Revised Tax Policies Needed to Reduce Individual Market Premiums

March 08, 2019 - Policymakers should revise current tax policies and work to eliminate financial barriers to health insurance in order to reduce individual market premiums, says a new brief from the Blue Cross Blue Shield Association (BCBSA).

Over 14 million people buy health insurance in the individual market, BCBSA noted, including individuals without job-based insurance, workers who aren’t eligible for employer-sponsored health plans, or retirees who aren’t eligible for Medicare. Some of these patients have conditions that require comprehensive care, but purchasing coverage in the individual market can be costly.

“Unfortunately, individual market premiums are often unaffordable for people who do not qualify for financial assistance, and coverage options for these people remain limited,” BCBSA said in the brief.

“For many, the cost of coverage and care is out of reach, with many purchasers required to pay more than 15 percent of their income for health insurance so they can obtain the medical care they need.”

To reduce premiums in the individual market, BCBSA is recommending that policymakers adjust federal assistance, including tax credits to make coverage more affordable and accessible for younger people.

READ MORE: How to Curb Adverse Selection in the Individual Health Plan Market

“The current tax credit provides substantial financial assistance for older consumers who are more likely to need medical care and thus more likely to purchase coverage, while providing more limited assistance for younger people,” BCBSA said.

“Increasing the participation of younger and healthier people while also maintaining financial assistance for older consumers will help provide a better enrollment balance and help bring premiums down.”

BCBSA also suggested that policymakers adjust the tax credit structure so that individuals who aren’t eligible can still afford coverage. Under the ACA tax credit structure, those purchasing coverage on their own receive no financial assistance if their income is 400 percent above the federal poverty level, BCBSA said.

“Today, the average premium for a silver plan for a family of four exceeds $20,000 annually, and individuals who are ineligible for tax credits pay the full price. As a result, many forgo coverage because it is too expensive,” the brief said.

“The existing tax credit structure should be adjusted so that no one purchasing coverage in the individual market would be required to pay more than 12 percent of income for health insurance.”

READ MORE: CMS: Individual Health Plan, Federal Exchange Challenges Remain

Moreover, BCBSA recommended that Congress improve cost-sharing protections and increase the availability of medical care for lower-income individuals.

“The cost-sharing reduction (CSR) program provides significant assistance to help lower-income individuals by reducing or eliminating out-of-pocket costs such as deductibles and copayments when they access medical care,” BCBSA wrote in the brief.  

“However, people with incomes between 200-300 percent of the federal poverty level are required to pay significant out-of-pocket costs that may serve as a barrier to accessing care.”

The association suggested that policymakers expand cost-sharing protections to cover 80 percent of total costs for those between 200 and 300 percent of the federal poverty level, which would ensure that these individuals can afford the care they need.

In addition to adjusting federal assistance policies, BCBSA is recommending that Congress pass laws to lower costs and eliminate financial barriers to increase patients’ access to care.

READ MORE: Individual Insurance Premiums to Soar Without Policy Actions

The association called for policymakers to establish a sustained federal funding system to help support rising costs of care for those with significant medical needs.

“A sustained federal funding mechanism which states could draw on to support the cost of caring for those with serious health conditions is essential to make premiums more affordable for everyone, especially those who do not qualify for a tax credit,” BCBSA said.

“Creating a premium affordability program to support the cost of care for those with serious medical conditions (those with claims in excess of $65,000) would reduce premiums by about 15 percent and cost the federal government less than $3 billion.”

BCBSA also recommended that Congress eliminate the ACA health insurance tax, which would reduce premiums by 2 to 3 percent, and that lawmakers modernize health plans that are associated with health savings accounts (HSAs).

“Currently, high-deductible health plans that are linked to HSAs are prohibited from offering services other than preventive care on a pre-deductible basis. This can create cost barriers to care for patients with chronic illnesses,” the brief stated.

“To provide better management of chronic disease, Congress should permit HSA-qualified health plans to cover high value services before the deductible.”

Finally, BCBSA advised policymakers to increase outreach efforts to ensure people obtain and keep their health coverage, including enabling consumers to automatically renew their health insurance.

“Allowing consumers to auto-renew helps ensure continued enrollment and should be maintained,” BCBSA said. “State efforts to provide incentives for individuals to maintain health insurance coverage also should be supported.”

The association advised that health insurance exchanges provide information on coverage and enrollment status.

“States should have access to aggregated information on health insurance enrollment and income status to determine who is potentially eligible for government assistance in subsidized, qualified health plans, as well as in the Medicaid and CHIP programs,” the brief stated.

“At the same time, Congress should work to simplify the eligibility rules for tax credits to make it easier for people to know whether they qualify for financial assistance to help them purchase coverage.”

With these actions, BCBSA expects that the individual market will become more accessible for those who need it.

“The individual market is a critical source of coverage for people from all walks of life, and it should be strengthened to make coverage more affordable while protecting those with pre-existing conditions,” the brief concluded.