Is everyone who makes too much for ACA subsidies going to see big premium increases?

Q. I’m seeing a lot of headlines about big health insurance rate increases coming in 2017. I know that people with incomes under 400 percent of federal poverty level can get subsidies to help pay for health insurance. But is everyone with incomes above that level going to end up with big premium increases?

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A. No. The vast majority of Americans get their health insurance either from an employer or from the government (Medicare, Medicaid, CHIP, TRICARE, VA, IHS). The rate increases that have been making headlines are for the individual market, which only accounts for about 5.3 percent of the population (additional data here).

Employer-sponsored or government coverage

If you get your health insurance through your employer or from the government, the subsidies, exchanges, and new individual health insurance rates don’t apply to you. Employer-sponsored insurance rates change annually too, but their proposed rate increases for 2017 are shaping up to be much more muted than the proposed increases for the individual market.

Non-ACA-compliant plans

If your health insurance plan is grandfathered or grandmothered, you’re in a separate risk pool from the ACA-compliant plans offered by your health insurer, which means your rate increases for 2017 will be different as well (they could still be quite high, and there’s no requirement that carriers continue to renew grandfathered and grandmothered plans – they can decide to cancel them instead, and replace them with ACA-compliant plans).

ACA-compliant plans

If you have an individual health insurance plan that became effective January 2014 or later, it’s compliant with the ACA, and the headline-making rate increase proposals apply. But even still, it’s important to note that the average proposed rate increase (22 percent as of mid-June 2016, representing 31 states) is

  • an average – rate changes will vary considerably from one carrier to another
  • still subject to review and adjustment by regulators. The proposed rate increases tend to be higher than what regulators ultimately approve, although there have been some instances over the past few years where regulators required a carrier to increase rates beyond what was requested.
  • based on the assumption that people will not shop around during open enrollment. When people do shop around, they can switch to a lower-priced plan instead of simply accepting the rate increase for their existing plan.

If you’re not eligible for a subsidy, you’ll have to pay the full price for whatever plan you choose, on or off-exchange (be sure to shop on-exchange if you think there’s even a small possibility that your actual income for the year might end up being subsidy-eligible, since you’ll then have an option to claim the subsidy on your tax return; if you shop off-exchange, there’s no option to claim the subsidy later on your tax return).

But if you shop around during open enrollment, you might find that you can get a better deal than you’ll get if you remain with your current carrier. Thanks to the ACA, you have the option to do that annually now, regardless of whether you have health conditions or not (prior to the ACA, people in most states had limited access to new health plans in the individual market if they had pre-existing conditions).

The initial transition to ACA-compliant plans

The ACA makes health insurance available to anyone who applies (no more underwriting rejections or rate-ups) and subsidizes the cost for people who need it the most. But even people who don’t get a premium subsidy did not necessarily see large rate increases in 2014. People in these categories may have even experienced a rate decrease when they switched to an ACA-compliant plan, even without a subsidy:

  • If they already opted for a very comprehensive, low-deductible plan prior to 2014, they may have been able to find coverage in the exchanges that wasn’t significantly more expensive than what they paid prior to 2014.
  • If they had an underwriting rate-up on their pre-2014 plan, the new plans might have been a less-expensive alternative. Although the standard rates for ACA-compliant plans are higher generally higher than the pre-2014 base rates, there’s no additional charge for people with pre-existing conditions. Prior to 2014, that was not the case. People with pre-existing conditions were often charged rates that were at least 25 percent higher than the base rates, and sometimes 100 percent higher.
  • Older applicants get a better deal than they used to prior to 2014. Rates for older enrollees are limited to three times the rates for young enrollees under the ACA, which is a dramatic shift from the pre-ACA ratios that often ran as high as five to seven times as much for an older applicant.

To summarize, there are some people who are paying quite a bit more for their health insurance now that the ACA has been implemented: primarily enrollees who are younger, healthy, had high-deductible plans prior to 2014, and also have incomes high enough to make them ineligible for subsidies. However, there are plenty of people who are ineligible for subsidies who don’t fall into those other categories. For them, there hasn’t been as much in the way of “rate shock” over the last few years, and they might have ended up with a better deal starting in 2014, even without accounting for subsidies.

That said, the individual market rate increases for 2017 (compared with 2016 plans) are shaping up to be considerable, and consumers who don’t qualify for subsidies will almost certainly see higher rates in 2017. However, as rates increase relative to income, more people find themselves eligible for subsidies; it’s possible to have an income below 400 percent of the poverty level and not get subsidies, but that becomes rarer as premiums spike upwards.

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