Report helps explain new health-care law
Foundation uses insurers' rates for in-depth look at what subsidies will cost.
WASHINGTON - Premium subsidies may be one of the most complicated parts of the Affordable Care Act to understand, and that says something when you're talking about a 2,000-page law that overhauls the American health-care system.
They're also crucially important, as they determine how much insurance will cost and whether Americans will decide it is affordable. A new report from the Kaiser Family Foundation helps explain how the subsidies work.
The report is arguably the most in-depth look at how much insurance will cost under the Affordable Care Act, using rates that insurers will charge in 17 states and the District of Columbia.
"Our aim here was to really start making it tangible for people," said Larry Levitt, who cowrote the report. "So much until now has been hypothetical."
Let's focus on Washington state, which has middle-of-the-pack premiums. There, the second-lowest-cost silver plan costs $283 a month for a hypothetical 40-year-old. For purposes of this exercise, we'll call her the Seattleite.
This plan is important because its price determines how big of a subsidy a person gets. The health-care law says someone earning 250 percent of the poverty line - $28,725 - won't be expected to spend more than 8 percent of income on this plan. (It's called a "silver plan" as a measure of how much of a subscriber's costs it will cover.)
That limit changes by income. As you go up the income scale, your contribution gets bigger. And at 400 percent of the poverty line, or $45,960 for an individual, the federal government won't give you a subsidy, expecting anyone earning above that limit to pay the full price.
All of these contributions are benchmarked to the second-cheapest silver plan. Silver plans cover 70 percent of the average subscriber's costs.
The marketplace includes different levels of coverage: A bronze plan is less robust, covering 60 percent of an average subscriber's cost; a gold plan covers 80 percent.
In Washington state, the second-lowest silver plan costs $283 a month. Eight percent of our Seattleite's income is $2,316, or $193 per month. So, she receives a federal subsidy of $90 per month to make up the difference.
But here's another important factor: The Seattleite doesn't have to buy a silver plan. She could decide she wants less coverage and use her $90 subsidy to buy the least-expensive plan, a bronze-level package that costs $213 per month. Factor in her $90 subsidy, and she's paying $123 a month.
Conversely, the Seattleite could decide she wants a gold plan, which will cover 80 percent of the average subscriber's monthly cost. That plan is probably more expensive, and she will get a $90 credit. The data on Massachusetts, for what its worth, suggest that most marketplace enrollees will stick to bronze and silver plans.
But subsidies start to change by age, even if that's not quite apparent in the health-care law. Insurance plans are allowed to charge older Americans three times as much as their younger subscribers.
The Seattle insurer that charges a 40-year-old $283 per month for a silver plan wants to charge a 60-year-old $601 for the same package. But that doesn't matter much for the 60-year-old. Because he also earns $28,725, his contribution will be capped at 8 percent of income. That will take a $408 subsidy to bring his contribution to $193.
And like the 40-year-old, the 60-year-old has the option to use his subsidy to buy the cheapest plan in the marketplace. And because he has a much bigger subsidy, this has the effect of making a bronze plan cheaper. His $408 subsidy, applied to a $452 premium plan, means he's paying $44 per month.
"There are a lot of quirks in the law, and this is one of them," Levitt said of older people paying less for the cheapest plans than their younger counterparts. "The opposite is also true there - that older people will have to pay more than younger people if they want to go up to gold. Then older people are having higher costs."
What this report does tell us is the exact amount that some Americans will pay for health insurance, depending on where they live and how much they earn. What it does not tell us, as some headlines have suggested, is that coverage will be affordable.
Although it's often pointed out that these premiums are lower than the Congressional Budget Office expected, that doesn't say anything about how Americans will react to them.