Health Insurance Landscape for 2018 for Those Not Covered by an Employer Plan

Anyone who follows the news is aware that the last several months have been tumultuous for the individual health care market primarily served by carriers offering plans under the ACA (Obamacare). But the law survived, and we are now in the open enrollment period for 2018. Other options for those not covered by an employer plan are COBRA, association plans (in certain states), and faith-based cooperatives (also only offered in certain states). In this blog I discuss the pros and cons of each and how to think about your options for 2018. You will want to act prior to December 15, the end of ACA’s shortened enrollment period. And if you need help navigating this decision after reading my blog, feel free to reach out as I provide assistance in this area at no charge.

The Affordable Care Act for Health Coverage: A Quick Overview

You can purchase a plan on the Affordable Care Act (ACA, also known as “Obamacare”) exchange and potentially qualify for a subsidy even if COBRA is available to you. In addition, if you live in a state that has expanded Medicaid coverage, you might qualify for fully subsidized health care if your annual income is low enough.

The way the health care exchanges work is that private insurers provide the insurance for individuals and families either not covered under a group plan from an employer or covered by an employer plan designated as not affordable. Some states such as New York, Connecticut and Minnesota created their own unique marketplaces while others including New Jersey rely on the Federally run marketplace (healthcare.gov).

The ACA plans are grouped in tiers based on the percentage of cost paid by the patient through deductibles, copays, coinsurance, etc. Bronze plans have the highest deductibles, copays, etc. and thus the lowest premiums. Platinum plans have the lowest deductibles, copays, etc. and thus the highest premiums. The two tiers in the middle are silver and gold.

Subsidies for Insurance Premiums

Individuals and families with modified adjusted gross incomes (MAGI) below certain thresholds qualify for insurance premium subsidies from the federal government. The government directly pays the insurers, thus lowering your premium. MAGI is adjusted gross income from your tax return (income before deductions and exemptions) adjusted for items such as tax-exempt income and income that dependents earn that are typically not part of adjusted gross income (AGI).

The premium subsidies kick in when MAGI drops below 400% of the poverty level based on your family size. The premium subsidies are tax credits that you receive in advance. You estimate your modified adjusted gross income for the upcoming year, which then determines the subsidy. When you complete your tax return at the end of the year, the subsidy is recalculated based on your actual MAGI and you’ll either pay back some of the subsidy or receive an additional amount, depending on whether your actual MAGI was above or below your estimate.

Cost-Sharing Subsidies

In addition, there is a lesser known subsidy that kicks in when income drops below 250% of the poverty level. These cost-sharing subsidies are available only on silver plans. Depending on your income, you will end up with lower deductibles, copays, etc. with no additional premium. For example, the standard family deductible for a plan might be $3,600, dropping to $3,000 if income drops below the first threshold and dropping again to $1,200 if income drops below a second threshold. Unlike the premium subsidy, there is no reconciliation at the end of the year for the cost-sharing subsidy if it turns out your income was higher or lower than your initial projection.

Insurers are required by law to provide this cost-sharing subsidy to subscribers, and the ACA states that insurers will be reimbursed by the federal government. However, when the law was passed, some argued that that reimbursement was not properly appropriated by Congress. House Republicans sued the Obama administration claiming those reimbursements were illegal. The case was winding its way through the courts when the Trump administration took over. After several months of continuing the reimbursements President Trump decided to cut them off last month. That decision had a major impact on the pricing of ACA plans for 2018, which I will discuss below.

Medicaid

If your income is below 140% of the poverty level you no longer qualify for an exchange subsidy and instead will be referred to the state Medicaid program, assuming you live in a state that opted to expand Medicaid under the ACA. The Supreme Court ruled that states were not required to expand Medicaid, and several did not. New Jersey, New York Connecticut and Minnesota were among the states that did.

Income Thresholds

Here are the income thresholds in 2018 for the premium and cost-sharing subsidies and for Medicaid, based on family size:

Family           Premium                   Cost Sharing

Size         Subsidy Threshold      Subsidy Threshold    Medicaid Threshold (Parents*)

1                     $48,240                        $30,150                      $16,642

2                     $64,960                        $40,600                     $22,411

3                     $81,680                        $51,163                        $28,179

4                     $98,400                        $61,500                      $33,948

5                     $115,120                        $71,950                       $39,716

6                     $131,840                       $82,400                       $45,484

 

*Note that the Medicaid threshold is considerably higher for dependents 18 years old and younger so it is possible that the parents would qualify for an exchange plan but the children would qualify for Medicaid.

Given that COBRA is unsubsidized, if your income will be below the thresholds above for 2018, it is likely that a plan obtained on the exchange will be less expensive than COBRA.

Estimating 2018 Income

For those in a job transition, estimating and providing documentation for your 2018 income can be problematic since you do not know when you will land a new job. Be sure to think through the implications of the estimate you provide. Some people I have spoken to do not want to end up on Medicaid because they see doctors who do not accept Medicaid patients. In that case, you may need to employ strategies (such as Roth IRA conversions) to boost your income high enough so that it makes it over the Medicaid threshold.

You will be able to go in later and adjust your estimated income for the year, up or down, if your situation changes—including getting a new job. Keep in mind that you may have to pay back some or all of the subsidy if the income from your new job causes your annual income to exceed your initial estimate. But you should still project your income as if you don’t land a job in the upcoming year. If you land a job early in the year, your income will likely end up over the threshold and you will have to pay back the entire subsidy. But that would only be a month or two of subsidy. If you land a job late in the year, the annual income should not increase that much relative to the initial estimate. Landing a job in the middle of the year might be the most problematic if it puts your income level just over the threshold, but there may be ways (401K contributions, etc.) to keep your income below the threshold.

You should also be aware that taking distributions from retirement accounts will increase your income and therefore decrease the amount of the subsidy. You may want to consider other options, if available, for current cash flow needs.

Deciding between COBRA and the Exchange

Before switching plans you need to ensure that you consider all costs, not just the change in the premium (assuming you don’t qualify for a cost-sharing subsidy). The plans available to you on the exchange may have different deductibles, out-of-pocket maximums, coinsurance percentages, etc. when compared to your COBRA plan. Any comparison you do should include all these factors. What I did when doing the comparison for my family’s health coverage was download all the claims we submitted during the prior year on COBRA and then recalculated what the total cost would have been using the provisions of the exchange plan that best fit our needs. We opted to go with the exchange plan.

What about Rate Hikes in 2018?

This is where the discussion gets interesting. Because of the decision by Trump to cut off the cost-sharing subsidy reimbursement and other moves made to weaken the law, insurers were approved for rate hikes in 2018 far in excess of what they would have otherwise been. Insurer rates are approved by state regulators and differ by state. For example, Horizon Blue Cross, which is the dominant insurer on the individual market in New Jersey, requested a rate hike of 9.6% assuming market conditions similar to prior years. But because of the moves made by the Trump administration the rate hikes that were ultimately approved averaged 22%.

It is important to note that anyone receiving a subsidy will not be significantly impacted by this rate hike. The subsidy is tied to the cost of the second lowest silver plan available on the market. In 2018 the cost of this benchmark plan increased by 21% which means assuming level income year over year the subsidy will increase 21%, offsetting the premium increase.

However, those not getting a subsidy may have to absorb the premium increase depending on how the state regulators and insurers decided to handle the altered environment. States like California were very aggressive in protecting their subscribers and loaded all of the “Trump” rate increase onto silver exchange plans. Plans in other tiers (gold, bronze, and silver off-exchange plans) received much smaller increases. A nonsubsidized subscriber would simply have to select a plan from a different tier or a nonexchange silver plan to avoid the big rate increase. And subscribers eligible for a premium subsidy but not a cost-sharing subsidy could pick a plan for the bronze or gold tiers and come out a big winner since their subsidy might increase by 30% but their premium might only increase by 10%. The federal government will have to absorb that cost in the form of additional premium subsidies paid. The irony is that cutting off the cost-sharing subsidies maythe government more in the form of increased premium subsidies which will increase the budget deficit.

Unfortunately, not every state (including my home state of NJ) was as proactive as California. In New Jersey, nonsubsidized subscribers will be looking at significant premium increase for 2018. Whereas in the past the cost of an unsubsidized exchange plan was often comparable to COBRA, with these rate increases I would expect COBRA to be more cost effective in most cases.

Deadlines for Enrolling

Open enrollment for 2018 began on November 1 and runs through December 15, which is a shorter period than last year. If you miss this open enrollment period, you will have to wait until 2019 to enroll unless you qualify for a special enrollment period due to loss of health insurance, a change in household size, or a change in residence.. When your group insurance through work ends you have 60 days to switch to an exchange plan. You can do this anytime during the year. But once you start COBRA and get outside that 60-day window, the only time you can switch to an exchange plan is during open enrollment unless you are at the end of the 18 months of COBRA coverage. There is one other exception, which is if your former company was paying your COBRA premiums and those payments cease, you are allowed to sign up for an exchange plan outside of open enrollment.

If you already have an exchange plan and want to keep the plan you have, you can do nothing and it will automatically renew. However, if you are receiving a subsidy it is usually best to go into the HealthCare.gov website each year and update your income forecast for the upcoming year.

If you choose not to pay for health insurance, you will have to pay a fee for any month that you, your spouse, or tax dependents do not have qualifying health insurance, Similar to 2017, the fee for 2018 will be the higher of either $695 per adult or 2.5 percent of household income subject to a cap. There is a possibility that this individual mandate will be repealed in the upcoming tax law changes.

SHOP/Association Plans

Options outside of COBRA and an exchange plan are somewhat limited. If you start a business and have a least one Full-Time Equivalent (FTE) employee who is not a spouse or other direct family member you might be eligible for a small business (SHOP) plan, which would likely be less expensive than an individual plan. But these plans have minimum requirements in terms of employee participation. Another option is a Multi-Employer Welfare Association plan in which a group of small business owners who belong to various business associations band together to create a suite of employer benefits available to members. Unlike SHOP plans some Association plans will accept sole proprietors, so if you have your own business (consulting, etc.) you may qualify. Because these plans are self-insured you will want to review their financial health. One of the executive orders that President Trump signed was to explore letting these association plans sell insurance across state lines to create a more viable alternative to ACA plans. Unlike ACA plans, Association plans may be allowed to exclude participants based on preexisting conditions.

Religious Cooperatives

The last option out there that I am aware of are Christian Healthcare Ministries, which are cooperatives of individuals usually with a religious affiliation who agree to help each other in times of medical need. There are different structures, but the idea is that when a member has a medical need he or she appeals to the group which then contributes assistance. There are usually limits on aid provided and no guarantee that the need will be met. These groups also typically limit assistance related to preexisting conditions.

Make Your 2018 Health Insurance Decision Soon

As I mentioned earlier. the deadline for making a decision regarding the ACA is December 15 which is fast approaching. I strongly recommend not waiting until the last week as the systems tends get bogged down with the crush of last-minute enrollments. Please feel free to reach out to me if you need help sorting through this. This is a service that I provide at no cost.