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VIDEO: How do the ObamaCare subsidies work?

By on August 5th, 2013
Filed: Health Insurance, Health Reform, You

How do Obamacare subsidies work?One question we hear often in our customer care center is in regards to the premium tax credits, or subsidies, that the Affordable Care Act (Obamacare) makes available for people who buy their own health insurance.

They’re complicated, but here is a high level overview:

To qualify for a subsidy you must:

1. Live in the U.S.
2. Be a U.S. citizen, U.S. national, or be otherwise lawfully present in the U.S.
3. Not be incarcerated

If you meet these three criteria, you may qualify for premium tax credits to help them pay for their health insurance, so long as your total household income is between 100 and 400% of the Federal Poverty Level (or FPL).

WATCH THE VIDEO

 

The ‘premium credits” or subsidies will be set on a sliding scale so that your portion of the monthly premium is limited to a defined percentage of your income when you buy the second least expensive silver-level plan available in your area.

Confused? Here is an example from the video:

If you wanted to buy the second least expensive silver plan available in your area, you’re single, and your monthly income is 133% of FPL, you would be earning about $1,273 per month in 2013.

At that income level the law limits what you can spend to no more than 3% of your income, which is about $38 per month IF… IF, if…  you buy the second least expensive silver plan available  in your area. If you buy that plan, you pay $38 and the government pays for the rest of your monthly premium.

As your income increases, so does your share of the cost for the monthly premium.

So, if your income rises to 400% of FPL – about $3,832 per month in 2013 for an individual – your spending on that silver plan would be limited to no more than 9.5% of your monthly income, which is about $364. So, for the same  plan – the second least expensive silver plan – at a higher income level you’ll pay more for the same plan.

Here’s an example of how that would work: If the second least expensive silver plan available in your area costs $300 a month, and you earn 400% of FPL, there is no subsidy for you. Remember that at that income level, your subsidy doesn’t kick in unless the second least expensive silver plan costs more than 9.5% of your income – $364 a month.

But, if the second least expensive silver plan available in your area costs $500 a month, the government would pay the difference between the $500 plan and your $364 cap. In that scenario you would pay $364 per month for your health insurance plan, and the value of your subsidy would be $136; $500 minus your $364 cap.

So you’re probably wondering what happens if you want a cheaper plan, or a more expensive plan right? 

Here’s an example. If there also happened to be a bronze plan available for $400 a month, you could enroll in that plan and get the same $136 subsidy. In that case, your plan would cost you $264 per month. You’re subtracting your $136 subsidy – which is based off of the second least expensive silver plan – and applying it to the cheaper plan.

If you wanted a Gold plan that cost $600 per month, you would – once again – apply your $136 per month subsidy and subtract that from the cost of the gold plan, and you would pay the remaining $464 per month for your insurance policy.

About Nate Purpura


Nate Purpura is a 15-year veteran of print and broadcast journalism, corporate communications, PR and internet marketing. He’s spent the last decade working in the health care and insurance industries. Over fifteen years he’s covered numerous areas of health care including pharmaceuticals, health and wellness programs, chronic disease management programs, cutting-edge diagnostic tools, Medicare and health insurance, and online marketplaces (exchanges).

4 Comments Add Your Comment

Mediclinic Mike on Tuesday, August 20 @ 10:53 am

While definitely a lot more complicated than in countries like France, the UK, and Canada, it’s a huge step in the right direction and will surely help a lot of people get better healthcare.

James osborne on Tuesday, October 1 @ 2:58 am

Good for American but the Senate is trying to kill it

KenyanMuslim on Wednesday, October 30 @ 9:42 pm

The Patient Protection and Affordable Care Act (Obamacare) has absolutely nothing to do with health care. Let’s let that sink in for a moment…

This law does not affect or change the world of health care one bit. This is a bill about health INSURANCE.

Why would this be important? Because this bill will not make one bit of difference in poor people being able to get quality health CARE.

This might be a bit long so try and bear with it…

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. It is not a method of payment for normal expenses. You have car insurance (or should). This is in case you get into an accident. It does not pay to maintain your car. You still pay out of pocket for that. You still pay out of pocket for gas.

You may be able to find health insurance that will pay for routine care. This is probably more expensive, but the insurance company may be willing to pay this cost to minimize their risk. For example: an insurer may have data that suggests a yearly physical will reduce the risk of certain illnesses which are more expensive to treat. So if you break down the math (which I’m not going to do for this, as the math is not important for this post) it would be cheaper to pay for 1000 yearly physicals to eliminate x number of more expensive illnesses.

This is why, prior to the ACA, insurance companies would exclude people for pre-existing conditions. The risk of loss was 100%.

Health insurance is not designed to pay your health care bills. It is a way to manage your risk. Many people, especially younger people, are willing to forgo insurance as their risk of loss is much less than older people.

So what is happening with the ACA is that it will (or has) fundamentally changed what insurance is. It is no longer a way to manage risk. It has become a way to pool payment. By forcing everyone to get insurance with the same minimum coverage (maternity care even if you’re a single male) you are no longer managing your risk. You are now pooling your money with a bunch of other people to pay for care.

Keep in mind that this health care is the same as it has always been, just the method of payment and collecting funds for that payment has changed.

So why is this important? Because it is the same thing as a single payer system (socialized healthcare) with the exception of single part. This has made each insurer a single payer system unto themselves with the exception that they will only pay after the deductible is reached.

How does this affect you? You will be now be a part of the same type of system that Canada, England, Europe, China, and many other quasi-socialist (or what ever term you chose to use) have. With the exception that you will have to pay your deductible first, which has been reported to be as high as $15000 or higher for the lowest level plan.

So who will benefit from this? Insurance corporations. They will collect huge premiums, and will not have to pay out anything until after you pay your deductible.

Remember this is what you voted for.

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