Health Insurance Subsidies When You Add or Subtract Family Members

The premium changes can be counter-intuitive

Family circumstances change, and so do your health insurance needs and premiums.
When your family's health insurance needs change, you might find that your premium changes are counter-intuitive. danleap/Creative RF/Getty Images

If you buy your own health insurance (as opposed to getting it from an employer), you're probably aware by now that there are premium subsidies available through the exchanges if your income is within the eligible range.

Beyond that however, there's still plenty of confusion about exactly how the subsidies work. One question that frequently comes up has to do with how premiums change when family members are added to the plan or removed from the plan.

Changes in ACA Subsidies Can Be Confusing

In some circumstances, the interaction between income, family size, and exchange enrollment creates results that can be counter-intuitive—things like a decrease in after-subsidy premiums when you add a new baby to the plan, or no change in after-subsidy premiums when a family member switches to other coverage, like Medicare.

There are a few points to keep in mind here:

  • The subsidies are designed to limit the amount you pay for your household's coverage through the exchange. But amounts you pay for other coverage outside the exchange (e.g., from an employer, or from Medicare) are not applied to the limit.
  • Your household's total income is taken into consideration, regardless of how many family members are enrolling in the exchange plan. 
  • The total number of people in your household are counted in terms of determining where your income is in relation to the poverty level, regardless of how many family members are enrolling in the exchange plan.
  • For the most part, your income is what's reflected on your tax return. But there's a provision to allow young adults to remain on their parents' health insurance until they turn 26, regardless of whether the parents claim them as dependents. If a young adult is included on his or her parents' health insurance plan through the exchange, the young adult's income would be added to the parents' income for subsidy eligibility determination, even if they file their own tax returns.

    The Kaiser Family Foundation has a subsidy calculator that allows you to either pick a state, or use the US average. For these examples, we'll use the US average, but you can play around with the calculator and get more exact numbers for your own situation.

    Here are some scenarios that will help you understand how the subsidy is calculated and how it relates to your household. In all cases, the examples use the Kaiser Family Foundation calculator, and rates are based on the US average costs, assuming the enrollees select the second-lowest-cost silver plan (i.e., the benchmark plan).

    Spouse Moving Onto Medicare

    Bob and Sally Smith are 60 and 64, respectively. They both have coverage in the exchange under the benchmark plan in their area, and their household income is $50,000. Using the U.S. average costs, their subsidy in 2016 is $934 per month, and their after-subsidy premium is $403 per month (9.66 percent of their household income, since $50,000 is between 300 and 400 percent of the poverty level for a household of two; this will increase to 9.69 percent in 2017).

    Now let's say Sally turns 65 and moves onto Medicare. She'll likely qualify for premium-free Medicare Part A, but she'll have a monthly premium for Medicare Part B, and if she opts for supplemental coverage, she'll also have a premium for a Medigap plan and Part D prescription drug coverage

    But even though she'll be paying premiums for some parts of her Medicare coverage, those premiums will not be counted towards the 9.66 percent of household income that the Smiths are expected to pay for the benchmark plan in the exchange.

    So when you run the numbers again, with a household of two but only one person (Bob) enrolling in coverage through the exchange, you still come up with an after-subsidy premium of $403 per month. The total subsidy amount will only be $232 per month, however, instead of the $934 per month subsidy that the Smiths were getting when Bob and Sally were on the exchange plan together.

    This is because they still have a household of two people, and a household income of $50,000. That puts them at 314 percent of the poverty level (2015 poverty level guidelines are used to determine subsidy eligibility for plans with 2016 effective dates; this is always the case, with the prior year's numbers being used until open enrollment starts in the fall).

    Since the household's income is at 314 percent of the poverty level, the household's maximum total after-subsidy premium for the benchmark plan in the exchange is 9.66 percent of the household's income. It doesn't matter how many members of the household are actually enrolled in the exchange plan, or how much the household spends in premiums for other plans outside the exchange.

    Adding Your Spouse to Your Plan

    Amy and Bill are 51 and 53. They've been married several years, and Amy has had her own health insurance from her employer. Her employer doesn't offer coverage for spouses, so Bill has been getting coverage in the exchange since 2014 (note that if Amy's employer did offer coverage to spouses, Bill would not have been eligible for a subsidy in the exchange as long as Amy's insurance was affordable for just her own coverage—this is known as the family glitch, but it doesn't apply in this case since Bill wasn't eligible to join Amy's plan).

    Amy and Bill's household income is $48,000 per year. Based on the US average, Bill pays $386 per month for the benchmark plan in the exchange, and the remaining $91 per month is covered by his subsidy. 

    Now let's say Amy's employer stops offering health insurance. Loss of coverage is a qualifying event, which means Amy can enroll in a plan in the individual market. If she joins Bill on his plan, the after-subsidy cost of the plan will still be $386 per month, but the subsidy will jump to $527 per month. Amy and Bill are still a household of two, and their income is still the same 301 percent of the poverty level that it was before. So they still have to pay the same percentage of their income for the benchmark plan in the exchange—it just covers two of them now, instead of one.

    This scenario would be different, however, if Amy and Bill were newlyweds. Getting married is also a qualifying event, and assuming Amy didn't have coverage from her employer, she'd be eligible for subsidies in the exchange. But prior to getting married, Bill would have been a household of one, with only his own income counted for subsidy-eligibility determination. Once a couple gets married, their income is counted together, and they're a household of two (assuming they don't have other dependents) in terms of comparing that income to the poverty level. 

    Let's say Bill's income is $20,000 and Amy's is $28,000, and neither of them have access to an employer's plan. Prior to getting married, Bill pays $83 per month for the benchmark plan, and a subsidy of $394 per month pays the rest of his premium. Amy pays $181 per month, and her subsidy is $255 per month.

    Once they get married, their household income is $48,000. Their total after-subsidy premium for the benchmark plan for the two of them is now $386 per month, and their total subsidy is $527 per month.

    The reason they're paying higher total premiums after they get married is that their total household income is a higher percentage of the poverty level for a household of two than either of them had for a household of one. In order to receive subsidies, married couples must file joint tax returns—they do not have the option to file separately and claim the higher total subsidy that they had prior to getting married.

    Adding a Child

    In 2013, the federal government finalized rules for setting rates in the new ACA-compliant insurance market. The final rule states that for a single household, no more than three children under the age of 21 will be counted for the purpose of determining the family's premium.

    Children from the ages of 21 to 25 are all counted, regardless of how many there are, or how many additional children younger than 21 are in the household. 

    Tom and Renee are 40 and 39, and they have three kids, ages two, four, and seven. They earn $80,000 per year, and have their family enrolled in the benchmark plan through the exchange. Based on the US average rates, they're paying $608 per month for their coverage, after a subsidy of $432 per month picks up the remaining premium.

    If Tom and Renee have a fourth child, they will still be paying $608 per month, and their subsidy will still be $432 per month. They can add the new baby to their plan (that's a qualifying event), but their pre-subsidy rates won't change, so neither will their subsidy amount or their after-subsidy premiums.

    Compare that with an alternate scenario where Tom and Renee have two children, and then add a third child to their family. Initially, they are a family of four, and their after-subsidy premium is $644 per month, with a subsidy of $247 per month picking up the rest.

    Once the third baby is born, they're a family of five, and their after-subsidy premium is $608 per month, after a subsidy of $432 per month. Their after-subsidy premium actually goes down when they add a third child, because their income is now a smaller percentage of the poverty level, since they've become a household of five instead of four.

    But let's imagine that Tom and Renee have an income of $140,000 per year—well above the threshold for subsidy eligibility, even with five family members. In that case, they would be paying the full premium themselves. If they go from three children to four, they won't pay any additional premiums. But if they go from two children to three, their total family premium will rise from $891 per month to $1,040 per month. With a subsidy-eligible income, the subsidy picks up the extra cost to add the third baby. But with an income above the subsidy eligibility threshold, they'll have to pay the extra premium themselves.

    Seek Help If You Have Questions

    If you have questions about how your premiums will change based on various life changes, you can use a subsidy calculator, or reach out to the exchange in your state for help. A trusted broker or local navigator in your community will also be able to help you make sense of it all, and there won't be any charge for their services.

    Sources:

    Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, Overview: Final Rule for Health Insurance Market Reforms. Accessed 6/7/16.

    Kaiser Family Foundation, Health Insurance Marketplace Calculator. Accessed 6/7/16.

    Office of the Assistant Secretary for Planning and Evaluation, US Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs. Accessed 6/7/16.

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