5 Things to Know About Cost Sharing Subsidies
How the executive presidential order impacts the Marketplace
On Friday, October 13, 2017, President Donald Trump made an announcement that the federal government will no longer fund cost-sharing subsidies. Although the announcement does not have a big impact on individuals who purchase ACA plans, there are a few misconceptions about what the announcement means for those who currently have ACA plans. One of the biggest misconceptions is how removing subsidies will impact Americans insured through an ACA plan. Therefore, here are 5 key things to know about the announcement:
Cost-sharing subsidies are not tax credits. When people choose to have a plan through the Affordable Care Act, the person can qualify for a tax credit. This tax credit is determined from the yearly income a household makes. If an individual makes less than 400% of the Federal Poverty Line (approximately $96,000 for a family of 4), then the individual would be eligible for tax credits. The tax credits would limit the cost of ACA health insurance to about 10% of the adjusted gross income of the household. Tax credits are applied to the gross premium amount of an ACA plan, in order to make the insurance coverage more affordable for the insured.
With Trump’s announcements and related media coverage, it was assumed that tax credits would be removed through this announcement. Tax credits, however, are not affected. The only way individuals’ tax credits would be removed is if their household makes more than the threshold to qualify for tax credits. Individuals on the plans can still get this tax credit in order to make ACA plans around 10% of the household’s adjusted gross income.
Cost-sharing subsidies are supplements that are provided as a subsidy to reduce ACA plan deductibles and out of pocket maximums. Cost-sharing subsidies applied to individuals making less than 250% of the Federal Poverty Line (approximately $60,000 for a family of 4). Previously, the government reimbursed the insurance carrier for the subsidy it is legally required to give to the individual insured.
President Donald Trump has decided the federal government will no longer reimburse this subsidy. Although the federal government is no longer providing this assistance, the law still requires health insurance companies to honor cost-sharing subsidies. Therefore, those who previously received cost-sharing subsidies will still receive those subsidies, but the government will not be reimbursing the insurance companies for these subsidies like it has done previously.
Change in Premiums
With the cost-sharing subsidies not being funded by the government, this means that insurance companies will have more cost to them. More cost to insurance companies has a direct correlation with insurance premiums; since the cost of the plan will increase for the insurance company, it will also increase for the individuals. This may sound unsettling, but the individual will not see much of a change if they already receive tax credits. Since tax credits are provided to help individuals not pay more than 10% of their adjusted gross income for health insurance, the net cost of insurance premiums to the individual will be similar to previous rates.
For example, if a plan previously cost $1,000 per month and an individual got a tax credit of $500 because of their income, their net premium per month was $500. If the plan increases, due to the change in subsidies, to $1,500 then the tax credits will be around $1,000 – leaving the net premium $500. This is because ACA plans cannot exceed a percentage of an individuals adjusted gross income; therefore, if the plan goes up but the individual makes the same amount of income per year, then the net premium will remain the same.
Broad Load State Change
Since government cost-sharing subsidies are not being provided and insurance companies need to make up for this, the extra cost will be allocated throughout plans. Broad Load states, such as Indiana, will spread the additional cost of insurance companies not receiving cost-sharing subsidies across all insurance plans. This means those receiving tax credits towards their monthly net premium will not see much impact across all plans (bronze, silver, and gold).
Silver Load State Change
Silver Load states, such as Illinois, will apply the additional cost of insurance companies not receiving cost-sharing subsidies across only silver insurance plans. As stated earlier, although silver plans gross premium costs will increase, the amount of tax credits will also increase to offset this increase in cost. This means those receiving tax credits towards their monthly net premium will not see much impact across silver plans and will actually see a decrease on all other plans (bronze, gold).
Austin Lehman, CPA, COO Remodel Health