Under the federal Affordable Care Act, taxpayers will have to subsidize a bigger slice of the health insurance coverage promised individuals in some areas of the country than in others.
Some of the biggest federal subsidies will be required in portions of Colorado, Georgia and Nevada, where premiums are highest, according to a Digital First Media analysis of premiums and tax credits across 50 states, plus the District of Columbia.
Far fewer tax credits will be needed in places such as Minneapolis, Pittsburgh and Tucson where insurance premiums already were among the lowest in the nation.
The analysis shows that tax-credit subsidies don't eliminate variations in what people from different regions pay for similar policies, although the spread is significantly diminished. In a few cases, tax credits mean that people in regions where premiums are higher could pay less for similar policies than those in lower-premium regions.
"Because there is so much geographic variation in cost, the government does have to pitch in a larger portion of premium in higher-cost areas to make coverage affordable," said Cynthia Cox, a researcher at the California-based Kaiser Family Foundation, who also has developed a national database on premiums and tax credits.
Subsidies and related spending are projected to cost $1.2 trillion over 10 years, according to the Congressional Budget Office.
Some question whether the structure of the health law's tax credits effectively reward inefficiency in some parts of the country. The analysis shows why tax credits have resulted in good and bad surprises for consumers this year as people learned about the complicated structure of subsidies.
"We've got some premiums that are less than 25 cents per month" after subsidies, said Maria Morris of the Mississippi Primary Health Care Association. "I think that's amazing."
"Some people were disappointed because they expected that everyone would have a tax credit up to (a certain income level)," said Allen Gjersvig, of the Arizona Alliance for Community Health Centers in Phoenix. "That's not the case."
"We're not really getting our fair share of federal tax credits," said Ray Magnuson, an insurance agent in Tucson and president of the Arizona Association of Health Underwriters.
Health policy experts say the law wasn't intended to give individuals or geographic regions equivalent amounts of subsidy dollars. The law also didn't stipulate that everyone pay exactly the same price.
Instead, the Affordable Care Act lets people at certain income levels pay no more than a set share of income to buy the midlevel "benchmark" health plan where they live.
People don't receive tax credits when the price for the benchmark plan already meets the law's definition of affordable. And when people need subsidies, the actual size of the tax credit varies by age, income level and market premiums where they live.
"What matters is what people pay as a share of their income, which is fixed around the country," said Jonathan Gruber, an economist at MIT who helped craft the federal health law. "(Some) residents will get lower transfers through tax credits, but it's not clear that that's what matters. What matters is fairness of opportunity."
Before the health law, insurance companies could deny coverage to people with pre-existing health conditions. By prohibiting the practice, the law fundamentally reduced variation for consumers in the market because "no one has to go without insurance," Gruber said.
Solo policies analyzed
In a way that wasn't possible previously, the Affordable Care Act allows for regional cost comparisons because insurance policies must be categorized. Also, insurers must compete within 501 standardized rating regions.
The Digital First Media analysis modeled the impact of tax credits on premiums for solo policies sold on new government-run insurance marketplaces, which are an option for people who don't get coverage from their employer.
Premiums are lower in some regions because there's more competition among insurance companies or because insurers have the power to negotiate low rates with doctors and hospitals. Differences in cost-of-living and health status in communities also can be a factor.
Some state governments more tightly regulate insurance premiums. Business decisions by insurance companies play a role, too, such as whether to offer lower-cost policies with limited networks of doctors and hospitals.
The analysis shows how regional variations in premium cost persist. The benchmark health plan for a 40-year-old that currently sells for $170 or less in Pittsburgh, Tucson and the Twin Cities costs at least $450 per month in portions of Colorado, Georgia and Nevada.
Under the health law, a 40-year-old in these higher-cost regions with an income of about $34,500 a year gets a subsidy that lowers what they end up paying to less than $300 per month.
If people claim tax credits when they buy an insurance policy, funds go directly to their health plan. Otherwise, they claim the credit later when filing taxes.
A 25-year-old, making about $23,000 per year, living in Vermont would get tax credit help to bring a $395 premium for the lowest-cost silver down to $103 per month. In New Hampshire, the same person would start out with a lower premium, $227 per month, but end up paying more, at $120 per month.
Tax credits are a big deal in places like Wyoming, where the cost of delivering care to people scattered across the frontier traditionally has resulted in unusually high premium costs, said Tracy Brosius of the Wyoming Institute of Population Health.
"The tax credits can help us bring that premium cost down and say to people: 'It's now in the achievable range,' " Brosius said. "You can just watch the stress leave the room" when tax credits are explained to consumers, she added.
Some of the biggest tax credits are available in portions of Colorado, Georgia and Nevada, according to the analysis. In those regions, a 50-year-old with an annual income of about $40,000 can get tax credits of $324 to $354 per month, while a similar 50-year-old in Minneapolis, Pittsburgh and Tucson could not get subsidies.
After applying subsidies, the 50-year-olds at this income level in high-cost regions wind up paying the same amount for coverage at $318 per month for their benchmark plan. Consumers in the low-premium regions don't get subsidies, but they still pay less at $216 to $238 per month for their benchmark plan.
It gets complicated
The tax credits, in some cases, actually flip the variances in premiums, and residents in higher-cost cities end up paying less than those in lower-cost cities.
A 64-year-old in low-premium Pittsburgh, for example, with annual income of about $34,500 gets a tax credit to purchase the cheapest "silver" plan for $257 per month. But much bigger tax credits are available for comparable residents in higher-cost counties in Colorado, Mississippi and Georgia, pushing what they could end up paying for similar coverage to $0.
Assessing which consumers wind up with the "better deals" can be complicated, policy experts say, because the lowest-cost silver plans available in different regions likely have different coverage details, such as deductibles and networks of doctors and hospitals.
Although some older and poorer residents in high-cost regions might have the chance to leverage tax credits, others in those same communities run a risk of what might be described as a "tax-credit cliff."
Individuals with incomes up to nearly $46,000 receive tax credits so they don't pay more than 9.5 percent of income for their benchmark plan. Those with income just above the cut-off don't get a tax credit.
A 50-year-old man in one section of Nevada who barely qualifies for a subsidy pays only 8.8 percent of his income for the lowest-cost silver plan, according to the analysis. A man who earns just a bit more than the cut-off, meanwhile, pays 17 percent of his income for a similar policy.
The tax credit cliff is an inevitable consequence of having limited funds for a government program, said Gruber, the economist at MIT. Cliffs would be bigger, he added, if the income cut-off for tax credits was lower.
The phenomenon of people using tax credits to get zero premium silver plans stems from "quirks in the pricing structure" that should be eliminated as the insurance market gets more competitive, he said. To the extent consumers wind up leveraging tax credits this year, does that mean subsidies are yielding uneven results?
"How do you want to define 'even'?" Gruber asked. "Is even defined as doing the same for everyone? Or is even providing everyone with the same opportunity? I'd say the latter, and I think that's why the ObamaCare structure makes sense."
"Prices before tax credits were so high in some areas, those folks are getting a larger benefit than people in low-cost areas," said Cox of the Kaiser Family Foundation. "But in general, they're still going to pay roughly the same amount as someone in a low-cost area."
The structure of subsidies in the health law, though, doesn't reward regions that are more efficient in providing health care, argued Stephen Parente, a health policy expert at the University of Minnesota. With the tax credits, the government is effectively subsidizing higher costs in certain regions, Parente said, and therefore removing pressure for hospitals and doctors to get more efficient.
It's a sore point in places that traditionally have had low health-care costs, such as Minnesota, where policymakers and health care providers for years have complained about a similar dynamic in the federal Medicare program.
"As a nation, we all put in the same Medicare tax rate," Parente said. "Yet we as Minnesotans get back less from the tax than areas that are more expensive in the Medicare program."
Gruber acknowledged Minnesota's Medicare problem, but said tax credits in the Affordable Care Act had to be adjusted for regional costs or they wouldn't provide enough buying power in high-premium regions. He also argued the portion of the insurance market affected by the federal health law is relatively small - most Americans still will get their coverage from their workplace or Medicare - so it shouldn't fundamentally change incentives for providers.
Cox said the possibility of a "perverse incentive" with the health law's tax credits is a fair point to make. But she said other provisions of the law encourage insurance companies and health care providers to keep costs down.
"Insurers still have a financial incentive to keep premiums low to attract enrollees, particularly young enrollees who might not be tax-credit eligible," Cox said.