Understanding the new insurance system

James D. Lomax, MD
Posted 8/21/12

Starting in 2013, the Affordable Care Act (ACA) became the new way that individuals and employers can purchase health care coverage through exchanges. This is complex piece of legislation, and there …

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Understanding the new insurance system

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Starting in 2013, the Affordable Care Act (ACA) became the new way that individuals and employers can purchase health care coverage through exchanges. This is complex piece of legislation, and there has been much confusion and at times misrepresentations in launching this program. This article will attempt to give you an overview of how your insurance rates are calculated with the various health care exchanges.

There are differences in how each state handles its exchanges and Medicaid eligibility. New York elected to create its own panel of insurance providers, while Pennsylvania residents have to go through the federal program to purchase coverage.

Highlights of the Affordable Care Act

[from the New York State Department of Health]

1. Every citizen and permanent United States resident needs to have health insurance or they face paying a penalty. This can be insurance through your place of employment, insurance from your spouse’s workplace, a plan purchased at the state or federal health insurance exchange, or coverage through a government assistance program like Medicare or Medicaid.

The penalty for not purchasing health insurance in 2014 will be $95 for individuals, or 1% of your income, whichever is greater. In 2015, this penalty increases to $325 or 2% of income. If you did not purchase coverage during the latest enrollment period, this penalty will be collected through your 2014 federal tax filing.

2. There are four levels of insurance plans to choose from at the New York Health Benefits Exchange or the federal exchange available in your state

• Bronze level – 60% coverage

• Silver level – 70% coverage

• Gold level – 80% coverage

• Platinum level – 90% coverage

Each level offers different premiums covering different levels of medical expenses. For example, the Bronze plans have a lower premium than the Silver plans, but the Bronze plans have higher out-of-pocket costs.

However, there is a limit on out-of-pocket spending (co-pays, deductions, etc.) equal to the Health Savings Account (HSA) current law limit ($3,250 for an individual and $6,450 for a family in 2014). This will be adjusted each year. If your annual income falls somewhere between 100% and 400% of the federal poverty line (FPL), then there will be an even lower cap on out-of-pocket expenses. Below 100%, individuals or families are eligible for Medicaid coverage.

3. You might qualify for a tax credit. Depending on income level, you might qualify for a tax credit when purchasing health insurance at the exchange. Those with annual incomes between 133% and 400% of the FPL will find their premium contributions are capped at a maximum of 9.5% of income when purchasing a Silver level plan. The FPL is adjusted each year. See the sidebar on at right top for 2015 poverty guidelines by number of family members, and the bottom of the sidebar for maximum premiums at various income levels.

Individuals in the 133% to 400% of FPL range are eligible for a premium tax credit. The premium tax credit is determined by subtracting the difference between the individual’s maximum premium contribution and the unsubsidized cost of the second lowest plan (Silver) offered in an individual’s geographic area. The difference between these amounts is their premium tax credit. The individual will pay the reduced premium and the tax credit is paid directly to the insurance company offering the coverage. This is calculated when you enter your financial information into the application.

4. Any health insurance plan sold through New York State or through the federal exchanges will need to include coverage for medical services in the following 10 categories in accordance with the ACA legislation:

• Ambulatory patient services, such as doctor’s visits and outpatient services

• Emergency services

• Hospitalization

• Maternity and newborn care

• Mental health and substance use disorder services, including behavioral health treatment

• Prescription drugs

• Rehabilitative and home services and devices

• Laboratory services

• Preventive and wellness services and chronic disease management

• Pediatric services, including oral and vision care

Additionally, you cannot be denied coverage for pre-existing health conditions.

There will be changes to insurance rates in the months and years ahead. We can all anticipate annual increases in premiums, but probably at a lower rate of increase than we have paid in the past.

It is essential that all of us understand our insurancr—how premiums are calculated, services covered, and how we access coverage from the physician or facility that we chose to care for us.

In future articles, we will discuss ways to prevent medication errors and methods for effective communication between you and your doctor.

2015 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND DC

Persons in

family/household Poverty guideline

1 $11,770

2 15,930

3 20,090

4 24,250

5 28,410

6 32,570

7 36,730

8 40,890

Maximum ACA premiums

Maximum

premium as %

Income as % of FPL of income

133-150%of the FPL 3-4%

150-200% of the FPL 4 – 6.3%

200-250% of the FPL 6.3 – 8.05%

250-300% of the FPL 8.05 – 9.5%

300-400% of the FPL 9.5%

Example of calculating insurance premiums and tax credits

John is 29 years old, single, purchasing a Silver level policy.

Annual income=$30,000/yr

Unsubsidized annual premium = $3,337 offered by the insurance exchange in his area for his age group and level of insurance.

Federal poverty level for individual = $11,700. His salary of $30,000 is 256% of FPL, which qualifies him for a tax credit.

Maximum annual premium for his income = $2,425 (8.05% of $30,000)

His tax credit would be $922 [$3,337-$2415] which is paid directly to the insurance company.

His monthly premium would be $201/month vs. $278/month, or a 28% savings

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