Does Obamacare make health coverage less expensive for the self-employed?

Q. Does Obamacare make health insurance for the self-employed less expensive?

A. It depends on how much they earn, and whether they were able to get coverage in the individual market prior to 2014.

Subsidies, Medicaid, guaranteed-issue coverage

Self-employed people who purchase individual health insurance through the Obamacare exchanges are eligible for premium subsidies as long as their incomes are between 100 percent (138 percent in states expanding Medicaid) and 400 percent of poverty level (FPL). And cost-sharing subsidies are available for applicants with incomes between 100 percent (138 percent in states expanding Medicaid) and 250 percent of FPL.

The subsidies cap premiums at no more than 9.66 percent of income in 2016, and as little as 2.03 percent for people on the lower end of the income range (both of these limits will increase very slightly for 2017). In addition, the cost-sharing subsidies reduce the out-of-pocket expenses that an insured pays. People who qualify for subsidies can often obtain health insurance that is far better than the coverage they had in the past, for a fraction of the cost.

But subsidies are not available if the applicant has access to an employer-sponsored plan (including a spouse’s plan) that is considered affordable, which means that the employee pays no more than 9.66% of income for employee-only coverage (this will increase slightly – to 9.69 percent – in 2017).

In states that have accepted federal funding to expand Medicaid under the Affordable Care Act, self-employed people with household incomes up to 138 percent of FPL are eligible for Medicaid. The free (or very small) premiums are a significant help to entrepreneurs in the early stages of starting their businesses, when income can be quite low.

Regardless of income and ability to pay for coverage, some applicants simply weren’t able to obtain coverage in the individual market prior to 2014, which sometimes prevented people from leaving a job in order to become self-employed. In most states, individual health insurance was medically underwritten prior to 2014, which meant that applications could be declined based on medical history. People in those situations were often eligible for state high-risk pool coveragehigh-risk pool coverage, but that was typically significantly more expensive than the private market.

Some are paying more

Self-employed people who do not qualify for subsidies and who qualified for medically underwritten health insurance in the individual market prior to 2014 may find that their new ACA-compliant plan is more expensive. Particularly for people with income just a little over the 400 percent of poverty threshold, there can be a subsidy cliff in some areas, making coverage unrealistically expensive.

On the other hand, the new plans are likely providing better coverage than most people had prior to 2014. That may or may not be beneficial to individual policy-holders, however; a couple in their late 50s probably won’t directly benefit from the ACA provision that requires maternity coverage on all plans, but their adult children might.