If you’re worried about the cost of health insurance premiums in the exchanges, it might help to know that – thanks to the law’s generous subsidies — your premiums could end up a lot lower than you expect.
Yet about two-thirds of uninsured Americans haven’t checked recently to see if they’re eligible for financial assistance with their health insurance costs. A few more quick facts about Obamacare subsidies:
- The subsidies are tax credits, which means you can opt to pay full price for your coverage (purchased through the exchange) each month, and then get your tax credit when you file your tax return. But unlike other tax credits, the subsidies can be taken throughout the year, paid directly to your health insurer to offset the cost of your coverage.
- Premium subsidy amounts fluctuate from one year to another, based on changes in the cost of the benchmark plan in each area. In 2018 and 2019, premium subsidies in most areas were significantly larger than they were prior to 2018. This was due to the general increase in premiums in 2017 and 2018, as well as the way the cost of cost-sharing reductions (CSR) was added to premiums. But average subsidy amounts did decrease slightly for 2019, and are decreasing again for 2020 due to a small drop in the average cost of benchmark plans across the country. Insurers joined the exchanges in many states in 2019, and that’s happening again for 2020. When benchmark premiums decrease, either due to the introduction of new plans or a reduction in prices for existing plans, premium subsidy amounts will decline. In some areas, subsidy amounts are decreasing sharply for 2020, which can result in higher after-subsidy premiums for some enrollees. But in other areas, premium subsidies remain disproportionately large for 2020. The takeaway point is that every enrollee needs to carefully shop during open enrollment to see if a different plan might present a better value for 2020 after accounting for any adjustments in subsidy amounts.
- The subsidies cover the majority of the premiums for people who are subsidy-eligible. 87 percent of the people who were enrolled in exchange plans nationwide as of early 2019 were receiving premium subsidies. And the subsidies covered an average of 86 percent of their premium costs. The average subsidy amount in 2019 was $514/month, which covers the large majority of the average $594/month premium.
- Premium subsidies don’t apply to supplemental coverage, including accident supplements, adult dental/visions plans (or pediatric dental/vision plans that are sold separately from metal coverage, as opposed to being embedded in the medical plan), critical illness plans, or stand-alone prescription drug insurance (but there are free prescription drug discount plans available). Subsidies also cannot be used to purchase short-term health insurance.
- Subsidies can lower your premium significantly, but the ACA also provides subsidies that can reduce your out-of-pocket costs when you need to use your coverage. And even though the Trump Administration stopped reimbursing insurers for the cost of those cost-sharing subsidies, the benefits are still available to eligible enrollees (52 percent of the people who signed up for 2019 plans through the exchanges nationwide are receiving cost-sharing subsidies). The workaround that states and insurers developed to account for the lack of federal funding is what drove the larger premium subsidies in 2018 and 2019. And in many areas, these disproportionately large subsidies are still available for 2020.
It pays to calculate your subsidy!