In roughly one week the marketplace exchanges for the Affordable Care Act, which you likely know better as Obamacare, are set to open to the public.
Change has been a primary theme over the first two years since Obamacare became the law of the land, and things will most definitely be different once again as we head into this upcoming enrollment period.
Obamacare has been synonymous with change in the early going
For starters, with it being a non-election year, both the beginning and end of the three-month enrollment period have been moved forward by 15 days. Instead of last year's Nov. 15, 2014-Feb. 15, 2015 enrollment period, consumers will have between Nov. 1, 2015 and Feb. 1, 2016 to enroll in a health plan on their state's Obamacare exchange. As time passes, eventually the enrollment period will shrink to just 2 1/2 months -- however this isn't slated to occur until the 2017 open enrollment period.
The penalties associated with not having health insurance are also expected to soar. What was once just the greater of $95 or 1% of an individual's modified adjusted gross income in 2014 will jump to the greater of $695 or 2.5% of MAGI in 2016. If you recall, going more than two consecutive months without being insured will put you in violation of the individual mandate -- the actionable component of the law that essentially states you need to purchase health insurance or pay a penalty -- and possibly subject you to the penalty.
We're also expected to see the most robust premium inflation we've witnessed in years in 2016. The Great Recession has helped keep premium inflation lower than the historical average for years, but 2016 is shaping up to be the first year in some time where insurers request substantial premium increases.
According to data from the Washington Examiner, which analyzed premiums for 37 states (as well as Washington D.C.), the number of policies requesting double-digit price hikes in 2016 nearly doubled to 231 from 121 in 2015. The magnitude of the price hikes is also dramatic, with 26 policies looking for a minimum 40% premium hike, and a dozen looking for 50% or more.
Tips to save money on Obamacare in 2016
If you aren't prepared for this upcoming enrollment period, it could wind up costing you a lot of money. With that being said, here are some tips to save money on Obamacare that could prove invaluable.
1. Shop around!
I can already hear the chants of "Thanks, Captain Obvious," but far too many consumers fail to take the time to shop around for the best deal on Obamacare's exchanges.
Despite the exchanges being transparent and conducive to apples-to-apples comparisons, far too many consumers simply assume that their cheap plan this year will be cheap again in 2016. However, as we witnessed in 2015, three-quarters of the cheapest plans in the bronze and silver tiers in 2014 were no longer the cheapest plans in 2015. If consumers failed to shop around, they could have left money on the table. In fact, the Department of Health and Human Services estimated in 2015 that consumers who failed to shop around for the cheapest plan in their metal tier could have left a cumulative $2 billion on the table.
Long story short, if you want the best price possible, take the time to understand your options on the Obamacare exchanges.
2. See if you qualify for subsidies
Another important step is to discover whether or not you qualify for subsidies when purchasing health insurance.
Consumers may not be aware that there are actually two types of subsidies offered by Obamacare. The first is the Advanced Premium Tax Credit, or APTC, which is what helps reduce the cost of your premium payment. In 2015, the average APTC was $270, pushing the average monthly premium payment below $100 per month for eligible consumers. In order to qualify for the APTC your income should fall between 100% of the federal poverty level (FPL) and 400% of FPL.
The second subsidy is cost-sharing reductions, or CSRs, which are what help reduce your copays, coinsurance, and deductibles when you do receive care. CSRs are limited to individuals making between 100% and 250% of FPL.
It never hurts to see if you qualify for these subsidies. Just understand that if you make more than you had anticipated at the beginning of the year, and you fail to update your higher income with your state's health office, you could see your tax refund reduced or actually owe money come tax time.
3. Buy a silver plan if your FPL is below 250%
As an addendum to the subsidy discussion above, if you do qualify for CSRs, you need to ensure you're making a smart move that some 2 million people didn't make in 2015. This move is buying a silver-tiered plan.
Why a silver plan? The answer is because CSRs are only offered through silver-tier plans. This means that even though a bronze plan is cheaper on the basis of premium, you won't receive any financial assistance in terms of copays, coinsurance, or deductibles if you actually have to see a doctor, even if you have an income below 250% of FPL. In short, making this mistake makes going to the doctor practically unaffordable even with a low-cost premium.
The lesson here is to ignore the desire to save a few dollars a month and target a silver plan if you're receiving subsidies and have an income below $29,425.
4. Buy a platinum or gold plan if you use medical care often
Sometimes the best thing you can do is to pay a little more upfront to save a lot more later.
In general, insurers love when consumers buy bronze and silver plans. Although the premiums for these tiers are lower, it also means high deductible levels for consumers and the insurer not having to pay a lot of out of pocket for quite some time. On the flipside, gold and platinum plans do generate high premium payments, but members purchasing these plans often buy them because they have chronic or terminal conditions that require a lot of costly medical care. Thus, it means insurers are going to be spending a lot of money on these members.
The point? If you have a condition that you know will require a lot of medical care and visits in the upcoming year, it could be in your best interest to purchase a gold of platinum plan, pay more upfront in premiums, and only have to pay a marginal amount in out-of-pocket annual expenses. Purchasing a bronze plan, on the other hand, could put you on the hook for substantially more in out-of-pocket expenses.
5. Understand your exemptions
Lastly, keep in mind if you choose not to purchase health insurance, or live in a state where Medicaid coverage wasn't expanded and subsidies aren't extended to you, that you may qualify for an exemption of the individual mandate penalty.
To be clear, this isn't advocating that you purposefully avoid healthcare coverage in 2016, because that probably wouldn't be a smart move. However, it does mean that you might be able to avoid the penalty in 2016 that's the greater of $695 or 2.5% of MAGI if you qualify for any of the more than one-dozen exemptions.
Income is a big exemption. If the cost to purchase the cheapest health plan available to you is more than 8.05% of your annual income, then you're exempted from the individual mandate. Hardship exemptions are also important. Filing for bankruptcy or being evicted within the past six months, dealing with medical bill hardships within the past 24 months, or being deemed ineligible for Medicaid because you're among the 20 states that chose not to expand their Medicaid program, are all valid reasons to be exempt from the penalty. Analyzing whether you qualify for an exemption could wind up saving you big bucks.
You certainly don't have to know Obamacare inside and out to save money in 2016, but applying these tips should keep you from leaving money on the table in the upcoming enrollment period.
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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