Last week, individuals who purchased an individual health care policy on or after Jan. 1, 2014, received news that their premiums were going up and they were going up by a lot. Depending upon where you lived in the country, your health plan choices may also have been limited as health insurance carriers narrowed their offerings in the individual market for 2017. Some carriers, like United Healthcare, decided to leave entire states for business reasons.
Yes, premiums on current plans for approximately 34,000 South Dakotans are increasing substantially and an additional 8,000 residents are affected by Wellmark’s and DAKOTACARE’s announcements this fall to no longer issue new or renew existing Affordable Care Act-compliant individual policies. In total, I would estimate that about 5 percent of the state’s 860,000 residents are going to be facing decisions on health care insurance for 2017. This percentage is pretty consistent with the percentage of individuals nationally affected by the premium increases on “Obamacare” individual policies.
How these increases affect one’s pocketbook are in large part dependent on whether or not you qualify for an advanced premium tax credit. These tax credits are available based upon your household income and household size, and they are used to decrease what you owe in a monthly premium to your insurance carrier.
Here is a quick grid to let you know if checking out your eligibility for a tax credit to reduce your monthly premium makes sense. If you make under the amount noted annually for your household size, you are likely leaving money on the table if you do not check your eligibility for a tax credit in 2017.
Some believe that a tax credit is welfare. It isn’t. A tax credit is an amount of money a taxpayer is able to subtract from their taxes owed to the government. There are both business tax credits and individual tax credits. Tax credits often times are used to encourage specific behavior such as replacing old appliances with new appliances for energy efficiency. With health insurance, individual tax credits are used to encourage the purchase of coverage and to help with the cost of that coverage for those eligible.
We are encouraging everyone to evaluate their eligibility for tax credits this year. Why? Because 2.5 million Americans could be getting tax credits and aren’t according to healthinsurance.org. That number will grow this year because of the steep premium increases and how the tax credits are calculated.
Here comes the shock and awe moment.
Let’s take Joe, a 40 year old living in Sioux Falls with an annual income of $40,000 in 2016 who would have paid a monthly premium of $292.36 for his lowest cost silver plan in 2016. A formula set by federal law determines if premiums in a region are affordable. It is based on a specific plan in that region (let’s call this the “benchmark” plan) and its premium calculated against your monthly income. In 2016, the formula indicated that Joe’s premium for the benchmark plan in his region was less than 9.5 percent of his monthly income. This meant Joe’s premium was considered “affordable” and he didn’t receive a tax credit to lower his monthly premium in 2016.
Now Joe is 41 years old in 2017 and his income hasn’t changed — he still projects to make $40,000 a year. Joe’s premium went up to $420.81 a month for 2017. I presume Joe was shocked and likely angered by the letter he received telling him his monthly premium was going up by 44 percent!
Because the benchmark plan’s premium for Joe in 2017 will be more than 9.5 percent of his annual income, Joe will be eligible for a tax credit. Is it worth it to Joe to check out AveraHealthPlans.com or healthcare.gov to see if he qualifies for a tax credit?
Joe decides to do some checking and finds out that he is eligible for a $133 monthly advanced premium tax credit. This tax credit lowers his monthly premium to $298.11 a month.
Let’s summarize. Joe’s premium increase without a tax credit is 44 percent. Joe’s premium increase by checking out a tax credit is 2 percent. It is in Joe’s best interest to apply for the tax credit.
Even though Joe, and many other South Dakotans, will benefit from tax credits lowering the cost of their monthly premium in 2017, there are still those individuals and families who make more than the household income in the grid above and who will be facing significant increases in 2017 that can’t be offset by a tax credit.
These individuals will be evaluating whether or not a less expensive plan with higher out of pocket costs when they receive care makes more sense for their budget. Others may be in care situations where they have to have coverage for serious illnesses and may seek employment for benefits. Still others may choose to forego insurance altogether and take the penalty.
We started our off-exchange open enrollment period earlier this year to permit individuals who are losing their coverage from Wellmark or DAKOTACARE to get new coverage in place for Jan. 1 right away. For these 8,000 or so individuals, premium increases are not as marked because their prior carrier had been increasing premiums significantly in past years.
So the takeaways are these:
- You may likely be one of the 817,000 South Dakotans who are not directly impacted by increases to “Obamacare” individual policies but your neighbor or social media friend may be.
- When they pull out their “shock and awe” letter, encourage them to reach out to an agent or contact us directly at 1-855-692-8372 or visit AveraHealthPlans.com.
- There may be options that they are not aware of and we want to make sure they have the opportunity to make the best decision possible for themselves and their families.