Higher premiums don’t impact all consumers

A recent Kaiser Health News article explains that rising premiums in the individual market don’t impact all consumers in the same way. While most of us cringe at the thought of our monthly health insurance bill going up, people receiving a subsidy could actually pay less. Let us explain.

As we learn in the article, HHS “reports that premiums for Obamacare plans increased to $408 per month, about 9 percent more than last year.” However, the “vast majority of people with this coverage…pay far less because they receive subsidies.” About 87% of Marketplace enrollees receive a premium tax credit.

The tax credits, of course, cap the premium that people pay at a percentage of their household income; the government picks up the difference between the capped amount and the total premium for the benchmark silver-level plan. As insurance premiums rise, people receiving a subsidy who have gold- or platinum-level coverage won’t absorb the full premium increase since the tax credit increases as well. And, assuming an individual’s income remains the same, he or she will keep paying the same dollar amount for the benchmark plan; the government will pay the additional monthly premium.

What’s really interesting, though, is that someone who has less-expensive bronze-level coverage will actually pay less as the premium goes up. Perhaps an example will help.

Let’s say the premium for the benchmark plan is  $400 per month and, based on an individual’s income, he would be capped at $150 per month for the benchmark plan. The difference is $250 per month, which is what his tax credit will be. If he buys a bronze plan that’s $350 per month, he’ll apply the $250 tax credit and will be left with a monthly premium of $100.  If premiums go up by 10% across the board and the individual’s income stays the same, the benchmark premium will increase to $440 and his tax credit will increase to $290 per month. If he buys down to the bronze plan, now priced at $385 per month, he will pay the difference of $95 after applying the tax credit.

To summarize, in our example the total monthly premium increases by 10%, but the cost to this taxpayer decreases by 5%. Not a bad deal.

Of course, the open enrollment period is just about over, which means you don’t have much time to round up a few more sales. Still, it’s probably worth the effort. If you can show people how much the tax credit could benefit them, you may be able to squeeze in a few more before the January 31st cut-off.

If you’re wondering what you’ll do after this week, you should look into an online storefront. It will allow you to make sales all year long and will actually free up time by removing the one-on-one enrollment and service work. Learn more here.

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