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High Premiums, Out-of-Pocket Costs Cripple Middle Class Enrollees

Enrollees who don't quality for ACA marketplace subsidies face extraordinary premiums and out-of-pocket costs.

premiums out-of-pocket costs

Source: Thinkstock

By Sara Heath

- Affordable Care Act (ACA) marketplace premium increases are proving unmanageable for middle-class enrollees, as high premiums and out-of-pocket costs prevent these individuals from purchasing health plans, according to a recent issue brief from the Kaiser Family Foundation.

These high premiums and health plans have become cost prohibitive specifically for patients who do not qualify for ACA subsidies.

“After several years of rising ACA plan premiums, premiums are falling in many parts of the country for 2019,” the report authors explained. “Despite this trend, premiums for even the cheapest exchange plans are still out of reach for many middle class people who are not eligible for ACA subsidies, particularly those who are older or live in high-premium areas.”

The ACA marketplaces offer subsidies for individuals with incomes below 400 percent of the federal poverty level, defined as $48,560 income for an individual and $100,400 for a family of four. These subsidies are intended to make it easier for individuals to comply with the ACA’s individual mandate and purchase health plans.

But a significant cohort of enrollees do not qualify for these subsidies, meaning they face the full increases in premium costs that have occurred in the past several years. As a result, fewer unsubsidized patients are purchasing ACA marketplace plans.

READ MORE: Insured Patients See High Premiums, Out-of-Pocket Healthcare Costs

The number of unsubsidized enrollees on the ACA marketplaces fell from 6.4 million individuals to 3.9 million between 2015 and 2018, the report authors stated. This is likely because middle-income individuals struggle to afford the high premiums associated with ACA marketplace plans.

The issue is compounded by what the report authors call the subsidy cliff. The subsidy program strictly applies to patients making below 400 percent of the federal poverty level. There is no taper off, meaning if a patient makes 401 percent above the federal poverty level, she will not receive any subsidy and will incur the entire cost of the marketplace premium.

And that full premium makes a significant difference financially, the report authors pointed out.

On average, an individual making $50,000, or 412 percent above the federal poverty level, pays $340 each month for her insurance premiums. This accounts for 8 percent of her income.

In contrast, a patient making $45,000, or 371 percent above the federal poverty level, pays $227 each month for her insurance premiums. This accounts for 6 percent of her income.

READ MORE: Premiums, Deductibles Increase as Patient Healthcare Costs Rise

These figures vary significantly by county, the authors added. Enrollees living in rural areas pay much more for their premiums, and this is more pronounced for unsubsidized individuals.

Patients making $50,000 in rural areas pay about 10 percent of their incomes on premiums. In metropolitan counties, only 5 percent of patients are spending that much on premiums.

It’s even worse for older people in rural areas, the authors stated. In Nebraska, a 60-year-old making $45,000 would receive a fully subsidized plan premium. A patient making $50,000 would pay $1,314, or 34 percent of her income, on insurance premiums, making plans essentially cost-prohibitive.

Healthcare policymakers have introduced numerous solutions to this issue, including introducing more short-term plans that have lower premiums, expanding access to Medicare and Medicaid, extending the subsidy threshold beyond 400 percent, and creating state-based reinsurance programs.

However, there are some flaws with these proposals, the authors stated. For example, short-term plans’ exceptionally low premiums come with a quality cost because they are less comprehensive than marketplace plans.

READ MORE: Higher Insurance Premiums Drive Patient Health Exchange Exits

“Short-term plans generally have significantly lower premiums than ACA-compliant coverage, in large part because these plans can exclude people with pre-existing conditions and may not cover certain services,” the report authors noted. “Thus, while short-term plans come with lower premiums, these plans are generally not an option for people who have pre-existing conditions or expect to need high-cost services.”

These plans may also detract healthy enrollees from the ACA marketplace pool.

Reinsurance programs also have their pitfalls in that they do not benefit all enrollees.

“How much a reinsurance program can reduce premiums depends on the level of funding dedicated to it,” the authors explained. “Reinsurance reduces premiums somewhat for all enrollees ineligible for premium subsidies. However, this reduction in prices will not be enough to make plans affordable for all unsubsidized middle class people, particularly those facing the highest premiums as a share of income.”

Reworking the subsidy program, specifically by addressing a subsidy cliff, may also be problematic because it would eventually be costlier for tax payers. Aside from that shortcoming, it may be one effective strategy for protecting middle-class marketplace consumers.

These conflicting policy proposals indicate the complicated path forward for the premium subsidy issue, the authors stated. Although industry leaders are aware of the cost limitations many middle-income patients face, they have yet to develop a viable solution.

“So far, while there seems to be a consensus that individual market premiums are out of reach for some middle-class people ineligible for ACA subsidies, there is little consensus around what to do about it,” the researchers concluded.

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