How will the Inflation Reduction Act help marketplace enrollees?

August 5, 2022

After months of stalled progress, legislation that would extend the American Rescue Plan’s health insurance subsidy enhancements is back on the table in the U.S. Senate. That’s great news for the 13 million Americans who are eligible for premium tax credits (subsidies) that offset the cost of marketplace (exchange) health insurance.

The Inflation Reduction Act was announced in late July, and a vote in the Senate is expected next week. The legislation – which is both a climate and healthcare bill – addresses several pressing priorities, including a three-year extension of the subsidy enhancements delivered by the American Rescue Plan.

How would the Inflation Reduction Act affect marketplace subsidies?

If the Senate and House both pass the Inflation Reduction Act, the current marketplace subsidy structure will remain in place through the end of 2025, instead of expiring at the end of 2022. This would help marketplace shoppers in several ways:

The subsidy cliff would continue to not exist for the next three years, meaning that Americans with income above 400% of the federal poverty level (FPL) would still be potentially eligible for subsidies. Subsidy eligibility would depend on the percentage of income that a person would have to spend on the benchmark plan, and subsidies would be available – even with income above 400% of FPL – if the benchmark plan would otherwise be more than 8.5% of household income.
Subsidies would continue to be larger than they were pre-ARP. The size of the subsidies varies by income, age, and area, but they limit the after-subsidy cost of the benchmark plan to a pre-determined percentage of household income. That percentage of income is on a sliding scale, and the ARP reduced it to 0% – 8.5%. Under the ACA, it had been 2% – 9.5%, with small annual inflation adjustments. With the ARP in place, the 0% – 8.5% scale has been used for 2021 and 2022 health plans. And the Inflation Reduction Act would lock in that same scale through the end of 2025.
The ongoing marketplace special enrollment period for subsidy-eligible applicants with household income up to 150% of FPL would continue to be available through 2025. HHS has clarified that this enrollment opportunity is only available as long as benchmark plans are premium-free for buyers at this income level. If the ACA’s scale were to return, subsidy-eligible applicants at the lower end of the income scale would pay roughly 2% of their income for the benchmark plan. But with the ARP’s scale in place, these applicants pay 0% of their income for the benchmark plan. The Inflation Reduction Act would continue that for three more years, allowing the special enrollment opportunity to continue as well.

Full-price premiums will still change in 2023; across more than half the states so far, the overall proposed average rate increase is about 8% – much of which is not related to whether the ARP subsidies are extended. But most enrollees do not pay full price. In 2022, about 89% of marketplace enrollees receive premium subsidies. HHS estimates that 3 million people will lose their coverage altogether – while 10 million will see their subsidies decline or disappear – if the ARP subsidies are not extended under the Inflation Reduction Act.

To be clear, even if the Inflation Reduction Act is enacted, there will be fluctuations in subsidy amounts and after-subsidy premiums for renewing plans. This happens every year, depending on how much the benchmark premium changes (keeping in mind that the benchmark plan can be a different plan from one year to the next) and how much the cost of a particular plan changes.

But with the Inflation Reduction Act, overall affordability will remain the same as it is this year, as the benchmark plan would continue to cost the same percentage of income that people pay this year. (We do have to keep in mind that the benchmark plan can be a different plan from one year to the next, new plans might be available for the coming year, and rates for other plans relative to the benchmark plan can also change.)

Without the Inflation Reduction Act, coverage would become much less affordable in 2023. HHS calculations show that if the ARP subsidy enhancements hadn’t been in effect this year, the premiums that enrollees paid themselves – after subsidies were applied – would have been 53% higher in the 33 states that use HealthCare.gov. That’s the sort of scenario that millions of marketplace enrollees would see in 2023 without the Inflation Reduction Act.

What does the Inflation Reduction Act not do?

Although the Inflation Reduction Act is a dramatically scaled-back version of 2021’s Build Back Better Act (which passed the House but then stalled in the Senate), the bill’s extension of the current ARP subsidy enhancements is identical to the ARP subsidy enhancement extension that was in the Build Back Better Act.

But there were some additional Build Back Better Act subsidy provisions that are not included in the Inflation Reduction Act: The Inflation Reduction Act will not close the Medicaid coverage gap that still exists in 11 states. It will not reinstate the temporary unemployment-related subsidies that were available in 2021. And it will not change the way affordability is determined for employer-sponsored health coverage.

Will the Inflation Reduction Act pass?

Passage of the Inflation Reduction Act is not a sure thing. It needs the backing of all 50 members of the Senate’s Democratic Caucus in order to pass, and that’s not a given.

House Speaker Nancy Pelosi (D-CA) has said that the House will pass the measure if and when they receive it from the Senate. Although the margin isn’t quite as tight in the House, Democrats can lose at most four votes in order to pass the bill in that chamber.

What does the Inflation Reduction Act legislation mean for 2023 open enrollment?

Open enrollment for 2023 health coverage starts on November 1. If the Inflation Reduction Act is enacted this summer, consumers should expect to see the same general level of affordability for 2023 that they had in 2022.

But this always varies from one area to another depending on factors such as new insurers entering a market, or state reinsurance programs that bring down full-price rates and result in lower subsidies. Even with the Inflation Reduction Act in place, that sort of subsidy and premium fluctuation will still happen in some areas and for some plans.

If the Inflation Reduction Act does not pass, net premiums will increase sharply for most current enrollees when their coverage renews for 2023. Some enrollees will need to switch to lower-cost plans in order to keep their premiums affordable.

Regardless of whether the ARP subsidy enhancements continue into 2023 or expire at the end of 2022, it will be important to carefully consider all options during open enrollment. There will be shifting insurer participation in some areas, changing premiums, and new plan designs.

People who buy their own health insurance will need to consider all of the available plans and select the one that best fits their needs and budget. That may or may not be the same plan they had this year, regardless of what happens with the ARP subsidy enhancements.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

Why your ACA premium might be going up for 2022

December 15, 2021

Key takeaways

What affects fluctuations in what you pay for insurance premiums?
Anatomy of a drastic increase in premium payment
More health plan options can affect benchmark plans – and your subsidies
The perfect storm for a large net rate increase?
You may not be stuck with that higher 2022 premium
How to find solid replacement coverage with a lower net premium

As has been the case for the last few years, average individual and family health insurance rate changes for 2022 are mostly modest. The nationwide average increase is about 3.5%, and there are new insurers joining the marketplaces in the majority of the states.

That all sounds like great news, but the reality is a bit more complex. The modest average rate changes apply to full-price plans, but most marketplace enrollees do not pay full price. And although new insurers bring added competition, their entry could also mean a sharp reduction in premium subsidy amounts, depending on how the new insurer prices its plans.

So despite the headlines about small average rate changes, the rate change for your specific plan might be nowhere near that average. But that doesn’t necessarily mean you have to swallow a large increase.

What affects fluctuations in what you pay for insurance premiums?

The annual premium changes that grab headlines and that factor into state and federal averages are for full-price premiums. But very few marketplace/exchange enrollees pay full price. Most receive premium tax credits (subsidies), which means that their rate changes will also depend on how much their subsidy amount fluctuates from one year to the next.

ACA tax credits are set so that the enrollee pays a fixed percentage of income for the benchmark plan – the second-cheapest Silver plan in their area. When the unsubsidized benchmark plan premium changes from year-to-year, so does the size of the tax credit. If a discount insurer enters the market, your tax credit may shrink. That doesn’t matter if you choose the benchmark plan, but it may make other plans more expensive.

The averages also lump each insurer’s plans together, so although an insurer might have an average rate change of 5%, it could have a range of -10% to +20% across all of its plans.

And average rate changes also don’t account for the fact that rates increase with age. Even if your health plan has no annual rate changes at all for any of its plans, your pre-subsidy price will still be higher in the coming year simply because you’re a year older (if you receive subsidies, the subsidies will increase to keep pace with the age-related premium increases).

Anatomy of a drastic increase in premium payment

Let’s consider Monique, who is 36 years old, lives in Lincoln, Nebraska, and has an annual income of $35,000. This year, she’s enrolled in a Silver EPO plan from Medica (Medica with CHI Health Silver Copay) that has a $4,800 deductible, $45 copays for primary care visits, and an $8,150 cap on out-of-pocket costs. She pays no monthly premiums at all, because the full-price cost of the plan in 2021 is $504/month (based on her being 35 when she enrolled in that plan), and she’s eligible for a subsidy of $513/month.

Full-price premiums in Nebraska are increasing by more than the national average for 2022, with an average increase of a little less than 9%. But imagine Monique’s surprise when her renewal notice showed that her after-subsidy premium would be going from $0/month in 2021 to $226/month in 2022.

Why is her premium going up so much, when average full-price rate increases in Nebraska are in the single-digit range?

New health plan options can affect benchmark plans – and your subsidies

Nebraska is a good example of a place where there’s a lot more competition in 2022. Oscar and Ambetter have both joined the marketplace statewide, and the number of available plans has more than quadrupled. When Monique was shopping for plans last fall, she had a total of 22 options from which to choose. For 2022, however, she can pick from among 95 different plans.

In 2021, the benchmark plan (second-lowest-cost Silver plan) was offered by Medica and had a pre-subsidy price tag of $657/month. But for 2022, Ambetter offers the lowest-cost Silver plans in Lincoln, so they have taken over the benchmark spot. And the second-lowest-cost Silver plan for a 36-year-old now has a pre-subsidy premium of just $475.

So in Monique’s case, the cost of the benchmark plan has dropped by $182/month. And since subsidy amounts are based on the cost of the benchmark plan, Monique’s subsidy is also much smaller for 2022 – it doesn’t need to be as large in order to keep the cost of the benchmark plan at the level that’s considered affordable.

In addition, Medica has raised the base price of Monique’s plan from $504/month in 2021 to $560/month in 2022. That’s partially due to Monique’s increasing age, and partially due to the 10% overall average rate increase that Medica imposed for 2022.

The perfect storm for a large net rate increase?

That’s a perfect storm for a large net rate increase: The benchmark premium has dropped by $182/month while her health plan’s rate has increased by $56/month.

In 2021, Medica offered both the lowest-cost and second-lowest-cost Silver plan in Lincoln, and there was a significant difference in price between the two plans ($504/month for the lowest-cost, versus $657/month for the second-lowest-cost). Monique’s plan was the lowest-cost Silver option, and the large difference in premium between her plan and the benchmark plan explained why she was able to enroll in her plan with no premium at all. all. (A spread that big between the two cheapest Silver plans is unusual and creates a huge discount for the cheapest Silver plan when it happens.)

But that’s no longer the case for 2022. Ambetter has the four lowest-cost Silver plans in the area, and there’s only a $17 difference in price across all four of them. The two lowest-cost Silver plans are actually priced at exactly the same amount. As a result, the cheapest Silver plan that Monique can get for 2022 is going to be $141/month.

The two plans at that price both have lower out-of-pocket costs than her current plan. (They’re capped at $6,450 and $6,100, versus $8,550, which is the new out-of-pocket limit that her existing plan will have in 2022.) But non-preventive office visits are only covered after the deductible is met, whereas her current plan has copays for office visits right from the start. (Certain preventive care is covered in full on all plans, without a need to pay any deductible or copays.)

You may not be stuck with that higher 2022 premium.

The good news for Monique is that she’s not stuck with her new $226/month premium. There are 15 Silver plans that are less expensive than that for 2022, and there are also 43 Bronze plans that are less expensive, including several that are under $50/month. Bronze plans do tend to have fairly high out-of-pocket costs. But Monique can select from among three Bronze plans offered by Bright Health that include pre-deductible coverage for things like primary care visits, outpatient mental health care, and urgent care visits, with monthly premiums that range from $18 to $42.

Although those Bright Health Plans do have deductibles that are higher than her current Medica plan, she might find that she comes out ahead on out-of-pocket costs due to the more robust pre-deductible coverage that they provide. And that might be especially true when she factors in the premium savings: A plan that costs $18/month will save her more than $200/month in premiums, compared with renewing her current plan.

The takeaway point here is to not panic if your plan’s premium is increasing by a lot more than you might have expected. Even if your rate is increasing significantly, you might find that there are other options available that will be a better fit for your budget.

The fact that there are more plans available in most areas of the country for 2022 can be a plus or a minus, depending on the circumstances. In Monique’s case, a new plan has taken over the benchmark spot and reduced her subsidy amount. But there are also dozens of other new plans in her area, many of which might be a perfect fit for her medical needs.

How to find solid replacement coverage with a lower net premium

In order to pick a plan, Monique will need to consider the whole picture, including total premium costs, expected out-of-pocket medical costs, and provider networks. If she takes any medications, she’ll need to compare the various plan options to see whether her drugs are covered and how much she can expect to pay at the pharmacy.

Although this article focuses on plans available in Lincoln, Nebraska, people in other parts of the country can be facing varying degrees of surprising net rate increases, even when overall full-price rate changes in their area are fairly modest.

In states that use HealthCare.gov, the average enrollee can select from among almost 108 plans for 2022, up from just 61 in 2021. Even if the benchmark plan in your area has remained unchanged, the influx of new plans might mean that there’s a better option available for you in 2022, and now’s your chance to switch your coverage. It’s never in your best interest to just let your plan auto-renew without considering the other options, and that’s especially true when there are so many new plans available.

In every community, there are brokers and Navigators who can help you understand what’s happening with your current plan, and consider whether a plan change might be in your best interest. For more information about selecting a plan during open – and open enrollment deadlines in your state – read our 2022 Guide to ACA Open Enrollment.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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