Pitfalls Emerge in Health Insurance Renewals

For the 8 million people who persevered through all the software trapdoors in the new health insurance exchanges and managed to sign up for coverage in 2014, their policies will probably automatically renew come November when open enrollment begins.

Seems like good news after all the headaches consumers endured after the program’s launch last year. Except that renewing the same policy may not be the best choice. Many may end up paying far more than they need to and with policies that don’t best fit their individual circumstances.

“(Automatic re-enrollment) could conceivably mean people will pay more in premiums unless they proactively take steps to comparison shop,” said Jenna Stento, a senior manager at Avalere Health, a health care research and consulting firm.

If you made a good choice last year, what could be so wrong about re-upping with the same plan?

Turns out plenty, particularly for those among the 87 percent of enrollees in health insurance exchange plans who received a federal subsidy to help pay for premiums. Understanding why that’s a problem isn’t easy, the result of complicated quirks in the Affordable Care Act, which established the exchanges in the first place.

Premiums Up 8 Percent

Overall, premiums on the exchanges in 2015 may be a bit higher for most people, at least according to one analysis of proposed plans and rates in nine states. Avalere found that the average premiums for Silver plans will climb an average of 8 percent. (There are four grades of plans offered, starting with Bronze plans with the cheapest premiums, but higher deductibles and co-pays, and moving up to Silver, Gold and Platinum.)

The Obama Administration announced last month that consumers who bought their policies on the federal exchange would have them automatically renewed, as well as the amount of their subsidies.  It will be up to each state exchange whether to offer a similar automatic renewal. People whose level of income has changed would need to enroll again since it would affect the amount of their subsidies.

But consumers who automatically re-up with the plan they already have could face steep and unexpected premiums and out-of-pocket costs, particularly if they received a federal subsidy.

Changing Benchmark Plans

Here’s why. The subsidy people receive is pegged to the second-lowest priced Silver plan, the so-called “benchmark plan,” meaning that the amount of a subsidy any individual receives no matter which plan he or she selects, is based on how much they would receive if they picked that benchmark plan.

In a hypothetical example Avalere provides, “Sue,” a Maryland resident, enrolled in the 2014 benchmark Silver plan in her region – offered by CareFirst Blue Cross — which had a monthly premium of $214. Based on her income, Sue’s contribution toward her monthly premium was set at $58, so she qualified for a monthly federal subsidy of $156 to make up the difference. If Sue had chosen a plan with a higher premium, her federal subsidy would have remained fixed at $156 and she would have had to pay more out of her own pocket.

However, in 2015, according to Avalere’s analysis of early rate filings, CareFirst Blue Cross will no longer be the second lowest Silver plan in Sue’s region but the ninth lowest out of 18 Silver plans, meaning that it will lose its status as the benchmark plan. CareFirst’s new monthly premium is $267. The new benchmark Silver plan (the Silver plan with the second lowest premium) will be the Kaiser Foundation Health Plan with a monthly premium of $231.

Sue’s contribution remains the same, but she will now qualify for a higher federal subsidy of $173 to make up the difference between her ability to pay $58 per month and the higher $231 monthly premium of the new benchmark.

If she automatically re-enrolls with CareFirst, however, she will have to cough up another $36 a month. By doing nothing, her out-of-pocket contribution will rise by 62 percent.

In another example, “Dave” enrolled in the benchmark Silver plan in Washington state, Group Health Cooperative, which had a monthly premium of $281. He received a federal subsidy of $85 each month, leaving him with a monthly out-of-pocket bill of $196.

In 2015, BridgeSpan Health will replace Group Health as the benchmark plan in Dave’s area, with a premium of $263 a month. Because of that lower premium, Dave will be entitled to only a $67 a month federal subsidy, leaving him again with a $196 monthly out-of-pocket expense if he switched to BridgeSpan. But if Dave sticks with Group Health, which hiked its premiums to $313, he will have to pay $246 each month out of his own pocket, a nearly $600 increase compared to last year.

This is not a theoretical wrinkle. Of the nine states whose 2015 premiums Avalere examined (Connecticut, Indiana, Maryland, Maine, Oregon, Rhode Island, Vermont, Virginia and Washington), all but Vermont appear headed for a new benchmark plan when open enrollment commences. Consumers who live in six of these states may have an unpleasant surprise when they see their bills if they let their policies automatically renew.

In Rhode Island and Virginia, the opposite may be true. Last year’s benchmark plans are expected to become the lowest price Silver plans, instead of the second lowest. Consumers renewing the 2014 benchmark plans in those two states could actually see their out-of-pocket premium costs decrease in 2015.

“There could be significant financial value to take a look at the site and see if there might be more affordable options for you, given the changes since last year,” Steno said.

Website Tools

As re-enrollment approaches, numerous health care advocacy organizations, including Easter Seals, the March of Dimes, the Livestrong Foundation, the National Alliance on Mental Illness, and many others have urged the U.S. Department of Health and Human Services, which operates the federal health exchange, and the states that run their own exchanges to develop tools on their websites that will help consumers identify the plans that best fit their particular circumstances, not only in terms or premium costs, but also their actual usage.

In the first year, all exchanges showed the differences in premiums of the various health care plans as well as their differing cost-sharing formulas. Cost-sharing refers to deductibles, copays and co-insurance. (Copays are a fixed amount you pay for a particular medical service, such as $40 per primary care visit; co-insurance is a percentage that you have to pay for each service, such as 20 percent of a hospitalization.)

The lower the premiums, the higher the cost-sharing burdens on patients. As a result, cost-sharing formulas can result in the difference of thousands of dollars between one plan and the next, depending on an individual’s or family’s specific health care needs.

Those with chronic conditions, for example, who need many doctor visits in the course of a year, would do best to enroll in a higher premium plan with lower co-pays for individual visits. Relatively healthy people, on the other hand, would likely come out ahead by enrolling in a lower premium plan with higher co-pays.

That is why health advocates want all the exchanges to offer calculating tools that would enable customers to plug in information on their actual health care usage from the previous year to get an idea of how much they would be likely to spend in each plan in the year ahead.

“Our goal is that every state website will have the information to help you understand your real out-of-pocket costs,” said Marc Boutin, president of the National Health Council, which offered its own calculating tool for customers during the last enrollment.

But with all the computer mishaps in the first enrollment year, neither the 36 federal nor 15 state exchanges had such a tool in the first year. Colorado tried in the first year, but consumers found the tool confusing and the exchange disabled it, said Adele Work, director of product implementation for Connect for Health Colorado. Consultants are working on a replacement, she said, but it may not be available in time for November. It’s not clear which, if any, other states will have such a tool in place either.

Exchanges also did poorly in providing two other categories of information of great interest to consumers. Many exchange websites were unable to offer up-to-date lists of the medical providers who were in each network plan. And very few exchanges – Colorado and Nevada were exceptions – could tell consumers which medications each health plan covered, information that could make a difference of thousands of dollars.

Because of last year’s disastrous roll-out, most exchanges will have modest ambitions for the second enrollment period. Offering consumers a smooth enrollment experience is the goal of most exchanges. But a smooth experience won’t necessarily be enough to guarantee landing the best policy.