2.2 Million Obamacare Enrollees Made This Mistake in 2015 -- and They May Do It Again Next Year

Source: White House on Flickr.

The Patient Protection and Affordable Care Act, which most people know affably as Obamacare, has been a controversial health reform law since the get-go.

Designed first and foremost to reduce the uninsured rate and secondarily to make the health insurance marketplace more transparent and competitive, Obamacare has found no shortage of criticism. Select lawmakers have questioned the long-term costs of the program, while other Americans have justifiable complaints about being dropped from their health plan, which under Obamacare may no longer meet the minimum benefits requirement.

But, in spite of these criticisms the ACA managed to sign up more than 11 million people following its second year of enrollments (mid-Nov. 2014 through mid-Feb. 2015). In fact, according to a new report issued by the Centers for Disease Control and Prevention, the uninsured rate dropped to 9.2% in the first quarter, the first time in history it's dipped into single-digit territory. Obamacare is largely to credit for this drop.  

However, the full benefits of Obamacare aren't being realized by all of its enrollees. That was the message of a new report from Avalere Health.

Source: Covered California.

2.2 million people made this mistake – and they may do it again
In total, more than 85% of Obamacare enrollees qualified for the Advanced Premium Tax Credit in 2015. Also known as the APTC, this is the "subsidy" that lower-income Americans receive who make more than 100% (or 133% in states that expanded their Medicaid programs) of the federal poverty level (FPL), but less than 400% of the FPL. This works out to anywhere from $11,670 to $46,680 for a single person. The APTC is critical to lowering premium costs to make them affordable for lower-income Americans. In 2014 the average premium for those who qualified was just $82 per month, while the cost-savings from the subsidy amounted to $264 per month. 

But, there's more available to low-income Americans than just premium tax credits. Cost-sharing reductions for low-income Americans making between 100% and 250% of FPL (or up to $29,175 for a single person) help reduce the out-of-pocket costs that are in addition to premium costs. For example, consumers that qualify could see the costs of their doctor co-pays, coinsurance, or even deductibles drop.

However, based on Avalere's findings some 2.2 million qualifying Americans are leaving federal aid tied to cost-sharing on the table, in part because many are too focused on plan price.

In order to qualify for cost-sharing federal aid lower-income Americans must purchase a silver-tiered plan. Silver plans cover 70% of medical service costs with the member responsible for the remaining 30%, up to their maximum out of pocket deductible. Yet, bronze-tiered plans are cheaper on a monthly premium basis, but with a higher out-of-pocket responsibility of 40% (with your insurer covering the remaining 60%). Without getting too technical, some low-income Americans are bypassing the slightly more expensive silver plans (based on monthly premium costs) in favor of bronze plans, and in the process foregoing any possible cost-sharing reductions should they visit their doctor.

In an interview with CNBC the co-founder and CEO of HealthCare.com Jeff Smedsrud suggested that a person making between 200% and 250% of the FPL who buys a silver plan as opposed to a bronze plan could "save up to $1,750 by being eligible for a plan with a lower deductible and improved out-of-pocket coverage."

Worse yet, the number of consumers who made this mistake (which in 2015 was more than a quarter of eligible enrollees) could actually grow in subsequent years. The Congressional Budget Office has suggested in its projections that some 3 million enrollees could bypass cost-sharing subsidies that they would otherwise be eligible for.

Source: Social Security Administration.

Highlighting two glaring problems with Obamacare
There are two key takeaways from Avalere Health's study.

The first is pretty obvious: millions of dollars in federal aid is being left on the table, and 2.2 million low-income Americans are potentially overpaying for their medical care or may even be choosing not to seek care because of their potentially high out-of-pocket expenses. My personal guess is the latter is more likely to be true, which is great news for insurers who continue to collect premium payments with minimal medical costs, but not-so-great news for low-income consumers who may be forgoing a regular visit to their primary care physician.

The second takeaway, though, highlights one of the major intangible problems with Obamacare: a glaring lack of consumer education.

Obamacare has been the law of the land for more than a year-and-a-half, and it was signed into law more than five years ago. However, a poll conducted last summer by the Kaiser Family Foundation showed that a majority of Americans don't have a good grasp on how Obamacare actually works. In fact, close to two-thirds of respondents in KFFs study were unsure if Obamacare plans were private or government sponsored. To sum things up, if consumers are having trouble understanding the basics of Obamacare, then it becomes extremely difficult for them to make an informed plan purchasing decision. And if previously uninsured Americans aren't making an informed decision, then the positive effect Obamacare could have on our healthcare system could be diminished or altogether negated.

If Avalere's study is indeed accurate then the Department of Health and Human Services, Healthcare.gov, more than a dozen states that are operating their own health exchanges, and the nation's major insurers have their work cut out for them when it comes to educating low-income consumers. Educating the public isn't an impossible task, but as things stand now Obamacare is far from reaching its full potential in terms of benefiting lower-income Americans.