ObamaCare’s Secret Subsidies Make it Better Than You Know

Most people have heard that lower-income individuals and families get subsidies to pay for premiums. But, in the media and online, a lot of folks figure it’s the out-of-pocket costs (deductibles, co-pays etc.) that will still leave health care unaffordable for a lot of those families.

Rarely discussed in the media are the so-called “cost sharing subsidies” for people making up to 250% of the poverty line ($58,000 or below for a family of four).  These rules sharply limit the copays and total out-of-pocket expenses those families will ever have to pay for health care.

Currently, the health insurance exchange are structured around Bronze, Silver, Gold and Platinum plans, with Bronze plans having the highest potential out-of-pocket costs and Platinum plans having the least.   However, if families and individuals below 250% of poverty choose a Silver plan, their out-of-pocket expense are more strictly limited.

How much are they limited?

Take the example of a family of four making $33,000 per year.  That put them at 140% of the poverty line, too high generally to qualify for Medicaid even if expanded in their state, but they receive an $8,571 premium tax credit from the federal government, reducing their Silver Plan premium to no more than $1,129 per year.

On top of that, their out-of-pocket costs are limited such that they should be paying no more than 6% of their overall medical bills.  The exact way the limits on out-of-pocket expenses will be designed will vary from state-to-state and, in some cases, plan to plan, but to give you an idea of what this means, look at this breakdown from California’s health care exchange, which lays down a clear formula (see here for Covered California formulas for all plans in that state):

So that family will have no deductible and a maximum yearly out-of-pocket limit of $2,250.   Unless they get critically injured or ill, however, they’ll be unlikely to get near that amount, since doctors’ appointments will cost them $3 per visit ($5 for a specialist), X-rays will cost $5, generic drugs will cost $3 ($5 for brand name drugs) and mental health out-patient services will cost $3 per visit.  These are the limits for families and individuals making up to 150% of the poverty line.  Those making a bit more — 150% to 200% of the poverty line — will face higher copays – more like $15 for a doctor’s visit and $5 for generic drugs. 

For working families, these are plans that make insurance something they can actually afford to use.   That every family up to 200% of the poverty line should, between the Medicaid expansion and health insurance subsidies, have decent health insurance available is the core accomplishment of ObamaCare.

Now, for those making 200% to 250% of the poverty line, they will still have limited but significantly higher out-of-pocket limits ($5200 per year) and $40 doctor visits and $20 generic drug bills—more in line with an average workplace-based health insurance plan these days.  While far more of a burden on these families than the plans for those below 200% of the poverty line, this is still a significant reduction in out-of-pocket costs compared to what’s currently available in the individual insurance marketplace.

Most progressives recognize that ObamaCare is just a step on the road to decent health coverage for all families.  But the combination of premium tax credits and cost sharing subsidies limiting out-of-pocket expenses, especially for families up to 200% of the poverty line, will help to define exactly the limits on up front premium costs and out-of-pocket expenses that all families should expect from our health system.

As conservative critics snipe at ObamaCare for out-of-pocket expenses being too high for families making more and not qualifying for these subsidies, we should be pointing to these formulas and agreeing that we need amendments to extend cost sharing subsidies to more families.

But progressives need to recognize that a model for $3 per doctor visit copays is embedded in ObamaCare—and we need to loudly demand that it be expanded until health care is affordable and usable on a day-to-day basis by every individual and family.