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Beginning in 2014, the American health care landscape will be transformed in many ways as the final provisions of the Affordable Care Act take effect. The greatest changes will affect the market for individual health insurance. Under the ACA, insurance companies will no longer be able to deny coverage due to an individual’s health condition, and will be limited in how much they can vary premiums based on various characteristics. Individuals will be required to have health insurance or face a penalty, but many will be eligible for tax credits to help pay for coverage on new health marketplaces, known as exchanges. While some people who currently purchase coverage on the individual market may see the cost of coverage rise, the new law will make better and more affordable coverage available for many more.
Currently, the individual insurance market is the crumbling pillar of the US health insurance system. In most states, including Oklahoma, insurance companies offering individual policies can deny you coverage due to your health status, or exclude coverage for pre-existing conditions, or drop your coverage if you get sick. They can vary rates widely based on your age, as well as by gender, health status, and other characteristics. The result is a dysfunctional individual market in which few people are able to afford good quality coverage. Only one in twenty (5.3 percent) of all Oklahomans under the age of 65 are covered by health insurance they purchase directly, according to the US Census Bureau, while one in five (19.6 percent) is uninsured .
The Affordable Care Act puts into place significant reforms to the individual market. Beginning this October, individuals can go online to healthcare.gov and compare between competing insurance products offered on new insurance marketplaces, or exchanges. All health plans must provide a comprehensive package of essential health benefits and offer four categories of plans – bronze, silver, gold and platinum – that vary based on the proportion of plan benefits they cover. No one can be denied coverage regardless of their health status, and the cost of premiums can vary based only on age (limited to a 3-to-1 ratio), geographic area, family composition, and tobacco use. Annual and lifetime benefit limits will be prohibited.
If insurance companies are required to provide coverage to all, and are restricted in the extent to which they can charge some people more than others, then it is essential that participation in the individual market be broadened. Accordingly, the ACA includes the requirement, known as the “individual mandate“, for most individuals to have health insurance coverage or face a penalty. At the same time, the new law provides advance tax credits to subsidize the cost of insurance purchased on the exchange for those with family income between 100 percent and 400 percent of the federal poverty level. The net result will be to make comprehensive individual coverage available to millions more Americans. The Congressional Budget Office projects that a net 5 million people will gain coverage through the individual market in 2014, rising to 20 million by 2019.
But what about cost? As the respected health care economist Uwe Rienhart recently noted, “a switch from medically underwrittten premiums to community-rated premiums, coupled with a richer benefit package, could significantly raise premiums for healthy individuals with higher incomes who are not entitled to substantial federal subsidies or any at all.” But Reinhart emphasizes that those claiming that health insurance costs will rise under the ACA by looking at projected increases in average costs are presenting an incomplete or misleading picture. Claims of higher costs ignore that many people who are currently uninsurable will gain access to modestly-priced coverage; that the benefits will be more generous, and that the cost for many, if not most, of those purchasing coverage will be offset by public subsidies. This is especially true of the youngest adult population. An Urban Institute study found that ninety percent of those aged 21-27 purchasing non-group coverage today will either be eligible for exchange-based subsidies or will be able to remain on their parents’ coverage through age 26. Those under 30 also have the option under the ACA to purchase a less comprehensive insurance plan.
As the date when initial enrollment in the new exchanges approaches, the news from states that have announced approved rates is encouraging. In California, New York, Maryland and elsewhere, individuals will be able to choose between a wide range of plans being offered at rates considerably below what was initially expected. In Baltimore, Maryland, for example, a 50-year old non-smoker will be able to purchase a silver plan for as little as $267 per month, with access to a subsidy if his family earns under $94,000 a year. A 40-year old San Franciscan can pay between $221 and $525 per month for coverage, depending on which plan and provider she selects, and potentially be eligible for a tax credit.
Rates on the Oklahoma exchange, which will be operated by the federal government, are still being reviewed and will likely be announced in early September. For the estimated 337,000 Oklahomans who will be eligible for an advanced tax credit, and for many others who have gone uninsured or struggled with the high cost of coverage, the promise of affordable care will finally become a reality.
