Subsidies: Who is eligible and how do they work?

June 5, 2013

Starting January 1, 2014, some of your individual clients may be able to get subsidies or tax credits when they buy health coverage. So who can get these subsidies or tax credits, and how do they work? We’ll break it down for you.

Subsidies for individuals

In 2014, people who qualify may be able to get a tax credit from the government to help them buy health coverage and pay their premiums. Or they may qualify for subsidies from the government to help them pay for their out-of-pocket health care costs. And they don’t have to wait until tax time to get it. The tax credit can be used for any individual plan sold on the exchange, or health care marketplace.

Who qualifies

  • Tax credit:
    • People who are U.S. citizens or legally live in the U.S.
    • People earning between 100% and 400% of the federal poverty level if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare and Medicaid or Medi-Cal in California.
    • Single people with household modified adjusted gross incomes from 100% to 400% of the federal poverty level would earn from $11,490 to $45,960 each year.
    • A family of four with household modified adjusted gross income from 100% to 400% of the federal poverty level would earn from $23,550 to $94,200 each year.
  • Subsidy:
    • People with incomes up to 250% of the federal poverty level may also get an extra subsidy when they buy a silver level plan. These subsidies are lower cost shares for services covered by the silver plan. The federal government subsidizes the higher benefits provided by the insurer.

Who doesn’t qualify

  • People who can get Medicare or Medicaid (Medi-Cal in California)
  • People who can get a plan of a minimum value at work with premiums that cost less than 9.5% of their earnings

When health insurance marketplace open enrollment starts

Open enrollment for plans offered through the health insurance marketplace begins on October 1, 2013, and plan coverage starts as early as January 1, 2014.


Is the Cost of Healthcare Really on the Decline?

With the expenses associated with health reform and ever increasing premium rates, it is hard to believe that recent studies are actually showing that healthcare costs are on the decline. For the third year in a row, the Centers for Medicare and Medicaid Services have docked the national health growth expenditures at a record low of 3.9 percent. Some, including actuaries, academics and other analysts have attributed the slowing of health expenditures to be repercussions of the lingering recession and the well-known association between unemployment and the decline in insurance coverage.

Health Affairs was just one of the journals to come out with health cost findings this week. In their study it was suggested that the fundamental structural changes to our health system has also contributed to the decline in health expenditures; specifically with the creation and heighten popularity of entities such as competition among health providers and health systems to achieve the highest standard of care, changes to the fee-for-service system, patient-centered medical homes and accountable care organizations (ACO), to name a few. As expected, the Obama Administration has claimed that this trend is due to the success of PPACA. Changes to Medicare policies and coverage changes were also noted as explanations for the spending slow down. Judging by this study, others like it and sheer economic history, we know that the state of the economy has direct impacts on the healthcare industry. Using these indicators we can expect that the country will return to historically high cost levels as the economy continues to recover.

Health Affairs also released a study this week that examines other reasons as to why spending growth has hit a record low. In areas of the country where job loss was not a factor, spending was higher but health expenditure rates still fell. David Cutler and Nikhil Sahini, two Harvard scholars, noted that the healthcare expenditure slow down actually began before the recession, meaning that there are other factors that may have been overlooked that have also caused healthcare expenditures to slow. The two argue that at least a small fraction of the slowdown is a result of the insurance coverage distribution. Other more significant reasons, which are still theory and have yet to be proven, are the sharp slowdown in prescription drug expenditures, new developments in imaging technology, population growth (largely below the Federal Poverty Line), aging baby boomers and migration in and out of the public and private systems.

With all of these factors playing some sort of role in the health expenditure slow down we are left with a key question–is this sustainable? Studies have shown that if the economy improves and health insurance coverage is expanded to the millions of people intended under PPACA then the reasons for the current healthcare slowdown will diminish. However, current predictions on the economic recovery are modest for the coming years and the economy is expected to slow significantly once again come 2018, which means that there is a chance that health expenditures will continue to decrease. If PPACA rolls out the way the Obama Administration hopes, with millions of Americans gaining insurance coverage through the competitive exchanges and many enrolling in Medicaid, the sheer competitiveness of the marketplace will naturally drive costs down. While we have not necessarily seen the evidence to back up this theory yet, we hope that it will all somehow fall into place!

California insurance changes

San Francisco Chronicle by Patrick Johnston –

May 5, 2013:

Over the next month, Californians will begin to get a clearer picture of the historic changes the Affordable Care Act will make in the state’s insurance market for individual plans as it expands coverage to millions of the state’s uninsured residents.

The state is scheduled to start providing the details about the health plans that will be offered through Covered California, a new competitive marketplace for individual, families and small businesses purchasing coverage.

Through Covered California, these Californians can begin purchasing insurance plans on Oct. 1 that will more resemble employer-provided insurance than the bare-bones coverage they may have had in the past.

The plans will go into effect on Jan. 1, and will offer more comprehensive coverage and smaller out-of-pocket expenses for deductibles and co-pays. Pre-existing conditions will no longer be taken into consideration, lifetime limits are eliminated, and subsidies will be available for individuals earning up to $46,000 and for families with an income of up to $94,200.

This will mean that many individuals will pay less for coverage than they did before the new federal law, but some Californians will face higher health insurance premiums.

Those on the lowest end of the income scale could see their premiums decline by as much as 84 percent, according to a report commissioned by Covered California.

But middle- and upper-income Californians who buy their coverage in the individual market and who don’t qualify for the subsidies could face premium increases of as much as 30 percent, the report said. This could be especially true in San Francisco, with its higher median income and growing ranks of self-employed entrepreneurs, who will be seeking insurance in the individual market.

Among the reasons for the higher premiums for these Californians is the shift of out-of-pocket costs into premiums – that is, Californians will have lower co-pays and deductibles because the premiums will absorb more of the underlying cost of care. This shift ultimately could save money for people who use medical services more frequently. Families earning less than $60,000 a year, for example, could save up to 76 percent on the cost of care.

Providing more comprehensive benefits also means Californians in the individual market may pay more than they have before because the plans contain additional benefits – including benefits they might never use, such as pediatric dental care for beneficiaries who have no children.
Younger people may also lose some of their price advantage because of changes in the ways health plans calculate benefits. Because they were considered to be healthier, younger beneficiaries previously paid less than older people. Under the new plan, they will still pay less than older Californians but they will pay more than before. The report estimated these changes would cause Californians under age 25 to face, on average, up to a 25 percent higher premium, while older people would see an increase of about 12 percent if they don’t qualify for subsidies. The report suggested that on average, individual premiums in California would rise 9 percent.

While these subsidies will help reduce premiums for some 2.6 million Californians, they won’t reduce the underlying cost of care, which continues to outpace inflation by almost 250 percent. These underlying costs often are outside health plans’ control, including the rising cost of hospitalization, doctors’ visits, medical tests, prescription drugs and other health care services.

Among the many reasons for the rising costs are unnecessary tests, procedures and drugs, which experts say consume about $1 of every $3 spent on health care. We are an aging population, and older people have more costly medical needs. Also, about 40 percent of adult Californians live with at least one chronic condition, and chronic conditions account for more than 75 percent of all heath care costs.

Health plans are working to reduce costs by providing wellness programs. They offer free counseling for depression, quitting smoking, losing weight, eating healthier and reducing alcohol use. They’re also limiting their overhead to about 11 cents out of every $1 in premiums. Plans are also working collaboratively to more closely align quality and payment in medical treatment and to improve cost transparency for consumers.

The federal Affordable Care Act and state law place tight limits on profits by requiring health plans to spend 80 to 85 cents out of every $1 in premiums on doctors’ and hospitals’ bills, prescription drugs, tests and other health care services for their members.

If the plans fall short of that requirement, then they must provide a rebate. California commercial plans exceeded those requirements by spending, on average, 89 cents out of every $1 in premiums on medical care.

California health plans’ net profit margins are far less than others in the industry, averaging just 3.6 percent annually. Other sectors of health care, such as the pharmaceutical industry, benefited from net profit margins of up to 16.7 percent, according to Yahoo Finance data.

While the federal health care law will expand coverage, increase benefits and make many other changes to help Californians, it does not do enough to address the rising cost of care that continues to drive up the price of premiums.

The prescription for curing our health care system calls for more cooperation among all of us – elected officials, hospitals, physicians, patients and insurers – to lower the underlying costs of care so that we can ensure coverage is affordable.

Subsidized or Penalized

Subsidized or Penalized: A new study brings into sharper focus one of the Affordable Care Act’s central provisions: The tax credits extended to people to help them purchase coverage beginning next year.  The analysis by the left-leaning advocacy group Families USA estimates that nearly 26 million people will be eligible for the new subsidies.  According to their report, 88 percent of those qualifying for the tax credits will be from working families.  However, when all is said and done, those subsidies will run up a tab of about $350 billion by 2019.  Additionally, experts raise the point that those who are not eligible for the subsidies – and even some of those that are – may still wind up paying more for their coverage due to other major provisions of the law, including, new minimum essential health benefits requirements and restrictions on age-rating bands.  Separately, a new survey found that the IRS penalty levied against people who remain uninsured next year will not have the intended effect on consumers’ purchasing decisions.  When asked if the IRS penalty would motivate them to shop for a health plan when the exchange marketplaces open for enrollment this October, two-thirds of respondents answered “No.”  While many may balk at the penalty now, which in 2014 will be the greater of $95 per individual or 1 percent of total household income, that pill might not be as easy to swallow in a couple of years, when the penalty balloons to either 2.5 percent of total household income or $695 per person in 2016.


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