The ACA reformed the individual market in many ways. Two particularly important provisions address affordability: premium subsidies and cost-sharing reductions (CSRs).
Under the ACA, consumers who earn less than 400% of the federal poverty level (FPL) (up to $48,560 for an individual, or $100,400 for a family of four for coverage effective in 2019) and meet immigration and other documentation requirements can obtain Advance Premium Tax Credits, commonly referred to as “premium subsidies,” through Covered California. See table below.
Premium subsidies are set along a sliding scale, meaning that those earning less get more help. Consumers who qualify for premium subsidies are assured a silver plan at a premium that does not exceed a certain percentage of their income (see Figure 1). For example, someone earning 139% FPL is required to pay no more than about 2% of their income on premiums, while someone earning 300% FPL pays a little less than 10% of their income. Notably, the cap on premium costs is the same for those earning 300% FPL as for those higher up the income scale at 400% FPL. The difference between the total premium and what the consumer pays is offset by the premium subsidy.
The consumer’s subsidy can be used to buy any level of coverage. If consumers want a more expensive plan, like gold or platinum, they can apply their premium subsidies toward the more expensive plan, but they would make up the difference in cost between the silver and the more expensive plan, thus paying a greater share of their income toward the premium. On the flip side, consumers can save money on premiums by choosing a lower-priced plan — for example, bronze or lowest-cost silver — where their subsidy will cover a greater share of the premium.
Recognizing that OOP costs can be a burden for consumers with low incomes, the ACA requires plans to offer products with lower OOP costs for those earning up to 250% FPL ($30,350 for an individual). “Cost-sharing reductions” lower deductibles and copays if and only if eligible consumers choose “enhanced silver” plans through Covered California. These plans are called “enhanced” because they charge silver plan premiums but offer greater protection from OOP costs. (For more detail on these plans, see 2019 Patient-Centered Benefit Designs and Medical Cost Shares [PDF].) People earning more than 250% FPL are not eligible for help in lowering their OOP costs.
Many Californians with low and moderate incomes are better able to afford health coverage through the individual market because of these ACA provisions. Today, about 1.2 million Californians receive premium subsidies through Covered California, and about 600,000 receive help with their OOP costs through plans with cost-sharing reductions. Following the implementation of the ACA, the number of Californians participating in the individual market rose, helping to drive the state’s uninsured rate to an all-time low by 2017.
But some people don’t benefit from subsidies and may not have other affordable options, in particular:
- Californians without documentation who, under the ACA, are prohibited from buying coverage through Covered California or accessing any affordability assistance.
- People earning above 400% FPL ($48,560 for an individual), who aren’t eligible for premium subsidies under the ACA. This group is particularly vulnerable to affordability challenges on the individual market as premiums rise over time.
|Curtis, age 30, lives in Oakland and earns $18,210 (150% of the federal poverty level [FPL]). Curtis works part-time as a home health aide while he goes to community college to become a nurse. Under the ACA, he is eligible for premium subsidies and cost-sharing reductions (CSRs) that limit both his premium and out-of-pocket costs. Absent premium subsidies, he would pay more than 20% of his income for monthly premiums and still be responsible for high out-of-pocket costs. Under the ACA, he can enroll in an enhanced silver plan with CSRs and pay $37/month in premiums (2.4% of his income). The plan provides office visits with a $5 copayment, emergency care at $50, and caps his annual out-of-pocket spending at $1,000. For Curtis, the affordability benefits of the ACA are dramatic.
However, Curtis doesn’t earn a lot and may be tempted to enroll in a bronze plan with a $1 monthly premium. If he does, he risks incurring much higher out-of-pocket costs when he obtains health care. In a bronze plan, his first three office visits would cost $75 per office visit. But if Curtis is hospitalized and needs many additional services, he could be responsible for paying as much as $6,300, the bronze plan deductible.
|Carmen, age 44, lives in Fresno and earns $33,385 (275% FPL). She works from home as a freelance bookkeeper. Enrolled in a silver plan, she qualifies for subsidies that reduce her monthly premium by more than half, from $412 to $205 (7% of her income). ACA premium subsidies help Carmen, but not to the same extent they assist Curtis.
She has several chronic conditions, including diabetes and kidney disease. She chose her plan because its network includes the doctors and hospital she wants. Her premium alone represents 7% of her income; in the worst-case scenario, if she incurs out-of-pocket costs up to the $7,550 maximum, her total spending on premium and care could reach 30% of her income.
Carmen earns too much to qualify for cost-sharing reductions. She can choose bronze and pay a lower premium, or higher-premium silver or gold options that limit her initial out-of-pocket costs. No matter which of these three metal tiers she chooses, if she is repeatedly hospitalized and uses many additional services, her combined premium and out-of-pocket spending could impose a high annual spending burden (26% of income under bronze coverage and 31% of income under gold).