People who know I write a blog on health care are asking me questions about the new health insurance exchanges:  What do they do?  Who will use them?   Why are they important?  Are they important?   Why should I care?  The short answer is they are online market places offering health insurance; and, while they’ll be used by only 10 % of us, we’ll all be significantly impacted by them.Questions and Answers signpost

The health insurance exchanges now being set up form the cornerstone of the Affordable Care Act (ACA).  It is through them that the government will spend $1 trillion of our tax dollars to expand health coverage to 30 million people.  So, yes, they are important and we all need to know about them.

Starting October 1, web-based health insurance exchanges in every state will be offering health insurance plans that take effect January 1, 2014.  Individuals or heads of families who may be eligible to purchase or receive health insurance through the exchanges include people who:

  • are unemployed
  • work for a company that does not offer a government approved health care plan
  • work for an employer who pays less than 60% of the total cost of its employee health plan
  • have a business with less than 50 employees and need health insurance for the workers
  • qualify for Medicaid health coverage under the expanded ACA eligibility rules  with an income less than 138% of the Federal Poverty Level (FPL)

In addition, people who purchase insurance through the exchange may also qualify for government subsidies in the form of tax credits and reduced co-pays and deductibles.  Tax credits are being offered to people with incomes as much as 400% of FPL .  Today that’s a $94,200 income covering a family of 4 or $45,960 for individuals.  The most these people will pay towards their premiums will range from 9.5% of income at 400% of FPL  to 2%  at the base of  FPL.

Health Insurance Exchanges are not the insurance providers.  Guided by standards set by the states and federal governments, they are charged with selecting which insurance companies will participate and what plans will be offered.  Federal guidelines call for 4 types of insurance plans available to all who qualify for the exchange.  Labeled Bronze, Silver, Gold, and Platinum, these plans  must all cover what Health and Human Services (HHS) calls “Essential Health Benefits.” and any other benefit required by state regulations.

Their labels signify the varying degrees of actuarial value they represent.  As such, the lowest, Bronze plans, will cover 60% of the cost of health care coverage while Silver, Gold, and Platinum will cover, respectively, 70, 80, and 90%.  The purchaser of the plan pays the remaining cost in deductibles,  co-pays, and separate charges.

Only individuals under the age of 30 are permitted to purchase a 5th type, a special catastrophic health insurance, which carries a high deductible and is designed to protect a relatively healthy individual from financial ruin in the event of a serious illness or accident.

The exchanges won’t be successful unless many people, especially younger healthy people participate to form a low to medium risk pool.  This will both reduce the number of uninsured as well as lower the cost of health insurance to those in the exchange, a major objective of the health care reform act.

To get the word out, millions of dollars are being spent to spread the word about the coming health insurance exchanges.  You’ll soon see billboards along freeways as well as posters and pamphlets in all government buildings, schools, clinics,  and churches.  Expect kiosks in malls and brochures in your mailbox offering information and sign-up material.  Radio and T.V. public service announcements will  broadcast the 800 numbers to call for information and enrollment.  Hollywood has even been enlisted to incorporate the health insurance exchanges into story lines to familiarize people with what the exchanges can do for them.

The fact that everyone, regardless of their physical condition can buy health insurance will be a major selling point; and people will learn there’ll be no annual or life-time limits to their health care coverage. This barrage of publicity will also, no doubt, mention that being without health insurance will soon be illegal and that the exchanges with the subsidies being offered are their best possible option for obtaining the required insurance.  This really sounds good; and for many people it’s a godsend.  But there’s a nasty surprise coming.

The cost of health insurance has to go up to cover all the extra benefits.  Subsidies will help the poorest and the sickest but won’t make up the difference for everyone else.   But that’s not all.  The law doesn’t allow insurance companies to charge sick people more for all the extra medical services they use in the exchange.  Experts have already foreseen that the sickest people will enroll in the ‘richest’ plans, Gold and Platinum, because they offer the most coverage while healthy people will gravitate to Bronze because they don’t expect to need much health care.  To recoup their cost in covering all the extra medical expenses in the Gold and Platinum plans, insurance providers must raise premium prices on all the plans.  On top of that, insurance companies are limited in how much more they can charge older people for health insurance.  Younger participants must pay higher premiums in whatever plan they choose to make up the difference.

It won’t take long for healthy individuals to figure out they’re better off without health insurance.   The penalty for not having insurance will never cost more than health insurance; and, if these people do need help with medical expenses at some point, insurance companies, by law,  have to accept them.   As young healthy people drop out, the cost of insuring a growing percentage of sick people on the exchange, will increase the price of insurance proportionately.  Thus begins a domino effect resulting in sky high insurance prices and ever growing subsidies.  It may take much more than that estimated $1 trillion in tax dollars to keep the exchanges afloat.