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Individual health insurance under Obamacare

What's changed, what hasn't, since passage of Affordable Care Act

Although most Americans get their medical insurance from an employer or from the government, individual health insurance is designed for people who are self employed or who do not have access to an employer-sponsored or government health plan. Historically, individual insurance in almost all states involved medical underwriting prior to 2014, which meant that securing a policy was often difficult for people with pre-existing conditions.

Most health insurance companies are for-profit entities, and even non-profit carriers cannot operate at a loss. They have to take in more money in premiums than they pay out for medical claims. In the individual market, medical underwriting was traditionally the way they accomplished this. People with pre-existing conditions could be declined for coverage, or offered a policy with an increased premium or exclusion riders that eliminated coverage for pre-existing conditions.

But all of this changed in 2014

The ACA made individual health insurance guaranteed issue as of January 2014. This means that medical history is no longer a factor in determining whether an applicant can get a policy, or how much the policy will cost. Individual health insurance is issued with modified community rating, which means that premiums will vary based on geographical area, age and tobacco use. But increased rates based on medical history are longer allowed, nor are pre-existing condition exclusion riders. And applicants can no longer be declined for coverage based on a pre-existing condition.

Until the end of 2013, healthy applicants could still apply for underwritten individual plans. Originally, those plans were scheduled to be replaced by ACA-compliant coverage as of the start of 2014, but the Obama Administration has allowed those transitional (grandmothered) plans to continue to renew until October 1, 2017, as long as they terminate by December 31, 2017.  Not all states accepted the provision to allow grandmothered plans to remain in force however, and even in states that have allowed the renewal of grandmothered plans, some carriers have opted to end their grandmothered plans and replace them with ACA-compliant plans instead.

Here’s state-by-state information about grandmothered plans.  If you’ve got a grandmothered plan that’s eligible for renewal into 2017, keeping it might be a good option if you don’t qualify for subsidies in the exchanges and prefer to keep an underwritten, lower-priced plan for as long as possible. Be aware however, that pre-2014 plans don’t have to comply with a variety of ACA provisions, and there may be gaps in the coverage that wouldn’t exist on a new plan.

Health insurance is a necessity, and it’s also now required by law

All but the most wealthy among us need health insurance to protect against bankruptcy in the event of a serious illness or injury, and to secure access to expensive life-saving medical care if we need it. Although lawmakers saw that removing medical underwriting from the individual health insurance market was necessary in order to extend coverage to everyone, they also knew that this had the potential to create significant adverse selection in the market. There was just too much potential for people to wait to apply for a policy until they needed medical care, knowing that the coverage would be guaranteed issue.

So Obamacare includes two provisions to prevent this: With very few exceptions, everyone is now required to have health insurance or pay a penalty. And individual health insurance is only available for purchase during open enrollment windows. Open enrollment for 2017 will start on November 1, 2016 and continue until January 31, 2017.

Outside of the open enrollment window, individual policies are only available for people who have a qualifying event (including things like birth, adoption, marriage, a permanent move, or loss of other coverage).

What can you expect?

Individual health insurance is available both in and out of the exchanges. You can purchase health insurance through a trusted broker, directly through a carrier, or via your state’s exchange.

The first thing to do is figure out if you qualify for a premium subsidy or cost-sharing subsidy based on your household income. If you do, you’ll definitely want to get your health insurance through the exchange, because that’s the only way the subsidies are available.

Individual ACA-compliant plans are rated with “metal” designations, which helps consumers compare apples to apples. There is plenty of variation from one carrier to another, both in terms of plan design and price, but policies are labeled based on their actuarial value, or the percentage of costs that the plan covers before the out-of-pocket maximum is reached. Several state-run exchanges already have additional plan standardization in place, and standardized plans will be an option in states that use Healthcare.gov as of November 1, 2016.

Bronze plans will cover roughly 60 percent of costs, Silver plans 70 percent, Gold plans 80 percent, and Platinum plans 90 percent. For people under age 30 or those with hardship exemptions, catastrophic plans are also available.  Subsidies are not available to offset the cost of catastrophic plans however, so only a very small percentage of enrollees have selected them thus far.

All plans are subject to out-of-pocket maximums which cannot exceed $6,850 for an individual or $13,700 for a family in 2016.  In 2017, the out-of-pocket maximums are increasing to $7,150 for an individual, and $14,300 for a family (plans can have lower maximum out-of-pocket limits, but no plan can be sold with higher out-of-pocket limits).

Cost-sharing subsidies are only available on Silver plans in the exchange. Premium subsidies for eligible applicants can be applied to any of the “metal” plans in the exchange.