The Dynamic Duo of Financial Help: Tax Credits and Cost-Sharing Reductions

By Molly Warren

Enroll America surveys and testing have shown that financial help is a key driver of consumer engagement and enrollment. Recent stats on marketplace enrollees underscore how attractive financial help is to consumers seeking health coverage. As of March 2015, 10.1 million Americans were enrolled in coverage through the marketplaces nationwide, and 85 percent of enrollees or 8.6 million Americans got financial help, totaling more than $2 billion per month. The average tax credit reduced premiums by $272 per month to an average cost of about $100 per month for enrollees.

Financial Help: A Quick Refresher

Financial help on the marketplaces comes in two forms: tax credits that reduce consumers’ monthly premiums and cost-sharing reductions that allow consumers to enroll in special plans with lower deductibles, co-insurance, and co-pays. Generally the amount of financial help is based on a sliding scale, with consumers with lower incomes getting more financial help; tax credits are available to consumers with income between 100 and 400 percent of the federal poverty level (FPL) and cost-sharing reductions are for consumers with income between 100 and 250 percent FPL.

In 2015, 85 percent of consumers got tax credits and 57 percent also got cost-sharing reductions. (For a great state-by-state breakdown of financial help, see this Kaiser Family Foundation resource.)

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Do Cost-Sharing Reductions Matter?

Earlier data on enrollment from February 2015 in HealthCare.gov states show an interesting trend: Tax credits allow most marketplace enrollees (66 percent) to select a plan with a premium of $50 or less per month. However, only half of these consumers picked such a plan (33 percent of all enrollees). Why might this be? We think they may be choosing plans with higher premiums but more generous coverage because they value coverage and plan to use it. For example, many of these consumers likely qualify for cost-sharing reductions if they choose a Silver-level plan; that is, they pay a little bit more each month in premiums, but their co-pays, co-insurance, deductibles, and out-of-pocket maximums are lower than Bronze-level plans that have a lower monthly premium. This less obvious, but incredibly valuable, form of financial help can dramatically reduce out-of-pocket costs and minimize financial risk to eligible consumers.

This trend continues, although is not nearly as strong, when we look at marketplace enrollees who could have chosen a plan with premiums up to $100 or less per month. Many, but not all enrollees in this group are eligible for tax credits and cost-sharing reductions. Seventy-seven percent of all HealthCare.gov enrollees could purchase a plan for under $100 a month, and 71 percent of those enrollees (55 percent of all enrollees) did just that, leaving 29 percent who selected more expensive plans that fit their needs. 

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So What Does It Mean?

Together these data highlight the importance of financial help on both fronts — consumers value cost-sharing reductions but are more price-sensitive as premiums increase. In our experience with Enroll America’s Get Covered Calculator premium estimator, consumers who got premium estimates of $100 or less were twice as likely to start the enrollment process as consumers who received higher estimates.

Millions of Americans have come to depend on financial help, both through tax credits and cost-sharing reductions, to help them get health coverage that fits their needs and budget. One of the biggest barriers to enrollment is actually the lack of knowledge about financial help and the perception that coverage is unaffordable, so help us share this message of financial help with consumers in your community and help them find a plan that fits their needs and budget.

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