One of the key provisions of the Patient Protection and Affordable Care Act (ACA), which was enacted by Congress and signed into law by President Obama in 2010, required each state to establish an "American Health Benefit Exchange" (sometimes simply referred to as an “Exchange" or the "Health Insurance Marketplace"). Exchanges are intended to permit those individuals without some other form of health insurance to purchase health insurance from competing private health insurance carriers that choose to participate in the Exchange. The Exchanges were to start receiving applications for health care insurance coverage on October 1, 2013 (more on that later in this article), to be effective by the later of (i) the first day of the month immediately following the fifteenth (15th) day after an individual enrolls through the Exchange, or (ii) January 1, 2014. This initial open enrollment period extends to March 31, 2014. March 31, 2014 is a very important date for taxpayers. The Obama administration has taken the position that if a taxpayer is not otherwise covered by some sort of government-provided (such as Medicare or Medicaid) health care plan or employer-provided health care plan, but who has enrolled through the Exchange by March 31, 2014, the taxpayer will not become subject to the individual mandate tax penalties for each month thereafter that they continue to have the requisite health insurance coverage. The intended operation of an Exchange is described below.
1. Q: Who can utilize an Exchange?
A: Any individual meeting the requirements below can use the Exchange operating in their state to
explore and purchase health insurance for themselves and their family even if they already have health insurance through their employer. The requirements are that the individual applying must (1) live in the U.S, (2) must be a U.S. citizen or resident, and (3) must not be currently incarcerated.
In addition to the above described individuals, small businesses (employers with 50 or fewer full-time equivalent employees) can also purchase health insurance through the Exchange for its employees as an employer-provided welfare benefit, provided certain requirements are met. This aspect of the Exchanges is referred to as the "Small Business Health Options Program" (or "SHOP"). Small businesses purchasing health insurance through the Exchange may also qualify for a small business health care tax credit worth up to 50% of its premium costs.
2. Q: How does someone apply for health insurance coverage under an Exchange?
A: An individual or a small business can apply for Exchange coverage three ways: (1) online through a web portal (by using the website address: www.HealthCare.gov and clicking on the link 'What is the Marketplace in My State") (2) by mail, or (3) in person with the help of a "Navigator" (a person hired and trained by the U.S. government to explain the operation of Exchanges to applicants).
3. Q: What will an applicant learn about the Exchange as part of the enrollment process?
A: Initially, the applicant will be asked to fill out a written application form requesting coverage through the Exchange. In addition the applicant will be provided with information concerning the different health insurance plans available under the Exchange. The Exchange will also request certain financial information from the applicant to see if the individual is eligible for cost-sharing subsidies or federal tax credits that can lower the applicant's out-of-pocket costs for the coverage selected. Even if the applicant does not qualify for the cost-sharing subsidies or tax credit, the applicant can still use the Exchange to buy health insurance at the standard price offered to all applicants purchasing insurance through the Exchange.
4. Q: What sort of cost-sharing subsidies and federal tax credits are available to individual applicants
through the Exchange?
A: An Individual with a household income between 100% and 400% of the federal poverty level may
be eligible for cost-sharing subsidies and/or a "insurance premium assistance" federal tax credit if the individual is not eligible for affordable, minimum value health insurance coverage through his employer.
5. Q: What kind of health insurance coverage can an individual applicant obtain if the applicant
purchases a health insurance policy sold through the Exchange?
A: Each of the different health insurance policies offered through the Exchange will offer coverage for the same types of expenses, including coverage for pre-existing conditions and preventive care. However, the amount of coverage provided will differ among the five levels of coverage available through the Exchange.
6. Q: Why are there five levels of coverage available through the Exchange?
A: The five levels of coverage depend on the proportion of medical expenses the insurance plan is
expected to cover. Of these five types of plans, a "silver' plan (a plan that pays approximately 70% of the actuarial value of expected covered medical expense covered by the plan) will be the benchmark for calculating cost-sharing subsidies and federal tax credits for those individuals otherwise eligible for them.
7. Q: What are the five levels of coverage?
A: The five levels of coverage are referred to as (1) the "bronze" plan (covers approximately 60% of
the actuarial value of expected medical expenses covered by the plan), (2) the aforementioned silver plan, (3) the "gold" plan (covering approximately 80% of the actuarial value of expected medical expenses covered by the plan) (4) the "platinum" plan (covering approximately 90% of the actuarial value of expected medical expenses covered by the plan), and (5) the"catastrophic" plan (covering individuals under age 30 or with very low incomes which covers the same types of benefits offered by the other types of plans but which has a very high deductible). In general, the greater the expected level of coverage, the greater the cost to the applicant.
8. Q: Is there any difference in the core set of medical benefits covered under the different levels of
A: No. Each level of coverage covers the same core set of benefits referred to in ACA as
"essential health benefits". Furthermore, no plan offered through the Exchange can turn you
away or charge you a higher premium because you already have an illness or medical condition (often times referred to as a "pre-existing condition"). In addition, these plans cannot charge women more than men for the same level of coverage and many preventive medical services must be offered at no cost to the applicant.
9. Q: Since the Exchanges began receiving applications for health insurance on October 1, 2013, have
the Exchanges operated as intended?
A: Not really. According to an AP poll taken just prior to October 13, 2013, only 7% of applicants felt that the Exchanges are operating well or very well. Approximately 75% of those individuals who tried to sign-up through the Exchanges reported problems. According to the Wall Street Journal, the website, www.HealthCare.gov, is troubled by coding problems and flaws in the architecture of the system. The U.S. government is aware of the problems and is working to correct them.
For more information regarding this topic, please contact your local UHY LLP professional.