By Tricia Brooks, Georgetown University Center for Children and Families
Yesterday, CMS announced that premium costs for 2016 Silver benchmark plans (that’s the second lowest cost Silver plan) will increase by an average of 7.5% compared to 2015. However, there is significant variability in the differences ranging from an average 12.6% drop in premiums in Indiana (yes, that’s minus 12.6%) to an average increase of 25.8% in New Mexico. But this doesn’t necessarily mean that enrollees who qualify for financial assistance (which is 86% of enrollees) will see their share of cost decline or increase by a like percentage. So what will consumers really pay? To answer that question, you need to understand how premium tax credits work.
The share of premiums that individuals and families pay is based on a sliding scale percentage of their household income. Those amounts increased modestly for 2016 plans (for example, an individual of family with income at 133% will pay 2.03% of household income up from 2.01% in 2015). But it’s a bit more complicated than that. The share of income or expected premium contribution is used to calculate the amount of premium tax credits that the consumer can use to purchase a Marketplace plan, based on the cost of the Silver benchmark plan. If the consumer selects the Silver benchmark plan, the premium share they pay is that exact percent of income reflected in the chart.
|Income Level||Premium Share as % of Income|
|Up to 133% FPL||2.03%|
|133 – 150% FPL||3.05 – 4.07%|
|150 – 200% FPL||4.07 – 6.41%|
|200 – 250% FPL||6.41 – 8.18%|
|250 – 300% FPL||8.18 – 9.66%|
|300 – 400% FPL||9.66%|
Let’s break this down by taking a look at how premium tax credits are calculated. Below is an example of a family of four in Arizona, where premiums for the Silver benchmark plan on average increased 24%. Assuming no change in the family’s income, the expected premium share increased by $1. On the other hand, the premium tax credit increased by $127.
|Premium Tax Credit Calculation||Family of 4 at 150% FPL|
|Modified Adjusted Gross Income (MAGI) Projected for Coverage Year||$ 36,375||$ 36,375|
|Monthly Expected Premium Contribution 4.07% of MAGI Income($36,375 times 4.02% (2015) or 4.07% (2016) divided by 12 months)||$ 121||$ 122|
|Monthly Cost of Silver Benchmark Plan, increased 24% in 2016(2nd lowest cost Silver plan available in the rating area)||$ 527||$ 654|
|Monthly Premium Tax Credit(Cost of Silver benchmark plan minus expected premium contribution)||$ 406||$ 532|
But it’s important to emphasize that a family’s premium share will be different if they select a plan that is more or less costly than the Silver benchmark. Think about it as a discount coupon equal to a flat dollar amount to lower the cost of plan that is purchased. If a family or individual selects a lower cost plan, they will be pay less. And if they select a higher cost plan, their premium tax credit won’t go as far and they will pay their expected premium contribution plus the difference in cost between the Silver benchmark plan and the plan they select. Using the example above, let’s see what happens if the family selects a bronze plan or a Silver plan that is more expensive than the benchmark plan.
Silver Plan with Higher Cost than Benchmark
|Family Income at 150% FPL||$ 36,375||$ 36,375||$ 36,375|
|Cost of the Plan||$ 547||$ 654||$ 701|
|Premium Tax Credit||$ 532||$ 532||$ 532|
|Share of Premium based on % of Income||$ 122||$ 122||$ 122|
|Difference between the cost of Silver benchmark and plan selected||– $ 107||$ 0||$ 47|
|Final Premium Cost||$ 15||$ 122||$169|
Obviously, this gets complicated and thankfully we can leave the math to the Healthcare.gov. But this last chart illustrates how individuals may be enticed into buying a low cost bronze plan. Unfortunately, individuals who are eligible for lower cost-sharing if they enroll in a Silver plan may be tempted to make their plan selection based on premium cost alone. In fact, an estimated 27 percent of enrollees who were eligible for reduced cost-sharing did not enroll in a Silver plan in 2015. But this year, Healthcare.gov has added an out-of-pocket estimator that will help consumers understand how their out-of-pocket costs would be different for different plans.
For more on the ACA’s premium tax credits and how they work, check out our on-line, searchable Navigator Resource Guide, with close to 300 frequently asked questions about private health insurance and the marketplaces. And stay tuned for more blog posts on the out-of-pocket calculator and the other new bells and whistles on Healthcare.gov as we count down the final days to OE3.
Editor’s Note: This post is a lightly edited version of one originally published on the Center for Children and Families’ Say Ahhh! blog.