The first ever renewal of coverage season under the Affordable Care Act has come and gone. This year wasn’t marked by the craziness of the failing website that plagued the initial rollout.
In fact, the first month of open enrollment seemed to go by rather quietly, but that’s misleading.
While it might not be as exciting as the circus coming to town, the fallout from the renewal process should be filled with fireworks, albeit on a delayed basis, because of what most people who bought insurance on an exchange in 2014 will do… which is absolutely nothing.
Everyone who obtained coverage through an exchange in 2014 has a health plan that expires December 31. The time to make any changes was during the open enrollment period from November 15 through December 15.
If no changes were made — like selecting a new plan — then the participant’s plan simply renewed for 2015.
On the face of it, this doesn’t sound very interesting, but as with most things where the government is trying to “help,” the devil is in the details.
Levels of coverage are broken down into five categories: catastrophic, bronze, silver, gold and platinum. Within each category, insurance companies can offer a mix of options with various levels of co-insurance, co-payments and deductibles.
For those who obtained insurance on an exchange and received some level of premium payment assistance, the cost of insurance used to calculate the assistance was based on the second-lowest cost of a silver plan. This would provide the participant with coverage that is considered the low-end of the middle tier.
Almost seven million people got their health insurance through an exchange in 2014, and 87% qualified for some sort of subsidy. The subsidy is typically in the form of a tax credit that is applied to the person’s tax return for the same year.
Participants that qualified for a subsidy in 2014 and used it to pay less for health insurance during the year will see their subsidy calculated and applied to their 2014 taxes due in April of 2015.
So Far, So Good
The insurance plans offered by different companies aren’t static, and neither are the rates they charge. Some plans have been withdrawn from exchanges while others have been added, and most have had a rate change. Plan participants have to deal with a number of moving parts.
If a person bought health insurance on an exchange and received a subsidy, it’s likely that the insurance premium on their plan will go up next year. That’s the easy part.
If the participant has come to grips with paying a bit more for insurance, this might seem like the end of it, but it’s not.
It’s most likely that not only has the cost of the plan gone up, but also their subsidy for the following year is now based on an entirely different plan.
Since some insurance companies are dropping plans while others are adding new ones, it’s likely that the second-lowest cost silver plan in 2015, the one on which subsidies are based, isn’t the same plan that was the second lowest cost silver plan in 2014.
And that’s where the problems start.
Several polls of consumers who bought insurance through an exchange in 2014 show that most intend to keep their same plan for 2015. This could be because they’ve established relationships with doctors and other providers and don’t want to have to start over.
Once their current provider told them that if they wanted to stick around through next year they simply had to do nothing, and this is definitely the path of least resistance. What is left unsaid is that if the participant doesn’t go back through the application process on the exchange, their subsidy remains unchanged for 2015.
If the subsidy the participant is actually entitled to in 2015 has changed from what it was in 2014, then it’ll all be worked out on the participant’s tax return for 2015, which is due in April of 2016.
Sound confusing? You bet it is, but the upshot is straightforward.
For the 87% of people who obtained health-care coverage on an exchange in 2014 and received subsidized care, if they don’t go through the entire process again and verify their new subsidy level considering all the changes to the plans on the system, they’ll most likely be looking at a nasty surprise on their taxes for 2015.
Of course, by the time most of them figure this out it’ll be the spring of 2016, which means they’ve gone through yet another renewal period, and probably still done nothing… locking in yet another nasty tax surprise for the following year.
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Ahead of the Curve with Adam O’Dell