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

Letter

Background

PPACA Health Insurance Requirements and Subsidies

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.

Employer-Sponsored Insurance under PPACA

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.

Small Employer Tax Credit

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.

Early Evidence Suggests That While the APTC Likely Contributed to an Expansion of Coverage, the Small Employer Tax Credit Has Had Little Effect

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.

The APTC Likely Contributed to an Expansion of Coverage by Reducing the Cost of Health Insurance Premiums to Those Eligible

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.

Few Employers Claimed the Small Employer Tax Credit, Limiting Its Effect on Health Insurance Coverage

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.

While Most Nonelderly Adults Had Access to Affordable Health Insurance Coverage, Maintaining Minimum Essential Coverage May Be Challenging for Some

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.

Most Nonelderly Adults Had Access to Affordable Coverage

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.

Some Groups of Nonelderly Adults May Lack Access to Affordable Health Insurance Coverage

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.

Low-Income Individuals Living in Medicaid Nonexpansion States

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.

Some Families with ESI

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.

Some Individuals without Affordable ESI Who Are Not Financially Eligible for the APTC

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.

Even Those with Affordable Premiums Could Face Challenges Maintaining Minimum Essential Insurance Coverage and Paying for High Out-of-Pocket Costs

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.

Concluding Observations

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.

Agency Comments

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.

Appendix I: Potential Effects of Changing the Affordability Threshold for Employer- Sponsored Insurance

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.

Appendix II: Objectives, Scope and Methodology

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.

Appendix III: Affordability of the Lowest-Cost Bronze Plan, by Rating Area

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

John E. Dicken, (202) 512-7114 or dickenj@gao.gov.

Staff Acknowledgments

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.