This article was co-authored with: Andrew Sprungwho writes about health care reform and health policy on xpostfactoid. Andrew has closely followed all aspects of the ACA implementation over the years, and his website provides a wealth of information on health care reforms. His work has also been published on healthinsurance.org and Health Affairs.
For most Americans, enrolling in Medicare is reason to celebrate. Finally: affordable, reliable insurance that you can not lose. Medicare registration can involve some complex decisions (do I qualify for any Medicare savings program?) And decisions (Medigap or Medicare Advantage?) Even for many seniors, the burden of premiums and personal expenses is heavy. Still, by American standards, Medicare is reliable and affordable.
However, for “close elderly”; couples (under the age of 65) who are insured through the Health Insurance Marketplace established by the Affordable Care Act, the transfer of the elderly spouse to Medicare may incur stickers and additional costs. This is because ACA premium subsidies are designed so that enrollees pay a fixed percentage of household income for the benchmark (second cheapest) silver plan in their area – and they pay the same percentage (reduced through 2022 by the US rescue plan adopted in March 2021) no matter how many people need insurance.
A couple who paid 8% in premiums for a benchmark silver plan to cover them both will still pay 8% of the income when only one of them is covered in the market. When one of them switches to Medicare, they will pay the marketplace premium plus the Medicare premium. In the illustration below, they will pay somewhere between 11% and 14% of the premium income to cover both of them, depending on whether the Medicare registrant chooses to purchase a Medigap policy.
It is a hole in the ACA promise of “affordable” care. Below we will consider a couple of simple team fixes. Let us first get a concrete idea of how this coverage error unfolds.
Think of Leslie and Luis, who are 64 and 62, respectively. They live in Chicago and are both enrolled in a silver plane via the marketplace. They are self-employed and their total household income (ACA-specific MAGI) is $ 65,000. For a household of two, it is about 373% of the poverty level, which means that they pay about 7.83% of their income for the reference plan. This means that they pay approximately $ 425 / month and their premium tax deduction pays $ 1,000 / month.
Now let’s say they’re a year older and Leslie has switched to Medicare. Luis is 63 and still needs marketplace insurance for another two years. They have continued to be self-employed and their income is still about $ 65,000.
Luis will still have to pay about $ 425 / month for his coverage. They still earn about 373% of the poverty level for a household of two, so they still have to pay about 7.83% of that for the benchmark silver plan for Luis (there would normally be some fluctuations from one year to the next due date to changes in the poverty level and changes in a household income, but keeping everything the same way helps to illustrate how this works).
But Leslie will also have to pay for her Medicare coverage. It can be well over $ 300 / month, depending on which coverage option she chooses. But even with the lowest cost option (ie, a Medicare Advantage plan that has no premium other than the Part B premium), she will pay at least $ 170 / month (if a plan with a “refund” discount is available in her area and meets her needs, she may be able to pay less than $ 170 / month, but that is the exception rather than the rule).
If Luis has the benchmark plan and Leslie pays $ 170 / month for his Medicare coverage, they will pay a total of $ 595 / month in premiums, or 11% of household income. And if Leslie chooses Medigap and Part D, with total Medicare premiums of perhaps $ 325 / month, they will pay nearly 14% * of household income in premiums.
The ACA’s promise to make health protection “affordable” for all according to a defined standard should not cease when a family member reaches the age of 65 (or qualifies for Medicare at an earlier age due to disability). The percentage of income that is considered affordable according to ACA standards, which increases with income, should be sufficient for all household members to be able to receive coverage, regardless of whether everyone qualifies for market coverage.
Perhaps the simplest solution would be to simply add Luis Medicare premiums to Leslie’s premium subsidy. ** Depending on congressional appetite for spending, the rebate may include the $ 170 / month Part B premium; Part B plus the average Part D premium, which is approximately $ 200 / month; or some Medicare Premier Luis documents, e.g. his Medicare Advantage premium or even a Medigap premium. However, as Medigap raises the actuarial value of Medicare far above that of benchmark silver coverage in the market, it is difficult to imagine Congress congressing for such “Cadillac” coverage.
If Congress was more inclined to adapt an ACA approach to the problem, the IRS has already created a solution for people who marry and thus go from single status to joint tax registration status that can be significantly replicated for couples who “lose” a marketplace sign up for Medicare. (Married couples must register jointly to receive a premium tax deduction on the market.
For the year of marriage, there is an alternative calculation that can be used to determine the premium tax deduction for the months before and including the month of marriage. In cases where the combined household income would result in some or all of the premium tax deduction having to be repaid, the IRS allows individuals in that situation to calculate their tax relief as a household of one (or the number of persons in their household previously) to the marriage), with half of it total household income.
What would it be like if a similar provision were implemented when one spouse switches to Medicare, and is allowed to remain until the other spouse is also eligible for Medicare? Let’s take a look at Luis and Leslie’s situation again, but base the premium tax deduction for Luis on a household with a single income of $ 32,500. Luis would now be entitled to a subsidy of $ 605 / month, and his cost for the benchmark plan would be just $ 112 / month (as always there are cheaper plans available, but we stick to the reference value here to compare apples to apples).
Combined with $ 170 / month for Leslie’s coverage, they would pay a total of just over 5% of their household income for their marketplace and Medicare coverage. If Leslie’s coverage ended up in the $ 325 / month range, they would still only pay about 8% of their household income for their health insurance.
The temporary but significant increases in ACA’s marketplace premium subsidies created by the US rescue plan brought ACA much closer than it had been to fulfilling the promise of “affordable” coverage in the name of the law. Americans have responded and increased enrollment by more than 20% during the Open Enrollment for 2022. It is the responsibility of the Democrats in Congress to extend these subsidies beyond 2022.
At the same time, Congress should also try to close the various gaps that remain in the promise of affordable prices, which means that various groups are excluded from coverage that is affordable according to standards set by the ACA. These include the family error, an IRS rule that denies marketplace subsidies for family protection to individuals whose employers offer coverage that is affordable for the individual (which costs less than 9.8% of income) but not for the employee’s family, and the Medicaid cliff, which is shown when Medicaid registrants who qualify according to the ACA eligibility standard (income below 138% of the federal poverty level) turn 65 and do not qualify for Medicaid according to the stricter standards that apply to enrollees over 65 years of age. The Medicare error discussed above makes a trifecta. At moderate costs, Congress can and should close this gap in affordability.
* Some health care expenses in excess of 7.5% of income, including health insurance premiums, may be deducted from your taxable income, if you specify your deductions. Thanks to senior lawyer Lauren Marinaro for points it out.
** Stan Dorn from Families USA pointed out to us in an email that this approach would “borrow a page from Medicaid’s medically ineligible category. There, people qualify for Medicaid by” spending down “a certain amount of their income. So in in this case, the consumer’s required payment for benchmark coverage would be reduced by the amount the family paid for Medicare premiums during the year. “