4 Quirks in Obamacare Coverage You Need to Know

The health care law has been a national flashpoint for the past four years, especially in recent days when the government shut down in part because of opposition to the law. But even with all that attention, polls show that most Americans don’t understand what’s in it.

Now that the marketplaces created by the law are open and people can enroll for benefits that start Jan. 1, they are discovering what type of coverage they can get. But there are also many quirks about eligibility that may surprise consumers.

Some of the points were in the original law or decided by the Obama administration in regulations. Some were the consequences of decisions by states with Republican officials to not expand their Medicaid programs for low-income people, as the law encourages.

“What people are going to really start noticing is what this program means for them personally,” said Mark McClellan, who oversaw the creation of the Medicare prescription drug program after it was passed by Congress in 2003.

Below are some of the roadblocks people may encounter as they try to sign up for coverage.

Leeway for Legal Immigrants, But Not for Citizens

If you live in a state that doesn’t expand Medicaid and you are really poor, you can’t get subsidies for coverage in the new marketplaces unless you’re a recent legal immigrant.

This quirk came about after a June 2012 Supreme Court decision gave states more of a choice in deciding whether to broaden their Medicaid programs to add more low-income adults. When the bill was written, lawmakers believed that officials in every state would expand Medicaid, because if they didn’t, they would lose all of their federal matching money. But the high court decision struck that down, and half the states have decided not to expand Medicaid eligibility for now.

The law says that subsidies in the marketplace are only for people with income between the federal poverty level (which is $11,490 for an individual this year) and four times the poverty level ($45,960). Lawmakers envisioned that people with income below the poverty level would get Medicaid. But in states that chose not to cover more adults in Medicaid, such as Texas, citizens with income below the poverty level are left without a chance to buy subsidized coverage.

Thus, a citizen earning up to $45,960 will be entitled to some kind of subsidy, but someone earning $10,000 won’t, if the state did not broaden its Medicaid program to cover people with those incomes.

But the authors of the law did allow legal immigrants who have been in the country for less than five years to get subsidies in the marketplaces, even if their income is below the poverty level. Congress did that because federal rules do not allow legal residents who have been here less than five years to get Medicaid. Because lawmakers could see when they wrote the law that those people would not have another way to get coverage, they permitted the exchange subsidies for them. What lawmakers had no way of knowing at that time was that impoverished U.S. citizens would be left without either Medicaid or affordable marketplace coverage.

Older People Can Get More Subsidies Than Young Adults

Because of the way the subsidies work, a 20-something adult will pay more for a lower-tier bronze health insurance plan than a 60-something who probably goes to the doctor more often.

Here’s how that happens. The law says that insurers can charge older people up to three times more than they charge younger people, who would be expected to be healthier and use less medical services.

In Los Angeles, a 27-year-old who earns $50,000 a year and chooses the Molina Healthcare Bronze 60 HMO will pay $167 per month for unsubsidized coverage, while a 62-year-old with the same income will pay $459 per month for the same plan.

If each of those individuals had an income of $30,000 per month, they would get subsidies. For the young adult, the cost would drop just slightly from $167 per month to $161 per month, according to the Covered California marketplace website.

But the subsidies would dramatically reduce the cost from $459 per month to $80 per month for the 62-year-old.

“That tends to surprise people,” said Gary Claxton, director of the Health Care Marketplace Project at the nonpartisan Henry J. Kaiser Family Foundation.

This quirk doesn’t show up if the same people choose plans that cover more costs, such as those with the gold level of coverage, which covers 80 percent of costs.

The reason behind the glitch for low-cost bronze plans is that the subsidies are based on the costs of a plan on the silver level of coverage, which covers 70 percent of costs. The subsidies cap the percentage of a person’s income that they have to pay toward health insurance.

Since the unsubsidized costs of a silver plan are more for an older person than a younger person, the older person has a bigger pot of subsidy money to buy coverage. And if the older person uses that money to buy a cheap plan, a big premium discount is the reward. But if a younger person with a smaller subsidy buys a cheap plan, such as those on the bronze tiers, it doesn’t cut the individual’s premium costs much.

Already Covered? Subsidies Depend on the Kind of Coverage

If someone has Medicaid, affordable job-based coverage or is in the Children’s Health Insurance Program, that person can’t get discounted premium rates in the marketplaces. But people with job-based retiree coverage, COBRA coverage from a former job, a student health plan or the hospital part of Medicare can.

The idea was that Medicaid, job-based coverage or CHIP would probably offer broad benefits at low cost to consumers, while the others either might not have full benefits or be pricey like COBRA. And as for the student plans, if young people choose to go to the marketplace instead, that could keep costs down for older people with more medical needs.

“It was judgment calls,” said Timothy S. Jost, law professor at the Washington and Lee University School of Law. “Congress set this out as to what kind of coverage is usually comprehensive, although some job-based coverage is pretty minimal and retiree coverage could be comprehensive.”

‘Affordable’ Family Coverage

People whose job-based coverage isn’t affordable can get subsidized coverage in the new marketplaces. The law says an employer’s plan is unaffordable if the worker must pay more than 9.5 percent of his or her income. But that 9.5 percent only applies to an individual policy, not what it would cost a worker to add insurance for family members, under a Treasury Department rule.

This issue was fiercely debated for almost three years until the agency issued its final rule early this year. Consumer advocates wanted Treasury officials to say that people who were offered family coverage that would cost more than 9.5 percent of their household income could get subsidies in the marketplaces. But the agency stood behind its interpretation that the law means that the family cannot get subsidies if the worker is offered individual coverage that costs less than 9.5 percent of family income.

The Kaiser Family Foundation found that about 3.9 million children and spouses would be blocked from discounted rates in the exchanges under that rule. The average premium for a single worker was $5,884 this year, according to an annual survey by the foundation. But the average premium for family coverage was $16,351.