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April 2, 2014

Challenges of the insurance exchanges

When did this happen?

The six-month open enrollment period for obtaining health insurance through exchanges under the Affordable Care Act (ACA) got off to a bumpy start when 8.6 million people tried to visit the federal government website in the first week, millions more visited state websites, and the computer systems could not handle the initial surge. But as the computer systems improved and the volume of inquires per day decreased, operations have become smoother. Open enrollment continues through March 31.

In 36 states, the exchanges are operated by the federal government or a joint effort of the federal and state governments. In the remaining 14 states, the states operate the exchanges.

Insurance mandate for most
The purpose of the exchanges is to make it easier for individuals without insurance and small businesses (fewer than 50 employees) to obtain insurance. Under the ACA, people are mandated to obtain private insurance subject to a few exemptions. The exemptions include being covered by other government insurance programs, including Medicare and Medicaid, or having an exemption for religious reasons.

Individuals who do not acquire insurance and do not qualify for an exemption will be obliged to pay a penalty - also referred to as a "shared responsibility payment." In 2014, that amount is a relatively modest $95 per person or 1 percent of income, but the amounts and percentages increase in subsequent years.

To facilitate comparison shopping for insurance, the ACA provides for standardization of insurance policies. Insurance companies are not allowed to discriminate on the basis of pre-existing conditions, and lifetime limits on coverage are prohibited. The types of services covered will be the same within a given state, although individual states may vary the types of services covered, including by requiring coverage of more services than the federal government’s minimum "essential health benefits."

The requirement of having policies with the same level of benefits was modified in November when, in response to pressure from the public and political leaders, insurance companies were allowed to renew existing policies on the same terms as they had been issued, even if the policies do not meet the new requirements of the ACA.  It will be up to the insurance companies to decide whether to reissue the old policies as well as offer the new policies required by the ACA.

Premiums vary by state
The cost of premiums varies from state to state. As the exchanges opened, the U.S. Department of Health and Human Services said the nationwide premium average turned out to be 16 percent lower than earlier projections. The amount of premium that a person pays will depend on the proportion of costs covered by the plan chosen by the individual. The ACA established four "metal levels" of coverage. A bronze level plan will cover 60 percent of a patient’s expenses; a silver plan, 70 percent; a gold plan, 80 percent; and a platinum plan, 90 percent.

The average monthly premium for an individual in the 48 contiguous states will be $328 for a silver plan. According to analysis by the Kaiser Family Foundation, the range in costs for a silver plan for a single person will be from a low of $201 in Portland, Ore., to a high of $413 in Burlington, Vt.

These amounts reflect the premiums before providing tax credits to reduce the cost. The amount of the tax credit will depend on a person’s income, with credits available for those with income up to 400 percent of the poverty level. The ACA allows insurance companies to vary rates by the age and smoking habits of applicants. An older person can be charged up to three times the premium of a younger person for the same coverage, and smokers can be required to pay up to 50 percent more for premiums. States, however, can require that rates be uniform regardless of age and smoking habits. New York, for example, has such a regulation.

Adverse impact of low-cost plans
Those who choose low-cost plans may be in for unpleasant surprises. The premiums on a bronze or silver plan will be low compared to a gold or platinum plan, but the copay by the patient will be high. For example, if a patient incurs a $100,000 medical bill, the bronze plan will pay only $60,000, and the patient will be responsible for $40,000 - perhaps even more if the patient received care out of network. This will have a ripple effect on providers who may have difficulty collecting the co pay from a patient who cannot afford it.

To determine eligibility for subsidies, insurance exchanges will rely on multiple sources, including the application forms, IRS records, Social Security data, and in some cases, other wage information that is available electronically, including through credit reporting firm Equifax. If an applicant for insurance claims a tax credit for which the applicant is not eligible, the IRS will require repayment the following year.

Physicians joining large groups or hospitals
Although physicians may have difficulty collecting large copayments from patients, they also are likely to find there are more patients coming through the door since the ACA is designed to provide insurance to people who currently do not have insurance. To gain access to the increased base of patients, physicians increasingly will join large physician groups or hospitals, particularly those that have contracts as preferred providers with multiple insurance companies or employers.

Private insurance companies will provide coverage through the exchanges. Plans affiliated with the Blue Cross and Blue Shield Association will be dominant players. Blue Cross is offering plans in 47 states and the District of Columbia. Under a contract with the federal government, Blue Cross’s offerings through the exchanges will include multi-state plans in 30 states. This will facilitate having additional health plans available, particularly in small states in which there otherwise might be fewer options for buying insurance.

Some companies - including UnitedHealthcare, Aetna and Cigna - are concerned about the profitability of selling products through insurance exchanges and have chosen to limit their participation by selling their products outside the exchanges or only through the exchanges of a few states.

The American Medical Association (AMA) has expressed concern about concentration in the health insurance market. In November, it issued a report entitled "Competition in Health Insurance: A Comprehensive Study of U.S. Markets." AMA President Ardis Dee Hoven, M.D., said, "An absence of competition in health insurance markets places a particular strain on physicians in small practices who don’t have the leverage to be equal negotiating partners with large health insurers."The AMA says the report "is intended to help researchers, lawmakers, policymakers and regulators identify markets where mergers and acquisitions among health insurers may cause competitive harm to patients, physicians and employers."

The ACA seeks to balance competing interests. It wants to provide good quality coverage at an affordable cost. It seeks to give purchasers of insurance a choice, yet limit the range of choices to facilitate comparative shopping and promote price competition. Striking the best balance will be an ongoing challenge and adjustments can be expected in the years ahead.

Jeff Atkinson ([email protected]) teaches health care law at DePaul University College of Law in Chicago.

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