An examination of 2014 premiums in states that have approved their rates shows that the benchmark premium in a number of states is so low that people at modest income levels will receive little or no subsidy. That could pose problems particularly for people who don't want to or are unable to buy the cheapest plan available.
In Portland, Ore., for example, the second-cheapest silver plan is from Moda Health Plan. Its premiums in some rating categories are nearly 25% less than rates offered by competitors. A 40-year-old, nonsmoker earning about $23,000 buying that plan would receive a subsidy of $100 a month to cover the monthly premium of $221, leaving that person to contribute 6.3% of income toward the premium. A 40-year-old earning about $34,000 would receive no subsidy. Neither would a 30-year-old earning around $27,000.
That $100-a-month subsidy would help a lot less if that 40-year-old Portlander earning about $23,000 wanted to buy a silver plan from Regence Blue Cross and Blue Shield of Oregon, which costs $270 a month; Trillium Community Health Plan's silver product, which costs $329; or PacificSource's gold plan, which costs $316.
The phase-out of the subsidy at about $27,000 is lower than expected under the ACA, which was intended to offer subsidies for individuals earning as much as $46,000 a year, or 400% of the poverty level. Some observers question whether the subsidies will be high enough to attract younger, healthier people for whom the monthly premium will eat up a good chunk of their income and who don't necessarily think they need health insurance.
In New York City, the second-cheapest silver plan on that state's exchange is Fidelis Care New York at $390 a month for people of all ages who are nonsmokers. People in that rating category who earn about $23,000 a year—200% of the poverty level—would receive a subsidy of $269 to pay for that, leaving them to pay $121. In contrast, people in that rating category earning about $34,000 a year—300% of the poverty level—would receive a subsidy of $118, leaving them to pay $272 a month for the premium.
That $269 a month subsidy for those earning about $23,000 would not go far in helping those same New Yorkers buy UnitedHealthcare's silver plan, which costs $636 a month, or UnitedHealthcare's gold plan, which costs $749.
Californians also will enjoy lower than expected premium rates—and thus lower-than-expected subsidies. The state has 12 insurers offering individual plans in the state, though not necessarily in every geographic area. In some areas of the state, rates are so low that the federal subsidy will cover an individual's entire monthly premium for the low-cost plan, said Anne Gonzales, a spokeswoman for Covered California, that state's exchange.
For example, the benchmark silver plan in San Francisco is an HMO from Chinese Community Health Plan. A 25-year-old nonsmoker would have a premium of $255 for that plan. If that 25-year-old earns about $23,000 a year, that individual would receive a subsidy of $133 a month, and pay $122 out of pocket. But that $133 subsidy would leave a bigger out-of-pocket contribution if that individual chose a silver plan from Blue Shield of California or Kaiser Permanente, with monthly premiums of $294 and $301, respectively.
Some experts say the lower-than-expected premiums are good for consumers, even if they drive down the subsidies. “I don't see how this is anything but good news,” said Jonathan Gruber, a Massachusetts Institute of Technology health economist who consulted in the drafting of the ACA. “If folks can get insurance for even lower rates without subsidies, then it is even more affordable.”
But other experts say the low premiums and subsidies could create problems. To make the subsidy go further, many consumers may choose a silver or bronze plan with high cost-sharing or with a narrow network of providers. Those features may not fit their financial situation or their healthcare needs. But that may be all they can afford.
“With so many carriers offering Medicaid-like or narrow network plans, consumers will find the only plan the subsidy will cover will be a network that does not look like the Blue Cross or Aetna broad network plan they thought they were going to get,” said Robert Laszewski, a former insurance executive and president of Health Policy and Strategy Associates, a Washington-based consulting firm. “And it will have a big deductible to boot.”
Kip Piper, a healthcare consultant with Sellers Dorsey, expressed concern about people choosing cheaper bronze plans based on the shrunken amount of the subsidy. “If an individual is looking at the (exchange) screen, what looks like the cheapest option on their computer may be a mistake,” he said. “They may think the bronze plan is cheaper, when the silver plan is cheaper when you factor in the out-of-pocket expenses and the subsidy.”
Tim Jost, a law professor at Washington & Lee University who closely tracks the ACA, said low-cost plans like Moda in Oregon may prove so popular at the outset of exchange enrollment that they fill up early and stop accepting new customers. Then people will have to buy a more expensive plan, although if a low-cost plan closes, the subsidy is recalibrated based on the second-lowest silver plan that is still open, leading to a somewhat higher subsidy. Still, he sees lower-cost plans ultimately benefiting consumers because they will force other insurers to lower their premiums.
There also are concerns that the low rates offered by some insurers—which have driven down the subsidies—may be unsustainable, and that consumers will have to change plans in subsequent years and face disruption in their healthcare because they have to change providers.
Caroline Pearson, vice president of the health reform practice at Washington-based consultancy Avalere Health, said some insurers may have deliberately offered rates lower than their competitors knowing that it is important to grab market share when the exchanges launch in 2014.
“Plans are attempting to gain volume,” she said. “They still need to be above water but some might be willing to take a loss (at the start) since people are sticky.” She was referring to the phenomenon that consumers tend to stay with a plan once they enroll.
Whatever the impact on consumers of the lower-than-expected subsidies, some observers say it's a positive development for the federal budget. Sarah Lueck, a senior policy analyst at the Center on Budget and Policy Priorities in Washington, said the lower premiums show that the exchanges are working in fostering competition.
“It's good from a federal subsidies standpoint,” she said.
Follow Jonathan Block on Twitter: @MHjblock
(This article was updated with a clarification about the recalibration of subsidies.)