In a twist, an influx of lower-priced health plans on HealthCare.gov could lead many Americans to pay more for coverage next year thanks to smaller insurance tax credits.
A handful of insurers in 14 states are offering aggressively low premiums on the federal insurance enrollment site, which reopens Saturday, in a bid to undercut big rivals who snapped up customers last year.
The move is pulling down the value of federal tax credits that consumers get to offset the cost of their coverage under the Affordable Care Act. The credits are pegged to the price of the second-lowest-cost midrange plan in a given geographic area, as well as an enrollee’s income.
The reduced tax credits are good news for the federal government, which stands to pay less to subsidize people’s premiums. The influx of new low-cost plans is also a plus for the millions of uninsured people expected to look for 2015 coverage through the law’s insurance exchanges.
But many people who re-enroll in their 2014 plans face higher insurance costs even if their premium remains flat. To avoid paying more, they would have to switch plans, which many consumers don’t do.
“If you shop, there are big savings to be had,” said Jon Kingsdale, managing director at the Boston office of Wakely Consulting Group, an actuarial firm. “If you don’t, you could be in for a rude shock.”
In a study to be released Thursday, Wakely found that consumers in Pennsylvania, New Hampshire and Mississippi are expected to see the sharpest decrease in their tax subsidy as a result of new, low-priced plans. The study looked at prices in the largest county in each state.
In Manchester, N.H., for example, the second-lowest-cost midrange plan for 2014 was from Anthem Blue Cross and Blue Shield, which charged a monthly premium of $289 for a 40-year-old. For a person that age who earned about $24,000 a year, that premium for 2014 came with a $168 monthly subsidy, so that person paid $121 a month for coverage.
For 2015, the second-lowest-cost midrange plan in Manchester will cost $251 a month, from an insurer entering the market for the first time, Minuteman Health.
That same 40-year-old next year would get a maximum subsidy of $128 a month.
There is still an Anthem plan available for $289 a month, but the same person would pay $161 a month to keep it. If he switched to the Minuteman Health plan, he would pay about the same for coverage, $123 a month.
Consumers in Arizona, Indiana, Iowa and Montana will see a noticeable, though smaller, decrease in the tax credits, Wakely Consulting found. The shift is emerging to a lesser extent in South Carolina, Maine, Nebraska, South Dakota, Arkansas, New Jersey and Ohio.
The lower tax credits are also popping up in at least two states running their own insurance exchanges, Connecticut and Colorado.
The Obama administration is racing to prevent consumers from facing an unexpected jump in their insurance costs next year. An early look at 2015 rate proposals and final premiums posted this week on HealthCare.gov, which serves more than 30 states, showed that many large plans increased their premiums for next year.
“We are encouraging consumers enrolled in a marketplace plan to update their information and shop for a plan so they can get a plan that best fits their needs and budget,” said Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services, the agency running HealthCare.gov.
That advice is late in coming. The federal government said earlier this year it was planning to automatically renew existing coverage for most people who don’t return to the site, with the same subsidy they received for 2014. The goal was to avoid millions of people dropping out of coverage if they didn’t come back to the site to re-enroll.
“In health insurance, very few people change plans year to year,” said Caroline Pearson, a vice president at Avalere Health, another consultancy firm. “People hate shopping for health care.”
The health law’s tax credits are emerging as a major issue for 2015 enrollment. The Supreme Court said last week that it would take up a challenge to the health overhaul that contends the law’s language restricts the tax credits to residents of states running their own exchanges.
On Wednesday, a federal appeals court in the District of Columbia agreed to postpone its review of a similar case given the court’s move.
Some states running their own exchanges aren’t automatically renewing coverage for consumers.
In Massachusetts and Oregon, residents will need to re-enroll with a new application to avoid losing their insurance. Maryland residents will have to return to the website in order to get subsidies.