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Can you count on your Obamacare subsidy?

As premiums rise, subsidies are more important than ever, and they'll continue to be available.

  • By
  • healthinsurance.org contributor
  • September 15, 2016

This article was initially written in 2014, when there was a considerable amount of anxiety surrounding the King v. Burwell case. People in states that use the federally-facilitated exchange (which is the majority of the states) were understandably concerned that their subsidies might be taken away, as that was the premise of the case. Ultimately, the federal government won the case in the summer of 2015, and subsidies continued to be available without interruption.

But even now, six and a half years after the ACA was signed into law, various parts of the law still face legal challenges, and healthcare reform remains nearly as contentious as it was in 2009, when the ACA was being debated. Add to that the rate increases for 2017, which are shaping up to be an average of about 25 percent, and the various carriers across the country that are exiting the exchanges at the end of 2016, and it’s understandable that people might be feeling a little nervous about the status of their subsidies.

So let’s revisit the question: Can you count on your Obamacare subsidies? In short, yes. Regardless of what you’ve heard about Obamacare – good or bad – the subsidies aren’t going away. And with the rate increases that are expected for 2017, those subsidies will be more important than ever.

Subsidies keep pace with rate increases

The ACA’s premium subsidies are a cornerstone of the law, and are the primary means of making coverage affordable for the majority of the exchange’s enrollees. For the people who enrolled in coverage during the 2016 open enrollment period in the 38 states that use HealthCare.gov, 85 percent qualified for subsidies, and the subsidies cover an average of 73 percent of their total premiums.

Subsidies are based on the cost of the second-lowest-cost Silver plan in your area, your household income, and the cost of the plan you select. If you enroll in the second-lowest-cost Silver plan, the percentage of your income you’ll have to pay for your coverage is described here. If you pick a plan that’s less expensive than the second-lowest-cost Silver plan, you’ll pay less, and if you pick a more expensive plan, you’ll pay more.

But what happens when prices rise from one year to the next? In general, subsidies will rise too. But the amount by which they’ll increase isn’t tied to the average price increase across the whole market, or to how much your own plan’s price increases. Rather, any increase in subsidies is determined based on whether – and how much – the price of the second-lowest-cost plan in a given area increases in price. From 2015 to 2016, the average price increase for second-lowest-cost silver plans across the country was 7.5 percent, which was less than the overall average increases across all plans.

So you can rest assured that if the price for the second-lowest-cost Silver plan in your area is higher in 2017 than it was this year (regardless of whether it’s the same plan or not), premium subsidies for everyone in your area will be higher in 2017.

But because premium increases will vary considerably from one plan to another, you’ll definitely want to make sure that you take a few minutes to shop around during open enrollment and select the plan that represents the best value for 2017, rather than relying on auto-renewal. Keep in mind that while your subsidy amount for 2017 will be the same regardless of which plan you choose, your after-subsidy premium will vary depending on your plan selection. And in order to prevent a sharp increase in your after-subsidy premium, you might have to switch to a different plan.

If you’re unsure how this works, you can reach out to a navigator or broker in your area, who can help you sort it out. (Assistance is free; here’s a primer on the types of assisters you can use.)

What if your carrier is leaving the exchange?

If your health insurer is leaving the exchange at the end of 2016, you’re certainly not alone. There are upwards of 2 million people who are currently covered under plans offered by carriers that will not participate in the exchanges in 2017. Some of these carriers will continue to offer coverage outside the exchange, while some are exiting the individual market altogether.

There are a few things to keep in mind if you’re currently receiving a subsidy to help cover the cost of your plan, and your carrier is exiting the exchange at the end of the year:

  • Subsidies are only available in the exchange. If your carrier continues to offer plans outside the exchange, you’ll have the option to switch to one of their off-exchange plans, but you’ll give up your subsidy if you do so.
  • HHS has said that the exchanges will “endeavor to” pick new plans for people whose carriers exit the exchanges, if the enrollees don’t return to the exchange themselves to pick a different plan. But this may or may not happen, depending on the state and the availability of other options. By far your best bet is to return to the exchange yourself – by December 15, if possible – to browse the available options for 2017 and pick your own plan. Auto-renewal is never the best choice. But if you’re auto-renewed onto a new plan, your subsidy will still apply to the new plan, assuming you remain eligible for a subsidy.
  • As of mid-September, all areas of the country are expected to have at least one carrier offering plans in the exchange when open enrollment begins on November 1. There were concerns in August that Pinal County, Arizona would be without any exchange plans, but that’s no longer the case. So despite carrier exits, every enrollee will have plan options available in the exchange for 2017. As long as you pick one of those plans, your subsidy will continue to be available.

Are there other legal challenges to the subsidies?

The King v. Burwell case transfixed the healthcare world for several months in late 2014 and the first half of 2015. The issue in that case arose from the fact that the ACA contains language stating that subsidies are only available “through an exchange established by the state.” Since the majority of the states did not establish their own exchanges but instead defaulted to the federally facilitated marketplace (FFM) at HealthCare.gov, the semantics of the law became a significant legal battle, despite the fact that the IRS issued a ruling that authorized the FFM to issue subsidies.

Many legal scholars saw the law’s wording as a clear indication that the subsidies were only to be available through government-run exchanges (as opposed to private exchanges, which are cropping up all across the country), even if the federal government is standing in for the state. The leaders of the House and Senate committees that oversaw the creation of Obamacare have verified that this was their intention.

But ACA opponents took the word “state” more literally, and believed that the language was included in the law as an incentive – albeit a top secret one – to make sure states did indeed build their own exchanges, and they considered the subsidies in the FFM to be in conflict with the law.

The case eventually made its way to the Supreme Court in March 2015, and the Justices handed down a 6-3 ruling in June 2015, upholding the legality of the ACA’s subsidies in every state, regardless of whether the state established its own exchange or not.

Of course, that’s contingent upon health insurers continuing to offer plans for sale in the exchanges. The situation in Pinal County, Arizona highlighted the fact that this is not a given, nor are insurers required to participate in the exchanges. (States can exert their own leverage, though: As an example, Nevada requires carriers that participate in the state’s Medicaid Managed Care Program to also offer plans for sale in the exchange, and has avoided the carrier exits that have plagued many other states heading into 2017.)

In Oklahoma, Wyoming, Alaska, and Alabama, there will be just one carrier offering plans in the exchange in 2017, and there are numerous segments of other states where just one carrier will offer plans. Some of these areas are in relatively precarious positions, as one more carrier exit could leave them without any exchange plans, and thus make subsidies unavailable. In a scenario like that, HHS would undoubtedly work to remedy the situation as quickly as possible, and state insurance regulators are also working to make sure that each area of each state has at least one carrier offering plans in the exchange at all times.

There’s another court case, House v. Burwell, that challenges the legality of Obamacare care subsidies – but in this case, it’s the cost-sharing subsidies that are at issue, rather than the premium subsidies. And it’s the U.S. House of Representatives that brought the lawsuit, rather than consumers.

A district court ruled in May that HHS cannot continue to issue the cost-sharing subsidies (which are remitted directly to insurers, and are not reconciled on enrollees’ tax returns) without Congressional approval of the funding, but the decision was stayed and the case is pending an appeal from the federal government. For the time being, cost-sharing subsidies are still being paid to insurers who provide silver-level plans to enrollees with income up to 250 percent of the poverty level.

So although there are still some uncertainties going forward, the legality of premium subsidies has been unequivocally upheld, and subsidies will continue to be available in every county in the country in 2017. In most states, subsidies will likely be larger in 2017 than they are in 2016, due to rising premiums. You may have to switch to a different plan in order to retain your subsidy, but the subsidies themselves will continue to be available.

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