The subsidies appear to have drawn large numbers of younger, healthier Americans into the new insurance markets, stabilizing premiums, even for people who pay the full cost themselves.
The Supreme Court decided Thursday that federal health-insurance subsidies for people in more than 30 states are allowed by law. A broader question is, to what extent are the subsidies responsible for the expansion of health-care coverage to millions of Americans under the Affordable Care Act?
In short, have the subsidies succeeded?
By many measures, the answer is yes. More than 7 million people are enrolled in the federal health-insurance marketplaces, and most — 87 percent — receive subsidies in the form of tax credits to help pay their premiums, the government says. Without subsidies, many would be unable to buy insurance.
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The subsidies also appear to have drawn large numbers of younger, healthier Americans into the new insurance markets, stabilizing premiums, even for people who pay the full cost themselves.
The subsidies average $272 a month, or $3,264 a year, and cover nearly three-fourths of the average premium for people receiving assistance, the government says. Beneficiaries are clustered in the lower-income brackets.
Two-thirds of federal-marketplace customers have incomes less than twice the poverty level (less than about $23,500 a year for a single person), the Department of Health and Human Services says. More than 40 percent have incomes less than 150 percent of the poverty level.
Lower-income people have long been more likely than higher-income people to be uninsured.
Lizzie Perez Jimenez, 22, of Tampa, Fla., is studying to become a nurse and works part time at a retail store in a mall. She earns $1,300 a month and is not offered insurance. Her premium is $200 a month. She pays $50 and receives a tax credit of $150. “Without the tax credit, I probably would not have insurance,” said Jimenez, who has asthma. “It’s way too expensive for me.”
A survey last year by the Kaiser Family Foundation estimated nearly six in 10 people with coverage through the exchanges were previously uninsured.
In a recent report, the Government Accountability Office, an investigative arm of Congress, said the payment of subsidies had “contributed to an expansion of health insurance coverage because it significantly reduced the cost of premiums for those eligible.”
The subsidies were larger, and therefore more effective in expanding coverage, for eligible people with the lowest incomes, and less effective for people with higher incomes, it said.
By some other measures, the subsidies have not lived up to expectations.
Although they reduce the direct cost of buying insurance for many consumers, the subsidies do not by themselves hold down the overall cost of insurance, which is driven in part by health-care costs.
“The creation of an almost trillion-dollar federal-government subsidy program has done little to mask the impact of Obamacare’s biggest failure: skyrocketing premiums,” said Sen. Orrin Hatch, R-Utah, chairman of the Finance Committee.
Many insurers have sought rate increases of more than 15 percent for 2016, saying the cost of claims substantially exceeded what they expected when they set premiums. The rate increases are likely to be scaled back after reviews by federal and state officials.
Under the Affordable Care Act, subsidies are generally available to people with incomes from 100 percent to 400 percent of the poverty level (just under $12,000 to just under $47,000 for an individual) if they do not have coverage from other sources.
The subsidies are calculated on a sliding scale, so that higher-income people are expected to pay a larger share of their income in premiums. Many popular plans on the marketplaces also require people to pay substantial deductibles, increasing their costs when they need care.
Certain low-income people may be eligible for an additional type of assistance that can reduce their out-of-pocket costs for doctor visits, hospital care and prescription drugs. These discounts are available to people with incomes from 100 percent to 250 percent of the poverty level (up to about $29,000 for an individual) if they enroll in midlevel “silver plans.”
The marketplace plans have proved less popular among higher earners, raising questions about whether the subsidies are adequate. “People are still expected to pay quite a bit,” said John Holahan, a fellow at the Urban Institute, which has developed detailed estimates on the effect of the subsidies. He said the current sign-up and renewal numbers made him worry that the marketplaces might not provide a good enough deal to keep people insured.
“After people pay a fairly significant amount of money and then go to the doctor once, twice, three times, and it’s always on the deductible, at what point do they say it’s just not worth it?” he asked.
Insurance is also out of reach for another group. In states that have not expanded their Medicaid programs, Americans earning less than the poverty level are ineligible for subsidies and generally cannot afford insurance.
Premiums usually increase with a person’s age. For an older person, the subsidies can be substantial, though they end abruptly if household income exceeds four times the poverty level.
Charles Drapeau, 63, and his wife, Diane, 62, of East Waterboro, Maine, have insurance purchased through the federal exchange. Charles Drapeau has multiple myeloma, a blood cancer, and takes a drug that costs more than $10,000 a month. The premium for the couple’s insurance is $1,600 a month. The subsidy is $755, and the amount the couple pays is $845. (Their annual income, about $61,000, is close to the maximum allowed for a couple receiving subsidies.) Insurance covers the cost of the pill after Drapeau meets his annual deductible of $4,000.
“I am nervous about the Supreme Court decision, very nervous,” he said before Thursday’s ruling. “If I don’t take that pill, the cancer will come back.”
The complexity of the subsidy calculations has created difficulties for many consumers. Eligibility for a subsidy and the amount are based on a person’s estimate of income for the coming year. The government tries to verify income by using tax-return data that is, in many cases, nearly 2 years old.
“Verification of income has been a real challenge,” said Judith Solomon, a vice president at the Center on Budget and Policy Priorities, a liberal-leaning research and advocacy group. “Low-income people may not have been required to file tax returns in prior years. And for people who really need the tax credit, income may change from year to year.”
Most people receive subsidies throughout the year, based on projected income. The proper amount is determined later, when consumers file tax returns. At that time, subsidy payments have to be reconciled with the amounts to which people are entitled, based on their actual income.
A recent H&R Block study found almost two-thirds of those filing taxes who received insurance through the exchanges had to pay back some of the subsidy, an average $729.