How Changes in Family Size, Plan Options, and Market Competition Impact Health Insurance Marketplace (Obamacare) Subsidies
Understanding Affordable Care Act Compliant Health Insurance Marketplace Plans (Obamacare) and the Subsidies, also known as Advanced Premium Tax Credit (APTC), can be overwhelming. The mere mention of that statement can be quite overwhelming. Surprisingly, even today, people still inquire about the existence of Obamacare. The answer remains a resounding yes, as there have been no significant alterations to the Affordable Care Act law, which was enacted in 2010. Clients often find it puzzling that the subsidized price for a single member can be equal to or only slightly lower than when two or more members are enrolled, even if the number of members on the tax filing remains the same in both scenarios and the income being used is identical.
Even the smallest modification to family composition or tax filing can lead to significant variations in the insurance premium. The objective is to simplify these intricacies and elucidate how factors such as family size, plan adjustments, and market competition influence the ever-evolving realm of accessible healthcare options in a comprehensible manner.
The Advance Premium Tax Credit (APTC) is calculated based on household details, including the number of individuals, total income, age, zip code, and tobacco status. These factors greatly influence the available plans and prices. Under the Affordable Care Act (ACA), health insurance plans are required to cover pre-existing conditions and provide 10 essential health benefits. These benefits form the cornerstone of comprehensive healthcare coverage, ensuring that individuals receive a broad range of services that meet their basic health needs. These two factors are also the primary reasons why ACA plans (without the subsidy) are so expensive. Carriers are unable to base prices on individual utilization or health, resulting in a one-size-fits-all model. There is no consideration for individuals who are no longer in their childbearing years, such as not charging for maternity coverage.
All plans must include these 10 essential health benefits (list from Healthcare.gov):
- Ambulatory patient services (outpatient care without hospital admission)
- Emergency services
- Hospitalization (including surgeries and overnight stays)
- Pregnancy, maternity, and newborn care (pre- and post-birth)
- Mental health and substance use disorder services, including counseling and therapy
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services, as well as chronic disease management
- Pediatric services, including oral and vision care (adult dental and vision coverage is not included as essential health benefits)
In addition to these benefits, plans must also include coverage for:
- Birth control
- Breastfeeding
Essential health benefits are the minimum requirements for all Affordable Act Compliant plans. The specific services covered under each category may vary depending on state requirements. Some plans may offer additional benefits such as dental coverage, vision coverage, and medical management programs for specific needs like weight management, back pain, and diabetes.
Exploring the Definition of “Household” in Depth
When filling out an application for healthcare.gov or a state-based exchange, many consumers find the question about household composition to be confusing. Unlike applications for state programs like Medicaid or CHIP, which take into account both residents and assets, Affordable Care Act plans focus solely on tax filing. In this context, “household” refers to those individuals listed on the actual tax return, regardless of whether they are applying for coverage or not. It’s important to note that if a married couple is filing separately but still living together, they are usually not eligible for a tax credit or subsidy. Initially, the ACA had strict rules in place that disregarded legal separation and considered married couples living separately as ineligible for tax credits or subsidies. However, the rules have since become more accommodating for legally separated married couples who live in separate households..
How Changes in Family Composition Can Impact Monthly Premiums
1. How Family Size Tweaks the Subsidy Equation:
- Increased Eligibility and Lower Premiums: Adding a dependent to your family can have significant financial implications. On one hand, it can lead to larger subsidies and lower premiums. On the other hand, it may result in increased costs if their income affects your tax filing. To minimize any potential consequences during tax season, it is crucial to ensure that your health insurance marketplace application aligns closely with your tax filing. Paying careful attention to match the two will help you avoid any undesirable outcomes. Under the Affordable Care Act, household income is considered in relation to the federal poverty level (FPL). With more dependents, your household income is divided among more individuals, potentially lowering your family’s FPL percentage and increasing your subsidy eligibility. However, this situation can also bring about inconvenience. For instance, if a couple’s income is $28,000, which is too high for Medicaid, but they have a child, that income may no longer be sufficient (depending on the state). As a result, the family will need to be evaluated by the state Medicaid department, regardless of whether they desire state coverage or not.
- Limited Subsidies for High-Income Families: In previous years, there was a strict cutoff where individuals earning just a few dollars above the maximum limit could end up repaying the entire year’s subsidy to the IRS. Nevertheless, thanks to legislation enacted during the Biden Administration, even households with higher incomes can still benefit from notable monthly savings. For instance, consider a family of four, with parents in their 60s and children under 26, earning $250,000 or more; they may be eligible for significant monthly discounts.
2. The Phantom Price Hike: One Spouse on Medicare, Cost Stays the Same (or Worse):
When a spouse transitions to Medicare while the other remains enrolled in an ACA/Obamacare plan, they may encounter a perplexing situation. Even with no changes in income or family size, their premium may stay relatively unchanged or even undergo a slight increase. This seemingly counterintuitive phenomenon can be attributed to two key factors.
- Plan Design and Premium Levels: ACA plans are categorized into various premium levels based on metal categories (Bronze, Silver, Gold, Platinum). The cost of premiums within each category can vary based on factors such as age, location, and tobacco usage. When one spouse transitions to Medicare, the other spouse’s premium, which is adjusted for age, might not see a significant change. This is because the subsidies provided are more substantial for households enrolling more members. Consequently, a couple with only one member enrolling will receive a smaller subsidy compared to when both are enrolled, making the pricing more understandable for the average consumer.
- Market Competition and “Second Lowest Silver Plan” Rule: The subsidy amount is calculated based on the cost of the second-lowest-priced silver plan in your area. If a new, cheaper plan enters the market and becomes the new “second lowest,” your subsidy amount might decrease, potentially resulting in a higher net premium for the remaining spouse. For example, when Independence Blue Cross was the sole provider in the Philadelphia area, many consumers enjoyed the advantage of a $0 premium plan. However, as “competition” was introduced into the market, the cost of this plan rose to approximately $30 per month for consumers, despite little to no change in their circumstances.
3. The Annual Plan Shuffle: When Loyalty Doesn’t Pay:
Sticking with the same plan year after year might seem like the safe bet, but it can be a costly mistake in the volatile world of ACA premiums. Plan premiums can fluctuate drastically year-to-year due to factors like:
- Rising Healthcare Costs: The ever-increasing cost of healthcare services directly impacts plan premiums.
- Changes in Network Providers: If your plan loses access to certain healthcare providers or hospitals, it may need to adjust its premiums to reflect the altered network coverage.
- State-Level Policy Changes: Some states have implemented additional regulations or taxes on ACA plans, which can drive up premiums.
Therefore, it’s crucial to compare plans and prices every year during open enrollment, even if your family size and income haven’t changed. You might find a more affordable plan with comparable coverage, potentially saving significant money.
4. Children and the Subsidy Tightrope: Age and Income Restrictions:
Enrolling children in an ACA (Affordable Care Act) plan can serve as a crucial financial safety net, yet income remains a key determinant. For children under a certain age, typically 19, the eligibility for subsidies is bound by stricter income thresholds. In some states, if income is below these limits, it may necessitate enrolling children in Medicaid or CHIP (Children’s Health Insurance Program) programs, which offer different coverage and provider networks compared to ACA plans. Unlike the ACA marketplaces, which predict eligibility based on the upcoming year’s expected income from federal tax filings without considering assets or bank account balances, these state programs conduct thorough diligence. They assess eligibility not just by income but also by examining assets and bank account balances, ensuring a comprehensive evaluation of financial status. Understanding these income thresholds and exploring alternative coverage options for your children is vital to avoid unexpected financial burdens.
Conclusion:
The intricate interplay of family size, plan changes, and market competition constantly reshapes the landscape of Obamacare/ACA subsidies and premiums. Understanding these dynamics is crucial for navigating this complex system and making informed decisions about your family’s health insurance. By staying informed, comparing plans regularly, and seeking expert guidance when needed, you can navigate the shifting tides of Obamacare/ACA and find the most cost-effective coverage for your loved ones.
Further Reading:
For more detailed information on Obamacare/ACA subsidies, premiums, and eligibility requirements, consider exploring the following resources:
Kaiser Family Foundation – Health Insurance Marketplace Calculator