The Affordable Care Act (ACA) has changed the dynamics around health-care choices in the U.S., especially in the midst of enrollment season for the Health Insurance Marketplace. Public health exchanges have been offering health insurance plans for three years now, and the Marketplace continues to garner attention and scrutiny. I’ve been spending a lot of time in Washington, D.C., lately, and the ACA remains front and center on the collective minds of Congress. Large insurers are talking to Wall Street about their ability to sustain profitability with Marketplace plans, and several carriers are merging. The jury is still out on these developments, but perhaps smaller regional carriers will find the opportunity to fill voids in the marketplace while remaining competitively priced.
I suggest we keep focused on what your clients need now and the current availability of Marketplace plans. A number of situations require examination. Prior to the ACA, early retirees were challenged to find affordable health-care coverage outside of their employer prior to Medicare eligibility at age 65. In addition, monitor your clients with an eye on their adult children who need health-care insurance in the near future. There was a small baby boom in the U.S.—rivaling the annual birth rate of post-World War II—from 1989 to 1993. One of my family members just asked for help assessing his 26-year-old (born in the first year of the boomlet) daughter’s options as she will “age out” of his employer’s plan very soon.
Also, some clients have persistent concerns and misperceptions about the Marketplace. As we head into the New Year, and with Marketplace open enrollment taking place now, let’s check out some key information and tackle a few myths that persist among those with limited exposure to the marketplace.
1. Only low-income individuals can benefit in a Marketplace plan. The truth is that higher income individuals may quality for subsidies or cost-sharing if they are able to adjust their taxable income. We are working with more financial advisors who are beginning to consider variables in their clients’ income options to ensure they can benefit from the subsidies. The characteristic of this federal health insurance program that can be overlooked is that subsidies are based on taxable income. Assets are not factored into the calculation. This means your clients who have significant resources or certain types of non-taxable income, such as IRAs, may still qualify for subsidies.
Most individuals at 100 to 400 percent of the federal poverty level (FPL) can receive tax credits toward the premium costs they incur for insurance bought through the exchanges. Also, those who are at 100 to 250 percent of the FPL can receive subsidies to support cost-sharing for the insurance they buy. Consider that a family of five could have household income of more than $100,000 and still receive tax credits toward their purchase of an exchange plan.
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A Look at Cost Sharing Following is a brief example of cost-sharing reduction and savings for someone using a silver plan. |
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Standard Silver Plan |
Cost Sharing Reduction 200-250% of federal poverty level |
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Share the plan pays |
70% |
73% |
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Deductible costs |
$2,000 |
$1,750 |
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Maximum out-of-pocket costs |
$5,500 |
$4,000 |
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Inpatient coinsurance costs |
$1,500 |
$1,500 |
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Doctor payment |
$30 |
$30 |
The planner or an accountant can provide some methods for adjusting modified adjusted gross income (MAGI) to achieve a level of income that qualifies for subsidies. Leaving the workplace and entering retirement typically provides changes in MAGI, and it’s important to evaluate the impact of this transition with the Marketplace. Another consideration is that subsidies are based on projected income, so it is possible to work with your client in making adjustments throughout the year to hit the correct MAGI at tax filing time.
2. Marketplace plans provide inadequate or meager coverage. The truth is the Marketplace offers a variety of plans and options, many of which are quite robust. At a minimum, these plans must cover 10 essential benefits:
· Prescriptions
· Hospitalization
· Lab services
· Emergency services
· Ambulatory care
· Mental health and substance use services
· Rehabilitative and habilitative services and devices
· Preventive and wellness services
· Maternity and newborn care
· Pediatric services
In terms of costs, platinum plans provide 90/10 coverage—with the plan covering 90 percent of costs and the user paying 10 percent. This is better than many employer-based plans. So if your client qualifies for tax credits, they can apply them to any plan on the Marketplace. This may allow them to purchase a high-level plan with a lower premium. It’s important to note that 90/10 doesn’t necessarily mean coverage costs breakdown exactly at 10 percent for the consumer. Instead, the platinum plan covers an estimated 90 percent of all medical expenses after deductibles; co-pays and other out-of-pocket costs are incorporated.
Consumers have on average three or more health insurers offering plans in their state, according to Kaiser’s analysis of 2016 Marketplaces. As with any purchasing decision, your clients could benefit from shopping the exchange in their area because premiums, provisions and provider networks can vary significantly among healthcare plans.
Marketplace Plan Types – The Basics
Platinum – 90/10: 90 percent plan coverage, 10 percent out-of-pocket
Gold – 80/20: 80 percent plan coverage, 20 percent out-of-pocket
Silver – 70/30: 70 percent plan coverage, 30 percent out-of-pocket
Bronze – 60/40: 60 percent plan coverage, 40 percent out-of-pocket
Catastrophic: Under age 30 only or hardship coverage
3. The Marketplace is only for those who can’t get insurance anywhere else. This is one of those myths that doesn’t appear to be harmful, but it can be costly. For example, although the ACA’s intent was to provide health insurance to people uninsured, because of pre-existing conditions or employers who didn’t provide coverage, millions of people are eligible to shop the Marketplace. This includes individuals whose employer coverage is extremely pricey compared to their salary. It’s also clear that the Marketplace offers alternatives to workers who would like to retire but are continuing to work to ensure their spouse and dependents have health-care coverage, or because they are waiting to reach age 65 and Medicare eligibility.
4. Open enrollment isn’t important because the Marketplace is always available. Unfortunately, this is one of the misconceptions that can trip up individuals who need this health-care option the most. Open enrollment, which began Nov. 1 and runs through Jan. 31, 2016, is the primary opportunity get into the Marketplace. There are other special enrollment periods, but choosing to drop your health insurance plan isn’t one of those options. Qualifying life events that may allow Marketplace enrollment include moving to a new coverage area, a marriage, divorce or death in the family. Loss of insurance that wasn’t voluntary, for example, tied to loss of employment, also may qualify someone for a special enrollment period in the Marketplace.
The importance of exploring Marketplace alternatives is especially striking because of the trends we’re seeing for older workers.
First, annual health-care costs come in at higher levels. A comparison of companies with a higher percentage of older workers finds costs increase by 5-7 percent or more, according to Kaiser Family Foundation, which reported an average annual family premium of $17,425 in firms where 35 percent or more of workers were age 50 or older. This level of cost is simply too significant to fold into the family financials without a closer look, especially when the Marketplace may offer key cost reductions for clients.
Second, employers are altering their benefits programs and sometimes older workers are the hardest hit. More companies are exploring methods to reduce their health-care costs, and this includes changes to the benefits offered to dependents and workers. For example, more employers are only offering benefits to the worker and not dependents, especially if the dependents have an alternative coverage option. In addition, more employers are asking workers to pay a larger share of the health-care costs, either through higher premiums or by switching to high-deductible health plans with health savings accounts (HSAs).
Unfortunately, there may be limits with the Marketplace. For example, as long as the employee-only costs meet the ACA’s affordability standard, it does not matter how much dependents will have to pay for coverage. Also, dependents may not be able to access subsidies if they have the option for coverage, even if it costs more. This doesn’t negate the important opportunity to explore cost-saving alternatives through exchange plans.
Financial advisors and their clients may want to keep health insurance choices outside the parameters of their professional relationship, but it’s simply becoming too large of an elephant in the room to ignore any longer. Health-care cost decisions, including health insurance and treatment-purchasing decisions, have arrived as a discipline of financial planning. It’s important that financial planners become knowledgeable in this area and find the strategic partners who will augment their practice with expertise that benefits their clients’ short-term and long-term objectives.
Mary Dale Walters is senior vice president of Allsup Inc. Allsup and its subsidiaries provide nationwide assistance for individuals and business navigating the complexities of private and public health insurance benefits before and after retirement. Allsup Benefits Coordination is a nationwide healthcare benefits coordination service and the Allsup Medicare Advisor is a nationwide Medicare plan selection service, offered for a flat fee, that provide important analysis and serve as trusted resources for financial advisors and seniors. Financial advisors may contact (888) 220-9678 or go to FinancialAdvisor.Allsup.com for more information.