Health insurance plans sold outside of health insurance exchanges might be cheaper

By Posted : 10/09/2013

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Depending on your income, you could qualify for a discount on health insurance when you buy a plan in the new government-run insurance marketplace in your state.

But if you make too much money to be eligible for the savings, then you might find a better deal outside the marketplace.

 A September study by HealthPocket found that 2013 health plans offered by insurers that aren't participating in the marketplaces -- also called exchanges -- are cheaper on average than health plans offered by companies that are selling marketplace plans.

The study was conducted before the exchanges opened and before pricing information for 2014 was available, so it compared current health plans offered by the two categories of insurers -- those that are selling in the exchanges and those that opted out of the exchanges. Whether the pricing tendencies continue remains to be seen, but the findings point to the need for consumers to shop thoroughly.

"If that person or family does not qualify for a subsidy, then yes, they need to be considering both inside and outside of the exchange," says Kelly Fristoe, owner of Financial Partners in Wichita Falls, Texas, and immediate past president of the Texas Association of Health Underwriters.

You must have health insurance in 2014

The Patient Protection and Affordable Care Act requires most Americans to have health insurance in 2014. If you already have coverage -- you enrolled in a plan at work, for instance -- then you're set. But if you're uninsured, you'll have to go shopping.

The exchanges, which opened in every state Oct. 1, are selling 2014 health plans through March 31, 2014. Plans purchased by Dec. 15 will be effective Jan. 1, 2014. Plans purchased by the 15th of the month after the first of the year will go into effect the first day of the next month.

You qualify for premium discounts, in the form of tax credits, if you don't have access to affordable employer-sponsored health insurance and your income falls below 400 percent of the federal poverty level. That's $94,200 for a family of four in 2013. You're eligible for lower deductibles and copayments if you earn up to 250 percent of the federal poverty level. You can get these savings only on plans sold through exchanges, so it pays to apply for them in the exchange to see if you qualify. (The exchanges will also tell you if you qualify for Medicaid, the government insurance program for low-income people.)

Some big players aren't participating in the exchanges in every state -- United Healthcare, Humana, Aetna and Cigna, to name a few. Instead, they're selling plans directly to consumers, through health insurance agents, their own websites or other private websites.

"There will be more choices off the exchange than there will be on the exchange," says Certified Financial Planner Mark Brown, president of M. Brown & Associates Ltd. in Naperville, Ill.

The quest for the cheapest health insurance

The absence of those big-name brands in the marketplaces limits competition there and has everyone wondering what that will mean for consumers.

HealthPocket reviewed 2013 premiums for some 1,600 health plans in 10 states. Rates for insurers avoiding the marketplaces were 23 percent cheaper on average in nine states than rates for insurers that are selling plans in the marketplaces.

Still, federal officials released some pricing data a week before the exchanges opened, showing average premiums on the exchanges in many states are lower than anticipated. The data were based on exchanges run by the federal government. (Fourteen states are running exchanges on their own.) The average monthly premium in 36 exchanges was $328 -- $64 less than what the Congressional Budget Office originally projected across regions.

Will that be less on average than what you can find outside the exchange? Until a widespread comparison is done, the jury's still out.

Plans sold off the health exchanges are not standardized

All new health plans for 2014 must offer certain essential benefits, and they can't base prices on your health conditions. That means you can't be rejected or charged a higher premium because of your health.

Exchange plans are standardized into four main tiers -- bronze, silver, gold and platinum -- to make it easier to compare them. The plans vary according to how much of your health care costs the insurer pays. The more you pay out of pocket for services, the less you pay in premiums for coverage. Here are the marketplace plan types:

  • Bronze - The insurer pays 60 percent; you pay 40 percent.
  • Silver - The insurer pays 70 percent; you pay 30 percent.
  • Gold - The insurer pays 80 percent; you pay 20 percent.
  • Platinum- The insurer pays 90 percent; you pay 10 percent.

New plans outside the marketplace for 2014 will have to meet Affordable Care Act standards, but won't be standardized the way they are in the marketplace.

Because rates vary inside the exchanges and out, and there will be many flavors of plans outside the exchanges, vary, "I would and will shop my clients at both," says Susan Emery, president of Emery Benefit Solutions in Auburn Hills, Mich.

Health insurance agents expect confusion among consumers.

Where to get help

The federal government gave grants to states to hire temporary consultants, called "navigators," to help people enroll in health plans in the marketplaces.

Be aware, though, that navigators can only explain the basics and help you go through the process. They can't tell you which plan to pick, and they can't help you shop outside the marketplace. They're getting some training, but won't have the depth of experience to help people decide what they really need, Emery says.

"It takes a lot of experience to know the right questions to ask and to understand our health care system," Emery says. "I have over 20 years of experience and I am still learning."

Emery says the biggest challenge for consumers will be "understanding the complexity and then being able to apply it to their situation to feel confident they made the best financial choice for their family."

Health insurance agents are going to be busy. If you don't already have an agent, it might be a good idea to get your foot in the door with one as soon as you can, Fristoe says. You can find local agents with the National Association of Health Underwriters website's "find an agent" tool.

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