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Why You're a Lot Better Off with Obamacare Than You Might Think

The ACA's may offer truly dramatic savings.
 
 
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There are many reasons why signing up for Obamacare is a smart choice, but the biggest one is the last thing its Republican critics want to broadcast: the out-of-pocket monthly cost.

On Wednesday, the White House published the most detailed analysis yet of the cost of Obamacare coverage. The policies will cost anywhere from one-quarter to one-third less than what’s now available on the private insurance market. But that’s not what upwards of 25 million households will end up paying each month. It’s far less. Depending on their income, the cost could drop by another one-third to two-thirds because Obamacare has tax credits—federal subsidies—for household earning up to 400 percent of the federal poverty line that are directly paid to insurers each month.

The subsidies and related administration will cost $19 billion in 2014, the Congressional Budget Office has estimated. About 25.7 million people could be eligible for the income-based discounts, a Families USA study found, which will lower actual coverage costs by many thousands of dollars per policy-holder.

Consider the following two examples from the Health Insurance Marketplace Premiums for 2014 issue brief released Wednesday by the White House and the U.S. Department of Health and Human Services. In 36 mostly red states, HHS will be enrolling people via online applications at healthcare.gov because local Republicans have refused to set up state-run exchanges. For these states and their largest cities, HHS listed premiums and subsidies called a tax credit. The credits go directly to insurers monthly; they are not refunded in a lump sum after filing one’s yearly taxes.

Obamacare offers four levels of health plans, called Bronze, Silver, Gold and Platinum. They respectively cover 60, 70, 80 and 90 percent of medical costs. It also offers a low-cost catastrophic plan for young people, but that does not get the additional subsidy.

In these 36 states, a single 27-year-old would pay an average of $214 a month for the lowest-cost silver plan before the tax credit. After the credit is applied, it would cost $145 a month, which is an additional 33 percent discount. The federal government would pay the difference of $69 a month directly to the insurer, which, is a boon for their business but also saves that 27-year-old $828 a year in out-of-pocket expenses.

For families with children, the savings could be thousands a year. A family of four with an income of $50,000 would find the lowest-cost silver plan averaging $774 a month, the  HHS analysis said. But they would receive a $492 monthly credit, which is 64 percent off that price, and end up paying $282 a month. That’s a $5,904 annual subsidy. 

The subsidies would be given to housholds earning between 100 percent and 400 percent of the federal poverty level. In 2013, that’s individuals makig $11,490 to $46,000; two-person families earning between $19,530 and $78,120; and four-person families making between $23,550 and $94,200. These thresholds are revised yearly by the government.

AlterNet contacted the HHS press office on Wednesday to verify the way these subsidies would work and the potential savings involved, because so much of the Obamacare media coverage has not mentioned the combination of cheaper policies and additional subsidies. HHS spokeswoman Joanne Peters confirmed the savings and subsidies paid to insurers. 

There is a lot that remains to be seen about how Obamacare will unfold, as early analyses of health plans offered by insurers suggest that they will not give policyholders as many options as the plans those same insurers sell to companies for employees. However, these truly dramatic savings—from the government’s negotiated costs and additional income-based subsidy—are behind President Obama’s remarks on Tuesday that young people who enroll would pay less each month than some do for their cellphones.