Has Confusion Hampered the Success of ACA Subsidies?

Money to help pay for health insurance, no strings attached — sounds like a good deal, right?

That’s exactly how proponents of the Affordable Care Act are touting the law’s federal subsidies and encouraging low-income consumers to sign up for health insurance.

At the same time, opponents of the law and its provisions rail against the assistance.

The idea of basing the health care system “on private insurance” and paying for it “with a combination of subsidies for low-income purchasers” is a Republican idea, according to Robert Reich, a professor at UC-Berkeley and former U.S. Secretary of Labor under the Clinton administration.

As Reich notes in the Huffington Post, in 1974, President Nixon suggested an early version of the ACA: a health system relying on employer-based insurance, Medicaid expansion and subsidies. Three decades later, Republican Mitt Romney, then-governor of Massachusetts, implemented a nearly identical law in his state.

Despite the origins of the idea, the ACA and its subsidies have been a point of contention between Democrats and Republicans. For instance, Republicans claim the ACA “kills jobs” and a recent Congressional Budget Office report found that some consumers receiving health insurance subsidies might choose to forego work in order to continue to qualify for the assistance.

Republicans’ efforts to hamper the ACA, coupled with the law’s complexity, could be causing confusion for some consumers over how to qualify for ACA subsidies and how to use them to their best advantage.

Not Everyone Qualifies

So far, about 83% of exchange enrollees have selected a plan with financial assistance, qualifying for nearly $10 billion in federal subsidies to offset their premiums.

However, some young adults — a main target of the ACA — might have been surprised to find that they did not qualify for subsidies, even if their income fell within the law’s range for eligibility. While the ACA stipulates that the subsidies are meant for consumers with annual incomes up to about $46,000, a recent study found that young adults living in eight major cities on average would not qualify for federal subsidies once their annual income surpassed $31,744 because of the formula used to calculate the premium assistance.

In addition, some uninsured people — nearly one million in California alone — have incomes too high to qualify for subsidies.

Confusion Over Eligibility

Even for those who do qualify, confusion about eligibility still could deter them from obtaining coverage.

A recent survey found that many U.S. residents were concerned about obtaining coverage through the ACA because they were worried about high premiums. While more than 80% of survey respondents who cited cost concerns were eligible for subsidies through the law, 65% of those individuals were unaware of their eligibility or the amount of financial help they could receive. Just one in five residents who qualify for subsidies nationwide has applied for them.

Dylan Roby, director of UCLA’s Health Economics and Evaluation Research Program, told California Healthline that some consumers might have turned directly to insurers rather than purchase subsidy-eligible insurance through the exchanges because of “public perception that there were long wait times and problems due to media coverage and experience with” the exchanges. Plans not purchased through the exchange are ineligible for federal subsidies.

But Roby predicts that may change. For example, in California, Roby said experts working on CalSIM — a joint project between the UC-Berkeley Labor Center and the UCLA Center for Health Policy Research — expect that “more than 200,000 people from the non-subsidized individual market will start buying in the exchange, especially if the website becomes easier to use” and enrollment assisters work through a backlog of calls.

Meanwhile, Henry Aaron, a senior fellow in economic studies at the Brookings Institution, said that opponents who are “sowing confusion” about the law could be causing consumers to misunderstand their eligibility for subsidies.

In addition, Aaron said some states — such as Florida and Missouri — have “put up obstacles” to make it more difficult for exchange navigators and assisters to do their jobs, such as by restricting where they can work or what types of plans they can discuss with consumers. Aaron noted that the ACA authorizes navigators and assisters “to be paid to help citizens” determine their eligibility for coverage and subsidies.

Making the Most of Financial Assistance

For consumers who do qualify for subsidies, choosing the right plan could make a big difference in their out-of-pocket health care and premium costs.

While there are no restrictions as to which exchange plan subsidies can be used to pay for, the financial assistance is calculated based on a Silver plan. As of March 1, nearly three-quarters of enrollees who chose subsidized coverage selected a Silver plan, while 18% selected a bronze plan and 11% selected a gold plan.

However, the tax credits could cover the entire cost of a less-inclusive bronze plan for some consumers, allowing them to save money for the higher out-of-pocket costs associated with less-expensive coverage. But don’t count on making a profit by choosing the cheapest plan — the law prohibits the tax credits from exceeding the premium for the selected plan.

Policyholders who qualify for subsidies can choose to take the tax credit on a monthly basis to be paid directly to their insurer, but some might be better off opting to collect a lump-sum payment when they file federal taxes.

For people — such as entrepreneurs or those between jobs — whose incomes vary, cashing in on subsidies up front could lead to a big bill come tax time. If a policyholder accepts a subsidy and then experiences an increase in income throughout the year, he or she could have to pay back the subsidy when they file taxes.

The ACA caps the amount that some people would have to repay in such circumstances. For example, households with annual incomes lower than 200% of the federal poverty level would not have to pay back more than $600, while there is no cap for households with annual earnings higher than 400% of the poverty level.