In the midst of much analysis of the impact of the Affordable Care Act (ACA) on health insurance premiums, Vermont became the first state to release preliminary rate filings for plans to be sold in their health insurance exchange in 2014.

The good news is that people generally haven’t found these rate proposals to be all that shocking, as suggested by recent articles in the Wall Street Journal (subscription required) and Kaiser Health News.

That’s not the only interesting take away from the preliminary rate filings, however.  Here are some additional nuggets we’ve been thinking about:

How will premium tax credits impact affordability? For many purchasing coverage on the exchange, these rates won’t reflect what the individual consumer will actually be required to pay thanks to federal assistance provided. Under the ACA, consumers whose income ranges between 100 percent and 400 percent of the federal poverty level (FPL) may be eligible for federal premium tax credits to help them afford private health insurance if they purchase coverage through the exchanges.  The amount of the tax credit will vary by income level and be pegged to the cost of the second lowest-cost silver plan available in the exchange.  Individuals earning between 100 and 250 percent FPL will also be eligible for cost-sharing reductions to limit their out-of-pocket costs.  To qualify for cost-sharing reductions, an individual must purchase a silver level plan, while individuals receiving premium tax credits can buy more or less expensive plans, including plans at different metal levels.

With these rules in mind, we did some back-of-the-napkin calculations to get a feel for what individuals earning less than 400 percent may end up facing in Vermont based on the preliminary rate filings. With Blue Cross Blue Shield Vermont’s Silver 1: Blue for You plan representing the second lowest cost silver plan on the market at $413.03/month for an individual, we approximated the following:

• An individual earning 150 percent FPL (approximately $17,235 per year) would be required to pay a maximum of 4 percent of their income, or $57.45/ month, on premiums. This would result in a premium tax credit worth over $350/ month. If they chose to buy down to the lowest cost silver plans or a cheaper bronze plan, they could pay even less (down to zero dollars a month for some bronze plans), but, in doing so, they would lose access to complementary cost-sharing reductions if they choose any plan other than a silver plan.
• An individual earning 300 percent FPL (approximately $34,470 per year) would be required to pay a maximum of 9.5 percent of their income, or $272.89/month, on premiums. This would result in a premium tax credit worth roughly $140/month. Since they are ineligible for cost-sharing reductions, they could buy a bronze plan without losing their premium tax credit, but, in doing so, would be subject to greater cost-sharing in a bronze plan (rather than a silver plan).
• An individual earning 400 percent FPL (approximately $45,960 per year) would also be required to pay a maximum of 9.5 percent of their income, or $363.85/month, on premiums. This would result in a premium tax credit worth approximately $49/month. This individual could buy down to a less expensive plan, such as, MVP Health’s Standard Bronze (non-HDHP) plan, but, as with the individual earning 300 percent FPL, would be subject to greater cost-sharing.

Even with federal financial assistance, it is clear that health insurance will continue to be a significant expense for low- and moderate-income individuals and families. Recognizing this, Vermont plans to supplement the federal premium tax credit with state funds to provide even greater financial protection to their residents. While this is not reflected in our calculations, for a few examples of what prices might look like taking state premium assistance into account, see here.

How will rates affect exemptions from the individual mandate due to affordability concerns? The IRS has proposed that, in 2014, an individual is exempt from the ACA’s requirement to maintain minimum essential coverage if their required contribution for coverage exceeds 8 percent of their household income for the most recent taxable year.  For an individual making just over 400 percent FPL, say $46,075, and who is thus not eligible for federal premium tax credits, 8 percent of their income is $3,686 – or just over $307/month. No plan at the bronze-level or greater is rated this low in Vermont’s preliminary fillings, so an individual in these circumstances may be eligible for a hardship exemption from the mandate. If they were 30 or over, this would make them eligible to purchase a catastrophic plan (although only MVP Health’s catastrophic plan, at $201.70/month, falls below the 8 percent affordability threshold for this individual). If they were under 30, they would already be eligible for the catastrophic coverage but would not be eligible for a hardship exemption because MVP Health’s catastrophic plan would be considered affordable.

With the lowest cost plan on the market for individuals 30 and over rated at $346.08/month, eligibility for an exemption from the mandate would phase out at an annual income of $51,912, or just over 450 percent FPL. However, as with the calculations above, these estimates do not reflect any impact from additional premium assistance that the state may provide.

How do rates vary between standard and non-standard plans? As CHIR faculty and staff have written about, a number of state-based exchanges are requiring insurers to standardize the benefit packages for a selection of their qualified health plans while also giving them the option to submit a limited number of non-standard plans to support value-based insurance design and other innovations.  In Vermont, Blue Cross Blue Shield Vermont’s non-standard plans are noticeably cheaper than their standard plan options, while MVP’s standard and non-standard plans have approximately the same rates.

There are a few things that are unique about Vermont.  First, Vermont is planning to use community rating (with exceptions for wellness), so older adults will see the same rates as younger adults. Second, Vermont is proposing to merge its individual and small group market, so these rates will apply whether you’re buying as a small business employee or as an individual.  Third, Vermont is planning to close the market outside of the exchange, so these filings represent the full range of options that will be available to individuals and small businesses looking for coverage.

It is also important to keep in mind that these are just preliminary rates and have not yet been approved by the state. Changes may still be made. In addition, the estimates presented here are just rough approximations meant to illustrate some of the nuances in pricing that consumers will face when they go to the exchange and our calculations were not confirmed by state regulators or issuers before posting.

Keep reading CHIRblog for more discussions in the future about what rates may look like in 2014 and the factors that affect them.