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Health Insurance Exchange
Major changes in health insurance in 2014
In the individual market, sometimes thought of as the "residual market" of insurance, insurers have generally used a process called underwriting to ensure that each individual paid for his or her actuarial value or to deny coverage altogether. The House Committee on Energy and Commerce found that, between 2007 and 2009, the four largest for-profit insurance companies refused insurance to 651,000 people for previous medical conditions, a number that has increased significantly each year (49% increase in that time period). The same memorandum said that 212,800 claims had been refused payment due to pre-existing conditions and the insurance firms had business plans to limit money paid based on these pre-existing conditions. These persons who might not have received insurance under previous industry practices are guaranteed insurance coverage under the ACA. Hence, the insurance exchanges will shift a greater amount of financial risk to the insurers, but will help to share the cost of that risk among a larger pool of insured individuals.
The ACA’s prohibition on denying coverage for pre-existing conditions will begin in 2014. Until that time, the ACA provides funds for state-run high-risk pools for those with previously existing conditions.
Limit to price variations
Premiums in the individual private insurance exchanges could not exceed ~4.5 times the cost of the lowest cost premium plan
Pricing Factors Allowed in the exchange under the ACA:
Pricing variation will be allowed by area (within a state) and family composition ("tier") as well.
Comparable tiers of plans
Within the exchanges, insurance plans are to be offered in four tiers designated from lowest premium to highest premium: bronze, silver, gold, and platinum. The plans covered ranges from 60% to 90% of bills in increments of 10% for each plan. Proponents of the health reform believe that allowing comparable plans to compete for consumer business in one convenient location will drive prices down. Having a centralized location increases consumer knowledge of the market and allows for greater conformation to perfect competition.Each of these plans will also be limited in its out of pocket expenses at $5,950 for individuals and $11,900 for families.
Regulations on rescission
The House Committee on Energy and Commerce found that between 2007 and 2009, the four largest insurers (Aetna, Humana, UnitedHealth Group, and WellPoint) refused to pay 212,800 claims because of pre-existing conditions. This practice will be outlawed in the new reform.
Lifetime and annual limits eliminated
The ACA eliminates lifetime and annual limits from plans in the individual Health Benefits Exchanges. This effectively eliminates the ceiling on financial risk for individuals in the individual exchanges.
Additional cost management
Beyond the lifetime and annual benefit limit elimination, individuals within income range between 133% and 400% of the federal poverty level (FPL) are able to receive federal subsidies in the form of tax credits to purchase this insurance.
Economics of health insurance exchanges: the individual mandate
The reason America’s Health Insurance Plans were willing to accept these constraints on pricing, capping, and enrollment is the individual mandate. The individual mandate requires that all individuals purchase health insurance. This requirement of the ACA allows insurers to spread the financial risk of newly insured people with pre-existing conditions among a larger pool of individuals.
Additionally, a study done by Pauly and Herring estimates that individuals with pre-existing conditions in the 99th percentile of financial risk represented 3.95 times the average risk (mean). Figures from the House Committee on Energy and Commerce would indicate that approximately 1 million high-risk individuals will pursue insurance in the Health Benefits Exchanges. Congress has estimated that 22 million people will be newly insured in the Health Benefits Exchanges. Thus the high-risk individuals do not number in high enough quantities to increase the net risk per person from previous practice. It is thus theoretically profitable to accept the individual mandate in exchange for the requirements presented in the ACA.
Author: Wikipedia Contributors
Publisher: Wikipedia, The Free Encyclopedia
Date of last revision: 7 March 2013