Individual Insurance Primer: Long-Troubled Market At Center Of Drive For Repeal

By Carmen Heredia Rodriguez >> CarmenH@kff.org | @caheredia21

As the country braces for a possible overhaul of the Affordable Care Act, consumers and patients are raising concerns that the more than 10 million people who purchased plans through the law’s insurance marketplaces could lose coverage. Some are also nervous that changes unleashed by any revamping of the law could throw insurance purchased by individuals outside of the marketplaces into jeopardy.

People Rush To Enroll Before Deadline For Affordable Care Act
MIAMI, FL – DECEMBER 15: Jose Ramirez (L) and Mariana Silva speak with Yosmay Valdivia, an agent from Sunshine Life and Health Advisors, as they discuss plans available from the Affordable Care Act at a store setup in the Mall of the Americas on December 15, 2014 in Miami, Florida. Today is the last day for people to sign up if they want insurance coverage under the Affordable Care Act to begin January 1, 2015. (Photo by Joe Raedle/Getty Images)

This individual insurance market has long been troubled with chronic problems, which helped propel efforts to pass Obamacare in 2010. Yet, consumers’ complaints about the resulting coverage have helped drive the Republicans’ arguments to dismantle the ACA.

Here is a primer on the individual insurance market and the potential consequences of repealing portions of the sweeping health law.

What is the individual insurance market?

It is used by people who do not have health coverage through the government or their employer when they purchase a plan directly from an insurer. It is sometimes called the non-group market.

These plans can be offered either on or off of the ACA marketplace, with the exception of the District of Columbia, which provides insurance solely through that marketplace.

What’s the difference between individual plans sold on the health exchanges and those sold outside the exchanges?

Plans sold on the health exchanges, also called marketplaces, provide several benefits to consumers. Enrollees earning up to 400 percent of the federal poverty level — about $47,500 for an individual and $97,200 for a family of four — qualify for a tax credit to offset the cost of the premiums. Additionally, many of the online portals allow consumers to compare plans side by side, helping buyers find a plan that fits their needs.

In contrast, plans purchased off the exchange do not qualify for the subsidies and are generally more expensive. However, the off-marketplace plans often offer broader benefits, particularly access to providers who are not part of the insurers’ networks. More than half of off-exchange plans gave customers some sort of out-of-network coverage, according to a Robert Wood Johnson Foundation analysis on the Health Affairs website, whereas just 36 percent of marketplace plans offered the same benefit.

How many people use these individual insurance plans?

The number is relatively small — roughly 8 percent of the U.S. population in 2015 — but it has been growing since the health law made such coverage more accessible and barred insurers from denying coverage to people with pre-existing health conditions. Among the people who might turn to an individual plan are self-employed business owners, someone taking early retirement, an unemployed worker who loses his access to job-based insurance and young adults who no longer qualify for coverage under a parent’s plan.

According to the latest data, 10.4 million people purchased an individual plan through the marketplace in the first half of last year.

It is harder to pinpoint the number of people buying insurance off the marketplaces. The Department of Health and Human Services last October estimated that total at 6.9 million. In that same report, HHS estimated that 2.5 million of these consumers could have qualified for tax credits available if they had purchased marketplace policies.

How do you buy these plans?

Plans on the federal or state marketplace online can be purchased online and often through insurance brokers. Some areas also provide enrollment assistance through trained personnel, often referred to as health care navigators.

Off-exchange programs can be purchased directly through the insurer or a broker.

How much do these plans cost?

Insurers offering any plans on or off the marketplaces can set prices based solely on five factors: age, location, tobacco use, individual-vs.-family enrollment and the plan’s category, which denotes how much of the medical expenses, on average, the plan covers. Plans are categorized by metal tiers, with bronze plans covering 60 percent of costs, silver plans 70 percent, gold plans 80 percent and platinum plans 90 percent.

On average, plans on the marketplace are generally less expensive than those sold off of it. According to the Robert Wood Johnson analysis, the average premium for off-exchange plans in 2016 was 13 percent more expensive and had higher deductibles than on-exchange policies.

According to the federal Centers for Medicare & Medicaid Services, which oversees the health law marketplaces, 84 percent of marketplace shoppers qualified for premium tax credits in October 2016. And those earning less than 250 percent of poverty ($29,700 for an individual) who purchase a silver plan also qualify for subsidies that help cover deductibles, copayments and other out-of-pocket expenses.

What are the concerns?

Prior to the ACA, consumers often found it difficult to get comprehensive coverage on the individual market, especially since insurers could refuse to sell to customers who had pre-existing conditions. About 18 percent of applicants were denied coverage because of those health problems, according to one study. A 2011 report by HHS found half of non-elderly Americans lived with a condition that could have barred them from obtaining insurance.

Insurers could also include exclusion riders. These provisions cut out coverage for treatments related to specific diseases.

Because of those problems, many people turned to poor quality plans that had limited coverage, sometimes without realizing that their policies wouldn’t provide adequate insurance. Those who had comprehensive insurance often found it to be expensive. In addition, in some areas few plans were offered.

Although the health law standardized the benefits that policies must offer, it did not solve some of this market’s problems. Insurers complained that they were losing money because the market was attracting too many sick people and not enough healthy ones to stabilize their risk pools, which help spread the costs among health and sick customers. Some companies exited the exchanges, cutting down on competition and consumer choice. This year, 89 insurers have left the marketplace, according to a November analysis by consulting firm McKinsey and Co.

Others increased their premiums, reduced their provider networks and set higher deductibles that patients had to pay out of pocket before their coverage kicked in. The price for the silver marketplace plans on which subsidies are pegged increased an average of 22 percent nationwide in 2017, according to HHS. Several states experienced sharper hikes, including Minnesota, where premiums increased 50 to 67 percent.

What happens if the ACA is repealed?

Most political observers believe that Republicans cannot repeal the entire law since they don’t have the 60 votes needed in the Senate to avoid a filibuster. As a result, GOP leaders are working to repeal portions of the law through a complicated process known as budget reconciliation, which requires a 51-vote majority. Provisions in a reconciliation bill can deal only with federal spending, so it might affect parts of the law such as those that set up the financial subsidies for exchange customers, the Medicaid expansion and the tax penalty for those who don’t get coverage.

The Republicans, however, have not yet come together on a plan for replacing those provisions with their alternatives, an effort that would be separate from the repeal legislation.

Many analysts suggest that the upheaval could push enough healthy individuals out of the marketplace plans to upset insurers’ risk pools. The change could also erode the exchanges by driving more insurers out of the marketplace. According to a report by the Congressional Budget Office, a Republican repeal plan vetoed last year by President Barack Obama would have resulted in 32 million Americans losing coverage by 2026.

An Urban Institute report found that if lawmakers go forward with their partial repeal and do not have adequate safeguards to help insurers keep healthy customers, “significant market disruption would occur,” including the loss of some insurers quickly.

But the shocks could also cause enough chaos that insurers would pull out of the entire market, said Paul Ginsburg, a professor of health policy and management at the University of Southern California.

“That would not only wipe out the coverage that the subsidies underwrote,” he said in reference to a partial repeal through reconciliation, “it would also wipe out the rest of individual market.”

This story was produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.

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