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How Exchange Premium Subsides are Calculated

The premium subsidy amount that individuals will qualify for on an exchange is a relatively complicated calculation that many are confused by.  Premium subsidies are based on three pieces of information; the number of members in the household, the adjusted gross income of the household, and the premium cost for the household to purchase the second cheapest silver level plan on the exchange.  The household members and income are used to determine what percentage of the federal poverty level (FPL) the household is at and this percentage then sets the maximum percentage of the household’s income that must be contributed towards coverage for the second cheapest silver plan.  Below is the table for this and interpolation is used within the ranges to determine the exact percentage of income.


% of FPL            % of Income Paid for Silver Plan
133 - 150%          3 - 4%
150 - 200%          4 - 6.3%
200 - 250%          6.3 - 8.05%
250 - 300%          8.05 - 9.5%
300 - 400%          9.5%


So for example, a household that is at 200% of FPL would pay no more than 6.3% of the household income for the second cheapest silver plan.  A family at 225% of FPL is half way between 200% and 250%, so their cost is capped at 7.175%, which is half way between 6.3% and 8.05%. 


But let’s say the family doesn’t want to purchase that second cheapest silver plan, what happens then?  Well, we use this benchmark plan, the second cheapest silver plan, to determine the subsidy amount that the family will receive regardless of which plan they do purchase.  So let’s say our family at 200% of FPL has an approximate income of $40,000 (a family of 3), and therefore they will pay no more than $40,000 x 6.3% = $2,520 per year for that benchmark plan.  If that benchmark plan costs the family $12,520 per year, their subsidy amount would be $10,000 per year. 


Our example household can purchase the benchmark plan for $2,520 per year, but if they instead buy any other plan on the exchange, they will receive a subsidy of $10,000 per year towards that coverage.  If they buy a bronze plan instead, they might get coverage for free.  If they buy a gold or platinum plan, they will pay whatever the cost is for the plan they choose and receive a subsidy of $10,000 towards that cost.  The subsidy in no way impedes customer selection at the exchange because the benchmark plan is simply used to determine the amount of the subsidy for the family, they don’t need to buy that plan to receive the subsidy. 

1 comment | Add a New Comment
1. Kathleen Hall | July 26, 2013 at 01:47 PM EDT

If benefit advisers provide any guidance regarding employees going to the

exchanges, I would strongly suggest they also provide them with a copy of a Tennessen warning. The letter should include additional verbiage stating that the benefit consultant, employer, or other benefit affiliates can not be held liable for any breach of personal data as a result of applying for benefits through an exchange. This form should then be signed by the employee/employees and be kept on file.

Each state should have their own version of this.

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