Tax credits will offset PPACA sticker shock

The law is likely to increase the sticker price for individually purchased coverage next year for several reasons:

• Insurers will have to cover people with pre-existing medical conditions, whose needs are costlier to provide for.
• Policies must provide certain standard benefits, including prescription drugs, mental health and substance abuse treatment and rehabilitative services.
• Policyholders' annual out-of-pocket costs will be capped.

So far, premiums reported by a number of individual states have been coming in lower than initially projected by the Congressional Budget Office. But they are higher — according to industry and consultants — than what people now typically pay for individual plans, which tend to be bare-bones coverage.

However, the law also will pump in billions of dollars in federal tax credits to help the uninsured pay premiums — and ease cost increases for many who are currently buying the skimpy individual policies. The money will go directly to the insurance plan, and policyholders will pay the difference — a discounted sticker price, in effect.

The tax credits, available on a sliding scale based on family income, will be offered to people who don't have access to affordable coverage through their jobs and buy policies through the new state markets.

Those making between 100-400 percent of the federal poverty level — between $11,500 and $46,000 for an individual and $23,550 and $94,200 for a family of four — are eligible for some level of help. Families on the low end of the scale will pay 2 percent of their income for a benchmark plan, while those on the upper end will pay 9.5 percent.

It's expected that a clear majority of customers in the new markets will be eligible for tax credits. That's because the pool will also include uninsured people, who tend to have lower incomes than those who can currently afford to buy their own coverage. The share will vary from state to state.

HHS Secretary Kathleen Sebelius recently estimated that in Texas, as many as 9 in 10 people buying coverage in the new market will get a break on costs.

People with individual coverage they buy themselves represent a small sliver of those with private insurance, only about 5-6 percent. That's expected to grow significantly under Obama's law, which will require most uninsured Americans to get coverage.

Estimates of the number of people who currently have individual coverage range as high as 19 million, but Claxton said the Kaiser study used a smaller estimate of about 10 million. It's based on an ongoing government survey that some researchers regard as more accurate.

See also:

• How will exchanges check your income?
• Are state and federal exchanges different animals?