Reader Charlie brought up an interesting scenario. Both Charlie and his wife are getting health insurance from the ACA exchange right now. After Charlie becomes eligible for Medicare next year, his 58-year-old wife will continue on the ACA plan. Now, when they change from covering two people on the ACA plan to covering just one person, how will their premium change?
Will their premium be cut in half, because they will cover just one person instead of two? Or actually more than half, because the person coming off the plan, Charlie, is older and more expensive to insure?
Will the premium stay the same, because ACA premiums are tied to income, and having one person come off the plan doesn’t really change their income?
Will the premium actually increase, or drop, but by less than half, because if it’s not weird and counterintuitive, it wouldn’t make an interesting subject for a blog post?
The answer is — all of the above.
How the ACA plan premium will change when you go from covering two people to covering just one person depends on whether you receive a subsidy for the premium and what plans you currently have. We are not talking about the premium changes made by the insurance companies from year to year or any changes to the premium tax credit caused by the changes in income. Just changing the number of people covered by the plan will have weird and unexpected effects.
It’s more intuitive if Charlie and his wife don’t qualify for a subsidy to their premiums. When they pay the full price, insuring two people sure costs more than insuring just one person. Charlie, the older of the two, costs more to insure than his wife. When Charlie comes off the plan, their premium will be cut by more than half.
I priced it for my area. A Bronze plan for a 64-year-old and a 58-year-old in my zip code costs $1,598/month without any subsidies. The same plan for just one 58-year-old costs $734/month. That’s a drop of 54% when they go from covering two people to covering just one person.
Subsidy – 2nd Lowest Cost Silver Plan
If their income qualifies them for a subsidy, the subsidy is calculated off the 2nd lowest cost Silver plan in the area. If that happens to be the plan they choose, they will be asked to pay a set percentage of their income for health insurance, regardless how many people in the household need coverage. The rest will be paid by the premium subsidy. See ACA Health Insurance Premium Tax Credit Percentages.
Suppose their income in 2020 is $67,000, which is just below the maximum income that qualifies for the federal premium tax credit for a household of two. Suppose they choose the 2nd lowest cost Silver plan in my area, their premium after the subsidy will be the same $539/month whether they cover both of them or they cover just Charlie’s wife. The only difference is that the premium subsidy becomes smaller.
Because now Charlie will have to pay for Medicare Part B and Part D, and possibly a Medicare Supplement policy, their total spending on health insurance will increase. But, because the deductible and co-pays on Medicare are lower than those on the ACA plan, their total spending on healthcare may decrease. And because they will still receive a subsidy when they cover just one person, albeit a smaller subsidy than when they cover two people, a subsidy is still a subsidy. They are better off with a subsidy and not seeing a premium drop than if they have to pay the full price.
Subsidy – Bronze Plan
If Charlies and his wife qualify for the federal premium tax credit and they are on a less expensive Bronze plan, they receive 100% of the price difference between the 2nd lowest cost Silver plan and the Bronze plan. The formula for their net premium is:
Income * Applicable Percentage – (2nd Lowest-Cost Silver Plan – Plan Chosen)
When one person goes off the plan, the price difference is also cut in half. Their premium after the subsidy therefore will go up, not down.
With the same $67,000 income, the least expensive HSA-eligible Bronze plan for a 64-year-old and a 58-year-old in my area costs only $54/month after the premium subsidy. If the plan covers only a 58-year-old, the price goes up to $366/month. Such is the punishment for choosing a less expensive plan, but keep in mind because the Bronze plan has a very high deductible, cutting the deductible in half will somewhat offset the increase in the premium.
Subsidy – Gold Plan
It’s the opposite if they are eligible for the premium subsidy and they choose a more expensive Gold plan. When they cover two people they have to pay the price difference for two people. Their net premium is:
Income * Applicable Percentage + (Plan Chosen – 2nd Lowest-Cost Silver Plan)
When they cover just one person, the extra price they pay for a Gold plan is cut in half.
Again with $67,000 in annual income, a Gold plan costs $823/month in my area for a 64-year-old and a 58-year-old. It costs $670/month for just one 58-year-old. The premium drops 19% when they go from covering two people to covering just one person.
Here’s a summary of all the scenarios:
|2 people||1 person||Change|
|No Subsidy – Bronze Plan||$1,598/month||$734/month||-54%|
|Subsidy – 2nd Lowest Silver Plan||$539/month||$539/month||0%|
|Subsidy – Bronze Plan||$54/month||$366/month||+678%|
|Subsidy – Gold Plan||$823/month||$670/month||-19%|
Charlie and his wife qualify for a premium subsidy and they happen to be in a Bronze plan. Their premium will go up substantially when they change from covering two people to covering just one person. It’s counterintuitive but that’s how it works.
Say No To Management Fees
If you are paying an advisor a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.
Thank you so much for this much needed example! We will be facing this in near future.
I still do not understand why the max payment is set to income (9.5% of income) and does not take into account other healthcare cost such as Medicare or number of people covered. I mean this is such a glaring flaw in the system as it is setup now. I think California would be the first to step in and remedy this but it has not.
I know people say “but Medicare is heavily subsidized yada yada”. But the cost is not zero. If one pays for Medigap plans or Medicare Advantage plans then all told it can cost $5000 in premiums plus out of pocket costs.
Having a family member on Medicare plan becomes a huge penalty for ACA subsidy in certain situations.
An excellent post on what can be a convoluted and hard to understand topic.
Hal Winslow says
This is not only a very good post on the subject, it is pretty much the only post on this subject. I found it in an effort to explain to my Medicare clients why their net premium for a Bronze plan was going from $111.45 for two people to $291.52 for one spouse after the other went on Medicare. I’ve been brokering ACA plans since things opened in 2013 and think I have a good feel for all of it. That said, I still don’t grasp the mechanics of the effect for Bronze plan holders 100%, but your article will greatly help me get there. Thanks for an excellent contribution to this body of knowledge.
Excellent article, Harry! I read a LOT of blogs and have never seen this addressed anyplace else.
What is supposed to happen to the deductible on a plan when one goes on Medicare? If the couple is a few years difference in age and uses the silver plan with CSRs, how would one predict the change in CSRs?
Harry Sit says
The per-person deductible stays the same.