The numbers for the ACA in California are cold: 900,000 Californians will lose their individual health care plans Dec. 31. About 300,000 will be eligible subsidized coverage in the exchange and most will get better coverage at lower cost. The losers are professionals, entrepreneurs, and mom and pop business owners who did the right thing by buying private health insurance. They number about 600,000. The are losing their coverage and facing higher rates to buy replacement coverage that is ACA-compliant.

Individual policyholders represent only 7 percent of the health insurance market, but they are an attractive demographic and the wrong people to anger. They are proactive enough to have bought their own coverage, successful enough to afford it and vocal when they realize that their premiums are likely to rise - even double for some.

Obama played the hero for some allowing insurance companies to keep their customers on existing plans through 2014. But the Covered California board ruled against that extension. In the end, some 600,000 Californians who don’t qualify for subsidies should expect to pay more a lot more an many case.

People who did everything right know now that they cannot keep the plans they had - and they’re the first in line to be handed the real bill for the Affordable Care Act.

Covered California is open for business, more or less, but many Californians won’t go there if they need health insurance for themselves or their families. Instead they’ll turn to health insurance agents and buy coverage directly from insurance companies.

The On-Exchange Plans

For the roughly two million Californians who currently buy health insurance on their own, only about a third will qualify for government tax subsidies - and to get the subsidy, people must buy through Covered California.

The Off-Exchange Plans

Without a subsidy to offset rates, there’s no compelling reason for the majority of individual health insurance customers to shop on the exchange. People who earn too much to expect government help will be shopping for off-exchange plans, where they’ll have more options and the process is much faster.

What are Off-Exchange Plans?

Off-exchange plans will still be required to meet 10 benefits standards outlined in the health care law. People shouldn’t make any rushed decisions. Many of the off-exchange plans are not yet available because government regulators still need to approve them. So you are still not seeing all the options that are going to be available.

There’s No Rush

The ACA plans will go live on Jan. 1. People have until Dec. 15 to enroll in a plan that will start on the first of the year. And they can enroll as late as Mar 31, 2014 for guaranteed-issue coverage.

Most people with existing individual policies in California will get new plans by the end of the year. That’s because those individual plans don’t meet the standards outlined in Obamacare and must be upgraded to comply with the law. So when that letter from your insurance carrier shows up in the mail, pay attention.

If the plan you have now is grandfathered, you don’t have to do anything. If it is not grandfathered and you do nothing, you health insurance carrier will transition you to a ACA compliant plan that is closest in coverage and rate to your current plan.

All new plans will have to cover a minimum set of medical costs and include standardized benefits. That means that the more than one million California residents who now have individual plans, and are not eligible for subsidies, will very likely be paying a higher monthly premium.

Guest Author, A.Marshall, is a retired attorney whose blog, An Ad Hoc Guide to the Affordable Care Act, seeks to make sense of buying health care under Obamacare. A. Marshall has been a frequent commenter on our Q&A Advice blog under the name, Freelancer.

We Are Confused

Many individuals and families with complicated income situations are confused about how to calculate their MAGI (modified adjusted gross income) for purposes of determining eligibility for premium support under the Affordable Care Act (ACA). Official web sites such as the Healthcare.gov site or IRS.gov tend to focus only on earned income and do not provide much guidance as to how to handle other forms of income or various tax deductions. Much of the information posted on other internet sites is mistaken or misleading. Part of the confusion stems from the fact that the tax code uses the phrase “modified adjusted gross income” to mean different things for different purposes. Some web sites or blogs have posted worksheets based on IRS forms developed for very different purposes. In fact, MAGI is defined in different ways in well over a dozen different sections of the tax code. Although this statutory framework is confusing, it does leave one thing clear: the definition of “modified adjusted gross income” varies depending on the purpose of the income calculation, and it is always clearly stated within the particular statute which defines a particular income-related tax or benefit. The term is defined for purposes of the Affordable Care Act in 26 USC 36B.

Adjusted Gross Income Plus

The term “modified adjusted gross income” means adjusted gross income increased by—

1. any amount excluded from gross income under section 911,
2. any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax, and
3. an amount equal to the portion of the taxpayer’s social security benefits (as defined in section 86(d)) which is not included in gross income under section 86 for the taxable year.

This means that MAGI is the combined total of:

1. the adjusted gross income of the taxpayers within a household, plus
2. any amounts excluded from taxation by section 911 (the exclusion from gross income for citizens or residents living abroad),
3. any tax-exempt interest received or accrued during the tax year, and
4. any portion of the taxpayer’s social security benefits that are excluded from gross income.

Tax Deductions Not Included

Other than the items specified by the statute, there are no other add-backs to the calculation. That means that the various types of tax deductions listed in the Adjusted Gross Income sections of the IRS 1040 or 1040A forms are also income reductions for purposes of the ACA. This means that in determining subsidy eligibility, taxpayers can continue to benefit from a variety of tax deductions, including the following:

• Deductions related to college expenses (student loan interest and college tuition deductions
• Deduction for contributions to a traditional IRA
• Health Savings Account (HSA) deduction
• Self-employment deductions, including:
• One-half of the amount of self-employment tax
• 100% of the amount of self-employed health insurance premiums
• Contributions to a qualified retirement account, such as a Simplified Employee Pension (SEP) plan.

Keep in mind that these rules are subject to change - in fact, the definition of MAGI in the Affordable Care Act has already been changed by Congress twice since the law was first written. Taxpayers with complex profiles should seek the advice of a tax preparation professional

Beginning Labor Day, television ads will hit the airwaves in three test markets: San Diego, Sacramento and Chico/Redding. By October, other television markets will be added. The phased approach will allow Covered California to test the ads and fine-tune its customer service process.

“With a six-month open-enrollment period from October through March 2014, Covered California’s media team recommended we build our campaign to promote enrollment with an eye toward the beginning coverage date of Jan. 1, 2014,” Peter Lee said. “We’ve done the background research to make sure we reach people in ways that are specific to their hopes, fears and concerns and that reflect the rich diversity of California’s population.”

From October on, these and other broadcast advertisements will run statewide along with print and radio ads connecting with specific ethnic communities, as well as languages beyond English and Spanish. The ads will expand awareness of the health benefit exchange, of how the process for shopping and signing up for insurance coverage works, and of how people can find out whether they qualify for financial assistance.

Covered California has budgeted $45 million for the initial push of paid media through March 2014 and plans to spend another $35 million from April to December 2014. The funds come from a one-time federal grant.

Covered California previously said they would implement a new quality rating system for health insurers this fall, two years earlier than required by the ACA. Now it looks like that may slip by a year. According to Peter Lee, currently available insurer data are out of date and only cover plans that differ significantly from those that will be offered through the Exchange. Covered California instead is determining strategies for quickly collecting performance data during the first year of the exchange and creating its own ratings.

The Exchange may have underestimated the demand for a rating system. You only have to look at how Generations “X” and “Y” use ubiquitous online rating applications like Yelp to help make decisions about where to eat and what to buy. While definitely not part of Gen-x or Gen-y, I generally look for some objective comparative data to make purchasing decisions.

Beth Capell of Health Access made a good point “it’s important for consumers to have information on quality in year one, even if it’s not everything we want…If for five bucks more a month I can get a 4-star plan instead of a 2-star plan, I should have that information.”

Better-performing insurance companies under currently available quality data are all HMOs. Kaiser Permanente, Sharp Health Plan and Western Health Advantage jointly wrote that the exchange should prominently display quality ratings. They argued that officials should label plans as “not yet rated” if data are not useful for certain insurers, rather than withholding ratings for all insurers. That would certainly be to their advantage, so insurers who sell PPOs should be looking for ways to help Covered California quickly gather performance data so that they can compete on a level playing field in the ratings game.

Covered California has announced the selection of General Agents (GA) for the SHOP. They are Claremont Insurance Services, Dickerson Employee Benefits, LISI, and Warner Pacific. The most notable omission is Word & Brown, one of California’s premier GAs.

Choice Administrators’ CaliforniaChoice brand is a private small group exchange owned by Word & Brown. CaliforniaChoice is Covered California’s chief competitor so that could the reason that Word & Brown was not selected or chose not to participate as a SHOP GA. The public SHOP and private CaliforniaChoice exchanges will feature the following carriers in common: Health Net, Kaiser, Sharp and Western Health. However, CaliforniaChoice will include both Aetna and Anthem Blue Cross exclusively; while SHOP will include Chinese Community Health Plan and Blue Shield of California exclusively.

Covered California opted to exclude all GAs from the individual exchange, a market that has not been penetrated to any great degree by GAs in California. In light of the changes brought on by the ACA, Word and Brown has expanded its Individual Department as well, offering various services to support agents.

Covered California announced participants for the new Small Group Health Options Program (SHOP) marketplace. Six health insurance plans will be made available. The participants will include:

• Blue Shield of California
• Chinese Community Health Plan
• Health Net
• Kaiser Permanente
• Sharp Health Plan
• Western Health Advantage

The plans, a mix of HMOs and PPOs, will be sold through licensed agents who are trained and certified by Covered California.

Michael Lujan, Director of Sales and Marketing for Covered California’s SHOP, resigned today. A spokesman for Covered California said Lujan will leave his position Aug. 9th. Lujan is expected to release a statement later today and we will continue to provide updates as they become available. Michael was the de facto voice of the exchange for agents. He will be greatly missed.

Anthem withdrew its application to be on the Small Business Health Options Program (SHOP) last week. It was a surprise move that leaves the SHOP as wobbly as a three-legged chair. Without Anthem Blue Cross, the SHOP will be decidedly less attractive to employers and agents. Anthem is the major insurer in the California small group market with about one-third of the market and even if it wasn’t, you’d still want as broad a range of carriers as possible for the SHOP to have a successful launch year.

California Choice Benefits

The Anthem announcement included the not so subtle reminder that they are a participant in California Choice, a privately owned small group exchange that has operated successfully in state for a decade or more. Indeed, California Choice, the SHOP’s only competitor, seems to be the winner here.

Originally, Covered California required insurers to participate in SHOP as a condition of being on the individual exchange, but they had to remove that requirement to attract new insurers. Relatively small plans like Alameda Alliance for Health, Chinese Community Health Plan, Contra Costa Health Services, and L.A. Care Health Plan lack the resources to field small group plans in the SHOP, but their participation in the individual exchange is desirable.

DOI Attacks

Anthem had been under fire from DOI Commissioner Dave Jones for a series of recent small group rate increases that he considers excessive. Without the legal power to stop the rate increases, jones has been scorching Anthem in the media and lobbying the Exchange Board to exclude Anthem from the SHOP. Whether the board would have done that remains a moot point since Anthem has taken that chip off the table.

The Obama administration delayed for one year a provision, commonly known as the employer mandate for one year, that calls for businesses with 50 or more workers to provide affordable health insurance to workers or pay a $2,000 fine per employee. The employer mandate will now go into effect on January 1, 2015.

This delay is not expected to have much of an impact on the majority of large employers as most provide health benefits now. It will give those with a large number of part-time and low-wage employees more time to get their ducks in a row.

Creates New Subsidy Grey Area

However, Tuesday’s ruling does create a grey area for individuals. According to a recent IRS ruling, only those people not offered affordable coverage at work will qualify for subsidies through the Exchange, but since employers won’t be required to offer it, or report who they are covering, it is unclear how Covered California or the IRS will know who is eligible.

If fewer employers offer coverage, and more workers go through Covered California in the first year, and employers see their workers the employees are more or less happy with the arrangement, more businesses might simply decide to pay the penalty in 2015 rather than the substantially higher cost of covering their workers.

Official Response

State Insurance Commissioner Dave Jones said that the Obama administration’s decision “will not have a long-lasting effect, nor does it undermine the overall effectiveness” of the ACA. Anne Gonzales — spokesperson for Covered California — said that the decision will not affect the timing or the content of policies offered through the exchange.