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New Insurance Exchanges: What Advisors Must Know

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Glenda Moehlenpah, a planner and sole proprietor of Financial Bridges in San Diego, isn’t happy with the changes brought by the federal health care law. “The individual Aetna plan I have is vanishing as of Jan. 1 because Aetna decided to leave the individual marketplace in California,” she says.

Her current plan’s benefits should be listed on Aetna’s website, but they’re not because the company is no longer marketing the plan. “I can’t compare it to other plans, because I don’t know what I have now and I can’t find out,” Moehlenpah says.

She’d like to get coverage that incorporates a health savings account, “but right now, the premiums for plans that include the HSA are higher than the premiums for the HMO policies and even some PPO plans,” she says.

Kathy Arlaud, operations manager at Kahler Financial Group in Rapid City, S.D., hopes the law will help her get a wider choice of benefits. Although her position is full time, it offers no health benefits, so Arlaud has a private policy that doesn’t cover chiropractic care or treatment for sports-related injuries. “I’m paying almost $400 a month, but anything I would likely need care for is excluded,” she says.

Will the health care exchanges, set to open this month, help Arlaud find better coverage? “I don’t feel that I have enough information to know if the exchanges will help,” she answers. “I haven’t seen any numbers, so I feel like this is a crapshoot.”

Talk to nearly anyone about health care -- including professionals in the financial advisory field -- and you’ll hear a similar mix of hope, frustration and confusion.

The exchanges are set to open Oct. 1, offering policies starting Jan. 1 that must abide by a new set of coverage rules. Most experts say they don’t know what the law’s impact will be. Some people may pay more in monthly premiums; some less. By late August, many states hadn’t  published the plans and rates they intend to offer through their exchanges.

Not every planner will need to be an expert on the new rules, especially if most clients still are covered through their employer. Still, many want to know more. “We want to see what the exchanges look like,” says Allison Perritt, a paraplanner at Hammel Financial Advisory Group in Brentwood, Tenn. “We probably will research and explore them, even if we aren’t doing the research for a specific client.”

Some clients, however, will need help sooner than others. Here’s a list of four cases in which a planner needs to be ready to make changes as soon as the new policies become available.


Advising clients nearing an end date of COBRA coverage has prompted concern. Current rules allow anyone who leaves group insurance to pay directly for the coverage for up to 18 months.

Leaving a job is the most common reason for losing group coverage, but a divorce can create the same situation, says Lazetta Rainey Braxton, founder of Financial Fountains in Baltimore. A crisis can ensue when clients must find new coverage. A new policy might be easy to find for a healthy young person, but not for older or less healthy applicants.

“The most challenging clients we have are those pre-65 people who want to be self-employed or stop working, who can’t find insurance -- or find that it costs so much that it’s nigh on to impossible,” says Norman Boone, president and founder of Mosaic Financial Partners in San Francisco. “What we struggle with on a very regular basis is helping them find health insurance or make life decisions based around having health insurance.” That process should get easier come January.

For clients whose COBRA coverage expires before the end of the year, a short-term policy may be an option. Yet before going that route, consultant Maura Carley, CEO of Healthcare Navigation in Shelton, Conn., suggests asking the former employer to extend the COBRA deadline.

“They have the discretion to extend it,” she says, “but they don’t usually do that because they’re leery of setting precedent. When we’re so near to guaranteed-issue coverage, I think it’s worth asking.”


This situation may sound familiar to many solo planners: Although it’s possible to find individual or sole-proprietor coverage, age and pre-existing conditions can make a policy difficult to find and tough to afford.

That changes next year. The new law forbids insurance companies from declining coverage because of pre-existing conditions. The law also requires that applicants with unfavorable medical histories be placed in a group risk pool.


Clients who lack group coverage, are older or have pre-existing conditions may find themselves in that high-risk pool, an option that guarantees coverage, although usually at a high price. Under the new rules, says Steven Podnos, a solo planner at Wealth Care in Merritt Island, Fla., insurers will have to issue group-rated insurance, so “these people will be better off.”

The new rules may make it more workable for people to retire early or leave their jobs, Moehlenpah adds. “Many of them would have to go into the high-risk pool. Exchanges will offer them a better option, at least initially.”

For these clients, experts recommend that planners start looking at the exchanges immediately, targeting a Jan. 1 change in coverage.


Not many clients are in their 20s, but plenty of clients have children who are -- and many are concerned about making sure those children have coverage after age 26, when they can no longer stay on their parents’ policies.

Yet people in their 20s who don’t get health insurance through their jobs will almost certainly qualify for subsidized insurance, with tax credits expected to help pay for coverage. Podnos says he plans to keep his own son, now 23, on his policy through age 26 at a modest cost of about $200 a month.

“If he were 26 now,” Podnos says, “I would tell him to price insurance and see what he qualifies for and if he qualifies for the tax credit.”


There’s one last group that needs help now, but a planner may only be able to offer reassurance. “My clients having the greatest angst are business owners,” says Rick Kahler, president of Kahler Financial. Small companies were recently given another year to comply with the law, which will require employers with more than 50 workers provide coverage or pay a penalty.

Advisor Richard Schroeder in Amherst, N.Y., plans to suggest that clients who offer partial coverage to employees consider whether workers could get a better deal if the company gives them money to buy coverage on the exchanges. That strategy could let some workers also get the income-based subsidy, lowering costs for everyone.

Even if clients don’t face immediate insurance issues, advisors recommend they get familiar with the new system. “This is going to be a challenge for planners and clients, but I think it’s a great opportunity, especially in the states that are really participating,” Schroeder says. “I think a lot of people will be converted.” The planning community will soon find out if he’s right. 

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