The Baffling Math That Determines What People Actually Pay for Obamacare

Photography by Sean De Burca/Corbis

The Obamacare marketplaces opened for business over the weekend, and so far the website is working better than last year. That doesn’t mean picking a plan is easy. One of the difficulties shoppers face: How much they’ll pay for health insurance is determined by lots of factors that individuals can’t control—and those factors can change in unexpected ways.

Officials and experts are urging people to look at different plans, even if they’re fine with the coverage they bought last year, because premiums are going up. But most people in the Affordable Care Act marketplaces don’t pay the full premium price: Last year, 87 percent of those shopping on the federal site got subsidies to reduce their costs of coverage. And it turns out those credits are also changing in the new plan year.

First, a little background on how subsidies, also known as premium tax credits, are calculated. The subsidies limit how much people have to pay for health plans to a percentage of their income. To qualify, people can earn up to four times the federal poverty level—nearly $96,000 for a family of four.

It’s also possible to earn too little for subsidies. Those who earn less than poverty incomes may qualify for Medicaid, though not in states that chose not to expand access to the public insurance program for the poor. Yet even once people qualify, it’s not straightforward to determine how much money they’ll get. The subsidy amount is based both on income and the cost of health insurance in an individual’s market. More precisely, it’s based on the price of the second-lowest-cost silver plan in the marketplace, which is known as the benchmark plan. That means even in the unlikely event that a person’s income and their health plan’s premium stay the same, how much they pay could change if the price of the benchmark plan that subsidies are pegged to has changed.

In most markets examined by the Kaiser Family Foundation, a nonprofit that focuses on health care, the silver plan premiums, after tax credits, have stayed basically the same. But in a couple of places, there were big changes. At the top of the list is Minneapolis, where the low-priced health plan PreferredOne dropped out of the marketplace after one year. Premiums, after subsidies, went up 18.5 percent in Minneapolis for a 40-year-old making $30,000, according to a Kaiser presentation. In other places, prices (after subsidies) dropped in some places, too—10 percent or more in Phoenix and Albuquerque, according to the Kaiser Foundation.

Other things can change how much individuals pay from year to year. Moving into a different age bracket that’s subject to higher premiums is the most common. Colorado residents are finding that the rating areas in their state have changed. Changes to income, or the number of people in a family, will affect insurance rates as well.

A subsidy calculator may help individuals figure out how much help they’re eligible for. Beyond that, it’s basically impossible to tell how much they’ll pay for the same health plan they bought last year—or whether another one would be less expensive—without going to the website and checking out all the options. The good news is that individuals have until Feb. 15, the close of the open enrollment period, to change their minds. That’s new this year.

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