Americans who currently buy their own insurance through the individual market would receive tax credits averaging nearly $2,700 next year for coverage purchased through new insurance marketplaces under the Affordable Care Act, according to a new study.
The study, by the Kaiser Family Foundation, a key proponent of the health care reform law, predicted that the tax credits or subsidies would cover 32 percent of the premiums on average for this group of enrollees in a so-called "silver" plan.
The new analysis comes as some states release information predicting what the insurance premiums will be in 2014 when the Affordable Care Act’s market reforms and health insurance marketplaces take effect. The rate announcements forecast “sticker prices” that do not reflect federal subsidies to offset the cost of insurance for many current individual market policy holders, according to the Kaiser researchers.
“Tax subsidies are an essential part of the equation for many people who buy insurance through the new marketplaces next year,” Kaiser Family Foundation president and CEO Drew Altman said in a statement. “They will help make coverage more affordable for low- and middle-income people.”
Tax credits will be available to subsidize premiums for people who buy their insurance in the new marketplaces, do not have access to other affordable coverage, and have incomes between 100 percent and 400 percent of the federal poverty level (between about $11,500 and $46,000 for a single person, and $24,000 and $94,000 for a family of four).
An estimated 48 percent of people who currently have individual market coverage will be eligible for tax credits, the study found. Tax credits among those eligible will average $5,548 per family, and subsidies will average $2,672 across all families now purchasing their own insurance.
Many people who are now uninsured will also become eligible for subsidies once the new marketplaces are set up, and their tax credits will likely be higher on average since they have lower incomes than those who now buy their own coverage, the study predicted.
There are many reasons why premium costs in the individual insurance market will change under the Affordable Care Act before tax credits are applied, the study’s authors noted. For instance, insurance companies will be prohibited from discriminating against people with pre-existing conditions, leading to higher enrollment of people with expensive health conditions. More young, healthy people may also enroll due to the ACA’s individual mandate and premium subsidies.
Furthermore, insurance providers will be required to meet a minimum level of coverage that will raise premiums for people buying skimpier coverage today, but also lower their out-of-pocket costs on average when they use those services. Premiums before and after the law goes into effect are not necessarily comparable, as health plans in the new marketplaces will be required to cover a broader range of services than are found in many current individual market policies and the health needs of people who will enroll are likely to be different.
The Kaiser Family Foundation has developed a health reform subsidy calculator that estimates the premiums and tax credits available to people next year through the insurance marketplaces, based on their income levels, family size, ages and tobacco use.
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