Health Care After Reforms: More to Cheer than Fear

One reason may be that the reform calls for all 50 of them to operate exchanges on which individuals and small businesses can purchase health insurance.
One reason may be that the reform calls for all 50 of them to operate exchanges on which individuals and small businesses can purchase health insurance.

Americans aren't exactly all on the same page when it comes to health-care reform. As soon as the legislation passed in March, more than a dozen states filed suits against the federal government, arguing Uncle Sam can't compel people to buy health insurance.

One of the new law's key ways of expanding coverage is a federal "mandate" that requires many of America's 50 million uninsured to purchase insurance -- with federal subsidies when needed -- or face fines if they don't. That provision, by the way, doesn't kick in until 2014.

Experts say the legal challenges from states including Florida and Virginia stand little chance of succeeding. The federal government, they maintain, has a lot of authority to regulate public health, particularly if it makes it more affordable. But as health-law expert Timothy Jost puts it, "We're not starting off on the right foot."

"Popular Model" in Massachusetts

Why this foot-dragging by some states? One reason may be the reform calls for all states to operate exchanges on which individuals and small businesses can purchase health insurance. Some states have argued the insurance exchanges could hurt patients and limit access to care. But a look at Massachusetts, which implemented a health-insurance exchange that has served as a model for the federal reform, suggests this hasn't been the case.

The Bay State created the Health Connector exchange allowing uninsured state residents to shop for insurance on the Web in 2006. By 2009, the number of uninsured had dropped to 2.7% -- the lowest rate in the nation -- compared to about 9% before Massachusetts pursued universal health coverage.

"It has been a popular model," says Sara Collins, vice-president at The Commonwealth Fund, a private foundation in New York that researches health-care issues. "People have been really happy with it."

Federal Plan Has More Cost Control

The main gripe about Massachusetts's revamped health-care plan? It hasn't helped the state cut costs, says Jost, a professor at the Washington and Lee University Law School in Lexington, Va. "But that's not something they set out to do," Jost says. "There's more cost control in the federal legislation than there was in the Massachusetts legislation."

According to the Obama Administration, the majority of us won't really notice any change in our health care as the reform takes effect on a staggered basis over the next four years. (The Commonwealth Fund has an excellent time line that lays out when the various changes will be implemented.) That's because the 58% or so of Americans who are covered under employer-sponsored health-care plans will continue to be.

Those who will see a difference are the 32 million or so currently uninsured who will eventually get coverage. Either they'll be added to the rolls of Medicaid -- the federal health program for low-income individuals -- or will be able to buy insurance through one of the state-run exchanges. And there's a pretty good chance the folks who go from having no coverage to having insurance will like the change. This will likely make it harder for reform opponents to push for the legislation's repeal.

Among the biggest improvements is that insurers will no longer be able to deny people coverage based on pre-existing conditions. It'll be another four years before this is the law, but starting this year, carriers can no longer rescind contracts once someone is covered in their plan.

Insurers Known to Drop Enrollees

Insurers have been known to cancel coverage when enrollees have developed conditions that are costly to treat, citing omissions that may have been made on their enrollment forms. "This was not an uncommon event," says Collins. Also this year, insurers can no longer impose lifetime caps and unreasonable annual maximums on benefit claims.

But much of the fuss has been made about the insurance exchanges, most likely because how they'll operate isn't clearly understood. Outside of Massachusetts and the handful of other states that have them, few individuals have a clue about how they'll work. A review of the exchanges' main principles suggests they may actually do a lot of good.

Here's how it'll work. Adults earning 133% of the federal poverty level income or below -- about $14,000 for a single person or about $29,000 for a family of four -- will qualify for Medicaid.

Anybody above that level -- an expected 24 million Americans -- will be able to buy insurance on a health-insurance exchange. And individuals earning up to 400% of the federal poverty level in income -- or about $88,000 for a family of four -- will be eligible for federal subsidies to do so. "Most people who try to go into the individual market today never get into a plan," says Collins. "It's not affordable. The exchanges will be a significant improvement."

Goal of Insuring 95% of the U.S.

Small businesses, meanwhile, will be eligible for tax credits to offset premium costs associated with the mandate of providing insurance.

There's been a lot of squawking about the fact that the government will penalize people who are required to buy insurance on an exchange but fail to do so. Fines could approach $695 per person, or 2.5% of income for failure to do. Why the teeth in the law? The federal government has decided that it's the only way to achieve its goal of getting 95% of the country insured. (Undocumented aliens will not be covered under the new law).

But the mandate won't apply if an individual's insurance premium exceeds more than 8% of their income. "I think people will mostly decide to enroll," says Collins. She says for most Americans, it will make more sense to pay for coverage than to pay out of pocket for medical expenses. In addition to premium subsidies, some individuals will be eligible for cost-sharing credits to help with insurance co-payment and deductibles, she adds.

Exchanges will be designed to allow individuals -- and small businesses -- to go online and easily compare plans offered by various carriers. What's more, there'll be an independent rating system for plans to help consumers make the best choices, experts say. "Consumers will be able to make apples-to-apples comparisons," says Jost.

Harder to Cherry Pick Healthiest

Tougher regulations will make it harder for insurers to "cherry pick" the healthiest individuals, a practice that led to the failure of the health-care exchange for small businesses in Texas, experts say. For starters, insurers will have to offer the same policies and pricing for products both inside and outside of the exchanges. "Insurers are infinitely resourceful, and they will find ways to cherry pick," says Jost. "But that said, there'll be a lot of safeguards in the state exchanges."

The lack of a public-option means there could be less competition than if private insurers also had to compete for customers with a government-run health-care plan.

But if the experience of the largest private Medicare exchange is any guide, the state-run exchanges could foster competition among insurers, creating some savings in America's bloated health-care system.

Bryce Williams, president and CEO of Extend Health, says the exchange his company runs has enabled corporations to save about $1,000 annually per employee by letting the retirees shop for Medicare plans among many insurers. Before contracting with Burlingame (Calif.)-based ExtendHealth, companies could only offer their employees a handful of choices among private Medicare programs, he says.

"You see incredible plan competition among carriers," says Williams. "If the exchanges can work for seniors, who are the most sensitive consumers and the hardest to satisfy, they should work beautifully for active employees or for the self-employed." If the reform rolls out as expected, we should find out if that's indeed the case in less than four years.

Originally published