Some big changes to your health insurance are afoot. You’ve most likely heard about the massive $1.9 trillion COVID-19 relief bill that was enacted by Congress and signed into law by President Biden last week. But what you may not have heard is that the bill addresses one of the most significant longstanding issues with the Affordable Care Act. The problem is known within the industry as the “subsidy cliff,” and it means that benefits of the Affordable Care Act decline or stop abruptly once a certain income threshold is met. Under the old rule, if Linda makes $45,000 per year she would pay $318 per month for a silver plan, or 8% of her income. But if she gets a raise to $50,000 per year, the change pushes her over the subsidy cliff and the subsidy stops, causing her premiums to skyrocket to $943 per month, or 23% of her income. How does that happen?
The answer lies in the way the ACA was originally written in 2010. It was a bit of a Frankenstein’s monster with all the compromises required to appease the competing interests and get it moved through Congress. The primary consideration at that time was to reform the industry and require insurers to cover patients with pre-existing conditions and make sure that basic coverage was adequate for everyone. Pretty much everybody knew that those things would cause premiums to rise because insurance companies can’t assume increased risk and cost without increasing revenue, and so a way to offset those additional costs was needed. The compromise reached was the individual mandate, which required everyone – including young and healthy people who didn’t qualify for subsidies – to purchase health insurance to balance the risk pool.
This worked somewhat, but not particularly well, and a lot of middle-income earners saw their premiums increase substantially. Then in 2017 as part of the massive tax overhaul, Congress made it even worse by removing the individual mandate, stripping away the few protections it did provide and pushing premium costs even higher. The result was a dysfunctional schism where low-income earners who qualified for subsidies were paying little or nothing, and marginally higher earners who didn’t qualify for subsidies were paying astronomically high premiums.
Under the old rule, subsidized earners were expected to pay anywhere between 2% and 9.8% of their earnings on a sliding scale, and non-subsidized earners paid pretty much market premiums. Under the 2021 reform, no one who buys insurance on the exchange is required to pay more than 8.5% of his or her income in premiums. This will be particularly helpful to people living in states that have not elected to expand Medicaid under the ACA. As a bonus, the Congressional Budget Office estimates that the change will be dirt cheap relative to the overall cost of the massive spending bill, just $22 billion out of the $1.9 trillion.
Unfortunately, the change is temporary and will expire in 2023, but Congress has until then to make it permanent. The current Special Enrollment Period ends May 15, so be sure to contact us today to see how this change will affect you before it’s too late.