You're at mercy of states, not Obama, in health care

Health-care firm owners  surveyed by CNBC and SurveyMonkey express more worry and expectations of pain than owners in other small-business sectors.
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Health-care firm owners surveyed by CNBC and SurveyMonkey express more worry and expectations of pain than owners in other small-business sectors.

The three most important things in real estate—"location, location, location"—are about to become just as important, if not more so, to tens of millions of individuals and small businesses buying health insurance under the new health care marketplaces scheduled to begin enrollments this fall across the United States.

The Affordable Care Act mandating those marketplaces, also called exchanges, is a national law requiring the uninsured to purchase health insurance that will take effect Jan. 1.

But the cost of that insurance, how extensive the benefits are, and the number of insurance companies that will opt or be chosen to sell on those those marketplaces are all going to depend on the state a person happens to live in.

And even then, there will be variations within regions of some individual states, complicating an already complicated new system.

How well—or poorly—a given state's exchange functions in coming years in providing affordable health care to its population could directly affect how businesses view that state's attractiveness as a place to open up shop or expand.

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"You're really at the mercy of what's going on in your state," said Jonathan Wu, co-founder of the price comparison web site

Wu's site has begun rolling out a health insurance rate tool for individuals states as their data becomes available. But so far, ValuePenguin has links for just four states and the District of Columbia—a reflection of the fact that many of the marketplaces are very much works in progress.

"I don't think consumers have any idea what they're going to have to spend out-of-pocket," Wu said.

Under the ACA, also known as Obamacare, health insurance will be offered for sale through the new exchanges to uninsured people, and to small companies with less than 50 full-time workers that don't already offer such insurance to their employees. People who don't sign up face a financial penalty that will escalate in coming years.

The mandate that companies with more than 50 full-timers offer affordable health insurance or face a $2,000-per-worker penalty was recently delayed until 2015 by the Obama Administration. But that delay does not affect the Jan. 1, 2014 date by which uninsured individuals must obtain insurance from the exchanges.

There are four different tiers of coverage that will be offered on the exchanges by participating insurers—bronze, silver, gold and platinum—giving consumers a range of premiums, deductibles and other costs to choose from to fit their pocketbook. The ACA sets a minimum level of benefits for the tiers, but states can insist that insurers selling through their marketplaces offer a higher level of benefits than that.

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One potentially significant factor facing all of those consumers from the onset will be what type of marketplace they will be buying from, experts said.

Just 16 states and the District of Columbia have elected to operate their own marketplace. Another seven states are partnering with the U.S. Department of Health and Human Services (HHS) to run their exchanges. And 27 states have abandoned the option of running their own marketplace, and instead are letting HHS run those exchanges within their states.

Two states—Utah and New Mexico—have applied to operate state exchanges for small businesses, and to let the federal government run the marketplace for individuals.

Some states, notably California, which are running their own exchanges are using a so-called "active" purchaser model, negotiating with insurers on rate and benefit levels, aggressively so in some cases. Other states are using a passive model, letting insurers enter the exchange and price their plans as they wish.

The practical effect to consumers from the differences between states and their health insurance marketplaces will be seen perhaps most dramatically in the increases in premiums people will see this coming year compared to plan rates being offered now.

"It's a wide variance," said Chini Krishnan, CEO of, a health insurance research firm, quotes and support web site.

Krishnan said that depending on which state a person happens to live in they could be faced with premiums as low as 30 percent more than current rates, and up to a high of 80 percent more than current rates.

But, Krishan noted, "two out of three people under the age of 64 are eligible for some form of subsidy or the other" from the federal government, which could significantly offset their insurance costs.

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"I think the federal exchanges will be ready, and I think there are a number of states that will be ready, but I think there are a number of states that have not done much at all." -Kathy Kudner, Partner, law firm of Dykema

Kathy Kudner, a partner who specializes in health care at the national law firm Dykema, also said she believed that premiums are "going to vary significantly" from state-to-state.

Kudner also said she expects there will be some exchanges that are ready to start enrolling people and businesses as of the Oct. 1 target date, and that there will be some marketplaces that may not be ready to go—creating more uncertainty among purchasers of insurance.

"I think the federal exchanges will be ready, and I think there are a number of states that will be ready, but I think there are a number of states that have not done much at all," Kudner said.

But even if all of the federal marketplaces are up and running, the offerings from those exchanges to consumers will not necessarily be consistent state-to-state.

Kudner said that hypothetically speaking, one state whose marketplace is being run by the federal government could offer 55 different insurance plans for consumers to pick from, while another state could offer just a handful—dramatically limiting choices in benefits and costs. That's because there's no guarantee that all insurers eligible to sell insurance in a state will elect to participate in the marketplace there, or that they will be selected to do so by the administrators of that exchange.

An extreme example of the uncertainty about coverage options faced by consumers is being seen in Mississippi, where the federal government will run the insurance marketplace.

In Mississippi, no insurer has stepped forward to offer coverage options to people in 36 counties out of state's 82 counties—meaning that about 54,000 people could be left unable to buy insurance on the marketplace there. The federal government has granted an extension of the time insurers have to submit proposals in response to that situation.

To direct people to the marketplaces, the federal government has set up the online portal

"It seems pretty user-friendly, Kudner said.

In addition to that, Kudner noted, "the law requires the exchanges to have what are referred to as navigators"—people trained in guiding consumers through the marketplaces.

She said she expects there to be variation between how well navigators in different states do their jobs, and "that's going to be a big factor in how easy it is" for consumers to enroll in the exchanges and make wise choices.

The number of people who enroll in a given state could significantly effect how well the marketplaces achieve their stated goal—providing affordable health insurance to those currently without insurance.

If not enough people sign up—particularly enough healthy people who are less likely to use a plan's benefits—insurers could raise their premiums to cover their costs.

"The idea is that you'll be pooled with everyone on the exchange," Kudner said, "And competition will lower cost."

Krishnan, the CEO, said he believes that in the long run, the marketplaces will achieve that goal after working through their respective kinks.

"Fundamentally, I'm very bullish on it," Krishnan said.

—By CNBC's Dan Mangan. Follow him on Twitter at @_DanMangan.