For some new policyholders signing up for health plans through the new Affordable Care Act exchanges, subsidies could be the hidden carrot that will bring in millions of buyers.
According to a new report by the Department of Health and Human Services, nearly 6.4 million low-income Americans will be eligible to pay $100 or less per month.
The lower premiums would be primarily available on "silver" plans, which offer a basic level of services and are the second-lowest cost policies available. Families earning up to 400 percent of federal poverty guidelines -- $94,200 for a family of four -- will qualify for the tax breaks.
The subsidies are designed to help less-affluent families pay a relatively low percentage of their income on health insurance. A person making $17,235 annually, for example, would pay 4 percent of his income ($57 a month) for insurance. Some 6 in 10 uninsured Americans will pay less than $100 a month. Those at the lowest income levels will qualify for Medicaid.
Although the HHS projections are based on census data, the numbers don't reflect how many people will actually participate in the plans. Several states have been slow to implement their programs, which open for business on Oct. 1. A handful of states have also refused federal Medicaid funds to expand programs for the poor.
Another stumbling block is that the subsidies and wide array of plans are likely to be confusing to those who haven't purchased health insurance recently. The selection process will be daunting, although the subsidies will certainly be appealing for those who are looking for affordable policies.
CO-OPS MAY ALSO SAVE MONEY
Another dark horse in the ACA savings race is healthcare co-ops, which will have a much steeper hill to climb than the subsidized silver plans offered by private insurers.
Proposed as an alternative to the "public option" when the ACA was being crafted, these non-profit entities may provide some premium savings for those policyholders who were typically shunned by traditional insurers.
Organizations in 24 states have received federal loans to start up these "consumer operated and oriented" health plans, which will be loosely modeled on the co-op organizations that date back to the 18th century. Some 22 plans are scheduled to be offered in October when the ACA exchanges go live.
Co-ops have a rich history of providing needed services. Benjamin Franklin is credited with spearheading a co-op that led to one of the country's first home insurance funds in 1752 in Philadelphia. Hundreds of co-ops have been operating for more than a century in rural communities to provide farmers with everything from fuel, seeds and other services.
Thanks to $2 billion in federal loans from the ACA, co-ops are gearing up to offer policies beginning October 1. Co-ops can be created in any state, although any organization offering in-health insurance must be certified by its home state's insurance regulator.
As a stand-in for the public option, or a government-offered single-payer insurer, co-ops may be able to offer lower premiums than their for-profit or well-established not-for-profit competition. If run efficiently, co-ops could also bring down prices in the markets that they serve.
As the new model in insurance, co-ops must be able to take on the sickest patients, offer quality services and remain solvent. They'll be aided by reinsurance funds available through the ACA, but they will still have a difficult task in trying to manage the huge costs associated with chronic conditions and acute care. They will largely succeed or fail based on their ability to offer low-cost premiums that will cover a large pool of medical bills.
Co-ops may also be able to lower premium costs because they won't have the huge back offices and marketing departments of the major insurers. If they're run tightly with a focus on service, that's a strike in their favor.
SOME FLIES IN THE OINTMENT
Unlike their well-heeled competitors in the private sector, co-ops are forbidden by federal law to spend their start-up money on marketing or advertising. How will they get their message out?
Although they will be offered through online state exchanges, they'll have to garner participants directly through online applications in the state programs and word of mouth. That could be a huge problem, especially if they don't create a diverse group of young, healthy buyers along with older, sicker Americans.
Without a large volume of patients, co-ops may not have the bargaining power of say, Blue Cross, Humana or United Health, so hospitals may not be sanguine on lowering their prices.
As new health insurers, co-ops won't have claims histories to tell them which mix of policyholders will work long term. If they end up with too many seriously ill participants – without being adequately subsidized by federal re-insurance or healthy members -- that could be a recipe for fiscal disaster.
Ultimately, the test of whether co-ops are a sustainable business model is how they manage their sickest patients.
Will they provide hands-on management of those with chronic conditions such as diabetes, arthritis, high blood pressure and other high-maintenance ailments? How will they reduce treatment costs of hyper-expensive maladies such as cancer?
Co-ops will need to employ a high degree of coordinated care that pools knowledge and treatment from general-practice physicians and specialists, which is the foundation of the care models at places like the Mayo and Cleveland Clinics. If co-ops can do this, they will be able to extend the quality- and outcome-focused paradigm from the best clinical settings into an insurance operation.
To date, the Department of Health and Human Service's Inspector General reports that the co-ops are "making progress" in getting up and running, although it's too early to tell how many of the 18 organizations they surveyed will succeed.
Since funding was cut off to allocate more loan money for co-ops due to the 2012 budget deal, it's unlikely that co-ops will be expanded soon beyond the two dozen states offering them.
Congress originally set aside $6 billion for the program, but trimmed it back by two-thirds to $2 billion as part of a budget compromise last year.
Doubtless those co-ops that are hanging out their shingle on Oct. 1 will be watched closely. If they're able to remain financially viable and bring competition to state exchange markets by lowering premiums, Congress may reconsider.