Maggie Mahar Healthbeat Blog: Reverse “Sticker Shock” Part 2 –Subsidies Mean Enormous Saving for Older Americans

In the past I have written about how government tax credits will help young adults (18-34) who must buy their own coverage because they don’t have access to “affordable, comprehensive” employer-sponsored coverage.

But older Americans forced to purchase their own insurance will save even more. Precisely because a 50-year-old’s premiums may be three times higher than a 20-year-old’s, his subsidies will be larger.

Subsidies are designed to fill the gap between the percentage of your income that you are expected to contribute toward the cost of a premium (with the government assuming that if you earn more, you can spend more on health insurance) and the actual rates that insurers in your market charge for a benchmark Silver plan..

Families USA estimates that while the majority of 18-34 year olds shopping in the Exchanges will qualify for help from the government, fully 30% of the those who receive tax credits will be 35 to 54, and 12.5% will be 55 or older.

Note that younger Americans will not be subsidizing these tax credits for their elders. Under the Affordable Care Act subsidies are funded by device-makers, drug-makers, hospitals—plus taxpayers earning over $200,000—and couples earning over $250,000) Very few twenty-somethings are that fortunate. A New KFF Report Offers Eye-Opening Final Numbers on Premiums and Subsidies for 40 –Year Olds and 60-Year-Olds in 17 States

In August the Kaiser Family Foundation (KFF) published an “Early Look at Premiums” in California, Colorado, Connecticut, DC, Indianapolis, Maryland, Maine, Montana, Nebraska, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Virginia, Vermont and the state of Washington.

The report reveals what a difference the tax credits will make for 60-year-olds, 40-year-olds and 25-year olds in the most populous city in each of these 17 states (Los Angeles, Denver, Hartford, Indianapolis, Baltimore, Portland, Maine, Billings, Omaha, Albuquerque, New York City, Cleveland, Portland, Oregon, Providence, Sioux Falls, Richmond, Burlington and Seattle.)

Thanks to the KFF report, the prices that I quote below are not estimates or averages. They are final rates that have been approved by those states. (In a very few cases KFF did not have final numbers; I don’t include those states in my discussion.)

Let me add that this report represents a major step forward for KFF. The Kaiser Family Foundation Calculator, which I have recommended in the past, is now outdated.

The calculator provides only a very rough estimate of what insurance is likely to cost in 2014, based on average premiums nationwide. Trouble is, rates vary widely depending on where you live. Premiums mirror how much health care providers in your area charge. In some cities, insurers are forced to pay hospitals and doctors with market clout 30% more than in others. As a result, the calculator’s estimates are back-of-the-envelope guesstimates. (KFF made that clear at the time.)

Now, KFF is collecting the actual rates that insurers will be charging, and it has come up with a formula to update its calculator. Using that formula, you will be able to find out what healthcare insurance will cost in your town, whether you will qualify for a government subsidy, and how large that tax credit will be.

I will be writing about how you can customize the calculator as soon as more state regulators report the premiums that carriers will be allowed to charge in cities throughout their states.

In the meantime take a look at to some of the eye-popping premiums in Kaiser’s August report. These numbers will change the lives of millions of older customers.

As the table below reveals, in 2014, a 60-old living on $28, 725 in Sioux Falls, South Dakota will be able to buy a Bronze Plan for just $44 a month.

Without help from the government, she would have to shell out $508 monthly, for the very same plan.

60-year-old-monthly-premium

 

This table also shows that in 2014, a 60-year-old in Harford Ct. earning $28,725 would pay Nothing for a Bronze plan. Under Obamacare, his subsidy would cover the entire $423 monthly premium.

Imagine what the numbers in the chart above will mean to the 14% of Americans in their late 50’s and early 60s who were uninsured last year either because:

– they suffer from a “pre-existing condition” and can’t manage the premiums insurers charge anyone who is or has been sick (ranging from a Vet suffering from Gulf War Syndrome to someone with a bum leg injured 10 years ago in a skiing accident);

– or because they cannot afford to shell out 5 times what a 20-year-old would pay for a policy. (This is what carriers in many states now demand of 60-year-olds.)

Then there are the millions of older Americans who are underinsured. In theory they are “covered,” but their policy comes with a $5,000 to $10,000 deductible, which means that they cannot afford to use it and/or it does not cover the essential benefits that they need.

Older Americans Will Have Choices

The chart above shows that “Bronze: plans cost less than “Silver” policies. HealthBeat readers may remember that Bronze Plans are the least expensive policies that will be sold in the Exchanges. Like Silver, Gold and Platinum plans they cover all essential benefits and offer free preventive care.

Bronze premiums are lower than plans on the other three tiers because their co-pays and deductibles are higher. Though under Obamacare, total out-of-pocket spending is capped at $6,350 for an individual and $12,700 for a family. After that, their insurer must pick up all bills for essential care.

But people who receive tax credits don’t have to use the subsidy to buy a Bronze plan. If that single 60-year-old living in Sioux City preferred, she could choose a silver plan that carries a price tag of $561. After subtracting her subsidy, the table shows that the policy would cost her $193 monthly.

That is far more than the $44 she would pay for a Bronze plan. Nevertheless at 60, this might well be a wise choice. Since her income is less than $34,470, if she buys a Silver plan, she will qualify for a “cost-sharing subsidy” that will slash both her co-pays and deductible.(Click on “ cost-sharing subsidy” for a short explanation of who qualifies and how it works.)

Rather than facing the possibility of having to spend $6,350 out of pocket if she sees several specialists, takes two or three pricey prescription medications, is sent for a CAT scan and/or lands in an ER late one night, her exposure would be limited to half that amount –or $3,175 a year. Whatever happens to her, no insurer who sells her a silver plan in the Exchanges can ask her to pay more than $3,175 out of pocket. But, remember, she will be eligible for a cost-sharing subsidy only if she buys a Silver plan.)

Older Americans who live in areas where medical care is not as expensive will pay even less. The table shows that a 60-year old in Burlington, Vermont with income of $28,725 could use his subsidy to purchase a Bronze plan for $116. Without the tax credit it would cost him $336.

Meanwhile in Providence, Rhode Island he would wind up paying just $16 a month for a Bronze plan priced at $446. How could his premium be that low? He pays only $16 because in Providence the benchmark silver plan carries a relatively rich premium of $622, and, as I explained in an earlier post, that’s the price the IRS uses to calculates tax credits. As a result, the subsidy is larger in Providence than it would be in a city like Portland, Oregon where the benchmark silver plan is cheaper. In Providence, the subsidy covers more of the Bronze plan premium.

If You Are 40, How Much Will You Pay?

Kaiser’s “Early Look at Premiums” also offers a table indicating how much a single 40-year-old will be asked to lay out if she is purchasing her own coverage in her state’s Exchange. Once again, the table assumes that the individual shopping for insurance earns $28,725.

40-year-old-monthly-premium

 

Because the 40-year-old is younger, premiums before subsidies are not as high as they are for a 60-year-old. Even so, under Obamacare, the vast majority of states will let carriers demand that a 40-something significantly more than a twenty-something. A single 40-year who isn’t eligible for a tax credit (because she earns more than $45,960) will have to pay somewhere between $140 a month (in Baltimore) to $250 (in Indianapolis) for the least expensive Bronze plan.

The benchmark silver plan could cost her as much as $328 (in Hartford, Ct). On the other hand she might pay as little as $228 in Baltimore.

Once again, subsidies make an enormous difference.
After applying the subsidy, a 40-year-old earning $28,750 in Hartford could pick up a Bronzer plan for $97; in Omaha she would pay $119

If she preferred the Silver plan it would cost her $193 in any of the 17 cities. The price of a benchmark Silver Plan is the same in each city because subsidies are pegged to the cost of the benchmark (second least expensive) Silver plan wherever you live. As I explained in an earlier HealthBeat post , when calculating subsidies the Affordable Care Act expects you to spend a certain percentage of your income on health insurance; the more you earn the more you are expected to contribute. In the case of someone earning $28,750 he or she is expected to cough up $193. The tax credit makes up the difference between $193 and the actual price of a silver plan in a particular city.

Why Such a Wide Range of Prices ?

All Bronze plans must cover the same benefits. Why then do we see such huge differences in “sticker prices” (before subsidies)?

Insurer’s premiums turn on four factors:

1) how much insurers have to pay doctors and hospitals in a particular city; in some places, health care providers have the market clout to charge 30% more than in other towns;

2) the network of healthcare providers that the carrier chooses to include in his plan—in a given city brand-name hospitals may be able to command steep reimbursements even for simple procedures;

3) whether state insurance regulators flexed their muscles when negotiating with insurers, rejecting proposed rates that they viewed as too high, forcing carriers to slash their premiums if they wanted to peddle their products on the state’s Exchange;

4) whether a particular carrier is interested in attracting single 40 year-olds — or whether the insurer views these aging “Bros” as potentially expensive customers.

Here, the actuary pricing an insurance company’s products faces many unknowns:

Just how healthy is the average uninsured or underinsured 40-year-old in this city? When he does have insurance, will he use it, or will he put off going to the doctor?

Some observers suggest that once the uninsured are covered, these new customers in the Exchanges will rush to see doctors who then will begin billing insurers for all sorts of tests and treatments.

But the truth is that most people don’t enjoy meeting a stranger, taking off their clothes, and facing questions such as: “How often do you drink? Have you thought about losing some weight?

My guess is that if a 40-year-old feels healthy, he may not be in a hurry to visit a doctor.

More Numbers: A Family of Four Earning $60,000, a 60-Year old Couple, a Single 25-year old .

While the charts above apply only to single 60-year-olds and single 40-year-olds earning $28,750, the Appendix of the Kaiser Report (beginning on p. 9) provides details on premiums, both before and after subsidies, for

a 60-year-old couple earning $30,000;

– a family of four with $60,000 in income that includes two 40-year-old adults,

and a 25-year-old earning $25,000.

The surprises range from the news that a family of four earning $60,000 and living in Washington D.C. will be able to buy a Bronze plan that covers the entire family for just $144 a month to the fact that after using their subsidy a 60-year-old couple living on $30,000 in Indianapolis will pay nothing for a Bronze plan. Meanwhile a 25-year-old earning $25,000 in Portland, Maine will be able to purchase a Bronze plan for $97 a month, and get free preventive care (including contraception).

Alternatively, she could decide not to buy insurance, pay a penalty, and get nothing in return.

Maggie Mahar Healthbeat Blog

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