ACA Health Insurance Exchanges

Signed into law by President Obama in 2010, a primary goal of the Affordable Care Act (ACA) is to provide health insurance for citizens who lack such coverage. This alert is designed to guide new and returning consumers on accessing the ACA’s exchanges and purchasing an appropriate policy through them.

One way the ACA provides health insurance is through health insurance exchanges, or health insurance marketplaces.[1] These marketplaces offer competing private health insurance policies, which consumers may purchase through their particular state’s exchange.[2]

States can choose to set up exchanges either by themselves, in partnership with the federal government, or they can decline to participate and instead let the federal government run their exchanges.[3] As of 2014, 17 states, have chosen the state-based route, 7 states have partnered with the federal government, and 27 states have opted for federally facilitated exchanges.[4] Practically speaking, there should be little difference.[5] But an ongoing debate that the Supreme Court may decide is whether residents in states with federally facilitated exchanges may receive federal subsidies, which are discussed below.[6]

In addition, the federal government subsidizes insurance premiums with refundable or advanced tax credits.[7] While refundable tax credits assist policy holders without tax liability,[8] they require beneficiaries to pay their premiums and recover the costs later when filing income tax returns.[9] Advanced taxed credits, alternatively, assist policy holders when paying their premiums.[10] The federal government also lowers such out-of-pocket expenditures as copayments, deductibles, and coinsurance[11] for policy holders who qualify for cost-sharing reductions.[12]

To qualify for premium assistance, consumers’ household income must fall between 100% and 400% of the federal poverty line,[13] in which subsidy amounts vary by household income.[14] To receive any cost-sharing reduction, consumers must first enroll in a Silver Plan on the exchanges, which are discussed below.[15] As with premium subsidies, not all consumers qualify for the same cost-sharing reductions. All have lower out-of-pocket costs,[16] but only household incomes that fall between 100% and 200% of the federal poverty line will qualify for 90% or 80% lower out-of-pocket expenses.[17]

While estimated premium subsidy eligibility is available via www.healthcare.gov,[18] consumers can only access cost-sharing reduction amounts after applying to their states’ exchanges.[19] The application will require consumers to submit the type of financial information required on their federal income tax returns.[20] Indeed, the taxpayer’s identity, filing status, number of people for whom a deduction is allowed, and modified adjusted income are the main elements that will determine federal subsidy eligibility.[21] For local help in ascertaining federal subsidy eligibility, consumers should visit their state exchange websites, which are discussed below.

The exchanges’ first enrollment period began on October 1, 2013 and ended on March 30, 2014.[22] During that period, over 8 million people purchased health insurance through the exchanges.[23] The next enrollment period is scheduled from November 15, 2014 through February 15, 2015.[24]

Accessing the Exchanges

While consumers may purchase health insurance from the exchanges through a variety of means, including mail or phone,[25] the most efficient way to access the exchanges is online via www.healthcare.gov.[26]

On www.healthcare.gov, consumers select the state in which they live and are then directed to their state’s exchange website.[27] Some state websites require consumers to formally apply before viewing their exchange’s policies, such as New York’s.[28] Other state websites such as California’s allow consumers to view their exchange’s policies before formally applying.[29] However, pre-application policies are only estimates.[30] To view definitive policies, the formal application to enroll in an exchange will require a social security number, employer and income information—such as pay stubs and W-2 forms—and, if applicable, current health insurance policy number, among others.[31] A checklist of further items to have when applying is available on www.healthcare.gov.[32]

Choosing a Policy

Every state’s exchange offers five different categories of health insurance plans: Bronze, Silver, Gold, Platinum and Catastrophic.[33] What distinguishes each level of coverage is the balance each strikes between covering out-of-pocket costs—copayments, coinsurance, deductibles, and out-of-pocket maximums—and premium amounts.[34]

On the one hand, Bronze and Silver plans charge lower premiums than Gold and Platinum policies.[35] On the other hand, Gold and Platinum plans cover more out-of-pocket costs—80% – 90%—compared to Bronze and Silver plans—which cover 60% – 70% of out-of-pocket costs.[36] Catastrophic plans, moreover, tend to have the lowest premiums but cover the least amount of out-of-pocket costs; specifically the out-of-pocket costs after having reached a high threshold cost.[37] Analogously, Catastrophic plans work like deductibles: only after reaching a threshold of out-of-pocket expenses does the insurance policy cover the costs. Catastrophic plans also may only be purchased by consumers who are younger than 30 years of age or by older consumers who have a validated hardship exemption.[38]

Purchasing Wisely

There are a number of important factors to consider when purchasing health insurance through the exchanges. First, consumers should not solely focus on any plan’s premiums, and for two reasons. The most apparent reason is because policies have other costs. In light of the different coverage levels, therefore, consumers anticipating frequent medical costs should likely purchase Gold or Platinum plans, and consumers expecting fewer medical costs should probably purchase Bronze or Silver plans. The second reason relates to how health insurers often lower premiums by limiting plans’ provider networks and covered benefits.[39] In other words, to recover lower-premium losses, insurers will cover fewer treatments and fewer doctors and hospitals. Therefore, consumers should be aware of which benefits and providers are insured before purchasing lower-premium policies.

A final consideration is specifically for policy holders who once purchased policies through the exchanges and will be notified of their policies’ automatic renewal (unless they decide to purchase new ones).[40] Given the convenience of not having to shop around for health insurance, many may be inclined to let their policies simply renew.[41] But the financial wisdom of foregoing the opportunity to buy a new policy should be assessed.

In some instances, many former low-cost plans have increased in price, while many former high-cost plans have decreased in price.[42] Consumers may, therefore, discover that they can purchase a more cost-efficient policy than their current, higher cost plan. Moreover, federal tax credit subsidies’ monetary value is only reassessed when low-income earners return to purchase policies through the exchanges.[43] As a result, low-income earners who let their plans simply renew may face unaffordable medical costs if their policy has risen in price or if their income has slightly increased.[44]

However, purchasing new plans has its risks. As discussed, insurers will often restrict physician and hospital networks, as well as insured benefits, in return for lower cost plans.[45] Deciding to purchase a cheaper plan with fewer benefits is a tempering choice, but consumers should consider the true costs of remaining in cheaper plans.

Conclusion

As the second enrollment period to purchase health insurance through the exchanges approaches, it is important to be prepared. Knowing how the exchanges provide health insurance, consumers should remember to consider both premium prices and out-of pocket expenses before purchasing any policy. They should also ascertain plans’ covered benefits and provider networks beforehand. Finally, consumers should asses their current policies and consider purchasing new health insurance plans, while weighing the potential detriments of new plans.

A. Kor, October 2014