
resulting in low cost sharing obligations. Conversely, people in
poor health who expect to use a lot of medical services would
probably be better off in a plan with higher premiums and lower cost
sharing requirements, especially if they are in an employer sponsored
plan where the employer picks up a substantial portion of the
premiums.
H. WHAT WILL IT COST?
Approved Maryland Rates for 2014
On July 26, 2013, the Maryland
Insurance Commissioner published a selected sample of the approved
rates for plans that will appear on the Maryland health exchange on
October1, 2013.
Tables 4a, 4b, and 4c show the
approved rates of the 2014 Silver plan offering of Carefirst/Blue
Cross Blue Shield for three different enrollee ages. The current
2013 rates for the Maryland benchmark plan are added for comparison.
Table 4a Table 4b Table 4c
Only limited information was released
by the insurance commissioner making it necessary for the writer to
estimate cost sharing amounts and age-related variations in premiums
and cost sharing. While the estimates are crude, they are accurate
enough to provide a rough idea of how insurance offerings for 2014
will compare to those of 2013.
The benchmark plan (which happens to
be a Carefirst/BCBS plan) was selected by the commissioner because it
was the plan in the 2013 Maryland insurance market that was most like
a Silver plan in terms of benefits and cost sharing arrangements.
The costs of the 2014 plans are similar to those of the 2013
benchmark plan. This is remarkable given that 2014 plans must
include the added costs of insuring
people with pre-existing conditions
plus the cost of certain additional benefits (pediatric dental and
vision coverage, mental Health services and habilitative services)
that are not included in the 2013 benchmark plan. Furthermore, the
amounts shown in the tables do not reflect the reductions in benefits
and cost sharing that low-income subscribers will receive through
federal tax credits and subsidies. There is some shifting of costs
towards younger subscribers making their median premium about 15%
higher than the 2013 benchmark plan while 50 year old subscribers
benefit from slightly lower rates. The benefit to older subscribers
will be greater the closer they get to the age of 60.
The differences in cost between the least and most expensive
plans are substantial. The premium for the most expensive plan for a
35 year old is nearly double that of the least expensive plan. Cost
sharing differences are also large. This probably reflects a fairly
high level of uncertainty among insurers about the population they
will be serving in 2014. There is no sure-fire way of estimating how
many young people will actually buy insurance and how many will
simply choose to pay the penalty, which is relatively small,
particularly in the first few years that the ACA is in place. It is
also difficult to know how much the addition of people with
pre-existing conditions will add to the cost of plans.
All in all, the proposed rates for 2014 are encouraging.
Despite the inclusion of people with pre-existing conditions and the
provision of a richer array of benefits, the premiums and cost
sharing requirements of the plans approved by the insurance
commissioner compare favorably with plans offered in 2013. What is
more, the costs for lower income subscribers will be reduced
substantially by tax credits and cost sharing subsidies as we will
describe in the next section. Overall, health care reform looks like
good news for Maryland consumers, especially those with incomes
below.
Important
Note for Smokers:
The ACA gives States the authority to allow insurers to set
premiums for smokers up to 50% higher than for non-smokers. The
writer has been unable to determine what Maryland’s policy will
be in regard to this issue. However, only a handful of states
have chosen not
to implement the smoking penalty and it seems likely that it will
apply in MD. Consumers can find out for themselves by getting two
quotes from the exchange, one as a smoker and the other as a
non-smoker.
Smoking
status will be self-reported rather than being determined by some
kind of medical test. Consumers who lie about their smoking
status and are subsequently found out will be required to pay the
cumulative smoker penalties for each month they were insured.
They will not, however, be barred from continuing to purchase
insurance coverage through the exchange
|
I. FINANCIAL
ASSISTANCE FOR LOWER INCOME ENROLLEES
The ACA provides financial support to
lower income individuals and families in several ways:
Tax credits to help with premium
payments.
Plans with higher actuarial
values (high value plans)
Cost sharing subsidies
Individuals with annual incomes as
high as $45,960 and families of four with annual incomes as high as
$94,200 may receive some type of financial assistance. Assistance
will be available only to people who purchase their coverage in
individual health care exchanges. People in employer sponsored plans
who get their coverage through the SHOP exchange will not be eligible
for tax credits or subsidies although, as noted earlier, they may
qualify for subsidies if their premiums are excessive relative to
their income. In such cases, they will be able to purchase their
coverage through an individual health exchange and will be eligible
for financial assistance. The employer will be subject to a
financial penalty in such cases.
Eligibility for Federal financial
assistance will be determined by the IRS using information from each
subscriber’s tax returns. The IRS will use tax returns filed in
the preceding year to determine eligibility for tax credits and cost
sharing subsidies in the current year. For example, tax returns for
2012, which would have been filed in 2013, will be used to determine
tax credits and cost sharing subsidies for 2014. When tax returns
for 2014 are actually filed, the IRS will make retroactive
adjustments to the tax credits and subsidies that were paid in 2014
so that they are consistent with actual 2014 income. Subscribers
whose income turns out to be higher will owe the IRS money and those
whose incomes are lower will receive a refund.
(1) Tax Credits
The ACA establishes income-based
limits on annual premium payments as shown in Table 5. Income is the
Modified Adjusted Gross Income from line 4 on IRS 1040EZ forms or
line 37 on regular 1040 forms. Regardless of the actual premium
amount, the enrollee will be responsible only for the maximum amounts
shown in the table. The remainder of the premium will be covered by
a tax credit, which will be paid directly to the insurer by the
Federal government.
Table
5
Maximum
Premium Payments
for
an Individual and a Family of Four
% Of the Federal
Poverty Level
|
Annual Income for an
Individual in $
|
Annual Income for a
Family of Four in $
|
Maximum Annual
Premium Payments as a % of Income
|
Maximum Annual
Premium Payments in $
|
100%
|
$11,490
|
$23,550
|
2.00%
|
$230
|
150%
|
$17,235
|
$31,322
|
4.00%
|
$689
|
200%
|
$22,980
|
$35,325
|
6.30%
|
$1,448
|
250%
|
$28,725
|
$47,100
|
8.05%
|
$2,312
|
300%
|
$34,470
|
$70,650
|
9.50%
|
$3,275
|
The
Kaiser Foundation sponsors a web site where readers can estimate
their premiums and tax credits
The
reader should note that estimates given on the web site are based on
an assumed average premium that is about 20% higher than actual
Maryland premiums. To get a more accurate estimate of Maryland
premiums, the Kaiser estimated premium should be reduced by 20%.
(2) High Value
Plans
Individuals and families with incomes
between 133% and 250% of the FPL will be eligible to enroll in
special “high value” plans that have higher premiums but lower
cost sharing as shown in Table 6.
Table
6
High
Value Plans
High Value Plans
|
Income Level
|
Payments
|
|
Individual
|
Family
|
Plan Pays
|
Subscriber Pays
|
|
From
|
To
|
From
|
To
|
100-150% FPL
|
$11,490
|
$17,235
|
$23,550
|
$35,325
|
94%
|
6%
|
150-200% FPL
|
$17,235
|
$22,980
|
$35,325
|
$47,100
|
87%
|
13%
|
200-250% FPL
|
$22,980
|
$28,725
|
$47,100
|
$58,875
|
73%
|
27%
|
While
regular Silver plans have premiums that equal, on average, 70% of the
total cost of coverage,
the premiums for high value plans cover between 73% and 94% of the
cost of coverage. Shifting more of a plan’s total cost from cost
sharing to premium payments benefits low income consumers because
there is an income-based cap on premiums. So while the full premium
of a high value plan is higher than for a regular silver plan,
low-income consumers are protected from these higher costs by premium
caps at the same time that they benefit from a substantial reduction
in cost sharing. The way this works will become clearer in the
examples that are given later.
(3) Cost
Sharing Subsidies
In addition to providing premium caps
and high value plans, the ACA also protects low income consumers from
unaffordable costs by setting income-based limits on cost sharing
payments as shown in Table 7.
Table
7
Cost
Sharing Caps
|
Individual
|
Family of Four
|
|
Estimated 2014
Cap for Health Savings Accounts (CHSA)
|
$6,450
|
|
Estimated 2014
Cost Sharing Cap (CHSA)
|
$11,924
|
FPL
|
Income
|
2014 Cost
Sharing Cap as a % of CHSA
|
Dollar Amount
|
Income
|
2014 Cost
Sharing Cap as a % of CHSA
|
Dollar Amount
|
100-200%
|
$11,490 to $22,980
|
33.33%
|
$2,150
|
$23,550 to $47,100
|
33.33%
|
$3,974
|
200-300%
|
$22,980
to $34,470
|
50.00%
|
$3,225
|
$47,100 to $70,650
|
50.00%
|
$5,962
|
300-400%
|
$34,470
to $45,960
|
66.66%
|
$4,299
|
$70,650 to $94,200
|
66.66%
|
$7,948
|
The
caps in
Table 7 are based on the maximum out-of-pocket limits for Health
Savings Account qualified health plans in 2010 ($5,950 for single
coverage and $11,900 for family coverage in 2010), which have been
updated to 2014 using the Consumer Price Index. From 2015 on the
maximum will be indexed to the change in the cost of health
insurance.
NOTE
My
estimates are rough approximations because of the limited
information available. I have not been able to access the
Maryland health care exchange, probably because I am a Medicare
beneficiary and thus ineligible for coverage through the exchange.
My hope is that my estimates of consumer costs will provide at
least a rough guide to what people who access the Maryland Health
Connection will find |
As indicated earlier, consumers with
incomes below 133% of the FPL ($15,282 for individuals and $31,322
for a family of four in 2013) are now eligible for Medicaid in States
that have chosen to expand Medicaid eligibility. Unfortunately, 26
states have chosen not to do so and in these states individuals with
incomes between 100% FPL and 133% of the FPL earn too much to qualify
for Medicaid but will not be eligible to participate in the
exchanges.
Consumers with incomes above133% of
the FPL and who do not have employer-sponsored health insurance will
be able to participate in the exchanges. The cost of insurance
coverage will vary according to age, location, income, and smoking
status. Table 8 shows how premiums are likely to vary by age.
J. EXAMPLES OF 2014 PREMIUMS FOR INDIVIDUAL AND FAMILY POLICIES
With the launch of health care
reform, consumers will be able to obtain health insurance coverage
that, in most cases, is more comprehensive and is no longer based on
the exclusion of people with significant health problems. Premiums
will still be higher for older consumers, but there will be limits on
the extent to which they can be increased as a function of age. In
addition, insurance will be much more affordable to low income
subscribers thanks to tax credits and cost sharing subsidies. Age
related increases of premiums cannot exceed 2.5. In other words,
premiums for the oldest subscribers cannot be more than 2 ½ times
the premiums of the youngest. Examples of age-related differences
are provided in Table 8 (note that the table does not cover the full
range of possible ages).
TABLE
8
Premiums
by Age for a Non-smoking
Individual
Earning $35,000 per Year
Age
|
Full Premium
|
25
|
$2,148
|
30
|
$2,275
|
35
|
$2,450
|
40
|
$2,743
|
50
|
$3,576
|
(1) An Individual Subscriber
Table’s 9a and 9b show the costs
and federal financial supports for two subscribers who are identical
in every way except that one of them is in average health and the
other has serious medical problems requiring a lot of expensive care.
An Individual Subscriber in Average Health
Table 9(a) shows what health care
coverage will cost a hypothetical 35-year-old non-smoking subscriber
in average health whom I will call Jane. Row 1 shows the full cost
of coverage (FCC), which includes payments to medical providers (from
both Jane and the plan) plus the administrative costs, and net
profits of the plan (Figures 1 and 2 will be helpful in following
this discussion). Row 3 shows the actuarial value of plans available
to consumers at various income levels. They range from 94% at the
lowest income level to 70% (equivalent to a standard Silver plan) for
subscribers with incomes above $28,725. With an income of $35,000 a
year, the actuarial value of Jane’s Silver plan is 70%. Thus
premium payments will cover 70% of the full cost of coverage (FCC)
and Jane’s cost sharing payments will cover the remaining 30%.
If Jane’s insurance company has
done a good job of predicting the overall average cost of the medical
services that its members will need, it will be able to set premiums
and cost sharing requirements at a level that allows it to cover its
costs and still have enough money to make a profit. If it sets
premiums and cost sharing requirements too high, it runs the risk of
losing customers to other insurance companies with lower rates. If
it sets them too low, it will lose money.
The complete cost of insurance
coverage to Jane is shown on an annual basis in rows 10 through 12
and on a monthly basis in rows 14 through 16) basis. Jane will pay
$2450 a year in premiums and, since she is an average subscriber in
average health, she can expect to pay about $1050 in cost sharing
(deductibles and co-payments) for a total of $3,500 a year or $292
per month. In the event that Jane experienced a serious, unexpected
illness, the most she would have to pay would be $6,749 a year
(premiums of $2,450 plus the maximum cost sharing requirement of
$6,749). Cost sharing is capped at $6,749 regardless of how high her
medical bills might be.
The full cost of Jane’s health care
coverage will be 10% of her annual income. In a worst-case scenario
in which she had a serious illness, the most she would have to pay
would be the equivalent of 19% of her income.
At her income level, Jane receives no premium tax
credit, although subscribers with lower incomes would be eligible for
tax credits of as much as $2,761 to help with their premiums. She
also receives no cost sharing subsidies but, as we will see in the
next example, cost-sharing subsidies can play a substantial role for
subscribers with very high medical expenditures.
TABLE
9a
Premiums
and Cost Sharing for an Average
35 Year-old Non-Smoker Purchasing an Individual Policy
An Individual Subscriber in Poor
Health
Table 9b shows what would happen if a
subscriber just like Jane (I will call her Jill) experienced a
serious illness and required a lot of medical care. Jill is
identical to Jane, except that her medical bills for the year total
over $50,000.
The full cost of coverage for Jill is
$60,000. Fortunately for Jill, Obamacare does not exclude people
with serious illnesses from coverage nor does it impose higher
premiums on people just because they are sick. Jill will pay exactly
the same premium as Jane - $2,450 a year - and her premiums in
subsequent years will also be unaffected by her health problems.
Cost sharing expenditures, however,
do increase with the amount spent for medical care. Full cost
sharing for Jane would be 30% of the full cost of coverage or
$18,000. Fortunately for Jill, her cost sharing payments are capped
at $4,299. The Federal government will contribute $13,701 in cost
sharing subsidies to make up the difference between the full cost
sharing amount and the amount Jill is required to pay. Subsidy
payments go to the plans but the plans are required to pass them
through to providers.
So the full cost of coverage for Jill
will be $2,450 a year for premiums and $4,299 in cost sharing
payments for a total of $6,749 (an average of $562 a month or 19.3%
of Jill’s income).
TABLE
9b
Premiums
and Cost Sharing for a 35 Year-old Non-Smoking Individual Subscriber
with High Medical Expenses
(2) A Family of Four
The next two tables show the cost of
coverage for two families, each with two children and two 35-year-old
non-smoking parents. The only difference between the two families is
that one is in average health and the other has substantial health
problems.
As noted earlier, families of four
with incomes up to $31,322 will be eligible for Medicaid. Those with
incomes between $31,322 and 35,325 will be eligible for a high value
plan with an actuarial value of 94%. Families with incomes between
$25,326 and $58,785 will also be eligible for high value plans but
the actuarial values of those plans will decline from 87% to 73% as
income rises. Families with incomes above $58,875 will be limited to
standard silver plans with actuarial values of 70%.
The Jones Family -
a Family of Four in Average Health
Table 10(a) shows the cost of
insurance coverage for the Jones family. Both parents are 35
year-old non-smokers whose combined earnings are $35,000 a year. The
parents and both children are in average health.
Row 1 shows that the full cost of
coverage (FCC) for the Jones family is $9,530 and that they are
eligible for a high value plan with an actuarial value of 94%. This
means that their cost-sharing obligation will be only 6% of the FCC
although their premiums will be quite high. Fortunately, tax credits
shield them from the higher premium costs associated with a high
value plan. Their annual premium obligation is $1,387 with a tax
credit of $7,571 paying the remainder. Their full cost sharing
obligation is only $572 a year, which is well below the cap of $3,974
with the result that they receive no subsidy.
The next two sections summarize the
costs of insurance coverage to the Jones family on an annual and then
on a monthly basis. Row 13 shows the maximum amount the Jones family
would be liable for if they were to have much higher medical care
costs. The next example shows how that would play out.
TABLE
10a
Premiums
and Cost Sharing for a Family of Four with Average Medical Expenses
Both
Parents are 35 Year-old Non-Smokers
The
Smith Family - a Family of Four with High Medical Costs
The Smith family is identical to the
Jones family except that two members of the Smith family have serious
illnesses that will require them to use medical services totaling
$51,600 for the year. As in the earlier examples involving Jane and
Jill, premiums are not higher for subscribers with substantial
medical bills so the premium obligation for the Smiths will be
exactly the same as that for the Jones family.
The annual costs of coverage to the
Smiths is shown on an annual basis in rows 11 through 13. The Smiths
will pay $1,387 a year in premiums just like the Jones family. The
Smith’s will also be eligible for a high value plan with an
actuarial value of 94%. Again, the high actuarial value of this plan
means that a much larger share of the full cost of coverage (FCC) is
shifted from cost sharing to premiums but, like the Jones family, the
Smiths benefit from substantial premium tax credits that reduce their
premium obligation to $1,387. Their cost-sharing obligation of
$3,600 falls slightly under the cost-sharing cap, which means that
they are not eligible for a subsidy. However, the cost-sharing cap
of $3,974 means that the most they would ever have to pay in cost
sharing - regardless of the cost of their medical care. In summary,
the cost of health care coverage for the Jones family is $1,387 in
premiums plus $3600 in cost sharing for a total of $7,571 a year or
447 a month, equivalent to 15.3% of the family’s income.
It should be noted that cost sharing
payments are determined partly by the actuarial value of a plan as
well as by a cost-sharing cap, both of which are a function of family
income. However, actuarial values and cost sharing caps do not vary
at the same rate relative to income, which is why the cost-sharing
subsidy does not change in a simple linear fashion. The cost sharing
subsidies in Table 10b, for example, are zero for the two lowest
income categories, increase to $3,826 for the next income category,
and then decline to $1,838.
TABLE
10b
Premiums
and Cost Sharing for a Family of Four with High Medical Expenses
Both
Parents are 35 Year-old Non-Smokers
APPENDIX A
Definitions
Actuarial Value - An actuarial
value is an estimate of the future value of a variable such as the
cost of medical care for enrollees in an insurance plan or the life
expectancy of an individual purchasing life insurance. An insurance
company selling a term life policy to a 65 year old man would want a
reliable estimate of how many years such an individual will live on
average so as to be able to set premiums at an appropriate level.
The actuarial value of a health
insurance plan is the expected average expenditures for medical
services for enrollees in the plan.
It is vitally important for an
insurance company to make accurate estimates of these costs in order
to set premiums at an optimal level. The insurer will want to set
premiums high enough to cover its costs and to generate an acceptable
level of profit for its investors, but it will need to keep them low
enough to be competitive with other insurers.
Allowable Charge - All
providers have a theoretical schedule showing the “full” charge
for each of their services. However, these charges bear little
resemblance to what they are actually paid. Large insurers like
Medicare, United Health Care, and Aetna are able to extract
substantial discounts from providers and can pay as little as 30% of
the “full” charge. In what is one of the worst perversions of
our current system, the people least able to pay - the uninsured -
are often saddled with the full charge. Co-payments and coinsurance
are based on the allowable charge.
Catastrophic Insurance Plan -
A health insurance plan with a very high deductible that will protect
a subscriber from extreme costs associated with a major illness but
will not cover the cost of routine medical care. Such plans are
attractive to healthy, young people because of their low premiums.
Cost of Medical Care -
The total of all payments to providers from all sources.
Cost Sharing - In regard to
health insurance plans, cost sharing refers to out-of-pocket payments
by the patient for some portion of the medical services covered by a
plan. The most common forms of cost sharing are:
Deductible - A threshold
amount below which the subscriber is responsible for 100% of the
cost of medical services. Once a subscriber has met the deductible
requirement, the insurance plan begins paying for a portion of
covered medical services. For a given set of covered medical
services, there is an inverse relationship between deductibles and
premiums. A plan with higher deductibles will have lower premiums
and vice versa.
Co-payment - An out of
pocket payment by the subscriber for a portion of the cost of an
individual medical service.
Coinsurance - Also an out
of pocket payment by the subscriber for a portion of the cost of an
individual medical service. By convention, “co-payment” is used
when the out of pocket payment is a fixed amount and “coinsurance”
is used when the out of pocket payment is a percentage of the charge
for the service.
Employer, Large - 50 or more
employees
Full Cost of Coverage (FCC) -
Premium payments (including any tax credits) plus cost sharing
payments (including subsidies). Premium payments equal (Medical Care
Costs paid by the plan) + Premium Tax Credits + Administrative Costs
+ Profit. (See Figures 1 and 2)
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