Get Ready for Obamacare

Three and a half years after President Obama signed the Affordable Care Act into law, its major provisions are nearly ready for prime time. Beginning January 1:

• Insurers will no longer be able to reject people or charge higher rates because of preexisting conditions
• The premiums they charge older people will be capped
• Most plans won’t be able to impose annual or lifetime caps on coverage
• To control the cost of insuring the older and sicker, everyone—including the young and healthy—must have health insurance or face a penalty

In 2014 the penalty is 1% of annual income or $95 per person (whichever is higher); the penalty increases to 2.5% of income or $695 per person in 2016.

Starting October 1, 2013, until March 31, 2014, you'll be able to buy coverage on new state health insurance exchanges for 2014. If you don’t have health insurance through an employer—because you’re self-employed or unemployed, you work for an employer that doesn’t offer health benefits, or you simply decided to go bare— you may be eligible to receive a subsidy to help reduce your premiums. But to qualify, you have to buy the policy from your state’s health insurance exchange. If you work for an employer that does offer coverage, you can still choose to shop on the exchanges, but you can’t get a subsidy if your employer provides “affordable” coverage. Affordable means the employee’s share of premiums for employee-only coverage is no more than 9.5% of household income. The employer’s plan must also be considered “adequate,” which means it covers 60% of the average health care costs in the area (based on a complicated actuarial calculation).

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Because of the health care law’s new protections, young, healthy people won’t get as big of a break on premiums and are likely to pay higher rates than in the past. (See the Ask Kim column Health Insurance for Twentysomethings for more details.) Older people may pay less, especially if they have health conditions that jacked up their premiums. But the changes will depend on your state’s current rules, competition in the marketplace and the level of coverage you have now. (See Health Insurance Options for Early Retirees )

The majority of people, who get health insurance through an employer, won’t see much change in their coverage or how they buy it when they re-up during their employer’s open-enrollment season. Employers are unlikely to drop coverage just because the government delayed the requirement to provide insurance until 2015. Rather, expect to see cost-cutting trends continue: increases in premiums, steeper deductibles and co-payments, and shrinking provider networks. (We covered that in How Employees Can Save Money on Health Care Costs )

Buying on the exchanges

Each state will have an exchange (also called a marketplace) where you can buy health insurance and apply subsidies to reduce your premiums. The federal government is running the exchanges in 27 states, and 23 states plus the District of Columbia are running their own exchanges or operating them in partnership with the federal government. The insurers on the exchange, policy details, prices and networks will vary by state, no matter who runs the exchange. You can find links to your state’s exchange at www.healthcare.gov. In most states, you can buy a policy through your state’s new health insurance exchange or outside the exchange, but you can get a subsidy only if you buy on the exchange.

Starting in 2014, all individual health insurance plans must include ten essential health benefits, including:

• Coverage for preventive tests
• Hospitalization
• Maternity and newborn care
• Emergency-room care
• Prescription drugs

Plans sold on the exchanges must fall into one of five categories: platinum, gold, silver, bronze and a catastrophic policy available only to people under age 30.

Each level must meet certain actuarial requirements. A platinum policy, for example, must cover 90% of average health care costs (based on an actuarial calculation for a “standard population” in your area); a gold plan must cover 80%. But that doesn’t translate into a fixed set of deductibles and co-payments at each level. In general, you can expect the highest deductibles (as much as $6,000) and more cost sharing (such as higher co-payments and coinsurance) at the bronze level, says Ray Smithberger, Cigna general manager for individual and family plans.

As you climb the metal tiers, deductibles and cost sharing will generally be lower, but premiums will be higher. You’ll pay the highest premiums (and get the most coverage) at the platinum level. But the premiums can vary a lot within each metal level, depending on the specifics of the coverage and network. On the Maryland Health Connection, a 25-year-old nonsmoker in the Baltimore area would pay from $131 to $237 per month for the bronze plan, depending on the insurer. A 50-year-old would pay from $267 to $470 per month for the silver plan. Many insurers will offer policies eligible for health savings accounts at all levels.

One of the biggest differences will be the size of each plan’s network, says Carrie McLean, director of customer care for eHealthInsurance.com. When assessing your options, compare the premiums and out-of-pocket costs for the type of care you tend to use, and make sure your providers are included.

Many companies are also selling policies outside of the exchanges, which could be worth considering if you don’t qualify for a subsidy, or you qualify for only a small one. These policies must meet most of the same requirements as those on the exchanges, but they may have different networks and other small variations that can help reduce premiums. Some companies will sell policies on the exchanges in some states and off the exchanges in others. You can buy off-exchange policies directly from the insurers, through a health insurance agent (see www.nahu.org) or on a Web site, such as eHealthInsurance.com. If you already have a policy on your own, you may be able to keep it at the current cost until the policy’s renewal date later in 2014 (a few states are requiring people to start new policies on January 1).

How to get a subsidy

To qualify, your modified adjusted gross income must be between 100% and 400% of the federal poverty level (400% of the federal poverty level in 2013 is about $46,000 for an individual and $94,000 for a family of four). A study by Avalere Health, a health care consulting firm, estimates that 40% of individuals who have nongroup health insurance—and 46% of people who are uninsured—will qualify. (See the Ask Kim column Who Qualifies for a 2014 Health Insurance Subsidy for a definition of modified adjusted gross income.)

The size of the subsidy is the difference between the amount you’re expected to contribute based on your income and the cost of the benchmark plan in your state. For example, if your modified adjusted gross income is $70,650 for a family of four, you’re expected to pay 9.5% of your income, or $6,712, toward the benchmark plan’s premiums. If that benchmark plan costs $12,500, you’d get a tax credit worth about $5,790, according to Families USA. (You don’t have to do the math yourself. You can calculate your subsidy with the Kaiser Family Foundation’s subsidy calculator or, after October 1, on your state’s health insurance exchange Web site.)

You can buy a plan that costs more or less than the benchmark, but your subsidy will remain the same. Anyone with income below 250% of the federal poverty level ($28,725 for an individual in 2013) can also get a cost-sharing subsidy that reduces co-payments and other out-of-pocket costs, but only for silver plans.

Subsidies come in the form of advance tax credits that reduce what you pay for a policy. When applying for the coverage on the exchange, you estimate your income for the year. The figures will be adjusted when you file your 2014 taxes. If you earn more than you reported, you may have to pay back some of the credit.