Federal Government’s Uncertainty on Health Care May Ruin the Financial Planning of Californians
The federal government is still uncertain about whether it wants to continue vital health care insurance subsidy for the next year or not. If a decision is not made soon, the cost of health insurance may rise considerably for Californians, harming their financial plans.
When Will the Financial Planning Fate of Californians Be Decided?
If the federal government has not calcified its stance on a vital health insurance subsidy by mid-August for consumers next year, the California’s state-run exchange plans to instruct its insurers to sell the plans that have significantly higher premiums in order to cover the loss of the money.
Potentially Higher Rates
Amy Palmer who currently serves as the Director of Communications for Covered California, the official health care marketplace of California, recently shared her opinion on the matter. She mentioned in an email that the organization has come to the conclusion that if the federal government fails to fund the subsidies by mid-August, the organization will presume that it will not be funded by the government anymore and use higher rates for the year 2018.
These cost-sharing subsidies reduce the out-of-pocket costs for medical expenses including hospital stays, prescription drugs, physician visits, etc. These reduced rates are only available to the enrollees of Covered California who opt for silver-level plans. It is the second-least expensive among the four tiers of the exchange. These subsidies mainly benefit those who earn an annual income between 139 percent and 250 percent of federal poverty level (or $34,200 USD to $61,500USD) for a family of four.
As of last summer, about half of the enrollees of the exchange benefitted from the cost-sharing reductions, said Palmer. Half of the enrollees come around to around 1.4 million people.
One must know that these subsidies are quite different from the federal health law’s tax credits that reduce monthly premiums for qualified consumers. These subsidies are currently being challenged in a pending lawsuit filed by the House Republicans, and the President has already threatened to stop making the payments.
An analysis by Covered California has recently estimated that the premiums for silver plans would most likely increase by 16.6 percent if federal funding for cost-sharing subsidies were lost.
A few days back, Covered California had instructed all the participating insurers to submit alternative premium hike proposals for the year 2018 in case they lose the federal payments. They were also told to apply the hikes only to silver-tier plans as those would be affected most.
The rate proposed by insurers were due to Covered California by June 30, 2017. The exchange couldn’t afford to wait too long for deciding which rates will be faced by customers in 2018, stated Palmer. State regulators would still need to review the rates and Covered California and health plans will also need some time to prepare for open enrollment that is expected in the fall.
Working Toward Stability
In another email written by Covered California Executive Director Peter Lee, it was stated that the agency is working hard to create the vital market stability while learning about health plans exiting some markets. The agency is also waiting for a clear guidance by the federal government on whether the subsidy is available or not.
Lee also mentioned that if Covered California adopts the higher premiums in order to cover the cost of subsidies, numerous consumers would nevertheless be protected from them because as premiums rise to make up for the loss of the cost-sharing subsidies, the federal tax credits would grow to offset those higher premiums. As a result, the financial planning of most enrollees would remain the same.
In another email from Lee to Seema Verma, who currently serves as Head of the Centers for Medicare & Medicaid Services, it was mentioned that if the federal government continues to pay subsidies on health care insurance to keep the financial planning right for millions of people, the costs would be significantly more than the amount the federal government would pay if it continues to make direct payments for the subsidy.