The rollout of Obamacare enters its final phase Oct. 1, when the new public insurance exchanges open for business. It’s a big opportunity for anyone who is self-employed or working for a small business. The exchanges also will be important for any of your older clients who are too young for Medicare, since they often find themselves blocked from obtaining coverage at all due to pre-existing conditions. That’s prohibited under the Affordable Care Act (ACA).
Some states have elected to launch their own exchanges, and the federal government will run exchanges elsewhere. The first open enrollment will run through the end of April 2014, with coverage starting in January.
The new exchanges will offer a set of standardized commercial health insurance policies offering much better coverage than most of what you find in the current market for individual policies, and often with far lower premium prices.
The ACA makes some important improvements to Medicare too. It gradually closes the prescription drug "donut hole"—the gap between the initial coverage limit and catastrophic coverage in a drug plan. It also adds an annual wellness visit, and improves the Medicare Advantage market by requiring that plans spend at least 85 percent of the revenue received from the federal government on patient care.
But the law’s most dramatic changes will affect clients over age 50 who are too young for Medicare and don’t have access to a group insurance plan.
Much of the controversy about the ACA has focused on the individual mandate—the requirement that people who don’t already have coverage buy insurance or pay a penalty. For an individual, the penalty next year will be the greater of $95 or 1 percent of income; it rises gradually from there, to the greater of $695 or 2.5 percent of income for an individual in 2016.
But the fracas over penalties obscures the point. For older people who have been at the mercy of the individual insurance market, the exchanges offer a big improvement in how they insure themselves for healthcare risk.
Low-income households will be enrolled in expanded Medicaid coverage in the states that accepted funding for expansion of the program under the ACA. But middle-class and affluent households will shop for a new breed of commercial policies in the exchanges. They will be able to choose between four levels of plans: Bronze (lowest premiums), Silver, Gold and Platinum (highest premiums). Plans with the higher premiums will have lower out-of-pocket costs. Bronze plans, on average, will cover 60 percent of enrollee costs, with the rest covered by deductibles and coinsurance. Gold and platinum plans will cover 80 and 90 percent of costs, respectively.
These new policies cannot limit the dollar amount of coverage in most cases. The ACA also prohibits discrimination against people with pre-existing conditions; the law limits age rating and requires that a certain minimal level of coverage be provided.
The big money-saving opportunity for your clients could lie in the cost-sharing subsidies and advanceable, refundable tax credits available on premiums. This is where the word “affordable” in the law’s name comes into play.
Insurance companies will be permitted to set premiums up to three times higher for applicants over the age of 50, due to their higher utilization of healthcare. But for many, total premium costs will be held down by the tax credits.
The tax credits are available to families with incomes between 100 percent and 400 percent of the federally-defined poverty guideline. At 400 percent, families aren’t required to spend more than 9.5 percent of income on premiums.
Next year, the subsidies are available for individuals with annual income between $11,490 and $45,960, and from $23,550 to $94,320 for a family of four. The definition of income used here is modified adjusted gross income (MAGI), which includes wages, salary, foreign income, interest, dividends and Social Security benefits. (For a detailed explanation of how the subsidies work, see this briefing from the Kaiser Family Foundation .)
Those income levels are on the low side for most clients of wealth management advisors. But how about a client with significant assets who was thrown out of work during the recession, or is now self-employed? Or a retired couple, where one spouse is younger than 65 and isn’t yet eligible for Medicare? That household’s annual income could well be lower than the subsidy ceiling.
The Kaiser Family Foundation has a subsidy calculator that illustrates health insurance premiums and subsidiesunder the new health insurance exchanges. State exchanges will also offer calculators using specific insurance pricing, but they may not all be available until October.
For example, a family of four—with two adults age 55 (both non-smokers) and an annual household income of $100,000—would pay an unsubsidized premium of $17,294 next year for a Silver plan, which covers 70 percent of total healthcare outlays. But if the same household had $80,000 in annual income, they’d qualify for the subsidy and pay only $7,600 for the same plan.
A 60-year-old individual (non-smoker) with annual gross income of $85,000 and no dependents could enroll in a Silver plan at an unsubsidized annual premium of $8,191. But if the same individual had income of $40,000, she’d pay $3,800.
Insurance will be sold through a state-run insurance exchange or an exchange run by the federal government, depending on how your state has decided to handle implementation of the law. If you're not sure where to go, the federal government's health reform website can direct you to the correct location for your state. (www.healthcare.gov/marketplace/individual)
In-person assistance will be available from health centers around the country that have been awarded grants by the U.S. Department of Health and Human Services to hire and train "navigators." Some states also will offer assistants and counselors. And states also have the option of allowing insurance agents and brokers to enroll people in the exchanges.