Will you receive a premium subsidy? How do they work?
- The subsidies are tax credits — but you don’t have to wait until tax season.
- Subsidy availability hasn’t changed, despite the efforts to repeal the ACA.
- The subsidies are larger than ever, due to the cost of CSR being added to silver plan rates.
- But subsidies will decrease in some areas in 2019, so shop carefully during open enrollment.
- Average subsidy-eligible enrollees get most of their premiums covered.
- Premium subsidies don’t apply to supplemental coverage.
- Cost-sharing reductions are a different type of ACA subsidy.
If you’re worried about the cost of health insurance premiums in the exchanges, it might help to know that – thanks to the law’s generous subsidies — your premiums could end up a lot lower than you expect.
More than half of the uninsured don’t know that financial assistance in the form of subsidies is available in the exchanges. A few more quick facts about Obamacare subsidies:
- The subsidies are tax credits, which means you can opt to pay full price for your coverage (purchased through the exchange) each month, and then get your tax credit when you file your tax return. But unlike other tax credits, the subsidies can be taken throughout the year, paid directly to your health insurer to offset the cost of your coverage.
- The subsidies are still available. The GOP spent much of 2017 trying to repeal the ACA, but were unsuccessful (with the exception of the repeal of the individual mandate penalty as part of the GOP tax bill that was enacted in December 2017; people who are uninsured in 2019 will not be penalized unless they’re in a state that has its own mandate).
- One thing that has changed, however, is the size of premium subsidies. Premium subsidies are larger than they used to be, due to the general increase in premiums in 2017 and 2018, as well as the way the cost of cost-sharing reductions (CSR) was added to premiums. In most states, subsidies were significantly larger for 2018 than they were in 2017, resulting in millions of people having access to free bronze plans, and/or gold plans that are significantly less expensive than they were the year before. This will continue to be the case in 2019, but the disproportionately large premium subsidies will be even more widespread (for example, Colorado, North Dakota, and Vermont did not allow insurers to add the cost of CSR to silver plan rates for 2018, but are doing so for 2019. This will result in higher silver plan premiums, and correspondingly larger premium subsidies).
- While still disproportionately large, subsidies will decline slightly in many areas in 2019. Subsidy amounts are based on the cost of the benchmark plan (the second-lowest-cost silver plan) in each area. Across the 39 states that use HealthCare.gov, average benchmark premiums are decreasing by 1.5 percent for 2019. That comes with a corresponding decrease in subsidy amounts, although there’s plenty of state-to-state variation: Average benchmark rates are increasing by 20 percent in North Dakota, and decreasing by 26 percent in Tennessee. But although average benchmark premiums in HealthCare.gov states are decreasing slightly, overall average premiums nationwide are increasing slightly, by a little less than 3 percent. That makes it particularly important for people to shop around during open enrollment, as they might find that their net (after-subsidy) premium is higher than they were expecting. Part of the reason for the decrease in benchmark premiums is the influx of insurers that are joining the exchanges for 2019, some of which are undercutting existing insuers on price — yet another reason to shop carefully during open enrollment, as there might be new plans offering a better value than you have this year.
- The subsidies cover the majority of the premiums for people who are subsidy-eligible. 87 percent of the people who were enrolled in exchange plans nationwide as of early 2018 were receiving premium subsidies. And the subsidies covered an average of 87 percent of their premium costs. The average after-subsidy premium paid by the 9.2 million enrollees who were receiving premium subsidies in early 2018 was only $77/month.
- Premium subsidies don’t apply to supplemental coverage, including accident supplements, adult dental/visions plans (or pediatric dental/vision plans that are sold separately from metal coverage, as opposed to being embedded in the medical plan), critical illness plans, or stand-alone prescription drug insurance (but there are free prescription drug discount plans available). Subsidies also cannot be used to purchase short-term health insurance.
- Subsidies can lower your premium significantly, but the ACA also provides subsidies that can reduce your cost sharing. And even though the Trump Administration stopped reimbursing insurers for the cost of those cost-sharing subsidies, the benefits are still available to eligible enrollees (53 percent of the people who signed up for 2018 plans through the exchanges nationwide are receiving cost-sharing subsidies). The workaround that states and insurers developed to account for the lack of federal funding is what’s driving the larger premium subsidies described above.
It pays to calculate your subsidy!