It's certainly up for debate, but the greatest legacy of Barack Obama's presidency is likely to be the implementation of sweeping reform in the healthcare sector. The Affordable Care Act, better known as Obamacare, radically transformed the way we receive medical care and shop for health insurance.
Under Obamacare, insurers lost their ability to pick and choose who they were going to cover. For consumers with chronic or terminal illnesses, this was a monumentally positive change. Additionally, the make-up of a basic health plan has changed to include more robust benefits. Even the way consumers shop for insurance has changed, with 13 individual states and Healthcare.gov (which represents 37 states that chose not to set up their own exchanges) offering transparent, side-by-side comparisons of health plans so consumers can make informed decisions.
While remaining a highly controversial law that has divided the nation, Obamacare has nonetheless pushed the uninsured rate to the lowest level in the U.S. since record-keeping began at the Centers for Disease Control and Prevention. Including Medicare enrollees, the uninsured rate in the first quarter of 2015 was just 9.2%.
The importance of the Advanced Premium Tax Credit
According to the Centers for Medicare and Medicaid Services, 9.95 million people remained enrolled in Obamacare (i.e., they were still paying customers) as of June 30, 2015. A big component that's enticed previously uninsured consumers to enroll and remained enrolled is the Advanced Premium Tax Credit, or APTC.
The APTC is nothing more than a subsidy offered to qualifying consumers to help lower the cost of monthly health insurance premiums. Consumers who make more than 100% of the federal poverty level but less than 400% qualify, while those earning less than 100% of FPL are covered by Medicaid. Without the APTC it would be very difficult for most subsidy-eligible consumers to afford their monthly premium payments.
The CMS, through the end of June, noted that the average APTC per month for all qualifying enrollees -- that's 8.33 million people -- was $270. In other words, the average Obamacare enrollee currently receiving a subsidy is getting a $3,240 break each year. Of course, this $270 figure is merely an average -- there's actually a very wide variance between average APTCs across all 50 states, with the highest state coming in at more than triple the state with the lowest average APTC (which is Minnesota, at $160).
Residents of these states receive the highest Obamacare subsidies
With this in mind, let's have a brief look at the states whose residents bring in the largest subsidies on a per-month basis, briefly analyze why residents of these states receive such large tax credits, and touch on why insurers are big fans of the APTC.
Based on data from the CMS, there are 12 states that have average monthly APTCs of $300 or higher (it should be noted that APTC data was not available in Rhode Island when CMS published its data). The highest were the following states:
- Alaska ($534 average APTC per month)
- Wyoming ($424)
- Connecticut ($359)
- Mississippi ($350)
- Maine ($341)
- Louisiana ($322)
- North Carolina ($315)
- Indiana ($315)
- Wisconsin ($312)
- West Virginia ($310)
Why APTCs vary so much between states
You might be wondering why there's such a big difference from state to state when it comes to the amount eligible consumers receive via subsidy. The answer likely relates to two key differences.
First, six of the aforementioned 10 states are among the 20 states that have chosen not to expand their Medicaid programs. Under Obamacare, billions in federal funds were made available to help lower income workers making up to 138% of the federal poverty level qualify for Medicaid in all 50 states (although each state had to approve the expansion individually). Altogether, 20 states, either for political reasons or out of the belief that it would cost them too much over the long run, chose not to expand their Medicaid programs. This means consumers with incomes as low as 100% of the federal poverty level in the 20 non-expanding states are eligible for subsidies. Thus it shouldn't be all that surprising that a higher subsidy amount is going to Wyoming, Mississippi, Maine, Louisiana, North Carolina, and Wisconsin.
The APTC is also a function of total premium costs, which differ from state to state. In general, states that are more sparsely populated, such as Alaska and Wyoming, offer greater medical challenges to sick patients. From longer ambulance rides to less specialized equipment, the cost for care in smaller cities can pump up premiums. This is the likely reason behind Alaska and Wyoming's notoriously high premiums and APTCs, and it's possible other states without major metropolitan cities, such as Maine, could be affected as well.
Your insurer loves the APTC
Yet regardless of the state, your health insurance provider absolutely loves the Advanced Premium Tax Credit.
First and foremost, subsidies provide an incentive for consumers to stay enrolled in their health plans. If the majority of a consumer's premium payment is being covered by the federal government, it encourages that consumer to make their portion of the payment and stay enrolled in case they need to seek medical care. As a whole, the APTC could help reduce the rate of non-paying dropouts, which would be a boon to the insurance industry as a whole.
Also, think of the APTC as something close to a guaranteed paycheck for insurers. Whereas Medicare and Medicaid are 100% covered by federal or state funds, the APTC only covers a percentage of a consumer's premium payment (typically in advance), albeit generally a majority of the payment. For insurers, the APTC is a guaranteed income stream as long as the consumer remains enrolled and makes their portion of the payment. It's a predictable income stream allowing insurers that've enrolled a high number of subsidy-eligible people unprecedented clarity in terms of predicting their revenue and cash flow.
Finally, to take full advantage of the subsidies, lower-income consumers (100% of the FPL to 250% of the FPL) are encouraged to buy silver-tier health plans. Consumers who fall in this income range receive cost-sharing reductions when they do actually receive medical care, as well as premium assistance via the APTC. In turn, the insurer gets the luxury of only covering 70% of eligible medical costs, with the consumer (and possibly federal government) stepping in for the other 30% up to their annual out-of-pocket limit. In short, it means the consumer could be on the line for substantial costs before the insurer steps in to cover 100% of all medical costs, so it makes people think twice about heading to the doctor for a sniffle. This can save insurers a lot over the course of the year.
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.
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