5 surprising things you should know before buying a health insurance exchange plan

By Susan Ladika Posted : 12/03/2013

surprised man looking at computerIf you're one of the millions of Americans who've run into roadblocks when you've tried to check out your health insurance exchange, or if you haven't yet begun that journey, you're likely to encounter plenty of unexpected things along the route. And because there's not much time left -- you must buy a policy by Dec. 23 if you want coverage starting Jan. 1 -- it's prudent to be prepared before you start researching plans.

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What's a CO-OP? New organizations selling health insurance

Depending on where you live, you may find some unfamiliar organizations selling insurance on your state health insurance exchange.

Residents of 23 states, from New Jersey to New Mexico, are able to buy their insurance through CO-OPs, or Consumer Operated and Oriented Plans. Funded by loans from the federal government, CO-OPs are nonprofit health insurance companies.

CO-OPs were planned for all 50 states, but when the economy neared the fiscal cliff, only those CO-OPs already approved were allowed to proceed, says Jan VanRiper, executive director and CEO of the National Alliance of State Health CO-OPs.

CO-OPs were "spurred by the need for competition in the individual and small group markets," VanRiper says.

Because they're nonprofits, insurance from CO-OPs tends to be cheaper than average. While they may not offer the lowest rates in a state, they're in the lowest tiers, she says.

Another new entry is Multi-State Plans. The U.S. Office of Personnel Management contracted with the Blue Cross and Blue Shield Association to offer the plans in 30 states and the District of Columbia as a way to boost health plan options, particularly in states with limited choices. Eventually the plans will be offered in every state.

The plans may offer family members who live in different states the option of being enrolled in the same plan, or benefit those who spend time in different states.

Lowest price, limited choice

You might discover that deciding a policy becomes a matter of price vs. choice. Some insurers offering the lowest premiums also might have the lowest number of in-network providers.

That means you might have to give up your current doctors if you want to keep premium costs low.

But all insurers have to cover the 10 essential health benefits, such as outpatient care and preventive care.

"As long as consumers have a choice, it's not bad," says Rachel Dolan, policy specialist at the National Academy for State Health Policy, but she cautions you should be aware of the details of the plan you're selecting.

Price variations in health insurance plans offered under health reform

Although the Affordable Care Act prevents insurers from charging women more than men and charging higher rates for those with health issues, variations remain.

Where you live, how old you are and whether you use tobacco impact your rates.

An older person can be charged three times more than a younger person and a smoker can pay 1.5 times more than a non-smoker.

Prices can also vary by region. That's designed to allow for geographic differences in health care costs, says Rich Fahn, president of Excell Benefit Group, a Chicago-area independent insurance agency.

Perhaps surprisingly, if you live in a major metro area, prices may vary from county to county, or prices could be higher in the city than the suburbs, Fahn says.

Subsidies and age play a role in health insurance on exchanges

Federal subsidies can play a big role in decreasing premium costs -- but again your age comes into play. They're likely to be a much bigger benefit for older Americans, who pay higher premiums.

You might receive a subsidy if you earn up to 400 percent of the federal poverty level. The subsidy amount varies based on how much you earn and your family size.

A Kaiser Family Foundation study compared health insurance premiums and subsidies for various households in several markets.

The study looked at prices for silver plans. Plans are classified as platinum, gold, silver and bronze. A platinum plan would cover an average of 90 percent of health care costs and you'd pay the rest out of pocket. Silver would cover 70 percent of costs. Premiums are higher for plans that cover a larger share of health care costs than for plans that cover a smaller share of the costs.

Indiana, for example, is one of the 34 states with a federally run exchange.

In Indianapolis, a 25-year-old single adult earning $25,000 a year, or 218 percent of the federal poverty level, would pay a monthly premium of $232 for a silver plan and would receive a subsidy of $88 per month. The single adult would pay $142 out of pocket for the premium.

For a 60-year-old couple earning $30,000 a year, or 193 percent of the poverty level, the monthly premium would be a staggering $1,253, but their subsidy would be $1,103, leaving them $150 to pay out of pocket.

Subsidy risks under health reform

While subsidies can make a huge difference, you need to be careful if you're close to the 400 percent poverty level.

Subsidies come in the form of tax credits. You can request the subsidy in advance, and it's paid to your insurance provider. Or you can pay the total premium out of pocket and receive a credit on your tax return.

But if a sudden raise, end-of-year bonus or overtime earnings push your income past 400 percent of the federal poverty level and you've taken a subsidy, you'll have to pay it all back, says Brian Haile, senior vice president for health care policy at Jackson Hewitt.

If you earn close to 400 percent of the poverty level, "this stuff really starts to matter," Haile says. Consumers need to beware "a $200 bonus could set them back a lot more than put them forward."



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