Countdown to Coverage: Overview of Marketplace Rates and Subsidies

By Megan Randall
In another blog post, we showed you examples of actual Marketplace premiums across the state and how they vary by region, age, and subsidy level.  This post will provide a behind-the-scenes look at how insurers set premiums in the marketplace and how the subsidies are calculated.
How Does Rating Work in the Texas Health Insurance Marketplace?
Health insurance issuers in the Marketplace can rate consumers based on their age, geographic region, tobacco use, and family size.  The U.S. Center for Consumer Information & Insurance Oversight has sorted all of Texas’ 254 counties into 26 different “geographic rating areas,” across which insurance premiums may vary.  Issuers cannot charge a person more based on their health status or gender, and can charge older consumers no more than three times the rate for younger consumers due to their age.  Consumers who smoke may be charged up to 50 percent more than the base rate, and consumers who purchase family plans may be charged more based on the size of their family.
Aside from these individual rating factors, premiums will vary depending on the plan selected.  Plans in the Marketplace will be offered in four metal tiers: bronze, silver, gold, and platinum.  Plans in each tier will offer comparable benefits, but at varying levels of cost-sharing.  A plan, for example, in the bronze category covers, on average, only 60 percent of overall enrollee medical costs (with the remaining 40 percent paid for out-of-pocket through deductibles, copays, and coinsurance), while a silver plan contributes 70 percent and a gold plan 80 percent, for example.  Plans in higher metal tiers can be expected to have a higher monthly premium since consumers are paying to have a lower deductibles and copays.  The size of your premium tax credit will be calculated using the rate for the 2nd lowest-cost silver plan in the Marketplace, discussed below.
What about Subsidies?
In Texas, individuals and families with household income between 100% and 400% of the Federal Poverty Level (FPL) will be eligible to receive premium tax credits to help make monthly premiums more affordable.  Persons at varying levels of poverty will be required to pay no more than a certain percentage of their income towards health insurance, using the 2nd lowest cost silver plan as a base rate for calculating the subsidy amount.  For example, the cost of the 2nd lowest-cost silver plan can be no more than 8.05% of income for an individual at 250% FPL.  But for an individual at 133% FPL, the cost of the 2nd lowest-cost silver plan is capped at 3% of income.   The subsidy can subsequently be applied to plans in other metal coverage tiers, such as bronze or gold.
How can I learn more?
The Center on Budget and Policy Priorities has great resources online at Health Reform Beyond the Basics, including FAQs on premium tax credits.

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