How Obamacare health subsidies work (Q&A)

Here’s the good news: Next year, according to the Affordable Care Act (ACA), also known as Obamacare, nearly 26 million Americans will be eligible for federal subsidies to help them pay for health insurance. The bad news is that almost no one knows how the Obamacare subsidies will work.

According to a recent study conducted by Families USA, a Washington, D.C.-based nonprofit group that advocates for lower health-care costs, nearly eight percent of Americans will be eligible for federal subsidies that will reduce health-care costs. The study also showed that most Americans are in the dark about them.

How Obamacare health subsidies work

obamacare-subsidiesAccording to the ACA, the federal government will start providing tax credits to low- and middle-income consumers on January 1, 2014 in order to help them purchase insurance through state-run insurance exchanges (or marketplaces). Individuals looking to buy health insurance though these exchanges can start applying for subsidies in October 2013. And here’s how they will work:

Assistance will be available for those with incomes up to four times the federal poverty level—i.e. $45,960 for an individual or $94,200 for a family of four. It’s also available for individuals who aren’t part of a government health insurance program like Medicaid or Medicare and who don’t have health insurance through work. The assistance will be administered as upfront tax credits, which will be sent directly to insurance companies, so consumers pay less out of their own pockets.

InsuranceQuotes.com recently caught up with Kathleen Stoll, director of health policy at Families USA, to talk about these subsidies and why so many Americans don’t know how they will work.

What consumers should know about Obamacare health subsidies

What motivated you to conduct this study?

Well, we knew that people were confused about these subsidies, and, in most cases, completely unaware of them. We had seen some research from other organizations that showed about 80 percent of people who will be eligible to receive help with the cost of health insurance had no idea this help even existed. Our primary goal was to educate the public about the facts.

What was most intriguing about the findings?

One thing I discovered in talking to reporters after the study came out is that people are not only unaware of these subsidies, but that they also have some misconceptions about how they work.

Can you give an example?

First of all, a lot of people we talked to said that their state wasn’t going to provide a health insurance exchange. That’s not true. All states will have an exchange. Some states will run them from the state level while others have opted to let the federal government handle it.

People have also been really surprised when we walk them through the size of these subsidies, because they are quite significant. For instance, a family of four earning $94,200 and purchasing a silver-level plan (the second most affordable plan option covering about 70 percent of health care costs) carrying a $12,500 annual premium will get a subsidy worth $3,550, which limits the cost of the premium to 9.5 percent of the family's income. That really puts health insurance into the grasp of working families in terms of affordability.

It’s not free insurance. But it’s within the range of reason that you can actually afford to protect your family.

Is there any one demographic that will stand to benefit most significantly from these subsidies?

More than a third of those eligible will be young adults between 18 and 34 years old, but it’s not just a benefit for young people. People between the ages of 55 and 65 who may need to retire early won’t have to worry about being locked into a job so they can continue having health insurance. With these subsidies they will have a way to insure themselves.

Also, a lot of people who will be eligible for these subsidies are from working families with annual incomes between $47,100and $94,200. With these subsidies, these families now have an option to protect their loved ones.

Do people have to purchase insurance through their state’s exchange in order to be eligible for Obamacare heath subsidies?

Yes. You would have to purchase a plan through the state marketplace. But insurers will offer a range of plans, so you have options. Also, if you have a good offer of health insurance though an employer that doesn’t require you to pay a lot of money out of pocket, you won’t be eligible for this help. But if you have an employer plan that’s not very comprehensive or has a high deductible, then you may be eligible to choose between your employer’s plan and a plan offered though your state’s marketplace. So don’t assume that if you have employer-based coverage that you aren’t eligible.

Who will benefit most from these Obamacare health subsidies?

I picture a hard-working family where one or both adults in the family are working full-time. But they’re working in something like the retail sector and don’t have an offer of employer-based coverage. Another family I picture is one where a member of the family has a significant preexisting condition that may limit how much he or she can work. They may not qualify for Medicare or Medicaid, and this will allow them to get affordable insurance for the family. With these subsides they can move into the ranks of the insured and protect their families from financial devastation.

Why do you think people are so uninformed about health care reform right now?

For one thing, it continues to be a topic of intense political debate. People hear so much noise about it that they think Congress is still debating it and don’t even know the Affordable Care Act already passed. The negative political dialogue and misinformation has confused a lot of people.

Secondly, you can’t apply until October (2013) and you won’t start receiving help until January. People have busy lives with lots of responsibilities, so if there’s a benefit that will take effect in January 2014, they don’t want to hear about it until July or August.

What’s the greatest challenge in getting people to understand how these Obamacare health subsidies work?

The challenge right now is to reach out to people across the country who are trusted communicators on the community level. People like doctors, pastors, nurses, neighbors who can say, ‘Hey, this is how this will work and here’s what it can mean for your family.’ If we get the word out and people start applying, I think they will be pleased with what they find out.

How will Obamacare subsidies change the health insurance industry moving forward?

A: When you provide subsidies there are more people who can afford what insurance companies sell. I think it will have a positive effect from insurance companies’ perspectives because more customers is a good thing. Insurance companies may need to be more competitive to enter these state exchanges and offer their products at a better price.

What advice do you have for consumers moving forward?

Don’t assume you’re not eligible. Right now there’s no place to send consumers to get a lot of information in their state because web portals aren’t open yet. But people can go to Healthcare.gov and get some basic info on the Affordable Care Act and these tax credits and state exchanges. Keep you eyes and ears open because there will be call centers and resources available this summer. And remember, you don’t have to be uninsured to qualify.

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