Surviving Healthcare Reform: Understanding Rates and Underwriting


One component of the Affordable Care Act, which took effect January 1, 2014, is that insurance companies can no longer deny coverage, exclude a specific condition, or increase premiums due to an applicant’s health history.  Rates will now be based only on age, location and tobacco use.

How Usage Affects Premium

Under the new rules of the Affordable Care Act, U.S. citizens and residents can choose from four levels of care designated by metals: Platinum, Gold, Silver and Bronze.  If you have high annual medical expenses, choosing the Platinum or Gold tier may pay off because the cost of insurance, though more expensive, will be relatively low compared to the benefit you will receive from the coverage.

If you are in good health, your best value will probably be the Bronze plan.  These plans have higher deductibles and copays than the Gold and Platinum plans.  This will reduce claims to insurance companies resulting in lower premiums for Bronze plan participants.

Note: people who do not have a plan that has been in force since March 23, 2010 (called a grandfathered plan by the insurance industry) are required to sign up for one of the new plans.   If you have questions or want more information about grandfathered plans, please contact us at 1-800-913-0172.

However, there is a solution to help people who do not have a grandfathered plan.  To reduce the burden placed on healthy insureds, we recommend using the Bronze tier and pairing it with a Health Savings Account.  See the section below on How to Minimize Your Costs for a more detailed explanation.

Non-Medicare Seniors may Increase Premiums for Younger Policyholders

Americans under 64 years who are not on Medicaid or Medicare are required by the Affordable Care Act to purchase qualified coverage or face a tax penalty. New regulations regarding premiums require that older people be charged no more than three times what people under age 30 pay.  Since a 64-year-old can potentially cost an insurance company up to seven times as much to insure as a 25-year-old, this rule will be shifting costs to younger policyholders in order to subsidize those who are older or less healthy.

People under age 30 will have the option of purchasing a catastrophic plan to meet the requirements of coverage under the new law.  These plans have a deductible of up to $4,000 per person or $8,000 per family.  Under these plans, preventive services are also covered completely, along with three annual primary-care visits.  However, Catastrophic plans do not qualify for any tax credits or subsidies.

For most young adults, it is likely the Bronze-level HSA-qualified plans will still be a less expensive option.

Family Rating

States will define who is eligible for coverage on a family policy.  When determining the family premium, the covered parent(s), covered children 21 to 26 years old, and no more than the three oldest covered children under the age of 21 may be taken into account. If the family has more than three children covered, these costs will be spread among other policyholders.  Thus, individuals and smaller families will help subsidize the costs for larger families.

Rates Increase for Tobacco Users

Under healthcare reform, smoking status remains a factor for determining the cost of health insurance for an individual.  If you smoke (or use other tobacco products) more than four times per week, your rates will be higher than a non-smoker’s.  The law allows that tobacco users can be charged up to 50 percent more for insurance.  When a smoker qualifies for a healthcare subsidy, the subsidy will not pay the increased portion of their health insurance premium that result from tobacco use.

Zip Code Rating

Location is the third factor, after age and smoking status, to determine a person’s insurance costs.  States are broken down into territories or rating areas, that will impact the cost of your premium.  As an example, the cost of healthcare in New York City is likely much more than it is in Rochester, New York, so these two sections of New York State will benefit from different territory assignments.  If a state does not designate separate territories, insurance companies will use an entire state as one rating area, causing the lower-cost areas to subsidize the cost for the more expensive areas.

PPO Networks

For years, insurance companies negotiated with providers to create Preferred Provider Organization networks (PPO).  This encouraged price concession – called usual and customary rates -- so individuals could see doctors in a broad network.  In other words, you could see your doctor in Denver, but also see a specialist in Pueblo, CO using the same agreement to keep your costs low. 

Under healthcare reform, smaller HMO networks are much more common.  Fewer doctors and hospitals in a network will allow an insurance carrier to offer lower rates, but the restricted choice may or may not be worth the premium savings.  If you do have doctors you regularly see, make sure that they are in the PPO or HMO network you choose.

How to Minimize Your Costs

We believe in taking the complexity out of the healthcare system, so that you can make smart choices that keep more of your money in your pocket.  And we believe in making the process easy.  Below are our four main recommendations.

  1. Choose a Bronze plan
    By attracting enrollees with the most health problems, the Platinum and Gold plans will experience the largest rate increases.  Insurance companies realize this and, in many areas, are not offering the highest-level plans.  The less expensive plans are Silver and Bronze tiers.  The Bronze tier has the lowest cost, giving policyholders more control over their own money, but also requiring the policyholder foot more of the bill for their medical expenses.

  2. Set up and fund an HSA
    If you have an HSA-qualified health insurance plan, you can put pre-tax money into a Health Savings Account every year.  This will lower your taxable income, and the money in the HSA grows tax-deferred.  If you ever need it to pay for medical expenses, you can withdraw the money tax-free.

    If you are relatively healthy, an HSA-qualified Bronze plan will probably be the best value.  Then make the maximum contribution to your HSA to cover any out-of-pocket medical expenses.  If you have a 25 percent tax rate and select a Bronze plan with an HSA savings plan, you can set aside $3,300 of tax-favored money.  That’s a 25 percent reduction in taxes (approximately $800).

  3. Take advantage of all tax credits and other opportunities to lower your health care insurance costs.
    Many people will qualify for tax credits, which in some cases will substantially lower their costs.  We will make sure that you get immediate credit, which will be applied against the cost of your health insurance, so that you only pay the net amount. 

A quick toll free phone call to 1-800-913-0172 can answer any question you may have about these options.

Learn More

See our Covered Benefits page to understand your options for less costly coverage.  For details on how to get financial help, read our section on Subsidies.   And for personal assistance, just call 1-800-913-0172 to schedule an appointment with one of our expert Personal Benefits Managers.

HSA for America
749 S. Lemay Ave, Suite A3-116
Fort Collins, CO 80524
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