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Insurance bargain-hunters might miss out on subsidies

December 7, 2013

Hoosiers who sign up for “zero premium” health insurance in the new Obamacare exchanges might end up leaving thousands of dollars on the table.

An estimated 250,000 uninsured Hoosiers could qualify for health insurance in the Obamacare exchanges that would cost them nothing—at least upfront.

Macbeth MacBeth

Yet most of those Hoosiers could, by paying premiums of $300 to $700 per year, obtain single-coverage health plans that would slash the rest of their medical bills as much as 94 percent—or more than $4,000 a year.

Those savings would come thanks to a little-known and poorly understood provision of Obamacare that sets aside federal money to reduce deductibles and co-pays for low-income participants in the law’s exchanges.

But the wrinkle is that these cost-sharing subsides, as they are called, are available only on Obamacare’s “silver” health plans, not on any of the other three varieties of health plans insurers are selling on the Obamacare exchange in Indiana.

The “zero premium” plans, meanwhile, are almost all “bronze” plans—which come with deductibles of $6,350 for single coverage—with no federal subsidies to offset that exposure.

“The difference is really pretty staggering,” said Charlotte MacBeth, CEO of Indianapolis-based MDwise Inc., one of four health insurers offering Indiana plans on the Obamacare exchanges. “That’s been a big part of our member education program, about making sure they understand the value of the silver plans.”

Nefouse Nefouse

That’s a big difference from the strategy being employed by Indianapolis-based Anthem Blue Cross and Blue Shield. It has been publicly touting its “zero-premium” bronze plans, and plans to market them later this year.

Health care advocates worry that low-income buyers who choose bronze plans could end up saddled with medical bills they can’t pay. And health care providers worry that if too many Hoosiers choose the zero-premium bronze plans, they could get saddled with thousands of dollars in unpaid bills.

MDwise, which is owned by the Indiana University Health and Wishard Health hospital systems, has said its exchange strategy is partly an attempt to limit unpaid bills at hospitals.

Based on early data, that strategy appears to be working. MacBeth said 70 percent of the customers MDwise has signed up have chosen silver plans, compared with 10 percent bronze and 20 percent gold.

For competitive reasons, she declined to disclose how many customers MDwise has enrolled.

Tony Nefouse, a health insurance broker in Indianapolis, reports much the same. Nefouse is quoting most people on Anthem policies, because MDwise is not using brokers to distribute its plans.

“A lot of the people I’m talking to, they have no idea about cost-sharing provisions,” said Nefouse, a partner in the firm Nefouse & Associates. “But once I explain the cost-sharing reductions, then they get really interested.”

For example, he ran quotes for a 61-year-old woman who is retired and has $17,000 in income. She could buy a “zero-premium” bronze plan and have a deductible of $6,350 and pay the full cost of all doctor’s visits. Or she could buy a silver plan and pay $550 per year in premiums, have a deductible of only $200, and have modest co-pays.

She’s interested in the silver plan. Customers who are younger and healthier probably will opt for a bronze plan, Nefouse said, but with the technical problems on the federal exchange website, HealthCare.gov, he hasn’t seen many of those kinds of buyers.

Anthem’s bronze strategy

The number of Hoosiers who could qualify for zero-premium bronze plans ranges from 230,000 to 325,000, according to an analysis published in October by the McKinsey Center for U.S. Health System Reform. Nationwide, McKinsey estimated, more than 7 million customers could qualify for zero-premium plans.


Anthem initially expected only 25 percent of its exchange customers to buy silver plans, with far more buying bronze plans.

Anthem based its strategy on 55,000 customer surveys conducted by its parent company, Indianapolis-based WellPoint Inc., in which price was far and away the most important factor.

It’s also important for Anthem to offer plans that are attractive to healthy customers, so their premiums can cover the costs of the sicker Hoosiers who are almost certain to sign up for coverage.

In 2014, Obamacare will assess only a modest tax of $95 per adult for failing to buy health insurance. For Hoosiers who spend little to nothing on medical expenses, the low tax could be more appealing than buying insurance.

“We’ve always viewed our competition as being the penalty,” said Anthem President Rob Hillman. “So it was incredibly important to us, in order to [attract] enrollment, to get to a premium level, net of subsidies, that could compete against that very low penalty.”

Not all of Anthem’s bronze plans will come with zero premiums. Customers can buy a zero-premium plan only if their income is low enough and age is high enough to generate the maximum tax credit available under Obamacare.

obamacare-factbox-120913.gifThe size of the tax credit is also determined by the price of the second-lowest-cost silver plan offered by any insurer in 17 regions around the state.

MacBeth agreed with Anthem officials that “price is king” in the exchanges. But the price of health insurance is complicated. There’s the sticker price—the monthly premiums a customer must pay—but there is also the price of care down the road.

It’s important to “make sure that people understand price in the context of what they’re purchasing,” she said.

Providers worried

In the Obamacare exchanges, bronze plans are required to pay an average of 60 percent of the expected medical costs of the person buying the plan. That means the customer must pay 40 percent of the expected medical costs.

Silver plans are supposed to cover 70 percent of expected medical claims. And gold plans must cover 80 percent of expected costs.

How those plans cover those percentages is up to the insurers. Some have higher co-pays, which require a customer to pay $30 for each doctor’s visit or prescription medicine. Some have higher deductibles, which means each customer must keep paying co-pays during a year up until a set dollar amount, after which the health plan picks up all remaining costs.

What the Obamacare cost-sharing subsidies do is raise the percentage of medical bills that the health plan pays for customers earning less than 250 percent of the federal poverty limit. That level is less than $28,725 for a single adult and less than $58,875 for a family of four.

For customers with incomes from 150 percent to 200 percent of the federal poverty limit, a silver plan will pay 87 percent of expected costs.

And for customers with incomes below 150 percent of the federal poverty limit, a silver plan will pay 94 percent of expected medical costs.

Those extra payments will be sent by the federal Centers for Medicare & Medicaid Services, or CMS, to each health plan, based on the number of enrollees that appear to qualify. Insurers then will file all their claims with CMS to see if they received too much or too little in cost-sharing subsidy payments.

Anthem expects that its “zero-premium” plans will appeal primarily to Hoosiers with incomes below 150 percent of the federal poverty limit.

That’s what has some health care providers worried about Anthem’s zero-premium plans.

“They’re going to make a fortune on this,” Ed Abel, a hospital accountant at Indianapolis-based Blue & Co., said of Anthem, which expects half the premiums it collects in the exchanges to be paid by the federal government.

Hospitals and doctors, meanwhile, will have to become bill collectors in order to not lose their shirts on these plans.

“This is the worst-case scenario for providers. Because they’re just not set up today to deal with it,” Abel said.

But others are less concerned about the zero-premium plans. They figure such plans will appeal only to healthy individuals who don’t have many expenses, while customers with ongoing medical bills will gravitate toward the lower-deductible silver and gold plans.

Larry Heydon, CEO of Johnson Memorial Hospital in Franklin, said, “People that opt for those plans are probably not high utilizers, anyway.”•

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