Current Individual Healthcare Coverage Doesn’t Meet ACA Standards

The majority of individual policies currently on the market could not be sold on state exchanges in 2014, according to a new report.  The report, published in Health Affairs and funded by the Commonwealth Fund, examined individual plans from several states and found that 51 percent of the plans fail to meet the minimum requirements established by the Patient Protection and Affordable Care Act (ACA).

The law says that plans sold on public exchanges must cover at least 60 percent of the costs of treating a typical patient, a figure known as “actuarial value.”  Most of the policies the researchers analyzed covered less than that, meaning the possibility of high out-of-pocket costs for patients.  To meet the actuarial value targets for “bronze plans, “the lowest category, current plans would have to pay for more care. That likely means they would be more expensive to consumers.

“The individual market of the future will sharply contrast with the market of the past decades,” said John Gabel of the University of Chicago.  They do not say whether changes to the market will be good or bad for consumers, but they are likely to be a mixed bag.  Supporters of the ACA say that new regulation of insurance products provide key consumer protections.  Opponents believe that they will drive up the cost of insurance. “Deductibles will have to be lowered,” Gabel said. “The out-of-pocket limits may have to be lower.  They will have to offer maternity benefits” as well as coverage for mental-health and substance-abuse.

People who buy individual health insurance policies typically pay higher premiums and higher out-of-pocket costs than people who have employer-provided.  Individual policies usually offer less coverage and, until the ACA fully becomes effective in 2014, can exclude coverage for pre-existing conditions.  The ACA sets minimum standards for plans sold through the state-run exchanges.  Slightly more than 50 percent of people on the individual market have policies that cover less than 60 percent of plan costs.  One-third of individual policies pay 60 to 69 percent, enough to meet the lowest thresholds under the healthcare law.

Many consumers will get more generous coverage if they purchase insurance through an exchange.  But, according to the Congressional Budget Office (CBO), the boost in benefits could also increase premiums.  “Premiums for health insurance in the individual market will be somewhat higher on average under (the healthcare law) than under prior law, mostly because the average insurance policy in that market will cover a larger share of enrollees’ costs for healthcare and provide a slightly wider range of benefits,” the CBO said.  The increases would be partially offset by other policies that would cut premiums, but still come out slightly higher.  Consumers won’t have to pay the extra costs, though, because the federal government will provide subsidies to help cover the cost of insurance.

Approximately 62 percent of people who now try to buy insurance for themselves in the so-called individual market report that they can’t find an affordable policy, said Sara Collins, vice president for affordable health insurance at the Commonwealth Fund.  People who do “often end up with coverage that’s really not adequate.”  Enhancing current plans to meet the ACA’s requirements will probably raise consumer’s up-front premiums, Gabel said.  “Other things held constant, the cost of the plan will go up,” he said.  The ACA does not allow insurers to cherry- pick only healthy customers; adding sick people to insurance pools will also raise costs, he said.

People whose policies currently don’t meet the health law’s requirements will have to “buy up” in 2014, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans.  “Any time new benefits are added to a policy that adds to the cost of coverage.”  Premium increases can be alleviated by other changes, according to Gabel.  The exchanges should reduce administrative costs for insurers and “make for more price competition” among plans.  The ACA also limits, to 20 percent of premium revenue, the amount insurers can keep for administrative costs and profit, and creates subsidies to cut the cost of insurance for low- and middle-income people.  “Presumably a lot of people on these really crummy plans in the study could potentially be eligible for premium subsidies,” Collins said.  “It’s really going to be important that other provisions of the law address the premium growth issue.”

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