HEALTHCARE EXCHANGES AND COVERAGE COSTS

January 1, 2014 and people are flocking to the health exchanges to find cheap health coverage because the Affordable Care Act (ACA) has promised "Affordable Health Care". According to the ACA, affordable means the cost will be no more than 9.5% of income.  If it is higher than 9.5% there will be tax credits and/or subsidies given to make it affordable.  

Interestingly, the cost of a person who is 64 years old cannot be any higher than 3 times the cost of a 20 year old.  In other words, the cost for older people, who use on average 5 times the amount of health care than a 20 year old, would pay less while the 20 year old will pay more, than in our current market.  In addition, if you are a smoker, your premium can be up to 50% more than a non-smoker at the same age level.  The question is, if I am a smoker and paying 50% more than a non-smoker making it unaffordable for me, will I get a subsidy even though if I wasn't a smoker it would be affordable?  Since the smoking surcharge is considered a penalty, the answer seems to be no.  

Since coverage in the exchanges will be guaranteed issue, it seems that younger, healthier people will find cheaper coverage elsewhere while older, sicker people will flock to it. If this happens it won't be long before the exchanges implode and/or we are taxed even more to supplement the deficit. 

Gotta Light?

Fast forward to 2014.  We are now purchasing health insurance through exchanges.  Individual and small business will be able to go to a virtual site, with the help of a navigator (possibly a broker or producer) and purchase medical coverage.  Depending upon your household income, you may also be eligible for a subsidy to help pay for that coverage.  The coverage you will be applying for is guaranteed issue, no-questions-asked coverage.  As it stands now, there are only a couple things that could impact the amount that you pay for your plan:

1) Family Composition (Individual, Parent/Child, Husband/Wife, Family)
2) Where you live or Rating Area
3) Age
4) And the only question that has to do with health.......do you use tobacco?

If you use tobacco you can be charged up to a 50% higher premium than non-tobacco users.  I understand that tobacco users are at a much higher risk of having health issues and probably should pay more, but what about all the other behaviors that cause illness?  Why is there no rate increase for them?   How about people who are diabetic because of their poor diets?  How about people who use crack or heroin?   While the diabetic gets insulin and diet counseling and the drug addict gets substance abuse treatment and medications to curb the desire, the tobacco user gets a 50% rate increase instead of acupuncture, hypnosis and/or a prescription for Chantix.  In all fairness though, smoking cessation counseling is now included under preventive in all health policies.

You may be thinking to yourself that this is no different than the life insurance industry where typically a tobacco user pays at least 50% more on their coverage.  The main difference is that life insurance isn't guaranteed issue.  If you are a diabetic or drug user, you will probably be turned down entirely.  Since your health plan through the exchange will be guaranteed issue, you can't be turned down.

This is definitely a head-scratcher for me.