A new Kaiser Family Foundation analysis estimates that Americans who currently buy their own insurance through the individual market would receive tax credits averaging nearly $2,700 next year for coverage purchased through new insurance marketplaces. The tax credits or subsidies would cover 32 percent of the premiums on average for this group of enrollees in a so-called “silver” plan.
The new analysis by Foundation researchers comes as some states are releasing information on what premiums will be in 2014 when the Affordable Care Act’s market reforms and newly created health insurance marketplaces take effect. These rate announcements illustrate “sticker prices” that do not reflect federal subsidies that will offset the cost of insurance for many current individual market policy holders.
“Tax subsidies are an essential part of the equation for many people who buy insurance through the new marketplaces next year,” Foundation President and CEO Drew Altman said. “They will help make coverage more affordable for low- and middle-income people.”
Tax credits will be available to subsidize premiums for people who buy their insurance in the new marketplaces, do not have access to other affordable coverage, and have incomes between 100% and 400% of the federal poverty level (between about $11,500 and $46,000 for a single person, and $24,000 and $94,000 for family of four).
An estimated 48% of people who currently have individual market coverage will be eligible for tax credits, the analysis finds. Tax credits among those eligible will average $5,548 per family, and subsidies will average $2,672 across all families now purchasing their own insurance. Many people who are now uninsured will also be eligible for subsidies in the new marketplaces, and their tax credits will likely be higher on average since they have lower incomes than those who now buy their own coverage.
There are many reasons why premium costs in the individual insurance market will change under the ACA before tax credits are applied. For instance, insurance companies will be prohibited from discriminating against people with pre-existing conditions, leading to higher enrollment of people with expensive health conditions. More young, healthy people may also enroll due to the ACA’s individual mandate and premium subsidies. Furthermore, insurance providers will be required to meet a minimum level of coverage that will raise premiums for people buying skimpier coverage today, but also lower their out-of-pocket costs on average when they use those services. Premiums before and after the law goes into effect are not necessarily comparable, as health plans in the new marketplaces will be required to cover a broader range of services than are found in many current individual market policies and the health needs of people who will enroll are likely to be different. The Foundation also has developed a health reform subsidy calculator that estimates the premiums and tax credits available to people next year through the insurance marketplaces, based on their income levels, family size, ages and tobacco use.
Based on data from the Congressional Budget Office (CBO) and the federal government’s Survey of Income and Program Participation, the analysis estimates the average impact of the ACA on the individual market by quantifying how current enrollees will fare once relevant provisions of the health law are implemented. Premium data released by states to date suggest that the CBO premium projection is reliable. While subsidies and premiums will vary widely depending on each enrollee’s personal characteristics, the analysis focuses on averages to provide an indication of how much overall assistance the law will provide to people buying their own coverage today.