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Marketplace Health Insurance – The Rhyme and Reason

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Marketplace health insurance is coverage obtained through one of the health insurance marketplace health insuranceexchanges operated by the federal government or one of the states. The health insurance marketplace, also called the health insurance exchange is an online resource to obtain and learn about insurance plans and options. It particularly is a source of health insurance coverage for low to moderate income people and a resource for help with payment for coverage. Not only can individuals and small businesses enroll into plans through it. It is also a resource for enrolling in low income plans including Medicaid and Children’s Health Insurance Program.

The plans it offers provide the essential health benefits required by the Patient Protection and Affordable Care Act (PPACA). Private insurance companies sell the purchased plans. They generally are HMO and PPO products, but there are some POS and EPO plans in some parts of the country. Each plan has a metal level of bronze, silver, gold, or platinum. The metal level is indicative of a plan’s actuarial value. Marketplace health insurance plans cannot deny coverage or charge a higher premium for pre-existing illnesses because of a provision in the PPACA. They cover some preventive care services.

To be eligible to purchase marketplace health insurance individuals and family members must be less than 65 years of age and United States citizens or legal residents. Also, one must not qualify for Medicaid. One is not eligible if incarcerated. Small businesses with fewer than 50 employees may also purchase through the health insurance marketplace.

The main reason to purchase marketplace insurance is to obtain assistance paying for coverage and/or health services, if eligible. Financial assistance with the purchase of coverage is in the form of a premium subsidy, also called a premium tax credit. Assistance paying for medical services is in the form of a cost-sharing subsidy.

A cost-sharing subsidy is a reduction in out-of-pocket expenses based on one’s level of income. This subsidy does not actually pay the recipient money or provide a tax credit. It just lowers the amount you have to pay when you see a doctor. It is a special reduced cost-sharing plan with a lower deductible, copayments and coinsurance than the same benefit plan sold to individuals with higher incomes. In addition, these special plans have an out-of-pocket maximum even lower than the annual limit set by the ACA or the one for the regular plan if it is lower than the one set by the ACA. The reductions are in proportion to one’s income based on the federal poverty level. An example of a provision of such a plan is the reduction of an office visit copayment from $30 to $15 per visit. That same special plan might include a reduction in the maximum annual out-of-pocket costs for a family from $4500 to $2250. In order to receive cost-sharing subsidies the plan must be a silver-level one. Bronze, gold and platinum-level products don’t qualify as reduced cost-sharing plans.

The table below shows the federal poverty levels and the thresholds for obtaining the different types of ACA subsidies as well as Medicaid during the current open-enrollment period. The figures vary based on the number of members of a household. The figures apply to the US and 48 contiguous states. The numbers are different for Alaska and Hawaii.

Federal Poverly Guidlines and Different Subsidy ThresholdsHealth insurance that meets the requirements of the Affordable Care Act (ACA) is available from sources other than the health insurance marketplace, such as from brokers or directly from insurance companies. But in order to obtain either type of subsidy one has to purchase the insurance through the federal or one of the state health insurance exchanges.

Purchasing ACA-qualifying insurance outside of the health insurance exchange and claiming the equivalent of the premium tax credit at the end of the year is an option. If self-employed you can claim the full amount of the premiums paid for the year as a deduction on line 29 of the 1040 form. The problem with that approach though is waiting until the end-of-the-year for the refund is a financial disadvantage for most.  Moreover, there is no way of recovering lost savings from the missed cost-sharing subsidy.

You can generally purchase marketplace insurance only during open enrollment with a few exceptions. Open enrollment begins at the first of the year and continues until early spring. There are some instances of life-changing events which allow the purchase of marketplace insurance outside of the enrollment period. Those circumstances are:

  • Marriage
  • Relocation to another state
  • Loss of job-related insurance
  • Expiration of COBRA coverage

You can purchase marketplace insurance through the federal health insurance exchange at https://www.healthcare.gov/ unless you live in a state which operates its own exchange.

 

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