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Why are Obamacare premiums getting cheaper?

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The Urban Institute found that Affordable Care Act (ACA) premiums fell by an average of 1.2% from 2018 to 2019, 3.2% from 2019 to 2020 and another 1.7% from 2020 to 2021.

Those figures may not be too eye-catching, but some states have seen their rates drop by double digits. And any decrease at all represents a dramatic reversal from 2017-2018, when premiums rose by nearly 32% nationwide.

Under the Trump administration, the federal government stopped paying insurance carriers to reduce some out-of-pocket expenses for lower-income policyholders. Insurers responded to the loss of income by raising premiums.

Insurers also increased premiums in response to the uncertainty created by continued congressional efforts to repeal Obamacare in the spring and summer of 2017, the Urban Institute says. Worried that enrollment might plummet, insurers jacked up the cost of silver marketplace premiums, whose national average benchmark premium rose by more than 30% in 2018 alone.

Under the presidency of Joe Biden — who as vice president was partially responsible for hammering the ACA into shape — that uncertainty is no longer a concern. A key component of Biden’s health care policy is improving and expanding on Obamacare.

That stability has brought insurance carriers — national and regional insurers, Medicaid insurers, start-up insurers — stampeding into the market. Over the last three years, the number of insurers participating in Obamacare marketplaces has increased by 50%, and the intensifying competition has helped drive prices down.

The Urban Institute says state policy decisions around Obamacare have also contributed to smaller premiums. Reinsurance programs specifically intended to lower premiums have been rolled out in 12 states, a development the Institute says has “contributed to premium declines or smaller premium increases in 2021 than would have occurred otherwise.”

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New subsidies cutting costs even deeper

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By far the biggest change to Obamacare in the past year is the new introduction of generous new subsidies, in the form of tax credits, that Americans can apply to health plans bought on Healthcare.gov and other marketplaces.

Thanks to the new measures — which the president is seeking to make permanent — ACA coverage costs will be limited to no more than 8.5% of your income. Before the new subsidies, that percentage stood at 10%.

For lower-income policyholders, the new subsidies will completely eliminate your premiums, according to the Department of Health and Human Services (HHS).

And for the first time, these rules now extend to those earning more than 400% of the federal poverty level, which works out to about $51,000 for individuals and $104,800 for a family of four.

Based on HHS’s estimates, about 9 million Americans could see massive health insurance savings:

  • $1,000 a month on their premiums for an uninsured couple earning more than $70,000.
  • $200-a-month premium decrease for a family of four with a household income of $90,000.
  • $0 premiums for an individual earning $19,000 — an average savings of roughly $66 per month.

Get the best price for your healthcare

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If you’re currently enrolled in a marketplace plan, you’ll need to act soon to take advantage of the falling prices and rising subsidies.

HHS suggests reviewing your application on Healthcare.gov and making any necessary changes to your information. Then, either select a new plan or reselect your old plan to receive the increased premium tax credits.

You have until Aug. 15, the end of the current special enrolment period this year, to make your plan selection — but taking action right away would mean you’d lock in those lower premiums and costs.

If you live in a state that runs its own marketplace platform, you should visit your state site or call its helpline to get more information.

Find other ways to save

Obamacare premiums may be falling, but the cost of competing health care plans is actually on the rise.

The Urban Institute says premiums for employer-sponsored plans rose by about 4% in both 2019 and 2020, so if you’re still using an alternative to Obamacare, you might be paying more than you need to.

But if you choose to stick with your employer-sponsored plan, be sure to leverage some other money-saving strategies to offset the cost:

  • Cut the cost of homeownership. If you’re a homeowner and you haven't refinanced during the past year of ultra-low interest rates, you could be missing out. Mortgage data and technology provider Black Knight says 14.1 million homeowners still have an opportunity to save an average $287 a month by refinancing. Don’t forget to check whether you can score a better deal on homeowners insurance, too.

  • Dominate your debt. Credit cards and short-term personal loans have been a life-saver for many Americans during the pandemic, but their high interest can wreak havoc on your finances for years. Rolling your balances into a lower-interest debt consolidation loan will help you pay off your debts more quickly and affordably.

  • Get serious about saving. If your budget is stretched to the point of snapping, any needless spending needs to stop. Cancel any monthly subscriptions you're not using. Resist the urge to splurge once your favorite shops open up. Go to the grocery store with a list and stick to it. And when you shop online, use a free browser add-on that automatically hunts for better prices and coupons.

  • Invest, because you can afford it. You don't have to be rich to get involved in today’s roiling stock market. A wildly popular app allows you to invest in a diversified portfolio using nothing more than "spare change" from your everyday purchases.


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Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.


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