The Affordability Equation: The Conversation about ACA Subsidies Must Consider Premiums and Cost Sharing at the Same Time

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By Hilary Dockray, Social Interest Solutions

As the debate about the Affordable Care Act (ACA) continues – Repeal? Replace? Repair? – it is important to remember that the ACA was designed to work as a whole and that disassembling pieces of it would be unwise. But the national conversation continues to deal separately with two key aspects: premium tax credits and cost-sharing reductions (collectively known as “subsidies.”) This is a detriment to peoples’ understanding of the law and could have terrible consequences for millions if we don’t unify the discussion.

The Republican proposal, the American Health Care Act (AHCA), includes a fundamental change in the premium tax credits from income-based to age-based determination. But it also proposes to eliminate cost-sharing reductions (CSRs). These two types of subsidies for low-income people go hand in hand to dramatically lower the costs of both health coverage and care. Without preserving both subsidies, the affordability equation falls apart.

The first subsidy is the premium tax credit, which reduces the cost of monthly health insurance premiums. In 2017, over 10 million people benefitted from these subsidies so that they could buy insurance. The second is cost-sharing reductions, which reduce the amount individuals and families pay at the time of care. In 2017, over 7 million people were helped by these subsidies to reduce their out of-pocket costs when seeing a doctor.

Added together, these two subsidies make up the affordability equation – they put “affordable” in the Affordable Care Act. A hypothetical enrollee with both kinds of ACA marketplace subsidies shows how much a family can save.

Imagine a family of four with an income of $36,450 (150% of the federal poverty level) in Harris County, Texas. The two children are covered under the Children’s Health Insurance Program (CHIP) and one parent has employer coverage. But the other parent has an ACA marketplace insurance plan to cover herself. In the ACA plan, premium tax credits reduce premium costs for her from about $283 per month ($3,396 for the year) to $118 per month ($1,415 for the year) in the lowest-cost silver plan. This savings of almost $2,000 is significant given the family’s total income.

With subsidies, the family would spend a reduced amount for her to carry the ACA marketplace plan, but what about copays when she sees the doctor? Cost-sharing subsidies for the plan would bring the deductible down from $2,400 to $0. CSRs also would reduce her out-of-pocket limit (the most that she would have to pay for services in a year) from $7,150 to $1,250.

For this low-income family, one major hospitalization illustrates the potential impact of ACA subsidies. For the parent with ACA insurance, a bad illness or injury that requires her to pay the full deductible and reach the out-of-pocket limit could cost the family $10,546, almost 30% of their annual income. But with both the ACA premium tax credits and cost-sharing reductions, that same illness or injury would cost the family only $2,665.

Coverage and Care Costs Without premium tax credit and cost-sharing reductions With premium tax credit and cost-sharing reductions
Premiums $283 per month ($3,396 per year) $118 per month ($1,415 per year)
Deductible $2,400 $0
Out-of-pocket limit $7,150 $1,250
TOTAL COSTS (one years’ worth of premiums plus out-of-pocket limit) $10,546 $2,665

(This illustration of how both types of subsidies could affect a family used Social Interest Solution’s ACA Spotlight series; see the “For More Information” section for details. Similar analysis can be done for other enrollees across the country by using different parameters.)

Our hypothetical family of four would be hard-pressed to find even $2,665 in a year to pay for medical care when their total income is just $36,450. The ACA subsidies were designed to help low- and middle-income people both carry coverage with reasonable monthly premiums and access care with minimal out-of-pocket costs. If future changes to the ACA remove one or both of these key subsidies, then the affordability equation will no longer add up and millions of people will be unable to get the health care they need. The ACA debate needs to consider both aspects of insurance together if we are going to have a health care system that is affordable for everyone.

For More Information

This analysis draws on data from these installments of the ACA Spotlight, a data visualization series by Social Interest Solutions: Cost Comparisons across Plan Categories in 2017 and Medical Deductibles and Out-of-Pocket Limits for 2017. Because premium costs vary widely across the country, however, the example costs presented here are relatively modest. Explore the tools on your own to localize the cost data for your area.

Social Interest Solutions is a national nonprofit dedicated to improving access to quality health and social services through policy and technology solutions. We work with federal, state, and local agencies, service providers, community-based organizations, and researchers to better connect millions of low-income Americans to health care, nutrition, and other programs.