The upcoming opening of the ACA health exchanges will see health insurance premiums undergo a variety of changes and regulations. For those entering the marketplace to purchase individual coverage, price will most likely be the key, deciding factor. With federal subsidies available to some eligible individuals, how much will insurance premiums actually cost?
How will premiums change?
An individuals quoted premium will act as a “sticker price”. The actual cost of the premium will be determined after subsidies and any other exemptions or discounts are applied.
It is anticipated that premium prices in the exchange will attract healthy, young, lower cost individuals (most likely uninsured) and offset the higher cost, older, unhealthy individuals. Premiums will be set in regulation with federal benchmarks and guidelines prior to any subsidies.
How subsidies will work?
Subsidies will be available to those seeking individual coverage, with an annual income ranging from 100% to 400% of the federal poverty level. Subsidies will be awarded in the form of a tax credit and will differ depending on age, income, and type of coverage chosen. Both affordable employer-provided coverage and Medicaid are ineligible for the tax credits.
Individuals who fall into the lower income brackets will see subsidies offset larger shares of their health insurance cost. Also, policy benefits will be more generous and at a reduced cost. Families with children will also receive increased subsidies. Those individuals falling in higher income brackets will see minimum subsidies and pay a higher share of their income towards premium costs.
The amount of the tax credit is determined based on a benchmark premium (the cost of the second-lowest silver plan available) minus the individuals expected premium payments (this is determined by a sliding scale from 2%-9% of one’s taxable income).
Example: Subsidy Calculation for a 40yr Old Male Earning $30,000 a Year (KFN)
Estimated Benchmark Premium = $3,857 (May vary per individual)
Responsible for 8.37% of their taxable income = $2,512
Tax Credit = $3,857 - $2,512 = $1,345
Subsidized tax credits can be applied to any of the metal plans offered on the exchanges and will average $2,672 for plans on the individual market. If an individuals estimated income is misfiled, misreported or is higher than expected, they may be responsible to pay all or a percentage of the subsidy back.
It is estimated that 48% of people buying their own insurance today will be eligible for a tax credit. Amongst younger and uninsured US adults, 82% would receive a subsidy if they chose to purchase on the exchange. But will coverage and premiums be more affordable than what we are paying now?
The Kaiser Family Foundation recently released a study, highlighting multiple examples of how these subsidies will fit certain individual’s purchasing of health insurance under the ACA. To learn more, download the study here.