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Open enrollment under the new health care law closed for 2014 at the end of March. There won’t be another opportunity to apply for coverage until late in the year. There is nothing like a deadline to move someone to action. So, even though we are fortunate to have excellent retiree health benefits already, I decided I ought to compare the offerings from the new health care exchanges to our current plan, and see if we could get a better deal.

As a potential and now actual early retiree, I’ve followed the new health care law closely since before its inception. Along with lower earners and those with pre-existing conditions, early retirees have been one of the groups most likely to benefit from the law. That’s because we are prone to fall into a health insurance “gap” after our employer-sponsored plans run out, and before Medicare starts at age 65.

Given my interest, in 2012 I spent quite a few days researching and writing a post on the state of retirement health care: A Guide to Retirement Health Care — How Will YOU Get It?

Now it’s time for an update: What has changed about the health care landscape now that the Patient Protection and Affordable Care Act (ACA) is a reality? Are there new, economical health care options for you, and me? I can’t answer all the relevant questions just yet, but I can make a start by relaying what I learned in my time on the new health care exchange….

Bronze, Silver, Gold: Heavy Metal

Turns out that my state currently delegates its ACA exchange to the federal site: HealthCare.gov. The first thing you encounter when you access that site and look at plans is that they are categorized into five different levels: Catastrophic, Bronze, Silver, Gold, and Platinum. The government tells us that these categories are based on “how you and the plan share the costs of your care” and that the categories are not related to “the amount or quality of care you get.” Supposedly, regardless of the plan you choose, you will receive the same set of pre-defined Essential Health Benefits.

I wonder if this oversimplifies the reality. To say that the different plans have nothing to do with the amount or quality of care you get might be misleading. The very important footnote to that statement would be “assuming you can afford to pay for what the plan does not.” So, if a lower-earner buys a Bronze plan because the premiums are more affordable, but then they can’t afford to pay their 40% share of health care expenses, will they really get the same care over the long run?

In terms of cost sharing, the Bronze, Silver, Gold, and Platinum plans have actuarial values of 60%, 70%, 80%, and 90%, respectively. (Catastrophic plans are expected to have an actuarial value of less than 60%.) “Actuarial value” means the expected out-of-pocket cost to plan participants, on average, factoring in copayments, coinsurance, and deductibles. The concept seems easy enough to understand. But when you start digging deeper, you find that it’s either more complex than it first appears, or that the politicians have managed to twist the idea to their own purposes….

For example, given the definition, I would think that plans with the same actuarial value would have the same out-of-pocket costs. And yet, according to a report from the American Academy of Actuaries, plans in a given metal tier can have different out-of-pocket costs, despite having the same actuarial value: “…individuals could pay more out of pocket under certain plans in a given metal tier compared to others.”

And, after getting personal quotes on specific plans from HealthCare.gov, I can confirm this. Plans in the same tier do vary in their out-of-pocket costs. Also surprising to me, there is not a clear pattern to the Out-of-pocket-Maximum’s quoted for plans in different tiers. Based on the government’s explanation of the metal categories above, you would think that Bronze plans would always have higher out-of-pocket costs than Gold plans. Not necessarily so, it seems.

To get some clarification, I called eHealthInsurance, whose insurance agents have been helpful in the past. Though their plans aren’t always identical to those offered through the health care exchanges, they were able to offer some clarification. They said you don’t typically see variations in out-of-pocket costs between Bronze and Silver plans, at least. Rather, the difference comes in whether copays and prescriptions, for example, are counted toward the deductible or not.

Bottom line: The published out-of-pocket numbers for the various plans apparently don’t reflect your true ‘all-in’ costs — you’ve got quite a bit of fine print to read, and numbers to crunch, if you want to do a completely accurate comparison!

Shopping for health insurance at HealthCare.gov was supposed to simplify the process by letting people compare plans. And it does seem to have improved matters by offering a single portal for viewing health insurance options. But “compare plans” is a vague description of what you can do on the site. Sure the plans are shown in one list, and you can see some of the relevant cost variables for each plan on the same page. But there is actually no mechanism that I found to compare plan features side-by-side. And sorely lacking, in my opinion, is any capability for quantitative analysis of which plans might cost you more, or less overall. (Note that eHealthInsurance does provide such comparison capabilities, but the plans offered may be different.)

Cost-Sharing Reduction Subsidy for Silver Plans

So those were my initial impressions of HealthCare.gov: helpful, but leaving some critical questions unanswered. At least I thought I had my head around the new ‘metallic’ plan tiers. But next I learned that the government has created another flavor of plan:

Turns out that Silver plans can be “special.” Thus, if you buy a Silver plan and your income is within a certain prescribed range (up to 250% of the federal poverty level), you’ll receive a “cost-sharing reduction subsidy.” This is money intended to reduce the cost of the actual health care services you receive — copayments, coninsurance, and deductibles — as opposed to reducing health insurance premiums (which are already reduced if your income falls under 400% of the federal poverty level ). The subsidy is applied automatically and effectively shifts more of the cost onto your insurance company.

Thus, if your income is lower, you might be able to choose a Silver plan, with its lower premiums, and yet get benefits similar to a Gold or even a Platinum plan. Specifically, your subsidized Silver plan could cover about 73%, 87% or 94% of your health care costs, depending on your income level.

Defining “Income” and MAGI

As you might have gathered so far, quantifying everybody’s income is fundamental to the infrastructure of the new health care law.

But there are many possible measures of income. Digging deeper, what does the government mean by “income” in the context of the new law? By and large it means, not Taxable Income, and not Adjusted Gross Income, but rather something called Modified Adjusted Gross Income or MAGI.

MAGI is clearly described in a helpful chart from the UC Berkely Labor Center. In many cases, MAGI will simply be your Adjusted Gross Income, found on line #37 of your 2013 Form 1040. Just beware that both of these numbers, which are critical to computing your health care benefits, are usually substantially larger than your Taxable Income.

The new law is designed for the majority of people in stable jobs whose income level doesn’t change much from year to year. It assumes you have a set income prescribed within some narrow range. But for early retirees living off assets, who experience both some unpredictability and some degree of control over when they realize income, the costs and benefits of the new law are not immediately obvious.

Do we sequence our withdrawals so we can qualify for specific Premium Credits and the Cost-Sharing Reduction Subsidy in certain years? What happens in other years when we have larger gains or distributions? Will our health care costs fluctuate widely with our realized income? While the new health care law has provided some assurances as to coverage and costs, it has left plenty of remaining implementation questions, at least for early retirees.

Retiree Health Benefits and the New Law

Exploring retiree-related issues further, how does the new law apply to retirees like us fortunate enough to have retiree health benefits — even if we have to pay for them?

For starters, as might be expected, if you’ve got retiree health benefits, then the new law does consider you to be insured — meaning you don’t have to worry about paying penalties for not having health insurance.

But, the big question for us, and others, is this: “Should we give up our existing retirement health insurance benefits in hopes of purchasing less expensive insurance through the exchange?”

Here is where matters get confusing again. In general, the government says that retiree health benefits are treated like job-based health benefits: The same rules about affordability and minimum standards apply to both. That means you aren’t generally eligible for the exchanges, unless your job-related plan doesn’t meet minimum standards or is particularly expensive in relation to your income. (The government defines an “affordable” plan as one whose premiums cost less than 9.5% of the family’s income for the lowest-cost self-only coverage. There’s that requirement for a predictable income, again.)

But retiree health benefits, at least ours, are somewhat different from job-related benefits. We must pay for them, and they are optional. We could drop our policy. The government seems to allow for this. Rather than attempt to paraphrase the critical details, here is the explanation straight from HealthCare.gov:

“When your retiree coverage plan year ends, you can end the retiree coverage and enroll in a Marketplace plan instead. You can enroll in a Marketplace plan during Open Enrollment. Or you can enroll outside Open Enrollment, since the fact that your coverage is ending qualifies you for a special enrollment period. If you voluntarily drop your retiree coverage in the middle of a plan year, you won’t qualify for a special enrollment period to enroll in a new Marketplace plan.

So, my understanding is that we can drop our retiree benefits (as long as it’s at the end of a plan year), and immediately qualify for health insurance under the new exchanges.

To an early retiree like me, this sounds at least worth investigating. I can’t say I have that warm fuzzy feeling right now that would lead me to ditch our current excellent health coverage and leap into the ACA abyss. But if the cost savings were substantial, I’d have to consider it. So, how exactly do the new plans compare to our existing health insurance?

Our Decision, for 2014

If and when we buy a plan through the ACA exchanges what would we choose in order to match our current, excellent Blue Cross Blue Shield coverage via the Tennessee retirement system? How do we even identify a comparable plan for doing a cost comparison?

Being in our 50’s, and having already seen our medical care rise in recent years, with no reason to believe we’ll need less of it as we get older — we would probably want at least a Gold plan. (There are no Platinum plans in New Mexico.) We would want that higher level plan on the assumption that it would pay more of our medical expenses going forward. Investopedia says: “In general, if you expect to have a lot of health care visits or require regular prescriptions, you may be better off with a Gold or Platinum plan that pays a higher percentage of the costs.”

However, as I explained above, at our expected retirement income level, a Silver plan with the Cost-Sharing Reduction Subsidy could be cheaper for the same, or better, benefit. However that would add greater complexity and volatility going forward when our income fluctuated. So, for now, we’ll ignore the possibility of a Silver plan with subsidy. We would probably sleep easier anyway with the assurance of a premium Gold plan that we could keep regardless of our annual income.

Having decided on a certain tier, how do we choose a plan within that level? As I’ve described, supposedly all plans cover the same essential services, and all plans at the same level have the same actuarial value. Thus, assuming the ultimate ‘all-in’ cost is the same, we can probably safely ignore comparing plans at the same level, from a cost perspective. That’s because we are blessed with the necessary cash flow to afford any sequence of copayments, coinsurance, and deductibles. Rather, once we are sure that the provider network meets our needs, and the insurance company is one we trust, we could choose any plan at a given level.

So how exactly does our current retirement health plan compare to those on the exchange?

Well, fortuitously I was able to find Blue Cross Blue Shield Gold plans with approximately our same current monthly premium — $590. (But note that these exchange plans are including an $811/month tax credit based on a household size of three and a hypothetical realized income of $30,000 going forward. So the actual cost of these plans without a tax credit is more like a punishing $1,400/month.)

Thus I can hold the premium variable constant between our current plan and the exchange-offered plans. Then I can compare out-of-pocket costs between our plan and those on the exchange. Out-of-pocket maximum for our current plan is $4,750. For the best exchange plans it’s $8,250 to $12,700. Thus, assuming the services and providers are roughly equivalent, and that out-of-pocket costs bear some relation to ‘all-in’ costs, our current plan looks significantly better than the ACA options.

Thus, there seems to be no clear economic reason for us to make a switch. When you add in the risk factors of a new, complex law, still subject to change — the appeal of dropping our current retirement coverage for Obamacare recedes even further….

What Next?

Open Enrollment is over for coverage in 2014. If you are interested in purchasing coverage from the ACA exchanges, the open enrollment period for 2015 coverage will be from November 15, 2014 to February 15, 2015. So mark your calendar now.

Meanwhile, I will continue monitoring the changing health insurance landscape, both for this blog, and for our own personal coverage. As middle-income early retirees with expensive health insurance, we should be prime candidates for coverage under the new law.

Once the first year of implementation passes, what will we see in terms of costs, coverages, and availability? What snafus will arise, and how will they be dealt with? What changes will be made? Could the law be strengthened, weakened, or even repealed? Will it affect our existing health insurance?

You can bet I’ll be following those and related issues in the months ahead. Meanwhile, if you haven’t read my earlier article on health care options for retirees, check it out. And, if you have any experience evaluating your own health insurance options under the new law, do tell us about it below….

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