Health Care Exchanges – What You Can Expect to Pay

Many states will start offering health coverage through Health Insurance Exchanges this year. These exchanges are designed to be a one-stop shopping place for individuals and families that do not have health insurance coverage through their employer. The concept is to provide a competitive marketplace for health insurance in an effort to slow the growth of health insurance premium costs. The following analysis attempts to project the typical cost of insurance premiums for individuals and families of four based on an average of three online calculators that are currently available.

First, let’s dig a little deeper into the specifics of the Affordable Care Act and the associated Health Insurance Exchanges, much of which can be found at Healthcare.gov. Enrollment in the Health Insurance Exchanges begins October 1, 2013. The plans offered won’t be allowed to charge you more based on a preexisting condition, pregnancy, or disability.  Also, insurers won’t be allowed to charge you more based on your gender, and there will be limits on how much premiums can vary by age. Many insurers will offer an affordable basic benefit package that includes prevention and protection against catastrophic costs. The law mandates that individuals have insurance coverage. Those who refuse to buy coverage will be penalized. Starting in 2014, if your job doesn’t offer health coverage, or your job-based plan costs more than 9.5% of your income, you can apply for a tax credit to help pay for insurance coverage purchased through a Health Insurance Exchange. The amount of tax credit you’re eligible for depends on how much income your family expects to earn. Individuals and families with incomes at or below 133% of the federal poverty level will be eligible for Medicaid. For job-based health plans, it’s up to your employer to decide how much of the premium to pay on behalf of you and your family.  The law imposes penalties on businesses with 50 or more full-time workers that don’t offer coverage. There are problems with this part of the law. First, the fine is cheaper than the coverage, so some employers will just pay the fine. Second, some employers will reduce their workforce if necessary to avoid this requirement. I know of one local company that is spinning off its maintenance department to avoid the insurance requirement and the penalty.

Individual insurance plans are to be offered in four tiers designated from lowest premium to highest premium: bronze, silver, gold, and platinum. Each plans coverage ranges from 60%, 70%, 80%, and 90% respectively. Plans will also limit out of pocket expenses at $5,950 for individuals and $11,900 for families. Lastly, there is a catastrophic plan for those under age 31.

Premiums will be based on:

  • Age (limited to 3 to 1 ratio)
  • Premium Rating Area
  • Family Composition
  • Tobacco Use (limited to 1.5 to 1 ratio)

The cost will depend on your income as follows:

  • Over the 400% poverty level
    • Individuals making over $44,680
    • Family of four making over $92,200
  • Between 133% and 400% poverty level
    • Individuals making between $14,856 and $44,680
    • Family of four making between $30,657 and $92,200
  • Under 133% poverty level
    • Medicaid coverage will be expanded
    • Everyone under 65 will be eligible
    • Federal funding will begin at 100% in 2014 and gradually decrease to 90% by 2019
    • This is the section of the law the Supreme Court “amended” – states will not be required to expand Medicaid coverage.

So what does all this mean for someone who needs to buy an insurance policy through the Health Insurance Exchange?

  • The Affordable Care Act has contributed to a recent rise in premiums because it required insurance companies to cover preventive care at no cost, allowed parents to keep their kids on their plans up to age 26, and cover previously uninsurable people.
  • A November 2009 analysis by the Congressional Budget Office (CBO) of a draft of the program provides a rough indication of how quickly the subsidies will ramp down. It shows the government covering 77 percent of the premium costs for single persons earning about $20,600, 42 percent for those earning around $32,400 and 13 percent of the premium costs for those making about $44,200.
  • According to CBO projections, about 5 million people required to buy coverage won’t receive any help from the government because they earn too much.
  • Early drafts of the Health Insurance Exchange plan applications are as much as 15 pages of questions. Let’s hope the final version is more accommodating.
  • There is an incentive to not earn more than 400% of the federal poverty level. Taxpayers are going to rig their income the best they can to get under the income limits for subsidies. But that won’t be easy. The law establishes a new definition of income — called Modified Adjusted Gross Income, or MAGI —that will be used in determining eligibility for premium credits.  MAGI is adjusted gross income as determined under the federal income tax, plus any foreign income or tax-exempt interest that a taxpayer receives. Although muni bonds are not going to help, deferred interest investments such as I-bonds and zero coupon bonds may offer a partial solution.

Now for the numbers I located the following three websites where you can estimate the cost of insurance for individuals and families of four:

The following numbers are just estimates based on a “Silver” plan covering 70% of costs. I averaged the numbers from all three sites for various income brackets and ages. Out-of-pocket costs for deductibles and co-pays will vary depending on income, but should not exceed $12,500 annually.

Individuals

Income

Age

Cost of Insurance

Tax Credit

Total Required Premium Payment

$25,000

30

4,263

1,901

2,362

45

6,490

4,251

2,239

60

9,379

7,169

2,210

$35,000

30

4,263

304

3,959

45

6,490

2,654

3,836

60

9,379

5,572

3,807

$45,000

30

4,263

0

4,263

45

6,490

1,705

4,785

60

9,379

4,623

4,756

$55,000

30

4,263

0

4,263

45

6,490

0

6,490

60

9,379

0

9,379

Family of Four

Income

Age

Cost of Insurance

Tax Credit

Total Required Premium Payment

$35,000

30

12,267

8,848

3,419

45

16,976

14,367

2,610

60

24,016

20,988

3,029

$55,000

30

12,267

6,101

6,166

45

16,976

11,613

5,363

60

24,016

18,234

5,782

$75,000

30

12,267

3,100

9,168

45

16,976

8,612

8,364

60

24,016

15,233

8,784

$95,000

30

12,267

0

12,267

45

16,976

0

16,976

60

24,016

0

24,016

One Response to Health Care Exchanges – What You Can Expect to Pay

  1. Nunyo Biznas says:

    “There is an incentive to not earn more than 400% of the federal poverty level. Taxpayers are going to rig their income the best they can to get under the income limits for subsidies.”

    For 99% of Americans this isn’t a concern. I, for one, would love to earn 400% of the poverty level.

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