This week we are going to look at one of the most popular aspects of the Marketplace — accepting all enrollees no matter of a pre-existing condition at no extra cost — and the most controversial provision, the “individual mandate” and see how they interrelate almost as two sides of the same coin. We will also look at how limited time windows for entering the Marketplace, known as “open enrollment periods” and “special enrollment periods,” also operate to make the Marketplace workable.
Both uncertainty and predictability are required in order to make insurance markets work. No one would buy insurance for a period, say for last month, when you already know that you would make no claims against the policy. Likewise, no insurer would be willing to sell coverage for a period of time in which they already knew a large claim would be made. Insurance is all about managing risk. Risks by definition deal with uncertainties.
On the other hand, while individual losses and claims must be uncertain for insurance to work, aggregate losses and claims must be predictable. Insurance companies have to be able to predict what the overall number and cost of claims for all of the people they insure. This is known as the risk pool. Insurers don’t know which insured people will have heart attacks or get cancer. They do know that for any given age, locality, or tobacco use status, so many people out of every thousand will have these illnesses. This kind of actuarial analysis is at the heart of the insurance business. But these models work better for large risk pools than small ones. In fact, they would work best if everybody was in the pool. The smaller the risk pool, the greater the margin of error. To make up for the risk that the insurers’ predictions are wrong, they need to charge more.
The Affordable Care Act and the Marketplace seek to achieve several goals at the same time. These include getting as many of the uninsured covered as possible, making the coverage affordable, and not placing excessive costs onto people with the greatest medical needs. Because the Marketplace uses private insurance companies (in Allen County Blue Cross and Coventry), it must also make business sense for these insurers to participate.
The individual mandate is the requirement that most people must obtain Qualified Health Plans, or face a tax penalty. Bronze, Silver, Gold and Platinum Marketplace policies are qualified plans, as well as most workplace coverage and private policies. If you have a policy on the individual market that is not qualified and is not grandfathered in, you have been granted an additional year as a result of the “You can keep your plan” kerfuffle.
The tax penalty in 2014 is 1 percent of your yearly income or $95 per person for the year, whichever is higher. The fine increases every year. In 2016 it’s 2.5 percent of income or $695 per person, whichever is higher. Of course the worst penalty for not enrolling is that you don’t have health insurance when you need it.
There are some exceptions. If your state (like Kansas) did not expand Medicaid and your income is under 138 percent of the Federal Poverty Level, and your premium would cost at least 8 percent of your income, or you have “financial hardship,” you would be exempt from paying a penalty. Financial hardship is defined as homelessness, foreclosure, had a utility shut-off, bankruptcy or a few other factors. You can also be exempt for membership in a recognized faith objecting to coverage or membership in a healthcare ministry. Healthcare ministry members pool resources to cover health expenses. If you rely on this exemption make sure the ministry has the ability to pay claims that you might rely upon.
Because most people will not have exemptions, the individual mandate is an important tool to increase the size of the risk pool. It also assures that enrollment is not limited to only the very sick and people with pre-existing condition. Although it is important to provide coverage to these groups, it would not be affordable to only cover them.
Another tool for keeping coverage affordable is the use of enrollment periods. People seeking coverage can only enroll at certain times (this year through March 31, and again from Nov. 15 through Jan. 15, 2015) or upon certain events like changing jobs or aging-out of a parent’s coverage. Special enrollment periods will be the subject of an upcoming column. Without this limitation, covering pre-existing conditions would not be workable. A person could wait until they had heart attack and then enroll, literally on the ambulance ride to the hospital. Because no one can predict when a major health claim might occur, that same person now has a reason to enroll as soon as possible.
The individual mandate, enrollment periods, and tax penalties all work together along with subsidies on premiums and cost sharing to make coverage of all Americans, including those with pre-existing conditions possible. It is certainly not a perfect system but it is one that works to make coverage near universal and affordable while using market solutions through private insurance companies.
Thrive Allen County offers the assistance of trained and vetted Navigators to help residents of Allen County enroll in the health insurance Marketplace. Call 365-8128 for an appointment or drop in at Thrive Wednesday evenings 5-8 for assistance.
— John Robertson
