The Affordable Care Act has been the law of the land for coming up on two years now, but that doesn't mean the controversy surrounding the ACA, which is best known as Obamacare, has subsided.
The debate rages on
In one corner, proponents of Obamacare have reason to believe it's made a genuinely positive difference for millions of people. According to the latest data from the Centers for Medicare and Medicaid Services, as of June 30, 2015, some 9.9 million people remained paying customers under Obamacare. The Centers for Disease Control and Prevention's survey data, which runs through the first quarter of this year, also shows that the rate of uninsured people in the U.S., inclusive of Medicare, was down to just 9.2%. This is the lowest percentage on record since the CDC began keeping data on the rate of uninsured people in the United States.
On the flip side, opponents or skeptics of Obamacare could easily argue that the new law has displaced millions of Americans from their former health plan since some insurers chose not to update pre-Obamacare plans to be in compliance with the new beefed-up minimum medical benefit requirements. Select primary care physicians are also not accepting Obamacare plan insurance at this time, forcing some patients to switch from a doctor they may have been seeing for a long time.
One of the middle-ground battles that continues to be fought between both sides, which frankly we don't have an answer to yet, is whether the high costs of Obamacare will prove worth it over the long run -- and by "worth it," I mean in terms of reducing the uninsured rate and keeping medical cost inflation under control.
Subsidies and cost-sharing reductions aren't cheap
According to an estimate from the Congressional Budget Office, Obamacare could cost $1.2 trillion over its first decade as law of the land. Amazingly, this is down from an initial estimate of $1.76 trillion a few years prior. Still, this is no small chunk of change, and a good chunk of it is going to support enrollees who qualify for the Advanced Premium Tax Credit.
The APTC is the financial assistance received by Obamacare enrollees that helps to offset the cost of their premium payment. In order to qualify for this subsidy, an individual would need an income of between 100% of the federal poverty level and 400% of the FPL (i.e., between $11,670 and $46,680). Anything below 100% would be covered by Medicaid. Enrollees usually have two choices when it comes to receiving their APTC: They can either have payments prepaid to their insurer (which is what a vast majority of enrollees do), or they can take the lump-sum payment up front and use the money to pay for their health premiums on a monthly basis.
In addition to the APTC, individuals earning between 100% and 250% of the FPL may be eligible for cost-sharing reductions, or CSRs. On top of paying a monthly insurance premium, individuals may also be responsible for out-of-pocket fees associated with copay's for visits, and deductibles for services rendered. CSRs are responsible for lowering the amount qualifying enrollees pay for copays, coinsurance, and deductibles. It's important to note that the only way an individual can qualify for a CSR is if they purchase a silver-tier plan. If individuals receiving a subsidy opt for a cheaper bronze-tier plan they don't receive any CSR assistance.
In total, 84%, or 8.3 million of the remaining 9.9 million Obamacare enrollees qualify for an APTC subsidy, while nearly 5.6 million, or 56% of all enrollees, also qualify for a CSR. The CMS notes the average APTC across the country is $270 per month, or a whopping $3,240 per year. Over 8.3 million people we're looking at close to $27 billion being divvied out in subsidies this year (and that doesn't even count the CSRs).
Obamacare enrollees in these states are most reliant on subsidies
However, residents in certain states tend to rely more on financial assistance for Obamacare than others. Based on data from the CMS, residents in the following 10 states have the highest percentage of enrollees receiving financial assistance through the APTC:
- Mississippi (95.4%)
- Wyoming (92.2%)
- North Carolina (91.6%)
- Florida (91.3%)
- Alabama (90.9%)
- Louisiana (90.7%)
- Georgia (90%)
- Arkansas (90%)
- Wisconsin (89.6%)
- Alaska (88.8%)
The interesting aspect of the above list is that every state except for Arkansas did not expand their Medicaid program once Obamacare went into effect on Jan. 1, 2014. Roughly 30 states have accepted federal funds to expand their Medicaid program to consumers earning between 100% and 138% of the FPL. This means the remaining 20 states that chose not to expand (including nine of the 10 above) can offer subsidies to consumers making as low as 100% of FPL. Thus, it's not entirely surprising that residents in these states would demonstrate the greatest dependence on Obamacare subsidies.
Two mistakes 8.3 million people need to avoid
If the CMS' data demonstrates anything, it's that millions of people across the country could easily fall victim to two major mistakes that could be costing them a lot of money if they're not careful.
To begin with, as noted earlier, consumers eligible for CSRs who fail to choose a silver plan could be leaving millions in federal assistance on the table. It may seem counterintuitive not to pick out the least expensive tier, which are bronze plans. However, since CSRs can lower out-of-pocket expenses for medical care rendered, it usually turns out to be a far better deal to pay a little bit extra on a monthly basis with a silver-tier plan than to buy a slightly cheaper bronze plan but potentially not be able to afford the copays and deductibles.
Also, APTC-eligible consumers need to get a good grasp on their annual income so as not to wind up with an unpleasant surprise come tax time. A consumer's subsidy and eligibility is determined by the estimate they provide of how much they expect to earn in the upcoming year. Often times a consumer needs to give this estimate 12 or more months in advance of what would be their final income tally for the year. If a consumer ends up making less than they stated, then they could wind up with a bigger credit on their tax return. However, if a consumer understated their income and received more in credits than they were due, they could owe money come tax time.
It's admittedly difficult for hourly wage workers to predict what they might owe in the upcoming year, but the good news is you can report changes in income to your state's health services department, which can make an adjustment to your subsidy level and prevent an ugly tax surprise.
It doesn't appear as if consumer reliance on the APTC or CSR will lessen anytime soon, so, Obamacare enrollees, consider yourselves warned!
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.