How ACA Subsidy Changes Might Affect You

by Nancy Metcalf Health Writer

The Trump Administration announced late last week that it will stop paying for insurance company subsidies that make Affordable Care Act plans less expensive for many people. If you buy health insurance on the federal marketplace, here's what that might mean for you.

Q. How do those subsidies work?

A. The Affordable Care Act set up two major categories of subsidies to help people buy health insurance. The first, premium tax credits, help offset the cost of the premiums themselves and are available to anyone with a certain household income who buys a health plan on their state’s insurance marketplace. Those subsidies are still in place and are being paid as usual. (See if you qualify for the savings.)

Cost Sharing Reductions (CSRs) are the second major category of subsidies. They reduce the out-of-pocket costs (deductibles, copays, etc.) for lower-income people (this year, that means $30,150 for an individual, $40,600 for a couple, and $61,500 for a family of four). It’s important to note that you can claim a CSR only if you purchase a Silver plan—they’re not available for Gold or Bronze plans.

The savings can be considerable. For the lowest-income people in this category, the CSR can reduce the deductible for a Silver plan from a typical $2,400 per year to $500 or less, and a typical coinsurance from 30 percent to 20 percent or less. Nearly 6 in 10 people buying insurance through the exchanges get some degree of CSR subsidy.

Premium tax credits are given directly to consumers to apply to the plan of their choice, but CSRs work differently. If you have a CSR Silver plan, you never even see the extra cost-sharing; it simply never is charged to you. Insurance companies absorb the extra cost and then are (or were) reimbursed by the federal government, to the tune, so far, of about $7 billion a year.

Q. So what did the government just do?

A. The legal fate of CSR payments has been in contention for several years, with several lawsuits making their way through the federal court system. Essentially, opponents of the ACA have said that unless Congress explicitly appropriates money for CSRs (it hasn’t for the past several years), the government doesn’t have to pay the insurance companies back.

While the lawsuits await final resolution, up until now the government has been paying back the insurance companies for their CSR outlays on a month-by-month basis. Trump’s new announcement puts an end to that. A group of state Attorneys General have filed a lawsuit to try to force the payments to continue.

Q. What does this mean for open enrollment?

A. This year’s ACA open enrollment starts Nov. 1. The dilemma for insurance companies is that even if they don’t get reimbursed by the government, they still legally have to give the CSR payments to eligible consumers.

One option for insurers is to pull out of the exchanges entirely, though none have done so as of this writing.

One reason for this is that many state insurance departments looked ahead and told health insurers to add extra money to their 2018 premiums to cover the added CSR expense — just in case the government stopped paying reimbursements, as it has now done. That’s one reason that premiums have risen sharply for 2018 in many states.

Furthermore, most states instructed insurance companies to “load” all the extra money they needed for CSRs onto the premiums of Silver plans only, because those plans must provide CSRs to eligible lower-income buyers.

“In some states there will actually be Silver plans that are more expensive than some of the Gold plans,” says Louise Norris, a Colorado broker who has been tracking the issue nationwide.

This has major implications for premium subsidies as well as CSR payments, because the size of premium subsidies is calculated based on the cost of Silver plans. If the Silver plans are extra-expensive, the subsidies will be extra-big.

Q. What should I do if I’m eligible for a CSR?

A. Surprisingly, nothing. When it’s time to shop for a 2018 coverage, you’ll be able to buy a Silver plan with cost-sharing reductions as usual. Even if the premium has gone up, it won’t matter to you because your premium subsidy will get bigger too.

Q. What if I qualify for a premium tax credit but not a CSR?

A. It all depends on how your state decided to handle the threat of a CSR cutoff. If you live in a state that told insurers to load all the cost onto a Silver plan, your subsidy will likely be considerably higher this year than it was in the past. You should take it and shop around to other metal levels, Norris advises., the federal platform that runs exchanges for 36 states, doesn’t have 2018 rates up yet, but some of the state-run exchanges do.

One is California, where a 40-year-old buyer in the Los Angeles area who makes 300 percent of the poverty level, or $36,180, would come out ahead by taking his $310 monthly premium subsidy and spending $354 a month on a Gold plan instead of a $292 Silver plan. By spending an extra $62 a month (or $744 a year), he can get a plan with no deductible instead of a $2,500 deductible.

Or you could go the other way, and take your whopping premium subsidy and buy a Bronze plan for a pittance. But if you do this, make sure you could handle the larger deductible if you end up with an expensive health care need in 2018.

If insurers in your state opted to spread the added cost of the CSRs to all metal levels, you will be better off sticking with a Silver plan.

Q. What if I make too much for premium tax credits?

A. If you live in a state that loaded CSR costs onto Silver plans, you can dodge the extra expense by purchasing a Gold or Bronze plan. And in some states, including California, carriers are offering Silver plans off-exchange that don’t have the CSR surcharge. So before making your final choice, consult a reputable agent or broker who can price off-exchange Silver plans for you.

(In case you hadn’t realized it, all along since the passage of the ACA, insurers have been allowed to sell policies outside of the exchange. They have to adhere to the same metal levels and coverage rules as on-exchange plans. In general, they’re only a good idea if you are 100 percent certain that your income for the coming year will be too great to qualify for a premium subsidy.)

Your choices are tougher if you live in one of the few states where insurers spread the CSR costs broadly, as the premiums will go up across the board. You’ll either have to bite the bullet and pay extra for a Silver or Gold plan, or drop back to a less costly Bronze plan.

But be sure to shop broadly and carefully once open enrollment starts and you can see the actual 2018 premiums. That’s because some states may allow insurers to amend their rates at the last minute in light of the withdrawal of CSR reimbursements.

Nancy Metcalf
Meet Our Writer
Nancy Metcalf

Nancy Metcalf is an award-winning independent journalist specializing in health topics. A senior writer and editor for Consumer Reports for more than 25 years, she is a nationally recognized expert on health insurance and health reform.