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.