Financial professionals are trying to figure out exactly what types of advice consumers are most likely to seek.
Jan. 10--For health care, 2013 starts the big countdown.
Some provisions of the federal Affordable Care Act, like certain new taxes, took effect Jan. 1, but the big changes will be in 2014.
That's when major parts of the federal act take effect, and a lot of the effects won't be pleasant.
Premera Blue Cross Blue Shield of Alaska, the major provider of health insurance in Alaska, has done an internal assessment of how the new act is likely to affect premiums in the individual Alaska insurance market, at least for individuals and families that may seek coverage in a new insurance exchange required to be operating by January 2014.
The effects will be strikingly different on people in different age groups and income classes but the bottom line is that most individual policy premiums are likely to go up, some by substantial margins. If individuals or families are in moderate- to low-income groups and qualify for new federal subsidies, that will help greatly.
The individual policy market is a subset of the overall health insurance market, but the factors at play that influence costs may also influence other segments of the health insurance market, including group policies.
Here's the bottom line:
On average, premium costs may increase between 30 percent and 88 percent before federal subsidies are applied for those who qualify based on preliminary estimates, according to Eric Earling, a company spokesman for Premera.
The federal law sets the family income limit for subsidies at four times the federal poverty limit for Alaska, which works out to $115,000 for a family of four.
Depending on a family's income there are a wide variety of impacts.
Jeff Davis, who heads Premera'sAlaska unit, said a younger Alaskan couple aged 30 to 34 with two small children and who are moderate-income and earning $115,000 a year or less will qualify for the planned new federal subsidies. They could see up to a 42 percent decrease in out-of-pocket health care expenses, according to Premera's estimates.
However, if the couple exceeds the $115,000 income limit by even a small margin, the subsidy goes away and they could see an increase as high as 158 percent in out-of-pocket costs.
The underlying costs of insurance, which will be reflected in higher premiums for many, are to be driven up by the requirements of the federal law, which will set certain minimum benefits and have other requirements such as no denials of coverage because of preexisting conditions.
While these requirements are popular with the public they still will add to costs.
They also tighten the range of risks and limit the flexibility that an insurer like Premera can use in designing a policy.
"Today we can match risk to the premium rate. We know there is less risk of health problems with a healthy 24-year-old compared to someone who is 64," Davis said.
Because there is less risk, the premiums can be lower. For the older person, who can usually expect more frequent health issues, premiums will be higher.
Davis said the range of risks currently can be as much as one to five, with a young healthy person at one (lowest risk) and paying the lowest amount, and an older person at four or five (more risk) and paying more.
The new federal health care act has the effect of squeezing this range "toward the middle," Davis said, because the minimum coverage and other requirements increase risks across-the-board.
Currently a younger person may be able to choose a "bare-bones" health plan that has lower premiums. But with the required minimum coverage and other new rules there will be less flexibility for bare-bones plans.
The effect of all this is that younger, healthier people will pay more for their insurance, some by considerable margins. Many older people may pay less. Who pays what will depend on individual circumstances and the effects are now hard to predict. Overall, most Alaskans, particularly those buying individual policies, are likely to pay more.
Another requirement in the federal law is that everyone must be covered by health insurance one way or another. This may seem desirable from a policy standpoint, because reducing the number of uninsured will help hospitals now stuck with uncollectable bills from those without insurance.
However, the requirement in the federal law that everyone be insured is very weak, particularly for young, healthy people, Davis said.
"There is a $95 federal tax penalty. For a young person who earns more than the income limit to qualify for the subsidy and who could face a $1,000 a month health insurance premium, going without coverage and paying the tax penalty will be very tempting," he said.
As for group policies, another big uncertainty is how many employers of workers in low-wage industries may opt to drop coverage and move their workers into the subsidized exchanges. "It might mean less money paid out," for employers in spite of any federal penalties, Davis said.
This is something Premera is watching closely because the company does a lot of business with small employers buying small-group policies. The effects are unpredictable. For example, an insured group for a small employer paying lower wages could drop, from 20 to 5, for example, with most of the employees moving into the subsidized exchanges and only a handful of managers or older employees left under the company policy.
"That would affect the cost" for maintaining the company's coverage, Davis said.
What Premera doesn't know is how many of the individuals or families will seek coverage in the exchange, and what their income profile will be. One telling indicator is that when Premera did an analysis of single people and families covered by its individual policies in Washington state it found that up to 75 percent of those currently covered may not be eligible for the subsidies.
Tim Bradner can be reached at email@example.com.
(c)2013 the Alaska Journal of Commerce (Anchorage, Alaska)
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