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The Affordable Care Act (aka ACA, Obamacare), an act dedicated to affordability and health insurance for all, issued great news after the massive 8 million enrollment spree – the ACA has provided 7 out of 10 Americans better health insurance coverage at less than $100 per month. The Department of Health and Human Services (HHS) released these statistics after open enrollment, showing that the federal subsidies are making health insurance affordable on the health insurance exchanges. Let’s take a closer look at federal subsidies and the outlook for health insurance premiums next year.

The study conducted by HHS analyzed the enrollments through the federal exchange, and found that out of 5.4 million people who enrolled through the federal exchange, 69 percent have monthly premiums under $100 per month; 46 percent have premiums under $50 per month –these numbers were made possible by the federal subsidies issued to people who are earning up to 400 percent of the poverty level. Another interesting piece of data is that 87 percent of the 8 million enrollees received subsidies on their health insurance purchase.

The average price, after health insurance subsidies, is roughly $82 per month. The premium cost reduction is about 76 percent for premiums averaging around $346 per month for silver plans. For basic plans, the average was $249 per month, with subsidies covering most of those costs. HHS also found out that of 28.6 million people eligible for subsidies, only 28 percent took advantage of the benefit. A major problem was the awareness of available tax credits.

Now, the administration wants to ensure that they put their efforts toward educating people and making them aware of the subsidies available to them. This is imperative for the administration for two primary reasons – the upcoming open enrollment period will give people another chance to enroll for health insurance and the chance of an increase in health insurance premiums for next year. Traditionally, health insurance premiums have demonstrated a growth of about 10 percent every year, and the same should be true post ACA. Until now, it is expected that some health plans might try to lower premiums, but most are vying for an insurance premium increase of roughly 10 percent across all states.
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The only challenge is that there is limited information from few carriers about the impact of ACA on the health insurance premiums. There is localization of rates, too much variance and the general unpredictability of the individual health insurance market. The insurance market is extremely volatile and constantly adjusting – even the ACA might not be able to counter that effect. True, the ACA will help Americans handle extreme fluctuations of premiums, but a downright stability in insurance premiums would be reaching even for Obamacare. The mandates of the law are designed in a way that there is no sudden increase in insurance premiums across the country.

For increases beyond 10 percent, health insurance firms will have to justify their increase during state review meetings. Further, premiums can be affected by family size, age, smoking status and location, but other variables, such as medical history or preexisting medical condition, cannot be featured in the calculation. Tax credits and subsidies, on the other hand, will function as strong safeguards for families that cannot afford health insurance, even if there is a country-wide rise in premiums.

While the mechanisms to check sudden rise in healthcare costs in place, the Congressional Budget Office (CBO) estimates that the insurance premiums will rise by about 3 percent in 2015. Going onward, the annual rise will be 6 percent from 2015 to 2024. Even then, this increase is much more stable and safe as compared to the norms existing before ACA implementation.

In the end, Americans are getting better, affordable health insurance courtesy of the federal subsidies, but health insurance premiums will continue to rise. ACA is checking the rise and once actionable data post ACA implementation is available, we should be able to get a better estimate of rate increases in future. Until then, federal subsidies are enough to buttress needy families in the wake of rising insurance premiums. The bigger question is what will happen with the latest ruling on subsidies only being available on “State-based exchanges” and not healthcare.gov? We will have to wait and see how the appeals process goes and what impact will be had.

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