Subsidies cover 76% of premiums for plans purchased on HealthCare.gov

Americans who enrolled in private health plans through the federal exchange in 2014 qualified for tax credits that covered an average of about three quarters of their monthly premium payment, according to data released Tuesday by HHS.

The average total monthly premium was $346 for individuals who qualified for federal subsidies, which are available to households with incomes up to 400% of the federal poverty level. But those individuals will be responsible only for $82 a month once the premium tax credits are applied.

The overwhelming majority of individuals purchasing coverage through the federal exchange—87%—were eligible for subsidies. That's in line with projections: The Congressional Budget Office estimated that 86% of exchange enrollees would qualify for subsidies.

“Those federal subsidies are a major enticement, if not necessity, for so many of the newly insured to make the move to purchase health insurance,” said Ceci Connolly, managing director of PwC's Health Research Institute. “I don't think we'd be over 8 million enrollees if we did not have those generous subsidies.”

About two thirds of the people who accessed tax credits have after-subsidy monthly premiums of less than $100, with nearly half paying less than $50 a month. Just under a fifth of individuals eligible for subsidies are paying premiums of more than $150.

“It just serves as a reminder of the fact that these exchanges are serving a high-need, low-income population,” said Dan Mendelson, CEO of the research and consulting firm Avalere Health.

The major role played by the federal premium subsidies in helping people pay for Obamacare coverage highlights the importance of people knowing about the subsidies. Surveys have shown that many uninsured Americans who did not sign up for coverage said they could not afford it. And many said they did not know about the subsidies.

Pending court challenges filed by Obamacare opponents threaten to block people in the 36 states served by the federal exchange from receiving the subsidies.

HHS' pricing statistics cover only the 5.4 million individuals who signed up for private plans through the federal exchange. An additional 2.6 million individuals enrolled in plans through exchanges run by 14 states and the District of Columbia.

Both Connolly and Mendelson stressed that looking at premiums provides only a partial picture of the out-of-pocket costs that individuals face in obtaining coverage and care. Many of the exchange plans have high deductibles, coinsurance, and co-pays when individuals actually seek treatment. An Avalere analysis of 603 silver-tier plans, which are designed to cover 70% of healthcare costs, found that the average deductible was more than $2,500.

“It’s important to think holistically about the costs that consumers face and to present a balanced picture,” Mendelson said. “Consumers have to be prepared for increased out-of-pocket costs in this model.”

But individuals with incomes under 250% of poverty who enroll in silver-tier plans also are eligible for federal cost-sharing subsidies that reduce their share of total costs to an average of 6%.

The percentage of premiums covered by the federal tax credits varies significantly by state and even by local market, since they are pegged to the premium of the second lowest-cost plan in each market. In some markets, premiums are significantly higher than in others—even compared with other markets in the same state—due at least partly to the level of plan competition in the exchange.

In Mississippi, the average premium was $438 a month, but the federal government is expected to pick up 95% of the tab. That leaves an average monthly payment of just $23 for individuals. By contrast, in New Jersey, subsidies are expected to cover just 68% of the average $465 monthly premium. That leaves individuals on the hook for $148 on average each month.

The level of insurance competition varied widely across the country. On average, there were five insurers offering 47 plans in each of the 36 states served by the federal exchange. But nationwide, that ranged from just one insurer selling plans (West Virginia and New Hampshire) to 16 (New York). According to HHS, 82% of individuals eligible to purchase a plan through the federal exchange lived in areas with at least three insurers, while 4% of potential customers had plans from just one insurer.

For the 2015 enrollment year, Connolly said she anticipates the average number of insurers competing for customers in each state will increase to 6. The country’s largest insurer, UnitedHealth Group, has indicated that it will compete in more state marketplaces in the next open enrollment period, which begins Nov. 15. In addition, four consumer-governed co-op insurers, which were seeded with federal loan dollars under the Patient Protection and Affordable Care Act, are expanding into additional states.

“We’re definitely seeing growth and expansion for 2015, which indicates to us that the insurance companies are deciding that this is a growth opportunity,” Connolly said. “They are chasing after more of these potential new customers.”

Follow Paul Demko on Twitter: @MHpdemko