M edicine and P ublic Issues
The U.S. Health Insurance Marketplace: Are Premiums Truly Affordable? liana Graetz, PhD; Cameron M . Kaplan, PhD; Erin K. Kaplan, PhD; James E. Bailey, M D , M PH ; and Teresa M . Waters, PhD The P atie nt P rote ction and A ffo rd a b le Care A c t requires th a t in d i
U n ite d States— m a n y individu als w ith incom es ju s t a b o ve th e su b
vid ua ls have he alth insurance o r pay a pe na lty. Individuals are
sidy th re sh o ld w ill lack a ffo rd a b le cove rag e and w ill be e x e m p t
e x e m p t fro m p a y in g this pe n a lty if th e a fte r-s u b s id y cost o f th e
fro m th e m an da te . F urthe rm o re, y o u n g individu als w ith lo w in
least-expensive plan available to th e m is g re a te r th a n 8 % o f th e ir
com es o fte n pay as m uch as o r m o re th a n o ld e r in dividu als fo r
incom e. For this study, p re m iu m d a ta fo r all health plans o ffe re d on
b ro nze plans. If substantial nu m be rs o f y o u n g e r, h e a lth ie r adults
th e state and fed eral health insurance m arketplaces w e re collected;
choose to rem ain uninsured because o f cost, health insurance p re
th e a fte r-su b s id y cost o f p re m ium s f o r th e least-expensive bronze
m iu m s across all ages m a y increase o v e r tim e .
plan fo r eve ry c o u n ty in th e U n ited States w as calculated; and variatio ns in p re m iu m a ffo rd a b ility b y age, incom e, and ge o g ra p h ic
Ann Intern Med. 2 0 1 4 ;1 6 1 :5 9 9 -6 0 4 . d o i:1 0 .7 3 2 6 /M 1 4 -0 7 5 7
area w e re assessed. Results in dicated th a t— a lth o u g h m arketplace
For a u th o r affiliations, see end o f te xt.
subsidies ensure a ffo rd a b le health insurance fo r m o s t persons in th e
This article w as published online firs t a t w w w .a n n a ls .o rg on 9 Septem ber 2014.
tarting in 2014, the Patient Protection and Affordable Care Act (ACA) requires that individuals have health insurance or pay a penalty; however, those without access to affordable coverage are exempt from this mandate. The decision to purchase insurance depends on many complex factors, including the individual’s perceived need for health care services, the affordability of premiums and out-ofpocket expenses, and the cost of potential penalties for lack of coverage. For those with a low perceived need for health care services, the cost of premiums relative to the penalty may play a pivotal role in coverage decisions. To examine how premium affordability varies according to age, in come, and geographic area, we analyzed premium data for all health plans offered on state and federal health insur ance marketplaces, commonly referred to as health insur ance exchanges, for every county in the United States.
seen costly medical events and access to many preventive services free of charge; however, out-of-pocket costs vary substantially across plans. Bronze plans have lower premi ums than other levels but higher out-of-pocket costs.
S
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arketplace
O
v e r v ie w
The ACA established a modified community rating system, allowing insurance premiums to vary within strict limits on the basis of 4 factors: geographic region, family size, age, and tobacco use. For age-based premium varia tion, most plans follow the federally established standard age curve, where premiums for each age are determined by a schedule of fixed ratios such that the premium for a 64-year-old is 3 times greater than the base premium (that is, the premium for a 21-year-old) (1). Four states and the District of Columbia established their own age curves, which also increase with age but at different ratios than those specified by the standard age curve. Two states im posed a pure community rating, which prohibits variation in insurance premiums based on age. Marketplace health plans are categorized into 4 “metal levels” on the basis of the percentage of health care costs that the plan will pay for the average enrollee: 60% (bronze), 70% (silver), 80% (gold), and 90% (platinum). All plans available provide financial protection for unfore
w w w .a n n a ls .o rg
In d iv id u a l M a n d a te
The ACA requires individuals to have health insurance or pay a yearly penalty. However, those without access to affordable coverage, for whom the cost of the leastexpensive bronze plan available is greater than 8% of their income, are exempt from this penalty. The penalty for 2014 is $95 per person or 1% of total household income, whichever is higher. It will increase to $695 per person or 2.5% of income, whichever is higher, by 2016. Subsidy O v e rv ie w
Households with incomes between 100% and 400% of the federal poverty level (FPL)— $11 670 and $46 680, respectively, for an individual in 2014— qualify for subsi dies on the basis of their income and the premium cost of the benchmark plan, defined as the silver plan with the second-lowest premium (2). Subsidies are calculated so that the benchmark plan can be purchased with a fixed percentage of income (Table 1). For example, in 2014, individuals earning 200% of the FPL ($23 340) receive a subsidy so that they have to pay only 6.3% of their income (or $123 per month) for the benchmark plan. If the cost of the benchmark plan available in an individual’s county were $300 per month, the subsidy would be equal to the difference between the market cost of the plan and the fixed income threshold, or $177 per month. This subsidy can be used to purchase any plan on the exchange, includ ing the less-expensive bronze plans. If the cost of the benchmark plan in a county is at or below the individual’s income threshold ($123 in the previous example), then the individual would not receive a subsidy. Although tobacco users can be charged up to 50% more for premiums than nonusers, subsidy amounts are based on premiums for nonusers. Most individuals eligible © 2014 American College of Physicians 5 9 9
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e d ic in e a n d
Table 1.
P u b l i c Is s u e s
The U.S. Health Insurance Marketplace
After-Subsidy Premium Limits for Benchmark
Plans*
Incom e, %
Annual
After-Subsidy
A fter-Subsidy
Annual
of the FPL
Incom e,
Premium
Prem ium Lim it
Penalty,
Jt
Lim it, % of
(M o n th ly
$+*
income
A fter-Subsidy Prem ium Lim it), $ t
200
23 3 4 0
6.3
1 4 7 0 (1 23 )
2 33
300
35 0 1 0
9 .5
3 3 2 6 (2 77 )
350
400
46 680
9 .5
4 4 3 5 (3 70 )
467
401
46 797
N o t e lig ib le fo r
N o t e lig ib le fo r
468
subsidies
subsidies
FPL = federal poverty level. * Second-lowest-cost silver plan. The subsidy amount is equal to the difference between the premium price of the benchmark plan available to an individual (which varies according to the offerings in each county) and the after-subsidy premium limit for his or her income level (which is fixed according to the FPL as shown here). t Based on income level for an individual in 2014. $ 1% of income.
for subsidies will receive them in the form of an advanced tax credit applied directly to cover premium costs at the time of purchase.
trict of Columbia for these individuals. On the basis of premiums for 27- and 50-year-olds across 3143 counties, we calculated premiums for those aged 21 to 64 years by using state-specific or default age curves provided by the Centers for Medicare & Medicaid Services (1). S ub sidy C a lc u la tio n
We calculated federal premium subsidies, in several steps, for each age, income level, and geographic area. First, we identified premiums by age for the benchmark plan in each county. Second, we compared these premiums with after-subsidy premium limits at 4 income levels: 200%, 300%, 400%, and 401% of the FPL. The after-subsidy premium limit is the maximum amount that each family or individual who qualifies for a premium subsidy would have to pay to purchase the benchmark plan as a percent age of income after subsidies. The after-subsidy premium cap ranges from 2% of income for households with in comes of 133% of the FPL to 9.5% of income for those with incomes between 300% and 400% of the FPL. Fi nally, we calculated the subsidy for each age as the differ ence between the premium and the after-subsidy premium limit or 0 if the benchmark plan premium did not exceed the premium prespecified limit.
A ffo rd a b ility
Under the ACA, individuals are exempt from the mandate to purchase health insurance if affordable cover age is unavailable in their county. To be considered afford able, the after-subsidy cost of coverage cannot exceed 8% of the individual’s total income. M
ethods
Using premiums for nonusers of tobacco that were published by health plans in the federal and state market places, we calculated the percentage of income required to purchase the least-expensive bronze plan after the subsidy for nonelderly adults (aged 21 to 64 years) at 4 income levels (200%, 300%, 400%, and 401% of the FPL). We presented the percentage of income required to purchase the lowest-cost bronze plan because this factor is used to determine coverage affordability under the law. We cate gorized each county as having affordable coverage for a specific age and income level if the after-subsidy premium for the lowest-cost bronze plan available was 8% of total income or less. Because geographic rating areas generally comprised at least 1 county in state and federal market places, we present data at the county level. D a ta
We collected premiums for all health plans available in state and federal marketplaces for all rating areas for non users of tobacco. The federal marketplace Web site released premium data for all U.S. counties in states participating in the federal health insurance exchange (36 states) for indi viduals aged 27 and 50 years who do not use tobacco (3). In addition, we collected premiums from each state mar ketplace Web site for the remaining 14 states and the Dis 600 21 October 2014 Annals of Internal Medicine Volume 161 • Number 8
A fte r-S u b s id y P re m iu m s fo r th e L o w e s t-C o s t B ro nze Plan
To determine what individuals would pay after subsi dies for the lowest-cost bronze plan, we subtracted the cal culated subsidy for each age, income, and county group from the premium for the lowest-cost bronze plan for each county and age. A detailed example of how subsidies and after-subsidy premiums were calculated is shown in the Appendix (available at www.annals.org). P e n a lty C a lc u la tio n
To calculate the expected penalty for an individual in 2014, we multiplied the dollar amount of each of the 4 income levels (200%, 300%, 400%, and 401% of the FPL) by 1%. S ta tis tic a l A n a ly s is
To show the variation in affordability, we made a scatterplot of the percentage of income required to purchase the lowest-cost bronze plan by age and county for individ uals earning 200%, 300%, 400%, and 401% of the FPL. We also summarized this variation in affordability of the lowest-cost bronze plans at 3 ages (27, 50, and 64 years), providing the median and range of after-subsidy premiums for the lowest-cost bronze plans for all counties and sub sidy amounts and the percentage of counties with afford able bronze plans (Appendix). All data analyses were done using Stata software, ver sion 13.1 (StataCorp). To show the geographic variation in premium cost and affordability, we created a map of the premiums of the lowest-cost bronze plans as a percentage of income for a 50-year-old earning 401% of the FPL for every county by using QGIS, version 2.0.1 (Creative Commons). w w w . a n n a ls .o r g
The U.S. Health Insurance Marketplace
R esults Premium Age Curve Distortion
Subsidies under the ACA distort the premium age curve so that, in some cases, lower-income young adults pay higher after-subsidy premiums for the least-expensive bronze plan (Figure 1). For example, at an income of 200% of the FPL, after-subsidy premiums decrease with age so that, in the median county, 64-year-olds will be able to enroll in the lowest-cost bronze plan for free, whereas 27-year-olds will pay 3.5% of their income. At an income of 200% of the FPL, 27-year-olds pay more than 64-yearolds in 97% of counties and the same amount in the re maining 3%. For individuals earning 300% and 400% of the FPL, after-subsidy premiums increase with age and peak at ages 45 and 51 years, respectively, before decreas ing. Above the subsidy threshold, at an income of 401% of the FPL, premiums generally increase with age. Affordable Coverage
Table 2 summarizes data about variations in afford ability of the lowest-cost bronze plans, by income for 3
Figure 1.
M
e d ic in e a n d
P u b l i c Is s u e s
ages (27, 50, and 64 years). At an income of 200% of the FPL, individuals of all ages have access to affordable bronze health plans. For those earning 300% and 400% of the FPL, most counties still offer affordable bronze plans. However, some age groups in specific counties lack access to affordable plans. For example, a 50-year-old earning 400% of the FPL will have a monthly after-subsidy pre mium between $131 and $364, depending on where he or she lives, and will lack access to an affordable bronze plan in 5% of counties. At an income of 401% of the FPL, only 64% of counties offer an affordable bronze plan for 50year-olds and just 3% offer one for 64-year-olds. Subsidy Cliff
Health plan affordability decreases substantially at in comes just above 400% of the FPL. For example, a couple aged 55 and 53 years with no dependent children that earns $62 040 annually (400% of the FPL) and live in Albany, Georgia, will pay $1536 (2.4% of their income) in annual after-subsidy premiums for the lowest-cost bronze plan. If their income increases by $ 1, the annual premium
P e rc e n ta g e o f in c o m e re q u ire d to p u rc h a s e th e lo w e s t-c o s t b ro n z e p la n a t 4 in c o m e le v e ls f o r a ll c o u n tie s in th e U n ite d
S ta te s , b y a g e .
•
C o u n ty -le v e l a fte r-s u b s id y p re m iu m
. . . . .
—
M e d ia n a fte r-s u b s id y p re m iu m across a ll c o u n tie s
— — • A ffo r d a b ility (8 % o f in c o m e )
2 0 1 4 p e n a lty (1 % o f in c o m e )
The county-level after-subsidy premium represents the percentage of income required to purchase the lowest-cost bronze plan; darker shades of blue indicate more counties at each point. Affordability represents the threshold for affordable coverage, above which individuals are not required to purchase health insurance. The 2014 penalty represents the threshold below which it is cheaper to buy insurance than to pay the penalty. Premium levels shown are for nonusers of tobacco only, and affordability values are based on income levels for an individual in 2014. FPL = federal poverty level. w w w .an n als.org
21 October 2014 Annals of Internal Medicine Volume 161 • Number 8 601
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P u b l i c Is s u e s
The U.S. Health Insurance Marketplace
Table 2. A ffo rd a b ility o f L ow es t-C o st Bronze Plan, by A g e and Incom e After-S ubsidy Premium fo r Lowest-C ost Bronze Plan
Income, % of
the FPL M edian M o n th ly Cost (Range), S
M edian M o n th ly Subsidy (Range), $
Counties W ith A ffordable Insurance, % *
4.4 (2.5-8.8)
103 (6-292) 0(0-140) 0(0-49) Not eligible
100.0 99.1 99.9 99.2
1.7 (0.0-6.3) 6.4(1.4-9.5) 6.8 (3.4-9.5) 7.4 (4.2-16.8)
257 104 14 Not
(95-573) (0-421) (0-330) eligible
100.0 98.4 95.2 63.9
512 359 269 Not
(173-1044) (21-892) (0-801) eligible
100.0 99.5 99.2 3.0
M edian Percentage o f Income (Range)
27-year-old
200 300 400 401
67 170 170 170
(0-120) (95-254) (95-308) (95-336)
3.5 (0.0-6.3) 5.9 (3.3-8 7) 4.4 (2 .5-8 .0)
50-year-old
200 300 400 401
32 (0-121) 184 (40-273) 261 (131-364) 286(161-644)
64-year-old
200 300 400 401
0(0-118) 125 (0-271) 216(0-362) 476 (233-946)
0.0 4.3 5.6 12.4
(0.0-6.2) (0.0-9.4) (0.0-9.4) (6.1-24.6)
FPL = federal poverty level. * W e categorized a county as having affordable coverage if the after-subsidy premium for the lowest-cost bronze plan for an individual o f each age and income level was ^ 8 % o f income. Premium levels shown are for nonusers o f tobacco only, and affordability values are based on income levels for an individual in 2014.
for the same plan would be $ 14 928 (24% of their in come). In this situation, they may choose not to purchase health insurance because they would be exempt from the mandate and thus would incur no financial penalty. Alter natively, they may opt to work less to qualify for a subsidy. Geographic Variation
Figure 2 shows the geographic variation in affordabil ity of the lowest-cost bronze plans by county for 50-yearold nonusers of tobacco who earn 401% of the FPL, an income that is just above the cutoff for subsidies. The varying shades of red represent counties where premiums cost more than 8%. D
is c u s s io n
Our analysis of marketplace heath plan affordability found that, even with subsidies, some individuals with in comes between 300% and 400% of the FPL lack afford able coverage and will thus be exempt from the mandate. Nearly two thirds of all counties lack affordable plans for individuals aged 50 to 64 years with incomes just above the subsidy threshold. Among those with lower incomes, the subsidies distort premiums so that younger adults often pay as much or more in after-subsidy premiums for the lowest-cost bronze plans than older individuals. Our find ings also highlight notable geographic variations in the af fordability of premiums across the United States. Older patients typically incur higher health care costs than younger patients. Accordingly, the ACA allows insur ance companies to charge older adults up to 3 times more than younger adults. However, our analysis shows that, at lower income levels, when subsidies are applied to the lowest-cost bronze plans, they distort the normal premium 602 21 October 2014 Annals of Internal Medicine Volume 161 • Number 8
age curve so that the oldest adults may pay less than the youngest in some cases. This situation occurs because the difference between the second-lowest-cost silver plan, which determines the subsidy, and the lowest-cost bronze plan increases with age. At the lowest income levels, few are exempt from the mandate due to affordability. However, younger adults may be more likely than older adults to remain uninsured because of higher premium costs relative to the penalty. For example, at an income of 200% of the FPL, 64-yearolds pay less for the lowest-cost bronze plan than they would for the penalty ($0 annual median after-subsidy pre mium vs. $230 annual penalty). However, a 27-year-old faces much higher premiums ($804 annual median aftersubsidy premium vs. $230 annual penalty). In fact, the lowest-cost bronze plan costs more than the penalty for younger individuals (aged 21 to 53 years) who earn 200% of the FPL in most counties, but the reverse is true for older individuals (aged 54 to 64 years). O f course, even if it is more expensive to purchase a health plan than to pay the penalty, many will still choose to purchase the insurance because of the benefits that it provides, including access to health care services, full cov erage for many essential preventive care services, and finan cial protection against catastrophic health expenses. Con versely, paying the penalty provides no benefit. O f note, in addition to premiums, the affordability of a plan depends on the potential further out-of-pocket costs of health care services, which may be considerable under bronze plans. The steep drop in affordability between incomes of 400% and 401% of the FPL, particularly for older adults, is the result of a sharp increase in premiums as federal w w w . a n n a ls .o r g
T he U.S. Health Insurance Marketplace
subsidies disappear. Adults with incomes near this thresh old who lack affordable coverage may choose not to pur chase health insurance or opt to work fewer hours to qual ify for a subsidy. Consequently, the Congressional Budget Office predicted that the subsidy cliff would lead to a vol untary decrease in hours worked equivalent to 2 million full-time jobs in 2017 (4). Residents in counties where premiums are more expensive will face a steeper subsidy cliff, implying a possibly greater reduction in the number of hours that those earning incomes near the subsidy threshold will choose to work in those counties. Our analyses have limitations. First, we only measured affordability based on the after-subsidy premium of the lowest-cost bronze plan; however, we expect that many enrollees will choose more generous plans. Our calculation of affordability is based on the after-subsidy premium costs and does not include any measure of out-of-pocket costs, which is another critically important factor for individuals to determine the affordability of various plans. Second, we also focused on after-subsidy premiums for nonusers of tobacco because premiums for tobacco users were not read
M
e d ic in e
and
P u b l ic Issu es
ily available for all states. A recent analysis showed that tobacco users are more likely to lack affordable coverage in the marketplace than nonusers (4). Finally, we examined premium costs by county level without accounting for dif ferences in population sizes. In conclusion, the newly established health insurance marketplace and subsidies, created as part of the ACA, increased the availability and affordability of health insur ance in the individual market. Our analysis highlights vari ation in premium costs by age, income, and geographic area. Premium affordability is an important factor in de ciding to purchase insurance (5, 6). Our findings highlight several groups that may choose to remain uninsured be cause of premium costs. Even with subsidies, some indi viduals who earn between 300% and 400% of the FPL lack affordable coverage and thus will be exempt from the mandate. At incomes just above the subsidy threshold, many adults will be exempt because they lack affordable coverage. Also, younger adults who are eligible for subsi dies may be more likely than older adults to remain unin sured because of premium cost.
Figure 2. Geographic variation in affordability of the lowest-cost bronze plans for a 50-year-old earning 4 0 1 % of the FPL.
The 3 shades of red indicate regions where the lowest-cost bronze plan available to a 50-year-old earning 401% of the FPL would be > 8 % of his or her income. If the lowest-priced bronze plan cost > 8 % o f the individual s income, he or she would be exempt from the mandate. Premium levels shown are for nonusers o f tobacco only, and the percentage of income values are based on income levels for an individual in 2014 making $46 797. Because this gure shows results for an individual with an income just above the subsidy level (401% of the FPL), it includes the maximum number of regions where the lowest-cost bronze plan would be > 8 % of income for a 50-year old. FPL = federal poverty level. w w w .a n n a ls .o rg
21 October 2014 Annals of Internal Medicine Volume 161 • Number 8 603
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and
P u b l ic Is su e s
The U.S. Health Insurance Marketplace
When penalties increase in future years, more individ uals of all ages will be compelled to buy insurance. How ever, enrollment of healthier, younger adults in the first year of the exchange may be critical to curb future pre mium inflation. From the University of Tennessee Health Science Center and Rhodes College, Memphis, Tennessee. The authors thank Dr. Robert L. Davis for carefully reviewing the manuscript, Chelsea Temple for helping to collect the data used in these analyses, and Dr. Courtney Collins for her creative assis tance in animating our findings. A c k n o w le d g m e n t :
D is c lo s u re s : Authors have disclosed no conflicts of interest. Forms can be viewed at www.acponline.org/authors/icmje/ConflictOfInterestForms
.do?msNum=M 14-0757. R e q u e s ts f o r S in g le R e p rin ts : liana Graetz, PhD, Department of Pre ventive Medicine, University of Tennessee Health Science Center, 66 North Pauline Street, Suite 633, Memphis, TN 38163; e-mail,
igraetz@ uthsc.edu.
ACP
Current author addresses and author contributions are available at www.annals.org.
R e fe re n c e s 1. Centers for Medicare & Medicaid Services. State specific age curve variations. 2013. Accessed at www.cms.gov/CCIIO/Programs-and-Initiatives/Health -Insurance-Market-Reforms/Downloads/state-specific-age-curve-variations-08-09 -2013.pdf on 29 May 2014. 2. Crowley RA, Tape TG . Health policy basics: health insurance marketplaces. Ann Intern Med. 2013;159:784-6. [PMID: 24061932] doi: 10.7326/0003-4819 -159-10-201311190-00724 3. Centers for Medicare & Medicaid Services. HealthCare.gov: health plan in formation for individuals and families. 2013. Accessed at www.healthcare.gov /health-plan-information/ on 29 May 2014. 4. Kaplan CM, Graetz I, Waters TM . Most exchange plans charge lower tobacco surcharges than allowed, but many tobacco users lack affordable coverage. Health Aff (Millwood). 2014;33:1466-73. [PMID: 25092850] doi:10.1377/hlthaff .2013.1338 5. Gresenz CR, Laugesen MJ, Yesus A, Escarce JJ. Relative affordability of health insurance premiums under CH IP expansion programs and the ACA. J Health Polit Policy Law. 2011;36:859-77. [PMID: 21785010] doi:10.1215 /03616878-1407658 6. Saloner B, Daniels N. The ethics of the affordability of health insurance. J Health Polit Policy Law. 2011;36:815-27. [PMID: 22065686] doi:10.1215 /03616878-1407631
Journal C lub
ACP Journal Club summarizes the best new evidence fo r internal med icine from over 130 clinical journals. Once a bimonthly stand-alone journal, ACP Journal Club now appears in the pages o f Annals on a monthly basis. Research staff and clinical editors rigorously assess the scientific merit of the medical literature as it is published, and a w orld wide panel o f over 5000 physicians assesses the clinical relevance and newsworthiness of rigorous studies. Look fo r ACP Journal Club in Annals, or visit www.annals.org/journalclub .aspx.
604 21 October 2014 Annals of Internal Medicine Volume 161 • Number 8
www.annals.org
Copyright © American College of Physicians 2014.
The U.S. Health Insurance Marketplace: Are Premiums Truly Affordable? liana Graetz, PhD; Cameron M . Kaplan, PhD; Erin K. Kaplan, PhD; James E. Bailey, M D , M PH ; and Teresa M . Waters, PhD The P atie nt P rote ction and A ffo rd a b le Care A c t requires th a t in d i
U n ite d States— m a n y individu als w ith incom es ju s t a b o ve th e su b
vid ua ls have he alth insurance o r pay a pe na lty. Individuals are
sidy th re sh o ld w ill lack a ffo rd a b le cove rag e and w ill be e x e m p t
e x e m p t fro m p a y in g this pe n a lty if th e a fte r-s u b s id y cost o f th e
fro m th e m an da te . F urthe rm o re, y o u n g individu als w ith lo w in
least-expensive plan available to th e m is g re a te r th a n 8 % o f th e ir
com es o fte n pay as m uch as o r m o re th a n o ld e r in dividu als fo r
incom e. For this study, p re m iu m d a ta fo r all health plans o ffe re d on
b ro nze plans. If substantial nu m be rs o f y o u n g e r, h e a lth ie r adults
th e state and fed eral health insurance m arketplaces w e re collected;
choose to rem ain uninsured because o f cost, health insurance p re
th e a fte r-su b s id y cost o f p re m ium s f o r th e least-expensive bronze
m iu m s across all ages m a y increase o v e r tim e .
plan fo r eve ry c o u n ty in th e U n ited States w as calculated; and variatio ns in p re m iu m a ffo rd a b ility b y age, incom e, and ge o g ra p h ic
Ann Intern Med. 2 0 1 4 ;1 6 1 :5 9 9 -6 0 4 . d o i:1 0 .7 3 2 6 /M 1 4 -0 7 5 7
area w e re assessed. Results in dicated th a t— a lth o u g h m arketplace
For a u th o r affiliations, see end o f te xt.
subsidies ensure a ffo rd a b le health insurance fo r m o s t persons in th e
This article w as published online firs t a t w w w .a n n a ls .o rg on 9 Septem ber 2014.
tarting in 2014, the Patient Protection and Affordable Care Act (ACA) requires that individuals have health insurance or pay a penalty; however, those without access to affordable coverage are exempt from this mandate. The decision to purchase insurance depends on many complex factors, including the individual’s perceived need for health care services, the affordability of premiums and out-ofpocket expenses, and the cost of potential penalties for lack of coverage. For those with a low perceived need for health care services, the cost of premiums relative to the penalty may play a pivotal role in coverage decisions. To examine how premium affordability varies according to age, in come, and geographic area, we analyzed premium data for all health plans offered on state and federal health insur ance marketplaces, commonly referred to as health insur ance exchanges, for every county in the United States.
seen costly medical events and access to many preventive services free of charge; however, out-of-pocket costs vary substantially across plans. Bronze plans have lower premi ums than other levels but higher out-of-pocket costs.
S
M
arketplace
O
v e r v ie w
The ACA established a modified community rating system, allowing insurance premiums to vary within strict limits on the basis of 4 factors: geographic region, family size, age, and tobacco use. For age-based premium varia tion, most plans follow the federally established standard age curve, where premiums for each age are determined by a schedule of fixed ratios such that the premium for a 64-year-old is 3 times greater than the base premium (that is, the premium for a 21-year-old) (1). Four states and the District of Columbia established their own age curves, which also increase with age but at different ratios than those specified by the standard age curve. Two states im posed a pure community rating, which prohibits variation in insurance premiums based on age. Marketplace health plans are categorized into 4 “metal levels” on the basis of the percentage of health care costs that the plan will pay for the average enrollee: 60% (bronze), 70% (silver), 80% (gold), and 90% (platinum). All plans available provide financial protection for unfore
w w w .a n n a ls .o rg
In d iv id u a l M a n d a te
The ACA requires individuals to have health insurance or pay a yearly penalty. However, those without access to affordable coverage, for whom the cost of the leastexpensive bronze plan available is greater than 8% of their income, are exempt from this penalty. The penalty for 2014 is $95 per person or 1% of total household income, whichever is higher. It will increase to $695 per person or 2.5% of income, whichever is higher, by 2016. Subsidy O v e rv ie w
Households with incomes between 100% and 400% of the federal poverty level (FPL)— $11 670 and $46 680, respectively, for an individual in 2014— qualify for subsi dies on the basis of their income and the premium cost of the benchmark plan, defined as the silver plan with the second-lowest premium (2). Subsidies are calculated so that the benchmark plan can be purchased with a fixed percentage of income (Table 1). For example, in 2014, individuals earning 200% of the FPL ($23 340) receive a subsidy so that they have to pay only 6.3% of their income (or $123 per month) for the benchmark plan. If the cost of the benchmark plan available in an individual’s county were $300 per month, the subsidy would be equal to the difference between the market cost of the plan and the fixed income threshold, or $177 per month. This subsidy can be used to purchase any plan on the exchange, includ ing the less-expensive bronze plans. If the cost of the benchmark plan in a county is at or below the individual’s income threshold ($123 in the previous example), then the individual would not receive a subsidy. Although tobacco users can be charged up to 50% more for premiums than nonusers, subsidy amounts are based on premiums for nonusers. Most individuals eligible © 2014 American College of Physicians 5 9 9
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Table 1.
P u b l i c Is s u e s
The U.S. Health Insurance Marketplace
After-Subsidy Premium Limits for Benchmark
Plans*
Incom e, %
Annual
After-Subsidy
A fter-Subsidy
Annual
of the FPL
Incom e,
Premium
Prem ium Lim it
Penalty,
Jt
Lim it, % of
(M o n th ly
$+*
income
A fter-Subsidy Prem ium Lim it), $ t
200
23 3 4 0
6.3
1 4 7 0 (1 23 )
2 33
300
35 0 1 0
9 .5
3 3 2 6 (2 77 )
350
400
46 680
9 .5
4 4 3 5 (3 70 )
467
401
46 797
N o t e lig ib le fo r
N o t e lig ib le fo r
468
subsidies
subsidies
FPL = federal poverty level. * Second-lowest-cost silver plan. The subsidy amount is equal to the difference between the premium price of the benchmark plan available to an individual (which varies according to the offerings in each county) and the after-subsidy premium limit for his or her income level (which is fixed according to the FPL as shown here). t Based on income level for an individual in 2014. $ 1% of income.
for subsidies will receive them in the form of an advanced tax credit applied directly to cover premium costs at the time of purchase.
trict of Columbia for these individuals. On the basis of premiums for 27- and 50-year-olds across 3143 counties, we calculated premiums for those aged 21 to 64 years by using state-specific or default age curves provided by the Centers for Medicare & Medicaid Services (1). S ub sidy C a lc u la tio n
We calculated federal premium subsidies, in several steps, for each age, income level, and geographic area. First, we identified premiums by age for the benchmark plan in each county. Second, we compared these premiums with after-subsidy premium limits at 4 income levels: 200%, 300%, 400%, and 401% of the FPL. The after-subsidy premium limit is the maximum amount that each family or individual who qualifies for a premium subsidy would have to pay to purchase the benchmark plan as a percent age of income after subsidies. The after-subsidy premium cap ranges from 2% of income for households with in comes of 133% of the FPL to 9.5% of income for those with incomes between 300% and 400% of the FPL. Fi nally, we calculated the subsidy for each age as the differ ence between the premium and the after-subsidy premium limit or 0 if the benchmark plan premium did not exceed the premium prespecified limit.
A ffo rd a b ility
Under the ACA, individuals are exempt from the mandate to purchase health insurance if affordable cover age is unavailable in their county. To be considered afford able, the after-subsidy cost of coverage cannot exceed 8% of the individual’s total income. M
ethods
Using premiums for nonusers of tobacco that were published by health plans in the federal and state market places, we calculated the percentage of income required to purchase the least-expensive bronze plan after the subsidy for nonelderly adults (aged 21 to 64 years) at 4 income levels (200%, 300%, 400%, and 401% of the FPL). We presented the percentage of income required to purchase the lowest-cost bronze plan because this factor is used to determine coverage affordability under the law. We cate gorized each county as having affordable coverage for a specific age and income level if the after-subsidy premium for the lowest-cost bronze plan available was 8% of total income or less. Because geographic rating areas generally comprised at least 1 county in state and federal market places, we present data at the county level. D a ta
We collected premiums for all health plans available in state and federal marketplaces for all rating areas for non users of tobacco. The federal marketplace Web site released premium data for all U.S. counties in states participating in the federal health insurance exchange (36 states) for indi viduals aged 27 and 50 years who do not use tobacco (3). In addition, we collected premiums from each state mar ketplace Web site for the remaining 14 states and the Dis 600 21 October 2014 Annals of Internal Medicine Volume 161 • Number 8
A fte r-S u b s id y P re m iu m s fo r th e L o w e s t-C o s t B ro nze Plan
To determine what individuals would pay after subsi dies for the lowest-cost bronze plan, we subtracted the cal culated subsidy for each age, income, and county group from the premium for the lowest-cost bronze plan for each county and age. A detailed example of how subsidies and after-subsidy premiums were calculated is shown in the Appendix (available at www.annals.org). P e n a lty C a lc u la tio n
To calculate the expected penalty for an individual in 2014, we multiplied the dollar amount of each of the 4 income levels (200%, 300%, 400%, and 401% of the FPL) by 1%. S ta tis tic a l A n a ly s is
To show the variation in affordability, we made a scatterplot of the percentage of income required to purchase the lowest-cost bronze plan by age and county for individ uals earning 200%, 300%, 400%, and 401% of the FPL. We also summarized this variation in affordability of the lowest-cost bronze plans at 3 ages (27, 50, and 64 years), providing the median and range of after-subsidy premiums for the lowest-cost bronze plans for all counties and sub sidy amounts and the percentage of counties with afford able bronze plans (Appendix). All data analyses were done using Stata software, ver sion 13.1 (StataCorp). To show the geographic variation in premium cost and affordability, we created a map of the premiums of the lowest-cost bronze plans as a percentage of income for a 50-year-old earning 401% of the FPL for every county by using QGIS, version 2.0.1 (Creative Commons). w w w . a n n a ls .o r g
The U.S. Health Insurance Marketplace
R esults Premium Age Curve Distortion
Subsidies under the ACA distort the premium age curve so that, in some cases, lower-income young adults pay higher after-subsidy premiums for the least-expensive bronze plan (Figure 1). For example, at an income of 200% of the FPL, after-subsidy premiums decrease with age so that, in the median county, 64-year-olds will be able to enroll in the lowest-cost bronze plan for free, whereas 27-year-olds will pay 3.5% of their income. At an income of 200% of the FPL, 27-year-olds pay more than 64-yearolds in 97% of counties and the same amount in the re maining 3%. For individuals earning 300% and 400% of the FPL, after-subsidy premiums increase with age and peak at ages 45 and 51 years, respectively, before decreas ing. Above the subsidy threshold, at an income of 401% of the FPL, premiums generally increase with age. Affordable Coverage
Table 2 summarizes data about variations in afford ability of the lowest-cost bronze plans, by income for 3
Figure 1.
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P u b l i c Is s u e s
ages (27, 50, and 64 years). At an income of 200% of the FPL, individuals of all ages have access to affordable bronze health plans. For those earning 300% and 400% of the FPL, most counties still offer affordable bronze plans. However, some age groups in specific counties lack access to affordable plans. For example, a 50-year-old earning 400% of the FPL will have a monthly after-subsidy pre mium between $131 and $364, depending on where he or she lives, and will lack access to an affordable bronze plan in 5% of counties. At an income of 401% of the FPL, only 64% of counties offer an affordable bronze plan for 50year-olds and just 3% offer one for 64-year-olds. Subsidy Cliff
Health plan affordability decreases substantially at in comes just above 400% of the FPL. For example, a couple aged 55 and 53 years with no dependent children that earns $62 040 annually (400% of the FPL) and live in Albany, Georgia, will pay $1536 (2.4% of their income) in annual after-subsidy premiums for the lowest-cost bronze plan. If their income increases by $ 1, the annual premium
P e rc e n ta g e o f in c o m e re q u ire d to p u rc h a s e th e lo w e s t-c o s t b ro n z e p la n a t 4 in c o m e le v e ls f o r a ll c o u n tie s in th e U n ite d
S ta te s , b y a g e .
•
C o u n ty -le v e l a fte r-s u b s id y p re m iu m
. . . . .
—
M e d ia n a fte r-s u b s id y p re m iu m across a ll c o u n tie s
— — • A ffo r d a b ility (8 % o f in c o m e )
2 0 1 4 p e n a lty (1 % o f in c o m e )
The county-level after-subsidy premium represents the percentage of income required to purchase the lowest-cost bronze plan; darker shades of blue indicate more counties at each point. Affordability represents the threshold for affordable coverage, above which individuals are not required to purchase health insurance. The 2014 penalty represents the threshold below which it is cheaper to buy insurance than to pay the penalty. Premium levels shown are for nonusers of tobacco only, and affordability values are based on income levels for an individual in 2014. FPL = federal poverty level. w w w .an n als.org
21 October 2014 Annals of Internal Medicine Volume 161 • Number 8 601
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P u b l i c Is s u e s
The U.S. Health Insurance Marketplace
Table 2. A ffo rd a b ility o f L ow es t-C o st Bronze Plan, by A g e and Incom e After-S ubsidy Premium fo r Lowest-C ost Bronze Plan
Income, % of
the FPL M edian M o n th ly Cost (Range), S
M edian M o n th ly Subsidy (Range), $
Counties W ith A ffordable Insurance, % *
4.4 (2.5-8.8)
103 (6-292) 0(0-140) 0(0-49) Not eligible
100.0 99.1 99.9 99.2
1.7 (0.0-6.3) 6.4(1.4-9.5) 6.8 (3.4-9.5) 7.4 (4.2-16.8)
257 104 14 Not
(95-573) (0-421) (0-330) eligible
100.0 98.4 95.2 63.9
512 359 269 Not
(173-1044) (21-892) (0-801) eligible
100.0 99.5 99.2 3.0
M edian Percentage o f Income (Range)
27-year-old
200 300 400 401
67 170 170 170
(0-120) (95-254) (95-308) (95-336)
3.5 (0.0-6.3) 5.9 (3.3-8 7) 4.4 (2 .5-8 .0)
50-year-old
200 300 400 401
32 (0-121) 184 (40-273) 261 (131-364) 286(161-644)
64-year-old
200 300 400 401
0(0-118) 125 (0-271) 216(0-362) 476 (233-946)
0.0 4.3 5.6 12.4
(0.0-6.2) (0.0-9.4) (0.0-9.4) (6.1-24.6)
FPL = federal poverty level. * W e categorized a county as having affordable coverage if the after-subsidy premium for the lowest-cost bronze plan for an individual o f each age and income level was ^ 8 % o f income. Premium levels shown are for nonusers o f tobacco only, and affordability values are based on income levels for an individual in 2014.
for the same plan would be $ 14 928 (24% of their in come). In this situation, they may choose not to purchase health insurance because they would be exempt from the mandate and thus would incur no financial penalty. Alter natively, they may opt to work less to qualify for a subsidy. Geographic Variation
Figure 2 shows the geographic variation in affordabil ity of the lowest-cost bronze plans by county for 50-yearold nonusers of tobacco who earn 401% of the FPL, an income that is just above the cutoff for subsidies. The varying shades of red represent counties where premiums cost more than 8%. D
is c u s s io n
Our analysis of marketplace heath plan affordability found that, even with subsidies, some individuals with in comes between 300% and 400% of the FPL lack afford able coverage and will thus be exempt from the mandate. Nearly two thirds of all counties lack affordable plans for individuals aged 50 to 64 years with incomes just above the subsidy threshold. Among those with lower incomes, the subsidies distort premiums so that younger adults often pay as much or more in after-subsidy premiums for the lowest-cost bronze plans than older individuals. Our find ings also highlight notable geographic variations in the af fordability of premiums across the United States. Older patients typically incur higher health care costs than younger patients. Accordingly, the ACA allows insur ance companies to charge older adults up to 3 times more than younger adults. However, our analysis shows that, at lower income levels, when subsidies are applied to the lowest-cost bronze plans, they distort the normal premium 602 21 October 2014 Annals of Internal Medicine Volume 161 • Number 8
age curve so that the oldest adults may pay less than the youngest in some cases. This situation occurs because the difference between the second-lowest-cost silver plan, which determines the subsidy, and the lowest-cost bronze plan increases with age. At the lowest income levels, few are exempt from the mandate due to affordability. However, younger adults may be more likely than older adults to remain uninsured because of higher premium costs relative to the penalty. For example, at an income of 200% of the FPL, 64-yearolds pay less for the lowest-cost bronze plan than they would for the penalty ($0 annual median after-subsidy pre mium vs. $230 annual penalty). However, a 27-year-old faces much higher premiums ($804 annual median aftersubsidy premium vs. $230 annual penalty). In fact, the lowest-cost bronze plan costs more than the penalty for younger individuals (aged 21 to 53 years) who earn 200% of the FPL in most counties, but the reverse is true for older individuals (aged 54 to 64 years). O f course, even if it is more expensive to purchase a health plan than to pay the penalty, many will still choose to purchase the insurance because of the benefits that it provides, including access to health care services, full cov erage for many essential preventive care services, and finan cial protection against catastrophic health expenses. Con versely, paying the penalty provides no benefit. O f note, in addition to premiums, the affordability of a plan depends on the potential further out-of-pocket costs of health care services, which may be considerable under bronze plans. The steep drop in affordability between incomes of 400% and 401% of the FPL, particularly for older adults, is the result of a sharp increase in premiums as federal w w w . a n n a ls .o r g
T he U.S. Health Insurance Marketplace
subsidies disappear. Adults with incomes near this thresh old who lack affordable coverage may choose not to pur chase health insurance or opt to work fewer hours to qual ify for a subsidy. Consequently, the Congressional Budget Office predicted that the subsidy cliff would lead to a vol untary decrease in hours worked equivalent to 2 million full-time jobs in 2017 (4). Residents in counties where premiums are more expensive will face a steeper subsidy cliff, implying a possibly greater reduction in the number of hours that those earning incomes near the subsidy threshold will choose to work in those counties. Our analyses have limitations. First, we only measured affordability based on the after-subsidy premium of the lowest-cost bronze plan; however, we expect that many enrollees will choose more generous plans. Our calculation of affordability is based on the after-subsidy premium costs and does not include any measure of out-of-pocket costs, which is another critically important factor for individuals to determine the affordability of various plans. Second, we also focused on after-subsidy premiums for nonusers of tobacco because premiums for tobacco users were not read
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and
P u b l ic Issu es
ily available for all states. A recent analysis showed that tobacco users are more likely to lack affordable coverage in the marketplace than nonusers (4). Finally, we examined premium costs by county level without accounting for dif ferences in population sizes. In conclusion, the newly established health insurance marketplace and subsidies, created as part of the ACA, increased the availability and affordability of health insur ance in the individual market. Our analysis highlights vari ation in premium costs by age, income, and geographic area. Premium affordability is an important factor in de ciding to purchase insurance (5, 6). Our findings highlight several groups that may choose to remain uninsured be cause of premium costs. Even with subsidies, some indi viduals who earn between 300% and 400% of the FPL lack affordable coverage and thus will be exempt from the mandate. At incomes just above the subsidy threshold, many adults will be exempt because they lack affordable coverage. Also, younger adults who are eligible for subsi dies may be more likely than older adults to remain unin sured because of premium cost.
Figure 2. Geographic variation in affordability of the lowest-cost bronze plans for a 50-year-old earning 4 0 1 % of the FPL.
The 3 shades of red indicate regions where the lowest-cost bronze plan available to a 50-year-old earning 401% of the FPL would be > 8 % of his or her income. If the lowest-priced bronze plan cost > 8 % o f the individual s income, he or she would be exempt from the mandate. Premium levels shown are for nonusers o f tobacco only, and the percentage of income values are based on income levels for an individual in 2014 making $46 797. Because this gure shows results for an individual with an income just above the subsidy level (401% of the FPL), it includes the maximum number of regions where the lowest-cost bronze plan would be > 8 % of income for a 50-year old. FPL = federal poverty level. w w w .a n n a ls .o rg
21 October 2014 Annals of Internal Medicine Volume 161 • Number 8 603
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and
P u b l ic Is su e s
The U.S. Health Insurance Marketplace
When penalties increase in future years, more individ uals of all ages will be compelled to buy insurance. How ever, enrollment of healthier, younger adults in the first year of the exchange may be critical to curb future pre mium inflation. From the University of Tennessee Health Science Center and Rhodes College, Memphis, Tennessee. The authors thank Dr. Robert L. Davis for carefully reviewing the manuscript, Chelsea Temple for helping to collect the data used in these analyses, and Dr. Courtney Collins for her creative assis tance in animating our findings. A c k n o w le d g m e n t :
D is c lo s u re s : Authors have disclosed no conflicts of interest. Forms can be viewed at www.acponline.org/authors/icmje/ConflictOfInterestForms
.do?msNum=M 14-0757. R e q u e s ts f o r S in g le R e p rin ts : liana Graetz, PhD, Department of Pre ventive Medicine, University of Tennessee Health Science Center, 66 North Pauline Street, Suite 633, Memphis, TN 38163; e-mail,
igraetz@ uthsc.edu.
ACP
Current author addresses and author contributions are available at www.annals.org.
R e fe re n c e s 1. Centers for Medicare & Medicaid Services. State specific age curve variations. 2013. Accessed at www.cms.gov/CCIIO/Programs-and-Initiatives/Health -Insurance-Market-Reforms/Downloads/state-specific-age-curve-variations-08-09 -2013.pdf on 29 May 2014. 2. Crowley RA, Tape TG . Health policy basics: health insurance marketplaces. Ann Intern Med. 2013;159:784-6. [PMID: 24061932] doi: 10.7326/0003-4819 -159-10-201311190-00724 3. Centers for Medicare & Medicaid Services. HealthCare.gov: health plan in formation for individuals and families. 2013. Accessed at www.healthcare.gov /health-plan-information/ on 29 May 2014. 4. Kaplan CM, Graetz I, Waters TM . Most exchange plans charge lower tobacco surcharges than allowed, but many tobacco users lack affordable coverage. Health Aff (Millwood). 2014;33:1466-73. [PMID: 25092850] doi:10.1377/hlthaff .2013.1338 5. Gresenz CR, Laugesen MJ, Yesus A, Escarce JJ. Relative affordability of health insurance premiums under CH IP expansion programs and the ACA. J Health Polit Policy Law. 2011;36:859-77. [PMID: 21785010] doi:10.1215 /03616878-1407658 6. Saloner B, Daniels N. The ethics of the affordability of health insurance. J Health Polit Policy Law. 2011;36:815-27. [PMID: 22065686] doi:10.1215 /03616878-1407631
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ACP Journal Club summarizes the best new evidence fo r internal med icine from over 130 clinical journals. Once a bimonthly stand-alone journal, ACP Journal Club now appears in the pages o f Annals on a monthly basis. Research staff and clinical editors rigorously assess the scientific merit of the medical literature as it is published, and a w orld wide panel o f over 5000 physicians assesses the clinical relevance and newsworthiness of rigorous studies. Look fo r ACP Journal Club in Annals, or visit www.annals.org/journalclub .aspx.
604 21 October 2014 Annals of Internal Medicine Volume 161 • Number 8
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