Though open enrollment in the Affordable Care Act’s insurance marketplaces continues through February 15, December 15—today—is the last day for consumers in most states to actively enroll in a health plan and have that coverage take effect on January 1. Thanks to an automatic renewal process, coverage will continue for most of those who already had a marketplace plan and didn’t return to shop by this deadline. However, while auto-renewal can help people avoid a gap in their coverage, shopping for a plan is the best way for people to get a good deal on coverage and maximize the value of their premium tax credit.
In the federally facilitated marketplace, those who are auto-renewed will have the dollar amount they were receiving in premium tax credits in 2014 carried forward into 2015. But because changes in plans, personal circumstances, and other factors will almost always dictate a different tax credit amount for next year, auto-renewal can also expose enrollees to an unexpected increase in premium or, in some cases, tax liability.
We surveyed 17 state-based marketplaces about their approaches to coverage renewals and found that a number of them took advantage of the flexibility provided under federal rules to reduce consumers’ potential financial risk. Others, largely because of changes to their IT systems, required enrollees to return to the marketplace to maintain their coverage or financial assistance, thereby encouraging consumers to shop around for the best deal.
Why Might an Enrollee’s Tax Credit Change Each Year?
The amount of an individual’s federal tax credit is pegged to the premium for the second lowest-cost silver plan (also called the benchmark plan). For 2015, competition among plans led to a new benchmark rate in almost all markets. For example, every county in Kentucky will have a new benchmark plan in 2015. In Washington, the benchmark plan changed in 27 of 39 counties, affecting 90 percent of marketplace enrollees; Colorado reported similarly dramatic changes. In Oregon, a different insurer is offering the benchmark plan in five of the state’s seven rating areas; California reported that the benchmark plan changed in 14 of its 19 rating regions.
If the price of the benchmark plan went down for 2015, a consumer’s tax credit should decline too, all else equal. The estimated amount carried forward from 2014, therefore, would be too high and the excess would have to be paid back on next year’s tax return. Conversely, if the price of the benchmark plan rose, the enrollee may receive a credit that is too small. While such a shortfall would be corrected at tax time, the reduced assistance in the interim could make premium payments unaffordable.
Changes in the price of benchmark plan premiums are not the only reason why enrollees' tax credits may fluctuate. Changes to the price of an individual’s existing plan (including premium adjustments as a result of enrollees growing older); to household income or family circumstances; and to federal poverty level guidelines used to determine who is eligible for a subsidy all mean that the tax credit calculated for last year could differ from that for 2015.
How Are State-Based Marketplaces Managing Renewals?
Exhibit 1 outlines how the federally facilitated marketplaces and the state-based marketplaces handled auto-renewal. The California, Colorado, Connecticut, Washington, D.C., Kentucky, Vermont, and Washington marketplaces tried to improve consumers' experiences by ensuring those who are auto-renewed receive a more accurate premium tax credit. (Consumers in these states still need to report changes in income and family circumstances as they occur.) Enrollees who are auto-renewed in other states will likely receive either too much or too little in premium tax credits because of changes to the benchmark plan and other factors.
Exhibit 1. State and Federal Approaches to Auto-Renewal
|Marketplaces||Allows automatic renewal of coverage?||Method for estimating 2015 premium tax credit for auto-renewed coverage|
|California, Colorado, Connecticut, District of Columbia, Kentucky, Vermont, Washington||Yes||Tax credit amount is updated using 2015 plan premiums and current federal poverty level guidelines|
|Federally facilitated marketplaces, Hawaii, Minnesota, New Mexico, New York||Yes||Tax credit amount from 2014 is carried forward unless consumer updates account and selects plan|
|Idaho, Maryland, Nevada||Yes||Tax credit is not available unless consumer updates account and selects plan|
|Massachusetts, Oregon, Rhode Island||No||Tax credit is not available unless consumer updates account and selects plan|
|Source: Authors' analysis of published materials and survey responses.|
It was critical for the marketplaces to renew the coverage of the estimated 6.7 million people currently enrolled in marketplace plans and who still need insurance in 2015. The marketplaces had to accomplish this with IT systems that remain limited and a shorter open enrollment period than last year. They also had a challenging message to convey to enrollees about how year-to-year changes in health plans and personal finances can affect the cost and cost-sharing of their insurance.
Looking forward, as policymakers assess how consumers fared during this first reenrollment through the marketplaces, it will be important to understand how states' actions affected consumers’ access to affordable coverage, as well as overall enrollment. We should particularly monitor consumers in states that adjusted premium tax credits under federal rules to minimize enrollees’ financial risk. Meanwhile, consumers in all states who want to get the best price for coverage and maximize the value of their premium tax credit have until February 15, 2015, to return to the marketplace to shop.