If you’re facing the subsidy cliff, enroll through Connect for Health Colorado

The Canon City Daily Record published a story this week highlighting how expensive health insurance is in the Colorado mountains, and how few carriers offer coverage in the mountains. Despite the fact that the Division of Insurance combined some rating areas to alleviate the problem ahead of the 2015 open enrollment period, rates for 2016 are sharply higher in the mountains that they were last year (when they were already much higher than the rest of the state). And the departure of Colorado HealthOP – which was by far the most affordable carrier in most areas of the state, including the mountains – means that mountain residents who buy their own insurance have very little in the way of affordable options.

Facing subsidy cliff? Enroll with Connect for Health ColoradoRocky Mountain Health Plans and Anthem Blue Cross Blue Shield both offer plans in mountain communities, and Kaiser Permanente expanded into some areas along the I-70 corridor for 2016. Cigna and Anthem also offer coverage in some counties in the mountains. But overall, the difference in the number of available options in the mountains versus the Front Range is striking. And so are the price differences.

Our family of four enrolled in the lowest-priced bronze plan available in our area (northern Front Range) for 2016, and the premium is $683/month. If we lived in Glenwood Springs, our lowest priced option would be $1,082/month. Our premium would be 58% higher, for essentially the same plan design.

Subsidy cliff getting taller in Colorado

In areas where premiums are dramatically higher than other parts of the state, the subsidy cliff is a particularly vexing problem. You can read more here about how the subsidy cliff works, but essentially, people who earn just slightly more than 400% of the poverty level get no subsidy at all, while people – in areas where coverage is expensive – who earn just under 400% of the poverty level get very significant subsidies.

Incidentally, the couple featured in that subsidy cliff story would be facing an even more dramatic subsidy cliff in 2016. The poverty level has increased since 2014, so the income cutoff for subsidies is now around $63,700 for a household of two (it was about $62,100 in 2014). But today, the unsubsidized premium for the second lowest-cost Silver plan for a 63-year-old and 60-year-old would be $2,036/month. If they earn $63,600/year, they’re eligible for $1,530/month in subsidies (which can also be applied to lower-cost plans; the cheapest plan available in Rifle would cost them $1,627/month before subsidies). But if they earn $63,800/month, they have to pay the full cost of their health insurance, since subsidies aren’t available.

Local residents in mountain towns have been calling for the Division of Insurance to intervene and consolidate rating areas again, or even make the whole state a single rating area. But as the DOI has noted, that might not go over so well with Front Range residents, depending on how much it increased premiums. For now, it remains challenging to find affordable health insurance if you live in the mountains and have an income that makes you ineligible for subsidies.

To be clear, our couple in Rifle – who would have to pay $24,432 for 12 months of coverage in 2016 under the second-lowest-cost Silver plan – aren’t eligible for subsidies if they earn $63,800 this year. In that case, their health insurance would cost 38% of their income (as opposed to the 9.66% of their income that they’d be expected to pay if they earned anywhere between about $47,800 and $63,700). And it’s important to note that all of this is simply a feature of the Affordable Care Act – it’s not related to Colorado regulations.

Consider an HSA-qualified plan

For people who are just slightly above 400% of the poverty level and trying to avoid going over the subsidy cliff, enrolling in an HSA-qualified health plan and contributing to an HSA is one possibility for ending up with a lower modified adjusted gross income and possibly qualifying for subsidies. The HSA contribution limit for 2016 is $3,350 if your health plan covers just yourself, and $6,750 if you have family coverage on your health plan. Whatever you contribute, you can deduct on your tax return (without itemizing) and it lowers your adjusted gross income. So if you’re just a few thousand dollars above the subsidy-eligibility threshold, an HSA-qualified health plan might be a good choice, assuming you’re willing to contribute enough to the HSA to get your adjusted gross income down to under 400% of the poverty level.

Enroll through the exchange

Although there’s no quick solution to the problem of rates – and plan availability – in the mountains, it’s especially important for residents in high cost areas to enroll in coverage through the exchange rather than going directly to the health insurance carrier to enroll. That’s obviously true for people with income up to 400% of the poverty level (for a family of four, that’s $97,000 this year), but it’s also true for households with higher income who don’t initially qualify for a subsidy.

That’s because incomes aren’t always set in stone at the start of the year. A family earning $100,000/year might find themselves with a drop in income mid-year that makes them eligible for a premium subsidy – which is a very big deal in the Colorado mountain areas. But a drop in income is not a qualifying event. Neither is the loss of a job (if you lose your health insurance, that’s a qualifying event, but a job loss is not). And without a qualifying event, you can’t switch from an off-exchange plan to an on-exchange plan outside of open enrollment.

So people who enroll through the exchange during open enrollment – despite having incomes above 400% of the poverty level – still have access to subsidies later in the year if their incomes drop. And they also have the opportunity to claim their subsidy as a tax credit when they file a return the following year, if it turned out that their income did indeed end up being 400% of the poverty level or lower. On the other hand, people who enroll off-exchange during open enrollment are generally stuck with that plan – and the full cost of the premium – for the remainder of the year, unless they experience a qualifying event.

There are other ways of lowering your adjusted gross income – your best bet is to talk with an accountant or financial planner who can walk you through the various scenarios that might work for you. But no matter what you do in terms of getting your income to a subsidy-eligible level, it only helps if you purchased your coverage through the exchange. There are only a few days left in open enrollment for 2016 (it ends on January 31), so if you haven’t enrolled in a plan yet, don’t delay.

And if you’re trying to decide whether to enroll on or off-exchange, keep in mind that it’s hard to know with 100% certainty what your income will be for the remainder of the year. Enrolling in the exchange covers all your bases – you can enroll quickly without going through the subsidy eligibility determination if you’re sure you don’t qualify for subsidies. But then if your income falls later in the year, you can just let Connect for Health Colorado know and your subsidy will kick in at that point. Or you can just wait until you file your tax return next spring, and see if you’re eligible for a subsidy at that point. But again, that only works if you enrolled through the exchange in the first place.

About Jay Norris

Jay operates a health insurance brokerage in Colorado, where he helps individuals and small groups obtain and maintain health insurance coverage.
Complimenting his work as a health insurance broker, Jay also provides data analysis and creates visualizations that are easily understood by consumers and other stakeholders in Colorado’s health insurance market.

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