One of the biggest difficulties facing the implementation of President Obama’s health care law will be the practical business of collecting insurance premiums in the individual market under the system of insurance exchanges the law creates.
Disrupting Current System
The law will cause many employees to lose their employer-based coverage and choose between going uninsured and buying it through the exchanges. Just as few consumers now pay for their own health insurance, many insurance companies are unfamiliar with the specific business practices needed to be successful in the individual market.
“It’s a business execution issue,” said Edmund Haislmaier, a senior research fellow at the Heritage Foundation.
“There are several sub-markets to health insurance. One is the individual market. Another is the commercial group market,” Haislmaier said, where businesses can buy policies for their employees from an insurer. “Other segments include the employer self-insured market, Medicaid managed care, Medicare, and specialty policies for vision or dental insurance.”
Experience in the large and even the small group market doesn’t necessarily translate to the individual market, according to Haislmaier.
“I’m seeing examples of insurers with virtually no experience in the individual market, but they’re going into it now,” Haislmaier said. “If you look at the insurers, what you find is that the insurers have a strength, generally—and you see this in their market data—insurers tend to be focused in one of these areas and have operational expertise in the peculiarities of operating in that market.”
Reordering the Marketplace
The individual market is currently small, according to Greg Scandlen, a senior fellow at The Heartland Institute, because it doesn’t enjoy the same tax advantages as other coverage.
“Because of the tax advantage for employer-based coverage,” said Scandlen, “anyone who can get an employer-based policy will. That is because if they are getting their insurance from their employer, even if they have to pay for a chunk of it themselves, it is totally tax-free.”
However, “The ACA encourages employers to drop coverage and send people to the individual market,” Scandlen explained.
It won’t be clear exactly what the new individual market will look like until well after the ACA is fully operational.
“The one thing we do know,” Scandlen said, “is that they will be responsible for paying their own premiums, where the employers were responsible for paying it before. And in the workforce, the part of the premium that the employer does not pay is almost always withheld from paychecks and the employer sends the money to the insurer.
“It’s very common for people to look at their take-home pay and not pay attention to the various deductions that are taken out of it, including their share of the health insurance premium. But all of a sudden [because of Obamacare] encouraging the individual market, all of these people are going to have to be paying for their premiums,” Scandlen pointed out.
Obamacare Sticker Shock
Given that Obama’s law will push more people into the individual market, they’re likely to pay more attention to what premiums cost.
“The great majority of people are expecting ObamaCare insurance to be free,” said Grace-Marie Turner, president of the Galen Institute. “Just wait until they find out they are going to have to spend on premiums—several hundred dollars a month in most cases—and that buying the insurance isn’t optional. And they still will have to spend $40 or $50 in copayments when they see a doctor or a specialist, with huge deductibles of several thousand dollars for most plans. People are going wonder what they are getting for this expensive ObamaCare insurance.”
For consumers on the lower end of the income scale, whose income can fluctuate significantly month to month, the challenge of affording their premium will be exacerbated, Scandlen said.
“The monthly premium payment is a fixed amount. It will not change during the course of the year from month to month, and if you can’t pay it in March, the chances are that you’re probably not going to be able to pay it in June, either,” he noted.
Some people, such as contractors and farmers, do make money in lump sums with the sale of a crop or the completion of a job.
“The way insurers are handling that today is to require prepayment of quarterly premiums,” Scandlen said, which protects both insurer and consumer. However, “Obamacare is not going to allow that. It has got to be a monthly payment.”