'Obamacare' Explained: What You Need to Know About Health Exchanges

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Flickr/Carl Lovén
Flickr/Carl Lovén
By Mandi Woodruff

We're months away from cutting the ribbon on the new online marketplace for health insurance, but the vast majority of uninsured Americans -- the very people the Affordable Care Act is meant to help -- still have no idea whether they'll be in the shopping mood or not. According to a recent survey, nearly two-thirds of uninsured Americans say they haven't decided whether or not they'll buy health insurance by the Jan. 1 deadline (even though they'll have to pay a penalty if they don't).

Another 10 percent say they flat out won't buy in at all.

We understand the hesitation. Change is hard enough when it's simple to understand, let alone when it has to do with things like insurance, health care policy, and your own financial and personal well-being.

"People just don't understand how this is going to affect their wallet, what prices are going to be and what this could really cost them," said Laura Adams, InsuranceQuotes.com senior insurance analyst.

Here's what you need to know:

What is this new health care exchange all about?

The health care exchange (aka the marketplace) is the centerpiece of the Affordable Care Act, an online marketplace where consumers can shop around for health care plans, just like auto insurance. All 50 states will have their own marketplaces, some of which will be run by the federal government and some of which will be run by individual states.

Delays notwithstanding, the marketplace opens Oct. 1 and people will have until Jan. 1 to pick up a policy if they want to escape penalties. There, you'll be able to choose from four different varieties of plans: platinum (highest benefits), gold, silver and bronze (lowest benefits).

Does everyone need to sign up for a health plan?

The health care exchange is open for every U.S. resident, but only the uninsured will face penalties for skipping out. If you are enrolled in your employer's health plan or pay for your own plan already, you can keep on keepin' on, although we'd at least recommend shopping around to see if there are more affordable plans out there.

What if you don't think you can afford it?

Obviously, if everyone could afford to enroll in health care, chances are we wouldn't have an Obamacare plan to deal with at all. As it stands, 61 percent of the uninsured respondents surveyed by InsuranceQuotes cited money issues as the main reason they haven't purchased health insurance.

To help, the government has put in place tax credits that are specifically designed to help low-income households cover the cost of a health care plan.

To qualify, individuals or families can earn household incomes up to 400 percent of the federal poverty level ($94,200 for a family of four in 2013). You can claim the tax credit in advance, rather than paying upfront for your health care plan and then waiting for a refund after tax season, Adams notes.

Generally, the government will apply those credits directly to your health insurer, which will reduce your premium cost.

To find out how big a tax credit you can expect, use the Kaiser Family Foundation's calculator.

What if you just don't want to enroll?

To make the reform easier to swallow, lawmakers have thrown consumers a couple of bones: For starters, the Jan. 1 deadline for enrollment is a soft one. You can start signing up when the exchange opens on Oct. 1 and you have until March 31 to enroll.

That gives people a three-month cushion to get their ducks a row. And on April 1, when the penalties begin, they start small and rise on a tiered scale up until 2016:

  • Families - $285 or 1% of total household income, whichever is greater.
  • Individual adults - $95 or 1% of total household income.
  • Families - $975 or 2% of income, whichever is greater.
  • Individual adults - $325 or 2% of income.
  • Families - $2,085 or 2.5% of income, whichever is greater.
  • Individual adults - $695 or 2.5% of income.

"It's designed to be this kind of gentle nudge that becomes not so gentle in a couple years," Adams says.

Some analysts predict young people will look at the first year penalties and shrug. If you're under 26, you can always sign up for your parents' health care plan. And paying a $95 fee may not seem all that tough a burden when you compare it to the potential higher cost of a year-round health care plan.

It's not the end of the world if that happens, but it could mean some trouble for Obamacare. A lot of the new plan's success rides on whether it can attract consumers who are both young and healthy along with the older, unhealthy sect in order to keep costs affordable for everyone. If young, healthy, uninsured people decide they'd rather pay a fee than shell out hundreds of dollars per year for a health policy they doubt they'll use, leaving mostly unhealthy, older people enrolled, it could throw things out of balance and make policies more expensive.

But given the results of this Kaiser Family Foundation poll, in which nearly 77 percent of 18- to 25-year-olds said health care is very important, those worries may be overblown.

What about Medicaid?

Families and individuals who earn less than 138 percent of the federal poverty level will still have access to Medicaid.

At best, Medicare coverage in states will be expanded under Obamacare. At worst, states will exercise their right to skip an expansion in favor of the status quo. So far, about 13 states have opted out of an expansion. This map shows where each states stands as of June 14.

How much can I expect my health care costs to rise?

We wish there were an easy way to answer this question. Because each state is in the process of submitting estimates from insurers, we can only guess at premium costs as numbers trickle in. The Wall Street Journal analyzed estimates from eight states and pretty much confirmed what experts had predicted - that the new health care plans will be more expensive for the young and the healthy.

"Healthy consumers could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year, while the premiums paid by sicker people are set to become more affordable," the WSJ's Louise Radnofsky reports.

Even so, there's still a chance rates could decrease over time if insurance regulators decide to lower them in order to compete in the marketplace. And if that happens, then, well, Obamacare is officially doing its job. We've already seen that happen in Oregon, and as Politico's Jason Milliman points out, since all rates have yet to go through the state review process, anything could happen.

"The prices that many people can expect to pay, though, may remain a mystery for a few more months," he writes. "The feds, who are reviewing rates for exchange plans in more than half the states, have released limited information so far about who's even asked to sell on federal-run insurance marketplaces, let alone what they'd like to charge."

The bottom line: It's up to you whether or not you can afford to skip out on health care. For now, kick back and wait until the exchange opens in October until you start to worry. You can do some searching and see what rates are really out there before making your decision. Any speculation on costs before then is basically white noise as far as we're concerned.

Obamacare's Reach - Which States Will Benefit the Most and Least
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'Obamacare' Explained: What You Need to Know About Health Exchanges

According to a study conducted by the Department of Health and Human Services and the nonpartisan Henry J. Kaiser Family Foundation, Kentucky will be the biggest winner in the proposed Medicaid expansion. Currently, 16.1% of Kentuckians under 65 are uninsured. The new Medicaid rules will reduce the number of poor people without insurance by 57.1%.

Kentucky voted for John McCain in 2008.

Currently, 18.7% of Oregonians under 65 and 12.8% under 18 don't have health insurance. Under the proposed Medicare rules, the number of poor people without insurance will drop by 56.7%.

Oregon voted for Obama in 2008.

Times are tough in the Mountain State: 18.6% of West Virginians under 65 are uninsured. If the state adopts the Medicare rule change, the number of uninsured poor people will drop by 56.7%.

West Virginia voted for McCain in 2008.

South Carolina Gov. Nikki Hailey has already vowed to reject the Medicare expansion. Her state has one of the highest percentages of uninsured citizens: 19.9% of South Carolinians under age 65 don't have insurance. 12.7% of children under 18 are also uninsured. Under the proposed new Medicare rules, the percentage of poor people without health insurance would drop by 56.4%.

South Carolina voted for McCain in 2008. It's also where the first shot was fired in the Civil War.

Like South Carolina, Mississippi has also announced its plans to reject the Medicare expansion. And, like South Carolina, it could especially use the health care funds: 20.2% of Mississippians under 65 and 12.7% of those under 18 don't have insurance. Under the new rules, 54.9% of those poor people currently without health insurance would get it.

Mississippi voted for McCain in 2008.

At the other end of the scale, Delaware is one of the states that stands to benefit least from a Medicare expansion. Only 11.8% of people under 65 in the state are uninsured. Still, with the new rules, the number of uninsured people under the poverty line would drop by 15.9%.

Delaware voted for Obama in 2008.

With an uninsured population of just 13.3%, New York also won't get much out of the new Medicare expansion. Even so, the number of poor people without insurance in the Empire State will drop by 14.8%.

New York voted for Obama in 2008.

Arizona has one of the highest percentages of uninsured citizens: 21.2% of people under 65 and 16.2% under 18 don't have insurance. Even so, the Medicare expansion won't help the Grand Canyon state all that much: it will only reduce the number of poor people without health care by 13.6%.

Arizona voted for McCain in 2008.

Vermont has one of the lowest uninsured percentages in the country: Only 10.4% of its citizens don't have health coverage. Not surprisingly, the Medicare expansion won't help that much -- it will only reduce the number of uninsured poor people by 10.2%.

Vermont voted for Obama in 2008.

Photo: Skeddy in NYC, Flickr.com

Thanks in large part to Mitt Romney's statewide health insurance program, Massachusetts is the best-insured state in the nation. Only 4.6% of citizens under 65 and 2.1% under 18 aren't insured. Not surprisingly, the Bay State will also benefit least from the Medicare expansion: it will only reduce the number of poor people without insurance by 10.2%.

Massachusetts voted for Obama in 2008.


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