A New York Times piece I caught this morning explains what I had mentioned about several months ago. The Premium Tax Credit of the Affordable Care Act is tied to the “Second Lowest Cost Silver Plan” in your county’s health care exchange.
Let’s nickname this SLS.
So, if you, like 85% of America, were eligible to receive the Premium Tax Credit, the price you were paying was really based on a table set out by Congress. If the ACA said that your income meant you pay $100 a month, and the SLS was full price $300, you got a $200 Advance Premium Tax Credit, of which you could use all of it, none of it, or any amount in between. Most people use the whole thing.
This money is commonly referred to as “the subsidy”, but in fact, is a tax benefit—just like personal exemptions, the Child Tax Credit, or a mortgage interest deduction. They’re subsidies, too. So is tax-free employer health insurance.
In 2014, this so-called “subsidy” money, the Premium Tax Credit, encouraged people to buy specific plans. What happens every year though, is new plans come in, and old plans leave the market. If the SLS changes, the Premium Tax Credit amount changes. This is so, even if you have the same income, and everything else is the same. If a new plan is offered for say, $250, and it becomes the SLS for 2015 where you are, then your Premium Tax Credit just got cut to $150. In other words, your “like it and keep it” Obamacare plan just got $50 more expensive, because another health insurance company came in and put some cheaper pick into the mix.
Now, why did Congress do this?
This was health insurance cost cutting. If Congress didn’t encourage other insurers to go in and underbid the competition, then inevitably the same players keep jacking up their rates, and the Premium Tax Credit grows and grows.
The naysayers said that the rate shock would be “yet another blow to Obamacare”. But what the article suggests is that people are willing to pay the difference. In some cases, the 2014 price was so reasonable, that a 10% hike in the “subsidized” price is not a big worry. The article also points out that shopping around, which you’re allowed to do in Open Enrollment (November 15 to February 15), can be a hassle just for the time and effort.
You know that health insurance companies are carefully studying who is switching out and why.