The most monumental changes in health insurance are now upon us. As I type out this article (Sept. 24, 2013), the “marketplace” is set to open Oct.1. Hopefully as you read this, it is open for business and everything is running smoothly.
Just How Much Are The Subsidies?
We have had the opportunity to run through some scenarios with our customers and have had mixed results. First, let’s go through the basics as a refresher. Subsidies are available for individuals whose household income falls below 400 percent of federal poverty level. Here are the income caps:
• Up to $45,960 for individuals
• Up to $62,040 for a family of 2
• Up to $78,120 for a family of 3
• Up to $94,200 for a family of 4
Ok, so LOTS of people will be eligible for subsidies. In fact, many people will qualify for significant subsidies. So…how much are we talking about?
- A young family of three with annual earnings of $40,000 would be eligible for an estimated government tax credit of $358 per month. Their 2014 insurance premium is estimated to be $717, so they would pay the remaining $359.
- A couple in their 40s with two kids and annual earnings of $60,000 would be eligible an estimated government tax credit of $421 per month. Their 2014 insurance premium is estimated to be $1037, so they would pay the remaining $616 per month.
These subsidies are only available through the Marketplace. Certified insurance agents, such as Benefit Logic, can help people review their options and enroll.
So What’s The Bad News?
Well, it appears that overall insurance premiums will be higher in 2014 than they are now and through the end of the year. There are several reasons for this. The most obvious reason is that the insurance companies have no idea what kind of risk they will be getting. Since individual health insurance is no longer medically underwritten, it is very difficult to predict what a person’s claims experience will be. It is the equivalent of asking for a quote for auto insurance, without telling the insurance company what kind of car you drive, your driving record and how many miles you drive per year. The insurance companies are going to try to price the policy so that they make a profit. But remember, there is a provision in the Affordable Care Act that requires insurance companies to spend 80 to 85 percent of every dollar on claims (this is called the medical loss ratio). So, if an insurance company medical loss ratio is too low, meaning they spent less than expected for claims, they must return the excess premium funds to the consumers.
The whole objective of health care reform was to reduce the number of uninsured Americans and hopefully reduce the costs. Time will tell (over years, not months) whether or not this objective is achieved.
How Will This Affect Businesses?
Prior to Oct. 1, all businesses (with revenue greater than $500,000/year) were required to notify their employees of the availability of the Marketplace. There are a couple of model notices (provided by the U.S. Department of Labor) that businesses can use. As employees learn about the Marketplace and especially the potential subsidies, it is expected that this will help drive enrollment. For some businesses, this will be a great opportunity for their employees to gain coverage that is not currently available. For those employers who do offer coverage, it will put pressure on them to not just offer coverage, but also to ensure that it is “affordable” according to the law and meets minimum value.
More on this and the Small Business Health Options Program next month. FBN
((please add Ed Gussio bio))