2.5M who buy off-exchange plans qualify for ACA tax credits

Approximately 2.5 million people who purchase off-exchange health plans could actually be eligible for tax credits to buy policies on the Affordable Care Act exchanges, signaling an opportunity for further consumer education.

A new report from the Department of Health and Human Services’ Office of the Assistant Secretary for Planning and Evaluation estimates that a total of 6.9 million individuals currently purchase health insurance in the off-exchange individual market. Approximately 36 percent of that total have incomes that could qualify them for tax credits that could cover part of the cost of their premiums.

But purchasing off-exchange individual health plans means those individuals can't use ACA tax credits because “a central function of the marketplace is determining eligibility for financial assistance,” the report notes.

Among those who could qualify for tax credits if they bought ACA marketplace plans instead of off-exchange plans, about 1.1 million have incomes below 250 percent of the federal poverty level, meaning that they might also qualify for help with their deductibles and other out-of-pocket healthcare expenses.

As for why some people purchase off-exchange plans when they could receive tax credits for purchasing on-exchange plans, the report offers several explanations. For one, many consumers simply aren’t aware the financial assistance is available. Others may not be aware of the fact that as premiums rise on exchange plans, more individuals qualify for tax credits--potentially making people eligible who had not been in previously years.

“Both of these explanations suggest continued education and encouragement of consumers purchasing individual market health coverage to come to the marketplace to shop for 2017, even if they did not qualify for tax credits in previous years,” the report states. “If premiums in their area are rising, they may now be eligible for tax credits, which may compensate for some or all of the increase.”

With states approving significant premium increases for 2017 marketplace plans, a previous HHS report has pointed out that even if exchange premiums increase by more than 10 percent, over two-thirds of consumers will still be able to buy coverage for less than $75 per month. And ahead of the previous open enrollment period, HHS noted that after tax credits, consumers who shopped around for their health plans in 2015 via the federal health insurance marketplace saved an average of $33 per month.