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Who Will be the H&R Block and TurboTax for Health Insurance?

There’s been quite a bit of focus lately insofar as these issues go, anyway on health insurance agents and brokers (sometimes known in the industry as “producers”). They are pushing legislation that has been introduced in Congress and is now being studied by the National Association of Insurance Commissioners that would exempt agent and broker commissions for health insurance from minimum medical loss ratio (MLR) thresholds established in the health reform law. (The MLR is the percentage of an insurer’s premium revenues that goes to pay medical claims as opposed to administrative costs and profits.)

The brokers don’t want their commissions to count as administrative costs, fearing that insurers will then have an incentive to cut them. In fact, this seems to have already started to happen. Opponents of the legislation argue that exempting agent and broker commissions from the MLR calculation will make the thresholds easier for insurers to meet, and therefore reduce pressure to cut costs and the premiums that individuals and small businesses pay.

Interestingly, what’s been largely absent from this discussion so far is what kind of help consumers may need with the financial aspects of buying coverage in a newly configured insurance market, where starting in 2014 small businesses and individuals will be able to purchase insurance through new state-based purchasing exchanges. A key way in which the Patient Protection and Affordable Care Act (ACA) makes insurance more affordable for people is by providing tax credits to those with incomes up to four times the poverty level (now about $89,000 for a family of four) who buy coverage on their own through the exchanges. For example, a family of four with 40-year old parents and income of $50,000 in 2014 might face an insurance premium of $12,130, but the tax credit would reduce the family’s annual cost to $3,385. (We have a subsidy calculator that illustrates how much these tax credits would be.) Low-income families are also eligible for help with their deductibles and copays, since the patient cost-sharing in the standard plans is likely to be quite high. And, the exchanges will also refer eligible low-income families to Medicaid and the Children’s Health Insurance Program. People who have employer health coverage available to them aren’t eligible for the tax credits, though there are exceptions if the employer-provided coverage isn’t affordable.

The details of how this will all work are still unclear. Hopefully the process will be as streamlined as possible, though people are inevitably going to need help, much like they do with their tax returns. They are going to have questions about whether they are eligible for tax credits. And, because people’s lives change throughout the year they get married, they get divorced, they have kids, they lose jobs, they get new jobs, they get raises, etc.  the tax credits and programs they qualify for could change in complicated ways. Subsidies in the exchanges are provided in advance so people can afford their health insurance premiums, but then reconciled at the end of the year based on actual income through income tax returns. This means that people may have to pay back some or all of their premium subsidies if their income changes. Given the complexity and uncertainty for families seeking assistance, and the fairly large amounts involved, people will want someone to talk with who can take the time to explain all of this in a clear way.

For all the talk about the role of insurance agents, this is not an area where they necessarily have expertise. They’ll also provide grants to so-called “Navigator” agencies, who will distribute information to consumers about health plans and facilitate enrollment. Private companies may step in, much like they have in providing in-person and computer-aided tax preparation assistance. But there is also a tremendous opportunity for state exchanges to innovate in providing help to consumers to make sure they get their tax credits. And, states have no financial disincentive to do so, since the federal government pays for 100% of the subsidies provided to Exchange enrollees. So, the more people who qualify for tax credits and cost-sharing subsidies, the greater the amount of federal dollars flowing into the state.

- Larry Levitt