Health Care Reform

This will be the first of several articles on the topic of Healthcare Reform. On March 20, 2010 President Obama signed the Patient Protection and Affordable Care Act into law. I will refer to this law as the Affordable Care Act . I will discuss the main provisions of the Affordable Care Act that are effective beginning January 1, 2014. These include pre-existing conditions , The Health Insurance Exchange, types of plans, open enrollment, rates, subsidies, penalties and my role as a broker. The information I will share is what I know as of today.

January 1, 2014 will be a year of major transition in the health insurance industry. Up until now the health insurance industry has been able to introduce new policies and associated medical insurance  premiums based on prior experience. One well  respected insurance industry executive has said “the entire insurance industry will be placed in a brown paper bag, shaken up and spilled on the table”. Health insurance companies are likely to make mistakes, policies maybe priced too high or too low. The Affordable Care Act is new to all of us. It will not be as good as we hoped or be as bad as we fear. Whatever the result it will take at least a year or more to come to a steady state.

Everyone will be required to purchase health insurance. Those who do not will be penalized. Medical history will no longer be held against anyone when applying for medical insurance. My expectation is that there will not be any medical questions on applications.

The State of California has set up Covered California, the Health Insurance Exchange also known as the Marketplace . Medical Insurance companies will be chosen by the State to participate in the Exchange sometime in May. Those companies not chosen can offer  medical insurance outside the Exchange. There will be an equal set a benefits  in and out of the Exchange. There is also some discussion regarding the ability of an medical insurance company to keep existing plans that do not have Exchange mandated benefits. Medical insurance premiums have not been established.

The coverage of the Exchange plans are referred to as metallic benefits, platinum, gold, silver and bronze with decreasing benefits and premiums from platinum to bronze. Platinum, gold and silver plans will have a maximum deductible a $2000 per person. The bronze plan can have a higher deductible. In addition there will be a catastrophic plan for those younger than 30 years old who have a financial hardship.

Open enrollment for the first year with an effective date January 1, 2014 will start October 1, 2013 and will end on December 15, 2013. Enrollment will continue from December 15, 2013 until March 31, 2014 for other effective dates. Once open enrollment ends one can no longer apply for a medical insurance policy in the Exchange except for qualifying events such as lost a job, a death resulting in dependant loss of coverage, a birth and other exceptions that may be discussed in the future.

Every discussion I have heard from insurance company executives and the State of California indicate that medical insurance rates are going to increase. I have always heard that everyone wanted to be able to purchase medical insurance regardless of medical conditions and have reasonable rates. It seems that this is not a possibility, maybe in the final analysis it will be different. Here are some of the Affordable Care Act mandates which have an effect of increasing medical insurance premiums. Everyone is guaranteed coverage. Those with medical conditions cannot be charged more premium.  Older individuals can only be charged three times more for medical insurance premiums than a younger individual. Today older individuals are charged five or six times more than a younger individual. Insurance companies can either raise the premium of younger individuals, lower the premium of older individuals (who have higher medical insurance claims) or both. Every indication is that the younger  individuals will pay more premium to close the ratio from 6:1 to 3:1 In addition the older individual will have higher premiums for increased medical claims.

There is a concept called medical loss ratio. The Affordable Care Act mandates that insurance companies spend 80 % of medical insurance premiums on claims, a medical loss ratio of 80%. An insurance company is required to rebate premiums back to the consumer if the medical loss ratio is less than 80%. If an insurance company spends more than 80% on claims the company cannot bill a consumer for additional medical insurance premium. My thought is that companies will price medical insurance premiums on the higher side and rebate premium back to the consumer as opposed to having claims in excess of 80% with no way to recoup money. Insurance companies will have to pay more for their reinsurance and pay additional taxes to help support the system. These expenses will more than likely be passed on to the consumer in the way of increased premium. Employers with small groups should be impacted less than individuals. There has been a law in the State  for many years that requires insurance companies to accept every applicant of a small group regardless of medical history. Premiums have been priced accordingly. The Affordable Care Act does not affect Medicare.

The penalty for not purchasing medical insurance by January 1,  2014 is the greater of $95 or 1% of taxable income. In 2015 it will be the greater of $325 or 2% of taxable income. In 2016 it will be the greater of $695 or 2 1/2% of taxable income with adjustments to follow every year.

There will be subsidies for medical insurance premiums based on income ranging between 138% and 400% of the Federal Poverty Level. This means individuals with income between $14,856 to $44,680 or a family of four with income between $30,656 and $92,200. Medical insurance premium subsidies will be sent from the State directly to the insurance company, the consumer will receive a lower medical insurance premium bill. Money will flow from the Federal Government to the State to pay for a portion of the medical insurance subsidy. Governor Jerry Brown is concerned about the Federal Government’s ability to meet the needs of California and is considering closing down the exchange if the money flowing from the Federal Government is less than expected.

My role as a medical insurance advisor remains unchanged. I will complete the certification course required by Covered California tentatively scheduled for this coming August. Premiums for medical insurance will be the same whether one purchases insurance directly through the Exchange or if I assist in a purchase through the Exchange.

I hope I was to shed some light on the implementation of the Affordable Care Act.  I will reach out to you as more information is available.

For a no obligation quote on health plans available today go to

Dennis David

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Dennis David
PO Box 548
Culver City, CA 90232
Voice 310 836 9893
Fax 310 836 3840

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