Private Health Insurance: Early Evidence Finds Premium Tax Credit Likely Contributed to Expanded Coverage, but Some Lack Access to Affordable Plans
Published: 2015-03-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The number of uninsured individuals and the rising cost of health insurance have been long-standing issues. PPACA mandated that most individuals have health insurance that provides minimum essential coverage or pay a tax penalty. To make health insurance more affordable and expand access, PPACA created the APTC to subsidize the cost of exchange plans' premiums for those eligible. PPACA used two standards for defining affordability of health insurance: 8 percent of household income for the purposes of minimum essential coverage and 9.5 percent for APTC eligibility for individuals offered employer-sponsored plans.
PPACA mandated that GAO review the affordability of health insurance coverage. GAO examined (1) what is known about the effects of the APTC and (2) the extent to which affordable health benefits plans are available and individuals are able to maintain minimum essential coverage. GAO conducted a structured literature search to identify studies on the rate of uninsured individuals, among other topics, and interviewed experts from HHS, the Internal Revenue Service (IRS), and 11 research and industry organizations to understand factors affecting affordability. GAO also analyzed the variation in the affordability of exchange plan premiums nationwide using 2014 data—the most recent data available at the time of GAO's analysis.
GAO received technical comments on a draft of this report from HHS and IRS and incorporated them as appropriate.
section_title: What GAO Found
paragraphs: Early evidence suggests that the advance premium tax credit (APTC)—the refundable tax credit that can be paid on an advance basis—likely contributed to an expansion of health insurance coverage in 2014 because it significantly reduced the cost of exchange plans' premiums for those eligible. Although there are limitations to measuring the effects of the APTC using currently available data, surveys GAO identified estimated that the uninsured rate declined significantly among households with incomes eligible for the APTC. For example, one survey found that the rate of uninsured among individuals with household incomes that make them financially eligible for the APTC fell 5.2 percentage points between September 2013 and September 2014.This expansion in health insurance coverage is likely partially a result of the APTC having reduced the cost of health insurance premiums for those eligible. Among those eligible for the APTC who the Department of Health and Human Services (HHS) initially reported selected a plan through a federally facilitated exchange or one of two state-based exchanges, the APTC reduced premiums by 76 percent, on average. As of January 2015, data were not yet available on the extent to which the APTC reduced 2015 premiums, although studies have found that, on average, premiums (before applying the APTC) changed only modestly from 2014 to 2015, though some areas saw significant increases or decreases.
Most nonelderly adults had access to affordable health benefits plans—as defined by the Patient Protection and Affordable Care Act (PPACA)—but some may face challenges maintaining coverage. Most nonelderly adults had access to affordable plans through their employer, Medicaid, the exchanges, or other sources as of March 2014, although about 16 percent of nonelderly adults remained uninsured. While there are many reasons people remain uninsured, some people may not have access to affordable coverage, including (1) low-income nonelderly adults—those with household income below 100 percent of the federal poverty level—who live in one of the 23 states that chose not to expand Medicaid and (2) some nonelderly adults who do not have affordable employer-sponsored insurance and who were not eligible for the APTC. For those with incomes too high to qualify for the APTC, the affordability of health insurance coverage available in the individual exchanges in 2014 varied by age, household size, income, and location. For example, a 60-year-old with an income of 450 percent of the federal poverty level would have had to spend more than 8 percent of their household income for the lowest-cost plan in 84 percent of all health insurance rating areas in the United States, but a 27-year-old had access to an affordable plan in all but one. Regardless of the affordability of premiums, some may face challenges in maintaining coverage that qualifies under PPACA as minimum essential coverage; for example, changes in income can result in changes in APTC eligibility.
This report provides an early look at the effect of the APTC and the affordability of health insurance under PPACA. However, it is important to note that these findings about the first year of the exchanges cannot be generalized to future years. Numerous factors, including additional data and changes in trends in health care costs, could affect the affordability of health insurance going forward.

section_title: Letter
paragraphs: The number of uninsured individuals and the rising cost of health  insurance have been long-standing issues. From 1997 through 2013, the  number of nonelderly uninsured in the United States fluctuated between  about 30 and 42.5 million and was about 20.4 percent of the nonelderly  population in 2013. Many of these uninsured individuals were not eligible  for public insurance, such as Medicaid—the joint federal-state health  coverage program for certain low-income individuals—nor were they  offered employer-sponsored insurance (ESI). Before 2014, their  remaining option was to purchase a plan on the private, individual market,  but these plans were often difficult to afford given that the uninsured  typically have low incomes. In 2013, 85 percent of the uninsured were in  households earning less than about 400 percent of the federal poverty  level (FPL).
The Patient Protection and Affordable Care Act (PPACA) included a  number of provisions to address these challenges. Among other things,  PPACA mandated that, with some exceptions, individuals must have  health insurance that provides “minimum essential coverage” or pay a tax  penalty, a requirement many refer to as the individual mandate. Health insurance that meets the minimum essential coverage standard includes  certain types of government-sponsored coverage (such as Medicare   Part A or Medicaid) as well as most types of private insurance plans  (such as ESI) that provide health benefits consistent with the law.
To expand access to health insurance that qualifies as minimum essential  coverage, PPACA created the premium tax credit to subsidize premium  costs for plans purchased by eligible individuals and families through the  exchanges—marketplaces where participating private issuers offer  consumers a variety of qualified health plans that constitute minimum  essential coverage.families may be eligible for this credit, which is refundable and can be  paid to insurance companies in advance to reduce enrollees’ premium   Certain low- and moderate-income individuals and  costs for exchange plans. In this report, we refer to advance payments of  the credit as advance premium tax credits (APTC).
In addition, PPACA required the establishment of small business health  option programs (SHOP) in each state to allow small employers to  compare available health insurance options in their states and facilitate  the enrollment of their employees in qualifying coverage. To provide an  incentive for them to do so, PPACA established the small employer health  insurance tax credit (referred to in this report as the small employer tax  credit). their employees’ health insurance.
It subsidizes the share of the premiums small employers pay for  Individuals are exempt from the requirement to have minimum essential  coverage when such coverage is not “affordable,” as defined by PPACA.  In general, plans are considered affordable if their cost does not exceed   8 percent of household income. In addition, for purposes of determining  eligibility for the APTC, PPACA considers ESI affordable if an employee’s  share of a qualifying self-only plan costs no more than 9.5 percent of  household income. Individuals with an offer of ESI that meets or is below this threshold are not eligible to receive the APTC.
Pub. L. No. 111-148, §§ 1421, 10105, 124 Stat. 119 at 237, 906 (codified at 26 U.S.C.   § 45R).
PPACA mandated that GAO review the affordability of health insurance  coverage 5 years after enactment. Specifically, in this report we examine  1.  what is known about the effects of the APTC and the small employer  tax credit on health insurance coverage; and  2.  the extent to which affordable health benefits plans are available and  individuals are able to maintain minimum essential coverage.
To examine what is known about the effects of the APTC and the small  employer tax credit on health insurance coverage, we conducted a  structured literature search to identify relevant studies. To conduct this  review, we searched over 30 reference databases for studies published  on these topics. Two analysts independently reviewed each of the results  for relevance. To supplement this search, we performed further Internet  searches and asked experts we interviewed to recommend literature. We  interviewed experts from 11 research or industry organizations as well as  officials from the Department of Health and Human Services’ (HHS)  Center for Consumer Information and Insurance Oversight, Assistant  Secretary of Planning and Evaluation, and the Chief Actuary; and from  the Internal Revenue Service (IRS). We identified the experts through  their published or other work, and we asked them about how the tax  credits were likely to affect health insurance coverage. We also reviewed  laws, regulations, and guidance related to PPACA’s individual mandate,  the APTC, the small employer tax credit, individual exchange regulation,  and the ESI affordability threshold. To further analyze the effects of the  small employer tax credit on health insurance coverage, we incorporated  summary data from our previous report on this topic and requested  updated summary data from the IRS on claims for tax years 2011 and  2012, the most current years available at the time of our analysis. To  assess the reliability of the data, we reviewed the data and supporting  documentation for obvious errors, as well as IRS’s internal controls for  producing the data. We found the data to be sufficiently reliable for our  purposes.
To examine the extent to which affordable health benefits plans are  available and individuals are able to maintain minimum essential  coverage, we reviewed studies resulting from our literature review, as well  interviewed experts as described above. We asked experts about the  types of individuals that may have more or less difficulty accessing  affordable coverage and maintaining minimum essential coverage. In  addition, we analyzed 2014 premium data—the most recent data  available at the time of our analysis—from the federally facilitated  exchanges and state-based exchanges to determine the percent of  household income that households would have had to spend on  premiums for the lowest-cost plans available. We obtained these  premium data from The Henry J. Kaiser Family Foundation (KFF) and  from the state of New York. To assess these data for reliability, we  interviewed key officials, checked the data for outliers and validated  selected data. We found both datasets to be reliable for our purposes. A  more extensive discussion of our scope and methodology appears in  appendix II.
We conducted this performance audit from July 2014 through March 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: PPACA Health Insurance Requirements and Subsidies
paragraphs: Beginning January 1, 2014, PPACA required most citizens and legal  residents of the United States to maintain health insurance that qualifies  as minimum essential coverage for themselves and their dependents or  pay a tax penalty. Individuals are exempt from this requirement if they  would have to pay more than 8 percent of their household income for the  lowest-cost self-only health plan that is available to the individual.
Beginning October 1, 2013, individuals were able to shop for private  health insurance coverage that qualifies as minimum essential coverage  through marketplaces, also referred to as exchanges, which offer choices  of qualified health plans.  In 34 states, the federal government operated  the individual exchanges, known as federally facilitated exchanges, while  17 states operated state-based exchanges in 2014.purchase self-only plans, or they can purchase family plans for  themselves, their spouses, and their dependents.
Individuals can  Qualified health plans on the exchanges may provide minimum essential  coverage at one of four levels of coverage that reflect out-of-pocket costs  that may be incurred by an enrollee. The four levels of coverage  correspond to a plan’s actuarial value—the percentage of the total  average costs of allowed benefits paid by a health plan—and are  designated by metal tiers: 60 percent (bronze), 70 percent (silver),   80 percent (gold), and 90 percent (platinum). For example, a gold plan  with an 80 percent actuarial value would be expected to pay, on average,  80 percent of a standard population’s expected medical expenses for the  essential health benefits. The individuals covered by the plan would be  expected to pay, on average, the remaining 20 percent of the expected  cost-sharing expenses in the form of deductibles, copayments, and  coinsurance.
Under PPACA, issuers are allowed to adjust premium rates within  specified limits for plans, based on the number of people covered under a  particular policy and the covered individuals’ age, tobacco use, and area  of residence. Each state must divide its state into one or more rating areas that all issuers must use in setting premium rates. The rating area  is the lowest geographic level by which issuers can vary premiums.
Individuals obtaining insurance through the exchanges may be eligible for  the APTC under PPACA if they meet applicable income requirements and  are not be eligible for coverage under another qualifying plan or program,  such as ESI or Medicaid. To meet the APTC’s income requirements,  individuals must have household incomes between 100 and 400 percent  of the FPL (see table 1).
The amount of the APTC is calculated based on an eligible individual’s  household income relative to the cost of premiums for the “reference  plan,” even if the individual chooses to enroll in a different plan. The  reference plan is the second-lowest-cost silver plan available. The  APTC in effect caps the maximum amount of income that an individual  would be required to contribute to the premiums for the reference plan.  The capped amount varies depending on the enrollee’s household  income relative to the FPL and is less for enrollees with lower household  income. Table 2 shows the maximum percentage of household income a  qualifying enrollee would have to pay if they enrolled in the reference  plan. If the enrollee chooses a more expensive plan, such as a gold or  platinum plan, they would pay a higher percentage of their income. If the  enrollee chooses a less expensive plan, such as a bronze plan, they  would pay less. The amount of the APTC is determined based on an  enrollee’s family size and anticipated household income for the year,  which is subject to adjustment—or reconciliation—the following year.  Specifically, the final amount of the credit is determined when the enrollee  files an income tax return for the taxable year, which may result in a tax  liability or refund if the enrollee’s actual, reported household income  amount is greater or less than the anticipated income on which the  amount of APTC was based.
To further improve access to care, certain low-income individuals may  also be eligible for an additional type of income-based subsidy  established by PPACA, known as cost-sharing subsidies, which reduce  out-of-pocket costs for such things as copayments for physician visits or  prescription drugs. To be eligible for these cost-sharing subsidies,  individuals must have household incomes between 100 and 250 percent  of the FPL, not be eligible for coverage under another qualifying plan or  program such as Medicaid or ESI, and be enrolled in a silver plan through  an exchange.of the silver plan.
Cost-sharing subsidies effectively raise the actuarial value  As a practical matter, because individuals eligible for Medicaid are not  eligible for the APTC, the minimum income level for these subsidies  differs between states that chose to expand Medicaid under PPACA and  those that did not. In states that chose to expand Medicaid under  PPACA, nonelderly adults are eligible for Medicaid when their household  income is less than 138 percent of the FPL. Because those eligible for  Medicaid are not eligible for the APTC, the minimum income level for the  APTC in Medicaid expansion states is effectively 138 percent of the FPL.  In states that chose not to expand Medicaid, the minimum income   level for individuals to qualify for APTC and cost-sharing subsidies is   100 percent of the FPL, as specified in PPACA, assuming the state’s   As of January  Medicaid eligibility threshold is at or below this level.2015, 27 states and the District of Columbia opted to expand Medicaid  under PPACA.
section_title: Employer-Sponsored Insurance under PPACA
paragraphs: Under PPACA, employers that meet certain conditions must offer health  insurance to some employees. Employers with at least 50 full-time  equivalent employees—which includes employees whose hours average  at least 30-hours per week—must offer qualifying health insurance to their  full time employees or face tax penalties if at least one full-time employee  receives the APTC.
In contrast to PPACA’s affordability threshold of 8 percent of household  income for the purpose of assessing penalties for failure to maintain  minimum essential coverage, PPACA requires ESI to meet two different  affordability tests for the purposes of determining eligibility for the APTC.  First, the employee’s share of the ESI premiums covering an individual,  also referred to as a self-only plan, must not exceed 9.5 percent of the  employee’s household income. Second, the insurance offered must cover  60 percent of the actuarial value of health care for the average person to  qualify as affordable for purposes of the APTC. Employees who are  offered ESI that meets both of these tests are not eligible for the APTC.  Some employees may be offered qualifying ESI that costs between 8 and  9.5 percent of household income. If these individuals do not have access  to insurance on an individual exchange that costs less than 8 percent of  household income, they are exempt from the individual mandate and will  not have to pay a tax penalty if they forgo coverage. However, these  individuals are not eligible for the APTC.
section_title: Small Employer Tax Credit
paragraphs: Because small employers are not required to offer health insurance and  have been less likely to offer health insurance than large employers,  PPACA established a small employer tax credit as an incentive for them  to provide insurance by making it more affordable.available to certain employers—small business and tax-exempt entities— with employees earning low wages and that pay at least half of their  employees’ health insurance premiums. To qualify for the credit,  employers must employ fewer than 25 full-time equivalent employees  (excluding certain employees, such as business owners and their family   The credit is  members), and pay average annual wages per employee of less than  $50,800 per year in 2014. The amount of the credit depends on several  factors, such as the number of full-time equivalent employees and their  total annual wages. In addition, the amount of the credit is limited if the  premiums paid by an employer are more than the state’s average small  group market premiums, as determined by HHS.
Employers may claim the small employer tax credit for up to 6 years—the  initial 4 years from 2010 through 2013 and, starting in 2014, any 2  consecutive years if they buy insurance through the Small Business  Health Option Programs (SHOP). PPACA required the establishment of  SHOPs in each state by January 1, 2014, to allow small employers to  compare available health insurance options in their states and facilitate  the enrollment of their employees in coverage. In states electing not to  establish and operate a state-based SHOP, PPACA required the federal  government to establish and operate a federally facilitated SHOP in the  state. Starting in 2014, employers that wanted to claim the small  employer tax credit had to enroll their employees through the SHOP  exchanges.
section_title: Early Evidence Suggests That While the APTC Likely Contributed to an Expansion of Coverage, the Small Employer Tax Credit Has Had Little Effect
paragraphs: Early evidence suggests that the APTC likely contributed to an expansion  of health insurance coverage because it significantly reduced the cost of  premiums for those eligible, though there are limitations to measuring the  effects of the APTC using currently available data. In contrast, few  employers claimed the small employer tax credit, limiting its effect on  health insurance coverage.
subsections: section_title: The APTC Likely Contributed to an Expansion of Coverage by Reducing the Cost of Health Insurance Premiums to Those Eligible
paragraphs: Early evidence suggests that the APTC likely contributed to an expansion  in health insurance coverage. We identified three surveys that estimated  the uninsured rate by household income. Although limitations exist in  measuring the direct, causal effects of the APTC on health insurance  coverage using currently available data, these surveys can be used to  make early observations about changes in the rate of uninsured. They  found that the uninsured rate declined among households with incomes  between 139 and 400 percent of the FPL—that is, households financially  eligible for the APTC in all states (see table 3). For example, one study  found that the rate of uninsured among individuals with household  incomes between 139 and 400 percent of the FPL fell 9 percentage  points between January 1, 2012, and June 30, 2014, in Medicaid  expansion states. Further, the results from this survey found that gains  in insurance coverage were statistically significant for individuals in this  income bracket regardless of the states’ Medicaid expansion decisions.
This expansion in health insurance coverage is likely partially a result of  the APTC having reduced the cost of health insurance premiums for  those deemed eligible. As of April 19, 2014, HHS initially estimated that  8 million individuals (including dependents) had selected a health plan  through either a state-based exchange or a federally facilitated exchange,  and most of them (85 percent) were deemed eligible for the APTC at the  time that they selected a health plan. Among those who selected a plan  through 1 of the 34 federally facilitated exchanges or the 2 state-based  exchanges that used the federal website for enrollment in 2014 and were  deemed eligible for the APTC (4.7 million individuals), the APTC reduced  premiums by 76 percent, on average (see table 4). For those who  selected a silver plan through these 36 exchanges and were deemed  eligible for the APTC, the APTC reduced premiums the most—an   80 percent reduction. Overall, most individuals who selected a plan  through these 36 exchanges and received the APTC (69 percent) saw  their premiums reduced to $100 per month or less ($1,200 annually or  less), and nearly half (46 percent) had their monthly premiums reduced to  $50 or less ($600 annually or less). However, results from an early  survey and experts we interviewed suggested that the APTC may have  been less effective in expanding health insurance coverage for individuals  financially eligible for a smaller APTC amount and ineligible for cost- sharing reduction subsidies than for individuals eligible for a larger APTC  amount as well as for cost-sharing reduction subsidies.
As of January 2015, data were not available on the extent to which the  APTC reduced 2015 premiums for enrollees. Studies that examined  changes in premiums between 2014 and 2015 found that, on average,  premiums changed modestly. For example, HHS reported that premiums  for the reference plan (before applying the APTC) increased by 2 percent,  on average, between 2014 and 2015, and premiums for the lowest-cost  silver plan increased by an average of 5 percent. However, studies  found variation across rating areas, and some rating areas had significant  increases or decreases in average premiums.
Further, premiums are  likely to continue to change in future years as issuers gain more data  about enrollees in the exchanges and how they compare to enrollees  previously purchasing individual insurance or ESI. In addition, while the  APTC helps protect eligible individuals from large increases in premiums  by capping the amount of household income individuals have to pay for  the reference plan, some who reenrolled in their health plan in 2015,  rather than shopping for and switching to a lower cost plan, may find that  their premiums, after accounting for the APTC, increased substantially.  HHS estimated that more than 7 in 10 current exchange enrollees could  find a lower-cost plan within the same metal level as they selected in  2014 if they selected the new lowest-cost plan in 2015, rather than  reenroll in their same 2014 plan, but the extent to which this occurred was  not yet known as of January 2015.
According to results from four early surveys of nonelderly adults and one  group of experts we interviewed, lack of awareness of the APTC may  have limited take-up of health insurance coverage among some  individuals likely eligible for the APTC. Three of the four surveys  estimated that, of those who remained uninsured in 2014, between 59  and 60 percent cited affordability or the cost of premiums as the reason  for not purchasing health insurance coverage. However, less than half—between 38 and 47 percent—of the uninsured surveyed were aware of  the availability of financial assistance to purchase insurance through the  individual exchanges.
When interpreting data on the effect of the APTC on changes in health  insurance coverage, there are several limitations to consider:
Large-scale, rigorous survey data are needed to more accurately  measure the direct, causal effect of the APTC on changes in health  insurance coverage. While early survey data provide some indications  of the effect of the APTC on coverage, these surveys generally have  lower response rates and smaller sample sizes, which could cause  large margins of error when examining changes in health insurance  coverage by subgroups, such as by household income. However,  results from larger, more rigorous surveys are not expected to be  available until the summer of 2015 at the earliest.
Available summary data from HHS on those who received the APTC  are limited and subject to change because the data:
Did not account for effectuated enrollment—that is, whether those  who initially selected a health plan paid their premium—nor did it  account for individuals who did not submit required documentation  to verify their eligibility for the exchanges or the APTC, or those  who may have selected a plan after open enrollment ended.
Did not include the amount of APTC that individuals in 15 state- based exchanges received. reported to HHS’s Centers for Medicare & Medicaid Services  (CMS) the number of individuals who were deemed eligible for the  APTC at the time that they selected a plan, CMS officials we  spoke with stated that voluntary reporting on the amount of APTC  individuals received was limited and variable across states.
Did not account for adjustments to the amount of APTC that may  occur when the amount of APTC received is reconciled against  enrollees’ actual income reported in their 2014 income tax returns,  which will begin to occur when individuals start to file their income  tax returns in 2015.
HHS included data from 2 of the 17 state-based exchanges—Idaho and New Mexico— in its summary data on the amount of APTC received by individuals who selected a health  plan and were deemed eligible for the APTC. These two state-based exchanges used the  federal website, http://www.healthcare.gov, for their 2014 exchange enrollment.
section_title: Few Employers Claimed the Small Employer Tax Credit, Limiting Its Effect on Health Insurance Coverage
paragraphs: Take-up of the small employer tax credit has continued to be lower than  anticipated, limiting the effect of the credit on expanding health insurance  coverage. About 167,600 employers claimed the credit in 2012 (the most  recent year for which data were available), slightly fewer than the 170,300  employers that claimed the credit in 2010 (see fig. 1). These figures are  low compared to the number of employers eligible for the credit. In 2012,  we found that selected estimates of the number of employers eligible  ranged from about 1.4 million to 4 million. Although about the same  number of small employers claimed the credit in 2012 as in 2010, these  employers paid all or some of the premiums for more employees in 2012  (900,800 employees) than in 2010 (770,000 employees).
As we found in 2012, experts we interviewed for this report generally told  us that features of the small employer tax credit did not provide a strong  enough incentive to employers to begin to offer or to continue offering  health insurance. First, experts explained that the maximum amount of  the credit is targeted to very small employers, most of which do not offer  health insurance, and experts told us the size of the credit is not large  enough to be an incentive to employers to offer or maintain insurance.  The maximum amount of the small employer tax credit is available to for- profit employers with ten or fewer full-time equivalent employees that pay  an average of $25,400 or less in wages. Such an employer could be  eligible for a credit worth up to 50 percent of the employer contributions to  premiums in 2014. The credit amount “phases out” to zero as employers  employ up to 25 full-time equivalent employees at higher wages—up to  an average of $50,000. For example, employers with 24 full-time  equivalent employees are only eligible for the credit if they paid wages  that averaged $25,400 or less; such employers may be eligible for a  credit worth up to 2.2 percent of employer contributions to premiums.  Second, the limited availability of the credit—employers can claim it for  only two consecutive years after 2013—further detracts from any potential  incentive for small employers that do not offer coverage to begin offering  coverage. Experts we interviewed told us that employers are reluctant to  provide a benefit to employees that would be at risk of being taken away  later when the credit is no longer available. Finally, experts told us that  the complexity of applying for the credit outweighed its benefit. According  to tax preparers and other stakeholders we interviewed for this and our  previous report, the complexity of the paperwork required to claim the  credit was significant, and small employers likely did not view the credit  as a sufficient incentive to begin offering health insurance, given the time  required to claim it.
The trend in low take-up of the small employer tax credit is likely to  continue given the low enrollment in SHOPs, and thus it is unlikely that its  effects on coverage will change in the near future. This is because  employers were required to offer health insurance coverage through  SHOP exchanges to be eligible for the small employer tax credit  beginning in 2014. We previously found that 2014 enrollment in SHOP  was significantly below expectations. Specifically, we found that as of  June 2014, the 18 state-based SHOP exchanges had enrolled about  76,000 employees through nearly 12,000 small employers, although not  all of these employers were eligible for the credit. Enrollment in states  with federally facilitated SHOPs was not known as of January 2015,  although CMS officials said they did not have reason to expect significant  differences in enrollment trends for 2014 between the state-based  SHOPs and the federally facilitated SHOPs. In comparison, the  Congressional Budget Office (CBO) had estimated that, in 2014, 2 million  employees would enroll in coverage through either state-based or  federally facilitated SHOP exchanges.
section_title: While Most Nonelderly Adults Had Access to Affordable Health Insurance Coverage, Maintaining Minimum Essential Coverage May Be Challenging for Some
paragraphs: Most nonelderly adults had access to affordable minimum essential  coverage through their employer, Medicaid, the exchanges, or other  sources, although about 16 percent of nonelderly adults remained  uninsured as of March 2014. While there are many reasons people  remain uninsured, some—including certain families or individuals not  eligible for the APTC—may not have access to affordable coverage. The  affordability of health insurance coverage obtained through the  exchanges varied depending on one’s age, household size, income, and  place of residence. Regardless of the affordability of premiums, some  may face challenges in maintaining their insurance.
subsections: section_title: Most Nonelderly Adults Had Access to Affordable Coverage
paragraphs: Most nonelderly adults had access to affordable minimum essential  coverage through their employer, Medicaid, the exchanges, or other  sources. While specific data on individuals’ access to affordable coverage  is not available, estimates of the number of nonelderly adults who are  insured through various types of coverage indicate that most have access  to coverage that would be considered affordable under PPACA. For  example, one survey estimated that, as of March 2014, 59 percent of  nonelderly adults had obtained coverage through an employer. For most  individuals with ESI, the coverage would be considered affordable under  PPACA—that is, premiums for the self-only ESI plan offered cost less  than 9.5 percent of their household income. Individuals who are offered  ESI that does not meet this affordability threshold may be eligible,  depending on their household income, to receive the APTC to instead  purchase an affordable exchange plan. As of March 2014, an estimated  2 percent of nonelderly adults purchased coverage through an  exchange—an estimated 85 percent of whom received the APTC. An  additional 9 percent of nonelderly adults were enrolled in Medicaid  coverage, which requires either no or minimal premiums. Finally, an  estimated 14 percent of nonelderly adults had other sources of coverage,  such as TRICARE for certain members of the armed forces, or health  plans sold off the exchanges.
section_title: Some Groups of Nonelderly Adults May Lack Access to Affordable Health Insurance Coverage
paragraphs: An estimated 16 percent of nonelderly adults (31.4 million) were  uninsured as of March 2014, according to one early survey. CBO  estimated that, in 2016, most of those who will remain uninsured—at least  77 percent—will likely be exempt from the requirement to maintain  minimum essential coverage because, for example, they are  undocumented immigrants or lack access to health insurance coverage  that is considered affordable under PPACA. While there are many  reasons people remain uninsured, some individuals may not have access  to affordable health insurance coverage. For example, some may be  low-income and live in a Medicaid nonexpansion state or they may lack  access to affordable ESI yet are also ineligible for the APTC to instead  purchase affordable coverage through the individual exchanges.
subsections: section_title: Low-Income Individuals Living in Medicaid Nonexpansion States
paragraphs: Some states permit certain nonelderly adults with incomes greater than 100 percent of  the FPL to enroll in Medicaid, such as those who are pregnant or disabled. the individual exchanges was likely unaffordable for these uninsured  individuals. For example, an individual age 27 with household income at  99 percent of the FPL in a Medicaid nonexpansion state would have had  to spend between 10 and 32 percent of their household income on the  lowest-cost bronze plan, depending on their place of residence. One  study estimated that roughly 4 million nonelderly adults with household  incomes below 100 percent of the FPL living in a Medicaid nonexpansion  state were uninsured in 2014.
section_title: Some Families with ESI
paragraphs: Although some families have access to ESI that is considered affordable  under PPACA, they may have to spend more than 9.5 percent of their  household income on such coverage. The ESI affordability threshold is  based on the cost of a self-only plan even though premiums for a family  plan are typically more expensive, requiring them to spend more than  they would on a self-only plan. Because the family would be considered  to have access to affordable ESI under PPACA based on the self-only  plan, it would not be eligible to receive financial assistance through the  APTC to purchase a family plan through the individual exchanges. This  has created a situation that some have referred to as “the family glitch,”  where families offered ESI may find that coverage to be unaffordable yet  they are ineligible for the APTC. The Agency for Healthcare Research  and Quality (AHRQ) recently estimated that 10.5 million adults and  children may be in this situation.
section_title: Some Individuals without Affordable ESI Who Are Not Financially Eligible for the APTC
paragraphs: Some nonelderly adults who lack access to affordable coverage  elsewhere, such as through an employer, and instead shop for health  insurance coverage on the individual exchanges may find this insurance  unaffordable without financial assistance from the APTC—those with  household incomes greater than 400 percent of the FPL. Results from  one early survey suggest that about 6 percent of nonelderly adults were  uninsured in 2014 and had household income greater than 400 percent of  the FPL. In addition, based on nine household scenarios we examined,  the affordability of the lowest-cost bronze plans available in the individual  exchanges for such individuals varied by age, household size, income,  and location in 2014. For example, in most rating areas in 2014 the  lowest-cost bronze plan available would have been considered  unaffordable to older individuals with household income between, for  example, 401 and 500 percent of the FPL. However, in nearly all rating  areas such coverage was likely affordable for younger individuals  regardless of their household income. The affordability of the lowest- cost bronze plans also varied by location and income for a family of four  with two parents aged 40 years old and two children under 21 years of  age. (See fig 2. For a more detailed version of the maps included in fig. 2,  see appendix III.)
Based on nine household scenarios we examined, the affordability of the  lowest-cost bronze plans available varied across different demographic  subsets in the United States, for example:  Individual age 60-years-old: A 60-year-old individual with household  income at 450 percent of the FPL would have had to spend greater  than 8 percent of their household income for the lowest-cost bronze  plan in most (84 percent) of the 501 rating areas in the United  States. Specifically, in 17 percent of rating areas such an individual  would have had to spend greater than 12 percent of their household  income, in nearly two-thirds (67 percent) of rating areas they would  have had to spend greater than 8 through 12 percent, and in   16 percent of all rating areas they would have had to spend from 4  through 8 percent of their household income on the lowest-cost  bronze plan. Even with somewhat higher household income at   500 percent of the FPL, the lowest-cost bronze plan would be  considered unaffordable for older individuals in most rating areas   (72 percent). Moreover, in the most expensive rating area for a   60-year-old individual (counties near Albany, GA), the lowest-cost  bronze plan had an annual premium of $9,487. Among those with  income too high to receive the APTC, this plan would have been  considered unaffordable for a 60-year-old individual if they earned  between $46,797 (401 percent of the FPL) and $118,588   (1,016 percent of the FPL) in that rating area.
Individual age 27-years-old: The lowest-cost bronze plan would  have been considered affordable in all but one rating area for a   27-year-old with income too high to receive the APTC. In nearly half  (47 percent) of all rating areas, such individuals with household  income at 450 percent of the FPL, for example, would have had to  spend from 4 through 8 percent of their income on the lowest-cost  bronze plan, and in 53 percent of rating areas they would have had to  spend less than 4 percent of their income. There is only one rating  area where 27-year-olds with household income greater than   400 percent of the FPL would have had to spend greater than   8 percent of their household income on the lowest-cost bronze plan.  In the most expensive rating area for a 27-year-old (the state of  Vermont), the lowest-cost bronze plan had an annual premium of  $4,032. Among those with income too high to receive the APTC, this  plan would have been considered unaffordable for a 27-year-old  individual if they earned between $46,797 (401 percent of the FPL)  and $50,400 (432 percent of the FPL) in that rating area.
Married couple age 40-years-old with two children under   21-years-old: In 75 percent of all rating areas such a family with  household income at 450 percent of the FPL would have had to spend  from 4 through 8 percent of its household income on the lowest-cost  bronze plan, and in 25 percent of all rating areas it would have had to  spend greater than 8 through 12 percent of its household income. In  one rating area such a family would have had to spend greater than  12 percent of its household income. In the most expensive rating area  for a married couple aged 40 with two children and household income  too high to receive the APTC (counties near Albany, GA), the lowest- cost bronze plan had an annual premium of $13,374, which would  have been considered unaffordable for such a family if it earned  between $95,639 (401 percent of the FPL) and $167,176 (701 percent  of the FPL) in that rating area.
Changes in premiums for plans offered on the individual exchanges  between 2014 and 2015 likely affected variation in the affordability of  lowest-cost bronze plans by rating area in 2015. Studies have estimated  that, while the average cost of premiums for the reference or lowest-cost  plans have changed only modestly between 2014 and 2015, average  premiums increased significantly in some rating areas and decreased  significantly in others.
section_title: Even Those with Affordable Premiums Could Face Challenges Maintaining Minimum Essential Insurance Coverage and Paying for High Out-of-Pocket Costs
paragraphs: Regardless of the affordability of premiums, some may face challenges in  maintaining minimum essential coverage, and for those who retain  insurance, obtaining health care may be costly. For example, among  those eligible for the APTC, some may experience changes in their  income that affect their eligibility, which may lead to coverage gaps or  discontinuity in coverage. It is too soon to know how many people  became ineligible for the APTC in 2014, but experts we interviewed and  studies of past years’ data indicate that income changes are fairly  common, particularly among those with lower incomes.
Changes in employment status and family composition can change  enrollees’ eligibility for certain types of insurance, which could lead to  challenges maintaining health insurance. For example, a change in  employment status can affect eligibility for ESI, the most common form of  insurance for the nonelderly. One survey found that among nonelderly  adults who reported having had a gap in ESI coverage in 2011,   67 percent reported that it was due to a change in employment status.Changes in family composition can also cause challenges for people  seeking to maintain health insurance. For example, divorce can cause  one spouse to lose access to the other’s ESI, or may change household  income such that eligibility changes for federal subsidies or Medicaid.
Even if individuals are able to maintain health insurance that meets the  criteria for minimum essential coverage, obtaining medical care may be  costly. When enrollees receive health care services, they are often  responsible for cost-sharing payments such as copayments or  coinsurance. Enrollees’ cost-sharing responsibilities for silver, gold, and  platinum plans are lower than for bronze plans, but out-of-pocket costs for  all plans can be considerable depending on an enrollee’s health care  needs and the structure of one’s health plan. Insurers can structure plans  to charge more or less for certain services or medications, as long as the  out-of-pocket costs are limited to no more than $6,350 per year for in- network goods and services for single coverage of those with incomes  above 250 percent of FPL. of FPL ($28,725), $6,350 represents about 22 percent of their annual  income.
This limit does not include premiums, balance billing amounts for non-network providers  and other out-of-network cost-sharing, or spending for non-essential health benefits that  are not covered by the plan. required to contribute toward a plan’s deductible, and are ineligible for  federal cost-sharing subsidies. Furthermore, experts told us that some  insurers have limited the networks of providers covered by the plans  offered on the exchanges. Experts explained that restricting networks  allows insurers to reduce premiums by limiting the number of provider  choices, but increases the possibility that a provider sought by an enrollee  will be out-of-network.
section_title: Concluding Observations
paragraphs: This report provides an early look at the effect of the tax credits and  affordability of health insurance under PPACA, finding that evidence  suggests that the APTC likely contributed to an expansion of health  insurance coverage because it significantly reduced the cost of premiums  for those eligible. However, the effects of the APTC and the affordability  of health insurance in 2014 and beyond is uncertain for several reasons.  First, complete data on the number of people who claimed the APTC in  2014 and the amount of the APTC claimed are not yet available because  of the limited data reported from most state-based exchanges as well as  the lag time during which enrollees file taxes and IRS completes  reconciliation. Second, insurers will likely adjust premiums in exchange  plans as more data become available about enrollees in the exchanges,  including how the health profiles of exchange enrollees compares to that  of enrollees previously purchasing individual insurance or ESI. Thus,  trends for premiums in exchange plans may not stabilize for several  years, although PPACA established certain requirements intended to  reduce variation. Third, health insurance premiums are in large part  driven by the underlying costs of health care. While the rate of growth of  health care costs has slowed in recent years, there is no guarantee that  such a trend will continue. As a result, it is important to note that our  findings about the first year of the exchanges cannot be generalized to  future years.
section_title: Agency Comments
paragraphs: We received technical comments on a draft of this report from HHS and  IRS and incorporated them as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of the Department of Health and Human  Services, the Commissioner of the Internal Revenue Service, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or DickenJ@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix IV.
section_title: Appendix I: Potential Effects of Changing the Affordability Threshold for Employer- Sponsored Insurance
paragraphs: In addition to the two objectives we addressed in this report, PPACA  mandated that GAO review what is known about the potential effects of  lowering the employer-sponsored insurance (ESI) affordability threshold.Under the 2014 income threshold, “affordable” means that employees’  premium contribution for a self-only plan must cost no more than   9.5 percent of their household income.
Our literature review found no peer-reviewed studies that have examined  the effects of lowering the ESI affordability threshold below 9.5 percent of  household income. mixed potential effects. Lowering the ESI affordability threshold would  shift more of the cost of premiums onto employers—that is, employers  would have to increase their contribution towards employees’ premiums.  Some experts stated that such a shift could encourage some employers  to discontinue offering health insurance. In particular, experts told us that  employers most likely to discontinue are those that employ a low-wage  workforce. These employers face less competition in attracting lower-paid  workers than higher-paid workers, so they have less incentive to offer  health insurance coverage to attract workers. Employers with more than  50 full-time equivalent employees that do not provide health insurance  coverage would be subject to the tax penalty on employers if any of their  employees obtain health insurance coverage through the exchanges with  assistance from the advance premium tax credit (APTC). One expert  commented that employers that cease offering health insurance may also  choose to compensate employees for the loss of health insurance by  increasing wages. Alternatively, one expert told us that employers that  choose to continue offering health insurance might adjust employees’  compensation packages to account for an increase in the employer  contribution to health insurance premiums. These employers would avoid  the tax penalty on employers that fail to offer affordable health insurance  to employees.
See appendix II for details on our search for studies. such an increase is unclear. Federal costs would increase if employers  stop offering health insurance and employees that subsequently seek  exchange coverage are eligible for and claim the APTC and cost-sharing  subsidies. At the same time, federal tax revenue may also increase if  employers dropping health insurance raised taxable wages and paid  employer penalties because of their failure to offer health insurance.  However, experts told us this increase in tax revenue would likely not be  high enough to offset the increase in federal costs from employees’ APTC  and cost-sharing subsidy claims.
Because studies have estimated that relatively few people have an offer  from their employer of self-only health insurance coverage that exceeds  the affordability threshold of 9.5 percent of household income, relatively  few are likely to be affected if the threshold were lowered. Three studies  varied in their estimates, with the highest estimating up to 1 million people   In comparison, the Congressional Budget Office  may have such an offer.(CBO) estimates that in 2014, 156 million nonelderly people received ESI  coverage. The three studies found:
The Agency for Healthcare Research and Quality (AHRQ) estimated  that about one million people with household incomes between 139 to  400 percent of the federal poverty level (FPL) have an unaffordable  offer.
CBO estimated that between 0 and 500,000 people had an  unaffordable offer in 2014 and sought coverage on an exchange.
Congressional Budget Office, Updated Estimates of the Effects of the Insurance  Coverage Provisions of the Affordable Care Act (Washington, D.C.: Congressional Budget  Office, April 2014).
Another study combined different data sets to generate estimates of  the number of households that had an unaffordable ESI offer.study found that if employers keep employee contributions at the  national average (which the study authors calculated as 20 percent for  self-only coverage in 2009), no employees’ contribution would have  exceeded the ESI affordability threshold in 2009.
These studies estimated that a relatively low number of people are  offered ESI coverage that exceed 9.5 percent of their income because  generally, employee contributions for self-only ESI coverage are small  compared to income. The average ESI premiums in 2014 were $6,025  per year for single coverage, and employees contributed about $1,081,   Employees with household income of more than $11,380  on average.would be considered to have affordable premiums.
section_title: Appendix II: Objectives, Scope and Methodology
paragraphs: To describe what is known about the effects of the Advance Premium Tax  Credit (APTC) and the small employer tax credit on health insurance  coverage, as well as what is known about the potential effects of  changing the employer-sponsored insurance (ESI) affordability threshold,  we conducted a structured literature search for studies. To conduct this  review, we searched over 30 bibliographic databases, including  ABI/INFORM Global, MEDLINE, and WorldCat, for studies on these  topics published between January 1, 2010, and November 12, 2014. Two  analysts independently reviewed each of the results for relevance and  then reconciled differences. We determined that a study was directly  relevant to our objectives if it: (1) included empirical analysis related to  the effects of the APTC or the small employer tax credit on the provision  of health insurance or maintenance of health insurance; or (2) analyzed  the effects of changing the ESI affordability threshold on the actions of  employers, employees, or the federal budget. To supplement our search  of reference databases, we:  searched the Internet using Google.com and terms such as “APTC  maintain health insurance” and “surveys insurance Patient Protection  and Affordable Care Act (PPACA)”;  searched the websites of health policy research organizations such as  the Henry J. Kaiser Family Foundation (KFF), the Urban Institute, and  the American Enterprise Institute; and asked the experts we interviewed to recommend sources of literature  that would address our objectives.
Through all of these literature searches, we identified 23 studies that were  useful for the objectives of our report. Among these studies, we identified  summary results from three surveys that estimated the change in the rate  of uninsured nonelderly adults between 2013 and 2014 by household  income amounts comparable to APTC eligibility limits. These surveys  generally had low response rates and small sample sizes, which can  introduce potential errors in estimating individuals’ health insurance  status, especially by population subgroups, such as by individuals’  household income or type of health insurance coverage. Table 5 provides  a summary of the response rate, sample size, and margin of error for  these three surveys. To improve the reliability of estimates produced from  the survey results, the studies’ authors used certain sampling  methodologies, such as stratified sampling to over-sample populations  commonly underrepresented in such surveys (e.g., low-income  populations), and weighted regression models. In addition, the authors  validated their estimates against prior estimates from larger, more  rigorous surveys, such as the American Community Survey, and found  their estimates to be generally comparable, though with small differences  in some cases. Because of these approaches to improve reliability, we  determined the studies were sufficiently reliable for our purposes.
We also reviewed laws, regulations, and guidance related to PPACA’s  individual mandate, the APTC, the small employer tax credit, individual  exchange regulation, and the ESI affordability threshold. We also  reviewed the legislative history of the ESI affordability threshold.
We interviewed a range of experts to explore what is known about the  effects of the APTC and the small employer tax credit on health insurance  coverage and what is known about the extent to which health benefit  plans are available and individuals are able to maintain minimum  essential coverage, as well as what is known about the potential effects of  changing the ESI affordability threshold. We asked experts at 11 research  and industry organizations, in addition to officials at the Department of  Health and Human Services (HHS) and the Internal Revenue Service  (IRS), about their work related to the potential effect of tax credits on  health insurance coverage, the types of individuals that may have more or  less difficulty maintaining minimum essential coverage, and the potential  effects on employers, employees, and federal costs of changing the ESI  affordability threshold (we did not ask every question of every expert). We  chose these experts based on relevance of their published or other work  to our objectives.
To further analyze what is known about the effects of the small employer  tax credit on health insurance coverage, we requested summary data  from the IRS on small employer tax credit claims, the number of  employee premiums covered, and the total cost of the credit that IRS  provided for tax years 2011 and 2012. Data on tax year 2013 and 2014  were not available at the time of our analysis. To assess the reliability of  the data, we reviewed the data and supporting documentation for obvious  errors, as well as IRS’s internal controls for producing the data. found the data to be sufficiently reliable for our purposes. To supplement  these data, we also incorporated summary data from our previous report  on this topic.
Internal control is a process effected by an entity’s oversight body, management, and  other personnel that provides reasonable assurance that the objectives of an entity will be  achieved. premiums for all health plans offered in the individual health insurance  exchanges by rating area, excluding New York. KFF compiled the data  using HHS’s Centers for Medicare & Medicaid Services’ Landscape file,  which, for 2014, captured data on premiums for plans participating in the  34 federally facilitated exchanges and 2 state-based exchanges that used  the federal website, http://www.healthcare.gov, for enrollment. KFF  supplemented the Landscape file data with data on premiums for plans  offered in the other 15 state-based exchanges, which it acquired by  reviewing health insurance companies’ rate filings in each state and  validating these data through state exchange websites when possible.  We assessed the reliability of these data by: interviewing KFF officials  about how they compiled and validated the data as well as their internal  controls, testing the data for duplicate data and outliers, and comparing  the publicly available Landscape data on federally facilitated exchanges  to the KFF data. Second, from the state of New York, we obtained  premium data for plans offered through the state’s individual exchange  during the initial open enrollment period (October 1, 2013, through   March 31, 2014). To assess these data for reliability, we checked the data  for outliers and validated selected data through the New York state  exchange website. We found both the KFF data and the New York data to  be sufficiently reliable for our purposes.
We used the 2013 federal poverty level because 2014 eligibility for APTC and Medicaid  was based on the 2013 level. individual or household would need in order to pay 8 percent of  household income for the lowest-cost bronze plan available by rating  area.
We conducted this performance audit from July 2014 through March 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix III: Affordability of the Lowest-Cost Bronze Plan, by Rating Area
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: John E. Dicken, (202) 512-7114 or dickenj@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Kristi Peterson (Assistant  Director), Anna Bonelli, Christine Davis, Leia Dickerson, Giselle Hicks,  Katherine Mack, James R. McTigue, Jr., Yesook Merrill, Laurie Pachter,  Vikki Porter, and Jennifer Whitworth made key contributions to this report.