Obamacare Insurance Prices Could Be Half What Some Residents Now Pay

Andrew Kitchenman | September 26, 2013 | Health Care
With only preliminary data available, it's too early to make detailed cost comparisons -- but savings could be significant

exchange screen
The news is better than good — and better than expected. The price of insurance sold on the ACA/Obamacare marketplace could be half as much as New Jersey residents pay now for similar coverage.

It’s still to early to make precise cost comparisons. While information about prices was released yesterday, details about the plans were not. And plans are bound to vary widely, so making one-to-one comparisons is exceedingly tough. Still, at first blush, it appears as if some policies will cost about what they do now while others could be at least 50 percent cheaper.

For months the concern has been that rates in New Jersey would not be reduced because the Affordable Care Act has new mandates — such as dental care — and barebones plans will now longer be on offer.

Those who purchase the most extensive coverage through the marketplace/exchange will generally see the greatest savings. But even those who currently have bare-bones plans can expect to pay similar amounts for more thorough benefits.

Residents can begin enrolling for insurance through the marketplace on October 1, with coverage starting on January 1, 2014.

Joel Cantor, director of the Rutgers Center for State Health Policy, said the primary reason for the lower rates is the expected increase in the number of younger and healthier residents in the insurance market, allowing healthcare costs of sicker residents to be borne by a broader population. The ACA requires all Americans to purchase insurance or pay a penalty.

Cantor noted that the premiums released yesterday are for the most part lower than those available today.

For example, without the exchange, a family of four with a head of household who is 40 years old would currently have to pay nearly $3,000 per month for an HMO plan with a $30 copayment for doctor’s visits.

On the marketplace, the same family would be able to buy a plan for $943 per month — roughly a third of what they’re currently paying. Further, if the family’s income was $50,000 per year, the premium would be reduced to $282 per month due to federal tax credits that subsidize the purchase.

“For some people they’re going to be substantially lower than what they’re paying in 2013,” Cantor said of the premiums, adding that many details aren’t available, making a direct comparison difficult.

The marketplace or exchange is a one-stop shop for residents and small businesses to buy insurance and learn if they are eligible for subsidies, either online, by phone, in person, or by mail. It was a central feature of the Affordable Care Act.

There will be four tiers of insurance available through the marketplace, reflecting the amount of cost sharing that residents will pay out of pocket beyond the monthly premiums. This cost sharing will be done through a combination of copayments, in which residents pay a fixed amount for a medical service; deductibles, which are the amount that residents must pay before insurance covers medical costs; and co-insurance, which is a percentage share of the medical costs.

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Bronze plans will have the lowest premiums but will require residents to spend the most on cost-sharing, equal to 40 percent of the value of plan; silver plans require 30 percent; gold plans, 20 percent; and platinum plans, 10 percent. Cost sharing is limited to an out-of-pocket annual cap of $6,350 for a single person and $12,700 for a family.

In addition, low-income families will be capped as to the amount they must spend on cost sharing. Residents with income levels at 138 percent of the poverty line will be required to pay out of pocket for no more than 6 percent of the plan’s value. The maximum amount of out-of-pocket expenses increase along with a resident’s income — up to 250 percent of the poverty line. That currently amounts to $28,725 for a single resident, who will be required to pay for no more than 27 percent of the plan’s value.

Residents won’t be able to purchase one popular type of plan that’s currently available: the “basic and essential” — or barebones — policies that offer minimal coverage at reduced costs. These plans are being phased out because they don’t meet the minimum coverage requirements mandated by the ACA. This might not be an issue, however, since for the same cost residents will be able to get more coverage with bronze plans on the exchange.

In addition, while older residents must purchase one the four tiered plans, people aged 18 to 29 will be able to purchase lower-cost “catastrophic” insurance through the marketplace. These plans won’t be eligible for subsidies, so they are expected to be attractive primarily to young people with high enough income that they wouldn’t receive significant subsidies if they purchased one of the four tiers. Subsidies are targeted toward residents between 138 percent and 400 percent of the federal poverty line, which currently amounts to $15,856 to $45,960 for a single person.

Still, Cantor said the newly released rates bode well for residents who were relying on basic and essential plans, since they may be able to pay similar amounts for plans that offer better benefits. For example, a 27-year-old central New Jersey man would be able to purchase a bronze plan for $219 monthly, nearly the same price as the $217 monthly premium for a Horizon Blue Cross Blue Shield of New Jersey basic and essential plan with pharmacy benefits. For a 27-year-old woman, the bronze plan would be a significant cost reduction, from $318 to $219.

Cantor said the improved rates depend on more younger and healthier New Jerseyans joining the pool of insured residents, spreading the risk — and cost — of sicker residents. He added that there is a risk that prices could go up in the future if these healthier residents don’t join. He also said it’s too early to tell if other factors will continue to put downward pressure on prices

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The New Jersey marketplace will start with 29 qualified health plans offered by three companies – Horizon, AmeriHealth and Health Republic Insurance of New Jersey, formerly known as Freelancers CO-OP of New Jersey, which is one of 24 Consumer Operated and Oriented Plans established in different states under the ACA. The federal government only deliver selected premium information yesterday, as well as average costs, but did not release the premiums for individual plans. Therefore, it’s not yet clear how the three insurers compare with one another.

New Jersey Health Care Quality Institute chief of staff Jeff Brown attributed some of the improvement to competition between these plans. He expressed hope that New Jersey rates, which are among the highest in the country, will improve once more insurers enter the marketplace.

“Generally I think across the country we see that competition is bringing down prices. which is good, and the ACA being a premium support model is working,” Brown said.

However, Brown noted, that residents who don’t receive federal subsidies might be hard-pressed to pay for both the premiums and the cost sharing.

“Without the subsidies, there’s still some serious work on the affordability side,” Brown said.

He noted that the primary driver of insurance costs is the cost of healthcare.

“Medical services are expensive and we who are policy thinkers and policymakers really need to address that,” Brown said, adding that price transparency will be an element in addressing costs.

Cantor agreed that the premium information released yesterday is a sign that the state’s dysfunctional individual insurance market may be on the right track, but there is more work to be done.

“It looks like these reforms are going to help straighten out our individual insurance market, but not the healthcare costs problem,” Cantor said.

ACA skeptics weren’t impressed with the premium information released yesterday.

Yevgeniy Feyman, a policy associate at the Manhattan Institute for Policy Research, a free-market think tank, said New Jersey’s individual market was distorted by the existence of the basic and essential plans, the barebones plans that have been the most popular option on the state’s individual insurance market since they were introduced in 2003.

That distortion has been occurring because healthier residents were choosing basic and essential plans, leaving only sicker residents to pay for more comprehensive plans. Since there were fewer residents to pay for more expensive care, premiums have been rising. This has caused more residents to drop coverage, creating a cycle of rates rising and residents dropping out.

He added that many younger residents who are ineligible for subsidies would see the amount they pay rise. He described the example cited by federal officials of a 27-year-old who would pay only $145 for a silver plan after tax credits as a “cherry-picked composite.”

Feyman said many younger residents would instead choose to pay a penalty to remain uninsured. In 2014, that penalty will be the greater of $95 or 1 percent of income, rising by 2016 to $695 or 2.5 percent of income.

“It might make sense for that 27-year-old to stay out of the market,” said Feyman, adding that insurers are counting on healthy residents joining the marketplace. “If people don’t play out quite that well in the first year, then in the second year, rates are going to skyrocket.”