A double-digit increase in the annual health insurance premium is no longer news. It will be my third year on ACA health insurance in 2020. I just received the renewal documents from my HMO. The full premium before any tax credit for my plan will increase by 9% while the deductible will increase from $6,000 per person to $6,900 per person. Now, if I shoot for the federal premium tax credit, my net premium in 2020 will increase by 85%.
When I left my job in 2018, I chose a PPO plan on ACA, because that was what I always had when I worked for the employer. During the open enrollment for 2019, when the premium for the PPO plan increased by 16%, and when I realized that I would save a lot of money by just paying cash to my preferred doctor, I switched to this less expensive HMO plan. See When ACA Insurance Does Not Include Your Doctor.
It’s working as expected. I wrote about my experience in See A Doctor Out of Network And Pay Less Than The In-Network Rate.
So how will a 9% increase of the full premium in 2020 turn into an 85% increase after the premium tax credit? Because I’m on a Bronze plan. When you choose a Bronze plan, the formula for your net premium is:
Income * Applicable Percentage – (2nd Lowest-Cost Silver Plan – Plan Chosen)
The applicable percentages will change very little between 2019 and 2020. At the upper end of qualifying income, it goes from 9.86% of income in 2019 to 9.78% of income in 2020. When your income also stays more or less the same, the first part of the formula is stable. However, the second part, i.e. the price difference between the benchmark 2nd lowest-cost Silver plan and the Bronze plan you choose, can change significantly from year to year. The change can be more favorable or less favorable to you.
While the premium for my Bronze plan will increase by 9% in 2020, the premium for the Silver plan will actually decrease by 1%. As a result, the gap in the premiums between the Silver plan and the Bronze plan in 2020 will shrink from almost $5,000 a year to $3,750 a year. With less savings from choosing a Bronze plan, my net premium will go up to make up the difference. It goes from
9.86% of income – $5,000
9.78% of income – $3,750
If I qualify for the premium tax credit, my premium after the tax credit will go from $130/month to $240/month.
It’s not typical that the premium on a Bronze plan goes up more than the premium on a Silver plan. Typically the gap between the second lowest-cost Silver plan and the chosen Bronze plan becomes larger over time. In that case when you choose a Bronze plan, the net premium after the tax credit can go down even when the full premium increases by double digits. When that gap becomes large enough, the net premium for a Bronze plan can go to zero for someone with income at 400% federal poverty level.
If I qualify for the premium tax credit, should I complain about the 85% increase in the net premium after the tax credit when the full premium only increases by 9%? Or should I be happy that my net premium after the tax credit will be $240/month, not over $1,000/month? The answer is obvious. Dollars matter more than percentages. The glass is still quite full even though it’s not as full as before.
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.
ERIC LANCE GOLD says
There may be a small arithmetic error. The difference in SLCSP and bronze dropped by $1250, implying a premium increase of 1250/12 = $104 a month. That is slightly less than your stated increase of $110 a month. The larger error is not accounting for the change in the premium contribution which has dropped from 9.86% to 9.78% of income.
Presuming your final tally is correct, your premium increase is a combination of a Bronze plan that has increased in price more than Silver, and a higher income. I entirely agree with your points and the tenor of the article but I think it bears emphasizing that premium cost is tightly linked to mAGI. Beyond choosing a Bronze plan and putting effort into being as healthy as possible, ACA cost is a game of reducing mAGI reported.
Harry Sit says
All numbers were rounded to the nearest $10 to make it easier to do math in the head. That explains the $6 mystery.
Our ACA story is a positive one —>
When my wife and I retired in 2010 (both from the same company), we still had 10 years to go before we were Medicare eligible.
– During the first 3 years of retirement (2011/2012/2013), we enrolled in our previous employer’s retiree medical plan. The monthly premiums were quite high and increased each year —> $700 to $800 to $900.
– Then, in 2013 as the ACA was about to roll out, I happened across this article:
– In 2014 when the ACA came out, by tax-efficiently pulling from our various investment buckets, we were able to keep our MAGI low enough to qualify for Silver Plan subsidized premiums at less than $300/month at first. (When we finally figured out what we were doing, by 2017 our premium was down to $85/mo.; in 2018 it was $108/mo.) Using Silver plans rather than Bronze (or Gold) plans, we were also able to take advantage of the cost share reductions (i.e., CSR subsidies) of the deductibles, co-pays, and co-insurance.
Later in 2014 we came across another similar article, which reinforced what we were doing and gave us more understanding about how to maintain a low MAGI:
Then, in 2016 we came across this article, making it clear that many more (and more affluent) people besides us were rearranging their wealth and doing the same thing:
We did this for five years (2014-2018). We were able to keep our MAGI low for all those years: in 2014 at 171% of the FPL; in 2015 at 162% of FPL; in 2016 at 212%; 2017 at 291%; and 2018 at 190%.
However, in 2016 we had a minor hiccup; the ACA Co-op plan we had selected went bankrupt; we scrambled to find a new plan for the rest of the year; & lost that first six month’s deductible payments.
In 2017 we had to pay back some of the advance premium tax credit because our income overshot our estimate. But, because of the repayment limitations, as well as the CSRs, we didn’t have to pay back all of the subsidies that we had benefitted from.
We’ve calculated that if we had to purchase those same ACA health insurance plans (all were the SCLSPs) without the APTC subsidies, it would have cost us about $63,000 more in premiums over that same five-year period. (In which case we would’ve simply stayed with our previous employer’s retiree medical plan.) We never calculated how much more savings we received from the CSRs.
There’s been (and still is) much political wrangling over the ACA. The first two years, we weren’t able to “keep our doctors.” Besides that, the ACA worked out very well for us.
Now, we move on to Medicare.
The ACA has required income verification for my income. They also involuntarily sent my kids to state medicaid and require a medicaid proof of denial letter to keep my kids on the ACA plan with subsidy. I uploaded a tax return 1040 p.1 and Schedule 1 to satisfy income verification. They sent a note saying they need more documents, but don’t explain why or which ones. None of the reps know the answer when calling the helpline. Should I send a reconciliation for ACA premium worksheet that came with my return? I’d prefer not to confuse them with a full-scheduled return or W2. Also, on the medicaid, I contacted the local office to tell them I don’t qualify due to asset test. The medicaid rep withdrew me from the program, but refuses to give the denial letter that the ACA says they require (or my kids lose their insurance). The local Medicaid rep suggested that I need to apply for medicaid in order to get a denial letter, something I really shouldn’t do because I already know I flunk the test for Medicaid (and, besides, it’s probably a 10+ hour app process). What recommendations do you have for solving both the income verification and the medicaid question/issue?
Harry Sit says
When this happened to us last year, we just chose to pay the full premium up front and get the money back as a tax refund. You can also lower your tax withholding during the year.
ACA Health Insurance: Ask For Premium Assistance Or Not
Harry Sit says
P.S. If your income is 250% FPL or below and you want the cost sharing reductions in an enhanced Silver plan, you should still jump through the hoops. Paying the full premium up front doesn’t give you the reduced deductible, co-pay, and out of pocket maximum.