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Small Business Employee Benefits and HR Blog

Tax Credits Covering 76% of Premiums for HealthCare.gov Plans

August 5, 2014
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According to the U.S. Department of Health & Human Services (HHS), 87 percent who purchased health plans through Healthcare.gov in 2014 qualified for premium tax credits, with the tax credit covering 76 percent of the premium cost. For those following the Affordable Care Act and the shift in the health insurance market, these numbers are significant.

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Tax Credits Covering 76% of Premiums for HealthCare.gov Plans

According to data released by HHS in June, the average premium before tax credits is $346/month.

But, for the 87 percent receiving premium tax credits, the average out-of-pocket premium cost across all types of plans is $82. On average, the premium tax credits are covering 76 percent of the premium cost. 

For silver plans, the most popular type of plan, 94% are receiving tax credits and are paying an average of $69/month. Additionally, for those receiving premium tax credits, 46% are paying $50/month or less, 69% are paying $100/month or less, and 82% are paying $150/month or less. 

The cost statistics cover the 5.4 million individuals who signed up for private plans through the federal exchange, Healthcare.gov. An additional 2.6 million individuals enrolled in plans through exchanges run by 14 states and the District of Columbia.

Why These Statistics are Significant

The numbers are significant because they support the predictions that the health insurance market is undergoing a massive transition from traditional employer-sponsored health insurance to individual health insurance.

For example, S&P Capital IQ (a division of McGraw Hill Financial) recently predicted that by 2020, 90% of American employees who currently receive health insurance through their employers could be shifted to individual health insurance and government exchanges.

Similarly, Dr. Ezekiel J. Emanuel, in his recently published book “Reinventing American Health Care," predicts that by 2025 fewer than 20 percent of employees in the private sector will receive traditional employer-sponsored health insurance.

One of the biggest reasons for the shift is cost advantages on the individual market. 

According to the Kaiser Family Foundation, the average cost to cover a single employee with traditional employer-sponsored health insurance in 2013 was $490/month (source). Compared with individual health insurance averages available through Healthcare.gov, employer-sponsored health insurance costs 26% more for non-subsidized coverage, and 83% more for subsidized coverage. As employers evaluate health insurance options for employees, they are comparing costs and seeing clear financial advantages of individual health insurance.

New Advantages to Individual Health Insurance, Defined Contribution

But, it's not just cost. There are also new advantages to individual health insurance introduced by the Affordable Care Act.

Before the Affordable Care Act, individual health insurance plans and employer-sponsored health insurance plans were different. Individual health insurance plans could deny coverage or charge more for coverage based on health conditions. One reason employers offered employer-sponsored health insurance (despite the higher price tag) was because they worried about sick employees not being able to find coverage with an individual health plan. With employer-sponsored health insurance, everyone is covered – no questions asked.

But with the ACA now in full effect, the playing field is leveled. Individual health insurance plans are guaranteed-issue so all employees can find coverage regardless of health. In fact, many of the new ACA provisions greatly favor individual health insurance. Individual health insurance is now just as good (and in most cases better) than traditional employer-sponsored health insurance.

As employers transition employees to individual health insurance and the exchanges, they are not abandoning employee health benefits altogether. Rather, they are changing their contribution strategy.

Instead of contributing to employer-sponsored health insurance premiums  (a "defined benefit"), employers are contributing to healthcare allowances (a "defined contribution") to reimburses employees for individual health insurance. Read more about defined contribution healthcare picking up steam.

What do you think about the latest individual health insurance cost statistics?

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