Premium subsidies may be one of the most complicated parts of the Affordable Care Act to understand, and that says something when you're talking about a 2,000-page law that overhauls the American health-care system.
They're also crucially important to the health care law, the factors that determines how much health insurance will cost under Obamacare and whether Americans will decide that price tag is affordable. So, today, we're going to use a brand new report from the Kaiser Family Foundation to explain how the subsidies work. Get. Excited.
Kaiser's report is arguably the most in-depth look we have at how much health insurance will cost under Obamacare, using actual rates that insurers will charge in 17 states and the District of Columbia.
"Our aim here was to really start making it tangible for people," says Larry Levitt, one of the report authors. "So much until now has been hypothetical, with simulations and models. Now that we have real premiums in 17 states and D.C., we could start looking at what consumers in real circumstances would pay."
That includes this chart, which shows us how much a 40-year-old who earns $28,725 (250 percent of the poverty line) would be expected to pay for medical care in 18 cities.
Let's focus on Seattle, since it has middle-of-the-pack premiums and happens to be where I grew up (Go Huskies!). There, the second-lowest-cost silver plan costs $283 a month for a hypothetical 40-year-old. For purposes of this exercise, we'll call her the Seattleite.
This second-lowest-cost silver plan is important because its price determines how big (or small) of a subsidy an individual gets. The health care law says that someone earning 250 percent of the poverty line won't be expected to spend more than 8 percent of his or her income to buy this particular plan. (It's called a "silver plan" as a measure of how much of a subscriber's costs it will cover. More on that here.)
That limit changes by income. As you go up the income scale, your contribution gets bigger. And at 400 percent of the poverty line, or $45,960 for an individual, the federal government won't give you any subsidy, expecting anyone earning above that limit to pay the full price.
All of these contributions are benchmarked to the second-cheapest silver plan. Silver plans cover 70 percent of the average subscriber's costs. The marketplace also includes different levels of coverage: A bronze plan is less robust, covering 60 percent of an average subscriber's cost; a gold plan (surprise!) covers 80 percent.
In Seattle, the second-lowest silver plan costs $283 a month. Eight percent of our Seattleite's income is $2,316, or $193 per month. So, the federal subsidy steps in and provides a subsidy of $90 per month to make up the difference.
But here's another important factor: The Seattleite doesn't have to buy a silver plan. She could decide she wants less robust coverage and use her $90 subsidy to buy the least- expensive plan, a bronze-level product that costs $213 per month. Factor in her $90 subsidy, and she's paying $123 a month.
Conversely, the Seattleite could decide she wants a pretty rocking gold plan, which will cover 80 percent of the average subscriber's monthly cost. That plan is likely more expensive, and she'll only get a $90 credit to help with the purchase. The data we have on Massachusetts, for what its worth, suggests that most marketplace enrollees will stick to bronze and silver plans.
We've talked about a 40-year-old who earns $28,725. But subsidies start to change by age, even if that's not quite apparent in the health care law. Insurance plans are allowed to charge older Americans three times as much as their younger subscribers. You can see that in this Kaiser chart, which shows the premiums for 60-year-olds who earn $28,725.
The Seattle insurer that charges a 40-year-old $283 per month for a silver plan wants to charge a 60-year-old $601 for the exact same product. But that actually doesn't matter too much for the 60-year-old. Since he also earns $28,725, he's going to have his contribution capped at 8 percent of his income. That will take a $408 subsidy to bring his contribution to $193.
And like the 40-year-old, our 60-year-old Seattleite has the option of using his subsidy to buy the cheapest plan in the marketplace. And since he has a much bigger subsidy, this has the effect of making a bronze plan way cheaper. His $408 subsidy, applied to a $452 premium plan, means he's paying $44 per month.
"There are a lot of quirks in the law, and this is one of them," Leavitt says of older people paying less for the cheapest plans than their younger counterparts. "The opposite is also true there -- that older people will have to pay more than younger people if they want to go up to gold. Then older people are having higher costs."
What this report does tell us is the exact amount that some Americans will pay for health insurance, depending on where they live and how much they earn. What it does not tell us, as some headlines have suggested, is that health insurance will be affordable.
While it's often pointed out that these premiums are lower than the Congressional Budget Office expected, that doesn't say anything about how Americans will react to them. It's hard to imagine a marketplace shopper who thinks: "Man, these premiums are way cheaper than CBO said they would be. What a great deal!"
Kaiser highlights some states where Obamacare looks quite affordable. Take Vermont, for example, where a low-income 25-year-old's tax credit would be enough to cover the entire premium of the cheapest plan.
When you hop over to Oregon though, that same 25-year-old, with the same income, is looking at spending $116 a month.
Is $116 affordable to a 25-year-old earning about $1,500 a month after taxes? That's a harder question to answer. That judgment of affordability, Levitt readily acknowledges, will have a lot less to do with the CBO and a whole lot more to do with the individual buyer's budget.
"I don't know," he told me when I asked whether he would consider the rates affordable. "On the one hand, all the cry about rate shock may be unfounded. On the other, we're still talking about a pretty significant purchase. Unless you've had to go out and buy insurance, you have no ideal what it's supposed to cost or whether it's a good deal."
KLIFF NOTES: Top health policy reads from around the Web.
The White House is planning $12 million in Obamacare ads. "The Center for Medicare Services at the Dept. of Health and Human Services has reserved at least $12 million in airtime starting Sept. 30 in Texas, Florida, Pennsylvania, Arizona, Georgia, Missouri, Ohio, Indiana, North Carolina, Oklahoma, Tennessee, Louisiana and Michigan." Alexander Burns and Kyle Cheney in Politico.
Washington's Obamacare call center logged 900 calls in its first day. "There were about 60 customer service representatives working Tuesday, including about half a dozen Spanish speakers. There are about 80 customer service representatives altogether." Amy Snow Landa in the Seattle Times.
Navigator groups are feeling the heat of a Congressional investigation. "The letter from Washington arrived on Laura Line's desk Wednesday, three weeks after her nonprofit won a federal grant to help consumers make sense of the health-insurance marketplaces created by the Affordable Care Act and four weeks before they were to open for business. It gave her nine days to provide Republicans on the House Committee on Energy and Commerce with all details and documents, electronic and paper, in her possession and not, involving the $953,716 her organization is getting to assist with health-insurance enrollment in 10 Pennsylvania counties." Don Sapatkin in the Philadelphia Inquirer.