Penetrating Healthcare Reform Haze

A look at how Kentucky’s new Health Benefit Exchange will affect individuals and businesses

For many Americans, the future of healthcare still looks quite hazy.

In June, the Supreme Court upheld the Affordable Care Act’s individual mandate requiring Americans to buy health insurance or pay a penalty. The mandate is the most well-known aspect of President Obama’s signature healthcare law, but it is not the only part that significantly impacts healthcare in America.

While the law is massive – it spans more than 2,400 pages – and difficult to understand, political rhetoric has densely clouded the issue even further. Republicans have vowed to vote to repeal the Affordable Care Act in Congress if possible, and federal healthcare reform has become a political football in the upcoming presidential election.

With so much seeming to be up in the air, many Americans have found it difficult to feel confident in their healthcare futures. In May, 44 percent of U.S. residents said they were confused about the law, according to a poll by the Kaiser Family Foundation, and more than a third of Americans said they did not understand what the impact of law would be on themselves, their families – and their businesses.

As the Affordable Care Act continues to evolve, healthcare in Kentucky may appear to be in a state of confusion, but the commonwealth is moving forward with the initiatives of the president’s plan.

Comparison shopping for health insurance

For small employers, the uninsured and the self-employed in Kentucky, the development to watch most closely may well be the state’s Health Benefit Exchange.

In July, Gov. Steve Beshear issued an order creating the commonwealth’s HBE, one of the cornerstones of the federal healthcare reform law. Sixteen other states also have begun the process. The HBEs facilitate compliance with the individual mandate – whose purpose is to widen the pool of insurance participants paying premiums, similar to the car insurance model, so the fund from which claims are paid is actuarily sound.

The exchange is to be a web-based marketplace that includes information necessary so Kentuckians can compare price and quality as they shop for health insurance. It also will assist employers in facilitating enrollment of their employees into health plans, enable individuals to receive insurance-premium tax credits and subsidies, and qualify small businesses for tax credits.

National studies estimate that anywhere from 5 to 35 million employees nationwide will lose employer-based coverage when the health benefit exchanges become operational. A summer survey by the National Business Group on Health found that 53 percent of employees at large businesses are not confident that they could buy insurance on their own that is as good or better than what they have now through their employer.

The new Health Benefit Exchange insurance options will be available to begin providing coverage in January 2014, with open enrollment anticipated to start three months earlier on Oct. 1, 2013. But don’t expect Kentucky to see many new players in the benefit selection buffet, according to the former commissioner of the Department of Medicaid Services.

“Kentucky is not a big attractor,” said Elizabeth Ann Johnson, now an attorney with Stites and Harbison’s Lexington office. “We are a small state for insurers, and we have a sicker population statistically – we see high Medicaid use. I would be surprised to see new players flood into the state.”

The average employer and employee in Kentucky will be able to find information on the exchange through a planned Navigators program, an outreach and education program that will be staffed by employees trained and certified to discuss the exchange. At least 25 Navigators will be available throughout the state when the open enrollment period begins.

Covering Kentucky

Most Americans will be required to have insurance by January 2014 or pay a penalty, which begins at $95 or up to 1 percent of their income, rising to 2.5 percent of income by 2016. For families, the penalty is $2,085 or 2.5 percent of household income, whichever is greater.

Approximately 670,000 Kentuckians are uninsured – 14.9 percent of the population.

Among the state’s 4.3 million-plus overall residents, University of Kentucky researchers estimate that 48 percent have health insurance through an employer, 6 percent purchase insurance directly through the private market, 31 percent have public coverage and 15 percent have no coverage.

Of the total population under age 65 (around 3.76 million), uninsured individuals represent 17.8 percent of the population, and 82.2 percent are insured through individual and group policies or receive Medicaid coverage.

The UK team estimates anywhere between 1 million and 2.4 million Kentuckians might access the HBE. The estimate was designed to identify the highest number of potential users of the exchange from the commercial market and uninsured populations – it does not include individuals who will use the HBE to access Medicaid benefits.

“I think we will have a healthy level of participation,” said Carrie Banahan, executive director of the Office of the Kentucky Health Benefit Exchange.

In its report, the UK team noted that many factors will affect actual participation, including the state’s definition of small group insurance in 2014, the number of employers that drop coverage and many other variables. The high end of this estimate includes approximately 1.4 million individuals currently receiving employer-sponsored insurance (ESI) through their large employers.

Continued growth of the Medicaid program could mean a shortage of doctors to meet that specific demand. Gov. Beshear has not said whether he plans to expand Medicaid – a significant variable in how health reform implementation will affect Kentuckians. Under the Affordable Care Act, about 280,000 more Kentuckians would qualify for Medicaid coverage.

Health insurance and the employer

While no employer will be required to provide health insurance, businesses with 50 or more employees that do not provide insurance and have at least one full-time worker who receives subsidized coverage in the HBE will have to pay a fee of $2,000 per full-time employee. That fee, however, will not apply for the firm’s first 30 workers.

Meanwhile, companies with fewer than 50 employees that are willing to provide insurance will qualify for special tax incentives of up to 35 percent of the cost of the premiums. The tax credit incentive will eventually go to 50 percent.

The good news for employees and the self-insured is that insurers will no longer be able to reject applicants or charge more based on their health status once the HBE is operational in 2014. That means 90,000 Kentuckians who previously were denied coverage for pre-existing conditions will be able to get coverage.

Other highlights:

• Employees also can expect to be covered for preventative services with no deductible or co-pay.

• Young adults who are covered by their parents’ health insurance may remain on the policy until their 26th birthday. This provision went into effect in mid-2011.

• There will be no lifetime restrictions on health benefits payouts for an individual or family.

• Children with pre-existing conditions cannot be denied coverage.

• Some prescription drugs will be more affordable for seniors.

• Insurers must spend a minimum of 80 percent of premium dollars they collect on benefits and quality improvement. The state estimates that this has already benefited 249,275 Kentuckians with more than $15 million in true ‘rebate.’

Learn more

The Kentucky insurance exchange website is still being designed, but by the beginning of October visitors will be able to find progress updates and information on activities and hirings. In the short term, some information can be found at