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2.2M Obamacare customers hurt by this penny-wise, pound foolish choice

They're not paying now, but could pay lots more later.

Many lower-income Obamacare customers may have bought some "unaffordably cheap" health insurance plans—and are leaving significant amounts of money on the table as a result.

A new analysis found that 2.2 million people who enrolled in Obamacare in 2015 are eligible for federal aid to assist with their out-of-pocket health costs, but aren't getting that assistance because they chose an insurance plan that does not qualify for that help. That tally represents more than 1 out of 4 of all the Obamacare customers who were eligible for such aid.

The findings by Avalere Health raise concerns that a number of those lower-income people could get stuck with health bills that they could have avoided if only they had selected a plan that might have had higher monthly premiums—but which gave them access to the federal subsidies.

"Consumers are picking plans on [Obamacare] exchanges based on premiums, rather than out-of-pocket costs," said Avalere CEO Dan Mendelson. "As a result, some patients may be paying more than they need for care."

"This is about a lot of low-income people leaving significant amounts of money on the table," Mendelson said. "We know, statistically, that most of those people are going to be worse off."

And more could be worse off in coming years. The Congressional Budget Office has estimated that during future enrollments, 3 million eligible Obamacare customers will forgo available assistance to reduce their out-of-pocket costs.

A health-care specialist helps people select insurance plans in Pasadena, Calif.
Getty Images
A health-care specialist helps people select insurance plans in Pasadena, Calif.

Under the Affordable Care Act, people whose household income is between 100 and 400 percent of the poverty level, or $11,670 to $46,680 for a single person, are eligible for federal subsidies that reduce the amount they have to pay each month in premiums for plans sold on government-run Obamacare exchanges. Most exchange customers—nearly 90 percent—receive such aid.

The ACA also offers another subsidy to act as an incentive for people to enroll in Obamacare plans. These are so-called cost-sharing reductions, and are available those who earn between 100 and 250 percent of the poverty level, or $11,670 to $29,175 for a single person.

Those subsidies reduce the amount of money that an enrollee is obligated by their plan to personally pay for eligible medical services, such as copayments, coinsurance and deductibles.

But cost-sharing reductions are available only if a person enrolls in a "silver" plan. Those cover about 70 percent of the medical costs of their customers, with the remaining share personally owed by the person. Silver plans also typically are the moderately priced offerings on an Obamacare exchange, and also are the most popular.

But if a person opts for an other plan, such as the second-most popular "bronze" plans, they cannot receive cost-sharing reductions. Bronze plans, which cover about 60 percent of medical costs of customers, tend to be both the cheapest plans on an exchange, and the ones with the highest out-of-pocket charges for enrollees.

About 5.9 million people identified in Avalere Health's analysis are eligible for cost-sharing reduction subsidies because they enrolled in silver plans. The other 2.2 million eligible people who aren't getting the aid did so by enrolling in other plans, primarily in the cheaper bronze plans.

Avalere Health, in its analysis, said that the difference between the two numbers "may be a result of consumers' focus on premiums."

Mendelson said that although the retail price of premiums for bronze plans routinely is less expensive than for silver plans, the actual dollar difference in premiums is often "not that much money" after a low-income customer's subsidies are factored in.

"They look less expensive, even though they aren't really," Mendelson said.

That means that a customer's out-of-pocket health costs can quickly eat up the difference in premium price if a person doesn't get cost-sharing reductions, he said.

Avalere's analysis also notes that some customers "may not be aware that CSRs are available and the benefits they offer."

Jeff Smedsrud, co-founder and CEO of HealthCare.com, a health insurance search and comparison site, agreed, saying that "not enough people know about this" issue.

"Too many Americans shop for health insurance only on price," Smedsrud said. "Indeed, more than half of the people who enrolled in HealthCare.gov [the federal Obamacare insurance marketplace] bought the lowest-priced plan."

"This is an example of what I call 'unaffordably cheap' health insurance," he said. "If you have pre-existing medical conditions, and expect to use your health plan, the key thing to calculate is the total family health-care spend, of which health insurance is one part, and the other is expenses not covered by your health insurance."

"Too often, people believe that 'next year' is the year they won't have out-of-pocket expenses."

Smedsrud gave an example of how opting for a high-priced premium plan can lead to long-term savings.

"For a 30-year-old, in 2015 the difference between the average-cost bronze plan and the average-cost silver plan is about $50 a month," he said. "But, if that person is between 200 and 250 percent of the federal poverty level, and buys a silver plan, they could save up to $1,750 by being eligible for a plan with a lower deductible and improved out-of-pocket coverage."

"The less they make, the larger the potential savings if they use coverage health-care services."