Are public health exchanges for you?

Here are 6 key questions about health insurance options to consider.

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Key takeaways

  • Health plans offered by public health exchanges may be suitable if you are unemployed, lack access to health care at work, or are considering—or are forced into—early retirement.
  • Health care exchanges centralize information, allowing you to compare health insurance plans, determine any subsidies that might reduce your premiums, and then pick a plan that's right for your family.
  • A "narrow network" plan will limit your ability to receive services from medical providers outside of the defined network. These plans can offer a considerable savings as long as you are aware of their limitations.

Whether you are unemployed, lack access to health care at work, or are facing early retirement, getting to know your options through federal or state-run health care exchanges can be time well spent.

"If you're too young to enroll in Medicare or don't have access to employer-sponsored health care on your own or through your spouse, you'll likely want to find health insurance," says Robert Kennedy, senior vice president of Fidelity Benefits Consulting. "You may even qualify for a premium tax credit subsidy under the Affordable Care Act (ACA) which could help save you money on your monthly premiums."

Health care exchanges centralize information, allowing you to compare health insurance plans, determine any subsidies that might reduce your premiums, and then pick a plan that's right for your family.

The public exchanges vary from state to state. Each state has its own health care marketplace, with 12 states and Washington, DC, running their own exchanges. The federal government operates exchanges in partnership with or on behalf of the other 38 states.1

Health insurance providers and costs will vary from state to state and the policies and benefits are all required to cover at least the same basic types of services known as "essential benefits." Although many policies can be expensive, the majority of public exchange enrollees receive substantial subsidies. Last year, nearly 10 million Americans received an advanced premium tax credit of $520 on average per month2 to help pay monthly health care premiums.

If you're unsure of how the Health Insurance Marketplace—the official name for public health exchanges—is designed to work, or if you're simply curious about how these exchanges could help you, consider these 6 key questions:

Am I eligible?

The public exchanges were generally designed to help those who don't have health care coverage—or those who have health insurance but whose coverage doesn't meet the ACA's requirements—find health coverage that fits their needs. But anyone, regardless of current coverage status, can use the public health care exchanges to shop for insurance.

How much you'll pay for coverage depends on a variety of factors, including income, family size, and the plan you select. You can shop on the public exchanges even if you have employer-provided coverage, though you may not want to, because most employers pay part of the premiums, and many have negotiated lower costs with US health care providers. As of 2016, over 157 million workers or some 49% of the US population was covered by employer-based health care plans, according to Kaiser Family Foundation.3

What plans are available?

The exchanges categorize plans into 4 levels, determined by the way health care costs are shared by the consumer and the insurance provider. Plans at the highest level, called "platinum plans," cover, on average, an estimated 90% of an individual's health care costs. Gold plans cover 80%, silver plans cover 70%, and bronze plans cover 60%. Individuals under age 30 can opt for catastrophic policies: These carry the lowest premiums of any plan, but they do not qualify for income-based subsidies.

Tip: Kennedy advises, "It can be challenging to do an 'apples to apples' comparison of health plans available to you. Be sure to consider potential costs beyond the premium. Look at what each plan requires for copays and deductibles. Also ask if your plan is considered a 'limited' or 'narrow network' plan which will limit your ability to receive services from medical providers outside of the defined network. Plans with a limited network can offer a considerable discount in price as long as you are aware of their limitations."

At age 65, most people who are not actively working and are not eligible for an employer plan are enrolled in Medicare. If you enroll in Medicare, you aren't eligible to purchase any additional coverage through the health exchanges. Nor can you buy Medigap or Medicare Part D prescription coverage through the exchanges—you would still need to purchase that coverage on your own.

Read Viewpoints on Fidelity.com: 6 key Medicare questions

What are my expected costs?

There's a lot that goes into determining your total health care cost. Beyond your monthly insurance premiums, your health care dollars can be broken down into 4 buckets: deductibles, copayments, coinsurance, and out-of-pocket (OOP) expenses.

  1. Deductibles: The amount of money you typically pay out of your own pocket for covered health services before your insurance benefits begin to pay.
  2. Copayments: This is the defined dollar amount you may have to pay ($10, $20, $30, or more, known as a copay) as a standard payment every time you use the pharmacy or go to a doctor.
  3. Coinsurance: After you reach your deductible, you will then pay a percentage (10%, 20%, 30%, or 40%) for medical services, known as a coinsurance payment.
  4. Out-of-pocket: The amount you pay out of your personal savings for covered medical services. This includes your deductible and coinsurance amounts. If you have high OOP expenses in a given year and hit the maximum, your insurance company then pays 100% of your covered services after you hit the maximum for the year.

Trying to predict your family medical services and prescription drug usage for the coming year may not be easy, but it's a critical step in helping you choose the right plan. If you live in a state served only by the federal exchange, a good place to see pricing options depending on different levels of deductibles and premiums is How to pick a health insurance plan.

Will my doctor accept my new plan?

Not necessarily. Each plan offered through an exchange includes networks of health care providers.

If your doctor is outside a particular plan's network, you may want to switch to a new doctor who is in your network or you may end up paying more for care. Also, unless the plan pays out-of-network benefits, the plan may not pay any benefits to health care providers outside your plan's network and you could be responsible for paying the entire cost.

During the application process, you can review plans to see whether your primary care doctor and other providers are considered in network. If your state has several insurers providing plans, you may find that one insurer's plan will cover care from your existing doctor, while another insurance company's plans won't.

Tip: Just because your doctor is part of the overall network offered by an insurance carrier doesn't mean they are part of all networks associated with all plans offered by that insurance carrier. If you are managing a chronic condition or expect to incur expenses for certain medical procedures next year, make sure that the specialists are participating in your network.

When and how can I sign up?

Open enrollment for coverage beginning in January of 2019 begins November 1, 2018, and will run through December 15, 2018. Unless you have a qualifying life event—such as moving to a different state, a divorce, or the birth of a child—you must wait until the next open enrollment period in the fall if you do not enroll by the deadline or if you want to change your plan.

To get started, applicants need to provide their Social Security number and information about their income and household size. Once they enroll, the exchange sends the person's information to the insurance carrier. Insurance companies are no longer allowed to exclude applicants based on pre-existing conditions, so they don't need as much personal medical information as they used to, although you will need to provide information about your smoking habits.

Can I receive a subsidy?

The ACA provides government subsidies for some people, based on income. People making from 100% to 400% of the federal poverty level for their household size may be eligible for a tax subsidy. Insurance premium subsidies are available to individuals under the ACA in every state, regardless of whether the state or federal government is operating that exchange.

Tip: Don't assume that subsidies are only used by people in poverty. "Although you may have accumulated significant retirement or personal savings assets, you may still be eligible to receive a subsidy because your current income may have fallen off," says Kennedy. "This may be pertinent especially for recently laid off, freelance, or 'gig economy' workers who don't have access to employer-sponsored health care."

Penalties

The ACA currently requires all US citizens to have health care coverage. A number of exemptions exist, but if you choose not to enroll in one of the health care exchanges, you could be required to pay a penalty, the so-called "individual mandate" penalty through December 2018.

For 2018, the penalty is still in effect and you'll pay the higher of these 2 amounts:

  • 2.5% of your yearly household income. Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.
  • $695 per person for the year ($347.50 per child under 18). There may also be state penalties, depending on where you live.

Small business option

Businesses with 50 or fewer full-time employees can start offering health insurance to their employees under the Small Business Health Options Program (SHOP) marketplace. There is no time limit on the enrollment period for small business coverage, and employers can offer it at any time. Businesses can also use brokers or enroll directly through insurance carriers.

The SHOP marketplace is similar to the individual marketplace, but geared to handle the specific issues business owners will face. For instance, businesses will need to determine how much they will contribute to the cost of employees' health care coverage, and then employees can purchase insurance through a variety of plan providers. Businesses also can earn tax credits—as much as 50% of the cost of employees' premiums—but must meet several criteria to be eligible for those incentives.

Beyond the exchanges

Employees of some large corporations might already be familiar with the concept of a health care exchange. In recent years, some companies have given employees a lump-sum subsidy toward health coverage, and offered them access to privately run exchanges where they could comparison shop for plans. This trend is part of a larger transition away from defined benefit plans, where employers are tasked with making benefits decisions on behalf of the employee, and toward defined contribution plans, where employees have more of a say in how they choose their benefits.

If you are a pre-65 early retiree—or are thinking about leaving your job soon, with or without COBRA coverage—visit www.Healthcare.gov to find a health plan that may be able to meet your needs, save you money, or help you bridge the insurance gap to Medicare eligibility at age 65.

Lastly, a new option for short-term insurance plans became available in 2018. These plans may be dramatically less expensive, but be careful choosing this option. Evaluate the trade-offs between what the plan costs and what the plan offers. Some plans only offer coverage for a few months and may exclude coverage for many basic benefits, such as prescription drug or maternity coverage—and in some cases, pre-existing conditions are not covered at all.

Next steps to consider

Review your retirement strategy

Not yet eligible for Medicare? See which options are best for you.

Learn ways to cut your prescription drug cost.

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